Immigration: What happened when freedom of movement came to an end

This week the Building the Future Think Tank is serialising its 15-page report looking in depth at the current immigration system and its impact on the construction industry. Over five days we will set out the case for reform, culminating in a set of recommendations. 

In today’s article, we look at the new points-based system and its implications for construction in the years since Brexit. 

The new settlement

It is probably fair to say that overall the introduction of the points-based system has not had the impact on migration patterns that commentators on either side of the debate had predicted. In the immediate aftermath of Brexit, serious concerns were expressed in the construction sector over the likely impact of large numbers of EU workers potentially returning to their native countries without any other migrant or native workers to take their place. 

The new system was introduced in the wake of the referendum, in a transparent bid to limit the number of overseas migrants to the UK. By supposedly managing population flows at the borders, policies to restrict immigration were central to the message of “take back control” which dominated the referendum campaign. 

The points-based system, in this sense, was seen to contrast starkly with EU freedom of movement, under which the UK was unable to set either numerical or policy limits on the number of people entering the country (beyond transition periods for accession states). 

>> Also read: Introduction: why the immigration system needs reform for construction to flourish

>> Also read: Immigration: what Brexit changed and how construction has adapted

But if the country as a whole, and the construction industry in particular, had therefore been expecting immigration to stop – well, it has not worked out like that. Since the introduction of the new system, overall net immigration to the UK (immigrants minus emigrants) has soared to record levels. And while there are a raft of reasons for this – including many unrelated to the points-based system – a contributing factor, given that more than 400,000 work visas were issued last year, has been the relative laxity of the new system compared with what many had expected. 

Meanwhile, the feared mass exodus of the overseas workers who had been residing in the UK up until the 2016 referendum, has – by and large – not come to pass. Ultimately, the data suggests that the majority took up the (belated) offer to seek leave to remain and settled status. 

This has been good news for the sector – and in this regard, the impact has been less severe than expected. But it is also clear that the change has seen a significant reduction in arrivals of new staff into the construction industry from the EU – the construction industry’s historic safety valve during times of high labour market pressure. 

And although the points-based system appears to have been effective in allowing migrants to the UK to work in other sectors, so far it has essentially failed within construction. Use by construction employers of the available visa routes, for a variety of reasons, is close to non-existent. 

So, while some of the outcomes from the post-Brexit policy environment may not be as bad as feared, there is little sense that the status quo is working for the industry. 

Overall migration flows 

By the end of 2020, net migration to the UK had fallen below 100,000 a year under freedom of movement rules – albeit this was a particularly low figure exacerbated by departures during the covid pandemic. But even in 2019, the net immigration figure had been below 200,000. 

However, under the points-based system introduced at the end of 2020, migration has soared, with net immigration to the UK peaking in 2022 at 764,000 people, before dropping slightly last year to a still historically high figure of 685,000. In each of the past two years more than 1.2 million people moved to the UK from overseas, with 85% of them coming from outside the EU. While the balance of reasons for moving has shifted, in both years around a third of the incomers have arrived on study visas; the right to move to the UK granted to Ukrainians and Hong Kong citizens affected by the respective crises in their countries have also impacted the numbers. 

Nevertheless, since the introduction of the points-based system at the end of 2020, the number of non-EU people (who will include dependents) arriving on work visas has steadily increased, from around 70,000 in 2020, to over 420,000 in 2023. 

Departure of EU workers 

Data suggests that the number of foreign-born construction staff working in the UK has not dropped as dramatically as was feared in the wake of Brexit and the end of freedom of movement. The latest official Office for National Statistics data on payrolled staff (to December 2023) indicates there are 92,400 EU workers in the UK construction industry – which is 40% above the level recorded at the time of the Brexit vote in June 2016. It is also marginally higher than the 89,300 in the UK when freedom of movement finally ended in 2020. 

However, this apparent increase is unlikely to provide the whole picture, given that payrolled staff make up only around two-thirds of those employed in the sector, and that anecdotally EU staff prior to Brexit were even more likely than UK staff to be self-employed. The past decade has seen an overall shift in the industry towards payrolled employment, which may in part be what is being reflected in these numbers – rather than increased migration. Additionally, any EU staff who have arrived since 2021 will have been required by the points-based system to do so on a payrolled employment basis. 

Data from the Construction Industry Training Board published last year, based on numbers from the ONS’s Labour Force Survey, is likely to give a better overall picture, albeit it is less up to date. It says the number of migrant workers in the construction industry fell to 9.8% in 2021 – the latest data it could gather – down from 10.7% two years earlier. Larger declines were reported by the ONS during the covid lockdown period, when work levels reduced and many workers decided to return home to their families, with the ONS reportedly finding that 30% of foreign-born workers left the capital in 2020 alone. 

These declines have not been limited to site labour and tradespeople. Professions such as architecture have also reported a drop in overseas staff since Brexit, and to a more significant degree. Prior to Brexit, around 20% of architects working in the UK held EU qualifications, according to the architects register. Now the figure is around 16%, the RIBA told Building. 

