The UK Immigration Cap & The Effect On City Business

By Matthew Davies, Head of the Business Immigration practice at Fox Williams LLP.

'Immigration has not strayed far from the top of the political agenda in the last decade. Now, the UK Coalition government has changed the liberalising direction of policy, and is implementing the Conservative manifesto commitment to reduce annual net migration from hundreds to tens of thousands by the end of this Parliament.

City employers have grown used to a ready supply of smart, productive and readily available non-EEA migrants and are naturally alarmed. Pronouncements from employers and newly-formed pressure groups protest that business competitiveness is under threat from a new phenomenon, the “immigration cap”.

So, what is the “cap” ? As matters stand, there is no single block on non-EEA immigration - and no proposal for one. Since July 2010, an “interim” cap has operated in just two of many immigration subcategories - Tier 1 (General) and Tier 2 (General). The interim arrangements run until April 2011. After this, a “permanent” cap will operate.

Theresa May, Home Secretary announced the policy on the long-term cap to the House of Commons on 23 November. It will be delivered primarily through the mechanism of the 5-Tier points based system, introduced in 2008.

Employers saw this coming, and some lobbied to mitigate the harshest effects. The Professional and Business Services Group presented evidence that some businesses are already being affected by the interim cap; the Canada-UK Chamber of Commerce pointed to recent heavy investment in the UK by Canadian interests, arguing against limits and in particular for the retention of unrestricted intra-company transfers. Law firms, IT companies and the Chartered Institute of Personnel and Development all added their voices; although not deflected from its overall policy, the Government has made concessions.

A senior UK Border Agency official stated that, in order to deliver the reduction in migrant numbers, the Government needed to “pull all the levers”; students and family members would be targeted, as well as economic migrants. It is of course, about economic migrants that the City is most concerned.

The most dramatic announcement is that the Tier 1 (General) sub category will close in April 2011. The fate of Tier 1 (General) was sealed by the “evidence” of an October study purporting to show that many in this stand-alone, highly skilled category were working in low-skilled jobs, if at all. The Investor and Entrepreneur categories of Tier 1 will be overhauled and enhanced to reflect Government enthusiasm for entrepreneurship; a new subcategory for top scientists and leaders in their fields, independently accredited, will replace Tier 1 (General). Total numbers within Tier 1 will be drastically cut through these changes, but that is not the whole story.

In Tier 2 - for skilled workers sponsored by a licensed employer - the Tier 2 (General) category, currently subject to a default zero allocation via the interim cap, will have 20,700 places for the 12 months to April 2012 - some 7,000 higher than now. Those earning above £150,000 per annum will be exempted from the cap altogether. The devil will be in the detail as to how the quota is allocated - City employers will watch with interest to see how this is rolled out.

The stark reality is that employers who have side-stepped the Government scrutiny and liabilities imposed by the licensed sponsorship regime by relying on Tier 1 (General) can do so no longer. Applications will accelerate to beat the interim cap, and monthly interim quotas will bite ever earlier. Technically eligible Tier 1 (General) applicants cannot assume that their applications will ever be considered, and the last Tier 1 (General) visa may be issued well before the subcategory closes in April 2011.

Of less concern to City employers is the dormant Tier 3, for low skilled workers. Tier 4, for students sponsored by their educational institutions, is due for heavy cuts as Government and public patience is exhausted by ongoing evidence of “abuse” and bogus colleges; Tier 5 is only for transitory and short term work.

In the Commons debate following her statement, the Home Secretary was congratulated by a score of Conservative MPs who trust the new measures will facilitate the immigration of the most needed and highly skilled while safeguarding the overlooked resident worker. A measure of the Government’s confidence in its new policy is that, as the perceived party of business, it has not been deflected by significant argument against limits from the business community.

Time will test this, but the exemption of Tier 2 intra company transfer is of particular value to City employers while those concerned about a “brain drain” may find reassurance in the creation of a new category for top talent within Tier 1. Gone, however is the era in which business could disregard the resident labour market before reaching for the immigration button; and with it, the consensus that immigration is a “silver bullet” to guarantee competitiveness and economic growth'.

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