Brexit: What Does The Future Hold?

Monday, 03 October 2016

Two months ago, the UK economy suffered a profound and sustained shock, according to the Bank of England. The Brexit effect was felt immediately and was both significant and tangible. For a few days in late June, it felt as if the UK was in freefall, the future very uncertain.

But as the dust settles, and politics returns to a degree of normality, for many ordinary voters and consumers the Brexit threat has receded. Immediately following the vote, the ALMR moved to reassure its members that nothing would change in the short-term. Nerves have steadied, and the market has begun to stabilise, to settle into a new era where we live with prolonged uncertainty and debate about our future relationship with Europe. Plus ca change, plus c’est la meme chose!

Despite a shake-up within the Government, any plans to initiate the withdrawal from the EU appears to be unfolding at a slow pace. The latest suggestion is that Article 50 – the formal firing of the starting gun for withdrawal – will not be triggered until late next year and Brexit could be three years away. That delay is helpful in that it ensures a pragmatic and careful period of consideration before negotiations start, but it does mean a drag on future economic growth. The best estimate is that the effect of Brexit will be to knock that back by two years.

The withdrawal will bring challenges but it will also bring opportunities, and the ALMR has been working closely with the Government to ensure that the needs and concerns of the licensed hospitality sector are taken into account. Our immediate concern is the status of existing EU workers and ensuring that staff members have the right to remain, but also ensuring that we have the right migration policy as a whole to meet our future skills needs.

A survey of business leaders in eating and drinking out carried out by CGA Peach in the immediate aftermath of the vote showed that confidence across the sector had crashed. Just 15 percent of CEOs were feeling confident about future growth prospects – down from 75 percent in January of this year. Over half of those companies had downgraded their growth forecasts for the next two years and a fifth had reducted their investment as a result.

In the short-term, pub and restaurant operators are concerned about the effects of the vote on consumer confidence – there are some signs of a fall in discretionary spend – and the fall in sterling leading to rising production costs. However, it is the availability of people which the leading long term worry, with three-quarters of business leaders concerned about this and just over two thirds concerned about skills shortages in their business.

Hospitality and tourism are particularly reliant upon migrant labour with a quarter of the workforce made up on non-UK nationals – split almost equally between EU and non-EU nationals. This compares with just 14 percent in retail and 15 percent in travel. Over the last five years, the number of migrant workers has increased by 22 percent with the majority of this increase coming from EU migrants and almost all of them in bars and restaurants.

Over the last 4 years alone, the restaurant workforce has swelled by 120,000 with 49,000 of those being chefs. Over the next 4 years, we already know we need to recruit another 220,000 to hospitality and with over a quarter of vacancies already considered ‘hard to fill’, battling the skills shortage will be the most significant long-term effect of Brexit.

The ALMR is already working closely with Government to provide solutions for future EU migration and secure a right to remain, but we also need to redress constraints of the current migration system. While EU migration has soared, the traditional routes have all but dried up – Aussies, Kiwis and South Africans have all suffered as a result of a points-based system which focuses on high skills and high wages. Going forward, we need one which is directed at areas of greatest skills shortage and where real training can be delivered.

In the short-term, we also need to see the Government take steps to encourage business and ensure that additional burdens are not placed on employers at this time of uncertainty. In the first instance, we have asked for a pause on the Apprenticeship levy, due to take effect from April 2017, which is currently facing a £1.5bn shortfall in funding originally earmarked to come from the European Social Fund. We have also recommended that a second successive increase in the Minimum Wage in April would not be helpful at this time and that the NLW metrics be reviewed in light of Brexit.

The last six weeks have thrown up a number of uncertainties for the licensed hospitality sector and for UK politics and business in general. These are uncertain times for us all, but the ground-breaking developments of late will provide us with an opportunity to push for a better deal for the UK’s pubs and bars.