The business case for immigration reform. Tom Papworth

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2 The business case for immigration reform Tom Papworth

3 About the author Tom Papworth is Associate Director at CentreForum with responsibility for economic policy. He holds degrees from the Universities of London and Kent and has over 13 years public policy and research experience, having worked for government, the private sector, policy institutes and membership organisations. He has written widely on SME funding, planning policy, higher education, early years education, intellectual property and economic policy more generally. He is co-author of the CentreForum report The path to IPO: funding SME jobs and growth (February 2013). Acknowledgements This report would not have been possible without the support of interviewees, contributors and peer-reviewers from the UK business community. In particular, I would like to thank Rosa Crawford International Policy Officer, Trades Union Congress. Uday Dholakia Chairman, National Asian Business Association. Ruth Grove-White Policy Director, Migration Rights Network. Carrie Hartnell Associate Director, Intellect. Sinead Lawrence Senior Policy Advisor, Confederation of British Industry. Adam Marshall Director of Policy and External Affairs, British Chambers of Commerce. Verity O Keefe Employment and Skills Policy Advisor, EEF. Julia Onslow-Cole Partner and Head of Global Immigration team, PwC Legal. Awale Olad Public & Parliamentary Affairs Officer, Migration Rights Network. David Nash Policy Advisor, Federation of Small Businesses. James Perrott Solicitor and Senior Manager, PwC Legal. Ian Robinson Manager, Fragomen LLP. Laura Smith Enterprise Policy Manager, Confederation of British Industry. Tim Thomas Head of Employment Policy, EEF. John Wastnage Employment and Skills Advisor, British Chambers of Commerce. I would also like to thank Owais Karnee, Grace-Anne Marius, Hamish Birrell and Dominic Wyard for their help with the primary research for this report, and Alasdair Murray and Tom Frostwick for their helpful comments. ISBN: Copyright December 2013 CentreForum All rights reserved 2

4 Contents Executive summary 4 Introduction 7 1 The importance of immigration some general principles 10 2 The current system for non-eea immigration 18 3 Counting and accounting for immigrants 29 4 Political party approaches to non-eea immigration 36 Labour position 36 Conservative position 41 Liberal Democrat position 44 5 The view of the business community 48 Conclusion: policy proposals for a business friendly immigration policy 65 3

5 Executive summary In a globalised economy, where talent is as mobile as capital, no nation can succeed by pulling up the drawbridge Rt Hon Nick Clegg MP, Deputy Prime Minister 1 Immigration has begun to re-emerge as a dominant policy area as the European and general elections loom. Yet the economy remains the single most important issue for voters, and the one that will most probably decide the fate of the current coalition. 2 It is therefore clearly in the public s, and the government s, interest that immigration policy be structured so as to promote economic growth. There are a number of areas where immigrants impact upon the economy (some of those outside the scope of this report include immigration by entrepreneurs and major thought leaders, and the fact that foreign students contribute over 10 billion to the UK economy). 3 The most obvious is the importance to UK businesses of being able to attact and recruit the most talented people from the global marketplace and to fill the demand for particular skills that may not be available locally. To this end, and no matter what other aims shape immigration policy, it is important that the UK s immigration system is designed to ensure that businesses are able to recuit the skills and talent they need with as little burden as possible. Many of our criticisms of the immigration system involve areas where there are not only unnecessary burdens placed on firms, but these burdens do not seem to serve any other purpose. Other criticisms relate to examples of poor practice that cannot be blamed on deliberate policy but are simply a reflection of bad management and a dismal customer service ethos. Where we criticise the general thrust of government policy, we believe that these policies have been implemented despite the economic 1 Speech delivered at CentreForum, 22 Mar 2013, aspx?title=nick_clegg_speech_on_immigration&ppk=e fa7-4f09-9a5c-bfb4a716b9df. 2 From 2010 to 2012 over half of voters polled by IPSOS Mori listed the economy as the main issue, while a combination of racial and immigration issues were cited by between a fifth and a third of respondents. In 2013 the gap narrowed somewhat, but the economy remained the largest concern. The Most Important Issues Facing Britain Today, Issues Index: 2007 onwards, IPSOS Mori, downloaded 10 September 2013, ipsos-mori.com/researchpublications/researcharchive/2905/issues-index-2012-onwards.aspx. 3 International Education: Global Growth and Prosperity, BIS, Crown Copyright

