Corrected oral evidence: Brexit and the labour market

Oral evidence, 8 March 2017.

The Chairman

Ms Holloway and Mr Thomas, welcome to the House of Lords Economic Affairs Committee and our inquiry into Brexit and the labour market. Thank you very much for your written submissions, which we have read carefully, and hopefully inwardly digested. Perhaps I can start by asking you about the difference between low-skilled and high-skilled jobs. The Government have made a point of talking about high-skilled jobs, but it would appear from the material you sent us that there are quite a lot of lesser-skilled jobs that you fill through immigration. Could you tell us, first, the extent to which your sectors are reliant on EU workers, and, secondly, the reasons for that reliance, presumably lack of domestic supply of such labour? Could you give us your thoughts on those matters?

Ms Charlotte Holloway

First, I thank the Committee for inviting techUK to give oral evidence on this important and critical subject for the future of the UK tech sector. Our sector has always had a problem with definition of roles, and applications and shortages therein, but from recent research we did with Frontier Economics looking at digitally intensive and digitally producing sectors, we know that we employ about 3 million workers in the UK, and about 18% of them are foreign born. About a third of those are from the EU, so about 7% of the digital sector’s workforce is from the EU. Currently, there are no official statistics to enable us to do a thorough breakdown of the divide between what we traditionally call high-skilled or low-skilled, but from our conversations with members at techUK—we represent about 1,000 tech companies, from smaller ones through to FTSE 350 multinationals—we know that their concerns are oriented principally towards the high-skilled end of their workforce, particularly roles in cybersecurity, and for data analysts and product and software developers, where there is a real shortage. An EU workforce and openness to talent from other member states—from eastern Europe, France and other markets across Europe as well—has undoubtedly helped to fill and alleviate some of those shortages, particularly in software roles. For the low-skilled end, the data is patchy, but anecdotally we know there are concerns—for example, in the telecommunications part of tech, in mass infrastructure builds, and in some of the objectives the Government set out in their digital strategy on connectivity. Some of those major building projects will require workers to deliver on the infrastructure that is so vital for the future of the UK’s digital economy.

Mr Tim Thomas

Some of this will be familiar given what has just been said. The first issue is one of data and knowing how many workers we have in our sector. There are various data sources. It seems that there are about 300,000 EU workers in the manufacturing sector, which is about 10% of all EU workers in the UK. That comes from various official surveys, such as ONS. It is very difficult for our members to understand in the first place exactly how many EU workers they have because of the difficulty of gathering evidence—the data. An employer will conduct a right-to-work check when they employ someone and they retain the passport on file. I have not yet found any of our members who thereafter periodically checks whether the person has changed their status. Why would they? If they have a 10‑year Polish passport on file there is no reason to check. It may well be that they employ an EU worker today, but that person may not be an EU worker for a significant period of time. Data is an issue. As to what those individuals are doing within our sector, all we can say is that from our survey evidence the vast majority are in highly skilled roles. The next problem is: what is a highly skilled role and what is a lower-skilled role? For our members, a higher-skilled role is NQF level 6 and above, which is degree level and above: a qualified engineer. However, we need people with various types of skills; for example, we use individuals with craft-level and technical-level skills, such as mechanical and electrical engineers, and they might be HND or HNC. In Home Office terms that is not highly skilled; it would be a lower-level skill. However, we need those workers to make sure our members can keep producing in the UK. As regards what will happen in the future, irrespective of the context of this conversation, we know that demand for those skills is going to increase: 59% of our members tell us that the demand for production-related technical skills will increase; 72% are concerned about current access to skills; and more than 50% say that demand for technical-level skills is increasing. We face a situation where currently we have a shortage, our demand is increasing and potentially we will have restrictions in the future that blunt our members’ access to what I would call lower-level skills. Just to reiterate the point, by lower level I mean anything less than degree level.

The Chairman

You say in your written evidence that there is a stubborn 35% of jobs that are hard to fill.

Mr Tim Thomas

Yes.

The Chairman

Why is that?

Mr Tim Thomas

It is a combination of factors. When we survey our members and ask why jobs are hard to fill, we get a variety of answers. The top ones are lack of technical skills among the applicants, lack of experience among the applicants and lack of applicants—full stop—for particular roles. There is a blend of factors as to why we have a number of hard-to-fill vacancies in our sector. I think there are more hard-to-fill vacancies in manufacturing on the Home Office shortage occupation list than in any other industrial sector.

The Chairman

Are universities reacting to that? You need more engineers. Are universities saying they should increase the number of engineering students, for instance?

Mr Tim Thomas

Not substantially. We have about 30,000 engineering students and 50,000 apprentices a year. The numbers are not going up significantly. EEF is an industrial organisation, but it is a training provider. We have two apprentice training schools. We train 350 apprentices a year, so we know at first hand what the blockage is. The blockage is quite simply a lack of applicants with basic level skills such as maths and English. That is why the figure of hard-to-fill vacancies is stubbornly high.

The Chairman

Not a week goes by without some anxiety arising about robots and artificial intelligence taking over from people. Manufacturing would seem to be the place where that is most likely to happen soonest, so what is the near-term impact of those developments?

Mr Tim Thomas

We do not see the near-term impact as a reduced demand for roles. We see the same demand but for different roles; this is the fourth industrial revolution and there are digital skills that our members need today. To share with you a brief anecdote, one of our members recently invested in some new technology of the kind you described and looked for workers who could use it. The nearest workers they could find were in the Czech Republic. They brought over a team of workers from the Czech Republic to complement their capital investment, but they are now concerned that, were they to lose those workers, their capital investment would be at risk.

The Chairman

In the tech sector a lot of companies have a relationship or a partnership, maybe even a subsidiary, in India to provide tech skills. Is that a practice widely followed in the tech sector?

Ms Charlotte Holloway

A handful of our members would operate that practice, but I would not say it is widespread in the discussions we have about filling their future workforce. Lots of companies we speak to, particularly those that made significant investments in the UK after the referendum, are attracted to locate people in the UK because we have a fantastic ecosystem of factors. Part of that ecosystem is about openness to international talent—from both the EU and more internationally—which has been part of the UK tech success story in recent years. The UK and Indian markets have strong links in technology. I would not say that it is just about certain functions, as I think you are implying. The UK-India tech relationship is strong, as is the UK’s relationship with other markets, but helping companies that operate across those markets move quickly and across countries is very important.

Lord Lamont of Lerwick

To what extent do either of you think you could fill the gap by increased wages or by investing in training? One piece of written evidence put to us—I cannot remember whether it was the present or former chairman of the Migration Advisory Committee—was that the idea of labour gaps or absolute shortages was a rather slippery concept and there would be a market clearing price. Sometimes we were not prepared to try that out, and for some people immigration was a bit of a get-out-of-jail card rather than investing or doing the training themselves.

Mr Tim Thomas

Our sector is one that trains, and we train very heavily; 75% of our members currently have apprenticeship programmes. In our sector an apprenticeship is typically of four years’ duration, and it will cost one of our members between £90,000 and £100,000 to train an apprentice. There is already substantial private sector investment going into apprenticeship training. Many of our members sponsor students, and some also sponsor faculties, to make sure they get the graduates they need. We are already substantially training the UK workforce. We could train more. In answer to the question about whether we could fill the gap, we could. We could train more if we had better-quality candidates to train. We have two apprentice training schools in the West Midlands at Aston and Birmingham. In the last academic year, we sought to train approximately 350 apprentices at our Aston school. We got slightly under that number; we got under 300 in the end, and the major blockage was a lack of applicants in that area of the country. We had approximately 5,000 applications. The majority of them did not have maths and English. As regards the blockage to training, EEF would like to take on 1,000 apprentices in the foreseeable future and fill that gap. I do not think it is a question of salaries; it is about the number of people with skills that our members need. We are quite prepared to pay for the training and to train more people; we just need the people to train.

Lord Lamont of Lerwick

Why are there still gaps if you are doing so much training? Perhaps you are not doing enough training, expensive as it is.

Mr Tim Thomas

There is not much more our members could do to train additional people in the labour market. EEF is the example. We would train more if we had more people we could train.

Lord Lamont of Lerwick

To what extent are you complaining about lack of skills through the education system? Is that primarily your complaint?

Mr Tim Thomas

That is one of our complaints. One of our complaints would be that at the age of 16 we do not have enough young people emerging from school with the basic skills our members need, which would be a good GCSE pass in maths and English, and science if that could be managed as well. Thereafter, our members will invest in the training. There is no question of our members not paying for the training, or EEF not opening another training centre. That we have done recently. It is the blockage at the entry point that we find frustrating.

Ms Charlotte Holloway

I echo some of Tim’s points, but through a slightly different lens. You asked whether we could fill the gaps through increased wages. The UK tech sector has very high average wages of about £55,000 a year, as evidenced by the Government’s own Tech Nation report. As regards the skill shortages we face in the UK, a recent European Commission report outlined that the UK has the most pronounced digital skills shortage in the whole of Europe, and about a fifth of all vacancies in digital roles across Europe are in the UK. It is similar to Tim’s point. It is fantastic that we are creating these roles in the UK, because UK tech is a fantastic success story and a leader in Europe and increasingly across the world, but if we are not able to fill those roles by other routes, through domestic skills and internationally, there will be a big problem. We have been talking repeatedly about what is essentially a triple hit on the tech companies in our membership. We are creating roles faster than we can fill them. The MAC shortage occupation list has relooked at the fact that a lot of the titles of roles in digital need to be updated to keep pace, and we encourage the Government to continue to look at tech because of its fast-pace nature. Last week, with the Government’s digital strategy, industry committed to creating 4.5 million new training roles for digital skills across the country. Industry knows it has to step up; it is looking at how it applies the apprenticeship levy and makes it fit for the jobs of the future. There are a number of initiatives in universities, and apprenticeships and so forth, on which we can give the Committee further details, but there is a triple hit. Essentially, we are failing to fill roles with either domestic or international talent at the moment.

