On 19 January the Migration Advisory Committee (MAC) published its recommendations to tighten the skilled worker routes to reduce non-EEA migration. The MAC is an independent non-statutory, non-time limited, non-departmental public body that advises the UK government on migration issues.

We set out below a summary of the recommendations made by the MAC. It is important to note that, while the UK government is  not obliged to implement all of the MAC’s recommendations, historically, it has implemented the majority of changes proposed by the MAC. Consequently, these recommendations are highly indicative of the future shape of the Tier 2 system.

KEY RECOMMENDATIONS

  • The minimum salary thresholds for Tier 2 (General) and Short Term Tier 2 (Intra-Company Transfer) (ICT) migrants should be increased to £30,000 for experienced workers and £23,000 for new entrants.
  • An Immigration Skills Charge (ISC) should apply to every employer recruiting migrants under Tier 2. This should be set at £1,000 per year per Tier 2 migrant.
  • The qualifying employment period for the Tier 2 (ICT) route should be increased to two years.
  • Sponsors should be required to enter a more detailed job description on the Certificate of Sponsorship.
  • Tier 2 (ICT) migrants should be subject to the Immigration Health Surcharge (IHS).
  • HMRC and the Home Office should work together to consider whether the current tax provisions for allowances and the exemption of national insurance contributions are working in the interests of the UK.
  • A new Tier 2 (ICT) should route be created, designed specifically for those carrying out work on-site for third parties, with a minimum salary threshold of £41,500.
  • Tier 2 (General) recruitment should not be limited to job titles on an expanded shortage occupation list.
  • Retain the Resident Labour Market Test (RLMT) route but with improvements.
  • To make the Restricted Certificate of Sponsorship (RCoS) allocation process fairer, £7,000 should be added to the salary for graduates recruited onto graduate schemes.
  • The current RLMT exemption for those switching in- country from Tier 4 to Tier 2 (General) should be removed.
  • The current limit for Tier 2 (General) should be extended to all Tier 2 (General) categories and increased by a corresponding amount.
  • The automatic right to work for Tier 2 dependants should not be restricted.

We describe the MAC’s recommendations and rationale  in greater detail below, as well as our own thoughts on the potential implications should the government decide to implement them.

BACKGROUND

The MAC had been asked by the UK government to carry out a review of Tier 2, which is the primary route for economic migration to the UK, with a view to making recommendations that would substantially restrict immigration under this route.

Specifically the MAC was asked to provide advice on five issues:

  • how to prioritise applications under Tier 2 to ensure maximum benefit for the UK;
  • apply an ISC to businesses employing Tier 2 migrants;
  • how to tighten the intra-company transfer route;
  • whether jobs should be automatically removed from the shortage occupation list; and
  • restricting dependants’ access to the UK labour market.

The Tier 2 route is for skilled workers from outside the EEA who have an offer of employment in the UK from a company with a Tier 2 Sponsor Licence in an occupation skilled at National Qualifications Framework (NQF) Level 6 or above. Although it consists of four routes, the MAC was only asked to consider two of them – Tier 2 (General) and Tier 2 (ICT) – as these account for the majority of Tier 2 migrants.

In their report, the MAC sought to balance the UK government’s objective to reduce volumes under the Tier 2 route against its desire to ensure the route is open to the “brightest and best workers who will help Britain succeed”.

SALARY THRESHOLDS

The MAC found that, in general, Tier 2 migrants are paid more than local workers undertaking similar occupations. However, it did identify some occupations where Tier 2 migrants were paid substantially less than similar native workers, particularly in the public sector.

The MAC believes that, if the UK government wishes to reduce skilled migration, price should be the main mechanism.  This is because raising the cost of recruiting a Tier 2 migrant should reduce demand.  One way of increasing price is by raising the minimum salary thresholds for Tier 2 migrants.  Furthermore,  as earnings are, arguably, the most objective indicator of value, raising the salary thresholds should mean that any reduction in Tier 2 volumes starts with those migrants who add the least value. The MAC has therefore recommended that the minimum salary thresholds for Tier 2 (General) and Short Term Tier 2 (ICT) migrants should be raised from £20,800 and £24,800 respectively to £30,000 for experienced workers. For those who satisfy the Tier 2 (General) new entrant criteria, which essentially applies to recent graduates, the threshold should be set at £23,000.

Overall the MAC has recommended that the occupation  specific thresholds should remain at the 10th percentile for new entrants and the 25th percentile for experienced workers within the pay distribution for each occupation. The MAC does not recommend regional variations in the salary thresholds as, in its view, the 10th / 25th percentiles remain modest thresholds and better reflect prevailing wages in lower paying regions than in higher paying regions.

The MAC recognises that the public sector may require time to transition to the new salary thresholds so it recommends that the thresholds for predominantly public sector occupations should be gradually increased over time to reach the £30,000 threshold.

