Trade, Development, and Immigration

Options for a post-Brexit immigration policy


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Economic Theory
One of the fundamental macroeconomic components of a successful economy is labour mobility. A crucial facet for the UK as it leaves the EU is future immigration policy. As of May 2018, the basis of the UK’s trade arrangements has not been settled. Whether the UK is staying in the Customs Union, a derivative of it, or whether it becomes a free country making its own deals globally, is an issue which is currently dividing the Conservative Party especially. We know even less about what our future immigration policy will be.

The UK’s current employment record is astonishing. Having absorbed 2.38 million EU workers, the UK now has a workforce of 32.2 million and an employment rate of 75.4%, with unemployment at 4.2%. This was last seen in 1975.

The neutral observer might see draconian immigration laws as unnecessary and potentially damaging to the UK economy. However, this is a matter of Realpolitik. 33% of Brexit voters indicated that control of our immigration policy was their top priority, and 49% cited “the principle that decisions about the UK should be taken in the UK”. The latter may include the subset immigration, meaning political desires may have to be accommodated.

I have over thirty years’ experience in UK, European and international recruitment in computer and IT professionals. Allow me to explore the potential options available. Many have pointed to the Australian points system as a way forward, but the UK has already had such a system (for non-EEA migrants) for the past 16 years.

Firstly, let me deal with existing EU workers. It is a myth that the UK blocks immigration from non-EU/EFTA countries. In 2016 for example 93,244 Tier 2 skilled work visas were granted in 2016. Mainly they are Indian IT workers who comprise 57% of the quota. Hitherto, (the Home Office has changed the rules for those transferred over by their companies), after 5 years of working in the UK you then get your permanent residency. Then you are able to apply for British citizenship which takes up to 2 years.

With existing EU migrants, taking the example of non-EU/EFTA immigrants, those who have 5 years tax returns get automatic residency and those who have 7 years tax returns, a British passport. Whether you include the citizenship test, which now has been expanded to getting residency, I will leave that to the bureaucrats.

Those currently here and who arrive before we exit the EU, should be given open employment status which allows you to work for any company of their choosing without any governmental form filling or box ticking.

Post Brexit how should we deal with fresh immigration? Let me first address skilled immigration. The Blair government introduced the Highly Skilled Migrant Visa in 2002, which became known as a Tier 1 Visa. You did not need a job to be granted one and could arrive in the UK, CV in hand. It was successful. It was a points system, comparable to the Australian model. Here are the criteria when it originally came in, and 75 points were enough to get approved.

* Qualifications (30 – 50 Points)

* Previous Earnings: (5 – 45 points)

* UK experience (5 Points max.)

* Age: (5-20 points)

The Tier 1 scheme is not a bad place to start. It will not work for everyone, but an extended version of it could be part of the package. Its advantage is that it can be offered to any country or nationality. As well as European workers, there is an appeal to offer them to people in The Commonwealth or indeed any other country whose people reach the correct levels.

As a comparison Europe has what is called a Blue Card scheme which is not dissimilar. Based loosely on America’s Green Card, the major disadvantage is that you need to get a job offer before you can apply. Its lack of pre-approval is a great weakness. Currently, the UK, Ireland and Denmark have opted out of the scheme as have the EFTA countries.

You can still employ on a limited basis, people on Tier2 visas which I have mentioned above, but you need a pre-approved job offer and the employer has to request permission for the people to be employed by the Home Office.

The majority of employers are just not prepared to go through the form filling, so it is a severe barrier to obtaining worldwide talent. I cannot stress too much the importance of pre-approval.

When I first came into recruitment in the 1980s, Australians and New Zealanders came over to the UK in particularly high numbers. In the meantime, the number of Antipodean applicants has been greatly reduced and today most tend to have British ancestry. Most worked on Working Holiday Visas (WHV) which is now known as a Tier 5. Aimed at 18 – 30 years old, valid for two years, it was always an outstanding means of gaining fresh talent. Now heavily restricted, you need in some cases a sponsor and you cannot accept a permanent position.

It would seem an easy step to alter the terms and conditions of the visa and with the added incentive that the person at the end of their two years can be sponsored for a Tier 2 work visa by the employer.

As I mentioned above the UK has absorbed 2.38 million EU workers, many in unskilled positions. The humorous observation is that if 650 MPs arrived from Poland, the government would soon end EU immigration. The classical liberal quite understandably would suggest there is no need to change the open borders arrangement at the moment. In aggregate terms, EEA migrants are clearly net contributors. Most are known to turn up with their responsibilities as opposed to their rights, respected for their hard work, integrity and competence.

The economic benefits of free movement are immense. It may temporarily suppress wages in some sectors, but to the extent that it does that, it also keeps costs down. Thus, one can make a good economic case for simply keeping free movement for EEA citizens.

On the other hand, politically, immigration was a major factor for the vote for Brexit. Keeping both parties happy here is going to be a challenge. You could restrict the number of available National Insurance numbers, or use guest work permits, under which you can never achieve residency or nationality, but are allowed to work.

My instinct that if Liam Fox, the Secretary of State for International Trade and President of the Board of Trade is able to deliver free trade deals, which many countries seem eager for, the UK could have an economic renaissance. If we remove tariffs on developing world agriculture, have a bonfire of stifling and cost increasing EU red tape for UK internal use and for export, a booming economy could require more labour and employment rates could rise even higher.