Lord Lamont of Lerwick

If we have this great skill shortage compared with other countries, could it not be simply that, because we are able to import people to do it, we have not invested enough in skills through companies, whereas other countries, such as Germany, have?

Ms Charlotte Holloway

Something unique is happening with the evolution of digital technologies in the UK. There have been a number of initiatives that will help the domestic talent pipeline to provide the UK workforce for those jobs in the future. That will come through, but it will take a number of years. Things like the computing curriculum in schools and some of the changes that have been made in higher education will take time to come through. Although there are good signs about how we might fill those roles, they will take a number of years to take effect. Similarly, with some of the moves on apprenticeships, we need to think about how we make them flexible to meet the fastest-moving parts of the economy. For example, how do we make the levy work for digital roles rather than lower-skilled roles?

Lord Sharkey

The Chartered Institute of Personnel and Development published a labour market outlook last month. It found that 29% of employers had evidence that EU nationals are looking to leave their organisation or the UK as a result of the referendum, and 27% said EU nationals were considering leaving in 2017. There has also been a lot of anecdotal comment about the tech industry and people moving out of the UK, or certainly being tempted to do so. Do you see any evidence that EU workers in your sector are looking to leave?

Ms Charlotte Holloway

EU workers have played a role in the UK tech sector across a number of fronts. I will take a few examples. Entrepreneurs who choose to locate or found their start-up in London, Manchester or Bristol will look at a range of factors as to what makes the UK the best place to start and grow their business. We talk to the Government regularly about how we can best create conditions for them to continue in the UK, but it is a competitive global marketplace out there. Emmanuel Macron, for example, said recently that he wants to attract many of our entrepreneurs. We think there is a lot we can do to ensure that the UK, particularly London, continues to be a world leader in tech for people looking to found or grow a business. To move on to skilled workers and some of the roles around cyber and big data that I outlined earlier, we do not yet fully know how that is affecting companies. Those sorts of points were made in the CIPD report. It is something we will be surveying our members on this year. We need certainty from the Government on the right of EU citizens to remain and about what comes next. It has to be a priority in the interests of our members, from the stats I laid out earlier. Finally, we have seen a drop in applications in the higher education aspects. Who is applying for post-doctoral places? What do the UK’s higher education institutions mean for the tech and broader commercialisation pipeline? How are we doing research now to feed into commercialisation down the line? We have already seen a drop in some numbers, on which we can provide the Committee with further evidence, from other sources, but our concern is that, if you start blocking elements of that pipeline now, it could have an impact on the ability to create successful spin-outs and the commercialisation of new products going forward.

Lord Sharkey

When will the results of the survey be available?

Ms Charlotte Holloway

We will be conducting one in the coming months, certainly in time for the end of the Committee’s inquiry.

Mr Tim Thomas

We have a survey going out into the field in late March/early April, with a report to be published probably in June. We have various other survey evidence already. We know that 27% of our members already find it hard to attract EU nationals. We launched a report recently on EU affairs. We held six or seven dinners in regions around the country with different groups of members, from London to Leeds to Manchester. At all those meetings, most of which I attended, it was remarkable that about half the members—the dinners were for about 25 members each time—had a similar experience: first, that EU nationals were leaving; secondly, that applications from the EU were drying up. That was a consistent message. Irrespective of the manufacturer or region of the country, around half consistently said that applications were drying up; they were not getting the applications, and they had seen some people leave. The experience of some of our members was that over Christmas some EU nationals went home for the holiday and never returned.

Lord Sharkey

Can you say briefly what the effect on your industries would be if the current system of immigration for non-EU nationals was applied to EU nationals after Brexit?

Mr Tim Thomas

I do not know whether the Committee has seen the chart prepared by Oxford Migration Observatory. If not, I can forward it to the Committee clerk. It is a 2015 chart that maps those rules on various sectors of the economy. The current rules would mean that approximately 75% of those working in manufacturing would not have qualified to come to the UK. If we take the rules as they will be from this April, approximately 82% of the EU nationals in manufacturing would not have qualified to come to the UK. The mapping is across all sectors from banking and finance to agriculture. Even in banking and finance—not directly our sector—it would mean that about 72% of EU nationals would not have qualified to come to the UK.

Ms Charlotte Holloway

Going back to my earlier point, a lot of newly created roles defy conventional measurements for standard occupation codes and so forth. Given what is happening in the digital economy, it becomes much harder to map them in things such as the Migration Observatory work. The non-EEA migration system has not worked as well as it could have done for UK technology firms. We have consistently called for changes to the tier 2 visa system. We are concerned about the impact on companies of some of the changes that will come into force from April—increases to the salary threshold, the additional skills charge and so forth—which will create additional burdens. We have been calling for the creation of a smart migration system that is much more data-driven, to meet real-time economic needs. We need to think about how we can look at this outside the Home Office, and work closely with the Treasury and so forth on the kind of policies and responsiveness we need for each tier. As I said, tier 2 has been an area of concern for the sector for some time. There have been reforms to tier 1, but we think that more can be done to be responsive to companies that are moving incredibly quickly and want to be open to international talent.

Lord Forsyth of Drumlean

At the dinners you have been having around the country, when people say that workers are leaving, are they individuals who have been employed for very short periods of time?

Mr Tim Thomas

No, they are people who have been employed by our members for a considerable period of time.

Lord Forsyth of Drumlean

What does “a considerable period” mean?

Mr Tim Thomas

More than five years.

Lord Forsyth of Drumlean

Why are they worried about their status when they have the right to remain here?

Mr Tim Thomas

First, their status is not confirmed.

Lord Forsyth of Drumlean

We are still in the European Union and we are still subject to European law. If they have been here for five years they have the right to remain here, so what is it they are worried about?

Mr Tim Thomas

They are worried about their families. There is one direct piece of feedback from one of our members who was a Polish national. She said, “It is not just me; it is my extended family in Poland. Will they be able to come to the UK to see me?” It was also about her children and their access to public funds. In part, her children’s access to public funds depends on her nationality. She is Polish. That is why she is concerned.

Lord Forsyth of Drumlean

When you say you need certainty about the rights of residence of EU workers, it includes their extended family and their right to come to this country.

Mr Tim Thomas

It would include the pool of rights, which I agree is extensive, that currently they have by virtue of EU law. The questions they have are not just about themselves.

Lord Forsyth of Drumlean

You think that is the main driving factor for people who would be entitled not only to residence status but to apply for British citizenship. Those people now want to leave, even though nothing has changed.

Mr Tim Thomas

All I can tell you is that I have a member who has told me that a large number of workers—

Lord Forsyth of Drumlean

One woman.

Mr Tim Thomas

No. We had many dinners, at least six round the country. It was not just one member; there was a cohort at each dinner that all had a similar experience of EU workers leaving.

Lord Forsyth of Drumlean

Can I ask you about something you said earlier? You said you could not get young people to take apprenticeships because they do not have maths and English. Did you mean English qualifications?

Mr Tim Thomas

Yes.

Lord Forsyth of Drumlean

It is easier to recruit people with English qualifications from the European Union than from Britain.

Mr Tim Thomas

It is easier to recruit people with a technical qualification in some cases.

Lord Forsyth of Drumlean

You said English and maths.

Mr Tim Thomas

That is if we want to train in the UK. An English apprenticeship framework or standard has certain elements, one of which is a level of attainment in maths and English; otherwise, the person does not qualify as an apprentice.

Lord Forsyth of Drumlean

What efforts are your members making, for example, to work with Kenneth Baker’s UTCs, schools and further education institutions so that people who do not have maths and English can do further study and join apprenticeships?

Mr Tim Thomas

First, in some cases, our members will just pay for it, quite frankly. They cannot get it from the public purse so they pay for extra maths and English tuition. Secondly, you mentioned the UTC. The JCB UTC is one of our members. That is an example of an engineering UTC. Other members support free schools and colleges.

Lord Forsyth of Drumlean

Would you be able to give the Committee a note on the number of youngsters you are supporting in that way who do not have maths and English?

Mr Tim Thomas

Certainly.

Lord Forsyth of Drumlean

It seems to me that, if you are right about the consequences, the industry ought to be making a major effort to train people who may have gone through school and may not have English and maths but who would be very well suited to a technical vocation.

Mr Tim Thomas

And our members do. I simply make the point on the part of the employer that, while we will pay £90,000 to £100,000 to train, the expectation is that some basic qualifications are obtained pre‑16. I have brought a wide range of materials that I can leave with the Committee clerk that evidence what I have said.

Lord Forsyth of Drumlean

Ms Holloway, you said that there were particular problems in the tech sector in London. What about the rest of the country? If you cannot get labour in London, what about doing stuff in Newcastle, Manchester or Birmingham, even Glasgow?

