Examination of Witnesses (Questions 560
- 579)
TUESDAY 22 JANUARY 2008
Professor David Metcalf and and Mr Mark Franks
Q560 Lord Lawson of Blaby:
I am sorry to persist with this question but are you going to
take a view as to whether a shortage is a temporary one or whether
it might last a long time?
Professor Metcalf: We are, but not in the way
you suggest, because we will revisit the shortage list. We will
go back and evaluate. We are still discussing what sort of cycle
to do this on, but in some cases we will possibly look at things
in six months time and in some cases perhaps a year or two years
time, but where one has got good cause for thinking, let us say,
that a shortage has been completely alleviated, possibly as you
say gone to a surplus, one would want to get that occupation off
the list as soon as possible. The whole point of having this system,
as I understand it, having talked to officials and the minister,
is in order to be very flexible, and that certainly will be our
intention, yes.
Q561 Lord MacGregor of Pulham Market:
How can we ensure that the London Olympics and perhaps other big
infrastructure projects encourage government and employers to
invest in domestic skill development rather than just creating
a demand for more migrant workers? Can I add to that, following
on from Lord Lawson's question, clearly some of these big projects,
especially the Olympics, create a huge short term demand; how
would you cope with that in relation to workers? In addition,
we do see with the Olympics, for example, that a lot of it will
be directed to one region and we do see a lot of the migrant workers
focused on certain regions. How do you cope with the situation
where there may be a surplus in one but shortages in another?
Professor Metcalf: First of all, can I say that
we have not been asked as a MAC to study the issue of the Olympics.
It is possible that in later questions you may ask what we are
going to be doing in the future, as it were, but we have not been
asked at this stage. Clearly, it is in the news and in a way of
course it is not just the Olympics, it is also Crossrail and the
big push for housing in the South East as well, which probably
has got rather similar consequences. To the extent that some of
the jobs which will be required for the Olympics and for Crossrail
are Tier 2, where the skill level is NVQ Level 3 and above—I
am sorry, I omitted to say that earlier—which is essentially
two A-levels and above, there is to be no immigration in jobs
below that level other than through the EU, none from outside
the EU. Tier 2 is therefore not the EU, but NVQ Level 3, two A-levels
and above. Some of the occupations that we are going to be talking
about will be of that skill; how do we go about analysing that?
Essentially we do three things: number one, we check the skill
level of the job; number two, is there a shortage?—and,
then, is it sensible to fill it by immigration? We go about that
in the same way as before. In Tier 3, of course, which is probably
the more important concern in this, can we not use British workers
for doing some of the less skilled jobs but still requiring some
qualifications? One would certainly want to see whether or not
it can be sensibly filled by British employees, but the worry
that one has about this is the inevitable tension between the
short run and the long run. If we are talking about the Olympics
having to be on stream by 2012 and therefore the facilities having
to be built by 2011, a modern apprenticeship is three years, so
even with the best will in the world, if you find some mechanism
to get a lot of up-skilling going on as a consequence of the large
amount of money that is going to be pumped into these projects,
it is not automatic that you are going to get the skilled labour
coming on stream in time to build the facilities. Equally, Lord
MacGregor, I understand exactly where you are coming from, that
to the extent that one does not have some requirements to get
the up-skilling of our own people, the employers have got very
little incentive then in order to do the up-skilling, they will
try and get it through the immigrant labour. It is not a matter
for MAC but, speaking personally, I was always attracted to the
old levy-grant system in terms of industrial training. When you
give a contract why do you not require a certain percentage of
that to be spent on up-skilling, for example, put it in the contract?
That is not a MAC thing, that is a personal statement.
Q562 Lord MacGregor of Pulham Market:
What about the regional shortages and the upsurge in demand?