It is also worth noting that overall employment in the construction industry remains, at just over 2.2 million, around 40,000 below the figure seen at the time of the Brexit vote, despite a significant increase in direct employment since then. The pandemic period in particular coincided with a reduction of around 110,000 in the number of self-employed staff in the UK industry – with no subsequent recovery evident. This may be partly attributable to overseas staff returning home. 

Overall, however, the sense is that many of those who left during covid have returned, and that a large proportion of those eligible to seek leave to stay have done so. This means that while numbers have clearly reduced, overall declines in EU workers have been more limited than initially expected following the vote to leave the EU. 

Darin Burrows, director at workforce recruitment firm City Site Solutions, which recruits into the London market, told us: “The jingoistic rhetoric of the likes of [Reform UK leader Nigel] Farage really didn’t help, and some [EU construction workers] went back. But lots stayed. I’d say that 80%-90% stayed, more than people expected.” 

Use of the points-based system 

While fewer workers than anticipated may have returned to the EU, it nevertheless appears that the points-based system is not working for construction. This is despite the fact several lawyers involved with the immigration system told Building it was possible for UK employers to register as sponsors within a week under the points-based system, and from then to bring candidates in from overseas relatively quickly. 

For example, Daliah Sklar, chief executive, founder and UK immigration expert solicitor at UK immigration advisory firm DRSI Borderless Jobs, and a member of the panel advising Building on this report, said the bureaucracy is not as intimidating as many fear: “You can get your licence within a week and a half, and you can locate somebody and bring them over to the UK within three to four weeks – that’s definitely possible.” 

Nevertheless, there seems to be little doubt that, overwhelmingly, construction employers are not taking advantage of this. According to a CITB survey of its members last year, just 7% of construction employers had signed up as sponsors under the points-based system – with the majority choosing to employ domestic staff or those with settled status rather than engage with the new visa system. And the situation is the same even for the biggest employers, with the Civil Engineering Contractors Association, which largely represents major infrastructure construction firms, telling Building for this report that just 14 out of its 300 members had signed up as sponsors. Moreover, those that have done so did it primarily to facilitate internal staff moves within multinational companies, rather than to bring in migrant workers, according to CECA chief executive Alasdair Reisner. 

The result of this general rejection of the system by construction employers is that applications for visas issued under the route have been pitifully small thus far. In the past two years (to March 

2024), just 6,461 skilled worker visas were applied for under the points-based system, with 5,677 of those applications granted. Permits issued via the “global business mobility” programme allowing intra-company transfers account for another 1,243 issued visas in the period. 

In an industry estimated to employ 2.2 million people at the end of 2023, these numbers are not going to be enough to make a difference to sector productivity. The number of visas granted in two years represents just a quarter of one percent of the existing construction workforce. 

Anecdotally, Building’s advisory panel was told that more than half of the visas that were granted came through the immigration salary list (formerly the shortage occupation list), which offers simpler criteria for applicants. 

 

In comparison, other sectors with industry structures not so reliant on self-employment seem to have managed to make use of the new points-based system. For example, over the past two years, 214,000 health and social care workers have been granted visas under the new system, and around 35,000 IT workers. 

The survey of Building readers conducted for this research found that the vast majority of industry respondents had not used the points-based system. In total 68% of those who said it was relevant to their business stated they had not used it, while just 18% had, with the rest saying they did not know. 

Members of Building’s panel were also very clear that the system is not delivering for the sector, with a particular concern that there is now no route for bringing in lower-skilled workers – those with qualifications of RQF level 2 and below. Gary Sullivan, founder and chair of construction logistics specialist Wilson James, which is signed up as a points-based system sponsor firm, said: “My HR team dislikes the points-based system with a passion; it’s clumsy and it’s clunky. More than that, it works on the basis of permanent employment in an industry which, like it or not, doesn’t have a guaranteed flow of work.” 

James Butcher, director of strategy and operations at the National Federation of Builders (NFB), said there has been a reluctance to engage by building firms, and that overwhelmingly the problem is one of firms not signing up as sponsors in the points-based visa system in the first place. 

Even the payroll-only data on EU workers in the construction industry, while not telling the full picture, shows some of what this lack of use of the new visa system has meant in terms of numbers. Around 2016, for example, the number of payrolled construction workers from the EU was increasing by about 12,000 every year in the UK. However, over the last couple of years this figure has remained broadly static. 

In a report published last March, Jonathan Portes, professor of economics and public policy at King’s College London and a senior fellow at the Economic and Social Research Council’s UK in a Changing Europe, argued that if pre‑Brexit trends been been allowed to continue, then by as early as the first quarter of 2022 an extra 46,000 EU construction workers would have taken up residence in the UK – equivalent to more than 2% of the workforce. 