6 impacts. Finally, in a couple of cases our recommendations go beyond the needs of businesses to address fundamental flaws in the basic information underpinning the immigration debate. A few broad areas of policy stand out. The first among these is the need for a period of continuity and stability. Businesses find navigation of the immigration process hard enough in any case. Expecting businesses to stay abreast of constant change when immigration policy is amended every few weeks places an extremely demanding and expensive burden on firms especially small and medium sized enterprises that do not have dedicated immigration compliance (or even human resources) staff. Every business group we spoke to during our research agreed that the permanent revolution in immigration policy was detrimental to UK competitiveness, undermining both their ability to keep on top of policy and the perception of the UK abroad. Nonetheless, some changes are desperately needed to the government s approach to immigration. Overarching and colouring the entire immigration debate is the poor quality of data collection, in particular in relation to migration numbers. The headline figures for both immigration and emigration, and consequently for net migration, are woefully inadequate. The use of the International Passenger Survey to estimate numbers of migrants is grossly inappropriate: the survey was not designed for this purpose and it cannot provide adequate or useful statistics at even the most basic level. Until the government improves data collection and can produce accurate and comprehensive migration statistics, the entire immigration debate is taking place in the dark. Despite general hostility among the public to immigration, who is coming to the UK, and whether they are planning to settle, are at least as important as their number. Two thirds of those captured by existing immigration statistics are either international students or workers on intra company transfers, two routes that cause the public little concern and do not lead to indefinite leave to remain. The sooner these groups are removed from the migration figures the sooner the UK can begin to have a well informed and measured debate about immigration. The above should not be taken as suggesting that immigration should be primarily a function of numbers, however. The Conservatives decision to make immigration policy about quantity rather than quality is deeply harmful both to the needs of businesses and to wider society. Putting an overall cap on immigration is difficult to achieve (especially as government has no control over emigration or European migrants) and distracts from a focus on whom the UK needs or wants to welcome. Putting specific caps on particular types of immigrant (be it 20,700 sponsored workers, 1,000 entrepreneurs or zero unskilled workers or skilled jobseekers) is harmful to the economy and 5

7 will potentially impede the ability of UK businesses to recruit the talent they need to compete in an international marketplace. On top of these broad, overarching themes, we make a number of specific recommendations that include proposals to improve delivery, the restoration of valuable immigration routes and the avoidance of potentially detrimental changes. A full list of all our recommendations follows our conclusion at the end of this report. Together these add up to a targeted programme of reforms that business leaders and trades unions have indicated would go a substantial way to improving the working of the Points Based System for immigration. By making the Points Based System more efficient and better aligned with the needs of businesses, by improving the statistics that underpin the immigration debate, by recasting that debate away from quantity and focusing on quality, and by giving businesses a break from the permanent revolution in policy, government will take a huge step towards improving the UK s competitiveness and its attractiveness to foreign workers and investors. If the government is serious about fostering economic recovery then it cannot implement these changes too soon. 6

8 Introduction: The business case for immigration reform The object of this paper is to examine the case for reforming the UK s immigration policy so as to make it more conducive to the growth of business and enterprise. Though it begins in Chapter 1 with a discussion of the economic arguments surrounding international labour mobility, this paper is not primarily concerned with the broad economic rationale for a liberal immigration policy. That argument is important, but it has been made elsewhere. Rather, our aim is to examine how we can make the UK immigration system more conducive to the needs of businesses in the UK. We have taken this approach for three reasons: 1. The economic case is strong but not sufficient: Although there is clear and compelling evidence that international labour mobility is good for the economy and for most, if not all, UK citizens, broad economic rationale has not persuaded the general public. It is therefore necessary to demonstrate that a well functioning immigration system contributes to British business competitiveness and increases both profitability and job creation. 2. Politicians and the public have conflicting priorities: Immigration regularly appears in the top three concerns for the British public, but it is rarely if ever in first place. The biggest concern for UK residents remains the economy. Politicians thus need to come up with an immigration policy that satisfies democratic demands that are themselves contradictory. What is needed is a policy that addresses concerns over immigration but promotes rather than damages economic growth. 3. The debate needs to focus on quality not quantity in respect of both people and systems: Irrespective of the general thrust of immigration policy, there are particular aspects of the immigration system that damage business efficiency. These have negative impacts on the economy that are out of proportion to their intended aim. Frequently, these are not even the best way of delivering that aim. Policy should focus less on how many people are arriving to work and more on who 7

