Understanding the Skills Implications of Brexit
1. Introduction and Background
Just over one year ago, on 23 June 2016, the UK Government held a referendum to remain or leave
the European Union (EU). The UK chose to leave the EU after membership of 24 years. Article 50
the Treaty of Lisbon, the official process to leave the EU, was triggered on 23 March 2017. Formal
Brexit negotiations began on 19 June 2017. The UK has until April 2019 to discuss and formally agree
the procedure of leaving the EU.
At the time of writing, it is important to note that there is no certainty in what the outcome of the Brexit
negotiations will be. The Brexit negotiations have begun against the backdrop of several unanswered
questions including the rights of EU migrants to live and work in the UK, future trade options with EU
members and the impact on ongoing and new inward investment. This uncertainty makes it difficult for
individuals, businesses, and public sector agencies to prepare for the future. Working within an
uncertain environment is and will continue to be an issue for those in the skills planning environment.
The Brexit decision also cannot be viewed in isolation but should be considered in the context of a
range of other economic, labour market and policy issues such as:
• An ageing workforce and a high employment rate, resulting in a tight labour market;
• Policy changes that affect costs to employers such as the introduction of the National Living
Wage, the introduction of auto enrolment for employees into company pension schemes and the
Apprenticeship Levy;
• Changes to working patterns – increase in zero hour contracts, self employment;
• The rise of automation and the potential for this to be accelerated in the face of a tight labour
market and rising costs for employers; and
• Alignment of skills and the 5 stage planning model being developed by Scottish Government,
SDS and SFC.
Within this climate of uncertainty, at the current time, SDS has taken a fairly ‘light touch’ on the Brexit issue
which has included:
• The Evidence Base team, within the Skills Planning and Sector Development function,
undertaking an ongoing literature review of emerging research, data and evidence; and
• We are represented on a national Brexit response group led by Scottish Enterprise. We are
represented on the Strategic group and the sub groups on Research and Communications.
This grouping is increasingly looking to SDS as a leader on labour market/skills implications.
Moving forward the Board will want to take a decision on the extent to which it prioritises further work
in the Brexit field. Options include:
•
Do nothing –
other than continue our work in monitoring research and participation in
the Brexit response groups. Whilst being light on resource implications this could carry a
reputation risk when other partners are looking to SDS to offer leadership;
•
Do ‘a lot’ - Significantly invest resources to position SDS as leader. Given the level of
uncertainty within the Brexit discussions, it is proposed that this is not a sensible option. In
any case, other partners have their part to play in this agenda;
•
Do ‘a little more’ – Based on the research undertaken to date, identify a small number
of areas of focus for SDS itself, and for our work with partners. It is recommended that
this option is pursued. It shows SDS as a leader in the area but ensures our commitment and
investment of resource is commensurate with the extent of uncertainty on Brexit implications.
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This report outlines (1) emerging issues arising from a review of existing research (2) Proposed areas
of focus for SDS and (3) Recommendations for ELG/the Board.
2. Issues Identification
Based on a review of research (References listed at end of report and Appendix 1 provides a full
literature review), this paper outlines implications for three areas:
• The Economy;
• The Labour Market; and
• The Skills System.
2.1 The Economy
The review of evidence suggests there are four key issues that have the potential to impact on the
economic performance.
Firstly, there is the potential
impact of new trade arrangement across sectors. Some 125,000 jobs
in Scotland were supported by trade with the EU in 20131 - accounting for 5.7% of the total workforce.
Undoubtedly there will be
trade winners and losers resulting from Brexit however at this moment
there is limited data available at the Scottish level. The impact of new trade tariff regimes could impact
in some economically significant sectors. At a UK level the top three sectors that will face the
greatest absolute tariff increase2 (in terms of value) are: 3 Vehicles (£1,348m), Meat (£378m), Dairy
produce (£331m). Focusing on the percentage of tariffs against value of UK exports, the highest
average tariff estimates by sector are:
• Tobacco and the manufacture of tobacco products (43.7%);
• Preparation of meat or fish (39.9%); and
• Dairy produce (39.4%).