Professor Metcalf: The MAC is tasked to produce
a national shortage list and also, as I understand it, because
of the demographics, also a list for Scotland. We will be visiting
Scotland as a committee in March just to talk to other people
but, having said that, I am well seized of the fact that there
are whole issues about, in a sense, regional mismatches. London
First has already been to talk to us, for example, about this
and I have met some other people in London about this, so we will
certainly want in our report for June to allude to all of this,
but actually it is going to be quite a task to do the national
shortages. If we were asked—and we have not been—to
deal with the whole issue around the Olympics, Crossrail and so
on, the shortage may be in London but it may have knock-on consequences
of sucking labour out of other regions as well and what that does
to the regional skill level. That is the sort of thing that we
would wish to analyse if we were asked to do it.
Q563 Lord Best:
I do not know if I am missing this, but are you saying that the
threshold for Tier 2 jobs would be the equivalent of two A-levels
or NVQ 3; if you are, then we are not talking in terms of the
Olympics, for example, being very much about Tier 2 then, because
the vast majority of jobs on the Olympic site are not going to
require two A-levels.
Professor Metcalf: There is a very, very good
literature, which I am not super-familiar with, about mapping
from qualifications to skills. I agree that many, many of the
occupations will be labouring, but also there will be other occupations.
NVQ Level 3, for example—I checked all this over the work—covers
a construction site supervisor, a technical design person, a skilled
plumber, and we probably would need for Crossrail and some of
these other big projects quite a lot of these people, but disproportionately,
I agree, we are talking about Tier 3, which is the residual, and
presently that tier is suspended because it is held that we can
get all the labour we require from within the EU. Therefore, if
the MAC were asked to look at this, the large question would turn
on should the suspension of Tier 3 be lifted?
Q564 Lord Turner of Ecchinswell:
Tier 2.
Professor Metcalf: No, the suspension of Tier
3, which is presently suspended for outside the EU.
Q565 Lord Macdonald of Tradeston:
Compared to the current work permit system for skilled workers,
how do you expect the introduction of Tier 2 of the new points-based
system to affect the number and selection of migrant workers coming
to the UK?
Professor Metcalf: I gather you are talking
to Professor Salt after us and John Salt is the world expert on
our work permit system, probably even more so than some colleagues
in the Home Office, but let me deal with this. First of all, let
me rehearse that work permits are not just work permits, as it
were. The total number of work permits issued consists of four
strands: new work permits, first permissions—say an immigrant
student switching to work here—extensions and a job-switcher.
Within some of those categories, you have also got intra-company
transfers where people are brought in within a company. The total
number of work permits issued last year was 146,000, of which
78,000 were new work permits. That is just to put it into some
context. In terms of the numbers coming in, this will turn on
the calibration of the points, and the comparison of the old system
and the new system will turn on the calibration of the points.
The calibration is three-quarters decided but not completely decided—I
believe you had the minister here last week—and there will
be a statement of intent on Tier 2 coming out in March which will
then set out the points system. On the basis of what we have so
far, let us try and see what will happen to the numbers. First
of all, there is one initial hurdle, the English language test,
so that ought to reduce the numbers. There are three automatic
routes that you can come in under Tier 2 and the first is if our
committee says it is a shortage occupation, then yes you can come
in. The second one is these intra-company transfers, of which
presently there are quite a lot, maybe of the order of 40,000,
so quite a large number. The rules on that are going to be almost
identical in the new system to the old system, and the third automatic
route by which you will be able to come in is there is going to
be a pay threshold and if the job pays above a threshold—this
has not been decided yet, but a figure I have heard talked about
is £40,000—if the job pays above £40,000, then
you will be able to come in. There are three automatic routes,
therefore, and it seems to me that the intra-company transfers
will be very much the same. Until the MAC has done its work, it
is hard to say whether the shortage list will be, as it were,
a wider one or a smaller one; I know we will go about it very
rigorously but until we have done the work we cannot say that.
It is more on the alternative routes to coming in under Tier 2,
not the automatic routes, where you are going to get the changes.
The alternative route is you have to get 50 points and the way
you get 50 points is you must pass what is called the resident
labour market test. The resident labour market test is basically
to ensure, number one, no displacement; number two, no undercutting.
