Elaine McIlroy: Immigration levy is a backdoor tax on firms

Even the rich and famous are not immune from visa headaches.

Elaine McIlroy, partner at Weightmans (Scotland) LLP

When Eddie Jones, the new England head coach was stuck in Japan in December waiting for his visa to come through to allow him to start his new job, not even the Rugby Football Union could speed up the processing of his visa.

Employers trying to recruit migrant workers to fill skill shortages are used to this sort of delay and lack of flexibility, yet many Scottish businesses still depend on migration as a source of labour. And the ever tougher visa rules and additional visa costs that the UK government is intending on imposing must make employers feel as though the UK is not “open for business” despite the political rhetoric.

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So why the additional costs and restrictions?

The home secretary recently asked the Migration Advisory Committee (MAC) to recommend further immigration changes which will impact business. To be clear though, it was not asked to look at ways of making migration better suited for the needs of business. It was asked to specifically look at ways of changing the rules “to address concerns about the rising number of migrants in that route and reliance on them to fill shortages”.

Furthermore, it was asked to advise on “significantly reducing the level of economic migration from outside the EU”. It doesn’t take a rocket scientist (from within the EU or otherwise) to work out that there will be further measures on the way.

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The outcome of that review was unsurprising then, when the MAC recommended a further clampdown of sponsorship rules, which is likely to become law in April this year.

The result is that employers will inevitably have to pay more if they want to sponsor overseas employees in key roles, and will be more restricted in terms of who can be sponsored at all.

The introduction of a new “immigration skills levy” is a backdoor tax for employers who sponsor overseas workers. The message is clear – if you want to sponsor overseas workers you must pay for the privilege. This additional charge of £5,000 for a five-year visa will go towards funding apprenticeships – so it fits neatly with the government’s other initiatives to promote apprenticeships and domestic upskilling. The fact that it may make sponsoring certain skilled workers uneconomic will be helpful in limiting sponsorship numbers.

Businesses in the IT sector are especially concerned at the proposed changes, as a heavy user of “Tier 2” sponsorship in order to bring in skilled workers to the UK. The MAC has commented that this route has been overused as a way to cut costs/employ staff on lower salaries rather than to fill genuine skills gaps. The result is a proposal to introduce new rules for IT workers who are being used to service third-party contracts. A higher salary threshold will apply which will limit those jobs which are eligible for sponsorship. The MAC wants to ensure that this category is used only for “highly specialised senior managers and specialists”.

Employers in other sectors will not avoid the restrictive impact of these proposals. Across the board, the rules will become tougher. The overall minimum salary level for sponsorship will jump up from £20,300 to £30,000. The intention of this change is to cut the number of jobs that are eligible for sponsorship regardless of what difficulties employers may face in recruiting the skills that they need. Pricing people out of the country is a blunt instrument but one likely to achieve the UK government’s aim of reducing numbers of migrant workers.

Areas such as Scotland will be impacted more than London by these proposals as jobs tend to be lower paid and there is a far higher proportion of public sector jobs in Scotland. The MAC report commented that the average wage in Scotland for skilled jobs is almost £5,000 lower than the UK average (with London sitting at £7,400 above the UK average). The report also specifically commented that raising the minimum salary threshold to £30,000 will mean that typical pay in teaching and healthcare will fall below the benchmark. As a concession, there may be some phasing in of the new minimum salary levels for such public sector occupations.

Despite all of the hype of these changes, the reality is that non-EU work related migration represents a small proportion of overall migration to the UK, but it is crucial for some skilled professions.

Changes may make a small difference to overall migration levels – whilst adding much in terms of complexity and cost to the immigration system for employers.

• Elaine McIlroy is a partner specialising in employment law at Weightmans (Scotland) LLP