Impact on industry 

Official ONS data on payrolled employees from overseas in UK construction appears to suggest that as migration inflows from the EU have slowed, these have been replaced by workers from non-EU countries. By 2016, the number of overseas construction workers from outside the EU had been rising by around 2,500 annually; and this number has increased to 6,000-8,000 annually in the last couple of years. 

However, Portes’ work estimates that overseas workers from outside the EU are still some way short of where they would have been without Brexit, while trade surveys suggest falling migrant worker numbers and very low issuance of visas. 

This implies that any increase in the payrolled employee numbers is more likely to be accounted for by existing overseas workers changing their employment status to payrolled construction staff, rather than by migration flows. 

With the evidence pointing to reduced migration flows into the industry, the concern among employers is that the reduction in workforce flexibility has led to worsening skill shortages and wage inflation. There is certainly evidence of both, but it is hard to disentangle pandemic and general economic effects from any effect of turning off the immigration tap. 

Building’s user survey found a widespread belief in the sector that the introduction of the points-based system had worsened skills shortages, made it harder to hire staff and pushed up wages. In total, 64% of respondents said the new system had worsened skills shortages, 43% said it had made hiring overseas staff harder, and 32% said it had pushed up wages. 

The belief around wages contrasts with academic research, however, which has largely failed to find evidence that migration flows have a direct impact on wage rates, despite widespread belief that this is the case. In recent reports, both the Institute for Public Policy Research (IPPR) and the Migration Advisory Committee have found that, to quote the IPPR, “in the long run migration has no significant impact on overall wages or unemployment”. 

The evidence from official figures is mixed. Certainly, average sector pay has risen 27.4% since the pandemic low experienced during lockdown – a significantly faster rate of growth than that seen over the previous decade. In the decade from 2010 to the end of 2019, wages rose by 19.7%, which is equivalent to just under 2% a year. By comparison, in the period since the introduction of the points-based system, wages have risen 14.9%, equivalent to 5% a year – more than twice as fast. 

However, this more recent period included both the post-pandemic housing-led mini building boom and general inflation in the economy running at unprecedented levels, pushing up wages and making fair comparison difficult. 

This period has also seen a huge increase in vacancies in the construction industry, implying workforce shortages, with the sector reporting a record peak of nearly 50,000 vacancies in early 2022 – around double the typical level of around the mid 20,000s. While it has since dropped back to 37,000 vacancies, as the housing boom faded in the wake of the Truss/Kwarteng mini-Budget, even this number still represents a very high level compared with historic norms. 

However, there is little evidence from official data that construction, despite seemingly being uniquely unable to take advantage of the points-based system, is any worse affected in terms of wage rises and unfilled vacancies than other sectors of the economy – in fact the reverse appears to be true. ONS data shows that since the start of 2021, when the points-based system was introduced, construction has seen the weakest wage growth of any major sector in the economy – by comparison with services, finance and business; the public sector excluding finance; manufacturing; wholesaling and retailing; and hotels and restaurants. 

Likewise, the figure for vacancies per 100 employee jobs in construction is, at 2.4, now lower than the average level for the economy as a whole, and lower than the level in all but five of the 22 industry sectors that the ONS monitors. So, while construction undoubtedly experienced a stretching period of high labour demand in the wake of the pandemic, and significant salary growth, it is hard to argue from the official data that this is any worse than experienced in other sectors. 

There is no new money in the system. That’s meant that projects are not happening because they’re not affordable. That’s a really bad place for industry to be in

Construction trade bodies and professional organisations point primarily to the experience of companies and professionals working in the sector to evidence the impact of deepening skills shortages. Last year, construction trade body Build UK said all its members had unfilled vacancies, with the average contractor member reporting 143 vacancies and the average specialist eight vacancies – collectively amounting to 5% of the workforce. 

At the same time, the CECA said its members were increasingly concerned about skills shortages, with a peak of more than 70% of civil engineering contractors reporting unsatisfactory availability of skilled workers at the end of 2022. 

The CITB this year estimated that an extra 50,300 staff will be needed each year for the industry to reach predicted levels of output, given assumptions about growth, productivity and workers likely to leave the industry or retire. 

Members of Building’s advisory board said the official figures do not capture the dramatic problems being created by skills shortages even now – and that problems are likely to worsen if the UK enters a growth phase. The CECA’s Reisner said: “If I speak to my members about the biggest challenge they face in their business, I would say skills is the number one issue. 

“Official data belies some of what’s going on, because wage inflation in the sector is generally being held down by an inability to pay. There is no new money in the system. That’s meant that projects are not happening because they’re not affordable. That’s a really bad place for industry to be in.” 

Mark Farmer, founder of consultant Cast and formerly the government’s MMC champion, who is now heading up its review of industry training boards, said: “The full impact of the points-based system hasn’t really been felt yet, because we’ve been in a relatively fallow period in terms of construction output. We’ve had the pandemic, then we’ve had a recession. 

“So actually, the real impact in terms of the reduction in access to migrant workers is probably still to come.”