9 they are and how efficiently the system facilitates this. Our aim is to propose reforms to the UK immigration system that promote the positive economic effects of immigration without relying on abstract economic rationale; that ensure that managed immigration does not operate independently of economic policy; and that seek to eliminate harmful immigration polices that are unrelated to the concerns of British citizens. In addition, focusing on the business case for immigration reform avoids challenging the inherent incumbency bias of politicians and the public. The public is concerned that immigration policy should be shaped around the interests of those who are already resident in the UK. Looking at the business case focuses attention on how immigration can help UK businesses, rather than making a more general case that however legitimate the public finds less persuasive. Politicians reflect this view, but they also frequently demonstrate a bias towards existing businesses over potential competitors. It is thus far easier to persuade politicians to make reforms that help businesses that they see as national champions or that are based in their constituencies than it is to persuade them to help the economy in general, or to introduce policies that benefit potential new entrants to the market but which do not currently exist (and so cannot be visited for a photo opportunity). This is not to suggest that the general economic case is unimportant. The aim of this paper is to contribute to the wider argument while at the same time providing suggestions for detailed reforms. It is vital that the general case should continue to be made, which is why this is the subject of Chapter 1. Following the general introductory chapter, we move to examine the current situation that obtains in the UK. Chapter 2 explains current immigration policy in the UK, focusing on the Points Based System (PBS) as it relates primarily to business immigration. Our focus is thus mainly on Tier 2, while we dwell somewhat less on Tiers 1, 4 and 5 of the PBS. This chapter (along with Chapter 5) is the one most likely to date quickly; immigration policy is subject to substantial and rapid change and it is to be expected that very soon the description of UK immigration policy contained herein will be out of date. Chapter 3 looks at one area where the UK immigration system very obviously fails: the government s efforts to quantify the number of immigrants currently in the UK. It looks at recent criticism of government practice and reasons why it is failing. Having examined current government policy, Chapter 4 looks at the positions of the three main political parties on immigration. Having set out the landscape, we move on to the heart of the report. Chapter 5 examines concerns that business groups (both among employers and trades unions) have expressed about the system. Building on both public statements 8

10 and interviews that we conducted between May and August 2013, we set out a number of very specific recommendations for how policy can be amended so that it helps businesses grow, export and create jobs. Our conclusions draw on the above to highlight a number of key concerns and to make a few broad recommendations. A list of our specific policy suggestions follows. 9

11 1 The importance of immigration some general principles The most basic reason for allowing free movement of labour is the same as that for allowing free trade in goods and services: a wider and more open economy allows for specialisation and the division of labour. The fundamental lesson of The Wealth of Nations is that human progress is built on the ability of individuals to focus on ever more specialised roles: what would be impossible for a million subsistence farmers seems simple in a thriving city. There are two routes for an economy to engage fully with the welfare enhancing power of the division of labour: open trade with other nations and open borders. If this were a choice, one might present it as one between buying goods from abroad or bringing in skills. In reality, both have a role to play, but the more we close off one route the more we need to rely on the other. If we shut our borders to foreign workers with skills that are not available in the UK, we must either import goods from abroad or go without. As abstinence has a negative impact on welfare, the choice is between bringing foreign workers into the UK or sending skilled jobs abroad. The result of this is an economic trilemma: we cannot have all three of the following scenarios in an economy at the same time: Borders closed to economic migrants Jobs based domestically rather than abroad Maximised economic welfare. Put another way, British jobs for British workers can only be had at the cost of reduced economic welfare for British citizens. 4 A study by the Centre for Economic Performance at the London School of Economics found that when companies off shore jobs, it is not only the 4 Or, strictly speaking, British residents. The British jobs for British workers quote is from Gordon Brown s first speech to the Labour Party conference as party leader. 10

12 often low wage jobs themselves that are exported, but many related jobs. 5 Conversely, hiring immigrants even for low wage jobs helps keep many kinds of jobs in the domestic economy. The authors also found that: Immigration tends to be inversely proportional to offshoring, which means that immigrants are more likely to be competing for jobs with foreign workers than with workers in the host country Employment growth in sectors exposed to immigration was higher than in more insulated sectors. Peri & Davis found that complementary workers add value to the work of others; they may take a job as a low skilled labourer, resulting in a domestic worker being promoted to supervisor. 6 In addition, as immigrants make a success of their job, they help domestic businesses build strong social networks with their home countries. 7 This reveals an important truth, which is that complementary skills are not limited to skills that are not available in the UK. The economic question is not whether a domestic worker is capable of doing the job, but whether it is more efficient to allocate the job to a domestic or a foreign worker. 8 It is entirely possible that there may be people in the UK that could do the job, but that their comparative advantage lies elsewhere: better to bring over a foreign worker to take the job and so free the domestic worker to labour in an area where they make the biggest contribution. In this respect, the government s Resident Labour Market Test, which seeks to prove... that there is no suitable settled worker who can do the job is misguided. 9 Below we examine several reasons why the complementary skills of foreign workers are important to the UK economy in general and to resident UK workers individually. Meeting skills shortages Both employers and trades unions acknowledge that British workers currently lack the skills necessary to meet the demands of British businesses. Over one in five businesses believe they lack the in house skills, managerial capacity or knowledge to export. 10 Where businesses are keen to recruit skilled workers, 5 G Ottaviano, G Peri and G Wright, Immigration, Offshoring and American Jobs, CEP Discussion Paper No 1147, May G Peri, The Effect of Immigrants on U.S. Employment and Productivity, FRBSF Economic Letter, Federal Reserve Bank of San Francisco, G Peri, The Effect of Immigrants on U.S. Employment and Productivity, op cit. 8 Lest the reader complain that efficiency is being put before individual welfare, is it important to remember that, for economists, an efficient outcome is usually defined as one that improves the welfare of some without detracting from the welfare of others. 9 The resident labour market test, UKBA website, sponsoringmigrants/employingmigrants/residentlabourmarkettest/ 10 A serious skills shortage is holding back our exporters, British Chambers of Commerce blog, 12 April

