Legal Briefing

Home Office Announce Changes to Tier 2 Immigration Route following MAC Review

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Immigration | 05 May 2016

The Migration Advisory Committee (MAC) is an independent body commissioned to advise the Government on migration issues. On 19 January 2016, the MAC published its greatly anticipated review of the current Tier 2 category under the Points Based System. Specifically, the MAC was tasked to advise the Government on proposed changes designed to address the increasing number of migrants in this category and to prevent industry reliance on such migrants to fill skills shortages.

At present, Tier 2 is the core category for non-EEA national workers to migrate to the UK. The scope of the MAC report assesses the two routes under Tier 2 that have seen the highest influx: the Intra-Company Transfer and General sub-categories. The report looks at both categories through an economic lens to assess whether refinements can be made to minimise displacement of settled workers and maximise ‘productivity, innovation, trade and competitiveness’ in the UK. The key proposals under consideration were the Tier 2 category being restricted to roles on an expanded Shortage Occupation List, the introduction of a limit on unrestricted Tier 2 General Certificates of Sponsorship, a new ‘skills levy’ for all Tier 2 migrants, restriction of third-party contracts under the intra-company transfer category and the automatic right to work for Tier 2 dependants.

Ultimately, the MAC sought to find a balance between restricting the Tier 2 category to reduce migrant numbers and enabling the UK to attract the ‘brightest and best workers’. On 24 March 2016, the Government announced that they intend to accept the majority of the proposals outlined in the report.

Shortage occupations

The MAC first considered whether the Tier 2 route should be restricted to highly specialist experts and the fulfilment of genuine skills shortages only. The drive behind this proposal was to attract workers that will add the most value to the UK.  Raising the threshold to ‘highly specialist experts’ could, however, see this category fall closely beside the Tier 1 (Exceptional Talent) route which, albeit industry confined, already looks to attract exceptional individuals. Having two categories created for paramount talent could be considered an elitist approach, with too narrow a scope to be effective.

In order to generate growth, the UK needs the ‘brightest and best’ at all levels within all sectors. Further, there would be considerable ground work and maintenance to begin and sustain such changes. A definition of ‘highly specialist experts’ would need to be agreed across all sectors, together with a list of genuine shortage of skills, which will inevitably fluctuate.

The MAC concluded that the existing Tier 2 (General) system, which allows businesses to decide what role is in shortage and who will best fit their operation, is preferred. The Government agreed with this position. Separately, a review of the Shortage Occupation List (SOL) confirmed that nurses will remain on the SOL, but will require the employer to now satisfy the Resident Labour Market Test (RLMT) before sponsoring them under Tier 2. At first instance, it seems inconsistent to require employers to satisfy the RLMT for a role deemed to be in shortage, but the Prime Minister is keen to ensure no suitable settled worker is displaced before sponsorship occurs, which falls in line with the new requirement.

The MAC then considered the pros and cons of replacing the RLMT with a larger SOL. This motion would shift eligibility from a subjective assessment, which allows businesses to be selective, to an objective test based solely on whether there is a genuine shortage of these skills in the UK. The advantage would be to minimise potential abuse during the recruitment process, seen as stemming from the RLMT. Nonetheless, introducing this approach would require a more regimented and frequent review of the SOL, which is currently reviewed only on an ad-hoc basis. This proposal could have been deemed inflexible, creating a category constricted to solely filling shortages which would possibly have the unintended consequence of stunting business development in the UK and subsequent fiscal growth. Each industry sector has different needs in order to grow and compete with surrounding markets. Filling skills shortages alone may not be sufficient to meet the variety of competition. Indeed, the MAC did not recommend restricting eligibility for Tier 2 sponsorship to just  an expanded SOL.

