Is Your Workplace Brexit Ready?
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IS YOUR WORKPLACE BREXIT READY? HOW TO GET STARTED SPECIAL THANKS TO: GARY GRIFFITHS LOUISA HOGARTY BEN WILLMOTT, CAREN AYOUB HR BUSINESS PARTNER, WASABI HR DIRECTOR, NOBLE FOODS HEAD OF PUBLIC POLICY, CIPD HRBP DIRECTOR FOR NORTH SUSHI AND BENTO EUROPE, LEVI-STRAUSS & CO CONTENTS 1. What are we dealing with?………………….…………………………………………….…….………………03 2. The economics explained………………………………………………………………………………............04 3. The challenges for HR………………………………………..…………………………..……….......………….08 4. A case of: Manufacturing………………………………………………………………………….……………..11 5. A case of: Retail……………………………………..……………………………….……………………………….13 6. A case of: Hospitality……………………………………................................……………………………….16 7. Your Brexit checklist………………………………………………................................……………………..19 8. Conclusion…………………………………………………......………………………………………….........……..22 PAGE 2 | IS YOUR WORKPLACE BREXIT READY? Introduction: 01 What are we dealing with? The dust has settled on the bombshell that is Brexit. After two years of chaos and calamity, a post-EU Britain is beginning to take shape. The long, agonising process of legislative attrition between Westminster and Brussels is beginning to subside and practical negotiations are getting underway. However, it still looks as if annexing Britain from Europe with a giant saw might be easier than striking a mutually beneficial bargain. Debate around the “divorce bill”, seems to have all the emotional trauma of a genuine divorce, complete with Mother Theresa and Father Junckers. The negotiations are stuck in a quagmire, far deeper and murkier than anyone had previously thought: the Irish Border, exit fees, trade agreements/alignments, as well as a complete rewriting of thousands of different policies. It’s the biggest constitutional change Britain has seen since, well, joining the European Communities (E.C) back in 1973. The immensity of which is reflected by the extra £2bn being spent on readying the UK diplomatic and civil services 1. Personal politics aside, Brexit will bring about cataclysmic changes to the UK labour market. The impact of which will be felt first and foremost in the make-up of the British workforce. This ebook will explore the ramifications of Britain’s divorce from the European Union, outlining the steps HR and people leaders need to take to attract, engage and retain employees through the uncertainty. 1 Brexit: Funds allocated for government departments, BBC, 2018, http://www.bbc.co.uk/news/uk-politics-43390309 PAGE 3 | IS YOUR WORKPLACE BREXIT READY? 02 The economics explained So far, Brexit has hit the UK economy hard. The pound, though recovered somewhat from its post-Brexit divebomb, is still noticeably weak against both the dollar and the euro. The impact of this is complicated. While it can boost some areas of the economy it can set others into decline, so it’s best to look at the economy with a holistic metric. That of GDP. Gross domestic product (GDP) GDP is a litmus test for the state of an economy. If it’s on the up, a country is doing well, and will attract workers, businesses and foreign investment. However, if it’s in decline for over two quarters, a country is officially deemed in a “recession”. Unfortunately, the UK’s GDP isn’t looking so good. In fact, it hasn’t been this slow since 2008. We’re currently bleeding around £300m per week in depressed economic activity. The office for national statistics’ (ONS) predictions are cautiously conservative. Over the next five years our GDP will slip down to 1.3% growth, and will only recover to 1.6% in 2022 – nowhere near our pre-financial crash average of 2% 2. This contextualises the immediate aftermath of Brexit for the UK economy. The cause and effect of a contracting GDP is instability and could result in a reduction of Foreign Direct Investment. 2 Labour Market Statistics time series dataset 2018, ONS, https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/employmentandemployeetypes/datasets/labourmarketstatistics PAGE 4 | IS YOUR WORKPLACE BREXIT READY? The impact of Foreign Direct Investment (FDI) “Why is FDI a big deal?” You might ask. Well according to an LSE report, foreign direct investment accounts for a whopping £1tn of UK assets. More importantly, 50% of this comes from EU investors 3. How does this money affect us? FDI is basically a vote of confidence in the UK economy and as such encourages growth, drives output and increases real wages. A report that studied 73 countries found that increases in FDI have a largely positive impact on GDP growth, especially for countries like the UK that have a highly developed financial sector 4. The prevalence of FDI in the UK market, (particularly in the City) has given Britain its edge in the financial services industry. As of 2017, London was ranked as the number one global financial