Secondly, the
establishment of new regulation regimes is a particular challenge for the Financial
Services and Life Sciences sectors (to name but two). As examples:
• If the UK leaves the European Drug Agency, will Scotland still be a viable location for
companies involved in drug testing, development and production?
• Will Scottish banks and their subsidiaries be able to sell financial products across the EU?
Thirdly,
investor confidence has been tested
“61% of companies had the same
over the past 12-18 months since the
announcement of an EU referendum, the
outlook for the Scottish economy
referendum itself, and then a general election.
as in the previous six months with
In Scottish Enterprise’s most recent report on
uncertainty continuing “
economic trends (April-June 2017), Lloyds Bank
Ltd’s4
monthly survey details an increase in
investor sentiment in recent months which may
Scottish Enterprise, Economic Trends
be aligned to devaluing of the pound sterling.
April-June 2017
1 https://www.sbs.strath.ac.uk/economics/fraser/20170420/Exports-and-Employment-Scotland.pdf
2 The tariff (or customs duty) paid on goods imported to the EU is calculated by applying the tariff to the value of the good
imported.
3 http://www.civitas.org.uk/content/files/potentialpostbrexittariffcostsforeuuktrade.pdf 4 http://www.lloydsbankinggroup.com/media/press-releases/press-releases-2017/lloyds-bank/june-investor-sentiment-index/
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The
value of sterling slumped to a 31 year low on currency market in light of the news that the UK
had voted to leave the EU5. Over the past year, the pound has improved however has fluctuated in
light of Brexit and the general election announcement.
Fourthly, the UK experienced an increase in
inward investment in the UK as a percentage of GDP,
from 31.4% in 2005 to a high of 55.6% in 2013. In recent years however, inward investment has
fallen. A slight decreased was experienced in 2014 (54.3%) and inward investment has continued to
decrease, dropping 9.9 percentage points from 2013 to 2016. It is unclear if the recent decrease in
inward investment is related to Brexit.
2.2 The Labour Market
With regard to the labour market, of most
“Two thirds of small businesses
significance is any
changes or removal of free
movement that could have an impact on the
are concerned about the access
pool of appropriate and available EU migrant
to people with the right skills
labour in Scotland, and the UK, further
post-Brexit (67%). More
exacerbating current and potential future skills
shortages. A total of 150,000 EU migrants are
specifically, almost three in ten
reported to come to the UK to work each year. In
businesses have concerns
2015, 115,000 EU nationals aged 16+ were in
employment in Scotland, accounting for 4.5% of
about filling roles (29%) whilst
total Scottish employment.
four in ten have worries about
business growth after Brexit”
As the labour market contracts (resulting from the
implications of Brexit as well as an ageing UK
population and workforce), demand for labour in
Federation of Small Business, 2017
certain sectors and/or regions is likely to increase
and could outstrip supply:
• Sectors which are likely to be affected include, but are not limited to: Food and Drink,
Tourism, Manufacturing. As examples, the undernoted shows sectors with more than 5% of
their workforce that are of EU origin:
o Food and Drink (11.3% - EU Workers); Tourism (10.8% - EU Workers); Creative
Industries (7.3% - EU Workers); Manufacturing (7.1% - EU Workers); Distribution,
hotel and restaurants (6.9% - EU Workers);6
o Construction (13% non-UK workers, 6% EU workers) – UK Wide7; and
• Areas most likely to be affected include the Highlands and Islands given the high proportion of
EU nationals employed in what is already a very tight labour market.
In some sectors, there is evidence of the impact of the Brexit decision already being felt. Data
gathered through SDS S,D&I team (based on data from the Nursing and Midwifery Council)
registration for Nurses shows a marked contraction in the net number of nurses (taking into account
joiners and leavers) in the service that are EU/EEA nationals in 2016/17 compared to previous years
i.e. after the Brexit decision.