Whatever the solution, open borders and free movement is optimal for a dynamic economy. Bearing in mind the late President Reagan’s quip that “Government is not the solution to our problem, government is the problem,” light touch regulation is paramount. In a nutshell, we should go for the most liberal immigration policy that is compatible with the spirit of the Referendum result.


4 thoughts on “Options for a post-Brexit immigration policy”

  1. Posted 14/05/2018 at 12:21 | Permalink

    Excellent piece

  2. Posted 16/05/2018 at 10:14 | Permalink

    I was in complete agreement with this post until I got near the end. I had expected your conclusion to be that the Tiers 1 through 5 immigration visa systems works well for Non-EU immigrants and so there is no reason why it shouldn’t also work well for EU immigrants, together with a possible increase in the number of Tier 2 visas available.

    As one of the antipodeans who came to the UK in the 1980’s with a 3-5 year working Visa, I believe that a time limited, skills based visa system should be the only system for 2 main reasons; firstly only immigrants who have a skill that is either not available or in short supply in the UK can get a visa provided that they are sponsored by their future UK employer and secondly because the visa’s are for a limited time period there is no brain drain or skills drain from the immigrants home country. Of the generation of Australian futures traders who moved to London when the LIFFE exchange was started, the majority returned to Australia at the expiration of their Visas, having given their valuable derivative experience to the UK (exchange traded financial futures were new to London in the 1980’s but well establish in Sydney) and having gained valuable connections and insight into global banking to take home with them. A kind of Win Win Win scenario for the host country, the home country and the immigrant.

    Retaining the present Free Movement of (unskilled) People after the UK leaves the EU is a very bad idea for two reasons; firstly coming from much poorer economies, EU immigrants are often willing to take low level jobs in the UK because they are paid more than they would be for working in a medium level job in their home country. If you think your Barista speaks very good English it is probably because she’s a university graduate or a qualified accountant, according to the ONS 60% of EU immigrants are over qualified for their jobs in the UK. The Free Movement of People has caused a massive brain drain in Eastern Europe. Lithuania and Latvia have both seen their populations drop by 15% in the 15 years that they have been members of the EU. Roumania and Bulgaria have seen their populations decline by 7% in the 7 years that they have been members of the EU. And you can be sure that the people who are leaving these countries are the educated ones, the ones who speak English, the young and energetic ones. The very people that should be developing their home countries are instead moving to the UK to make you a cappuccino or dig out your basement. The other problem with unlimited unskilled labour is that they have lowered wages in unskilled and low skilled jobs in the UK and have reduced the need for employers to invest in productivity improving capital equipment. Why use a digger on a building site when 3 Romanians are cheaper? Employers have been able to pay lower-skilled jobs, the no-skills, minimum wage because they have unlimited numbers of EU immigrants willing to do this work for the minimum wage. And the workers can afford to do this because the government is subsidising their efforts with tax credits, council housing, child benefit payments, free schooling, free health care etc. We can’t be surprised to learn that 50% of the construction workforce in London is from the EU and consequently that the latest Rich List is full of the owners and CEO’s of building companies; your taxes are subsidising their labour costs.

    The solution to post EU immigration is simple; the present system for Non-EU immigrants should be used for all immigrants and if employers have to pay a little bit more for their labour force, who knows maybe they will finally consider investing in productivity improvements.
    And besides we all ready have the Tier 1-5 Visa forms printed.

  3. Posted 16/05/2018 at 19:40 | Permalink

    Catherine,

    I’d be interested in evidence about the adverse economic consequences of the “brain drain” you hint at from Lithuania, Latvia, Romania and Bulgaria. As far as I can tell, these countries have been growing strongly even as a significant portion of their labour force left the country. It’s also not clear that the beneficial impact you cite of returning Australians won’t apply for A8 EU countries, too. And in the meantime, they get remittances.

    Your argument that “[our] taxes are subsidising their labour costs” is ubiquitous yet, again, rarely buttressed by empirics. People get paid their marginal product – if they won’t work for that, they get no work. Welfare policy is quite independent from that and at the pleasure of the host country, not the immigrant. And while in theory there could be a net deficit for some low-paid migrants, I’ve seen no such impact for even “unskilled” EU immigrants for the A8.

    There may be benefits to a symmetric policy, but let’s be clear that a “points system” is central planning of immigration, and certainly not a free-market policy. I’d personally rather auction off visas and allow prospective immigrants to borrow at market rates in order to buy them.

  4. Posted 17/05/2018 at 12:02 | Permalink

    Diego and Catherine

    I feel ill equipped to argue economics cases here but let me give you an idea how the free trade of computer development and support has benefitted all parties.

    When India first started being the centre of IT over 20 years ago as an offshore model the average salary was about 10% of an UK IT worker. It is now about 33%.

    I also had a first a couple of months ago. I was speaking to a Romanian about a role in Munich. He was working freelance which means he earns 50% – 100% more than someone in a permanent position, but low tax Romania versus high tax Germany meant that in net terms he was better off in Romania. Standard of living wise he was infinitely better off in Romania.

    This anecdote could be both humorous and apocryphal, but IT workers in Eastern Europe are known to earn relatively high salaries. When going to a bar or a club and want to impress a potential partner, you don’t put your Ferrari keys and Black American Express card on the table, but instead, you put down your Java or Linux Systems Administration manual discretely on the table.

    I also had a Polish Java developer turn down a £110,000 salary to work in Zurich as it was “not enough”.

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