Ms Charlotte Holloway

I referred to London because in many respects it is one of the world’s leading technology cities, if not the leading one, but our vision for UK technology leadership has to extend across the country. The fastest-growing tech cluster in the UK is in Bournemouth, so there is real opportunity right across the country.

Lord Forsyth of Drumlean

Is there anything north of the Wash?

Ms Charlotte Holloway

You can look at Newcastle and Sunderland Software City and at what is happening in Manchester’s creative quarter. There are lots of pockets of excellent work. We work with our members across the country, and the Government’s Tech North initiative has been doing a lot to that effect.

Lord Forsyth of Drumlean

Are your members actually thinking of dispersing their activities to parts of the country? A lot of the problem in London is that people simply cannot afford to live there because of the high cost of housing. There are lots of young people looking for jobs and careers outside London who find it very difficult. Are you doing anything?

Ms Charlotte Holloway

If this is still to do with how we think about more entry points to the sector and so forth, alongside the launch of the Government’s digital strategy last week, as I mentioned, the industry committed to digital skills training for 4.5 million people. That is not just for young people, but people of all ages in work, and a number of companies made efforts to that effect. We hear anecdotal evidence about the mobility of people between cities, or people looking to go to Manchester or Newcastle because they like what is going on there. One of our large members, Sage, does a lot of work with its local ecosystem of tech companies to bring in young people and ensure they get good-quality work. There is a real mix.

Lord Forsyth of Drumlean

You made a very good point about the current points-based system for non-EU workers and its deficiencies. How would you design a new work permit system that worked for EU nationals and non-EU nationals, or do you think we should have different systems for EU and non-EU nationals? I am looking ahead to our leaving the European Union.

Ms Charlotte Holloway

Until we know some of the direction of travel on the exit negotiations, it is a little difficult to pre‑empt how fully integrated it will be.

Lord Forsyth of Drumlean

Assume we have done what the Prime Minster says and that we have left the single market and we are outwith the customs union.

Ms Charlotte Holloway

There is a strong case for making a system that is simpler and more straightforward for businesses to navigate when trying to access talent, and that makes it easier, not harder, both for potential employees and for employers themselves. If there are different types of model—EU and non‑EU—it could represent additional difficulties and bureaucracy that companies have to think about when processing different types of employee applications. We have been looking for a smart migration system that is responsive to where we know there are shortages in the economy. With the shortage occupation list, and for cyber roles, big data roles and so forth, we should be looking at how we make it easier to get the right talent in regardless of whether it is EU or non‑EU. We have a paper coming out in the coming weeks—we are currently finalising and agreeing positions on it—which will look at what that system could and should be like. We know it has to be much more data-driven and responsive to the real-time needs of very rapidly moving companies that need to fill those roles, particularly smaller scale-ups that need that talent sooner rather than later. I realise I have dodged the question slightly.

Lord Forsyth of Drumlean

It was a good politician’s answer.

Ms Charlotte Holloway

When we think about the EU and non-EU question, there is a strong case from a business perspective. How do we make the point of entry in a skills migration system as straightforward as possible? It needs investigation. We need to look at the knock‑on effects and what the red tape burden will be. Which types of roles we are looking to fill have economic spillover, and how do we deal with this on a human level? The tech sector is all about ecosystems and people working together in clusters. How do we make sure that there is responsiveness to how people, many of whom are globally mobile, will come to the UK?

Mr Tim Thomas

We would not favour simply cutting and pasting our current non‑EEA system, because, as Charlotte indicated, it is bureaucratic and expensive; it takes a very long time.

Lord Forsyth of Drumlean

I have read the evidence and the criticism of the present system. I am really asking what you want.

Mr Tim Thomas

We would want a new work permit system. If the basis of the question is that we are outside the customs union and outwith the single market, we would favour a new work permit system for EU workers.

Lord Forsyth of Drumlean

But different from non-EU workers.

Mr Tim Thomas

Yes.

Lord Forsyth of Drumlean

Why would you want to discriminate EU and non-EU?

Mr Tim Thomas

Because I am presuming that our system for non‑EEA workers, the rest-of-the-world workers, will continue as it is at the moment.

Lord Forsyth of Drumlean

Why?

Mr Tim Thomas

Because at the moment we have considerably stricter requirements for non-EEA workers than for EU workers. If we simply cut and paste the non-EEA rules to EU workers, the result is that most EU workers will not qualify to come to the UK.

Lord Forsyth of Drumlean

I understand that, but the evidence we have had is quite critical of the current system for non-EU workers. There will have to be a system. My first question was whether there should be a difference between EU and non-EU workers or whether we should have one system. I think Ms Holloway said we should have one uniform system.

Ms Charlotte Holloway

If we get it right.

Lord Forsyth of Drumlean

I am asking you how we get it right. You are critical of the system, so what do you actually want?

Mr Tim Thomas

I want a separate system for EU workers.

Lord Forsyth of Drumlean

Why?

Mr Tim Thomas

Because we can have a separate system that allows us far greater access to EU workers than we would have with a non-EEA system.

Lord Forsyth of Drumlean

Why do you think that people coming from Germany or Italy should be treated differently from people coming from India?

Mr Tim Thomas

For a start, because they are a much closer labour market. It is a labour market we have had access to for 40 years. If, as of 2019, we suddenly cut ourselves off from that labour market, the impact on our members will be profound.

Lord Burns

To pursue this further, I think Ms Holloway is saying that, if it could be made to work, she would prefer the EU and non-EU systems to be the same.

Ms Charlotte Holloway

If they are well aligned from the perspective of business and the way they interact with the process and the bureaucracy.

Lord Burns

I am not suggesting that we stick with the present non‑EU system, but in an ideal world you would like a system that is the same for EU and non-EU. You would like it to be less bureaucratic than it is. Presumably, you would also like it to be able to include non-skilled workers under the present definition than just skilled workers, and possibly you would like to have different definitions for those two classes. Following up what Lord Forsyth said, we are not just interested in saying that some things are a given and we have to design around them. We take the position that we want to gain more control over migration. What is the system as a whole that would work most effectively for you but would also meet the Government’s aim of having a controlled system?

Mr Tim Thomas

If that is what is on offer, which is a single system—

Lord Burns

I am not saying it is on offer, but it seems to me that, if that is the system you want, you should be trying to design for us the system you would like to see and put it forward, rather than keep making certain assumptions about what it is that is given.

Mr Tim Thomas

In that case, we have articulated recently what we would like of the system. We have articulated that in the context of the UK’s exit from the EU. However, it could quite easily extend to all workers coming to the UK to work. With that extension, I can articulate what we want. We would want a system that divides workers into various classes according to the needs of the economy of the UK. We accept there would need to be evidence of need, but we are well versed in providing evidence to organisations such as the MAC. With that given, we would have various classes of workers. The ones we have suggested are a class for highly skilled workers, which I hope would be fairly uncontroversial in the context of the current debate; and we would need intermediate-level skills—I have already articulated what they are—below degree level. We would also need a class for training, so we would need some free access to non-UK workers for training purposes. Youth mobility and the development of younger workers is another category we see as very important. We need to deal with intracompany transferees—I can expand on that if necessary—in addition to students and short-term workers here for less than 12 months, and posted workers. I agree that is quite a long list, but it has been extensively tested with our members. The last point is transition. We cannot suddenly go from a system that we have worked with extensively for a long time to something completely alien come 2019, and that completely ignores what we do with EU workers in the UK at whatever point in time we decide to make the shift.

Lord Burns

Ms Holloway, does that work for you?

Ms Charlotte Holloway

I guess the reason there might be some reluctance to go all out in committing to the question of parity is that the EU has been and will continue to be a hugely important market for UK technology firms, with a majority of tech exports of services and products going to the EU. We need an outcome from the negotiation process that ensures that that key market, with linkages right across member states, continues. We would not want to give the impression that the EU is not going to be a continuing market or that mobility of labour—people as people—will not still be an important part of the tech ecosystem.

Lord Burns

But you would not mind if the non-EU system was levelled up to what you would like to see for the EU system.

Ms Charlotte Holloway

If it is responsive to the needs of the sector and ensures that the UK is at the forefront as a place to start and grow and invest in a tech company, absolutely.

Lord Lamont of Lerwick

Does the present system not discriminate against people in your sector from Asia and India, say? It is much more difficult for you to recruit someone from India than from the EU. Surely it would be an advantage. Why should the system discriminate against Indians?

Ms Charlotte Holloway

In the period ahead, we need to look at strategically important markets and where the shortages are. As part of the Prime Minister’s visit to India, with our counterpart NASSCOM we called for migration between our two countries to be looked at in the period ahead. It was mentioned at the outset that India, alongside a number of other countries, is an example where there are strong synergies between our two markets. Coming back to your point about what we want the system to look like, it would be about exceptional talent and founders and skilled workers. We would want a relook at post-study work visas—how we ensure that talent stays in the UK after study. We think students, whether EU or not EU, should be excluded from the net migration target. As Tim says, there are responsiveness issues on short-term contracts that will need to be addressed in any system going forward. A lot of tech companies in the UK will be going to Europe to do short-term things. It should also include ICTs; tech has been one of the predominant users of the intracompany transfer route.