It should also be noted that 31% of working age EU nationals (equivalent to 35,000) are employed in
elementary occupations in Scotland, compared to 11% of all elementary occupation employment in
Scotland. Elementary occupations include: cleaners, hospital porters, labourers.8
5 https://www.theguardian.com/business/2016/jun/23/british-pound-given-boost-by-projected-remain-win-in-eu-referendum
6 Labour Force: EU nationals living and working in Scotland (March 2017) – Annual Population Survey (2015)
7 CITB - Migration and Construction: The View from Employers, Recruiters, and Non-UK workers
8 http://www.gov.scot/Topics/Statistics/Browse/Labour-Market/Publications/EUnat
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Any tightening of the labour market could have implications for employers in terms of increasing the
cost of employment for employers alongside other cost implications outlined above – National
Minimum Wage, the Apprenticeship Levy, and auto-enrolment of employees in workpace pensions.
There is a case to be made that the combination of increased employment costs and reduced
availability of labour might provide strong incentives for firms to increase the pace or scale of
automation. These pressures are likely to be most sharply felt by those industries that are currently
reliant on both low wage models and migrant labour.
Simialrly as competition for labour increases, businesses may look to
increase the attractiveness of
their
employment offering through increased salaries and/or benefits. Whilst this may be a
viable option for some businesses, the additional costs associated may force others to look elsewhere
for labour.
Retention of employees may also become more of a priority for businesses in response to Brexit.
Businesses may choose to up-skill existing workers and/or employ young people through a youth
initiative and “grow their own” talent.
For policy makers, Brexit implications should be considered alongside existing and emerging policies
on:
•
Broadening labour market participation – i.e. increase the pool of labour to counteract the
anticipated decline. While labour market policy has often been framed as a social inclusion
activity, there may be equally strong economic drivers for increasing the participation of low
engagement groups such as older workers, BAME, single parents in the labour market;
• Other complementary activity might include
an increasing focus on policies that
encourage life long working and retention/return of individuals who may face additional
barriers to employment.
“... the decision to leave the EU has come at a time when the UK labour
market was already at a ‘tipping point’ in the light of ... wider changes in the
UK economy and labour market ... without a coherent policy response, the
UK economy and labour market is likely to face serious consequences in
light of the end of free movement throughout the EU”
The Resolution Foundation, 2017
2.3 The Skills System
A joint SDS/Scottish Funding Council paper produced in September 2016 for the Joint Skills
Committee outlined a range of potential implications for the skills system as a result of the Brexit
decision including funding and other implications for the college and university sector.
SDS is the lead partner for the
Developing Scotland’s Workforce Strategic Intervention under
European Social Fund. The activity includes expansion of MAs to 30,000 places and development
and delivery of Foundation and Graduate Level Apprenticeships. Within the 2014-2020 programme
funds of £53.13 million are in place to support this activity. SDS is on track for delivery and spend on
this activity although it is known that there is an underspend in the overall programme. SDS is also
the lead partner for the National Third Sector Fund. SDS administers this on behalf of Scottish
Government, with delivery undertaken and match-funding contributed by the contracted third sector
organisations. This is due to end by Dec 2018.
SFC is the lead partner for
Developing Scotland’s Workforce, within which there is transitional
funding for the Highlands and Islands and the
Youth Employment Initiative (YEI). The YEI has been
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approved from 2015 – 2018 with total expenditure of £41.9m. The DSW has expenditure of £25m. In
addition to this:
• Through EU Government bodies, Charities, Industries and other sources, Scotland’s
Universities secured £94.1 million in research income (2014/15) – 12.2% of total research
income. As examples £26m was secured by the University of Edinburgh and £12m the
University of Glasgow;
• Horizon 2020 (H2020) is the EU's main programme for funding research and innovation
projects. Scotland has secured some €217 mil ion in total to date and estimates suggest that
Scotland’s Higher Education Institutions and Research Institutions could receive approx.
