Big news for users of supply chains dependent on low-cost foreign labour

Written on 20 Feb 2020

The government has announced that low-skilled workers will not get visas under post-Brexit immigration plans.

The suggestion is that employers "move away" from relying on "cheap labour" from Europe and invest instead in retaining staff and developing automation technology.

But there may be serious difficulties in immediately replacing labour with automation in many sectors. Many organsiations will struggle to develop and install robotic solutions in nine months. In addition, some low-skilled roles simply are not as yet suited for automation. Low UK unemployment and a reluctance among UK nationals to undertake manual work may mean that this new policy will lead to supply chain problems in many sectors.

There are already hints form the government that there will be many exemptions or delays for some sectors. Medical roles were exempted from the earlier cap introduced in 2018. When the current points-based system was unveiled in 2008, one part that was not released – known as Tier 3 – was intended for unskilled migrants and intended to replace existing low-skilled immigration programmes. However, by the time the system came into operation in 2008, the UK government felt there was no need for any unskilled immigration from outside the European Economic Area. The argument at the time was that the EU would produce enough workers for this area. A simple solution would be to release that tier now – or update the Shortage Occupations list. The construction, hospitality, care, logistics, and waste/recycling sectors in particular will be impacted and will hope for exemptions or delays.

The devil is in the detail, however. The "skills threshold" for qualifying work permits is to be reduced to RQF Level 3 (the equivalent of A-Levels) which is good news, but the minimum salary will be £25,600 – unless the role is a "shortage occupation" as approved by the Migration Advisory Committee. The minimum salary threshold will exclude the many thousands of migrant workers in factories, restaurants and social services that would be paid at or around the National Minimum Wage.

The only stated concession to date is for agricultural workers.

Economics would suggest that the alternative is that some supply chains will come under huge pressure and costs will go up in a number of industries in which supply chains involve relatively low-skilled workers.

Historically supply chains involving lower-paid workers have often tried to reduce the cost impact of legal changes by turning to tax avoidance schemes to minimise the cost impact. End users will need to be very alert to this. HMRC is now far more active in enforcing National Minimum Wage and we believe that they are already investigating tax evasion schemes in the labour supply chain including schemes operated via certain types of umbrella company. The Criminal Finances Act 2017 means that organisations which fail to take reasonable steps to prevent tax evasion in their supply chains (such as spot checks on how workers are paid) may now face criminal conviction and an unlimited fine – an indemnity from your supplier will not cover the risk. And we suspect any new immigration regime is likely to make people at the top of a supply chain responsible for breaches down the chain and so these spot checks will need also to cover issues like right to work and in due course a wider range of things like payment of holiday pay.