13 they find their ability to grow hampered by a lack of appropriate skills in the labour force. 11 Immigration is an important way of plugging these gaps. Immigrants fill gaps in the UK labour market where there are shortages of workers, whether high or low skilled. There is little evidence of a negative impact on jobs or wages of people born in the UK. 12 This is not to suggest that the solution to the problem of skills shortages should not be improved training and development of existing UK residents: trade unions are vocal in this respect and employers groups also acknowledge the need to up skill British workers. Rather, it is an acknowledgement that improving the domestic capacity to meet the current ingrained skills shortage is a long term project, and in the meantime, immediate skills shortages need to be met. In so far as they are only available abroad, immigration is a necessary solution. For example, the EEF argues that: Businesses are aware of the need to upskill the resident labour market and employ, where possible, local talent. However, upskilling the domestic workforce is essentially a long term task and in the meantime, firms need access to the best talent available. With significant and critical elements of the production process being undertaken outside the EEA, no amount of upskilling of the UK workforce will replace the need for reliance in part upon experience and skills not available locally. 13 Labour market flexibility and liquidity Access to as wide a labour pool as possible also provides increased labour liquidity. Immigration debates often proceed as though the demand for labour, and more specifically for particular skilled labour, is relatively stable and constant. In fact, the economy is highly dynamic. The initiation of a project may see a sharp rise in demand for particular skills, which will exist for a set period and then cease. It is not always possible to predict this well in advance. At an economy wide level it is quite unrealistic to plan for the exact number of (for example) structural engineers or forensic accountants that the UK will need several years hence. If UK firms have to rely on homegrown talent, they may find themselves facing significant skills shortages (as business groups repeatedly report). 14 Interestingly, this is not a problem limited to an economy the size of the UK. Even at a European level, employers report that there 11 Skills for Business: More to Learn?, British Chambers of Commerce, October Immigration and the UK Labour Market: The latest evidence from economic research, Centre for Economic Performance, London School of Economics, June EEF s response to the Migration Advisory Committee Call for Evidence on Tier 2 Codes of Practice and updating the Tier 2 NQF6+ Occupation List to SOC 2010, 2C066D88F893/21663/EEFResponseMigrationAdvisoryCommitteeCallforEviden.pdf

14 appear to be skills shortages in the European workforce. 15 Labour migration provides a solution to this in two ways. Firstly, it allows entrepreneurs to recruit large numbers of skilled staff without relying on workers in the domestic economy having predicted the demand and so chosen to specialise in the requisite area; put another way, entrepreneurs are less likely to be held back by skills shortages. Secondly, for domestic workers themselves, it becomes more viable to specialise in a particularly niche area if they are able to then apply for jobs across the global economy, rather than relying on domestic demand. Accommodating short term fluctuations is not the only role migrants play. In a period of transition, demand for skills may change more quickly than supply (it takes time to learn a new programming language, for example). Recruiting foreign based staff can provide businesses with an opportunity to respond quickly to exogenous shocks, without waiting until domestic workers have acquired the necessary skills. Even if employers intend to train domestic staff themselves, they may want somebody to deliver the work in the meantime. Upskilling the existing workforce It is easy to fall into the trap of separating training from work. In fact, a substantial amount of important training takes place on the job. Increased in work training is a regular demand of trades unions 16 and is acknowledged by business organisations as a priority area. 17 But providing in work training is clearly problematic in an environment where skills are lacking. Immigrants frequently impart their knowledge to domestic workers, thus helping improve the skills and productivity of workers already resident in the UK. As wages are dictated by productivity, this will have the effect of driving up incomes over time. Immigration therefore helps businesses meet the desire of both employers and trades unions to upskill the domestic workforce. This is particularly important for young people. Young people entering the workforce develop skills on the job that are vital for the next couple of decades. 18 As the London Chamber of Commerce and Industry explains, Highly skilled non-eu staff members often train the resident workforce through their everyday activities. This type of training is especially N Carberry, Director of Employment and Skills, CBI, Business experts explain how skills shortage could hold back UK growth, 13

