House of Commons - Immigration Cap - Home Affairs Committee

Immigration Cap - Home Affairs Committee Contents

4 Impact on business and services

32. Immigration has an effect on business and services. Public and private sector employers hire immigrants to perform key tasks in the economy, but some immigrants also create an added demand for public services, and a failure to manage migration can create significant tension in and between communities. In her statement of 28 June (see paragraph 1), the Home Secretary noted that the Government wanted "to ensure that we can properly weigh the economic considerations against the wider social and public service implications".

33. It emerged in evidence from Mr Keith Sharp, Marketing Director of Tata Consulting Services, and Mr Som Mittal, President of the Indian National Association of Software and Services Companies, that the temporary immigration cap had had 'very little effect' on their businesses, since intra-company transfers had been excluded from the temporary cap.[32]

34. However, since the Government announced its intention to implement a cap, some business and service leaders have publicly raised concerns about the economic impact of a cap. The Immigration Law Practitioners' Association (ILPA), which represents 900 immigration lawyers and firms, wrote to us that:

35. The Federation of Small Businesses also stated their concerns that any cap on non-EEA economic immigration "would have an adverse effect and would act as a barrier to economic growth and competitiveness".[34] A number of other organisations expressed similar concerns. A contrasting view given by the Confederation of British Industry (CBI), which represents some 240,000 businesses which together represent around a third of the private sector workforce, stated its members' belief that the "economic migration system should efficiently balance the needs of employers for access to skilled workers from abroad and the undoubted weight that migration can place on the social fabric of local communities". On this basis, the CBI stated that its members had no objection to the Government's proposals for an annual limit to migration, provided that "the system that is rolled out is one that businesses are able to work within".[35]

Highly skilled migrants

36. Witnesses stated that the cap would curb only skilled immigrants, most needed by businesses. The City of London Corporation argued:

37. Universities were extremely concerned by the impact on their academic staff. Universities UK told us that 10% of the academic workforce comprised non-EEA nationals, particularly in science, technology, engineering and mathematics subject areas. The top five nationalities were American, Chinese, Indian, Australian and Canadian. Universities UK did not want to lose the ability to compete internationally for top academic staff.[37]

38. A number of high-profile figures have publicly argued that the cap would prevent top-class international professionals from coming to the UK. Eight Nobel prize-winners in science, in an open letter submitted as evidence to us, wrote that they believed that the cap would "damage [the UK's] ability to recruit the brightest young talent, as well as distinguished scientists, into our universities and industries", and underlined that "the UK produces nearly 10 per cent of the world's scientific output with only 1 per cent of its population: we punch above our weight because we can engage with excellence wherever it occurs". They highlighted the exemption from the cap for international sportspeople, commenting that "it is a sad reflection of our priorities as a nation if we cannot afford the same recognition for elite scientists and engineers".[38]

39. Research commissioned and published by the Confederation of British Industry (CBI) in May 2010 found that demand for highly-skilled people would intensify during the economic recovery, and employers feared they would not be able to find people with the skills they needed to fill high-level jobs. The report concluded:

Half of employers (51%) are concerned they will not be able to fill posts requiring the right graduate level or higher skills in the coming years, and a third (32%) don't believe it will be possible to fill intermediate level jobs, requiring skills equivalent to A-level. A third (30%) of employers predict the need for lower-level skills will decrease, while just 17% say it will increase.

40. However, we note that there are varying views throughout the business community. For instance, research published by the Institute of Directors in 2007 found that "80 per cent of IoD members support some form of limit on migrants from outside the EU"[40] and that "42 per cent thought [the current level of immigration] was too high relative [to skill shortages], whereas only 11 per cent thought it was too low".[41] The effect that the non-EEA economic immigrant cap would have on these employers is unclear, especially considering the fact that, according to the Chartered Institute for Personnel and Development, more than 73 per cent of migrants recruited between December 2009 and March 2010 were already UK-based, and only 27 per cent were recruited directly from overseas.[42]

Recruiting needed skills

41. Both the British Chambers of Commerce (BCC) and the Federation of Small Businesses (FSB) argued that they needed to be able to recruit some migrant workers. In addition, businesses highlighted the fact that many small businesses struggled to train for highly specialist roles themselves, and in other cases training existed but was inadequate or took too long when business needs were pressing.[43]

