How Brexit will affect Recruitment in the UK
How will Brexit affect the UK recruitment industry? Will there be an economic catastrophe that will plunge the recruitment world we know of into meltdown? Or is it a storm in a teacup and we’ll all be fine and dandy? Here’s our thoughts on what will actually happen.
The media would have us fearful of the worst because that’s what sells newspapers, increases viewing figures and drives press coverage. Who wants to read good news? Controversy and scare mongering are the common talking points and whenever there is uncertainty it’s easy to generate fear of the worst case scenario. This will only be amplified by the Remain Voters who will only be too happy to say “I told you so” before the horse has even bolted.
As a contrast, euro sceptics, vocal leave voters and right wing fanatics will say of leaving the EU that it’s for the greater good. After all New Zealand, Australia, Norway and Singapore are all independents and if they’re records are anything to go by that’s impressive. Norway was the worlds happiest country in 2017:
Singapore tops living and health standards globally:
But is that all down to being an independent nation? And surely that didn’t happen overnight?
I look at Brexit and its fallout, whatever that may be, in 3 stages when it comes to predicting how Brexit will affect recruitment in the UK.
1-Pre-Brexit (Whether a deal is made or not)
2-March 29th 2019 (Brexit Day) and the immediate aftermath
3-The longer term effects
We are in that period now. The countdown is just over half a year away and a deal has not been agreed with the EU. No deal? That’s bad right? That means there is no agreement. Cue dramatic music!
In 2016, based on official UK data, the UK exported £240 billion worth of goods to the EU. That’s 43% of the UK’s total exports. Add to that 54% of the UK’s imports came from the EU. This could be viewed in two ways; firstly that if we leave the EU we are £240 billion out of pocket and that’s a sizeable dent in our economy that will have a knock on effect, but consider secondly that the EU will be £240 billion worth of goods down and where will they get them from now?
Due to tax agreements within the EU that see huge import/export discounts it’s cheap to move your goods around Europe, but with the UK leaving the EU the EU have a problem. Not only are they down a potential trading partner, but if the UK leaves successfully will other nations follow?
The UK contributed £13.1 billion to the EU in 2016 in membership fees, but only got £4.5 billion back leaving a loss of £8.6 billion. One argument is that the UK loses money on being in the EU from the membership fee. However, when you consider that if there is no deal and the EU plays hard ball the gain of saving £8.6 billion against losing £240 billion in trading exports renders the EU membership fees paltry in comparison.
The EU then has a few headaches from this whole process. The goal of connecting Europe into a united economic powerhouse has the worlds 5th largest economy leaving it in the near future, it loses £240 billion worth of agreed imports that it has to find replacements for, £8.6 billion of membership fees are lost, a popular country for migrants to emigrate to is gone, the departure of a world financial capital in the shape of London and the concern that if it proves a successful exit that other EU nations could follow suit.
What about the UK’s headaches then? There’s £240 billion of lost export revenue, loss of a source of skilled migrant labour, a hit to the value of the pound as a response, economic concerns as much of the UK’s workforce will be directly or indirectly put at risk without the export revenue stream and if that’s not enough, the EU playing hard ball to save face and protect their own interests to keep the EU dream alive.
Still with me?
This no deal stalemate that is playing out is because neither party wants to or can afford to agree a compromise because politically it will not only be disastrous, but it will mean taking the larger brunt of the financial hit from Brexit. A no deal basically results in existing import/export deals still being in place and things continuing as it stands for the foreseeable future until someone makes a move. There may be some token gesture, and there will be some insignificant peace offering exchanged to take the heat off of the two warring parties during this Pre-Brexit period, but it will all be a temporary facade. My prediction is that we won’t have a proper deal in place and by Brexit date we will have a standoff that will leave things temporarily at deadlock.
Pre-Brexit for the recruitment industry won’t see too much change from what there is currently. If the companies exporting goods can still do it, they’ll carry on as usual. The wise companies or those with more international presence will think and plan ahead and look to offset their potential losses from European deals by replacing lost revenue with future deals elsewhere. This could result in the creation of more international business development vacancies and those with Asian, Middle Eastern and US connections will become heavily in demand.
March 29th is 2 days before the start of the UK financial year. Have some sympathy for certain accountants at least because that will be a very stressful few days. On Brexit day and the immediate aftermath, not much will happen if there is a no Brexit deal. I believe there will even be a feeling of relief in the aftermath among many people that it was all a storm in a teacup just like the millennium bug that could supposedly have brought down the internet at the dawn of the century.