centre in the word, beating the other contenders of New York, Zurich and Tokyo. To put it into numbers, a fifth of all global banking happens in London, with some 250 banks operating within the City5 . Academics across the board agree that Brexit will have an impact on FDI, the reasons being: • The UK’s place within the single market makes it an attractive destination for investment, as there are no tariffs for EU investors. Operating outside the single market makes it less attractive. • FDI is often tied up in multinational corporations with either the HQ or local branches located in the UK. Managing business networks will become much more complicated if the UK is out of the labour market. • Uncertainty in itself is the most detrimental effect of Brexit. Economic instability and unpredictability will make Britain unattractive to investors 6. 3 The impact of Brexit on foreign investment in the UK, LSE, http://cep.lse.ac.uk/pubs/download/brexit03.pdf 4 ibid 5 ibid 6 ibid PAGE 5 | IS YOUR WORKPLACE BREXIT READY? Why does this matter to a workforce? As previously stated, GDP and FDI are interlinked. A hit on either slows down growth and consequently production. These conditions can impact the reliability of migrant workforces. Foreign nationals can be precarious workers and are dependent on strong economic conditions. Since the mid-90s Britain has been a hotspot for immigration, due to its booming economy. However now that wages have stagnated and the economy has slowed, migrant interest in Britain has started to fall. Net migration from the EU is now down by 28,000. The vast majority of which are from the EU15, meaning a dramatic decrease in educated foreign nationals. However, there is also a significant reduction in immigration from the EU 8; the Central and Eastern European players that account for a hefty chunk of our manual labour and agricultural workforce 7. Conversely British emigration has surged, increasing this year by 28,000. This is a clear indication that residents of the UK are losing faith in the job market. Instead attention has turned to the countries with strong currencies and fast-growing economies, such as Scandinavia, or the other Western-European economic forces like Germany and France. The impact – Facts and figures The impact is hard to predict at this stage, particularly as Britain has seen a spike in real wages (wages in relation to inflation) over the past few months. However, it‘s important to remember that nothing has actually changed yet: Britain is still operating as an active part of the EU. To get a sense of what the likely outcome is, here are a few ballpark estimates from our top institutions: • March showed that almost 200,000 construction jobs could be slashed. • Accountancy firm, Stephen Moore, predicts that 20% of UK restaurants are at risk of going bust. That’s 14,800 outlets. • EY (2017) estimates that 83,000 jobs could be made redundant in the City of London alone after Brexit. 7 T Mercer workforce report, 2017, https://www.uk.mercer.com/content/dam/mercer/attachments/europe /uk/uk-2018-mercer-workforce-monitor-mar-18.pdf PAGE 6 | IS YOUR WORKPLACE BREXIT READY? • The LSE predicts that the financial sector will bleed £17bn in revenue post-Brexit, around 15- 20% of all revenue generated by the sector. This is still only speculation, however it is as close as we can get to an empirical estimation of a Brexit Britain. And for many the outlook isn’t much to write home about. PAGE 7 | IS YOUR WORKPLACE BREXIT READY? 03 The challenges for HR Now we have dealt with the numbers, it’s time to turn to the challenges facing HR and business leaders. Timeframe Article 50 has been triggered. The pin has been pulled on the Brexit grenade and we’re now in a countdown that ends on 29 March 2019. The official exit date looms and yet very little with regards to to the labour market has been set in stone – this is essentially the difference between a deal or no-deal exit. A cliff-edge Brexit is unlikely but not impossible, so there is the further complication of having no hard and fast lines on what migration is going to look like come March 2019. It all depends on how aligned we decide to be on trade with Europe. Consequently employers have very little time and information to work with when it comes to any sort of strategic planning. Data shortages We have already gone through another – though far smaller – paradigm change in legislation this summer: that of GDPR (General Data Protection Rights). One of the areas GDPR is tackling is the type of data you’re lawfully allowed to request and retain from your employees. This means collecting data on demographics, such as country of origin, both from within and out of your company is a lot trickier. PAGE 8 | IS YOUR WORKPLACE BREXIT READY? Depressed wages This links back to GDP and FDI. With the Brexit uncertainty comes a reduction in investment and output.