42. While the Immigration Minister cited a Report from the House of Lords Select Committee on Economic Affairs in April 2008, which argued that net immigration was not indispensible in order to fill labour and skills shortages, both he and the Home Secretary recognised in evidence to us that there would continue to be a need for migrants to fill jobs which could not be filled from the resident labour market. During the course of our inquiry it became evident that ensuring businesses were able to recruit the workforce they needed in order to remain competitive was about more than just getting immigration policy right. Both the British Chambers of Commerce and the Federation of Small Businesses emphasised the need for both Government and business to improve training and education opportunities to address problems which businesses encountered in recruiting from the resident workforce. The Federation of Small Businesses told us that small businesses found training expensive. However, written evidence from the British Chambers of Commerce pointed out that "employers are happy to play their part in up-skilling domestic workers, but the Government must take a long-term, strategic look at the UK's skills shortages, and act to find solutions to them".[44] The Government has also suggested, in the UK Border Agency consultation, that businesses be required to prove a shortage in both local and national labour markets before a Tier 2 visa can be issued. The Federation of Small Businesses appeared to be unconvinced that small businesses would be able to meet this requirement:

43. This was echoed by the Law Society, which argued that "City law firms advise on complex matters spanning multiple jurisdictions ... the economic impact of restricting the ability of law firms to recruit the best legal talent from the global market will be felt well beyond the current recession and may impede the recovery of the legal sector and the City more broadly".[46] The British Chambers of Commerce seemed to be more optimistic, but believed the Government needed to act immediately to up-skill workers to address occupations on the shortage occupation list, and that employers "should not be responsible for strategic skills planning and identifying the skills gap and knowledge across the whole economy".[47]

44. We also received evidence from the information technology and communications sector emphasising that their business needs were primarily for temporary immigrants which they catered for by using intra-company transfers (ICTs). Intra-company transfers of less than 12 months' duration were not included in the net long-term immigration figures cited by the Government, as these only included stays of over 12 months. Som Mittal, President of the Indian National Association of Software and Services Companies, told us:

Location factors for businesses

45. We heard evidence that the UK had a strong record of attracting international business, which would be threatened if the ability of businesses to recruit the skills they needed was curbed too sharply. Dr Marshall, representing the British Chambers of Commerce, noted that "50% of European headquarters are in the UK. There have been 469 headquarters projects over the past decade compared with 86 in Germany, and that is on the strength of the UK's business environment".[49] The Chartered Institute of Personnel and Development told us that their research showed that 9% of private sector companies planned to relocate jobs overseas in the 12 months to June 2011, principally to India, China and Eastern Europe.[50] However, the CIPD further noted that business decisions to locate UK jobs offshore was "a phenomenon which may spread further, irrespective of the policy outcome of the cap".[51]

46. The Immigration Law Practitioners' Association (ILPA) told us that "migrants with a choice of destination will go to other countries, while multinationals will give serious consideration to leaving the UK to set up their European headquarters elsewhere, pulling out existing investment in the UK".[52] Sophie Barrett Brown, Chair of ILPA, gave an example from the United States of how a cap on economic immigrants could affect whether multinationals would come to the UK:

47. The Indian National Association of Software and Service Companies (NASSCOM) pointed out, however, that during the period the cap was in place in the US, its economy did very well. But NASSCOM went on to say that, in the specific case of intra-company transfers, which are discussed in further detail later in this Report, its members "would be driven to explore the possibility of locating elsewhere in Europe, particularly in light of moves to introduce a Schengen-wide work permit".[54] Dr Marshall from the British Chambers of Commerce believed that the impact of the non-EEA economic migrant cap would have on businesses was difficult to assess, telling us:

Keith Sharp, Marketing Director of Tata Consulting Services (TCS), agreed, but noted that his company was well-established in the UK and was therefore unlikely to leave: even though a cap would be "disruptive", the company would "adapt and figure things out".[56]

Tax and investment

48. Several witnesses noted that, while Tier 1 and 2 immigrants used public services, they also contributed via taxes and spending income domestically. The Law Society noted that "migrant employees are high-earning individuals who also contribute to the domestic economy by spending their income in the UK. Partners and employees pay income tax. Individuals relocated from abroad typically receive a generous relocation package, funded by firms".[57] The City of London Corporation claimed that:

49. The Office for Budget Responsibility has said that, if GDP is to grow by the projected 2.3% in 2011, about a third of that growth will have to come from increases in business investment.[59] Professor Metcalf said that a cap on economic migration would reduce foreign direct investment productivity but that "the macro consequences are probably not large"[60] and that in the longer term "it would be possible to upskill our own people and that can in due course provide a substitute for immigration".[61]

50. The British Chambers of Commerce stated that it was important that the UK work to increase the number of migrant investors and entrepreneurs coming to the UK.[62] The Government appears to agree with this view and has indicated in its consultation that it believes the distinct migrant routes for investors and entrepreneurs should be expanded and encouraged.

Public sector jobs

51. Our predecessor Committee in the last Parliament conducted an inquiry into the Points Based System in 2009 which found high numbers of hard-to-fill posts in the care sector, many of which were being filled by non-EEA immigrants.[63] In September 2008 the Migration Advisory Committee reported to the Government that it had received evidence from the care sector that "over 70,000 vacancies for care assistants and home carers were notified to Jobcentres in the first six months of 2007 (i.e. about 12,000 per month)".[64]

52. We were told that the problem was significant in the public sector. In evidence to us Professor Metcalf suggested that social care and education might be the two sectors most likely to be adversely affected by the proposed cap.[65] The British Association of Social Workers (BASW) reported that acute shortages of qualified social workers, the inadequacies of some training, and the difficulties in retention of experienced staff because of high workloads and low public esteem for the profession, had led employers to recruit internationally.[66] Hilton Dawson, Chief Executive of BASW, noted that "there is a lack of confidence in some of the social workers graduating from some British universities, with good reason ... but the huge issue is about retention and the terrible fact is that we burn out very newly qualified social workers, by exposing them without enough support to the rigours of child protection work".[67] In light of the fact that social workers played such an important role in supporting families and protecting children, it was extremely important that the need to recruit non-EEA social workers was taken into account in the design of the cap. He further stated that the Government and the sector needed to provide better training and more support for social workers so that the sector could "work towards a reduction of social workers coming from abroad".[68] Mr Dawson emphasised that with an immigration cap there would be a greater need to recruit UK residents into the social work force and "to train them well".[69]

53. It should be noted that the Committee did not receive evidence from generally recognised public services such as education, housing and local Government in the limited time available to our inquiry.

Merging Tier 2 routes

54. There are currently three routes by which a sponsoring employer can bring in a skilled immigrant under Tier 2: by first advertising the job to the resident labour market, by employing an immigrant for an occupation on a national shortage list, or by intra-company transfer (ICT). The UK Border Agency consultation asked whether the first two routes should be merged, so that both tests be applied to every vacancy before an immigrant could be recruited.[70] The two routes were reviewed by the Migration Advisory Committee in August 2009, which concluded that it "did not see an economic case for restricting Tier 2 to the shortage occupation list only".[71] Professor Metcalf argued in evidence to us that:

55. Several witnesses agreed with this position. The British Medical Association (BMA) pointed out that the resident labour market test allowed employers to account for regional shortages, whereas the shortage occupation list only measured national shortages. It was concerned that a merger would exacerbate regional shortages.[73] On the whole, businesses were against the proposal to merge the routes. The Confederation of British Industry, for instance, told us:

56. There does not seem to be strong argument in favour of merging the resident labour market and shortage occupation list routes under Tier 2. They serve separate and distinct purposes, the former being a tool to fill specific or regional shortages, the latter a mechanism for recruiting skills in national shortage.

Exempting intra-company transfers?