Analysis

Raising the minimum salary threshold to £30,000 for experienced workers sponsored under Tier 2 is likely to have a big effect on lower paid professions, such as those in the social care and hospitality sectors. It will also adversely affect small businesses which normally cannot afford to pay the same level of wages as larger organisations.  Therefore it will be interesting to see whether the government adopt the £30,000 threshold across the entire Tier 2 category or whether they will introduce exemptions for certain occupations.  It is important that businesses which operate in sectors which are likely to be the hardest hit by the proposed salary threshold increases make representations through their representatives, industry bodies and / or directly to government if they wish to be exempted  from this limit.

IMMIGRATION SKILLS CHARGE

The MAC has recommended that an ISC be introduced as, in its view, it will incentivise employers to reduce their reliance on employing migrant workers and to invest in training and up-skilling UK workers. Further, it would provide a source of funding to help with the training and up-skilling of local workers.

The MAC recommends that the ISC should apply to every employer recruiting migrants under Tier 2.

Although the MAC has not been asked to recommend the level of the ISC, its view is that £1,000 per year for each Tier 2 migrant would be appropriate.  By its calculations, this could provide £250m for skills funding annually and would have a significant impact on employer behaviour.

Analysis

Although the MAC was asked to consult on whether an ISC should be implemented, the UK government had already decided to introduce this and had included it in the Immigration Bill which is due to be enacted this year.

The MAC has recommended that the ISC should be a fixed upfront charge levied at the same time as a Certificate of Sponsorship (CoS) is assigned. The charge would therefore be regressive, in other words, the higher the salary paid to a migrant, and by inference the more highly skilled and more valuable to the UK economy the migrant is, the lower the proportion the ISC would be to the migrant’s wage.

However, as with other aspects of the report, this seems to be a rather simplistic analysis as it does not take into account the fact that there are many professions, specifically within the social care and medical sectors, which are not highly paid but are arguably highly valuable to the UK economy. These occupations are likely to be hardest hit by the introduction of the ISC especially when combined with the proposed increase to the minimum salary threshold. Again, the ISC is also likely to have a big impact on small and start-up businesses.

REFORM TO THE TIER 2 (ICT) ROUTE

The MAC accepts that the traditional use of the Tier 2 (ICT) route, whereby a small number of highly skilled specialist staff are brought to the UK to impart their skills or gain experience, delivers significant benefits to the UK, encouraging foreign trade and investment. However, to ensure that this route is only being used to bring in senior managers and specialists and not displacing resident workers, the MAC recommends extending the qualifying employment period with the company overseas from 12 months to two years for the short and long term routes.

The MAC goes on to recommend that sponsors should be required to provide a more detailed job description on the CoS to ensure that the role is sufficiently specialist. It also recommends that Tier 2 (ICT) migrants be subject to the IHS (they are currently exempt) and that HMRC and the Home Office should work together to consider whether the current tax provisions made available for allowances and the exemption of national insurance contributions are working in the interests of the UK.

The MAC is aware that the Tier 2 (ICT) route is used by some employers to bring migrants to the UK to carry out work for third parties, on a one-off project or on a contract for continuing service. The MAC’s view is that the widespread use of the Tier 2 (ICT) route in this way, predominantly by global IT firms, provides these companies with a substantial cost advantage over native firms. Part of this advantage comes from offshoring parts of the work to other countries, notably India, where labour costs are lower. However, the suspicion is that the UK based work on these contracts is being carried out by Tier 2 (ICT) migrants who are being paid salaries below the level that similarly skilled UK workers could command. Although these lower costs are passed on to clients in part, the MAC’s view is that this use of the route disadvantages both IT firms within the UK, who do not have access to this sort of labour, and UK IT workers. Additionally, the MAC is not convinced that the use of third party contracting is contributing to the stock of IT skills within the UK workforce.

The MAC recommends that a new Tier 2 (ICT) route be created, designed specifically for third party contracting. It recommends a salary threshold of £41,500 should be applied to this route to prevent any undercutting and displacement within the UK labour market. It sees this salary level as an effective proxy for senior managers and specialists. The other recommendations for the Tier 2 (ICT) route should also apply to third party contracting.

The MAC recognises that these recommendations, if implemented, would be far-reaching and would have a significant impact on the IT sector.  It therefore recommends that the UK government commission a more in depth review of skill shortages within the IT industry.  Once this review has been completed, the UK government may wish to revisit the options for restricting third party contracting particularly within the IT sector.

In its report, the MAC provided details of further options that it has considered for restricting this use of the route. As there are a number of other potential options, the MAC strongly recommends that any changes to this route be kept under active review.

Analysis

The MAC’s recommendations are in response to a widely held belief that global IT companies, particularly those with large operations in India, are using the Tier 2 (ICT) route to undercut the local labour market.

The MAC does not appear to be persuaded that the UK economy benefits from these companies being able to provide more cost effective services to UK companies by utilising their workforce in India both to develop the solutions offshore and implement them in the UK. Since these IT firms are the largest users of the Tier 2 route, and a number of them regularly deliver services to the UK government, it is likely that the UK government will receive substantial representations from the industry regarding the potential adverse impact of these recommendations. If these recommendations, together with the recommendations to introduce an ISC and apply the IHS to Tier 2 (ICT) migrants, are implemented as set out in the report, and these IT companies continue to bring over individuals in the same volumes, this could potentially add millions to the cost of them providing services to clients in the UK.