So you have to advertise the job at the going rate—whatever
that is these days—for the occupation. My understanding
is that this resident labour market test is going to be much more
rigorously enforced than perhaps it has been in the past. This
is going to be done partly because the employer has got to be
on the sponsors register, and if the employer is, for example,
undercutting or, say, ignoring replies to any advertisements and
they get found out, they can be deleted from the sponsors register;
also, the fine levels are very substantial for misbehaviour. Therefore,
the enforcement of the resident labour market test is almost certainly
going to lead to there being fewer immigrants in this category
than there otherwise would be. I cannot say "than there would
have been before" because the trend in immigration has been
up in recent times so you cannot say that, but compared to what
it otherwise would have been it will be smaller. Therefore, the
two crucial things that will affect it and make it a bit tighter
are the English language test and the more rigorous operation
of the resident labour market test.
Q566 Lord Turner of Ecchinswell:
With apologies if I am going through a fact base rather than asking
a question, can I first ask for what I hope is final clarification
of Tier 1, Tier 2 and Tier 3 and just see if I understand it correctly.
As I understand it, there are two dimensions going on here. There
is Tier 1, Tier 2 and Tier 3, which are defined fundamentally
in skill terms.
Professor Metcalf: Yes.
Q567 Lord Turner of Ecchinswell:
And then there is a set of things where there are sectors/qualifications
which are in shortage.
Professor Metcalf: Yes.
Q568 Lord Turner of Ecchinswell:
How is Tier 1 defined? Did I understand you to say that at Tier
1 there is completely free movement, independent of whether you
have defined an area of shortage, and at the other end is it clear
that at Tier 3 at the moment, independent of whether you define
a shortage, there is no entry? Tier 1 is total entry independent
of the shortage, Tier 3 is no entry other than the EU where there
is obviously free movement, independent of the shortage, and then
Tier 2 is intermediate, is that correct?
Professor Metcalf: Yes, it is, I can elaborate
a bit, but what you have said is correct.
Q569 Lord Turner of Ecchinswell:
Tier 1 is defined by what skill level?
Professor Metcalf: The calibration of points
means you have to get 75 points and you get points according to
your age—essentially under the system the younger the better—your
qualifications and your earnings in your occupation in, say, China
or India.
Q570 Lord Lawson of Blaby:
And the English language presumably as well?
Professor Metcalf: Yes, you have to speak English.
There is discussion going on within the Home Office because clearly
you have got to allow for the fact that if you are in China your
earnings are going to be in exchange rate terms or PPP terms that
much lower, so they are going to have some multiple about that.
You have to get a certain number of points and then you can come
in.
Q571 Lord Turner of Ecchinswell:
My second question then is to zero in on Tier 3. Tier 3 at the
moment is excluded from non-EU immigration. Will you nevertheless
be asking the question whether there are shortages in Tier 3 skills/jobs?
Professor Metcalf: No, not at this stage.
Q572 Lord Turner of Ecchinswell:
The final question, if I may have one final question. In the first
answer to Lord Wakeham's question, you were trying to explain
your approach and, to a degree, I think that essentially you are
looking at the price elasticity of the response, both in the short
or the long term, in that where you have something which has a
very high short term price elasticity response it is close to
a quantitative shortage, i.e. we are short of contaminated land
engineers, there is almost no price at which we will be able to
fill that short term, but there must be others within Tier 2 where
there is a price at which it would be forthcoming. If that is
the case, how do you make that judgment, how do you decide the
price elasticity, above which you say there is a shortage rather
than saying there is not a shortage, let the price mechanism work?