Politically both the UK and EU will want to buy themselves some time until the dust settles. The UK government won’t want a recession if they can avoid it and the EU won’t want other members following suit as well as losing £240 billion worth of useful imports.
The sensible solution is for the UK to export it’s £240 billion elsewhere and for the EU to find their £240 billion worth of imports internally from other EU members. To achieve those fully that will take years to accomplish. So how do both parties move on if they cannot agree?
During the initial aftermath, say for 6 months, I don’t believe much will happen and probably a future date will be set justified by some fabricated or exaggerated reason mirrored by both the UK and EU that an arrangement must be agreed on by. During this period the UK leave voters will become satisfied, at least from an acceptance perspective, that we are indeed officially out of the EU and thus independent. The remain voters arguments that this is not true as no deal has officially been met will, with time, subside. This is when the dust settles and that future agreement date, will somehow become mystified and subdued so that the heat settles on the UK and EU to make agreements away from prying eyes and out of the spotlight.
From a recruitment industry perspective, I feel that things will continue as normal until after agreements have been made. This could be a year or more down the line dependent on how long it takes for the dust to settle. I think that growth for the UK market will slow down with the uncertainty, but it won’t recede unless a no deal impasse really drags on.
Currently the UK manufacturing industry, although not widely publicised, is actually in recession. By its nature of agreeing contractual arrangements for either batch or longer term manufacture of products it relies heavily on being able to forecast and plan ahead. With Brexit and no deal in place it means that many of these manufacturing companies cannot finalise or propose agreements with historic EU trading partners because they do not whether it is financially viable to do so. Therefore they too are at a stalemate and although the industry may leave recession before Brexit’s initial aftermath subsides, until concrete agreements between the UK and EU are finalised, UK manufacturing growth will remain stagnant.
THE LONGER TERM EFFECTS
A deal will inevitably be made at some point. Neither the UK or EU can afford and will want another recession and will need to compromise to avoid that. What I believe will transpire is that a mutual trade off to make this happen will trigger a finalised deal to be agreed. This could be EU rights to UK fishing waters, a subsidy fee arrangement like the EU membership fee but tactfully masked as something else, generous UK resource discounts and some behind closed doors political favours. Whether we like to admit it or not the EU is larger as a combination and the UK have less cards to play in a negotiation trade off. We will need to concede somewhere, but the longer it takes to do so will have a notable negative impact on the EU’s economic power. Therefore, I believe that the EU will only play hard ball, as they appear to be at present, until the pinch starts turning into a bite and at that point UK agreement proposals will become a lot more appealing for the EU to accept. This is why the UK and EU are struggling to agree a deal in this intricate chess game of Brexit negotiations. The UK knows that the longer this drags on the easier it will be to gain a better deal. The UK government won’t admit that publicly and you may disagree, but the fact is no deal has been made and it’s all still up in the air. You can draw your own conclusions.
For the recruitment sector this will mean that industries directly or indirectly impacted by the manufacturing sector will see movement in personnel either by an increase in redundancies, more contract and temporary placements and more sales vacancies to find replacement revenue streams from potentially lost or at least temporarily redundant EU export partners.
UK net migration has fallen to its lowest levels since 2012 with many migrants leaving the UK to find security in the confines of EU member states. The problem is that we already have a UK skills shortage and this is only going to get harder until a final deal and outcome is made as migrants are naturally going to be cautious of moving to a country who’s future immigration rulings are uncertain.
THE OUTCOME FOR THE RECRUITMENT INDUSTRY
For technical related recruiters this will mean that those that can source talent in baron waters will remain highly in demand. There will be an increase in contract, temporary and sales roles and increased movement between the manufacturing industry and transferable sectors. The pound will drop in value because of firstly not being in Europe, secondly from the delay impacts of stalling on agreeing a Brexit deal and thirdly that the UK will have less cards to play in negotiations by not being part of the EU with potential new trading partners. This will mean that profit margins will be squeezed and technologies that can reduce costs will replace certain non-skilled labour roles. This in turn will see more jobs created in the Engineering and IT sectors, but see a harder to find talent pool meaning transferable skills will be required to fill the gaps.
As a closing point I personally believe that there is a lot of scare mongering around Brexit, but economically although it will present changes, as long as recruiters are adaptable in their business models to adjust to those changes business will be good.
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Below are two of our other posts that have related points:
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