Matt Cavanagh

Why the immigration cap isn’t biting — and why that is good news

Why the immigration cap isn’t biting — and why that is good news
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The government’s official advisers on immigration, the Migration Advisory Committee, have today published a report into the restrictions on skilled migrant workers from outside the EU. Turns out that the much-vaunted ‘cap’ on skilled workers has only been half taken up — with numbers likely to be around 10,000 against the cap of 20,700 — and that this is offset by the high numbers of workers, around 30,000, coming to the UK on ‘intra-company transfers’. (These transfers are designed for multinational companies wanting the flexibility to move their employees around the world: the example used by the Committee’s chairman today was of ‘Japanese auto-engineers testing cylinder-heads made in Japan’ for cars being assembled in the UK.)  

There are three reasons why the cap isn’t being fully taken up. First, employers are getting round it, to some extent, by those intra-company transfers. Second, some employers are being put off even applying, by a combination of the cap and the more onerous application procedure. And the third reason — probably the most important in terms of overall numbers — is that many employers simply aren’t hiring at the moment anyway due to wider economic conditions.

The fact that the cap is not being fully taken up should not be a surprise (see pp.6-7 here). It does however place ministers in a bind: they like to refer to it in their private conversations with employers, to prove that their policy isn’t hurting business; but they haven’t tended to to refer to it in public, since it makes it look like their flagship policy hasn't actually been very effective. In fact, even if the cap had been brought into play, it was never very significant for the government’s net migration target, since it only covers around 3 per cent of total immigration (or 8 per cent if you include intra-company transfers).

Moreover, even before the coalition came to power, the medium-term trend in immigration for work was falling, as this graph from the ONS shows:

This graph covers immigration from inside and outside the EU. Work immigration from outside the EU, the subject of the cap and the government’s other restrictions, fell even faster, by 40 per cent between 2005 and 2009, as the previous government reacted to the increase in immigration from Eastern Europe, and made immigration from outside the EU for work (in the words of the Committee’s report) ‘significantly more selective’. In this context, the further reduction of around 4 per cent in 2011, which the Immigration Minister Damian Green was keen to draw attention to last week, is fairly small.  

Nevertheless, it is very important to get this policy right. Even if the cap and other restrictions haven’t had a major effect on numbers this year, they may become a significant drag on growth when the economy picks up again; any further reductions would certainly be unwise. The Committee’s report does note that ‘to be fully confident of [work migration from outside the EU] making a proportionate contribution’ to hitting the government’s net migration target, there would have to be further reductions either in the cap, or in intra-company transfers. But it also notes that, given the small size of the cap, and the current take-up, the necessary reduction could be ‘economically damaging’, as well as reducing tax revenues; it therefore recommends leaving the cap as it is.  

I suspect ministers will accept this recommendation — though they may be tempted to restrict intra-company transfers, as the MAC chairman hinted today (and in line with my predictions at the turn of the year). Before they do so, however, they should read the separate report published by the MAC today, by NIESR, which looks at the employment of skilled migrants from outside the EU in strategically important sectors, including aerospace, pharmaceuticals, telecoms, engineering, electronics, and computing, as well as financial services. The report finds that these migrants, most of who arrive on intra-company transfers, are making a disproportionately high contribution to skill levels in these parts of the economy. It also finds that, while they may sometimes be competing with workers already here, they are more often complements rather than substitutes: they enable companies to build teams of experts with complementary skills (including languages and knowledge of overseas markets), and they are also used to help overseas firms set up new businesses here, creating jobs and economic output.

The overall implication of all today’s reports, taken together, is clear. Ministers should stop targeting skilled migrant workers in pursuit of their net migration target simply because it is the easiest kind of immigration to control. Not only is it a relatively small and declining category, but it's also the kind of immigration which the public are not that bothered about, and one which makes a major contribution to our economy — as well as a net positive contribution to employment for those already here.