€260M over the remainder of H2020. Over the next ten years this figure could be €865m.
There is a question around how current H2020 awards that span multiple years would be
managed after the UK leaves the EU; and
• SFC is also a Lead Partner for the delivery of the 2014-20 ERDF programme; and
• Some 1,600 Scots go abroad to European countries with Erasmus every year (an increase of
50% compared with seven years ago). Erasmus is an EU student exchange programme and
the single largest source of funding for Scottish/UK students wanting to study or work abroad.
With regard to
students:
• For Universities:
o 17,286 EU students studied at a Scottish University in 2014/15 – 12.3% of the total
student total; whilst three years out of date the data provides insight into the student
composition;
o EU students were reported to account for 26.2% of research postgraduates, 24.3% of
taught post graduates and 10.5% of undergraduates in Scotland; and
o Aberdeen and St Andrews Universities were reported to have higher concentrations
of EU students than the Scottish average;
• For Colleges, the numbers of EU students are smaller - 131 FTEs 2014/15 –but this can still
be significant for some colleges.
Finally, with regard to
staffing, further and higher education, and particularly the university sector,
has benefitted from freedom of movement as a result of membership of the EU. The UK has
benefitted from access to a pool of international talent. 16% of all academic staff at UK HE Institutions
are non-UK EU-domiciled (in total 28% of academic staff are from outside the UK). Within the Scottish
university sector, 26% of research-only staff are from other EU countries. Ease of travel has meant
the opportunity to do field research within Europe, enabling UK postdoctoral researchers to find
research and teaching jobs abroad, facilitating international collaboration. A reduction/loss of research
funding from the EU is anticipated to impact on the movement of academic research staff.
Recent data and evidence from SDS’ Human Resources team highlight that:
• We currently employ 11 EU Citizens (6 permanent, 2 Graduate Interns and 3 on Fixed Term
Contracts);
• We have 5 international citizens with the remaining having UK citizenship;
• All roles would be deemed highly skilled (2 EIS, 1 Digital, 2 Corporate Affairs, 4 Operations, 2
Graduate Interns);
• 82% of the roles are City based, either Glasgow or Edinburgh; and
• SDS provides parity of pay from Day 1 for Agency Workers and already pay at the Scottish
Living Wage.
In line with potential issues arising from Brexit for the wider labour market, HR advise that:
• Potential skills shortages may be exasperated, which will increase competition for the best
candidates and make it difficult for SDS to attract candidates, particularly if competition leads
to increased salaries in sectors which SDS cannot match. Although numbers are small it
should be noted that 3 of our EU Citizens are in either EIS or Digital which is already a
competitive sector;
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• SDS currently has a strong focus on increasing the diversity of our workforce and this could
be hampered by changes or removal of free movement; and
• The other area for consideration for SDS is in terms of our Young Talent Programme,
particularly in relation to Interns and Post Graduate Students. Internships are a fixed term
opportunity that have been valuable in terms of succession planning and a Post Graduate
Qualification is required for the roles in Operations. Again, numbers are small but if there was
an impact on EU citizens studying in the UK this could also have a detrimental impact.
3. Areas of Focus
It is proposed that there are four areas where SDS could play a leadership and/or supporting role:
• Developing the evidence base;
• Building resilience within SDS itself;
• Supporting business resilience; and
• Influencing policy and practice with partners.
3.1 Developing the Evidence Base
Considering the implications of Brexit will be an ongoing issue for SDS and partners and it is
proposed that:
• The Evidence Base/Skills Planning Team continue to monitor and keep up to date on
literature and research on the issue; and
• SDS continues to play a part in the national Brexit response team.
