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Skilled migrants and a tight cap

14 May 2015

The return of the Conservative Party to government has a number of interesting ramifications for migration, including a referendum on the UK’s continued membership of the EU and the continuation of a target – or ambition, at least – of net migration reduced to the 'tens of thousands'.

But the most immediate issue could relate to one of the very first immigration measures that the Conservative party introduced in December 2010 – a limit on skilled labour immigration from outside the EU (Tier 2) – which looks likely to start preventing some employers from recruiting skilled migrant workers this year.

In April 2011, an annual cap of 20,700 Tier 2 visas was introduced. The cap created an upper limit on the number of workers that employers could sponsor to come from overseas.

The impact that the cap was likely to have – primarily on businesses and the UK economic recovery – was the subject of much speculation from business and opposition parties at the time it was introduced. However the level at which it was set, the fact that workers coming on intra-company transfers were exempt from the cap, and continued economic weakness meant that the number of employers applying for Certificates of Sponsorship (CoS) to bring workers to the UK initially remained well below the limit. Between April 2011 and March 2013, monthly applications were often less than half of the available certificates. As a result, the cap did not prevent a single person from entering the UK over the course of the last parliament, despite being widely seen as a tough measure to reduce immigration.

That has now changed.

Figure 1 (Panels A and B)

Source: Home Office from Freedom of Information request by the Migration Observatory. Note: excludes Tier 2 (intracompany transfer) and other Tier 2 categories not subject to the cap.

A cursory look at Figure 1 suggests that the number of certificates granted was almost exactly at the level of the annual 20,700 cap in the year from March 2014-April 2015.

For various technical reasons there is a small discrepancy between published data suggesting that CoS grants over the whole year fell short of the cap by 171, and the FOI response data suggesting the cap was exceeded by 52. According to the Home Office, the former is more accurate since it accounts for more of the CoS that were granted but not used and thus could be reissued. (In other words, one should not read too much into this variation.)

What Figure 1 does make clear is that the number of applications for Certificates of Sponsorship (CoS) for skilled migrants from outside the EU has been rising as the UK’s economic recovery has taken hold. If recent trends continue, over the course of the next year the number of applications for skilled migrants who are subject to the cap will exceed 20,700, perhaps substantially.

The Conservative manifesto for the 2015 election made a commitment to “maintain [the] cap at 20,700 during the next parliament”. This means that if applications continue to rise, some skilled migrants who would previously have been eligible for Tier 2 visas will no longer be able to come to the UK to work. (Unless, of course, the government were to engineer another approach, such as moving enough migrants who are currently subject to the cap into categories where they are not. This could involve, for example, reducing the income threshold after which the cap does not apply, which currently stands at £155,300 per year, or exempting further categories of worker).

Assuming that current rules remain in place, the Home Office will select those who can and those who cannot receive a CoS based on the current points system outlined in Table 1:

Table 1 – CoS allocation points table

Shortage occupation list75£20,800 to £20,9992
PhD level posting and RLMT50£21,000 to £21,9993
Resident Labour Market Test (RLMT)30£22,000 to £22,9994
£23,000 to £23,9995
£24,000 to £24,9996
£25,000 to £25,9997
£26,000 to £26,9998
£27,000 to £27,9999
£28,000 to £31,99910
£32,000 to £45,99915
£46,000 to £74,99920
£75,000 to £99,99925
£100,000 to £149,99930
Note: A minimum of 32 points are required. Each application must score points from both of the above columns, but will only receive points for one entry in each column.

What does this mean in practice? The 20,700 Certificates of Sponsorship are issued on a month-by-month basis, with any unused certificates being rolled over to the following month. 2,550 were made available in April 2015 and a further 1,650 in every subsequent month until March.

If the number of applications does not exceed the cap, the minimum requirement for a CoS to be issued is 32 points. That means that employers can sponsor skilled workers if they have advertised the position in the UK (30 points) – a process known as the ‘resident labour market test’ – and are offering a salary of at least £20,800 (2 points).

But when the number of applications exceeds the cap, the number of points required will automatically increase. This process is designed to prioritize applications that are perceived to be more economically beneficial – rather than allocating by lottery or letting backlogs build up.

Who will lose out first? Because of the large number of points awarded for jobs that are on the government’s lists of shortage occupations or PhD positions, these jobs will be protected from any visa squeeze for the time being. So far the shortage list has been a rather marginal part of the Tier 2 system, in part because employers whose occupations are not on the list can simply advertise the position to qualify for a visa. As the cap becomes tighter, however, whether or not an occupation makes it onto the list could become much more important.

The first jobs to become ineligible for visas when the cap is oversubscribed would therefore be ones that are not on the shortage or PhD lists. Among those jobs, the first to be affected will be those that pay the lowest salaries, since lower salaries receive fewer points. For example, if the number of points required rose from 32 to 34, employers would need to offer at least £22,000 to successfully sponsor a non-EU worker.

This will affect some people more than others. Young people in entry-level positions, for example, may find it more difficult to qualify. (Note that international students who are already in the UK on student visas will not be affected since the cap does not apply to them.)

Similarly, employers in industries that tend to pay lower wages will be affected sooner. Examples include nurses, currently one of the largest categories of Tier 2 applicants coming from overseas. In the year ending September 2014, the median salary of Tier 2 (general) applicants who were nurses was £25,000, compared to £33,000 across all occupations. By contrast, median incomes were relatively high for programmers and software developers (£35,000) and medical practitioners (£51,000), who would therefore get priority in the allocation process.

So far this allocation process based on the number of points awarded has never been used, because supply of Certificates of Sponsorship has remained above demand. The data suggest that for several of the last 6 months, applications have exceeded the average monthly number of 1,725 CoS available. In February 2015, the number of applications (2,454) significantly exceeded this amount. However, the cap did not ‘kick-in’ in these cases because enough certificates had been rolled over from previous months to cover the extra applications.

In other words, the trend of increased demand suggests that this year, the government is likely to start to deny visas to skilled non-EU migrants as a result of the cap. A policy that has been largely ignored since the fanfare of its full implementation in 2011 may start to become a lot more relevant.

Thanks to Martin Ruhs and Jurga McCluskey for comments on an earlier draft.

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