Overall, the MAC concluded that the existing scope of the Tier 2 (General) category should remain but increased attention should be given to enhancing the monitoring process of the category. The Government has chosen to review the salary threshold under the Tier 2 category, in line with their aim to prevent overseas recruitment undercutting the settled workforce. The salary threshold will be increased incrementally to £30k per annum for experienced workers, to be phased in by initially raising the new minimum salary to £25k in autumn 2016 and then to £30k in April 2017. Exemptions to the new minimum salary threshold will apply to the following public sector roles:

  • Nurses
  • Medical radiographers
  • Paramedics
  • Secondary school teachers in mathematics, physics, chemistry, computer science and Mandarin

In an attempt to attract the ‘brightest and best’, the Government will be applying extra weight to an allocation under the Tier 2 limit where the role is associated with the relocation of a high-value business to the UK or shows potential for inward investment. They will also waive the RLMT in such scenarios.

Limits on in-country switches

Statistics show that the number of in-country Certificates of Sponsorship (CoSs) used far exceeds those assigned for the purpose of out-of-country applications. As such, the majority of CoSs used to facilitate visas under the Tier 2 General category are unrestricted, which means they do not fall under the annual limit of 20,700 per year, which exists for restricted CoSs.

For a restricted CoS (RCoS), a business keen to sponsor a non-EEA national to work in the UK would first need to satisfy the RLMT and request a CoS from the monthly UKVI panel. The panel subsequently grants the certificates in light of the annual cap. In comparison, there is no limit on the issuance of unrestricted CoSs. The MAC questioned whether a limit should be introduced to in-country switches which are currently unrestricted.

In-country unrestricted CoSs are issued to Tier 2 (Change of Employment) migrants, Tier 2 (Extension) and Tier 4 (General) students switching into the Tier 2 (General) category. The highest percentage of unrestricted CoSs issued in-country is for Tier 2 (Extension) applications. This is followed by Tier 2 (Change of Employment) migrants, who are changing sponsored employers in the UK or have taken on a change of role that falls outside the scope of their current sponsorship. As these individuals are already accounted for under the restricted limit (they would have initially made their application from overseas) it seems unnecessary to cap the use of these unrestricted CoSs.

The MAC also questioned why a cap and subsequent RLMT is not applied to Tier 4 (General) students switching into Tier 2, which has become the primary route for students to enter the labour market since the withdrawal in April 2012 of the Tier 1 (Post-study work) category. This previously bridged the gap between new graduates and experienced workers. Under the Tier 1 (PSW) category, Tier 4 graduates were able to obtain permission to remain in the UK for an additional two years to enable them to find a job in the UK. This was a big attraction to international students; the ability to study at a UK institution with a clear avenue to enter the labour market post-graduation. In comparison to other jurisdictions, such as Australia, Canada and the US who provide a route to employment post-graduation, this route closure has affected the UK’s ability to attract international students and ultimately filter them into the workforce.

UKVI may counter this view with the fact that Tier 4 students can switch their immigration status relatively easily to Tier 2 General, with no prior RLMT for a prospective employer to complete.  A ‘New Entrant’ minimum salary level for Standard Occupational Classification Codes (SOC Codes) also sets a lower pay threshold for new graduate employees for up to three years. These post-study provisions made available to graduates switching their immigration category in turn created a viable avenue to the labour market.

Given the relative ease with which Tier 4 graduates can currently switch into the Tier 2 category, the MAC proposed that a cap and the RLMT is introduced in order to limit the numbers of unrestricted CoSs issued in this way. This would result in the UK’s ability to attract international students to diminish further. Surely the British economy cannot afford the effects of this further hurdle to the international student market.

In any case, it is illogical to introduce the RLMT in these circumstances. The purpose of the RLMT is to help prevent any temporary displacement to the UK workforce and to allow settled workers to apply for the role in question. It also promotes UKVI’s intention to ensure the vacancy is genuine. The MAC report claimed there is evidence to suggest that the roles being filled by Tier 4 switchers are often dissimilar to that stated on the unrestricted CoS, and are in fact lower skilled than that required by the Tier 2 category. Introducing the RLMT for Tier 4 switchers would aim to eliminate the potential for abuse and gain control on volume.

