CALL FOR EVIDENCE BY THE MIGRATION ADVISORY COMMITTEE ON REVIEW OF TIER 2 CONSULTATION RESPONSE

CALL FOR EVIDENCE BY THE MIGRATION ADVISORY COMMITTEE ON REVIEW OF TIER 2 CONSULTATION RESPONSE Response From: London First, Middlesex House, 34-42 Cleveland Street, W1T 4JE Date Submitted: 25 SEPTEMBER 2015 Contact: Mark Hilton, mhilton@londonfirst.co.uk and 020 7665 1521 About London First London First is a business membership organisation with the mission to make London the best city in the world in which to do business. We work with the support of the capital s major businesses in key sectors such as hospitality and retail, finance, professional services, property, ICT and education. Summary position London has one of the most competitive labour forces in the world and this has underpinned its growth as one of the world s most successful international service sector hubs. London businesses export across the globe and, to maintain this, need to be able to recruit internationally. They will always have specific labour needs to support their international activity which simply cannot be provided by local talent, no matter how well trained: recent experience of a particular overseas market, perhaps underpinned by native language skills and cultural familiarity, is perhaps the most obvious example. Similarly, an international project run from London requires a business to be able to assemble its best global team in the city. If it can t, the project will be moved out of London to a jurisdiction where it can. This would affect the performance and growth potential of the business s London-based operations, which in turn could place the jobs of native workers at risk. The evidence is clear, including that from the Migration Advisory Committee, that skilled non-eu migrants are job creators. Tier 2 General and the intra-company transfer (ICT) route enable London businesses to access this global talent from new hires and employees based outside the UK across their global network of offices respectively. It is important to keep in perspective the scale of such non-eu skilled migration. Numbers are low: just 52,500 migrants entered the UK through Tier 2 in 2014 to work in the UK. This equates to 0.0017% of the total UK workforce. These migrants supplement the largely native workforce of London businesses, rather than displacing it. As growth picks up, business needs an immigration system that flexibly supports their recruitment of international talent, rather than hinders it. London First therefore calls on the MAC/UK Government to: end the cap on the number of overseas migrants; to leave intracompany transfers uncapped; and to maintain the current Tier 2 salary threshold levels. Answers to the specific questions from the consultation are below where London First has been able to formulate a response. 1

Focusing on particular skills shortages 1. What impact, if any, will reducing the level of Tier 2 migration have on the economy? As the following extract from London First s Economic Development Agenda points out, London is the leading global hub for business, for talent, and for financial and business services. It attracts more Foreign Direct Investment projects and more large international subsidiaries than any other city in the world (McKinsey Global Institute, 2013). These strengths have been underpinned by a distinctive combination of attributes: stable business-friendly regulation; global openness to trade, investment and migration; and a vibrant and liberal culture that attracts people from around the world. Taken together they have laid the foundations for a virtuous circle as London has emerged as the place where global business can find talent, and the place where global talent can find opportunity. Closing the door to international talent is a clear threat to London s status as a world-leading global talent hub. If London businesses are prevented from recruiting or transferring in (via intra company transfers) the best available candidates from wherever they may be, as they need them, they will not settle for second best and instead will choose to locate new projects and teams in their overseas offices rather than London. For example, a multinational infrastructure company in London First membership has had to move its rail engineering work, including its graduate scheme, from UK to Spain because it became too difficult for them to recruit international workers in the UK and there wasn t the appropriately skilled talent pool in the local workforce. This is clearly damaging to both jobs and growth. London businesses across all sectors train and develop their native workforce, through school leaver programmes, apprenticeship and graduate schemes, in-house professional development and community engagement with schools, colleges and universities. Businesses hire migrants to supplement their predominately native workforce not to replace it with the types of skills and experience that they need but aren t available locally in the short term. Highly skilled migration through Tier 2 of the points-based system is low in volume and represents just 0.0017% of the total UK workforce. Yet, it has a high impact in terms of economic contribution. Skilled migrants are job creators and contribute directly to the Exchequer through their tax payments and place low demands on public services. Indeed, the OECD has found that, overall, migrant households in the UK not only, on average, contribute more in tax revenues than they receive in benefits but also make a bigger contribution to the economy than households of the native born. Furthermore, research by Ipsos Mori and British Future shows that the electorate is not concerned by migration by skilled workers, such as engineers or lawyers. The costs of reducing Tier 2 migration reduction in tax take, business relocating work out of the UK, risk to British jobs and the growth of our economy are of far greater concern to the public than the issue of these migrants being in the UK in the first place. 2. How well does the Resident Labour Market Test provide evidence that no domestic labour is available? How could the test be improved? London businesses feel that the Resident Labour Market Test (RLMT) is an adequate tool for assessing whether suitable native workers are available in the local labour pool. 2

