Post-Brexit immigration rules have led to a shortfall of around 330,000 workers in the UK and had helped fuel inflation, according to top economists.
The ending of free movement is “contributing significantly” to current labour shortages, a joint repot by the UK in a Changing Europe and the Centre for European Reform think tanks has found.
The study found the low-skilled sectors – including hospitality, retail, construction and transportation – had been badly hit by the loss of EU workers after Brexit.
By September 2022 there was a significant shortfall of around 460,000 EU-origin workers, not wholly compensated for by a rise in about 130,000 non-EU workers, the report said.
“Overall, the new system is working broadly as Leave advocates promised,” said co-authors Prof Jonathan Portes and John Springford.
The authors said the system was “too onerous to compensate for the loss of free movement in low-skilled sectors of the economy, which is contributing to labour shortages”.
Business groups in hospitality, agriculture and construction have called on the government to relax its points-based, post-Brexit visa regime by widening the “shortage occupations list”.
The new Brexit report’s co-authors said the major changes in migration patterns were “a feature, not a bug” of leaving the EU, adding: “The longer-term impact on the UK labour market will be profound.”
The think tanks said businesses struggling with labour shortages could invest in greater automation. “But some combination of higher wages and prices, and less output is likely, especially in work that is hard to automate,” the report warned.
Jane Gratton of the British Chambers of Commerce, said: “Politicians need to be realistic about the skills we need from outside the UK. Brexit has given us control of our borders and the government must use the appropriate levers to help struggling businesses get the people they need.”
Asda chair Stuart Rose said on Tuesday the UK was suffering from the “catastrophic” impact of Brexit and should consider a closer trading relationship with Brussels.
The Tory peer said trade between the UK and the EU was “not flowing smoothly”, adding: “We can call it the Mickey Mouse agreement as far as I’m concerned. What we need to do is we need to have a stronger trading relationship.”
It comes as concern grows over labour shortages and the number of Britons out of work due to sickness. The latest figures published by the Office for National Statistics on Tuesday showed the unemployment rate hit 3.7 per cent, up from 3.5 per cent in the previous quarter.
Earlier this week Bank of England governor Andrew Bailey warned that the shortage of workers in the UK posed a “major risk” to getting inflation down as quickly as expected.
Mr Bailey also said there was a “hangover effect” from the financial turmoil seen during the brief premiership of Liz Truss, with some international investors still wary.
A spokesperson for the Home Office said: “The public rightly expects us to control immigration, which is why our points-based system delivers for the whole of the UK by balancing prioritising the skills and talent the UK needs with encouraging long-term investment in the domestic workforce.”
They added: “We have expanded the skilled worker route to include medium skilled jobs and it now covers 60 per cent of jobs in the economy.”