Lord Burns

On intracompany transfers, until two years ago I was chairman of Santander in the UK. We had a lot of people who moved backwards and forwards between Madrid and London, particularly in the IT sector. If we had an IT job to be done, people from Spain might very well come here and do it and go back. They are largely in the same category as students. They are people who come here to do a job and then they go back again. Do you require any special treatment for intracompany transfers?

Mr Tim Thomas

The answer is yes. I talked to a member yesterday who has approximately 20,000 ICTs a year. If the UK wishes to be a place that attracts inward investment, we need to allow ICTs. Certain parts of the UK manufacturing sector rely on ICTs—for example, energy and transport.

Lord Burns

These are people who largely go back home when the job is done.

Mr Tim Thomas

Exactly. They are here to do a job. They may come to the UK. We have spoken about training. They may want to come to the UK to train the UK workforce, and it would seem a rather odd situation where we do not want people to come to the UK to train our workers.

Baroness Wheatcroft

Mr Thomas, I would like to take you back to the discussions you had with members over that series of dinners. You said it was surprisingly uniform and that at each of them half the people said they were experiencing difficulty with EU migrants going home and not coming back. Was there anything you could draw from that which distinguished why half of them suffered and half did not?

Mr Tim Thomas

No. I said in opening that we have a survey that goes out to our members. What we know from our members about how many EU nationals they employ is limited. What we know about their density is even more limited. By density, I mean that, although we know that a certain proportion of our members employ EU workers, and that is a useful statistic, we do not have a good idea of the density within the company, other than the fact that it is hugely variable. It could be a density of a couple of per cent or more than 50%. It may well be that it was the members with greater density who were experiencing the problem, or it might have been certain job roles. I am afraid that is information we do not have, but we are getting it.

Baroness Wheatcroft

Can I ask both of you about the regional impact of migration and whether there is any region of the country that you think is particularly dependent on migration, and, if so, whether you think we ought to be looking at some sort of regional immigration policy? Ms Holloway, can you imagine a regional immigration policy working?

Ms Charlotte Holloway

We have been following the debates at City Hall, PwC, City of London and others on this point. From discussions with our members, we believe the case is yet to be made. Tech companies have a higher density in London and the south-east, but we want a system that works for tech companies thriving right across the UK, not focused solely on urban-intense areas such as London, Manchester and so forth. In part, this relates to the previous question. There are companies in our membership with a much higher proportion of EU workers than the figures I outlined at the beginning. They are often more likely to be located in London around, say, the Old Street cluster, the Croydon cluster or similar areas. For our members who have a pan-UK presence, the case is yet to be made on what regional visas will mean for them. I am sure that for some based solely in London it looks like an attractive offer, but we really need to look at what works for the UK tech economy as a whole. We feel there is more to be done for that case to be convincing. A lot of the UK tech strength is along the M4 corridor, which would not fit neatly into a regional visa structure, so there are considerations that still need thinking through. We have ongoing discussions with our members on this point.

Mr Tim Thomas

That the case has not been made is a good way of putting it. Our members do not organise regionally. We organise EEF broadly regionally, but it depends on what you mean by regions. Our members are multi-sited, which means that they could deploy a worker in one area and not another. We have a particular need for green technology skills in the north-east. Potentially, that means we could have great green technology in the north-east but not in the south-east. That would be a barrier, to say the least, and perhaps an odd situation. It could also lead to unintended consequences in the wider labour market. I assume that no one in this room is suggesting that we will radically alter employment law in the UK as a result of this potential policy, but what would you do if there was a redundancy situation in one area but jobs in another, and someone had a regional visa in one area but not the other? Would they be accelerated in the redundancy process, for example? Could you have a TUPE transfer? I could go on, but you can see that the application of employment law might need to change if we had a regional visa system. It would also need considerable administration. You might have a regional visa inside the M25, for example, and that might not fit too well with business expansion.

Baroness Wheatcroft

The difficulty of policing such a system is obviously high.

Mr Tim Thomas

Whatever system we migrate to, if you will pardon the pun, will need considerable thought. The feedback from my members is that it will be highly automated. My first thought is that we could use HMRC systems, but now it appears that that is probably more hope than expectation.

The Chairman

That brings this session to an end. Thank you very much for your evidence. If you would like to send us a note, Mr Thomas, on what you think a new permit system might look like within the next few days, we can take it up with the Minister next week. Ms Holloway, if you have anything to add, please let us know. Examination of witnesses Mr Tim Martin and Ms Andrea Wareham.

The Chairman

Ms Wareham and Mr Martin, welcome to the Economic Affairs Committee. Thank you very much for joining us today. Lord Darling will put the first question.

Lord Darling of Roulanish

Can I ask you what proportion of your respective workforces are EU nationals, both skilled and unskilled?

Ms Andrea Wareham

Currently, 65% of our workforce at Pret A Manger are EU nationals, not including our British workforce of course. We have 110 different nationalities within that, and British is our biggest single nationality.

Lord Darling of Roulanish

I should have made myself clear. I want you to distinguish for the purpose of this inquiry EU nationals and British citizens. I know we are in the EU at the moment, but I am trying to get to the obvious. Could you give me the proportion who are non‑British EU nationals?

Ms Andrea Wareham

It is 65%.

Lord Darling of Roulanish

That is a very high proportion.

Ms Andrea Wareham

Yes.

Mr Tim Martin

I do not have a figure; we have not done a survey of our whole company. I did a survey of 100 of our most recently opened pubs a couple of years ago, and it was a very low proportion. They were outside London; it would be a much higher percentage inside London. Only 5% were not born in the UK, and about half of those were from the EU. It is much different in London, but Wick, Fort William, Penzance or Pontypridd tend to have a high proportion of UK-born workers.

Lord Darling of Roulanish

Can I ask about the breakdown between skilled and unskilled? I know it can be difficult to say who is skilled and who is unskilled, but I want to get an impression from you.

Mr Tim Martin

If you said that people who become managers are skilled—in our company there are normally five or six of those per pub—a much higher proportion would be from the UK, but proportionately EU workers become managers as quickly as UK workers in my experience.

Lord Darling of Roulanish

What about Pret A Manger?

Ms Andrea Wareham

If you took shop managers as skilled labour, I would say 10% were skilled and the rest unskilled.

Lord Darling of Roulanish

Could you give your impression, because you work in the same industry, about the rest of the catering industry or hospitality industry? Is the picture typical?

Mr Tim Martin

As a personal observation, in the pub world it is slightly more UK than in the restaurant world. Wherever you go in the country you will find some EU workers, but in the restaurant business, with which perhaps EU workers have a stronger affinity, there are perhaps higher numbers as demonstrated by the mostly London-based Pret A Manger.

Ms Andrea Wareham

When I look at our direct competitors who operate in the same cities as we do, we have very similar percentages of EU workers.

Lord Darling of Roulanish

What is the difficulty in hiring British workers? The whole argument in the referendum was that non‑British EU residents were “taking jobs that could be filled by British-born nationals”. We have had a fair amount of evidence, not just from your types of firms but hospitality generally, that a pretty high proportion of people in the sector are non-British EU citizens. Why is that? What is the difficulty?

Ms Andrea Wareham

It is interesting. It is not a difficulty in selecting; it is a difficulty in attracting. I would say that one in 50 people who apply to our company to work is British. If I had to fill all our vacancies with British-only applicants I would not be able to fill them.

Lord Darling of Roulanish

Because of the lack of willing applicants.

Ms Andrea Wareham

Because of the lack of applications.

Mr Tim Martin

It has always been difficult to attract British workers to London. Thirty years ago when we had a dozen pubs, we used to have road shows in Newcastle and Dublin to try to attract people to come and work here. We used to rent them flats and bring them over. It was quite difficult. In that respect, it is just a fact of life, I suppose, for London, New York or Paris that people go there on spec—I have done it myself—and are prepared to put up with living in more difficult accommodation for a while. That is how capital cities operate, but certainly around the country it is different.

Lord Darling of Roulanish

Some would say that perhaps the answer is that you will have to pay more if you want to get British workers.

Mr Tim Martin

To an extent, that is probably true. It is very difficult to disentangle the broader economic picture. My own personal view is that if you look around the world at successful economies—Australia, New Zealand, North America and Singapore, a tiny island—they have had quite a lot of immigration and a rise in population. I think that works for countries. How you get there, I think, was the main referendum debate. I think a rising population is good. We have very low unemployment at the moment, and a rising economy in a now democratic Poland, et cetera, naturally causes people to go back home. It is a complex picture.

Lord Darling of Roulanish

You must have been in a different referendum from the one I was in. Do you want to say anything, Ms Wareham?

Ms Andrea Wareham

I do not think that increasing pay would do the trick. I can talk only for Pret, but we pay well above the national living wage. We have great benefits and we offer fantastic careers; I could bore you silly with lots of great stories about that. Those who join us on our school leaver programme do so because our pay is fantastic. We do not use lower rates for under-25s, and our opinion surveys show that people recognise our pay and benefits as being really good. The point is whether people want to work in our industry. There has been a time lag in the growth and success of the hospitality industry over the past 10 or 15 years. There are amazing places to work and cool brands to work for, but still we are not always seen as a desirable place to work. I think that is the trick.

Mr Tim Martin

EU workers at Pret A Manger are fantastic, but our company shows that UK workers all around the country are capable of producing the same performance. The two top companies in the whole of the UK for very high environmental health standards are Pret and Wetherspoon. Pret is run mostly by EU workers and Wetherspoon by UK workers. We knock the competitors into a cocked hat. Both sets of workers can do the job. It depends on circumstances.