In addition to the above, there is an opportunity for SDS to play a role in commissioning work to
develop and enhance the evidence base on Brexit. This work could look to fill gaps in the evidence
base for Scotland (nationally, regionally, sectorally) and, given the uncertainty around the impact of
Brexit, could look to model some scenarios around impact on the labour market. This work could help
inform some follow up pilot work in one or more sectors/regions. Examples of issues that could be
considered in this modelling could include:
• Decisions on the extent of free movement following Brexit;
• Demographics (ageing population, tight labour market) – to help identify geographic areas of
vulnerability; and
• Composition of workforce that are EU nationals – to identify vulnerable sectors.
Similar scenario planning could also be undertaken on wider economic implications. SDS would play
more of a supporting role rather than a leadership role in this with leadership coming from Scottish
Enterprise and Highlands and Islands Enterprise.
In addition, engagement should take place with the University/FE sector on plans for mitigation of
negative effects arising from Brexit.
3.2 Resilience of SDS as a Business – Maximising Opportunities: Minimising
Threats
There are two particular areas that SDS requires to consider to ensure that it is resilient to any
impacts of the Brexit decision for us as a business:
• Funding – to maximise existing opportunities and plan for future decline/termination of EU
funding; and
• Human resources – to plan for any potential impacts relation to the free movement of people.
With regard to funding it is proposed that we:
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• Continue to deliver our existing approved programmes, which are currently on track;
• Through a cross directorate grouping, identify potential proposals for our products and
services that fit with Structural Fund objectives with a view to securing a share of the known
underspend in the current programme; and
• Continue to build a funding model which takes into account the end of EU funding – this is in
progress.
With regard to human resources, our HR team have identified some risks and challenges for our
workforce planning. Although numbers of EU nationals in our workforce are small, it is proposed that
implications arising from Brexit are included in our risk register with a view to putting in place plans for
mitigation.
3.3 Supporting Business Resilience
In the same way as SDS is considering how it might build its resilience in the face of the Brexit
decision, there may be an opportunity for SDS to work with others (such as Scottish Enterprise and
Highlands and Islands Enterprise) to support businesses in the face of the Brexit decisions and other
drivers (political, economic, social, technological) that affect the labour market. Within existing
services to employers, there could be an opportunity to support businesses/organisations currently
employing EU migrants in addressing their concerns regarding Brexit such as:
• Understanding their workforce and likely skills issues (do they currently have or anticipate
skills gaps and shortages);
• Scenario planning in advance of changes/removal of free movement;
• Review business operations/employee roles; and
• Promotion of SDS services – Apprenticeship family, support to up-skill existing workforce.
3.4 Influencing Policy and Practice with Partners
Finally, it is proposed that SDS continue its work with partners on influencing policy and practice.
Whilst decisions on Brexit will not be the only driver, this along with other drivers (economic/financial,
demographic) will require our active influencing of policy and practice for Scotland to achieve its
ambition of inclusive growth. Four key policy areas are suggested:
•
Migration - Although not a direct responsibility for SDS, consideration needs to be given as to
how we might influence Government to ensure that migration policy supports the ambition of
the Scottish economy and retains quality staff in our skills system;
•
Broadening labour market participation – working with groups under represented in the
labour market to develop their skills and meet the needs of the economy/labour market;
•
Pay and progression – In the light of potential increased costs of labour, might there be a
need for employer incentives to attract and retain employees
•
Skills system responses – such as:
o Potential policy implications vis a vis Youth Employment Strategy and policy levers to
support the over 25s and in work training;
o Increasing Work Based Learning through incentives; and
o Making use of institutional capacity to meet shifting labour market needs.
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4. Recommendations
ELG/The Board is requested to:
• Review the paper and make comment on its content, highlighting any potential gaps/further
information required;
• Discuss the issues identified and proposed areas of action and offer guidance on next steps.