Professor Metcalf: You are being too kind if
you put it in quite so technical terms as dealing with elasticities,
but implicitly that is exactly what we are doing. The fact is
we have not done the work yet, but we have thought about this
and this is why we are doing both the top down and the bottom
up. The top down will provide a lot of what Lord Turner is suggesting
in terms of looking at the movements in the relative earnings,
the sorts of numbers which, let us say, the sector skills councils
say they need—although I do not like the word "need"—which
is the standard way that they do it presently, looking at that
and looking to see what has been the change in the relative earnings
recently. There was a very interesting letter in The Times
a couple of weeks ago—I am sure Lord Lawson would have read
this and laughed—where a man wrote about engineering and
said there has been a critical shortage for 20 years and the earnings
are still much too low. If there has been a critical shortage
for 20 years, it is just not on, so we will look at that and make
a judgment about it, but that, if I may say, is why we think the
bottom up is so important because the way in which we can begin
to inform our judgment is indeed by talking to people.
Q573 Lord Turner of Ecchinswell:
One of the most difficult things for you would be the short term
versus the medium term.
Professor Metcalf: Yes.
Q574 Lord Turner of Ecchinswell:
If you believe that in that Tier 2 shortage some increase in wage
which is not astronomical, it is 10 or 20%, not three times, not
immediately but within three months to six months supply would
come forward from switching or new skill acquisition, will you
or will you not declare that a shortage? That is going to be the
most tricky judgment you have to make, is it not?
Professor Metcalf: It is a tricky judgment,
but one of the things which I perhaps should have made more clear
at the very beginning, but I did not want to talk too much, was
we would only be suggesting to fill the shortages when they can
be "sensibly" filled by immigration. Ostensibly, that
takes us on to a number of different things, but the possible
employer responses—making the job more attractive through
wages or conditions, for example, making the job more capital-intensive,
if that is possible, maybe altering the composition of the output—are
things that we would have to consider. In how much detail we can
go into that, given the number of occupations we may be dealing
with, is as yet an open question. But, Lord Turner, you are absolutely
right, we would wish to consider this and our intention is to
do so.
Q575 Lord Layard:
You have told us quite a lot about the criteria for Tier 2. I
wanted to pursue one particular thing on the resident labour market
test because, as I understand it, under the work permit system,
if an employer says he has advertised a job for a month and has
not been able to fill it, he can pretty much get a person there.
Is that going to change or how many points will go to an employer
who says that, can you more or less get the 50 points with that
and not much else?
Professor Metcalf: It will change because my
understanding, from talking to colleagues in the Home Office,
is that it is going to be more rigorously enforced, but let me
just set it out. This is Tier 2, NVQ Level 3 and above, must be
able to speak English, it is not the automatic routes, it is the
non-automatic route. How do you get in? You get in through a combination
of the resident labour market test; if you pass it, you get 30
points. In order to get to your requisite 50 points, it is a combination
of your qualifications and your pay—there are up to 15 points
for qualifications and there are up to 20 points for pay, but
as long as you can get another 20 points if you pass the resident
labour market test you can get in. You cannot get in under Tier
2 non-automatic unless you pass the resident labour market test.
The resident labour market test is both not displacing, because
of the advertising, and not undercutting. You pass the resident
labour market test and, as long as you have got a certain level
of pay and a certain level of skill, you get your 50 points and
then the employer can bring the person in. My understanding is
terms of the alterations is that, first of all, it will be more
rigorously enforced, but secondly the way in which the system
has operated in the past is that, first of all, the shortage occupations
were not probably as rigorously analysed—indeed, that must
be the case because otherwise they would not have set the MAC
up—and the way in which perhaps the resident labour market
test was handled was not as rigorous as now.
Q576 Lord Layard:
Can I just follow that up? How big a part of the total up to now
has this been and how big a part do you expect it to be in the
future? Secondly, can you not more or less pass the resident labour
market test by advertising and just deciding you do not like the
people who apply?