Lord Darling of Roulanish

You have had a good opportunity for your commercials. My next question is directed at both of you but particularly at Pret A Manger. Can you give me an idea of how static your non-British EU employee population is? Are they here for as long as everybody else, or do they tend to come for a couple of years and go home, or what?

Ms Andrea Wareham

I can speak only for Pret. People tell me that they come thinking they will stay for only a while but, actually, because they have a great career, and are earning more money as they do well in the company, they stay quite a long time. If somebody decides to stay after the first three months, on average they are with us for at least three years.

Lord Burns

Do they then go home or do they work somewhere else?

Ms Andrea Wareham

Often they go home.

Lord Forsyth of Drumlean

If you gave me a job in one of your sandwich shops in London, how much would I get paid?

Ms Andrea Wareham

Currently, you would be paid £7.50 an hour plus £1 an hour bonus, free lunch and paid breaks.

Lord Forsyth of Drumlean

That is about £16,000 a year.

Ms Andrea Wareham

Yes. That is the starting rate. After three months, it goes up.

Lord Forsyth of Drumlean

If I have to find accommodation in London and you are paying me £16,000 a year, could that not explain why one in 50 of your applicants is British?

Ms Andrea Wareham

When workers join us, it is often their first or second job and they find accommodation in zones 2 or 3. Often, it is shared accommodation, as it was in my day when I first came to London. Very quickly they get pay rises. School leavers joining us at Pret can, within a few years, be a manager earning good money with a great career, leading a team.

Lord Forsyth of Drumlean

How much is a manager paid?

Ms Andrea Wareham

Including bonuses, between £40,000 and £45,000 a year.

Lord Forsyth of Drumlean

How much of that is bonuses? How do you pay bonuses on selling sandwiches?

The Chairman

That is not a topic for this inquiry.

Ms Andrea Wareham

I can submit a paper on it afterwards, if you like.

The Chairman

It is a well-kept secret.

Ms Andrea Wareham

The basic pay would be about £33,000.

Lord Forsyth of Drumlean

Of your managers, what percentage of applications come from British people in the UK?

Ms Andrea Wareham

I cannot tell you about applications. We do not track applications in relation to nationality; you cannot do that.

Lord Forsyth of Drumlean

How were you able to tell us that one in 50 was British?

Ms Andrea Wareham

Anecdotally, my recruitment centre team would tell you that.

Lord Forsyth of Drumlean

Anecdotally, what would your recruitment centre tell you about the managers?

Ms Andrea Wareham

There are slightly more British nationals, but not as many as you would think. It is surprising. I have asked that question, but still the vast majority of applications are from non-EU nationals.

Lord Forsyth of Drumlean

Are all the people you recruit young people? Do you recruit any old people like me?

Ms Andrea Wareham

Absolutely. We have a wide range of people who work for Pret and do very well.

Lord Forsyth of Drumlean

People who are over 60.

Ms Andrea Wareham

Yes, definitely.

The Chairman

Lord Forsyth would be welcome.

Ms Andrea Wareham

He would be very welcome.

Lord Kerr of Kinlochard

I am very struck by the one in 50 number that Ms Wareham gave. What proportion of the 49 of the 50 are EEA nationals or extra-EEA—outside the EEA?

Ms Andrea Wareham

Ninety-five per cent are within the EEA.

Lord Kerr of Kinlochard

Migration Watch said that one might extend tier 5 visas to EEA nationals; they could come and learn how to sell sandwiches and would have no right to stay after a couple of years. If the Government are planning to bear down on immigration, would that be one way of helping you avoid the problems that the policy is clearly going to bring?

Ms Andrea Wareham

It would be helpful, but at Pret A Manger we are really looking for people who want to stay with us long term, because we love to promote people internally. Eighty per cent of our managers started with us as team members, and it is part of our business model. We are more interested in people who can stay with us for the long term.

Lord Kerr of Kinlochard

If I am 21 and sitting in Krakow planning what to do next, I might not necessarily think my career is in sandwiches. I could think it might be fun to go to see London. Probably the 49% are motivated more by that than a vocation to sell sandwiches.

Ms Andrea Wareham

I agree.

Lord Kerr of Kinlochard

So possibly the Migration Watch idea is a good one.

Ms Andrea Wareham

It would be helpful.

Lord Tugendhat

I apologise for arriving late. You mentioned just after I came in the difficulties of recruiting UK nationals. It is 10 years since I was last in Australia. I used to go to Australia and its big cities quite a lot. I was very much struck by the fact that in pubs and restaurants in Australia most of the people doing the serving were Australians, but it is not a country without immigrants, obviously. I wonder why that is the case in Australia and if there is anything we might be able to learn from there.

Mr Tim Martin

It is very difficult to say. A lot of it depends on the culture of the Aussie pub, which is not a high one and may be less attractive to foreigners. It is very difficult to generalise, because in the catering industry as a whole in Australia there is a huge number of immigrants who work in the restaurant and hotel trades now. It is quite difficult to generalise as between Pret A Manger with a high level of immigrants and Wetherspoon with a relatively low level.

Ms Andrea Wareham

I agree. In city centres such as Sydney, for example, I would not know what a Pret A Manger equivalent would look like, or the pub on the outskirts or in a more local community.

Lord Tugendhat

None the less, it has always struck me as very surprising that there should be so few Brits in the industry here and so many Australians in the industry there.

The Chairman

Given the expected end of free movement of people between the UK and EU, what would you like to see replacing it that would control immigration?

Mr Tim Martin

At the risk of incurring the wrath of Lord Darling, I think the referendum was about democracy. You touched on the issue earlier. Looking round the world, New Zealanders can work in Australia; the Irish could work here and we could work there long before the EU. There is an argument based on pragmatism and proximity. EU workers have been allowed to come and work here in the past, and there is a case for them being able to do so in the future on some preferential basis, partly on grounds of pragmatism. The reason it would be very difficult to do the same thing for India or China is that they have 2.5 billion people between them and you just cannot open your borders to them on a pragmatic basis; but on a preferential work permit basis, and with the historical links with Ireland, which will continue, you can do something for EU countries.

The Chairman

You would see people from EU countries having essentially the same right to come here in future as they have today to fill jobs—on a jobs basis.

Mr Tim Martin

On a jobs basis—a similar right to be decided by the Government on a pragmatic basis. The numbers can be reasonable.

The Chairman

Do you see the Government playing a role in saying that the hospitality industry, or even the pub sector of it, can have so many people, or would you allow the market to decide that?

Mr Tim Martin

I do not know the answer to that, but for the UK to be a successful country and economy in the next 20, 30 or 50 years we need a gradually rising population, and that will need some type of reasonably controlled immigration. If we do not get it, the economy will tend to go backwards. We need a North American or Australian-type system.

Ms Andrea Wareham

We entirely accept that the number of EU nationals will go down over time, and we would love to increase the number of British nationals in our business. We are excited about that happening. We absolutely accept that it is going to happen. Our thoughts are that there could be quotas based on data about how much work is required, and as the number of EU nationals goes down and the number of British nationals increases, that needs to happen as smoothly as possible over time. Time is definitely the issue.

The Chairman

A transitional period is very important.

Ms Andrea Wareham

Absolutely. There is one thing I would like to reiterate. There is more we can do to attract a fantastic British workforce to our industry, even though it is difficult in central London locations, but that takes time and resource. If we have that, I believe we will be successful in doing it. Whether or not there are quotas, properly worked out, for our industry, whatever happens the system needs to be relatively fast and easy to use. We are a high-speed recruitment industry; we need to fill positions in our shops, and the process needs to be cost-effective. We are a relatively low‑margin industry.

The Chairman

Are you concerned about the Government’s focus, to date anyway, on high-skilled jobs?

Ms Andrea Wareham

Absolutely. That does not help us in any way. We need some thought to be given to the unskilled labour we talked about earlier.

Lord Darling of Roulanish

Mr Martin, I want to be clear so that I understand you correctly. In respect of EEA or EU citizens, are you arguing almost for an importation of the present system into any new one, for the reasons you stated, or are you saying that it ought to be qualified?

Mr Tim Martin

I think it should be on some sort of work permit basis, but it should be a liberal system, so that if people want to come and work at Pret or Wetherspoon they can.

Lord Darling of Roulanish

Ms Wareham, you touched on the same thing; you talked about quotas. Would the Government have to decide how many workers—X number—would be allowed into the catering industry, or would it be more specific? For example, either of your firms might say, “We cannot get unskilled people in the UK. Therefore, we want you to consider it on a case-by-case basis”.

Mr Tim Martin

I would hope for something more liberal. I have not had the opportunity to look into the wider economic implications of doing that, but providing we have democratic control in the UK I am happy for it to be similar to the Irish system. That was ultra-liberal; anyone can go and work there. It could be somewhere between that and the system you have for the rest of the world.

Ms Andrea Wareham

We need to leave that to the experts to decide.

Mr Tim Martin

There are no experts.

Ms Andrea Wareham

More expert than me. We have 10 million hours of work at Pret a year, and, of those, 6.5 million are currently worked by the EU, so I would suggest some sort of data-driven quota system by company or industry.

