The Government Should Retain The £30,000 Pay Threshold For Foreign Workers

Employment, European Union, Migration Advisory Committee, Policy, Visas/Work Permits

The government have asked the Migration Advisory Committee to carry an in-depth analysis of potential future salary thresholds and the range at which they could be set.

It would not be in the interests of the UK economy, its workers, or the general population for the primary Tier 2 salary threshold to be set below £30,000 per year (some have suggested it could be set as low as £21,000).

The following points outline why:

  • A pay threshold set at this level and applied to workers from the EEA as well as non-EEA countries should curb fiscal costs arising from immigration to low-paid jobs. As the MAC noted in September 2018, £30,000 is the average level of household income at which taxes exceed benefits for EEA migrants. All other things being equal, a threshold may be set at a level that is likely to ensure a net fiscal contribution. The government have in fact noted that they ‘agree with the MAC’s view that the salary thresholds [are] making a positive contribution to public finances’.
  • Retaining this threshold would help to place upward pressure on wages (as the Migration Advisory Committee – MAC – has made clear). The MAC argued, when recommending the £30,000 level in January 2016: ‘This is part of the point of increasing the thresholds – that there should be upward pressure on wages for the UK workforce’ (p.74). The MAC said in its September 2018 report (p.5) that a salary threshold set at this level would ‘place greater upward pressure on earnings’ in medium-skilled jobs. 
  • This threshold should also help to constrain undercutting of jobs whose wage level is below the threshold. The MAC found that migrant nurses were paid less than the average salary for UK nurses of a similar age: “Migrants should be paid at least the comparable rate to UK workers in order to ensure that they are not used by employers as a cheaper source of labour.”
  • The answer to tackling skills shortages is not to make it easier to recruit from abroad but for employers to make jobs more attractive, including by raising wages and improving terms and conditions. In the MAC’s words: “Individual employers would almost always be able to recruit resident workers if they paid wages sufficiently above the going rate. This applies even if there are skills shortages at the national level – an individual employer should always be able to fill the job if a sufficiently high wage is offered.” (Par. 25, page 10).‘EEA-workers in the UK labour market: Interim Update’.
  • Other European states have higher pay thresholds for skilled workers – indeed, £30,000 is relatively low compared with similar schemes in EU member states. The threshold for Ireland’s Critical Skills Permit is £53,000; the Dutch Kennismigrant permit includes a £48,000 threshold (for workers over 30) and £35,000 threshold (for workers under 30). 
  • Given that nearly five million workers are low-paid (Resolution Foundation), the CBI should encourage employers to raise wages rather than lobbying for easy access to cheap labour. Despite this, the CBI has cited ‘wage inflation’ as one of the reasons for its opposition to restrictions on lower-skilled migration (p.11, CBI written evidence to MAC). .According to MAC chairman Professor Alan Manning, employers should ‘be paying above the going rate for wages‘. (Transcript, Q9).
  • Indeed, employers have already had three years since the Brexit vote to prepare for the end of free movement. A number of businesses setting a laudable example by moving in this direction (according to a 2018 YouGov survey), with 18% training or upskilling staff, 15% actively looking to recruit from untapped parts of the labour force and 12% increasing salaries or benefits. The CBI should follow suit.
  • There are anyway a range of exemptions within the current Tier 2 (General) route to ensure that sectors can fill recruitment needs where those with needed skills earn less than £30,000. “If you look at certificates of sponsorship used in the last fiscal year, including extensions, just under 20% of people had salaries of less than £30,000, and the number would be higher if you looked only at the initial certificates of sponsorship” (evidence to Parliament by the Migration Observatory). The White Paper indicates that the government wishes to retain exemptions such as these in the post-Brexit system. Such exemptions, if they are indeed retained, should allow employers to fill vacancies while the UK retains a salary threshold that puts upward pressure on wages and ensures that immigration makes a fiscal contribution. 
  • The salary threshold for labour market entrants is lower than £30,000 anyway (at just under £21,000 per year). The government have rightly indicated they would like to continue with this.

The CBI appears to give support to the case for a regional variation in salary thresholds. However, it would be a major mistake for the government to agree to such a change for the following reasons:

  • There is insufficient economic evidence for regional variation of salary thresholds. The MAC has noted that ‘any such variation would be a higher threshold for London and the South East rather than lower thresholds for other countries and regions’ (MAC report on EEA migration, 2018).
  • Regional variation could lead to low pay to being institutionalised in some parts of the country (according to MAC chairman Prof. Manning – Transcript, Q20). This cannot be a good thing.
  • Introducing regional variation to salaries risks introducing needless extra complexity and distortions at a time when businesses (and government) are facing huge challenges attempting to prepare for the post-Brexit environment. Only 5% of businesses favour a regional immigration system (CIPD).
  • Examples of regional migration systems (e.g. New Zealand, Australia) suggest that there may be significant enforcement challenges with regards to a regional salary variation. The Home Office is already beset by enforcement failings (with one former officials suggesting the system is in ‘paralysis’). Introducing more complexity would only worsen the situation.

NB The government is set to consult on its immigration plans over the next year and has published a list of 130 organisations making up it formal consultative groups. These are overwhelmingly dominated by bodies in the business and education sector who have a track record of continually pressing for more immigration.

10th July 2019

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