57. Under a specific route in Tier 2, international firms can bring company workers into the UK for temporary periods under an intra-company transfer (ICT). The UK Border Agency consultation asked whether intra-company transfers should be included within the cap.[75] In 2009, the number of non-EEA immigrants[76] issued with visas under the various Tier 2 routes were as follows:

Table 4: Tier 2 visas, by route, in 2009 (thousands)[77]

Visa type Main applicants Dependants

Work permit holders (pre-PBS) 5,160 11,485

Tier 2 General 8,555 -

Tier 2 ICTs 22,030 -

Tier 2 Ministers of Religion 370 -

Tier 2 Elite Sportspeople 265 -

Dependants (all Tier 2) 15,505

Tier 2 total 36,490 26,985

58. In 2009 intra-company transfers accounted for 60% of all Tier 2 visas, up from 45% in 2008, meaning that 22,000 of the total 36,000 Tier 2 main applicant visas were accounted for by intra-company transferees. By contrast, the resident labour market test and shortage occupation routes combined accounted for 23% of all Tier 2 main applicants. The intra-company transfer route is heavily used by the IT and telecommunications sector, which accounted for 66% of all intra-company transfers issued in the first quarter of 2009.[78] Following a review by the Migration Advisory Committee in 2009, intra-company transferees can now apply for a maximum initial stay of three years, extendable by two years, but cannot apply for indefinite leave to remain.[79]

59. The UK Border Agency consultation suggested the option of excluding intra-company transfers from the cap only if transfers were for less than 12 months' duration—in order to ensure that migrants were only temporary—or the option of limiting the entire route to 12 months. Some witnesses argued vigorously in favour of excluding intra-company transfers from the cap. As well as making general points about intra-company transfers enabling companies to access specific skill sets not available in the UK, the Indian National Association of Software and Services Companies (NASSCOM) and Tata Consultancy Services emphasised that the intra-company transfer route only allowed temporary migration and did not lead to settlement, although a third of those entering under the intra-company transfer route did remain in the UK via other routes.[80] Research by NASSCOM had revealed that its member companies tended to apply for about 40% more entry clearance visas than they actually used (so that they could move people around quickly and flexibly). NASSCOM argued that where quotas had been implemented in other jurisdictions for intra-company transfer type schemes, it had led to hoarding, increased costs, inflated figures and a distortion of the system.[81] The British Chambers of Commerce stated that "it is of critical importance to the economy that the ICT route is not included in the cap—if there are restrictions on this route then global companies will reduce their investment, jobs and number of transactions in the UK".[82] In the engineering sector, IChemE (representing chemical, biological and process engineering firms) argued that intra-company transfers were "absolutely vital" to international businesses.[83]

60. Mr Sharpe of Tata Consultancy Services (TCS) and Mr Mittal, President of the Indian National Association of Software and Services Companies (NASSCOM), emphasised that the intra-company transfer route was a key one for IT companies in particular. TCS had 3,150 employees in the UK on intra-company transfers as of 31 March 2010.[84] Mr Mittal told us that "the UK is the headquarters for the majority of [NASSCOM's] companies when they work pan Europe [and] a quota system ... will be quite detrimental to business here because then we would need to look at those places where the movement of people is not a consideration".[85] Mr Sharp agreed that intra-company transfers were determined by "economically driven supply and demand", noting that TCS had a net outflow of IT workers in the year to 31 March 2010, due to a reduction in demand from UK corporations.[86]

61. The Confederation of British Industry (CBI) drew lessons from the United States' H1-B work visa system, which was subject to variable annual limits set by the government. It was set at 65,000 per year with an additional 20,000 visas reserved for holders of advanced degrees.[87] The CBI noted that intra company transfers to the US were exempted under the H1-B quota, which had "improved the business experience of the H1-B by ensuring that genuinely temporary migration—with no route to settlement—is not subject to restriction".[88] It warned that the US system risked annual quotas being snapped up as soon as the allocation opened:

62. In opposition to these arguments, some witnesses maintained that companies were using the intra-company transfer route to bring workers from overseas to do jobs that could be filled by qualified UK-based workers, and criticised the route for having no requirement to check that a resident worker could not do the job.[90] The Professional Contractors' Group (PCG), a professional membership association representing 1.4 million freelance workers, stated that "freelance consultants and contractors in the IT industry have regularly contacted PCG alleging displacement or replacement by ICT workers".[91] Migration Watch agreed:

63. There was disagreement over the cost-effectiveness to business of employing immigrants on intra-company transfers. The Professional Contractors Group argued that "a non-EEA worker is likely to cost less than a UK worker".[93] However, a report by the Migration Advisory Committee found that for most companies the cost of bringing an intra-company transferee to the UK was higher than hiring an EEA national.[94] Gary Burgess, an individual with personal experience of the intra-company transfer route, considered that they should be included in the cap, and suggested that the salary level for workers on intra-company transfers should be increased.[95] He pointed out that the US had recently introduced legislation to increase charges for companies more than half of whose workforce were on migrant visas.[96] The Professional Contractors Group suggested that a "sliding scale" of charges could be introduced to make certificates of sponsorship increasingly more expensive for companies the more they used.[97]

64. The proposed cap on Tiers 1 and 2 will by definition only affect skilled workers. Tier 1 consists of very highly skilled individuals, likely to make a significant contribution not only to the UK's skills, but also directly to its economy through tax and income spending; and Tier 2 is driven by the business requirements of employers across a range of private and public sector skills shortages. Both private sector businesses and public sector services made compelling arguments—many of which have been well-rehearsed in public debate—about the negative impact a cap on Tiers 1 and 2 will have on their ability to operate, leaving vacancies unfilled unless it is properly designed with business needs in mind. However, we also agree with the evidence given by many employers, that the country should be better training the skilled people we need to reduce the need for immigration in the future, and we believe there is an important role for Government in providing a strategy to ensure that occurs. We note the concerns, expressed to us by eight Nobel prize-winners in science, about the potentially negative effect of the cap on the UK's position of international excellence in science and engineering. We consider it totally illogical that professional sportspeople should be exempted from the cap but elite international scientists are not.

65. Despite agreement that a cap set too low would have an adverse impact on businesses—both international companies such as Tata Consultancy Services, and the UK companies which utilised their services—it remains unclear what the extent of that impact would be. Several witnesses told us that companies might seek to establish headquarters elsewhere, but others were well-established in the UK and unlikely to leave. The level of the cap will be key in determining the effect it will have on this kind of business decision. It is hard to assess whether disruption would be of sufficient magnitude to force businesses to relocate overseas—they may not be in a position themselves to answer this question before the details of a cap are set out.

66. Although we note the Minister's evidence about wider social and public policy concerns, the evidence we received from businesses alerted us to the possible negative impacts the non-EEA economic migrant cap could have on business investment in the UK, and on tax revenues from high-earning immigrants. We emphasise that the Government must closely study the recruitment needs of businesses when determining the level at which the cap is set, as it has promised to do. This will be relevant to the UK's economic recovery, especially if, as has been said by the Office for Budget Responsibility, one-third of the economic growth needed in the next year must come from business investment. However, we were told that the macroeconomic effects may be small. We are pleased that the Government is planning not only to protect the migrant route for investors and entrepreneurs, but also to encourage high net worth individuals to come to the UK to drive economic growth.

67. The Government must decide whether or not to exclude intra-company transfers from the cap. Whilst it is meant to be a temporary immigration route, migrants on intra-company transfers can remain for up to five years, and we heard that a third stay in the country permanently, having transferred to another visa route. There is significant pressure from some businesses not to cap the route. However, to make any significant reduction in non-EEA economic immigration, a cap would have to include intra-company transfers, which in 2009 accounted for 60% of all Tier 2 visas and 40% of Tier 1 and 2 combined. We recommend that intra-company transfers under 2 years' duration should be excluded from the cap.

32 Q 184 Back

33 Ev 52, para 5 Back

34 Ev 45, para 1 Back

35 Ev 64, para 3-4 Back

36 Ev w26, paras 2, 3 and 4. Ev 69, para 4.7 Back

37 Ev w14, para 3 Back

38 Letter from Nobel laureates, submitted to Committee Back

39 Confederation of British Industry (CBI), Ready to grow: business priorities for education and skills, May 2010: http://www.cbi.org.uk/ndbs/content.nsf/802737AED3E3420580256706005390AE/C4393B860D00478E802576C6003B0679 . Accessed 4 October 2010. Back

40 Institute of Directors (IoD), The Immigration-the business perspective, January 2007, p 9: http://www.iod.com/MainWebsite/Resources/Document/policy_paper_immigration_business_perspective.pdf Back

41 Ibid., p 8 Back

42 Ev w23 Back

43 Qq 9-11, 14-16 Back