Baroness Wheatcroft

Ms Wareham, you told us that only one in 50 of your applicants is British, but you said just now that there is more you could do, and if EU migration dries up you are confident you can replace those people with Brits. How?

Ms Andrea Wareham

Over a long period of time, absolutely. There are things we can do in Pret, and this probably goes for other companies as well. We can continue to focus on reducing our turnover, which is a constant focus in our industry. For example, we are working with Jobcentre Plus to provide great opportunities for the unemployed. It is about telling the story of the great careers we can offer, through social media and interacting with schools and careers advisory services. We are doing all of that.

Baroness Wheatcroft

You are doing all that now.

Ms Andrea Wareham

Yes. We started our school leaver programme four years ago. We are doing all that, so I am very clear about the things we can do and have been doing for some time.

Baroness Wheatcroft

But they are not working.

Ms Andrea Wareham

It takes a long time to change hearts and minds, and I would probably find it difficult to do it on my own. This needs collaboration with a wider group of people. We need to work with education, careers services and parents. I am looking to find ways to collaborate to make the difference we need to make, and to be given the time to do it.

The Chairman

Lord Sharkey?

Lord Sharkey

My question was about a leavers programme and I think it has been answered.

Lord Burns

I have a similar question, but perhaps I can press it slightly further. I would not say that you have been lazy about looking for UK workers, but to some degree has it been so easy to take EU nationals that some of the things you are now going to do you did not do because there was no need to do them?

Ms Andrea Wareham

That would probably be fair, although we have had a school leaver programme for four years, and we advertise in the UK only. In no way do we target particular groups in other countries. We are a level playing field and we offer jobs to those who have the right to work and who apply or are attracted to work for us.

Lord Burns

But you will now have to try harder.

Ms Andrea Wareham

We will have to try even harder with limited resources at the same time as responding to apprenticeship levies and other things. That is the challenge that we have.

Lord Sharkey

You talked about London being a special case. Is there a case, therefore, for London having its own immigration policy quite distinct from the rest of the country? If so, what do you think it should be?

Mr Tim Martin

To me, that sounds like pie in the sky. You would almost need border controls at Hoddesdon to stop people who should not be moving out of London, and separate passports. It does not sound a runner or pragmatic.

Ms Andrea Wareham

I agree. I cannot for one minute think how it would work. London is definitely the more challenging environment. However, some of the other major cities we operate in are not that different.

Lord Layard

Is there a major problem with jobcentres and the careers advice system? I have had some experience of visiting these places. They say, “That sort of work is below our people”. If we are to manage Brexit, does it require a fundamental change in the attitudes in jobcentres and careers services?

Mr Tim Martin

I do not think it does. We have 37,000 employees around the country, most of them local. Certain work goes on through the jobcentres. It is perfectly possible to have a well-run business that achieves high standards within its industry using local people in all sorts of locations around the country. It works okay. The bigger problem would be in London where a lot of firms have been relying on EU labour; it might have more impact there.

Ms Andrea Wareham

We have a fantastic relationship with Jobcentre Plus, so that is working very well. The biggest work is to be done with careers advisory services in schools to make known the vocational alternatives to university and higher education. It is a big job, as we know, because we spend a lot of time in schools with our school leaver programme. We find there is a lack of resource in schools around careers advice.

Lord Kerr of Kinlochard

On Lord Sharkey’s question, suppose that perhaps because of the back door, or the inner Irish frontier, we moved away from border control to employment-related control. I imagine that in your industry, unlike industries demanding highly skilled workers, it would be particularly difficult because you would be getting from abroad people you were engaging without seeing. Am I right? You were a bit dismissive of regional variations, but there is a case that the London market is different from the rest of the country. Because the Scots want more migration, they make a case for a different policy. Are you quite sure your answer stands and that it would be unworkable?

Ms Andrea Wareham

I would have to do more thinking about it, but, if put on the spot now, I would say that it appears problematic to me.

Lord Kerr of Kinlochard

Because your turnover is very rapid and you cannot have a vacancy; you have to get someone.

Ms Andrea Wareham

Yes.

Lord Sharkey

Do you employ agency workers, or do you employ everybody yourselves?

Mr Tim Martin

We do not employ any agency workers at all. We have a central distribution centre that employs a certain number of agency drivers and so on, but all our staff are employed by us.

Ms Andrea Wareham

It is the same for us; 100% are employed by us.

Lord Forsyth of Drumlean

Andrea, one of the most cheerful things that has been said this afternoon was when you said that we need to change the culture and attitude among parents and schools about working in hospitality and making it something that people are proud to do. You talked about using social media. I started off thinking that, as you are owned by private equity, they will be squeezing you to produce, so a long-term investment like that is unlikely to appeal to your board, but that is obviously not the case; otherwise, you would not be here saying that.

Ms Andrea Wareham

Yes.

Lord Forsyth of Drumlean

You said you could not do it on your own and it needs to be done across the hospitality industry. All the stuff I have seen from the hospitality industry—perhaps I have not read enough of it—seems to be a moan, “How are we going to manage?”, rather than positive stuff. How realistic is it, and how would you get your industry to move forward on that basis?

Ms Andrea Wareham

With the help of the British Hospitality Association, which we have been speaking to. I have heard things similar to what I have been saying, accepting that the change is happening and we must now move into solution mode and work our way through it. For example, I need to network with the right people and understand what is out there, and work collaboratively with the right network.

Lord Forsyth of Drumlean

Can the Government do anything to help?

Ms Andrea Wareham

Absolutely.

Lord Forsyth of Drumlean

What?

Ms Andrea Wareham

For example, they could be helping with the careers advisory service in schools—supporting and strengthening it—and in the curriculum, ensuring that school targets are focused more on where children are going after school. Is it all about going on to higher education or apprenticeships or about other things? I know that change is starting to happen, but they should be helping schools to gear up to the fact that it is a success if 16, 17 and 18 year-olds leave to go to work somewhere like Pret.

Mr Tim Martin

The focus in the hospitality industry tends to be on whether we can get employees to serve a pint tomorrow. If you are to get successful expanding businesses such as Wetherspoon, Pret A Manger and so on, a bigger factor is a gradually rising economy. A lot of successful restaurant businesses have emanated from London in the last 15 or 20 years when the population has gone up a lot. Pret is an example of that. We did not get that in the 1970s when the population was going down. All these questions are linked to a gradually rising population and a relatively low birth rate, so it is a difficult point to address.

Lord Forsyth of Drumlean

I know this question is difficult because of turnover, but do you have any evidence that your employees who come from the European Union are now looking to leave employment in the UK because they are worried about their security?

Ms Andrea Wareham

We are very close to our employees; we have our ear to the ground. Of course, there was initial surprise after the referendum. They are staying put for now, which is great, because we are supportive and communicative. People are waiting and watching. Our No. 1 concern is looking after the people who currently work for us, but at the moment they are travelling hopefully. We are very hopeful that they will be able to remain, and not many people have left yet.

The Chairman

Thank you very much indeed. Examination of witnesses Ms Minette Batters and Mr David Swales.

The Chairman

Ms Batters and Mr Swales, thank you very much indeed. As you know, this is the penultimate session of our inquiry into Brexit and the labour market. We are seeing the Minister next week. If you have any particular questions you want us to ask the Minister, do not hold back. Today, we are trying to hear from different sectors about the impact of Brexit on the labour market, in particular your sectors. Lord Kerr will start us off.

Lord Kerr of Kinlochard

To give us some perspective, how reliant is agriculture on labour from the EU?

Ms Minette Batters

The horticultural sector is very reliant on a seasonal workforce that currently sits at about 80,000. Those are people who harvest and pack fruit and veg. In other sectors, poultry is massively impacted too; there is a requirement for about 20,000 seasonal workers for turkeys around Christmas. As regards the processing and manufacturing sector, yesterday I was at a lamb plant in a very rural part of south-west Wales. Of the 600-strong workforce, 85% were foreign workers. There are all sorts of issues with that. For the supply chain as a whole, 60% and above are foreign workers.

Mr David Swales

The official statistics are a good starting point, but they definitely underestimate the scale of the issue. In the permanent workforce, the figures seem to suggest that probably about 20% of the agricultural workforce are EU-born workers who are now working in that sector. The factor Minette highlighted on seasonal workers is a particular challenge for agriculture and, from the session you have just held, potentially it might also affect hospitality. For agriculture and horticulture it is a key issue, as there are probably lots of relatively lower-skilled roles, such as picking and packing done seasonally at points in the year. There are quite a lot of those jobs in the sector. The official statistics suggest about 70,000 jobs—there may well be more—and the vast majority are done by EU and other migrant workers. We have a particular challenge with quite high dependency on EU workers at the moment.

Lord Kerr of Kinlochard

Is the trend still going up?

Ms Minette Batters

Very much so. The prediction is that the number of seasonal workers will rise to 90,000 by 2020.

Lord Kerr of Kinlochard

How do we know the numbers? Are the official statistics any good?

Ms Minette Batters

On seasonal workers, we have a very solid evidence base. It is a sector where there is clear potential, especially around Brexit, for growth. For instance, we are now 50% self‑sufficient in strawberries, so there has been a phenomenal job done on import substitution. There is still potential for that sector to grow, and it would be in the interests of the nation if it grew and we managed to produce far more of our fruit and veg within our shores. There is potential for growth. I think we will come on to mechanisation, but there are crops that are very reliant on the human hand.

