Brexit: The Implications

January 9, 2019

You are probably bored of hearing about Brexit but with March fast approaching, whether you voted to remain or leave, it’s time to put any differences aside in order to understand what Brexit means.

Analysis shows that the UK will be economically worse-off outside of the EU under most plausible scenarios. The key question now is how much worse-off the UK will be post-Brexit.

Realistically there remain two genuine choices: Teresa May’s agreement, which is very short of support across all parties, and a hard Brexit, which is very short of support everywhere. It is currently unlikely that a second referendum will get the backing required to make it a reality and so we need to assume that Brexit will happen in some form.

We want to examine the ‘human capital’ element at executive level, a key factor in all business success and also the area where the Livingston James Group has the greatest interest and expertise. Key elements to understand are:

How are employment trends moving
Will hiring become more difficult
Are salary levels likely to change
How to address workforce planning and development

Employment trends

Since 2016 and the Brexit vote, after which there was an immediate drop in hiring, there has been an upturn in business sentiment and companies looking to hire staff are now above pre-vote levels.

With a strong labour demand and high levels of employment, these are positive signs across industry. Being aware of migration away from the UK by those EU nationals feeling insecure is a more likely issue with a 95% fall in in EU workers joining the UK labour force from Q1 2016 to Q1 2018. Don’t be fooled into believing that they are all unskilled workers; there are a significant amount of highly sought after engineering, medical, financial and technology experts who are deleveraging their personal risk and staying in mainland Europe. How do we continue to make the UK an attractive destination?

Clearly Teresa May’s option, which guarantees workers right and free movement over the next few years, is better for most. On the other hand, a ‘no-deal’ Brexit would also allow a new arrangement to be created with all international workers, potentially giving the UK the opportunity to create fair and secure contracts for both skilled and unskilled workers across numerous sectors.

Will hiring become more difficult?

The short answer is yes. The UK has benefited from ease of access for overseas workers, especially those with specific skills that the country has required, like specialists in STEM subjects. There has been a decline in European professionals even considering the UK as an option due to the uncertainty ahead. Why move your career, family and life if you may be returning home in the next 12 months?

Larger firms are addressing this by opening European offices and ensuring access to key talent. The recruitment industry is having to be more enterprising, targeting areas with a depth of talent – like the USA, India and Australasia – and helping to retain the level of expertise currently required. There are also 1.3 million UK citizens living in Europe who could be encouraged to return.

Alternatively, the response to a 2018 survey saw 48% of UK companies acknowledged their solution had been to raise starting salaries. A solution, but not always the best one.

Are salary levels likely to change?

We have already mentioned the easy solution of raising salaries. This would be a sensible option in the case of a ‘no-deal’ Brexit as the Government’s own EU Exit White Paper in November 2018 stated a likely fall in salaries across the UK between 9-11%.

A more sensible approach is to look at the wider market sentiments. A drop in salaries is expected in all available information but some as low as 0.5%. The fear for most employees at this time is job security and companies would be wise to remember this. There are great ways of engendering loyalty and if, as discussed, talent acquisition is proving increasingly difficult then retention is better than replacement. Senior executives are usually well remunerated and it is the wider elements of the package, rather than basic salary, that might entice them – not least the guarantee of job security and some flexible working options.

How to address workforce planning and development

With all the other uncertainties that businesses will face around import and export tariffs, movement of goods, transport restrictions, new legal requirements and key product supply, the one area they can control more closely is the workforce.

A CIPD survey in 2018 showed that only 52% of private and 38% of public sector organisations were already planning to upskill their current workforce. Furthermore 55% said that leaving the EU had not affected their training and development and 20% said they had reduced it.

As we have already seen, hiring the quality of executive management required is going to get more difficult. Businesses that already hire EU nationals are also more likely to access those from disadvantaged groups. Their attitude is deemed much more open and engaging, looking to strengthen their teams from a diverse pool of talent.

Workforce planning should involve assessing the internal and external factors that can affect your business; understanding the risks for resourcing; being clear on workforce requirements and ongoing assessment of market factors to allow changes when required.

It is always difficult to attract the highest calibre of senior management and it is clear that this will only be made harder following Brexit. An honest appraisal of your current workforce, accurate planning of their potential and an integrated approach to securing the talent you need will help alleviate any issues

It is potentially foolish to ‘wait and see’ what the final outcome will be. Starting to plan and review now will allow you to ensure you are in the strongest position to deal with the aftermath – whatever that may be. Ensure your human capital is clear about business strategy, potential challenges and continuity plans.

Livingston James is expert in human capital advisory work and partner with key organisations to help them plan and implement their recruitment strategies. Our consultants are always available to discuss business challenges and advise accordingly. For further advice please contact Ben Walker on 0131 220 2209 or at [email protected]