Immigration – how will tier 2 changes affect the sector?

CaSE takes a look at the government’s reforms to the skilled worker visa (Tier 2), following a review of the route by the Migration Advisory Committee.For a number of years immigration has been a feature of CaSE’s work. Immigrant scientists and engineers bring new ways of thinking to universities and businesses, help build international collaborations, and open up new global markets through their contacts and language skills. This is in addition to immigration being an essential part of meeting skill gaps in the UK labour force.

Despite these benefits and the long history of international openness supporting discovery and innovation, our 2016 report, Immigration: Keeping the UK at the heart of global science and engineering, identified rules and policies that are stopping talented scientists and engineers from coming to the UK to conduct vital research and contribute to our high-tech economy.

On Thursday 24th March, the government announced further reforms to the skilled worker visa (Tier 2) following a review of the route by the Migration Advisory Committee (MAC), including:

• an increase in the minimum salary threshold for experienced workers using Tier 2, from £20,800 to £25,000 in Autumn 2016 and £30,000 in April 2017 (selected occupations such as nurses, paramedics and some teachers will be given until July 2019 to phase in the increase). For new entrants to the workforce (inc those under 25) the minimum will be £23,000.
• the introduction of an immigration skills charge (ISC) for each non-EEA worker an employer wants to bring to the UK
  • larger sponsors of Tier 2 migrants will be charged £1,000 per migrant per year upfront, with a reduced rate of £364 per migrant per year for small businesses and charities; and
  • (in some welcome news) there will be an exemption for graduates switching from Tier 4 to Tier 2, as well as an exemption for migrants undertaking PHD level roles
• removal of short-term intra-company transfers and increase in the ICT minimum threshold to £41,500 to “ensure that international companies only transfer leading senior managers and specialists to the UK”

Minimum salary threshold increases

Of the options given by Government to the MAC to consider, the MAC’s recommendation to maintain the minimum threshold at the 25th percentile of the skilled worker wage distribution is very reasonable. However, it will still cause problems for employers in the science and engineering sector.

A joint research sector statement that CaSE contributed to outlined how the increase in minimum salary level would affect higher education:

“Highlighted by the MAC, based on figures for the year ending March 2015, 30% of applicants in the Standard Occupation Code (SOC) 2119 natural and social sciences professionals n.e.c, one of the most utilised codes across the sector, would have been negatively impacted by an increase of salary levels to £30,000. The substantial pay advancement needed to raise salaries to the £30,000 minimum is not available under existing contractual arrangements. Most, if not all, UK research organisations (including HEIs, independent and government funded) are subject to pay bargaining mechanisms and operate within tight, set budgets. We note that New Entrants would need to gain a 30% pay rise to meet the Experienced Worker rate.

For Academic staff in HE the increase primarily affects researchers recruited into positions that are job evaluated below a lecturer; a UCEA survey found that the median pay spine point used for the start of these grades is point 24 (£26,537) with a lower quartile of 22 (£25,023). Within three years, in general, staff on these points would move to point 27 (£28,982) and point 25 (£27,328) respectively, though staff in London would have a London weighting (£2,200 upwards) which would bring them over the threshold. This creates a geographic disadvantage for HEIs based outside Inner London, including those in the ‘Northern Powerhouse’.

Research institutes/units and centres who are under Public Sector pay constraint have even less flexibility. Their pay rates are typically below HEs (see our earlier submission6), pay progression is capped at 1% revalorisation, there is no incremental pay progression and the options for ‘pay flexibility’ are very limited. New employees are positioned at the bottom of the band. By our calculations, using the bottom pay point of MRC Band 4 (£27,355), it would take 10 years (all being equal) to reach the £30k minimum.”

The statement recommended that ‘Experienced Worker’ PhD level roles should receive an additional weighting of £3,000 if they are sponsored by Higher Education Institutions (HEIs) or publicly-funded research units, institutes or centres outside London. It also suggested that there was appropriate discussion between the sector and relevant government departments, and that for any subsequent changes to be incorporated into the relevant policies and pay arrangements, a transition period of around 3 to 4 years would be needed. The policy as announced by Government gives organisations a year – until April 2017.

Immigration Skills Charge

The ISC, and the exemptions, were announced on Tuesday by Lord Bates, as one of his last actions as Home Office Spokesperson in the House of Lords. We met with Lord Bates, and separately with BIS and HMT officials, before Easter raising concerns about introducing the ISC, suggesting it should be scrapped – based on the logic that it was originally intended to fund apprenticeships, now covered by the, much larger, apprenticeship levy. Or, if implemented, there should be an exemption for PhD level roles. The exemption was also called for in the joint research sector statement and we were pleased to see it included in Nicola Blackwood’s letter to the Chancellor ahead of the budget.  Although disappointed that the government have decided to go ahead with the ISC we are pleased to see the exemption for PhD level roles and for individuals switching from a tier 4 student visa into tier 2.