Professor Metcalf: Let me deal with the second
one first of all. That is indeed an issue which is why I have
raised the point about the better compliance and the fines because
although there is some enforcement presently—and I have
talked to the work permit people up in Sheffield—I am not
overly sure about the extent of the enforcement. It is certainly
true that the compliance regime is being beefed up but it is possible—I
am not saying that this happens regularly—that some people
are looking at the system presently, they are making the requisite
adverts but they may not be taking the responses to the adverts
very seriously. In the new system if they were found to be doing
that they would run the risk of being struck off the sponsors
register and then they would not be able to bring anybody in,
so I think that the operation of the new system is likely to yield
a bit more rigour. In terms of the numbers, it gets a little bit
tricky because most of the numbers are immigrants who are greater
than one year—that is the standard definition of an immigrant—and
the numbers coming in for work or looking for a job for that last
year were 231,000 and they were 39% of the gross inflow. The work
permits, of course, are not done on the same basis because a work
permit can be issued to somebody coming in, let us say, for six
months, but just to get a rough benchmark figure to try and make
a comparison, the number of work permits that were issued were
95,000 last year, so that is of the order of 40%, two-fifths of
the workers coming in. Of those, what Lord Layard is asking is
presently how many of those are shortage? The fraction which is
presently on the shortage occupations list is not huge; the intra-company
transfers are rather large but I do not think that one can then
jump to saying the MAC is not dealing with a large fraction of
the inflow, because until we have looked at the shortage occupations
we will not know. I have thought about this quite a lot because,
as you know, I am a numbers man as well and by defining shortage
occupations, of course, you are also defining non-shortage occupations
and therefore in some senses the number of people coming in under
the non-shortage occupations may be, for the reasons I have alluded
to, reduced. Let me put it this way, it is more attractive to
now be on the shortage occupations list because it is going to
be easier to come in and so whatever we decide on that also decides
the non-shortage occupations, and that is going to be enforced
more rigorously.
Q577 Lord Moonie:
I think I understand that. How, if at all, do you expect the mandate
of the MAC to develop over the coming months?
Professor Metcalf: I know that committee people
will always say this, but first of all this is a matter for the
Government and not for the MAC.
Q578 Lord Moonie:
Of course.
Professor Metcalf: I have got an appointment
for three years but who knows after that. The MAC is a non-statutory
non-timebound NDPB. One of the issues that has already been touched
on is, we will wish to update the shortage occupation list and
be very flexible about that. We are looking to update probably
every six months, but probably to do a very full exercise every
two years, but this is actually an item for our committee on Friday.
It is provisionally something along those lines. We wish to be
very flexible and if it looks as if there is indeed not a shortage
and people have come in, we would want to get that occupation
off the list, and if something suddenly comes up which employers
and perhaps others are really suggesting to us is a real issue,
then we would wish to consider it and perhaps be able to get it
on the list more quickly. It is possible that the mandate will
change by us being asked to look at particular schemes, for example
the SAWS, the Agricultural Workers Scheme, which is presently
confined to immigrants from Bulgaria and Romania. Maybe we will
get asked to look at something like that for example. We have
been asked to write a comment on the statement of intent on Tier
1 and I imagine that is the sort of thing that would be quite
regular. There is a question about monitoring and evaluation of
Tier 2; we have a small research budget and we have been trying
to get a little bit of research which would be relevant for our
June report, and one of the things that we are doing now is to
get a detailed analysis of the present work permit system. I would
wish there to be a pretty detailed analysis after, say, a year
of our operation on what we have done on Tier 2, but in a sense
that is not a matter for us although clearly we would want to
have a bit of a say in the issues. That would be an area that
I think we could develop, but also I imagine there will be specific
issues, and your previous question on the Olympics is one which
springs to mind. I would just add, if I may, I have been quite
careful to deflect extra tasks for the time being because I actually
want to demonstrate that the MAC can do what it is tasked to do,
to provide the shortage list by June and then to do other things,
but for the time being we have not been asked to do anything.
Q579 Lord Vallance of Tummel:
I am being a bit slow in understanding quite what level of detail
your product is going to be. If we stick with the shortage occupation
list, I see in your work plan that it is for the UK and Scotland—I
like the "and Scotland" but that is by the bye. We have
talked a lot about categories and I see you have civil engineers
and degree of disaggregation below that, but what about numbers
and locations? Is your product going to have any idea of quantification?
Professor Metcalf: No.
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