Labour and wages in a post-Brexit world

Upheaval offers a chance to boost productivity, but labour shortages could be bad news for farming says Kirsten Williams.

The decision by British voters to leave the European Union will have a profound impact on employment in the UK. Catering and hospitality will be particularly hard hit, and the referendum poses questions about the way forward for both industries.

Theresa May, the new prime minister, has already made it clear that despite her quiet support for the campaign to remain in the EU, there will be no reversal of the decision. Leading the UK into exit talks, May will probably prioritise reducing labour inflows into the country, not least because her failure as home secretary to meet targets to limit immigration is seen by her own supporters as her biggest political weakness.

With about 30% of its workforce being migrants, the foodservice sector will be directly affected by any quota or bar on EU immigration. Firms will therefore need to change their employment models – and this could be good news for employees.

The creation of stronger incentives to retain available personnel, for instance, and less contractual uncertainty and better long-term prospects could push up costs, but it could also improve productivity over the longer term.

After leaving the EU, we could see a points-based immigration system, whereby businesses would be able to hire specialised chefs and other skilled workers from outside the bloc. Indian restaurants, for instance, have complained that UK efforts to reduce immigration have disproportionately affected their ability to recruit skilled chefs from the Indian subcontinent (see “The restaurant trade in a post-Brexit world” later in this supplement).

Drastic changes in UK labour legislation are unlikely. Laws will probably continue to mirror the standards set in Brussels in order to retain close trading ties with the EU. David Davis, the minister for Brexit, has already said he doesn’t support curtailing the employment rights of UK workers. The government is entering a difficult period: its leader has not led her party to a general election victory, its parliamentary majority is a slim parliamentary majority and it has had to create a new office to negotiate with the EU. I can’t see that changing employment legislation will be at the top of May’s agenda.

However, once Brexit negotiations begin, business groups have an opportunity to lobby the Conservative government to shape the terms of the EU negotiations and the wider policy context in their favour. We have already seen the likes of the National Farmers Union and Food and Drink Federation setting out their stall.

The future?

Politicians have refused to put a timeframe on a British withdrawal from the EU, but it’s likely to take between five and seven years, given the complexity of exit negotiations. With Davis, a leave supporter, at the helm of the Brexit ministry, we can expect to see article 50 triggered in early 2017, starting the chain of events that will remove the UK from the EU.

Brexit brings many challenges to the foodservice industries, chief among them a reduction in readily available labour. One likely scenario, if the government
is unable to secure a quota system for EU immigration, is a noticeable shift towards automated service delivery.

The catering industry cannot outsource to offshore hubs, but it can turn to technology to fill lower-paid tasks in food manufacturing, agriculture, food and beverage delivery services, and domestic services. Electronic ordering systems and even autonomous delivery carts are likely to become much more common. Restaurant and catering management, however, is likely to remain the domain of humans.

There are opportunities for expansion, with lower rents and property prices, particularly in London and the surrounding areas. As Britain searches further afield for alliances and trading partners, restaurants and catering businesses will be presented with new chances to expand into other areas of the world.

Many food businesses will also be casting worried glances in the direction of the farm gate. Labour-intensive British agriculture such as strawberry farming faces a labour shortage, leading to a drop in output. Some farmers are warning that a poor Brexit deal could spell the end of horticulture in the country.

British catering companies will potentially encounter sourcing problems and higher food costs, forcing them to look abroad for alternatives – and at a time when a weaker sterling makes imports more expensive. In the medium term, the UK is likely to seek trade agreements with non-EU agricultural producers, which could reduce tariffs on some imported foodstuffs

Kirsten Williams is a political risk analyst, Europe and Russia, for Allan & Associates, a consultancy specialising in security risk management.

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