The Recruitment & Employment Confederation (REC) - Written evidence (FTS0034)

Overview

The Recruitment & Employment Confederation (REC) is a leading voice on the UK's dynamic and entrepreneurial labour market. As the representative body of one of the UK’s largest services industries, our members make up 80% of the UK's £42.3 billion industry by turnover. The REC is committed to working with Government to make the UK's labour market the best in the world.

Introduction

Before Covid-19, the UK's recruitment industry was growing and much of this was due to international trade. With higher margins and less saturated markets, UK recruiters, especially those operating at the high-end of the labour market, make a large proportion of their profit working overseas.  The UK's recruitment industry is world leading - both in its size and maturity. Only Japan and the US can argue they have a larger sector.

For the UK recruitment industry to bounce back after coronavirus, a good understanding of the UK-EU Free Trade Agreement and trade deals further afield is essential.

Following the Agreement in December 2020, the REC believes the continuity of the conversations around implementation of the Agreement, data flows and mutual recognition of professional qualifications, together with a smooth transition to the new immigration system are essential to both the recruitment industry and the overall economy.

The key points that should be prioritised on the implementation and further developments of the Agreement are:

1. Minimising market access restrictions to ensure UK professionals can still easily travel and conduct business within the EU.
2. Ensuring mutual recognition of qualifications continues.
3. Ensuring data flows smoothly between the UK and EU through an adequacy agreement.

However, current border closures and travel restrictions due to pandemic are severely affecting recruitment trade with the EU. We believe the full extension of the Agreement has not been felt by the industry yet; and we urge Government to re-evaluate the situation once restrictions are lifted and trade resumes.

At the moment, the answers below represent REC's initial views of the Agreement. They are not a full picture of how the new relationship with the EU will impact the recruitment industry.

The future of UK-EU relations on trade in services - call for evidence:

What is the impact for trade in services of the UK and EU reaching a free trade agreement?

The REC welcomed the UK-EU Free-Trade Agreement (FDA) when it was announced. The core goal of keeping goods flowing and focussing on avoiding delays are welcomed.

Although we recognise that the deal represents a platform to build on, we remain concerned with the lack of provisions on professional qualifications and the yet to be agreed details on data adequacy.

We hope that  Government continues to build on the details of the agreement and makes trade in services a key negotiating priority in the months and years to come.

Trade in recruitment is currently reduced because of the existing travel restrictions both in the UK and the EU due to the Coronavirus pandemic, potentially masking the impact of the Trade Agreement. We believe we will be able to understand the impact in more detail once normal trade resumes.

What will be the impact of the Agreement’s provisions on the cross-border supply of services and rights of establishment, such as commitments on local presence and economic needs tests?

While it is reassuring that we have an agreement which gives UK businesses the right to trade freely with the EU - there are still some administrative burdens for firms to overcome. 

Being out of the single market means UK business will now have to comply with host-country rules and reservations for each member state. These can vary and, in some instances, become prohibitive to trade. These can include domestic rules, procedures and authorisations.

The full extent of these new provisions is yet to be revealed and should be re-examined in the future once Coronavirus restrictions are lifted. We urge Government to monitor the situation closely and make use of the review clause in the Agreement where appropriate, to improve trade in services.

What effect will arrangements on the mobility of professionals have on trade in services between the UK and EU?

The provisions on short-term business visitors are welcomed, as they give our members the ability to travel at short notice to the EU for 90 days in any 180-day month period.

That said – the challenge to all of this will be in the application. Looking at the text, there are some circumstances where non-tariff barriers to trade may be permissible.

Chapter 4 of the Agreement (Entry and temporary stay of natural persons for business purposes) imposes a number of restrictions to business travel. Restrictions can be based on level of seniority, years of professional experience and qualifications. The most concerning is the ban on contractual service suppliers and independent professionals engaged via an agency for placement and/or supply services of personnel.

Additionally, Annex Servin-3 and Servin-4 of the Agreement also outline national reservations for the provision of services and business mobility, which can widely vary from one country to another, making it a hard to navigate territory, as previously mentioned.

With that in mind, the REC is advocating for minimal restrictions on business visitors and administrative burden, especially considering there are also national reservations for each country.

What effect may national reservations to the UK-EU Trade and Cooperation Agreement have on trade in services with the EU?

We refer to the answers above and reinstate that it is hard to evaluate the effects of national reservations under the current circumstances due to Covid- 19. We foresee a significant impact in the way members trade in different countries and urge Government to review the situation as we know more.

Ultimately, members trading in the EU are now faced with 27 new sets of regulations, since every member state may have their own reservations. This means SMEs - the vast majority of REC's membership - will have to fully understand the requirements of each country.

From the feedback we received, members are finding it difficult to comprehend. There is no longer a "one-size-fits-all" when dealing with the EU and decisions will have to be made on a country-by-country basis, on top of considerations around the immigration systems and professional qualification requirements.

