Lionel Laurent is a Bloomberg Gadfly columnist covering finance and markets. He previously worked at Reuters and Forbes.

British CEOs hoping for clarity about Theresa May's political plans got a big dose of it this week on immigration.

The runaway favorite to win next month's general election has opted to stick with a long-standing, but much-derided, government target of cutting yearly net migration to the "tens of thousands" (it's not far off 300,000 at the moment). She's also going to raise charges on hiring overseas workers and toughen up visa requirements.

Guaranteeing the rights of 3 million EU nationals already living in the U.K., something supported by even the most ardent Brexiteers in May's own party, was nowhere to be seen.

It's hard to quantify the exact business impact of a sustained crackdown on EU and non-EU migrant workers. Plus there's some recognition among May's team that it will need to give leeway on the most prized foreign workers, such as engineers.

It's the more humble end of the FTSE index -- the service economy companies -- that looks more exposed. Some of these businesses would struggle to survive without abundant migrant labor. About 14 percent of the retail and leisure workforce is made up of international migrants, according to the Office for National Statistics. Even David Davis, May's relatively hardline Brexit minister, appears to acknowledge the danger, conceding in February that Britain wasn't about to “suddenly shut the door” on low-skilled EU migrants.

With U.K. unemployment falling to its lowest in more than four decades, it's highly likely that any sharp cut to migrant workers would push up wages.  This comes as staff costs in the retail and consumer industries have already risen as a proportion of sales, according to Bloomberg data. The introduction of a British "living wage" is partly behind that, but adding a more draconian immigration regime gives CEOs cause to be nervous.

Living Wage
U.K. retailers have seen personnel expenses as a proportion of sales rise in recent years
Source: Bloomberg

In a delicious irony, Tim Martin, the Brexit-loving boss of pub chain JD Wetherspoon Plc, sings the virtues of a "liberal" immigration policy. It's odd that he thought a pro-Brexit, nativist electorate would share his way of thinking. 

Wetherspoon's operating margin has already fallen from 10 percent in 2010 to 7 percent in 2016, with staff costs rising 50 percent per pub in that period, according to Shore Capital. Any extra wage costs will mean selling lots more beer or hiking prices.

The Cost of Pulling A Pint
Rising staff costs have eaten into U.K. pub chain Wetherspoon's annual operating margin
Source: Company filings

But this goes well beyond the British boozer. Almost every industry is lobbying for special treatment. There's been talk of a brickie visa, a banker visa, a young worker visa, a fast-track Commonwealth visa and even a Londoner visa. It's hard to see how such a mess of approaches could be managed, by bureaucrats or business.

Some optimists reckon labor shortages can be offset by automation -- think robot farm-hands or chambermaids. The U.K. is indeed a robo-laggard, with 33 robots per 10,000 employees, according to Bloomberg News, well behind Germany, Japan and South Korea.

But it's hard to believe British bosses would have had this magic bullet for low productivity and rising costs this whole time without using it. A recent report from McKinsey showed high potential for automation in food services, less so in retail and healthcare. These kind of changes take investment too, something not always available to low-margin consumer companies.

There are more human options. Law firm Fragomen says companies have started reaching out to older people and ex-offenders. Sandwich chain Pret A Manger is targeting British workers as it prepares for Brexit, having previously admitted that Brits didn't consider it a desirable place to work. 

This is probably all music to the ears of Nick Timothy, the May adviser who drafted her election manifesto. There's nothing wrong with getting more Brits into work. But the proposed policies are risky and untested, and could inflict harm on the economy. The rise in wage costs seems assured. Wetherspoon's Martin is right to cry into his beer.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. The National Institute of Economic and Social Research has estimated that cutting yearly net migration below 100,000 would boost the incomes of low-paid workers by 1 percent. Though it's worth pointing out that's hardly a king's ransom if you're one of those workers.

To contact the author of this story:
Lionel Laurent in London at

To contact the editor responsible for this story:
James Boxell at