Lord Kerr of Kinlochard

If we are talking not about farm workers who are engaged by a farmer and live on the farm but about gangs and gangmasters, it all sounds to me like a grey economy. Can we rely on the numbers for that economy?

Ms Minette Batters

Very much so. I am sure David has more to say on that. Most of the seasonal workers who come to pick, harvest and pack fruit and veg come back year on year. It has been a long-term relationship. Many growers I speak to still have people coming 15 or 20 years down the line. There is a sort of community. One of the challenges we face is that people do not want to leave urban areas to work in very remote rural areas. There has been a long-term relationship; a lot of the workers who are doing the picking and harvesting come back year after year. Then they go home and return to work the following year.

Lord Kerr of Kinlochard

In your written evidence you say that “these figures will not capture seasonal workers coming to work in the UK for short periods of time”. How big is that problem?

Mr David Swales

We have a reasonable feel for it. The devolved agricultural departments and Defra do large-scale surveys on an annual basis each June and capture estimates from businesses of how many seasonal workers there are. We know roughly how many there are, but we do not capture in the survey where those migrant workers are from. A lot of the official statistics do not do that. For example, to be captured in something like the labour force survey you have to be based in the UK and planning to stay in your current place of abode for the next 12 months. To be captured in something like the international passenger survey you have to come to the UK and plan to stay for 12 months. If you are coming over to work for six months or less, you will not be captured in some of those surveys, so trying to get accurate statistics about the proportion of seasonal workers who are EU nationals is not possible, but there is certainly a wealth of anecdotal evidence that the vast majority of workers coming to take those jobs are EU nationals. We hear a lot from employers as well. For seasonal work, in many cases the vast bulk of workers, if not all of them, will be migrant workers.

Lord Burns

I am very interested in the example you gave of the town in south-west Wales involved in the lamb industry. I have visited such places. How much do you know about the process whereby EU workers have become such a large percentage of the workforce there? How does the plant recruit people? Has the place become effectively a closed shop to non-EU workers? How have these towns sprung up? The character of a town changes enormously, particularly where there is a large abattoir and all the processing that comes with it.

Ms Minette Batters

It has been a gradual cultural shift for various reasons. Yesterday, I was amazed by that multimillion-pound investment in a very rural part of Wales, which took me five hours to get to. The investment has been made there because that is where the sheep are. The choice was not about putting it in a convenient place to get to; it was about putting it in a place where all the sheep are. That makes it very inconvenient to get to. I do not think there would have been enough people living in that rural area. The plant employs over 600 people. It is a challenging environment to work in—right the way through the plant. It is a good, clean environment in other ways. I think there has been a cultural shift. We have stepped back. We have had a high-achievers education policy for many years. I am not sure that people are aware that those jobs are on offer and may not even be directed to them.

Lord Burns

Do you know how people are recruited for the work?

Ms Minette Batters

One thing I know about recruitment, certainly for seasonal workers, is that our growers always advertise within the UK. This is not about giving up on the UK workforce; they are definitely at all levels continuing to engage with the UK workforce. It is not a case of stepping back and not engaging with them. To my knowledge, those jobs are always advertised within the UK and there is encouragement to have a greater UK workforce.

Lord Burns

What will be the result in that town of the future arrangements for migration?

Ms Minette Batters

On the first point, the biggest threat to the town is if the sheep go, because then you lose that multimillion-pound investment.

Lord Burns

Why should the sheep go?

Ms Minette Batters

If we get the trade deal we potentially will get, the sheep might be gone; we might just have New Zealand lamb flying in, but that is probably another issue. Without doubt that is the risk, but the plant has become part of the local community. It has a permanent workforce that has chosen to come here, stay here and do those jobs. Bridges will need to be built. The plant is very modern, and I was keen to ask about the mechanisation that had been brought in. It was very clearly pointed out to me that the plant was as mechanised as it could be. There is a lot of mechanisation, but it is still very reliant on the human hand in places. That is now a large chunk of the community in that area.

Lord Sharkey

It has been argued that there are no social integration issues with seasonal agricultural workers as they normally live on farms. Do you think that is the case? I ask because Boston in Lincolnshire has the highest murder rate, if you count attempted murder as well, per head of population in the country and it has a very large and growing immigrant seasonal worker population. Do you really think it is the case that there are no social integration issues involved?

Ms Minette Batters

It varies enormously. I have visited some very rural locations where there is no integration. I visited a grower in Norfolk in the autumn, where there is a whole community. A shop and a cinema have been set up. The community is on the farm because there is no option, because it is so rural, of having integration. The situation you highlight in Lincolnshire is slightly different and there would be far more integration. It is incredibly variable across the country.

Mr David Swales

There is a lot of quite good evidence about employers in agriculture finding it difficult to recruit people. There is evidence from the UK Commission for Employment and Skills showing that the hard-to-fill vacancy rate in agriculture is higher than in any other sector. It tends not to be due to skills or qualifications. The type of jobs that are difficult to recruit are the lower-skilled occupations, and the view that comes across quite strongly is that people do not want to do that type of work. It is manual work and it might be outside, and UK residents tend not to want to do those types of jobs. The jobs may be in the wrong place in the country for them or they may be seasonal. As Minette said, employers are trying to recruit but they struggle to do so, and this is a potential solution for them.

Lord Forsyth of Drumlean

When I was a lad in Angus we used to go to the berry and potato picking. The buses came at 6 o’clock in the morning and lots of people got on them and would pick raspberries and strawberries. Now we are getting evidence that tells us this cannot be done. What has changed? Is it not to do with the amount people are paid for doing it?

Mr David Swales

I do not think it is that. Agricultural employers have been hugely creative over a long period of time about how they source their labour; they ship people in from different parts of the country. I heard examples of horticultural businesses shipping in miners during the strike to do work. The difficulty now is that the type of work involved is manual in many instances, and people no longer want to do that type of work. There has been a change in the type of work people are prepared or willing to do.

Lord Forsyth of Drumlean

Is that not about the market clearing price? It was 50 years ago, but communities like Angus were famous for the quality of their produce; nobody can match Angus for the quality of its raspberries and strawberries. All of it was picked by local people—families and so on. Since then there has been mechanisation. Is it not so much easier to ring up a gangmaster who will provide a lot of labour at a very much reduced cost and less hassle?

Mr David Swales

Yes, certainly, but those migrant workers will not be earning a really low wage. I do not think it is a money issue per se. Obviously, agriculture is not exempt from the minimum wage. With the devaluation of sterling, we are hearing reports that people are paying more to attract labour from abroad. The price of labour has gone up, because people are looking at it from their domestic currency perspective. There would probably come a point when at a certain wage level we could easily fill the vacancies, but agriculture works in a marketplace and ultimately UK producers compete with producers elsewhere in the world. If the price of UK produce is too high, the market imports the product. There is competitive pressure, but agricultural employers have to abide by the minimum wage and other rules and regulations in the same way as everyone else.

Ms Minette Batters

I will try to say this in the right way. It is an incomparable sector from when you and I were younger.

Lord Forsyth of Drumlean

You are very kind.

Ms Minette Batters

It has probably been the most efficient sector. For example, the requirements for strawberry pickers are now completely different. You require pickers who will pick up to three-quarters of a tonne of fruit a day. It is incredibly skilled, hard work, so it is a different job in the first instance. It is not about a low rate of pay. The national living wage has been a massive problem for the sector. It came in without any consultation; nobody had time to prepare for the national living wage, but we now have clear evidence that, with the exchange rate as it is, people have to pay well over the national living wage in order to get people to come here, so it is not a low-paid sector. It is very rural; these are difficult places to get to. You have to live on site in order to be able to pick and harvest that amount of fruit and veg. On the cultural issue I referred to, I visited a daffodil grower in Cornwall, who referred to the business park at the bottom of his farm. He said that 20 years ago that business park did not exist. All the locals chose to come to the farm to pick daffodils; it was just part of the way of life. Now the business park is there, people can drop off their children at school and work in the warm. They can arrive at 9 o’clock and finish at 5 o’clock. They do not have to get to his farm at 5 o’clock in the morning and work right the way through in the wet and cold. There has been a cultural problem. I do not think it is due to low pay, but it has been an incredibly productive, successful sector. Its efficiencies and productivity mean that the job is now hard work and phenomenally different from the one we knew as children.

Lord Lamont of Lerwick

You said we would come on to mechanisation, and we have not really. I think it is a key question. In written evidence the NFU said that “current expectations are that automation for harvesting, where achievable, remains at least a decade away. As such, the industry will remain dependent on manual labour”. Why is it a decade away?

Ms Minette Batters

It is not a decade away. The technology is there. The machine exists; the robot that can pick strawberries is there. The challenge and the 10 years come in when you look at the investment that will be needed. We could fast-track that investment, and maybe there is an opportunity through the industrial strategy to do that, but there has been no price movement in the sector in the last 15 years and we have the national living wage.

Lord Lamont of Lerwick

Which sector are you talking about?

Ms Minette Batters

The horticultural sector.

Lord Lamont of Lerwick

The whole of horticulture.

Ms Minette Batters

The growing sector. To achieve the rollout of that mechanisation would need phenomenal investment. A lettuce picker costs well over £1 million and you would still need five people to operate it. It is possible and the technology is there, but where will the investment come from in a supply chain that is already massively constrained by cost?

