The U.K. Still Needs Its Foreign Baristas After Brexit

(Bloomberg Opinion) -- Immigration was the second-most-cited reason by “leave” voters for their decision in the 2016 U.K. referendum to separate from the European Union. But that doesn’t begin to tell the whole story of attitudes toward immigration in the U.K.

Opposition had been growing increasingly strident ever since the European Union’s eastward enlargement in 2004. In the 2010 U.K. election, 53 percent of voters said immigration was one of their top three concerns; it was 52 percent in 2015. By the time the referendum rolled around, fully 77 percent of the British public wanted less immigration. Brexit was in large part a vote for control over Britain’s border.

Those sentiments may have changed again (more on that later), but it comes too late: Brexit will cost Britain its unfettered access to the EU’s single market, the price of which won’t be known for some time. And yet it also presents an opportunity. The U.K. gets to design a new immigration system, most likely starting in 2021, after the envisioned post-Brexit transition period in which the U.K. has agreed to continue free movement with the EU in exchange for market access.

It’s hard to think of a more fundamental domestic policy decision Prime Minister Theresa May will make. What she decides will not only affect future growth prospects; it will also be central to the image the U.K. projects about how it sees itself in the post-Brexit era.

Her new immigration policy, which she may preview at her party conference in early October, is very likely to be based on a lengthy government-commissioned report released this week by the Migration Advisory Committee, an independent public body that advises the government on migration issues. The study’s evidence on the impact of European migration is valuable. Some of its policy recommendations are less so.

The committee found that migrants from the European Economic Area contribute much more to the National Health Service than they consume in services and that they pay more in taxes than they receive in benefits. They outperform native English speakers, on average, in schools. They constitute only a small fraction of social housing tenants — though the share going to migrants from the new EU member states in Eastern Europe has been rising, and given the shortages of public housing this certainly comes at a cost to native-born potential tenants. It found that this migration does not impact crime and that it hasn’t reduced Britons’ sense of well-being.

The report debunks the idea at the heart of the opposition Labour Party’s immigration policy that migrant labor depresses wages and native employment. The impact of migration there has been modest and less than the impact of the drop in the value of the pound since the referendum.

The committee’s advice to scrap the cap on higher-skilled workers and greatly widen the range of workers included in that tier of visa makes good sense. Britain is undoubtedly short of medium- and high-skilled labor. Employers can’t plan hiring decisions if they don’t know whether they can tap labor sources outside the country.

The problem lies in the further suggestion that the U.K. offer virtually no migration route for low-skilled workers. This will surely get cheers from some Brexiter quarters (and Labour benches), but how much sense does it make?

Some 30 percent of workers in the U.K.’s food manufacturing business and nearly a quarter of all domestic workers are EU migrants. So are a fifth of hotel staff and 18 percent of logistics workers; as the Resolution Foundation has noted, the great majority of EU migrants would fall below the committee’s proposed salary threshold of 30,000 pounds ($39,417).

Between 12 and nearly 24 percent of the U.K. hospitality sector employees are European nationals. In a report last year, KPMG estimated that if there is no new EU migration into U.K. hospitality, the sector would face a 60,000-worker shortfall per year starting in 2019 and a recruitment gap of over 1 million by 2029. The labor shortages would ultimately feed through into higher wage rates and higher prices for consumers.

The proportion of EU nationals working in the U.K.’s crisis-stricken social care sector has shot up in recent years. Even the report acknowledges that this sector struggles to recruit enough workers, though rightly acknowledges the bigger problem is its flawed funding model.

With unemployment at a record low of 4 percent, it’s not at all clear how the U.K. will fill those roles over time under a system that keeps out low-skilled labor. And as the committee report acknowledges, the populations of all four nations of the U.K. — England, Scotland, Wales and Northern Ireland — are aging.

The committee argues the U.K. should end all preferential treatment for European migrants, something May will have no trouble selling to Brexiters as some kind of victory. But why shouldn’t the U.K. offer EU citizens something a little better, given the geographical proximity, historical ties, what they contribute and Britain’s need for workers? Of course, May could offer preferential treatment as a bargaining chip in future trade negotiations with the EU.

Other elements of the report are also a mixed bag. Extending the Immigration Skills Charge — whereby a medium or large employer-sponsor of an immigrant worker pays an upfront charge of 1,000 pounds — to European citizens will no doubt bring in some additional revenue, but is yet another burden for businesses and barrier to trade that ultimately consumers pay for.

The good news for May is she shouldn’t have to work so hard to appease anti-immigrant sentiments now. The Brexit vote seems to have softened attitudes toward immigration: Only 34 percent of voters regarded it as a major issue in the 2017 election.

The referendum was also like hanging a giant “Keep Out” sign. There were 86,000 fewer European nationals working in the U.K. in the April to June period than the year before — the biggest fall since records began in 1997. The population of non-EU nationals rose by 74,000 in the same period, meanwhile.

Rather than putting up new barriers to migrants that will hurt Britain’s economy, May can note the current trends since Brexit and lay out policies to modernize Britain’s immigration system, scrapping the senseless targets, reducing bureaucracy, and improving incentives for high-skilled workers and students. But beware of the wrong changes: In a country where the son of a Pakistani bus driver was able to become the mayor of London, ending low-skilled immigration would be an enormous mistake, in terms of economic policy and in the message it sends to the world.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Therese Raphael writes editorials on European politics and economics for Bloomberg Opinion. She was editorial page editor of the Wall Street Journal Europe.

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