London businesses set out to recruit the best candidates irrespective of nationality. However, the preferred option is to recruit from the local labour market since it is quicker and cheaper. According to London First members, recruiting non-eu migrants can be up to 4 times more expensive than native workers. Yet, if the RLMT shows that the best candidate is from outside of Europe, it is logical that the business will want to recruit that person, despite the extra upfront costs in doing this. The RLMT could be made more sophisticated in the way it requires jobs to be advertised. For example, if an organisation is trying to recruit a specialist tunnelling engineer, then it may be that advertising in a variety of trade press publications would be more effective than the requisite advert on the Job Centre Plus online portal. To give the Home Office greater confidence in the RLMT, perhaps evidence of how business is using it and how successful it is at identifying suitable native workers (including an analysis of job sites offering the best return) could be collated and submitted when businesses are audited on their recruitment of migrants. 3. Does the points mechanism operating in respect of the limit on Tier 2 certificates of sponsorship prioritise those migrants of greatest benefit to the UK? How could its efficiency at doing this be improved? An objective points-based system for visa applicants, based on criteria including type of job, salary, age, education, experience and English language capability, is an effective way of prioritising migrants with the greatest benefit to the UK. The weighting of points needs to be informed by robust and up-to-date economic and labour force data, to ensure that the skills and experience of incoming migrants are measured and rated in terms of need (skills gaps assessed by severity and impact on business and the economy) and the contribution that migrants can make. It is worth emphasising the importance of assessing experience: a migrant may be coming into the UK to work as an accountant, which may not look like a priority case. However, if that accountant has twenty years of experience of India s financial services market and the firm is looking to expand in India, this migrant would be a business-critical hire. The points system should also recognise the importance of cultural skills, for example ballet dancers, both for the intrinsic merits of cultural diversity but also because of the sectors importance to London and the UK s overall economy. An advisory group of expert employers, representing a range of key sectors, would be useful for advising the Government on skills and experience gaps. Narrowing of the salary banding on the points based mechanism would help to add efficiency to the system. In June 2015 the Tier 2 cap was breached for the first time, with all visa applications for roles paying less than 46,000 refused because demand outstripped supply. In practice this meant all visa applications in the 32k - 45,999.99 band were refused, even though there were still visas available. Had the salary bands been narrower, e.g. 32k- 34,999.99; 35k- 37,999.99; 38k-40,999.99; 41k-43,999.99; 44k- 45,999.999, then applications in these top bands could have been approved. Such a change, if a cap is to be maintained, would at least minimise recruitment disruption for employers. 3

4. What criteria should be used to select jobs and occupations that are genuine skills shortages and people that are highly specialist experts? What use should be made of selection criteria such as salaries, points for particular attributes, economic need, number and length of vacancies and skills level? What other criteria should be considered? See answer to question 3. 5. What will be the impact of restricting Tier 2 (General) to genuine skills shortages and highly specialist experts? As outlined in the answer to Q3, a focus on skills alone may result in experience shortages. Furthermore, such an approach would require an expanded and fluid shortage occupation list underpinned by regular robust analysis of the labour market, informed almost in real time by employers, to identify genuine skills shortages and need for highly specialist experts. Business must be able to react quickly assembling a team to meet client demand and, if the skill or role that they need cannot be filled from the local labour pool, they need to be able to look for international talent immediately. They cannot wait for a periodic review of an approved shortage occupation list; the business will simply go somewhere else. London First s view is that a well-run Resident Labour Market Test is the right mechanism for determining actual shortages. If the Test reveals that there are no suitable candidates in the native labour pool for a particular role, then there is a genuine shortage. 6. How could a restricted Tier 2 (General) route maintain flexibility to include: a) high value roles; b) key public service workers? Tier 2 should not be restricted for the reasons outlined in the questions above. As suggested under Q3, an employer advisory group should be set up to work with the MAC and Government, including key public sector employers such as the NHS, to identify roles and experience that cannot be filled from the local labour pool. 7. What evidence is there of significant regional differences in skills shortages? 8. What evidence is there of the need to recruit highly specialist experts? The UK and London economy will benefit from having as many highly specialist experts as it can attract in as many fields and sectors as possible. Business Case Study A specialist engineering firm feels that any measure to restrict Tier 2 would be counterproductive because: finding British-based staff is difficult the talent pool simply isn t deep enough. The firm currently has 5 recruitment agents trying to source candidates for 10 vacancies. They consider that, roughly, 10% of applicants are British, suggesting that the skills/applicants are simply not there; to survive with the limited talent pool, engineers are being bought in from Europe and outside of Europe; 4

