The interim report from the Migration Advisory Committee (MAC) said many employers have argued possible restrictions on workers from the European Economic Area could have an impact on businesses and the economy.
A lack of migrant workers could damage a company’s ability to grow, “forcing firms to relocate to Europe in order to access EU labour without restrictions, or forcing some employers out of business”, the report said.
MAC, an independent body, has been asked by the Government to help it design a post-Brexit immigration system.
It has heard the views of more than 400 companies and industry bodies on the impact of losing access to workers from the continent.
While the advisory body has yet to produce a final report, it has said lower migration would have an impact on the economy and businesses are not prepared for having a smaller number of workers available to hire.
“Lower migration would very likely lead to lower growth in total employment, and lower output growth,” the report said.
Britain leaves the European Union in 2019 but the Government has negotiated a transition deal, allowing the free movement of labour, until the end of December 2020, giving business more time to plan for the future.
The CBI has also warned tougher immigration rules could have an adverse effect on smaller companies.
“While firms recognise that freedom of movement as we know it will end, restricting access to EU workers – at a time of record employment rates – would leave companies without the staff they need to grow and invest,” Neil Carberry, CBI managing director, said.
“If Britain is continue competing globally, it will need to take an open approach to migration, with appropriate controls to maintain public support.
“As the report notes, firms are concerned that applying non-EU rules to citizens from our closest trading partner would be disastrous for the economy, with smaller companies hit hardest.
“Overall, EU migration has had a positive impact for the UK economy, creating jobs, growth, and helping to pay for public services such as roads, schools and hospitals.”
MAC is expected to publish its final report in September.