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The Immigration Skills Charge Will Hit the Economy

    Theresa May intends to double the Immigration Skills Charge (ISC) levied on large and medium companies hiring non-EEA skilled migrants under the Tier 2 visa. The £1000 charge was introduced in April 2017 and the initiative, along with the minimum salary threshold increase, are part of an attempt to cut net migration to “tens of thousands” and to redirect firms to hire more domestic workers. The revenues generated by the extra charges would be used to train the British labour force in order to have access to skilled jobs. “Skilled immigration should not be a way for government or business to avoid their obligations to improve the skills of the British workforce” states the Conservative Manifesto.

    The policy was, on the whole, negatively received by employers and business. Although the UK’s unemployment rate hit 4. 6% and the employment rate is at its highest level since 1971,the increase seems ill advised  for sectors such as healthcare, ITC, construction and engineering which are experiencing shortages. The number of vacancies have increased by 1.7% this past year – with more than 767 000 vacancies available. The combination of an ageing population, increasing dependency ratio and low productivity demonstrates the necessity to hire overseas, especially since a majority of newly arriving labor migrants are aged 25-44. Evidence from the Office for National Statistics  suggests, that the number of skilled workers under Tier 2 Visas rose by 2% to 94 000 (including dependents).

    The ISC increase will hit the productivity of companies in the short term which is crucial for the competitiveness of post-Brexit economy. Britain’s productivity is already low, compared to other countries. As underlined by Smith Stone Walters “the decision to look further afield for their desired personnel is born out of necessity, not preference” due to shortages and lack of skills within the domestic workforce. Although the Conservatives pledged to reform technical education, promote University Technical Colleges and introduce more than 3 million apprenticeships by 2020, these are not quick fixes and in the short term Britain needs EU and non-EU migrants to fill in the skills gap.

    Due to the difficulty of adjusting to new recruitment requirements, the apprenticeship levy and the risk of non-compliance, the ISC hits  both large firms through higher costs and  consumers through higher prices, if the firm holds a strong market position. It might also hit the workers through lower wages. While investing in skills is the right way to increase productivity, this policy may in fact do more harm than good.

    Distribution of workers in each sector by nationality group, Uk 2016

    Source: ONS report


    Distribution of workers in each nationality group by industry sector, Uk 2016

    Source: ONS report

    More generally, decreasing net immigration to the ‘tens of thousands’ would, argues the IFS, hit both the economy and public finances as lower immigration could negatively affect revenues by £6 billion.

    On the positive side, the ISC policy does have exemptions. For example, the charge does not apply to PhD level jobs or students who switch from student visas to working visas. However, the NHS is affected by the ISC as they rely on non-EEA nurses and doctors. Calculations of BMA and RCN based on the initial £1000 charge show that approximately £3,5 million would be taken out of the NHS budget if these charges were applied to 3602 doctors under Tier 2 visas from 2014-2015. Another serious concern is whether the ISC will apply to EU post-Brexit. Evidence suggest that sectors such as manufacturing, transport and communication, financial and business services heavily rely on EU migrants.

    While the government must look for alternative ways to train the British labor force, the policy of increasing the ISC is the wrong way to go about this.

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    Anonymous - About 989 days ago

    Very well written blog about how globalisation affects britian on a national scale, i especially like the cosmopolitanism-like undertones to your arguments. Well done!

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