the firm s competitors are exporting work to either Eastern Europe or the Indian subcontinent. While the firm hasn t done this as yet, all options are being considered. They are very conscious that they are competing with offshore offices in locations such as Poland who are much lower cost. Increasing the Tier 2 salary threshold or restricting Tier 2 numbers is likely to encourage the shift of such work abroad; and according to the firm, many strong graduate engineers coming through UK universities are choosing to work in professional and financial services, rather than joining engineering businesses. 9. What would be the impact on business and the economy of restricting recruitment to genuine skills shortages and highly specialised experts for: I. migrants switching from the Tier 4 student route; By definition, Tier 4 students switching into Tier 2 are not specialised experts. However, they may have valuable academic skills and/or particular cultural/market knowledge or experience, which contributes to the workforce diversity necessary to service international clients and projects. In some cases, businesses will plan to train these graduates in London as part of an international graduate programme and then export them to one of their global offices. Anything that restricts the flow of students from universities to UK global businesses risks: (i) damaging the attractiveness of the UK s university sector, which is one of our leading export sectors genuine students are less likely to come and study here without the opportunity to work post study, as evidenced by London First research (London Calling, 2015) and; (ii) damaging the capabilities of our global businesses to secure the best talent and trade with a range of countries. II. all other in-country applications? Refer to the answer given to Q5 10. How could the methodology to set the Shortage Occupation List be expanded to develop a revised Tier 2 (General) which restricts the route to genuine skills shortages and highly specialised experts only? London First does not believe that Tier 2 (General) should be restricted in this way, for the reasons outlined above. However, we are supportive of the idea of a credible and expanded shortage occupation list (SOL) that is regularly reviewed with the support of business and labour market analysis. These two approaches are compatible it is possible to continue with the current Tier 2 (General) approach and work to identify ways to make the SOL more sophisticated and robust so that skills shortages are met efficiently and effectively. 11. What occupations would you expect to see on an expanded shortage occupation list? How does the occupation or job title you are suggesting satisfy each of our criteria in relation to skilled, shortage and sensible? Alternatively, what other criteria does the occupation or job title satisfy that meets the requirement of being in a genuine skills shortage or for highly specialised experts? London First s research for the London Economic Development Agenda found that talent shortages are identified by London s tech entrepreneurs as the single biggest barrier to growth. The tech community is already involved in initiatives to train up the local workforce 5

(Tech Stars Apprenticeships, for example) but if Tech City is to rival Silicon Valley then it needs access to experienced hires now. Nearly 80% said they could grow faster if there were more people available with specialised digital and technology skills like coders, developers and usability specialists. The skills in highest demand are shown below. 12. What would be the impact of an expanded Shortage Occupation List on business and the economy? An expanded SOL that reflected an accurate picture of skills gaps in the economy, as far as is feasible, would be welcomed by business. It would enable business to bring in high priority skilled migrants quicker and easier. Such a list would need to be detailed, fluid and regularly updated. Business would need to be consulted at regular intervals. 13. How far in advance can your organisation, sector or local area anticipate a potential shortage in skilled labour? London First members typically have sophisticated labour planning strategies. However demand can move suddenly and market activity is innately unpredictable, and so skills needs can change quickly. Businesses need to be nimble and to react quickly to changes in the market and new business opportunities, against a changing economic and political/public backdrop. It is therefore impossible to anticipate with high accuracy skills gaps over the medium to long term. 14. Alternatively, is it sensible to leave the present Tier 2 (General) route intact and achieve any reduction in economic migration by raising the pay thresholds only? London First does not belief there is a case for reducing skilled/specialist economic migration, due to the benefits it brings to the UK as outlined in earlier questions. It is counterproductive to target Tier 2 in order to try to achieve an arbitrary net migration target. 6

