The Confederation of British Industry (CBI) warned in its "Open and Controlled -- A New Approach to Migration" report that Brexit threatened to deter vitally-needed foreign workers from looking for jobs in Britain in areas such as the health service, retail, and farming.
"The stakes are high. Get it wrong, and the UK risks having too few people to run the health service, pick food crops or deliver products to stores around the country. We also risk harming our future as a global innovation hub," Josh Hardie, CBI deputy director-general, warned on Friday.
The report provides evidence from 129,000 firms across 18 industry sectors, which are members of the CBI.
Companies want to see a new approach that remains open enough to grow the British economy, with the right controls to build public trust and confidence, the CBI said.
The report makes a series of urgent recommendations for the British government to adopt in its Brexit negotiations over the autumn before the country leaves the European Union (EU) at the end of March next year.
The report recommends that the government replaces free movement of workers with an open and controlled immigration system for EU workers, and that Britain's current non-EU immigration system so that firms can better access people and skills from around the world, not just the EU.
In addition, the report calls for building public trust in the migration system by shifting away from controlling numbers to assessing contribution to society and by investing in local public services where demand has been increased by migration.
Hardie said: "Business is clear that free movement of people will not continue on the same terms as it has before. Instead firms want to see reform to the UK's immigration system, ensuring ensures it remains sufficiently open to support our economy but with enough control to build public trust and confidence."