15 important for those businesses that are able to offer on the job training to their employees. Limiting the number of non-eu migrants allowed to come to the UK to work will not only hamper businesses performance but will widen the skills gap further. There is an urgent need to address the skills shortage in the UK... Reducing the number of non-eu migrants coming to work, study or train in the UK does not provide a solution to this essentially long term problem. 19 Job creation Bringing in complementary skills not only helps upskill the workforce; it also creates new jobs. Immigrants do not work in isolation. Without their skills, a project may be impossible and so other jobs, available to UK resident workers, will not be created. For example, bringing a Korean environment artist over to the UK might be essential to developing a new computer game, and thus providing employment to British animators and modellers. This is particularly true of management positions, which create jobs not only within the team that the manager develops but also throughout the supply chain. A report by the Centre for Economic Performance at the London School of Economics found that youth unemployment among people born in the UK rose less in areas that experienced a larger increase in the share of immigrants. 20 Exports Access to foreign talent also boosts export potential. One of the main attractions of non-eu workers is that they facilitate trade. Foreign workers can bring an intimate knowledge of the language and culture of a trading partner, as well as having the personal contacts necessary to forge business relationships. Thus, for example, almost a third (30%) of businesses surveyed by the London Chamber of Commerce and Industry in 2011 reported that they employed non-eu workers because of their language skills. 21 Onshoring We have noted above that the alternative to importing labour is frequently to export jobs. If a company cannot bring a specialist to the UK, they will employ them in their home country. But this assumes that the job in question would normally be based in the UK. In some cases, it is very much a case of importing the job; the question may not be whether the job is best located in the UK or abroad, but where it is easiest to assemble the very specific 19 Migration reform: caps don t fit, London Chamber of Commerce and Industry, Immigration and the UK Labour Market: The latest evidence from economic research, Centre for Economic Performance, London School of Economics, June Migration reform: caps don t fit, London Chamber of Commerce and Industry,

16 team that one is seeking to create. In an environment where companies form project teams to deliver particular products, drawing on talent from across the world, there is value in hosting these projects. Immigration thus provides potential for onshoring, moving jobs from foreign countries to the UK. Offshoring of jobs has a far more negative impact upon low skilled workers than immigration. Ottaviano, Peri, and Wright find that while offshoring low paid jobs reduces the share of natives among less skilled workers, immigration into low paid jobs does not rather, immigration reduces the number of jobs that are offshored. Moreover, immigration may leave unaffected, or even increase, total native employment of less skilled workers. They find evidence that immigration has a positive net effect on native employment. 22 Evidence of the economic impact of immigration to the UK Considering the above, one would imagine that there would be substantial evidence for the positive effects of immigration on the UK economy. In fact, empirical evidence on the impact of labour migration to the UK is in short supply, and what little there is suggests that the impact has been fairly modest. Much attention was given to a 2008 report by the House of Lords Select Committee on Economic Affairs that argued that immigration has very small impacts on GDP per capita, whether these impacts are positive or negative. However, while it went on to say that it had found no systematic empirical evidence to suggest that net immigration creates significant dynamic benefits for the resident population in the UK, it did also admit that This does not necessarily mean that such effects do not exist The select committee s findings are surprising considering that the government works on the assumption that Tier 1 and Tier 2 migrants and their dependents are on average about twice as productive as current UK residents. 24 Immigrants are also on average younger and better educated than their UK born counterparts, and the most recent immigrants are better educated still. More than five sixths of new immigrants continued their education beyond the age of 16 and half stayed in education until the age of A global perspective International evidence suggests that even small amounts of migration have big economic effects, which must benefit both source and destination 22 Immigration, Offshoring and American Jobs, op cit. 23 The Economic Impact of Immigration, Volume I, House of Lords Select Committee on Economic Affairs, 1st Report of Session pdf?view=binary. 25 Immigration and the UK Labour Market: The latest evidence from economic research, Centre for Economic Performance, London School of Economics, June