As national reservations are now a reality for UK businesses, the basis of the Trade Agreement must be as permissible as possible, with the removal of non-tariff barriers such as mentioned in the response above and follow up conversations around data adequacy and mutual recognition of professional qualifications.

The REC has partnered with the Department for International Trade to introduce their services to members to help them to navigate the new reality, but welcomes improvements and removal of barriers in the Agreement.

How will the new UK-EU framework for the mutual recognition of professional qualifications affect professionals and service sector businesses?

The REC is calling on mutual recognition of professional qualifications agreement to be reached. It must be a top priority for Government and the REC is available to support the conversation where needed.

This is perhaps the greatest single area where there has been no result and it is of significant concern for the recruitment industry, both for UK and EU staff seeking to supply cross-border.

Recruiters themselves do not require professional qualifications to operate. However, many recruit for sectors where professionals need to have minimum training conditions such as teachers, medical staff, vets, architects, and drivers. For instance, one REC member told us: “It is also essential that we continue to recognise agreed qualifications, which allows drivers to drive our trucks having taken their test within the EU.”

For reference, there were nearly 34,500 fully qualified and permanent GPs in England in March 2019. One in five (20%) gained their qualification outside in the UK. Those could now need validation checks (on top of the visa costs); making it even more difficult to recruit from abroad.

It could become impossible for some members to continue to trade with European clients if a mutual recognition of professional qualifications is not agreed.

In the long term, we hope the UK will be able to negotiate mutual recognition of professional qualifications in future trade deals with more countries. This would be welcomed by our members.

The EU has granted the UK a six-month data adequacy ‘bridge’ to allow the free flow of personal data until the EU determines whether or not to grant a data adequacy decision to the UK. How would the absence of a data adequacy decision at the end of this bridging period affect trade in services?

The REC urges Government to prioritise an adequacy agreement on data with the EU as soon as possible.

Data adequacy should be high on the agenda of the negotiations going forward. It has widespread effect in countless industries and the ramifications of data processes are hard to understand, especially for SMEs (over 95% of REC's membership).

Data management has always been a fundamental element of recruitment. Over recent years there has been an increase in the amount of recruitment businesses using new technologies that rely on big data and software that operates on the cloud. For our members who operate in several countries, being able to share personal data across borders seamlessly is enormously important.

We are concerned that there is limited knowledge among businesses about the impact that the lack of data adequacy can have on data flows.

As well as transferring data across borders, there could be a potential difficulty for recruiters who store data on the cloud. Nearly all recruitment agencies have a cloud-based CRM, this could create some potential complications if the servers for the cloud-based CRM are based in the EU.

Appendix 1

Importance of international trade to UK recruitment

The ONS estimates that the UK exported £2.614 billion worth of recruitment services internationally in 2018. This represents a growth of £1.256 billion from 2014 to 2018, almost a 100% increase in the value of UK exports of recruitment services in a four-year period.  

The balance for trade in 2018 for UK recruitment services is £1.235 billion. In the same year, recruitment services exports equate to 1.41% of total services exported in 2018.

Table: ONS data on International Trade in Recruitment Services, 31 January 2020

The fast growth of the UK recruitment industry abroad is reflected in The Sunday Times HSBC International Track 200. This ranking list found that 19 of the top 200 private companies with the fastest-growing international sales are recruitment consultancies.

As well as strong markets in Europe and the US, recruitment consultancies have been opening offices in developing markets, especially in Asia, frequently setting up offices in Hong Kong and Singapore, to access the burgeoning recruitment market in the far east.

Table: Market share of global staffing industry based on annual revenue

Our members indicate that the reason for this strong growth abroad is due to the robust reputation of the UK recruitment industry, including within the EU. Several members say that they have received regular feedback from candidates as well as clients that they prefer working with a UK based recruiter rather than one based in a different country.

The overwhelming majority of recruitment businesses are SMEs. Some of these companies will have business abroad but most have been conducting business within the EU without establishing an office. It costs a lot to set up a branch in another country, with one of our members estimating it cost €50,000 to set up a business in Germany.

In several instances, the recruitment companies operating within the EU might only do a few placements a year. There is a risk that this business with the EU would just stop rather than going through the difficulties of trying to continue conducting business in EU countries if barriers are introduced.

There are other REC members who say that UK-based recruitment agencies are frequently hired due to their ability to hire in countries across the EU. There is concern with national reservations varying from one EU country to the other, that these contracts will end, or these companies will base this business in an EU country. It should also be noted that in these instances, transactions will frequently be carried out within the UK. For instance, when a UK recruiter is hired by a large company's EMEA office to hire for positions across the EU. In this example, the trade done will not be tallied in the ONS data on trade. We therefore think the ONS data might be an underestimate of the value of trade UK recruiters do with EU.

The REC is the voice of the recruitment industry, speaking up for great recruiters. We drive standards and empower recruitment businesses to build better futures for their candidates and themselves. We are champions of an industry which is fundamental to the strength of the UK economy.

Find out more about the Recruitment & Employment Confederation at www.rec.uk.com

February 2021

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