Authors: Chris Brodie, Liz Byrne, Sarah Hunt, Katie MacLeod. Date: 17 August 2017
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References
CIPD (2017
) Facing the Future: Tackling Post-Brexit Labour and Skills Shortages
https://www.cipd.co.uk/knowledge/fundamentals/emp-law/recruitment/post-brexit-skills-shortages
CITB (2017) Migration and Construction: The View from Employers, Recruiters, and Non-UK workers.
https://www.citb.co.uk/global/research/citb%20migration%20research%20full%20report.pdf
European Commission (2017)
Brexit implications for employment and social affairs: facts and figures
http://www.europarl.europa.eu/RegData/etudes/STUD/2017/595333/IPOL_STU(2017)595333_EN.pdf
EY Scottish ITEM Club (2016)
Forecast 2017
http://www.ey.com/Publication/vwLUAssets/EY_Scottish_ITEM_Club_Forecast_2017/$FILE/EY%20Scottish%20ITEM%20Club
%20forecast%202017%20FV%205%20Dec.pdf
EY ITEM Club Winter Forecast (2017),
Prospects for the economy as the UK prepares to leave the EU
http://www.ey.com/Publication/vwLUAssets/EY_ITEM_Club_UK_Winter_forecast_2016-
17/$FILE/ITEM%20Club%20Winter%20Statement%202017.pdf
House of Commons (2016),
UK funding from the EU http://researchbriefings.files.parliament.uk/documents/CBP-7847/CBP-
7847.pdf
Fraser of Allander Institute (2016) Long-term Economic Implications of Brexit
https://www.sbs.strath.ac.uk/economics/fraser/20161006/Long-term-Economic-Implications-of-Brexit.pdf FSB (2017) A Skilful Exit: What Small Firms Want From Brexit Scottish Summary
https://www.fsb.org.uk/docs/default-
source/fsb-org-uk/brexit-labour-and-skills---scottish-doc.pdf?sfvrsn=0
Hepburn, E. (2017) Options for Differentiating the UK Immigration System
http://www.parliament.scot/S5_European/General%20Documents/CTEER_Dr_Hepburn_report_2017.04.24.pdf
Highlands and Islands Enterprise (July 2017) Business Panel Survey (July 2017) http://www.hie.co.uk/regional-
information/economic-reports-and-research/archive/hie-business-panel-survey---2017.html
IPPI (2017)
Freedom of Movement: why it is central to Scotland’s interests in the Brexit negotiations http://strathprints.strath.ac.uk/59548/1/Imrie_IPPI_2017_freedom_of_movement_why_it_is_central_to_Scotlands_interests_in_
the_brexit_negotiations.pdf
IPPR (2016)
Future Proof: Britain in the 2020 http://www.ippr.org/files/publications/pdf/future-proof_Dec2016.pdf?noredirect=1
LSE (2017)
The Local Economics Effects of Brexit http://ukandeu.ac.uk/research-papers/the-local-economic-effects-of-brexit/
NRS (2017)
European Economic Area (EEA) born residents living in Scotland https://www.nrscotland.gov.uk/statistics-and-
data/statistics/stats-at-a-glance/profile-of-european-economic-area-eea-born-residents-in-scotland
Resolution Foundation (2017)
Work in Brexit, Reshaping the Nation’s Labour Market http://www.resolutionfoundation.org/publications/work-in-brexit-britain-reshaping-the-nations-labour-market/ Scottish Enterprise Brexit Steering Group (2017) ‘People’ Positioning Paper9
Scottish Enterprise (2017) Economic trends Survey April-June 2017
SFC/SDS (2016) European Union Membership Referendum Outcome – Potential Implications – for Joint Skills Committee
Scottish Government (March 2017)
EU Nationals Living and Working in Scotland (March 2017)
http://www.gov.scot/Resource/0051/00515360.pdf Scottish Parliament (2017)
Determining Scotland’s future relationship with the European Union
http://www.parliament.scot/S5_European/Reports/CTEERCS052017R04Rev.pdf
Scottish Parliament (2017) SPICe Briefing: Agriculture and Brexit in Ten Charts
http://www.parliament.scot/ResearchBriefingsAndFactsheets/S5/SB_17-12_Agriculture_and_Brexit_in_10_Charts.pdf
9 Internal document – not available in the public domain
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