17 countries. Michael A. Clemens, argues that immigration controls could be the greatest single class of distortions in the global economy. In an article focussed on emigration (the other side of the immigration coin), he writes: When it comes to policies that restrict emigration, there appear to be trillion dollar bills on the sidewalk. The gains to eliminating those barriers amount to large fractions of world GDP... For the elimination of... labor mobility barriers, the estimated gains are often in the range of percent of world GDP. 26 Clemens findings are reinforced by a subsequent paper by John Kennan who similarly found that open borders would more than double world GDP in the long run. 27 Though these two papers refer to worldwide change in global governance, they still give a sense of just how dramatic even modest changes in migration policy can be. Some part of these gains must accrue to host nations (i.e. those to which labour migrants are immigrating). But even where this growth is captured by the countries from which immigrants come, it will lead to increased demand for developed countries exports an important point when one considers the stated aim of the government to return to growth through boosting exports. The British Chambers of Commerce indicated that the government should view immigration policy as a means of boosting exports. 28 Research by the London Chamber of Commerce and Industry suggested that one of the main reasons companies recruit from beyond the EU is their desire to explore and invest in new, overseas markets. 29 While both comments were framed by the need to ensure that UK exporters could recruit the skilled staff they need, it is also likely that greater levels of labour market mobility will boost foreign countries demand for UK goods in the long run. Summary The above highlights just some of the reasons why immigration creates positive effects both for the UK economy and for specific businesses. If we want UK businesses to be able to recruit the most highly skilled people, thus creating other job opportunities both within their firm and in suppliers and customers, and we want the world s most talented people to share their skills, knowledge and leadership with British workers, we need to have a functional, effective immigration system. 26 M Clemens, Economics and Emigration: Trillion-Dollar Bills on the Sidewalk?, Journal of Economic Perspectives Volume 25, Number 3 Summer 2011 Pages John Kennan, Open Borders, University of Wisconsin-Madison and NBER, October Interview with the author, 10 June Migration reform: caps don t fit, London Chamber of Commerce and Industry, 2011, p3. 16

18 In the next chapter we will set out in some detail the system that the UK government has established in an attempt to meet the demands of businesses within a managed system. In Chapter 5 we will return to the needs of business by looking in greater detail at how business groups view the existing immigration regime and what can be done to make it easier for businesses to recruit the people they need from a global workforce. 17

19 2 The current system for non-eea labour immigration The aim of this chapter is to outline the operation of the system for non-eea labour migration to the UK at the time of writing. Two important caveats need to be given before we provide that overview. The first is to reiterate that the focus of this paper is on labour migration. It takes no account of other migration routes, such as family migration; nor does it consider asylum. There are numerous routes into the UK that are not based on the Points Based System. These include (but are not limited to): Spouses and unmarried partners of UK/EEA nationals or those with indefinite leave to remain Commonwealth citizens with a grandparent born in the UK The sole representative of an overseas businesses, coming to the UK to set up a wholly owned subsidiary or register a UK branch for an overseas parent company. The discussion below focuses solely on the Points Based System (PBS) introduced to manage labour migration. The second caveat results from the fact that in recent years the immigration system has been subject to something akin to permanent revolution. Over the past decade there have been 83 changes in immigration legislation, according to UK Immigration Barristers. 30 The PBS, designed to rationalise the immigration process, has been subject to numerous changes, firstly under the Labour government and at an accelerated rate following the election of the coalition in This is a problem in itself (see Chapter 5). It also renders the information provided by this chapter inherently short lived: with UK immigration authorities issuing a statement of changes to immigration laws every few weeks, it is likely that by the time of publication another amendment will have been made, and over time the content of this chapter will become increasingly out of date

20 Having said that, it is necessary to define the policy environment we are investigating if our comments and recommendations are to make sense and be achievable in a practical manner. The PBS was phased in between 2008 and It consists ostensibly of five Tiers that segregate immigration into discrete categories. These tiers are: Tier 1: the supply driven route for talented people seeking work Tier 2: demand driven route for talented people with job offers in the UK Tier 3: route for low skilled workers to fill specific labour shortages Tier 4: student route Tier 5: temporary workers, youth mobility and other sui generis immigration. It is a sign of the volatility of immigration policy and the time it took to introduce the PBS that Tier 3 has never been opened. 31 In light of the quantity of unskilled migrant labour from the ten countries that joined the European Union in 2004, ministers felt that the UK did not want for low skilled labour and so did not open Tier 3. In light of subsequent developments it seems highly unlikely that Tier 3 will be opened in the foreseeable future. The volatility of immigration policy is a feature that we will pick up again in Chapter 5. Government policy is informed by the Migration Advisory Committee (MAC) a non-statutory, non-time limited, non-departmental public body, which advises the government on migration issues. MAC holds meetings at least quarterly and publishes its research online. Tier 1 Tier 1 is the route through which talented people can come to the UK to seek to invest in, establish or work in a business. This follows the logic that skilled, talented and qualified people are generally able to find work and that they make a disproportionately positive contribution to an economy. Tier 1 is broken down into a number of subcategories that reflect the types of talent that the government feels the UK needs. These are: Tier 1 General: an open route for anybody who has sufficient points and so has the level of education, skill or knowledge that the government feels meets the UK s needs. Tier 1 Exceptional Talent: a route for the most talented people in the field of science or the arts. 31 Tier 5 did encompass the Seasonal Agricultural Workers Scheme, which has been in existence since World War 2 and which does allow access for agricultural workers - in recent years as a route for Romanians and Bulgarians. This is due to close in