The MAC believed there should be a consistent approach for entering the Tier 2 category, and, whilst it did not propose a specific number, it did recommend that UKVI implement an annual limit applicable to all Tier 2 (General) restricted and unrestricted CoSs, encompassing both out-of-country and in-country applications.

The Government dismissed the MACs proposals on this topic.  Switching students from inside the UK will continue to be exempt from the RLMT and will remain outside of the annual allocation of 20,700. Contrary to the MAC recommendations, they are also keen to support businesses sponsoring overseas graduates by weighting them more favourably within the annual limit and streamlining graduates’ ability to switch into permanent roles within the Company following the completion of their training course.

Immigration Skills Charge (ISC)

The Government has accepted MAC’s proposal to impose a skills levy of £1,000 per year for sponsored migrants  from April 2017 to further dissuade employers from relying on cheap overseas labour and to increase revenue from those who seek to hire skilled Tier 2 migrants. There will be a concession of £364 per year for small companies and charities. Exemptions apply to PhD occupations, Tier 2 (Intra Company Transfer) Graduate Trainees and Tier 4 (students) switching to Tier 2 (General).

Given the substantial increase in the cost of hiring overseas nationals, many employers in the UK may decide to leave the position unfilled, instead recruit from the EU or risk having to use settled workers who are not as skilled. Further, employers may implement more draconian claw-back clauses in employment contracts, or increase the salary package for migrant workers at the expense of settled workers. A potentially disastrous consequence is that if employers are unable to fill key posts for their businesses, the UK’s economy may be put at a competitive disadvantage.

Should the ISC succeed in decreasing in the number of applicants using the Tier 2 route, the Government will not be able to maximise the intended financial benefit as there will consequently be a decrease in the amount collected from both the ISC and Immigration Health Surcharge (IHS). This would surely defeat the funds generation justification for the ISC.

As many employers are already under significant financial pressure to compete globally, an imposition of ISC will further build the UK’s reputation as a business-unfriendly country for overseas nationals. Whilst the goal of training skilled workers in the UK is a laudable target, the means chosen is not reasonably tailored to achieve the desired effect. From an immigration perspective, the imposition of ISC will only increase the costs for employers at the expense of settled workers, with no tangible long-term benefit elsewhere.

Third-party contracts

It is well known that the vast majority of Tier 2 (Intra-company Transfer) CoSs are issued to Indian national IT workers who are transferred to the UK to work on third-party contracts. According to the MAC, the IT sector uses 93% of the Tier 2 ICT route for this purpose, with 96% of these CoSs assigned to Indian nationals.

The MAC expressed concern that the use of migrant workers on third-party contracts may undercut salaries of domestic workers who are equally capable of performing the same tasks.

To address the concerns of undercutting, the MAC recommended the following changes:

  • Creation of a new sub-category within the Tier 2 ICT route specifically for migrants working on third-party contracts; and
  • Increase the minimum salary for short–term or long-term ICT migrants working on third-party contracts to £41,500 per year; and
  • Increase the minimum employment period required for ICT migrants on third-party contracts from 12 to 24 months; and
  • Remove the exemption from IHS currently given to Tier 2 ICT migrants.

The Government has now accepted two of the four proposals listed above.

  • There will be no separate Tier 2 ICT category for third-party contracts.
  • A minimum annual salary of £41,500 will apply from autumn 2016 under a single Tier 2 ICT visa category.
  • The experience requirement will remain at 12 months but will be removed if the migrant is paid over £73,900 per year.
  • Tier 2 ICT migrants must pay the IHS from April 2017.

In effect, highly paid Tier 2 ICT migrants will continue to be allowed into the UK with no annual limits on the number of CoSs which can be assigned. Furthermore, the proposed changes will make it easier for global organisations to move their highly paid employees on Tier 2 ICT visas immediately upon hire.

