With the prospect of a no-deal Brexit looking more and more likely, many businesses in the retail sector are becoming increasingly anxious about the implications for their business.

EU workers in the retail sector

So how reliant is the retail sector on EU workers? It has been reported by the CBI that there are approximately 170,000 EU migrants currently employed in the sector. In 2017, approximately one third of the permanent workforce across the food and drink supply chain were EEA nationals, according to the British Retail Consortium, and that around 575,000 EU workers were employed across retail, hotels and restaurants (Labour Force Survey 2017). Further, the Office for National Statistics reported in February 2019 that there were 2.27 million EU workers and 1.29 million non-EU workers in the UK, which highlights the importance of foreign workers to the UK economy.

The impact of a no-deal Brexit

So what effect will Brexit have on the retail sector should the UK leave without a deal? In a report by Retail Economics, all retailers surveyed said a no-deal would be damaging to their trade while a third said a no-deal would cause them to incur significant extra costs. It is also likely that a no-deal Brexit will mean increased hire costs for retail employers, which will put pressure on the price of goods and services for consumers.

In the event of a no-deal, the Government has confirmed that free movement of workers will end on the day the UK formally leaves the EU, currently 31 October 2019. Any EU national living in the UK (or who has been present in the UK) prior to this date will be eligible to apply for either settled or pre-settled status under the EU Settlement Scheme. Any EU worker who comes to the UK after Brexit day and wishes to stay in the UK for longer than three months will be required to apply for European Temporary Leave to Remain, which will allow them to live, work and study in the UK for up to 36 months. At the end of this three year period, the migrant worker will then be required to apply for a visa under the new UK immigration system if they wish to stay in the UK.

A new immigration system

The Immigration White Paper sets out the Government's proposals for a new immigration system in the UK, which is due to be implemented in January 2021. In summary, the new system will apply to both EU and non-EU workers (ie a unified approach) and the focus will be on a skilled route open to all nationalities. The White Paper also puts a strong emphasis on having a less restrictive regime for medium to higher-skilled workers, and limits access for low-skilled workers into the UK. While the White Paper sets out the Government's proposals, it does not reflect the final position and the Government has already confirmed that it plans to undertake a year of further engagement with stakeholders, businesses and the public before laying down the final Immigration Rules.

The Government has also confirmed that under the new system, the skills threshold will be lowered to include medium-skilled workers qualified to RQF level 3 or above (ie A-Level or equivalent). It has also been proposed that the resident labour market test will not be required and there will be no cap on the number of visas. However, EU workers will need to be sponsored (meaning UK employers will need a sponsor licence in place) and they will have to meet a salary threshold of £30,000. There will also be a fee to pay when applying for a visa, and the Immigration Skills Charge and Health Surcharge will still apply, making it more costly to recruit EU workers under the new immigration system.

Overall, the Immigration White Paper has not been seen as positive news in many sectors, particularly those who rely on low skilled workers, such as retail. A number of employers are already reporting skills and labour shortages due to the huge drop in EU net migration into the UK and that will only get worse if the UK introduces an immigration system that gives limited access to low skilled workers. Further, a salary threshold of £30,000 is also likely to create problems as a number of EU workers in the retail sector (such as shop floor and store assistants) will not meet the eligibility requirements. For example, it has been reported that around three-quarters of EU workers currently in the UK would be ineligible under the new system if the £30,000 cap was imposed.

The British Retail Consortium has voiced its concerns about this and has highlighted that skilled occupations are not always those with the highest salaries. It has also requested the Government to consider a salary cap based on a "demand-led system", which does not add significant administrative or cost burdens on employers, and to ensure that the retail sector does not suffer a labour shortage.

Temporary visas for low-skilled workers

To try and address this issue, the Government has confirmed that it plans to introduce a new temporary visa route for low-skilled workers. This will be open to nationals from low-risk countries regardless of skill level and individuals will not be required to have a definite job offer or be sponsored. However, these visas will only allow migrants to stay in the UK for up to 12 months and will be subject to a "cooling off period". This means that at the end of the 12 month period, the migrant will be required to leave the UK and will be restricted from applying for another low-skilled visa for a further 12 months.

It is fair to say that the low skilled visa route is unlikely to been seen as an attractive proposition for many low skilled workers, particularly due to the lack of benefits and the cooling off period. Further, from a long term perspective, there will still be the risk of labour shortages in many sectors, including retail, as the Government only intends to keep the scheme open until 2025.

Conclusion

In summary, the salary threshold and the increased costs associated with recruiting an EU worker under the new immigration system appear to be causing the biggest issues among retail employers, including the risk of labour shortages. The new system is also likely to have a huge impact on retailers trying to recruit and retain the best staff. Whether businesses will be able to fill those roles by upskilling UK-born staff, using the low skilled visa route or recruiting migrants under the youth mobility scheme is a real concern that many retail employers are currently facing.