Sunsetting 15. The MAC has been asked how to limit the length of time occupations can be classed as having shortages: a. How long should any maximum duration be? The concept of maximum durations is unhelpful and arbitrary. It is right that the shortage occupation list should be kept under review and Government and business should work together to better train up the local workforce and in the long-run reduce the demand for some migrant labour and the number of shortage occupations. However, the argument that an occupation will no longer have a shortage and should be removed from the list just because it has been on the list for a period of time, is misguided. This is not least because the UK skills system infrastructure necessary to underpin such an approach one that is capable of putting in place an effective local training plan that would eradicate a shortage over the timeframe that the shortage is permitted to remain on the list is not in place. A shortage occupation should remain on the list as long as it s a shortage, as evidenced by the Resident Labour Market Test and labour market analysis. b. What, if any, exceptions should there be to this and why? Please provide evidence to support your answer. Intra-company transfers 16. The Tier 2 (Intra-Company Transfer) category is the most used route under Tier 2. The Government has asked that the MAC consider the scope for action to tighten the intra-company transfer provisions: a. What criteria should be used to determine eligibility for the intra-company transfer route? London businesses that operate across numerous countries, servicing a range of international projects and clients should be allowed to bring in a range of staff, from graduates to senior directors, via the intra company transfer (ICT) route. In an increasingly connected global marketplace, where UK firms are trying to build trading links with new emerging economies, agile global mobility is a necessity. b. Subject to legal requirements, how can the Government tighten the Tier 2 (Intra- Company Transfer) provisions? Should this route be limited to genuine skills shortages and highly specialised experts only? London First membership represents a wide cross sector spread of large corporate businesses that operate in London and in numerous global destinations. They use the ICT route to meet a genuine need to move around their global employees. The number of ICT migrants coming to the UK is not high, particularly given many of these businesses will be exporting British talent at the same time as importing migrant talent. The ICT route should not be restricted and if anything, it should be made more flexible. For example, by abolishing the Tier 2 cooling-off period which prevents some ICT migrants from returning to the UK to work for a 12 month period. 7

Business Case Study A multinational conglomerate had a Canadian engineer who came to the UK as a Tier 2 (ICT) Long Term migrant to run a digital energy project. He was here for 8 months setting up and training the staff on how to use and operate the equipment. Three months after he left the UK the product started to show errors due to issues relating to the calibration of the equipment this process needed rectifying and would take between 4-8 weeks to do so. The lead engineer who set up the process, however, was not able to return as he was subject to the cooling-off period. The employer was left in a difficult position because anyone else it sent instead would also then fall into the cooling-off period, therefore effectively tying up two key engineers for a 12 month period. The company experienced delays in fulfilling its obligations and suffered a financial loss as a result. c. What will be the impact on businesses and the economy of tightening the intracompany transfer provisions? London First is particularly concerned about the prospect of restrictions on ICTs, as this route is crucial to businesses who need to recruit and move skilled global talent. We would expect new restrictions to ICTs to lead to the inability of London businesses to meet resourcing requirements in business critical roles. London First members rely on ICTs to move not only senior managers and specialists but also junior employees such as graduates. Companies have global teams and programmes that are run from London, and this requires global intra-company mobility. Irrespective of the skills levels locally, companies need to be able to bring their teams together at their London office, including operating their training programmes (which for, say, graduates, might take some time and a great deal of planning). If they are unable to use their London office flexibly in this way, they will relocate overseas to meet their business strategy objectives. This would clearly reduce London's and the UK's competitiveness and constrain UK economic growth. This category of migrant cannot claim permanent residency and are net contributors to the UK exchequer. ICTs are commonly used for short term projects, in order to provide for continuity of engagement. d. What will be the impact of a cap on the number of migrants a sponsor can employ based on the percentage of each organisation s UK workforce? ICTs should not be capped for the reasons outlined above. e. What impact does the Tier 2 (Intra-Company Transfer) route have on the domestic labour market? The ICT route allows businesses to move existing employees based outside of Europe to London. This is for a variety of reasons including employee engagement, client management and international training and development programmes. Senior ICT migrants are job creators, as evidenced by the above case study. There is no evidence that the ICT route is being used to under-cut the native labour market. f. Should allowances continue to be included in the salary threshold for the Tier 2 (Intra-Company Transfer) route? If allowances were excluded from the salary threshold, what would be the impact? Moving employees between global office locations is a significant and costly undertaking for business and is not undertaken lightly much thought goes into the planning of ICTs and they are undertaken when the employer identifies a clear skills need. Allowances reflect the realities for migrants who come to work in the UK for short term assignments. No changes should be made to the inclusion of allowances in the salary threshold. 8