21 Tier 1 Investor: a route for those worth over 1 million who wish to invest in the UK. Tier 1 Entrepreneur: a route for those who wish to set up a company. The above grossly simplifies the conditions. For example, Tier 1 Entrepreneurs need to have 200,000 to invest, or 50,000 if they are backed by an investment expert, and their company must create at least two jobs. The government has introduced caps on the number of people entering the UK under each of these categories. Tier 1 General is now closed: the government has effectively closed the door to talented individuals who would like to come to the UK and look for work, unless they meet another criterion. Tier 1 Exceptional Talent is capped at 1,000 individuals: that is to say that four designated competent bodies can nominate people whom they believe are exceptionally talented, up to a maximum of 300 for the Royal Society and Arts Council England, and 200 for the British Academy and the Royal Academy of Engineering, in two tranches representing the first and second halves of the year. The number is subject to change (the figures given are for ). Tier 2 Tier 2 is the route of main interest for businesses already based in the UK (along with intra company transfers and business visitors, which we will discuss further below). It allows non-eea nationals who have already received a job offer to apply for a visa to reside in the UK (and so take up that offer). The person must be sponsored by their employer (as outlined below), have been offered a graduate position and have at least intermediate level English. The initial visa can be issued for up to three years. Once the individual is in the UK, the visa can be extended up to a maximum of five years for the Tier 2 (Intra company Transfer) route and up to six years for the Tier 2 (General) route. An individual with a Tier 2 (General) visa that has remained in the UK for five years may apply for indefinite leave to remain. This right does not accrue to those with Tier 2 (Intra Company Transfer) visas. Companies that wish to recruit a member of staff from abroad need to become a sponsor and manage their staff through the Sponsor Management System. Once approved (and it can take several months for a company to become an approved sponsor) the company is then able to issue Certificates of Sponsorship to people whom they wish to employ, which gives that would be employee the right to apply for a Tier 2 visa. The Certificates of Sponsorship sets out the staff member s role and salary, which enables immigration officials to check that the employee is being paid more than the government mandated minimum rate for the job. If the visa is granted and the person does come to the UK to work, the sponsoring employer is then responsible for monitoring their attendance and ensuring that they do turn up to work. 20

22 Where a company wishes to sponsor an individual under the Tier 2 (General) category, the job must normally be advertised and they have to pass the Resident Labour Market Test requirements. This generally involves advertising the position in two media, one of which usually has to be JobCentre Plus (or JobCentre Online in Northern Ireland). The sponsor must then review all applications for the job and confirm that no resident workers (defined as EEA nationals or those who are settled in the UK) applied who were suitable for the role. This is supposed to ensure that the decision to employ a non-eea resident results from a lack of UK based workers. These requirements do not apply to high level positions: for example, employers do not need to demonstrate that they have advertised jobs paying over 71,000 in the JobCentre Plus and those paying over 152,100 are not subject to the Resident Labour Market Test. A job offer related to a Tier 2 visa application must comply with two minimum salary tests. The first is a broad category test that applies to all jobs under each criterion, and is set out in the table below: 32 Sub-category Criterion Minimum salary Tier 2 (General) Standard jobs 20,300 Tier 2 (General) Jobs exempt from need to advertise in Jobcentre 71,000 Tier 2 (General) Tier 2 (ICT) Tier 2 (ICT) Tier 2 (ICT) Tier 2 (General) and Tier 2 (Sportsperson) Jobs which are exempt from annual and Resident Labour Market Text Jobs which qualify for Short Term Staff, Skills Transfer or Graduate Trainee categories ( maximum stay 6 months to 1 year) Jobs which qualify for the Long Term Staff category (maximum stay five years) Workers who can extend their stay in the UK for up to nine months Earnings which qualify for settlement ( those working in PhD level or shortage occupations are exempt) 152,100 24,300 40, ,100 35,000 for settlement application made on or after 6 April 2016, 35,500 from 6 April 2018 The above describes the generic limits for jobs that fall under each of the defined subcategories. In addition there are minimum salary rates for the job for new starters and for experienced staff usually... defined by the 10th and the 25th percentile of the Annual Survey of Hours and Earnings (ASHE) 32 My thanks to the staff at Fragomen LLP for the above table, which is copied from their Introduction to UK immigration handout 21