REFORM TO THE TIER 2 (GENERAL) ROUTE

The MAC has decided not to recommend limiting Tier 2 (General) recruitment only to job titles on an expanded shortage occupation list. Instead, it suggests, as set out above, that the UK government achieves reducing skilled migration by the price mechanism by raising the salary thresholds required for Tier 2.

It recognises that the RLMT route is a crucial component of  Tier 2 and should be retained as it allows an employer to recruit non-EEA migrants where they can prove they have tested the UK labour market. However it is also of the view that the RLMT needs to be improved to make it more effective and efficient and work as intended.

The MAC also looked at the current prioritisation method  under the annual limit for Tier 2 (General), which predominantly applies to out-of-country applicants. This primarily prioritises applications on the basis of the salary paid to the individual.

The MAC states that, as low paid public sector jobs are the most likely to lose out when the limit is hit, the UK government may wish to consider giving temporary priority to these occupations in the short term. In the longer term, wages in these occupations should rise to reflect their scarcity and no special treatment should be applied.

The MAC also noted that, currently, new entrant Tier 2 migrants are disadvantaged in the annual limit process as their earnings will typically be towards the bottom of the Tier 2 salary scale. It therefore recommends that, in the allocation process, £7,000 is added to the salary for graduates recruited onto graduate schemes as this is the difference between the recommended minimum salary threshold for new entrants and experience hires under Tier 2. The government may also wish to consider the scope for eligible graduate schemes.

The MAC goes on to recommend that the current RLMT exemption for those switching in-country from Tier 4 into Tier  2 (General) should be removed. Furthermore, the current limit for Tier 2 (General) should be extended to all Tier 2 (General) categories, and not just apply to those coming from outside the UK. However, it does say that the limit should be increased to take this into account.

The MAC does not recommend an automatic sunset clause to remove jobs from the shortage occupation list. Instead industry representatives and other stakeholders should submit more comprehensive evidence on what they are doing to address skill shortages within the UK labour market in order to be retained on the list.

Analysis

It is to be welcomed that the MAC has not recommended  that Tier 2 (General) recruitment should be limited to job titles on an expanded shortage occupation list. This is in line with comments the MAC has previously made that it does not want to be in the business of “picking winners”, that is, those jobs which should be included in the list. However, it is concerning that the MAC has recommended that the current Tier 2 (General) cap should be extended to cover all Tier 2 (General) applicants, especially as the current cap is now regularly being met. If this recommendation were to be implemented, another element of flexibility would be removed from the system. Furthermore, if the UK government does intend to implement this recommendation, it should consult widely on the level of the new limit.

AUTOMATIC WORK RIGHTS FOR TIER 2 DEPENDANTS

The MAC has recommended that the automatic right to work for Tier 2 dependants should not be restricted. It concluded this for a number of reasons including that, overall, the total number of dependant workers is too small to significantly impact the UK labour market. It was also not clear from the evidence provided that restricting the right to work for Tier 2 dependants would have any significant impact on the overall volumes of Tier 2 main applicants.

Analysis

It is not surprising that the MAC has recommended not to restrict Tier 2 dependants’ automatic right to work in the UK as this was the conclusion it reached in a previous report when it was asked to analyse the same issue. In its reasoning it highlighted the danger that, if the automatic work rights were restricted, although this would deter some Tier 2 migrants from coming to the UK, this may mean that UK employers would switch to alternative, second choice Tier 2 migrants who either have no dependants  or are content for their partner not to work in the UK. This would potentially impact on the UK governments’ desire to only bring in the brightest and best to the UK.

This is therefore a welcome recommendation from the MAC. If it had recommended restricting Tier 2 dependant work rights, and the UK government had adopted the recommendation,  this would have put the UK substantially out of step with its global competitors, which generally allow dependants of skilled migrant workers to work.

CONCLUSION

It is important to note that the MAC report only contains recommendations and the UK government is not obliged to follow them. However, the UK government has historically followed the majority of the MAC’s recommendations so it  is likely that at least some of these recommendations will be implemented in some shape or form.

If the majority are implemented as set out in the MAC report, this has the potential to drastically increase the cost of sponsoring non-EEA nationals to work in the UK under Tier 2. This therefore begs the question whether this increase in cost, and inevitable decrease in the numbers of skilled migrants coming into the UK, is likely to affect the attractiveness of the UK as a place for inward investment.

What is particularly concerning is that these recommendations are likely to have the greatest effect on small and start-up businesses, a sector which David Cameron has described as the “magic ingredient” in Britain’s economic recovery and the “backbone” of the UK economy. In this context, it will be interesting to see if the UK government does implement all of these recommendations.

The UK government will now consider its response to the report and will decide whether to implement any of the recommendations as part of the next set of changes to the UK Immigration Rules which are due to come into effect on 6 April 2016. It is unlikely, even if the UK government accepts all the MAC’s recommendations, that all of them will be implemented this April since a number will clearly require further consultation and consideration. However it is equally clear that large changes to the Tier 2 route will be implemented this year, whether in April or beyond, which are going to have a profound effect on those companies which rely on Tier 2 migrants to fill skill gaps.