g. What is the impact on existing UK companies and UK resident workers of the current intra-company transfer provisions in relation to companies outsourcing contracts with third parties? h. What would be the impact of putting tighter intra-company transfer restrictions on companies which outsource contracts with third parties? i. What is the impact on existing UK companies and UK resident workers of the use of the current intra-company transfer provisions in relation to the IT sector? If London s Tech City is to really establish itself as a serious rival to Silicon Valley, and maintain its position as Europe s leading tech hub, tech firms based here need the ability the move their employees into and out of London. j. What would be the impact of putting tighter intra-company transfer restrictions on the IT sector specifically? The ICT route should not be restricted for the reason outlined in question 16i. k. Is there a case for requiring intra-company transfer migrants to pay the immigration healthcare surcharge? What are your reasons for or against this? What would be the impact of making these migrants pay this surcharge? Any case for requiring ICT migrants to pay the immigration healthcare surcharge should be based on a clear understanding of how ICT migrants currently use the NHS in their short time here and what percentage of them have private health cover. Furthermore, the Home Office should consider how all the relevant Government proposals for additional costs for employers and migrants two new levies, an increase in salary thresholds, health surcharge sit together and what impact this additional cost burden will have on business. l. Would restrictions to the intra-company transfer route have specific regional impacts? Skills levy 17. The Government has asked that the MAC consider to which businesses a skills levy should apply and the impact this may have, balancing the need to maximise the incentive for employers to recruit and train UK workers with the ability of businesses to access the skilled migrants they need. The proceeds of the levy would fund apprenticeships in the UK. a. What would be the impact of different levels of levy on your occupation or sector? Would a skills levy affect the way you recruit? 9

b. Should a skills levy apply to all businesses recruiting from outside the EEA? If not, to which businesses should a skills levy apply and why? Why should other businesses be exempt from the levy? With the caveat that London First is currently formulating its position and will respond to the Department for Business Innovation and Skills consultations on an apprenticeship levy and an immigration skills charge ( skills levy ), our general comments are: (i) (ii) (iii) (iv) The Government should consider how all their proposals for additional costs for employers and migrants including the two new levies, an increase in minimum salary thresholds, ICT migrants paying the health surcharge, alongside broader requirements including the national living wage, sit together and the total cost impact they will have on business. This additional cost burden might also have a local economy impact, too: for example, an employer forced to pay two new levies may have to take the difficult decision to divert budget from existing community engagement programmes to cover the cost. London First members already do a great deal to train and develop the UK workforce, both new recruits and existing staff, through their apprenticeship schemes, graduate programmes, in-house CPD and community engagement programmes. This must be taken into account when considering whether a skills levy should apply and if so, at what level. While London First strongly and actively supports the training of Londoners, it is important to recognise that London businesses will always have specific labour needs which simply cannot be provided by local talent, no matter how well trained, for the reasons set out above. A skills levy will not therefore achieve its objective in these circumstances. While London First has lobbied for many years in support of apprenticeships, we recognise that apprenticeship programmes do not suit all employers. We would be concerned to see businesses being forced to axe existing and successful work based training programmes in order to meet Government apprenticeship targets. (v) London First would ask whether an effective administrative system which necessitates linking up labour market and business data across multiple Government departments (Treasury, Home Office, BIS and DWP) could be developed and put in place to make this work. c. Should a skills levy be a one-off payment at the point of recruitment of a Tier 2 migrant or should it be on an annual basis for the duration of the migrant s stay under their initial Tier 2 visa? d. Would a skills levy have specific regional impacts? Tier 2 Dependants 18. Dependants of Tier 2 migrants, such as partners, spouses and adult minors, presently have the unrestricted right to work in the UK. The MAC is asked to consider the impact of removing this automatic right: 10

