A previously muted British business establishment is now in full cry over Brexit. The leak last week of proposals to restrict the ability of European Union nationals to live and work in the UK were described as “catastrophic” by one employers’ group. Voices from housebuilding to aerospace, farming and hotels raised concerns over the plans, which signalled a hard Brexit is very much on the cards.

The warning of catastrophe came from the British Hospitality Association, while the National Farmers Union said the draft Home Office plans would cause “massive disruption to the entire food supply chain”. The reaction was also fuelled by the government’s refusal to disown the plans, alongside its apparent support of a hard Brexit agenda. We answer the key questions raised by the leak, including the potential consequences for the UK economy.

How tough are the proposals?

The document, entitled the Border, Immigration and Citizenship System After the UK Leaves the EU, explicitly targets low-skilled EU migrants by limiting them to a maximum residency of two years. Meanwhile “high-skilled occupations” would be granted permits to work for a longer period of three to five years.

Plans to scrap EU rules on the rights of extended family members to reside in the UK would mean that the current system, which has “virtually no limits”, according to the document, was replaced by one that would determine “family members as direct family members only, plus durable partners”.

EU nationals would be required to travel on a passport and not a national ID card. They would also have to apply for a biometric residence permit, which may include a fingerprint, after they had stayed for between three and six months.

In defiance of the EU’s free-movement directive, residence permits would not be granted to jobseekers. Instead, a specific “income threshold” would be introduced for “self-sufficient” migrants. Employers would also be heavily involved in policing the new system. They would need to carry out “right to work” checks. If they failed in this duty, criminal sanctions against the organisation and its bosses should be expected, the document says.

How has business reacted?

The most common reason given by business leaders for allowing migrants the freedom to roam is a belief that they are the lifeblood of any developed economy. This is especially true in the US, where the business magazine Forbes constantly reminds its readers that major companies – including 40% of its Fortune 500 list – were founded by immigrants or their children.

In the last 20 years it has become increasingly common in the UK for the engines of technological change to be fired by migrants. One in six new hires between 2009 and 2015 in the British tech industry were EU citizens, according to the trade body techUK.

But immigrants also fill the gaps in low-paid sectors where few Brits are willing to work. Last week employers voiced their dismay at restrictions on both the skilled and unskilled. Farmers were joined by all the major business lobby groups, which want more of an open-door policy than the government’s interpretation of the EU referendum vote appears to allow.

Peter Gowers, chief executive of the hotel chain Travelodge, said: “Even if the hotel industry recruited virtually every person on the unemployment register there wouldn’t be enough people to fill all the roles needed in the 10 years following Brexit. That’s particularly the case in London.”

How will limits on freedom of movement hurt the economy?

The rapid reduction in net migration to below 100,000 new arrivals to the UK each year – a Conservative party pledge before the election – could knock 3.1% off GDP by 2025 and lower tax receipts by £32.7bn, according to the Centre for Economics and Business Research.

This week, Theresa May repeated the pledge to reduce net migration to the tens of thousands, which means non-EU migrants, who have consistently arrived each year in larger numbers that EU migrants, would also face a much tougher test. This would have an even bigger impact on GDP growth.

Paul Johnson, head of the thinktank the Institute for Fiscal Studies, says EU migrants have also been good for the public finances. On average immigrants from the EU are better educated, younger and more likely to be in work than native Britons. Young people in work contribute, on average, much more in taxes than they take out in benefits and public service spending.

He wrote in a blog: “A large part of what government does is to take money from young workers and give it to pensioners. Without high net immigration the public finances would be in a worse state. If we were significantly to reduce the number of EU migrants, we would have to borrow more, raise taxes or spend less.”

What happened to reports into immigration and the economy?

Vince Cable, the Liberal Democrat leader and former business secretary, says nine studies into the impact of migrant labour crossed his desk between 2010 and 2015. In each case they were left to gather dust in the Home Office, he says, blaming May for their disappearance.

The studies seen by Cable showed that migrants rarely supplanted UK-born workers, and went instead into expanding industries where UK-born workers were in short supply.

A report by the Resolution Foundation thinktank was among those to reject a causal link between the arrival of migrant workers and the unemployment of UK-born workers. Where it allowed more room for debate was on pay. In some instances pay was depressed by migrant workers, but not by much, it said. Johnson’s IFS shared this view.

Are there enough British workers to fill the skill gaps?

There is plenty of anecdotal evidence that doesn’t show up in the studies to suggest that competition for work from migrants locked out UK-born workers and drove down rates of pay. Those who cite this argument range from architects in central London to agricultural workers in Lincolnshire.

Many Vote Leave campaigners believe a crackdown on migrants would force companies to train UK-born workers for jobs that in recent years they recruited “oven-ready” foreign workers to perform. But many of the jobs in hospitality depend on people working long hours for low pay. A fear among hotel and restaurant owners is that if they increase the pay bill and add in the cost of training, customers will refuse to shoulder the higher costs and they will go out of business.

Will restrictions lead to pay increases for low-level jobs?

Last month the Chartered Institute for Personnel and Development (CIPD) said employers saw little incentive to offer big pay rises because they are receiving an average of 24 applications for each low-skilled job. The CIPD said this would change after Brexit. Plenty of City economists believe a reduction in migrants would eventually feed through into higher pay. The question is whether the vacancies remain advertised when the economy is suffering and businesses rein in recruitment.

How will the proposals affect Britain’s productivity crisis?

Industries with skills shortages would have to move quickly to train their staff and new recruits. They should also introduce automation and robotic technology to overcome labour shortages and raise levels of productivity.

Punam Birly, who advises companies on immigration at the consultancy group KPMG, says most countries operate similar immigration systems to that proposed in the Home Office leak and still manage to prosper.

So once the uncertainty is out of the way, the UK should find a method for letting EU migrants stay for longer than is the case in the hard Brexit proposals. Then firms could implement investment plans that had been put on hold and reap the benefits. But the key is not repeat the mistakes of pre-credit crunch Britain, when the UK’s productivity gains were largely snaffled by businesses and their shareholders.