Other proposals which the MAC acknowledged require further in-depth review, in relation to the skills shortage within the IT sector, are as follows:

  • A higher Immigration skills surcharge (ISC) of £2,000 per year for each sponsored migrant or based on the percentage of migrant workers used in the business.
  • The Home Office and HMRC to undertake an analysis of the current tax and allowances schemes for international assignees which, it may be deemed, give an unfair advantage to migrant workers over resident employees.
  • Introduce the RLMT for ICT migrants within the proposed third-party contracting sub-category.
  • Set a numerical limit on the number of migrant workers using the Tier 2 ICT route for third-party contracting.

Most of the suggestions listed above will require a detailed analysis by the Home Office of the obligations under the General Agreement on Trade in Services (GATS) to assess whether there is any violation of the UK’s obligations under this Agreement.

Whilst the MAC appeared to recommend the continued use of the Tier 2 ICT route for third-party contracts, its conclusions suggest that additional evidence will be necessary if the Government wishes to further restrict this route. Consequently, employers face an even greater financial burden as a result of their reliance on migrant workers for third-party contracts.

If the desired outcome is achieved, and employers’ use of the Tier 2 ICT route decreases, this could be deemed a political success for the Government. However, it is difficult to see how it could translate into a financial success as the unintended consequence of reducing net migration under Tier 2 would also reduce the additional financial contributions (ISC and IHS).

Dependants’ rights

Widespread concern was raised when the MAC was requested to review the automatic work rights of Tier 2 dependants, The only limitations on working permission for dependants of Tier 2 sponsored migrants are that they are not permitted to work as a doctor or dentist in training (with exceptions) and or as a professional sportsperson (including a sports coach). Understandably, this review caused anxiety amongst Tier 2 migrants, their families and immigration practitioners.

The MAC considered whether restricting the working rights of Tier 2 dependants would produce any economic or social improvements for UK residents and whether such restrictions would affect the volume of migration generated by the Tier 2 category.

The MAC also considered a variety of possible restrictions to dependants’ access to the labour market, such as an introduction of a minimum required skill level for permitted employment, work being limited to roles on the SOL, introducing the RLMT, or only allowing working rights for short-term intra-company transfer dependants on the proviso that they are capped to a maximum 12-month period in the UK.

Statistics collected from the Labour Force Survey (LFS) show that the 84% of Tier 2 dependants are women, with the majority undertaking highly skilled roles. As such, they contribute to the UK economy, which in turn increases economic productivity. During employment, they pay tax and national insurance contributions whilst at the same time being prohibited from recourse to public funds. From a social impact perspective, the ability to work facilitates social cohesion and integration. We should not underestimate the significance of this aspect for migrants. Any prevention of segregation or isolation should be considered a positive attribute from the status quo. This is particularly pertinent for routes that lead to settlement in the UK, such as Tier 2 General, where the next step is usually citizenship.

Ultimately, the MAC believes it is important that Tier 2 dependants retain their automatic ability to work in the UK, and concludes that there would be a significant knock-on effect to the Tier 2 category if such enforced restrictions were applied to dependant work rights in the UK. However it did not conclude that it would necessarily reduce migration numbers. They were concerned that such restrictions would make the UK a less attractive option for working migrants in comparison with other jurisdictions. In turn, this may impair the selection pool to find the ‘best and brightest’ if these highly skilled (and, frequently, highly paid) individuals are discouraged to consider a UK role at first instance. The Government were in agreement with the MACs position on this. No restrictions will be placed on dependants of Tier 2 migrants.

Summary

It is widely known amongst practitioners that introducing more barriers to the Tier 2 route will not strengthen the UK’s competitiveness in the global economy but will instead reduce the diversity of skill sets available to UK companies often required to perform complicated services at a very short notice.

The Government needs to maintain a delicate balance between appeasing the political conservatives wishing to see more restrictions on Tier 2 migration and the vital business interest of keeping the UK open to overseas nationals filling highly skilled and highly paid jobs.

Whether the UK chooses to remain in the EU or not, the overall economic conditions in the rest of Europe must improve before a more sensible approach to managing immigration will develop.