23 respectively, or by alternative, appropriate sector based salary information. 33 In April 2011 the government introduced a cap on the number of Tier 2 visas that they would issue in a year. The figure was set at 20,700 and, though subject to change, it has been held at that figure since This figure is actually smoothed over the year so that 1,725 can be issued each month. The cap does not affect those already based in the UK seeking to renew/ extend their visa, intra company transfers (ICTs) and those earning in excess of 152,100 a year. So far, the number of visa applications has been well within the cap. Intra company transfers ICTs are the route by which companies bring their own employees to work in their UK subsidiaries. ICTs are the most numerous part of the Tier 2 visa regime, and constitute a temporary arrangement that does not generally lead to any form of permanent settlement. As nothing in migration policy is simple, there are four different types of ICT: Long term ICT: managers and specialists earning over 40,600 a year who have been with the firm already for over a year. Permission to work in the UK may be granted for three years with the possibility of extension for another two, but there is no possibility of being granted indefinite leave to remain. Those earning over 152,100 can stay for up to nine years. If the worker returns home, they cannot apply for a further ICT until a cooling off period of a year has elapsed (unless they earn over 152,100). Short term ICT: skilled staff earning over 24,300 who have been with the firm already for over a year. Permission to work in the UK may be granted for up to a year. If the worker returns home, they cannot apply for a further Short Term ICT visa until a cooling off period of a year has elapsed, although they may apply under the Long Term ICT category, provided they meet the criteria for that route. Graduate ICT: staff on graduate programmes earning over 24,300 who have been with the firm for over three months. Permission to work in the UK may be granted for up to a year. If the worker returns home, they cannot apply for a further ICT until a year has elapsed, though they can move into the Long Term ICT category without having to wait for the cooling off period. Skills transfer: Newly hired staff who need to acclimatise to the new company can, if they earn over 24,300, come over without having to 33 UKBA website, codesofpractice/, downloaded 3 Sept

24 have worked for the firm for a set period. The maximum stay is six months after which they cannot apply for a further ICT until a year has elapsed, though they can move into the Long Term ICT category without having to wait for the cooling off period. The staff member must be additional to the usual compliment of staff. Tier 4 and overseas students Students from outside the EEA are considered to be international students for immigration purposes. Non-EEA students need to apply for a Tier 4 visa. Due to this paper s focus upon labour migration and the needs of business, we will not outline the student immigration system in detail. There are some aspects of Tier 4 visas that are of interest to businesses, however. The first is in-study work: students are allowed to work for 20 hours each week during term time rising to full time hours during holiday periods. This does provide a pool of labour for employers, especially in university towns. This may be particularly useful where the holidays coincide with peak periods of demand: in retail, hospitality and catering, for example, the availability of students to take seasonal jobs over Christmas or during summer holidays may be useful. It is noteworthy that no business group raised this as an issue, however. The second area where overseas students are of interest to employers is in respect of post-study work. Graduates could transfer to a Tier 1 post-study work visa upon completion of their degree. Unlike in-study work, post-study work was raised by a number of business groups as an area of concern. We will discuss these views in detail in Chapter 5. Here we will confine ourselves to outlining the changes to the rules on post-study work and the policy as it stands at the time of writing. Tier 1 (Post-Study Work) was a route which allowed those who had graduated from a UK higher education institution, normally with a bachelor s degree or higher, to remain in the UK for a maximum of two years to take employment or self-employment without requiring a sponsor. The government was concerned that a large proportion of individuals who were remaining in the UK under this route were not taking skilled jobs which required a degree. It was therefore closed to new applicants in April However, in April 2013, the government did introduced a post-study work route which enables PhD students to work for one year following the completion of their course. The government does not have any plans to extend this new route to cover any other qualifications. 23

25 Tier 5 The movement of temporary workers and young people on short term placements are managed through visas under Tier 5. There are six categories of Tier 5 visa: Tier 5 (Temporary worker: creative and sporting) for sportspeople, entertainers and artists coming to perform in the UK for up to 12 months Tier 5 (Temporary worker: charity workers) for people doing unpaid work in a charity Tier 5 (Temporary worker: religious workers) Tier 5 (Temporary worker: government authorised exchange) for people coming to the UK through approved schemes that aim to share knowledge, experience and best practice, and to experience the UK s social and cultural life Tier 5 (Temporary worker: international agreement) For people coming to the UK under contract to do work that is covered under international law Tier 5 (Youth mobility scheme) for young people from Australia, Canada, Japan, New Zealand, Monaco, Republic of Korea and Taiwan who want to come and experience life in the UK. Very few of these are of concern to business, except in very specific senses. One can imagine circumstances where particular business might use (for example) the creative and sporting category, and some firms might benefit from government authorised exchange or international agreement categories; for example, a number of large companies are big users of the Tier 5 (Government Authorised Exchange) category to enable them to employ summer interns who are currently studying outside the UK. Business groups did not highlight concerns over Tier 5. Business visitors There is one outstanding category of visa that is not covered by the PBS but is of substantial importance to UK based businesses. This is the immigration category of Business Visitor: people who want to come and do business in the UK for a short time. This includes academic visitors, visiting professors, overseas news media representatives and film crews on location. Generally, Business Visitors should be paid by their non-uk based employer if they are earning while in the UK and should not be coming to do a job in the UK. This is a subtle distinction: a Business Visitor might be paid to deliver a guest lecture or speak at a conference, but could not lecture regularly at a university for any length of time under this category. Consultants may come 24