Differentiation is an institutional response to internal heterogeneity within the European Union. Its success as a stabilization strategy for the EU reaches its limits when faced with the tensions between the EU’s common rules and the diversity of national capitalisms in Europe. The article focuses on one such tension, namely between the EU’s rules on freedom of movement and national labour market institutions, illustrating this tension by analyzing the case of the United Kingdom. The article argues that the socio-economic effect of migration were felt principally in the impact on skill formation and in the changing factor inputs of British businesses. It argues that these effects contributed to the vote for Brexit. The centrality of freedom of movement to our understandings of EU citizenship and to the integrated nature of the European common market makes it very unlikely that differentiation will be pursued as a response to the tensions arising from intra-EU labour mobility. This article argues that unless differentiation is considered in the area of the ‘four freedom’s, the tensions produced by the diversity of European capitalism may lead to more disintegration in the future.