Select Committee on Home Affairs Additional Written Evidence

43.  Seventh supplementary memorandum submitted by the Immigration and Nationality Directorate, Home Office



  Migration is vital to our economy, and the economic impact of migration has been a positive one—contributing to economic growth and increasing employment. Migration policy is designed to allow the migrants we need into the UK at the same time as maintaining our borders and security, preventing abuse of the system and ensuring that other impacts—for example on public services—are managed effectively. Fulfilling these objectives provides the public confidence which is vital to any immigration system.

  From a labour market perspective, policies on employment-related migration are intended to ensure that migration contributes to the economy and fills important gaps in the labour market whilst, at the same time, complementing policies towards the resident workforce. This means that our focus should be primarily on attracting the most highly-skilled migrants, and those who will take up opportunities that cannot be filled from within the UK or EU.

  Migration as a whole contributes to economic growth and HM Treasury attributes 10-15% of trend growth forecasts to migration.[36] More importantly, migrants can also improve GDP per head. This effect comes in two ways: not only are migrants more likely to be of working age than the population as a whole, but where they are more highly skilled, they will also be more likely to contribute to productivity. It is for this reason that our discretionary migration routes particularly focus on the higher skilled.

  Overall migrants have a lower employment rate, yet higher average wage rates, than the population as a whole. And figures for 2001 showed that migrants generated 10% of GDP despite accounting for just 8% of those in employment.[37]

  Current employment-related migration policy focuses on the work permit system—in 2005 there were over 157,000 work permit applications, of which 82% were approved. There were also over 17,500 successful applications to come to or remain in the UK under the Highly Skilled Migrant Programme—where an individual is assessed according to their previous earnings, work experience, age and significant achievements.

  Migration policy has thus had a key role in ensuring that the UK economy remains dynamic and flexible. In recent years the contribution to the delivery of public services has been particularly important. Approximately, 30% of work permits for example are currently issued in the health sector.

  Applications for Work Permits (2005)[38]

Industry Breakdown
per cent

Health and Medical
Computer Services
Hospitality and Catering
Admin, Bus. and Management
Education and Cultural Activities
Financial Services
Entertainment and Leisure
Construction and Land Services
Retail and Related

Source: Work Permits (UK), MI.

General Policy

  Overall at present, approximately 11.6% of the working age population was born abroad.[39] There are a number of routes by which migrants can come into the UK—some explicitly to work and some where the principal reason is not work such for family reunion, cultural exchange, humanitarian or study reasons. It is important to note however that in these cases the migrants concerned are also entitled and likely to be playing a part in the labour market. It should also be noted that the single largest source region for non-UK born individuals is the wider EU (24.4%)—which of course is not subject to immigration control. The next two highest regions by migrants' country of birth are the Indian Sub-Continent (22.8%) and Africa (20.8%).[40]

  As in other countries, the principal focus of UK migration policy has been high-skilled migrants. This ties in with wider government policies to improve the skills base in the UK, encourage enterprise and entrepreneurship, attract high-value added activity and improve the ability of firms to benefit from knowledge networks and spillovers.[41]

  As noted above, this is partly because higher skilled migrants are more likely to have a positive effect on productivity and economic growth per head. This also relates to the positive externalities which are likely to arise from having more skilled migrants (and thus a more skilled overall workforce)—eg more skilled workers can boost the use and development of technology and innovation.

  There is little or no evidence of migrants having an adverse effect on the labour market outcomes of non-migrants in the UK—whether the migrants are doing high or low-skilled work.[42] However, it can be expected that any risk of displacement will be lower with higher skilled migrants where there is less likelihood of a resident worker being available and since migrants bringing higher skills into the economy are more likely to lead to the creation of new jobs.

  The available evidence suggests that migrants in the UK have made a disproportionate contribution to the public finances. Again, average figures mask the different contributions that different types of immigrants are likely to make. High skilled migrants have a disproportionately positive fiscal effect—not only paying more taxes than they claim in government expenditure by virtue of skill level and higher wages, but being extremely limited in their access to public funds. For the higher skilled routes (eg HSMP and work permits) migrants have limited entitlement to public funds.

