Higher salary thresholds and business levy recommended for hiring migrant workers

16 March 2016

The Migration Advisory Committee (MAC) has recommended that within the Tier 2 visa route the Government uses higher salary thresholds to prioritise higher value, skilled migrants and to introduce an Immigration Skills Charge which would make employers pay £1,000 upfront per year for each migrant employed.

The MAC was commissioned by the Government to advise on a number of potential changes to Tier 2 to address concerns about the rising number of migrants in that route and reliance on them to fill shortages in the labour market.

In its report, ‘Review of Tier 2: Balancing migrant selectivity, investment in skills and impacts on UK productivity and competitiveness’, the Committee found that using price would be the most effective way to prioritise and target the specialist and scarce skills that non-EU migrants bring to the UK as well as to address the potential disincentives to up-skill the domestic labour market.

In order to restrict volumes of Tier 2 migrants, the MAC proposes raising the overall minimum salary threshold from the current £20,800 to £30,000. This level of pay is a better representation of the higher qualifications now required to be eligible for this route. The Committee recognises that some migrant workers, mostly in the public sector, are paid under the threshold and suggests a phased increase in the salary thresholds. A lower threshold, set at £23,000, should be offered to graduates.

The MAC’s analysis showed Tier 2 migrants are generally paid more than their UK counterparts, supporting the view that migrants in this route bring scarce skills that are of high value to the UK. However, the analysis found that within some occupations - primarily in the public sector – migrants are often paid significantly less than similar UK workers, sometimes due to financial pressures.

As part of its recommendation to make the Tier 2 route more selective, the MAC strongly supports the introduction of an Immigration Skills Charge (ISC). This will incentivise employers to reduce their reliance on migrant workers and encourage them to invest in training UK employees. This charge should be in addition to raising salary thresholds.

While the level of the ISC is a matter for the Treasury, the MAC suggests that an upfront charge of £1,000 per year for each Tier 2 migrant employed by companies in the UK. This could provide £250m for skills funding annually and have a significant impact on employer behaviour, according to the MAC.

The MAC has also recommended an overhaul of Tier 2 (Intra-company Transfer) route to reflect a divergence in the use of the route. The conventional use of the route, where a small number of highly specialised staff are brought into the UK to impart their skills or gain experience, was found to be of significant benefit to the UK. However, the route is also being used to bring in migrants to service third-party contracts, predominantly within the IT sector, where the benefits are less clear cut. Third-party contracting cuts companies’ IT costs but does not sufficiently contribute to the stock of IT skills within the UK.

Therefore, the MAC has recommended that third-party contracting should become a separate route under Tier 2. In order to ensure the route is used by highly specialised migrants, the salary threshold should also increase to £41,500, an effective proxy for senior managers and specialists.

Read the full report: Review of Tier 2: Balancing migrant selectivity, investment in skills and impacts on UK productivity and competitiveness.