Lord Bates did not provide the precise detail of how the exemptions would work in practice, or indeed how the money would be used, and the subsequent announcement on Thursday still leaves some gaps. At present, it is just another cost for businesses to absorb. Particularly in engineering firms where there are well defined skills gaps with many engineering roles on the shortage occupation list, in recognition of the need for employers to look overseas to fill roles. But PhDs aren’t common in engineering and companies will now just have to absorb the additional cost of the ISC.

The PhD level exemption will be particularly important for the higher education sector, where the majority of tier 2 hires are for PhD level roles. The charge would have resulted in absurd recycling of public funding, diverting around £24m a year of the science budget from universities back into the treasury, rather than being used for its intended purpose – funding science. Even with the PhD exemption, the ISC will still result in increased costs for companies, large and small, and adds to the already loud message that skilled foreign workers are not welcome in the UK.

Which leads us on to…

Rhetoric Rhetoric Rhetoric

In researching for our report on immigration, a major concern raised by all those we spoke to was the damage being caused by the Government’s consistent, tough, anti-immigration rhetoric. This is primarily targeted at clamping down on fraudulent use of the system but, despite all the evidence pointing to skilled migrants being net contributors the UK economy, the message continues through to skilled workers with the latest policy changes being actively driven by wanting to reduce the number of skilled workers coming to the UK.

In the past we’ve been told that the formal Government position is that skilled migrants who contribute to the UK are welcome, but this is consistently undermined by public messages from the Home Office.

Indeed, the Home Office press release for Thursday’s announcement was used as another opportunity to broadcast anti-immigration rhetoric, unsupported by the evidence. It stated that

“the changes to the Tier 2 visa are designed to stop businesses using foreign workers to undercut wages, while continuing to support growth and productivity in the UK economy.”

This point was repeated in the quote from Immigration Minister James Brokenshire:

“This balanced package of changes has been designed to ensure our immigration system continues to work in the national interest, ensuring that employers look first to the UK resident labour market before recruiting from overseas.

It will prevent companies using foreign workers to undercut wages in this country and will help fund training schemes to give British workers the skills they need to help our economy grow further. At the same time, it will ensure that we are still able to attract nurses and other skilled migrants to the UK.”

The Home Office seems to be implying that there is an issue with businesses using foreign workers to undercut wages, and these policies will fix that. We would all probably agree that employing immigrants at lower wages to avoid paying the going rate for local skilled individuals would be an issue that needed addressing.

But is that happening as the Home Office press release implies?

No.

In fact the MAC review of Tier 2 states that, “Across the majority of occupations, the data is consistent with there being a migrant wage premium – migrants being paid significantly more than those UK workers with similar characteristics.”

And,

“There are some occupations where Tier 2 (General) migrants are paid less than equivalent UK workers. These are predominantly public sector occupations, chiefly nurses, medical practitioners and secondary teaching professionals.”

And again,

“This analysis is consistent with that in MAC (2015) in which we concluded, based on preliminary analysis, that there is little widespread undercutting, and that in general migrant workers get paid more than the average going wage for their occupation. Our extended analysis shows that the main exception to this is in the predominantly public sector occupations, where we have estimated Tier 2 (General) migrant wages are significantly lower than for the equivalent UK resident workforce.”

The Home Office statement is misleading. According to the MAC, for skilled roles that are covered by Tier 2, there isn’t any evidence that businesses are using migrant labour to undercut wages. In fact, it is quite the opposite. There is evidence of a migrant wage premium.

The exception outlined in the report is in the public sector. I would suggest the government should address that particular issue themselves rather than implying it is an issue across the workforce and using it is as an excuse to clamp down on skilled migration in general.

My (basic) grasp of economics would lead me to think therefore that the migrants coming in through the Tier 2 route are paid more because the skills they bring are in high demand and short supply. Again contrary to the implication by James Brokenshire in his statement, it also suggests that employers already ‘look first to the UK resident labour market’ to fill skilled positions.  Why would they pay a wage premium and interact with the visa system if they can find local skilled workers? And a Resident Labour Market Test is a step already built into the system.

The result of clamping down on skilled migrants through these new policies is unlikely to be that appropriately skilled local workers fill these positions as James Brokenshire suggests, but that positions lie vacant and businesses, and national productivity, take the hit.