Lord Lamont of Lerwick

Someone in a previous session—I believe Lord Forsyth picked this up—referred to the difference in fruit picking in Australia and California. In California, where a lot of immigrant labour was available, they continued with traditional methods, whereas in Australia such labour was not so easily available and it had become highly mechanised and highly competitive.

Mr David Swales

It is about what the image of a picker is. In essence, there has been massive investment in automation in the horticultural sector, but some of it is still hand-based. Growers have picking rigs going through a field. Harvesting broccoli, for example, is still done by hand to some degree, but the washing, cleaning and packing of the broccoli head will all be done in a mechanical rig that moves through the field. The use of labour is much more efficient than it may have been 10 years ago, but aspects of the process still require people. There are limits. In the case of broccoli, I know that a research project is going on to make the process even more mechanised so that less labour is involved, but there are limits to how far it can go. In the case of soft fruit it is harder to mechanise the process without bruising the fruit. With broccoli there is less scope for that to happen. There are limits to the existing technology. Some of these things are longer-term solutions, so it will take time, investment and research.

Lord Lamont of Lerwick

But it is not necessarily 10 years away.

Ms Minette Batters

The investment is a greater problem than the technology.

Lord Lamont of Lerwick

You mean the money.

Ms Minette Batters

Yes.

Lord Sharkey

Is that a problem because of the scale of individual operators? There are not, as in America for example, gigantic corporations doing that work, such as Archer Daniels Midland, which have enough money to invest corporately in the machines? Is the structure of our agriculture making it more difficult for us to invest as we need to?

Ms Minette Batters

I think it is. Our food system is incomparable with the United States. It is very hard to find a comparison, and you have to ask whether we would want to.

Lord Sharkey

That is a good question.

Baroness Wheatcroft

I am sure that, in the longer term, technology will deliver autonomous vehicles, but I was struck by the written evidence from NFU Scotland about the number of drivers from the EU who currently operate heavy goods vehicles in your sector. NFU Scotland says that 60,000 HGV drivers are from the EU, and that still leaves a shortfall of about 45,000. How do you explain those numbers?

Mr David Swales

I cannot explain those numbers. Obviously, that is part of the haulage sector rather than part of agriculture. I can comment only on the agricultural sector.

Baroness Wheatcroft

It is across the RHA, but a lot of it impacts on road transport, which your industries need.

Mr David Swales

Certainly, our industries use the road haulage industry, but it is not an area I have done any work on. Road haulage bodies that do that type of work understand their labour requirements. The work we did was focused very much on agriculture and horticulture and bits of the supply chain to do with food processing and manufacturing that are directly linked to that.

Baroness Wheatcroft

Are you aware of it being a problem, Ms Batters?

Ms Minette Batters

We did a lot of work on a sector-by-sector basis. Certainly, the combinable crop sector was well aware that there was quite a haulage requirement and that EU workers were driving grain lorries.

Lord Darling of Roulanish

I am interested in what we do about all this if we cannot go back to the 1950s when we all went out to work before dawn to pick raspberries or whatever. Possibly it was in the 1960s, but anyway it was all in black and white in those days. Given that freedom of movement of people will stop, I am interested to know what your industry wants to put in its place. At the extreme, if there is nothing, presumably you will either have to automate or put your prices up in relation to what you are willing to pay for labour. If there was a new immigration agreement, what would you want?

Ms Minette Batters

As you know from the written evidence, we have an ask of government to trial a large-scale seasonal worker permit scheme. That ask has been in for a long time. The caveat is that we still do not have an answer, and we are pushing for one. We need an answer before we can move on.

Lord Darling of Roulanish

I want to get a measure of the weight of the issue. Do you think seasonal workers are the answer to the problem? It seems to me that in your whole industry it is not just people who pick berries; it is people who work on farms or in the food industry itself.

Ms Minette Batters

There are two issues and they have to be separated. The immigration Minister made it very clear to us that seasonal was our chink of light. Those were the words he used. We have had to separate them into two different asks. For seasonal, we asked for the global trial scheme. It is fair to say, and it is an important point, that we would have been asking for that whether or not we had a referendum. For the last three years, we have seen fewer people wanting to come from Europe to work here. Whether or not we were in this situation, we would still be asking for a global scheme to achieve the long-term aim of 90,000 people coming here on a seasonal basis, doing the work and going home again. As regards permanent workers, we are asking that people who are already living and working here can stay, but the urgent piece of work, for which we have been asking for a long time, is for government to commission the Migration Advisory Committee to look at the permanent workforce and what is needed going forward. We still have not had a response about when that work will commence, but it is absolutely vital; otherwise, quite simply, for both seasonal and the supply chain we will shrink those sectors to the size of the workforce. That is what will happen. We can talk about this from a grower angle, but what about the consumer? What about the people who have every right to continue to buy and enjoy British strawberries—a phenomenal success story—British raspberries, and British and veg in general? What will happen?

Lord Darling of Roulanish

By shrinking, do you mean that if there are not enough people to pick the strawberries or the cost goes up, it might be cheaper to get the strawberries from Poland or Spain?

Ms Minette Batters

Not only that; there will not be the capacity to pick the fruit and veg, so the sector will shrink to the size of the workforce, and we will be bringing in imported produce.

Mr David Swales

AHDB is a non-departmental public body, so we do not have an ask of the Government on this, but we certainly look at what might happen under different scenarios. If employers cannot access labour, they will look to relocate production to where they can. We are aware of lots of UK-based businesses making investments abroad in places where they can access labour. There are lots of options for farming businesses in what they do with the land at their disposal. They could look to shift away from more labour-intensive production like horticulture, which we have been talking about today, towards something less labour-intensive. In essence, as the factors of production change, the industry will restructure to meet the new reality. That would probably not be great in the long run, because we would have less value‑added production with the land at our disposal, so it might not necessarily be the best decision.

Lord Darling of Roulanish

When you referred to a chink of light, did you get the impression that the Government might look at a seasonal worker scheme but they are not prepared to look at one for more permanently based people?

Ms Minette Batters

It is very hard to read between the lines. The words “chink of light” were used because we were talking about seasonal workers, but there is no clarity about those requirements. The other thing that needs to be pointed out about seasonal is that there are simply not enough people in the country to do those jobs at the moment. Herefordshire, which is a good example of a growing county, currently needs 3,500 seasonal workers and has 400 unemployed.

Lord Darling of Roulanish

You may not be able to answer my last question. A lot of large farms in the UK have contracts with supermarkets to sell so many carrots or so many gallons of milk at such and such a price. Farmers constantly complain that the bargain being driven is very tough on them. Presumably if, perhaps understandably, you put up the rates of pay for agricultural workers, or otherwise shrink capacity, it would have an effect on the supermarket industry, which also buys quite substantially from the likes of Spain and Israel.

Ms Minette Batters

In dairy, on the whole a herdsman or herdswoman is a highly paid person. I do not see that it is about low pay.

Lord Forsyth of Drumlean

How much?

Ms Minette Batters

It varies. A herdsman in my part of the world is on £60,000—working incredibly hard, mind you. The caveat is that many dairy farmers are putting in their labour for nothing. There is huge disparity. It is a skilled job and it is phenomenally hard work. You start work at four in the morning, seven days a week.

Lord Sharkey

Is not the question whether the margins that those businesses command can absorb an increase in the wage rate?

Mr David Swales

That is determined by their position and power in the supply chain. Ultimately, most agricultural producers are producing a commodity. Milk is a commodity product, and the value of that milk is determined by global factors and domestic factors around supply and demand. It is not the case that farmers can decide to put up their prices. In many cases, the price is determined by the marketplace. The farmer is trying to make his production system as efficient as possible so that he can make a margin. If he does not make a margin, I guess he decides to do something else. In the case of dairy, we see quite a lot of peaks and troughs in commodity prices. Most farmers make money and lose money at different points in the cycle. Farmers by their nature tend to take a very long-term view. They look over the next few years and make a judgment about what their milk price or other prices will be and what their costs will be. If they think they will make money, they will carry on. If not, they may opt to do something else.

Lord Burns

What you are saying is that a lot of horticultural and agricultural industries have grown up in this country and been successful only because of access to migrant labour. If that had not been the case, those industries would never have developed in the way they have. Therefore, winding this back down again will put pressure on the economics of the sector and either the activity stops, in which case we have to import the produce and prices go up, or there is protection to enable prices to go up, so that some of that activity can be sustained. It seems to me that the implication of what you are saying is that, if it had not been for the large amount of migrant labour, much of the industry would not have developed in the way it has.

Mr David Swales

It is important to recognise that before expansion of the EU and the availability of the workforce, a lot of which is from eastern Europe, we had seasonal worker schemes in place, probably for the best part of 60 years.

Lord Burns

This is not the seasonal part of it. I was addressing the underlying long-term nature of the industry. You say that you have not yet seen any chink of light for a system to deal with it.

Mr David Swales

For the permanent jobs, certainly the more highly skilled and highly paid jobs, there are probably relatively good systems in place and a bit of a pipeline. We have land-based colleges and universities, and a lot of effort is being made to recruit people to the sector, so probably more is going on. The particular challenge we have highlighted is for the lower-paid, more manual-type jobs in the sector, where it is very difficult to attract UK residents. With the availability of labour as it is, that has been the solution.