a. How would removing the automatic right of dependants to work affect main applicants decision of whether to come to work in the UK? Government data on the activity of dependants is very limited, as the MAC itself has recognised. Anecdotal evidence suggests that spouses tend to work either in highly skilled roles or in charity or voluntary roles. As the Government itself has recognised, the value and contribution of voluntary workers to the delivery of public services is significant. Broadly, such an approach would make the UK a less attractive destination to work and therefore should not be implemented. b. How many of your Tier 2 employees bring dependants? If so, do they work whilst in the UK? Are they qualified to degree level? What occupations do they work in? If possible, please specify occupations or job titles according to the SOC 2010 classification. c. How would removing the automatic right of dependants to work impact on: i. the economy; See answer to Q18a. ii. public finances? See answer to Q18a. d. Would removing the automatic right of dependants to work have social impacts? See answer to Q18a. e. Would removing the automatic right of dependants to work have specific regional impacts? Overall Tier 2 design 19. To what extent do the existing Tier 2 mechanisms and framework work optimally to enable business to bring in the skilled workers that they require? As a general observation on the immigration system as a whole, London First believes that the Government s net migration target and the way it drives policy decisions is arbitrary and unhelpful. The crux of the problem is that the target encompasses EU migration, emigration and non-eu migration. Intra-EU migration is part of the Single Market and the Government does not control emigration. Thus, the Government s only option is to reduce Non-EU immigration. These are the high-value people needed by business and the international students recruited by Britain s world leading education sector. Restricting these migrants is a threat to the competitiveness of London and the UK. The Government should abolish the net migration target and instead take a more robust evidence-based approach to policy making, as set out in earlier responses to this consultation. In terms of Tier 2 specifically, this summer the cap has directly prevented business s recruitment of skilled migrants, as the demand for visas outstripped supply for the first time. 11

Many firms, in the financial and professional services sector for example, were unable to secure visas for their new graduate intake, placing at risk whole UK based graduate programmes. Firms will relocate these programmes, which are often planned years in advance, out of the UK if access to their international graduates cannot be guaranteed. This would affect the positions of UK native graduates on these programmes. Narrowing the salary banding for the points based mechanism would be an improvement, albeit a marginal one, and ultimately London First would like to see the cap abolished. 20. What changes would you make to the design of the route that would address the issues identified and are not reflected in the changes discussed elsewhere in this call for evidence? See answer to Q19. 21. How do the existing salary thresholds for Tier 2 compare to, and impact on, the overall wage distribution for each occupation? 22. What types of jobs and occupations are done by highly specialised and/or highly skilled experts, and is pay a good proxy for this high level of specialisation or skill? Refer to the London First submission to the MAC s consultation on salary thresholds 23. What would be the impact of increasing the thresholds to a level that better aligns with the salaries of highly specialised and/or highly skilled experts? Refer to the London First submission to the MAC s consultation on salary thresholds 24. What would be the impact of increasing the thresholds to a level that restricts the route to occupations which are experiencing skills shortages skilled to NQF level 6 or higher? Refer to the London First submission to the MAC s consultation on salary thresholds 25. What would be the impact of increasing the Tier 2 minimum thresholds from the 10th to the 25th percentile for each occupation for new entrant workers? Refer to the London First submission to the MAC s consultation on salary thresholds 26. What would be the impact of increasing the Tier 2 minimum thresholds from the 25th to the 50th or 75th percentiles for each occupation for experienced workers? Refer to the London First submission to the MAC s consultation on salary thresholds 12

27. As an employer, what would be the impact of increasing the Tier 2 minimum thresholds on: a) hiring migrant workers from outside the EU; b) hiring migrant workers from within the EU; c) hiring natives. 28. Are there additional national pay scales or sources of salary data that should be used to set the thresholds? 29. What other appropriate measures would you like to see for determining the minimum salary thresholds? 30. Should the minimum salary threshold take account of variations in regional pay? If so, how? 13