  The focus on high skilled migration is not to say that there is never any need for low-skilled migration. This can help retain flexibility in the labour market and meet important labour market needs. However, there is more likely to be a supply of workers to fill these jobs whether they are from the domestic population or the migrant population. There are for example a large number of migrants who are already in the UK and/or are arriving under the non-employment related routes who are potentially available to meet labour market shortages. This includes migrants from the existing and recently enlarged EU. Over 300,000 migrants from the new member states have registered for the Workers Registration Scheme since enlargement in May 2004. It is for this reason that the Government is proposing to phase out the Seasonal Agricultural Workers Scheme and the Sector Based Scheme, which are the principal low-skilled routes. Both of these are quota-based and in 2005 nearly 23,000 migrants were approved under these schemes. Too great an emphasis on low-skilled migration may also risk the displacement of technology in the sectors concerned, with an associated tension with the government's wider policies on skills and technology. There is some evidence in the US to this effect, although the effects (and possible responses) are likely to vary from sector to sector (in some industries there is clearly less scope for industrial restructuring). Similarly, considerable numbers of low-skilled migrants can create sectors which simply become dependent on a continuing supply of low-skilled migrants.

  This variety of routes by which migrants enter the UK underpins the heterogeneity of migrants in terms of labour market outcomes. This in turn reflects a number of factors including around a migrant's characteristics (including nationality, skills, English language ability, time in the UK etc.)

  As noted above, migrants (defined as the foreign born) have a lower employment rate, but earn more, than the non-migrant population. But here again the average wage rates mask a wide variety in outcomes—migrants tend to be disproportionately represented at both ends of the wage (and skills) distribution.

  The key with this is to ensure flexibility and responsiveness around labour migration, within a managed system—and in the lower-skilled end of the labour market, issues around control become more important than they are at the higher skill levels.

Points Based System

  The Points Based System is designed to rationalise the existing complex set of migration routes and introduce a more objective and transparent decision-making process. As in other areas of migration policy, it has been developed by the Home Office in close collaboration with other government departments, especially HMT and DWP, and will provide a clear system which can meet the economy's need for migrant labour, as broadly set out above, at the same time as linking in to other labour market policies.

  In this regard, it also provides an opportunity to develop and improve the current employment-related routes. For example, the analysis carried out on developing the framework for the PBS has identified that the current criteria for awarding points under the Highly Skilled Migrant Programme need some refinement to ensure that the system picks up those migrants most likely to be successful in the UK labour market. This is reflected in the proposals for Tier 1 of the new system which emphasises previous earnings, qualifications and age as objective attributes for which a migrant will score points. These characteristics act as proxies for a migrant's likely success in the labour market.

  Tier 2 of the new system will provide an employer-led element whereby employers who are on a list of approved sponsors will be able to bring in migrant workers who meet the basic criteria (principally relating to a minimum skills and, in some cases, salary threshold) as set out in the Command Paper. The proposed Skills Advisory Body will assist in this process by identifying (on the basis of available economic indicators and specific sectoral knowledge) occupations where there are particular shortages for which the process for bringing migrant workers becomes easier for the employer. For those occupations not identified by the Skills Advisory Body the employer will be expected to test the resident labour market to explore whether a domestic worker is available to fill the vacancy in question.

  As discussed above, the key with respect to low-skilled labour is to remain flexible and responsive in order to be open to the possibility of low-skilled migration routes where there is a clearly identified shortage which cannot be met and where migration is deemed to be the most appropriate response. In this regard, it is also worth noting that in addition to the non-labour related migration, migrants who enter the UK through Tiers 4 and 5 of the new system (ie students and youth mobility/ temporary workers) will up to a point be able to work freely.

  The purpose of the Points-Based System or the work of the Skills Advisory Body in particular is not to forecast demand for labour migration into the future. In a dynamic and flexible labour market like the UK such an exercise is not a task which government should necessarily be attempting. Rather, the PBS puts into place a clear structure by which the migrants the economy needs can come to the UK within a broad framework of control designed to curb abuse, promote integration and protect security.

March 2006

36   HMT "Trend growth: Recent Developments and Prospects", April 2002. Back

37   HMT PQ answer, May 2002. Back

38   Total number includes all types of work permit (work permits, first permissions, changes of employment and extensions). It does not include applications under the Sector Based Scheme. Back

39   LFS Autumn 2005. Back

40   LFS Autumn 2005. Back

41   See eg Department of Trade and Industry Five Year Programme, November 2004; HM Treasury Skills in the Global Economy December 2004. Back

42   See eg The Local Labour Market Effects of Immigration in the UK, C Dustmann et al, Home Office On-Line Report 06/03, 2003. The impact of free movement of workers from Central and Eastern Europe on the UK labour market, Department for Work and Pensions Working Paper No 29, February 2006. Back

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