Building a post-Brexit Immigration System for the Economic Recovery

The UK is set to introduce a new system for work-based immigration in January 2021. For the first time in decades, the government will apply the same rules on migration to both EU and non-EU citizens. These changes to immigration policy come at a time of extraordinary economic upheaval, as the UK government continues to wrestle with the impacts of the coronavirus pandemic and prepares for the UK’s departure from the EU single market.

This report from IPPR, funded by Trust For London, assesses the potential implications of the government’s new points-based immigration system and sets out proposals for how the system can support the UK’s economic recovery. It explores how immigration policy can be designed to facilitate the UK government’s ambitions to ‘build back better’ from the coronavirus crisis. Its recommendations focus on how the UK’s immigration system can help create high quality, well paid jobs and enhance working conditions for UK and migrant workers alike.

Key findings

The report finds that there are both risks and opportunities for the new immigration system. While it is hard to predict with certainty the impact of the rules – and in the short term it is likely that coronavirus and ongoing travel restrictions will make it hard to discern the consequences for overall migration flows – there is evidence to suggest that particular sectors will struggle to recruit overseas workers under the new system.

Analysis suggests that some sectors are already highly reliant on EU workers. In food manufacturing, EU migrants make up around one in four workers, while in accommodation and warehousing and support for transport they make up around one in five. In London, EU-born workers constitute around 30 per cent of the building construction workforce.

The new system is likely to make future recruitment from the EU much harder. The main route under the new system – the ‘skilled worker’ visa – will typically require migrants to be sponsored by an employer for a job deemed at least medium-skilled and with a minimum salary of £25,600. Our estimates suggest that more than 80 per cent of EU migrants working as employees in the wholesale and retail, transport and storage, and hotels and restaurants sectors would be ineligible for a skilled worker visa under the new rules. Even where migrants are eligible, fees will run into thousands of pounds for both employers and workers. Evidence from the current ‘tier 2’ system of work visas – which bears strong similarities to the new proposed system – suggests that the vast majority of visas sponsored are concentrated in information and communication, financial and business services, and health and social work. Other sectors are likely to find it far harder to recruit from abroad.

Analysis also suggests that the impact of the new points-based system will vary by sector. Some sectors such as technology and finance will be relatively protected. Other sectors such as hospitality will have few vacancies available in the short- term due to the effects of the pandemic, so the implications are likely to be limited. However, in some sectors where the economic prospects are more positive – such as manufacturing, logistics, and construction – employers may struggle. In construction, for instance, employers will not be able to sponsor workers for jobs such as road construction operatives, cable layers, and dryliners. While the government’s priority will be to support unemployed UK workers into these jobs, it is likely to take some time to retrain and up-skill workers for them to fill such vacancies. The new restrictions could therefore inhibit recruitment in key sectors, including construction, food processing, and social care.

Some have argued that restrictions on migration could benefit UK workers. In the long run, this is unlikely. This is because there are not a fixed number of jobs in the economy. Migration does not only increase the supply of workers; it can also increase demand for workers – for instance, by increasing consumer demand for goods and services, or by encouraging businesses to expand production in sectors employing many migrants. Indeed, empirical research has found that in the long run migration has no significant impact on overall wages or unemployment.

Analysis also finds that there is a risk that the new immigration system could lead to an increase in poor working practices and exploitation. Unscrupulous employers who were previously reliant on EU workers could turn to informal work arrangements to fill vacancies, placing migrants in more vulnerable situations. There is already evidence of migrants being subject to substandard working conditions: a study from Focus on Labour Exploitation (FLEX) of migrant construction workers in London found that around half had no written contract and around one-third had experienced physical or verbal abuse at work. Our interviews with migrant workers found a range of instances of pre-existing poor practices, including unfair deductions, inadequate health and safety measures, and firing and hiring on weaker terms and conditions.

However, there are also opportunities in rolling out the new system. Introducing the new policy provides a chance for the government to design it in such a way to tackle some of the UK’s deep economic challenges. In particular, one of the assets of points-based systems is that they are flexible; different points can be assigned to different criteria, and there are different ways for applicants to score the minimum points requirement. This means that the government can finesse the scoring system to help it address its preferred objectives.

Key recommendations

The report puts forward six main recommendations to the Home Office to both address the risks of ending freedom of movement and maximise the opportunities of introducing a new points-based system. These proposals aim to help spur the economic recovery by supporting key sectors to grow, while protecting against a race to the bottom on workers’ rights.

Recommendation 1: Expand the shortage occupation list to allow for the inclusion of occupations at all skill levels

The government’s current proposals make it easier for migrants to get a skilled worker visa if they apply for a job on the shortage occupation list. However, these jobs must be at least medium-skilled and in shortage to qualify. We propose expanding the list to allow for jobs of all skill levels and exempting applicants from the skills requirement when they have a job on the list. We also suggest rebranding the list as a ‘priority occupation list’ and including jobs that are critical for the government’s social or economic policy. This would allow migrants to be sponsored for certain jobs that do not qualify as medium-skilled where there is a clear economic or social benefit. Our proposals would help make the immigration system more responsive to economic challenges and more in line with overall government strategy.

Recommendation 2: Scrap the general salary threshold

The current salary threshold of £25,600 (and lower in certain circumstances) is too inflexible and does not reflect the full contribution of migrant workers. We propose removing the general salary threshold but retaining the occupation specific threshold, which is typically set at the 25th percentile of the salary distribution for each occupation. The occupation-specific threshold should be retained to prevent undercutting and unfair treatment of migrant workers.

Recommendation 3: Require employers to pay the real living wage to all their employees to gain a sponsorship licence

Employers are currently expected to comply with sponsor duties in order to have a licence to sponsor migrant workers. We propose extending these duties to include paying the real living wage to all their employees (both migrant and UK workers). This would help to encourage employers to improve the pay of those on low wages.

Recommendation 4: Grant additional points for applications to more responsible employers under the points-based system

Under a points-based system, it is possible to award points based on the type of employer sponsoring the applicant for a skilled worker visa. We propose awarding additional points for applicants who are sponsored by a ‘good work’ employer. An employer who meets the good work standard would be one that fulfils a number of conditions relating to responsible employment practices, such as ensuring minimum guaranteed hours, recognising a trade union, offering above the statutory paid leave and benefits, and investing in skills and training. This recommendation would use the points-based system as a means of incentivising more responsible working practices among employers.

Recommendation 5: Require sponsors to inform migrant workers of their employment rights

Migrants can be at greater risk of exploitation because they are less aware of their employment rights. We propose requiring employers to inform workers of their employment rights as part of their sponsor duties. Information should be translated into multiple languages and include a list of statutory rights and details on how to join a trade union. Given the risks of exploitation going unnoticed due to complex sub-contracting arrangements, we also recommend requiring employer sponsors to commit to taking additional steps to monitor, identify and manage the risk of labour exploitation along their supply chain. This would help to tackle exploitation and encourage better employment standards through the design of the immigration system.

Recommendation 6: Expand the funding and focus of labour inspectorates

The UK’s current system of labour enforcement is fragmented and poorly funded. We support the government’s plans to create a single enforcement body to enhance labour rights. We also recommend expanding the resourcing of labour inspectorates to meet International Labour Organisation (ILO) minimum standards and extending licensing schemes to include at-risk sectors such as construction, hospitality, cleaning, and social care. Finally, we recommend closer working between the Home Office and the Director of Labour Market Enforcement, in order to ensure more effective cooperation between efforts to reform immigration policy and initiatives to tackle labour exploitation.