Cut immigration or cut innovation?
Analysing proposed changes to the UK’s Skilled Worker visa
The UK government is out to cut net migration. Home Secretary James Cleverly MP recently announced future amendments to legal migration rules for family and work visas. The new rules, coming into force on April 4, 2024, will:
raise the salary requirement for a Skilled Worker visa sponsorship by nearly 50%
reduce the number of jobs eligible for a Skilled Worker visa that are exempt from the minimum salary requirement
Additionally, the UK government has launched a review into the Graduate visa route, which provides a two-year unsponsored work permit for UK university-educated international students. These new policies are likely to drive competitive international students away from the UK, reducing the country’s potential for economic growth. This analysis examines four concerns about the policy change, including the evidence used to support the policy change, the effects of a higher salary requirement for students, the potential backlash on the UK economy, and the implications for the wider immigration system, including the UK’s ‘High Potential Individuals’.
Rationale: why now?
Over the past 25 years, the UK has observed a historically high level of immigration. The Conservative Party argues that this is the result of introducing unreasonably ‘loose’ visa restrictions, claiming that current salary requirements, coupled with a policy allowing students to bring family members, lead to systemic abuse and a large influx of immigrants. Moreover, the party argues that it is in the government’s interest to review its immigration policy to protect its citizens from immigrant shocks, such as the European migrant shocks, which can cause economic instability.
The Home Secretary James Cleverly MP has further stated that current immigration numbers are untenable for the British public: ‘It is neither right nor fair to allow this unacceptable situation to continue. We promised the British people action, and we will not rest until we have delivered on our commitment to bring numbers down substantially.’ According to the UK government, the stringent requirements aim to 'protect British workers’ by protecting domestic graduates from intense competition. Additionally, the government suggests the policy will ensure the UK simultaneously retains 'the very best international talent'. In a market economy, salaries reflect productivity and contribution to the economy. Consequently, increasing salary requirements suggests that future sponsored international talents will be more competitive candidates, which can bolster economic growth and innovation.
Ultimately, through their changes to the skilled worker visa requirements, the UK government hopes to reduce the chances of international students staying in the UK to achieve their aim of reducing net migration. However, there are several open questions about the policy’s efficacy, which we address below.
Concern 1: What data justifies the policy change?
The selection, interpretation and availability of data raises concerns about the persuasiveness of the rationale and the plausibility of the policy.
The main data source for immigration and net migration before the COVID-19 pandemic was the International Passenger Survey (IPS), which interviews passengers passing through ports and on routes into and out of the UK. Its results were based on respondents’ intention to come to or leave the UK for at least 12 months, but intentions cannot accurately reflect the actual migration situation. Therefore, it is difficult to estimate the seriousness of the immigration problem.
Specifically, the UK government often uses the net migration measure (long-term immigration minus long-term emigration) to justify increasing the difficulty of obtaining a Skilled Worker visa. This measure can produce misleading figures when substantial changes in migration patterns occur quickly. For instance, the recent surge in immigration is largely caused by a short-term influx of immigrants under the Ukraine, BN(O) and resettlement schemes. Therefore, the ‘unsustainable levels of legal migration’ problem suggested by the UK government may be baseless; raising the salary threshold so significantly may be unjustified.
The UK government attributes the rise in net migration to the growing number of international students and their dependents. However, while a significant proportion of these students may aspire to settle in the UK permanently, due to the immense difficulty of obtaining continual sponsorship, the rise in immigration is unlikely the result of an increased number of international students.
Moreover, while Cleverly has stated that ‘international graduates can access the UK labour market with salaries significantly below the requirement imposed on most migrating skilled workers’, visa sponsorship is expensive with costs potentially reaching thousands of pounds. This means few companies except larger companies can afford the sponsorship fees and the high wage required to meet the requirement, severely limiting international graduates' access to the UK job market.
Currently, there is no statistic indicating the extent to which sponsored workers induce downward pressure on salaries, or whether international graduates succeed in securing continual sponsorship. The government should aim to gather more statistical and economic evidence for improving their back-of-the-envelope estimates that inform immigration policy. This would help ascertain the potential efficacy of policy changes.
Concern 2: Is the new salary requirement too high?
But let’s step away from data limitations. The policy change itself raises questions about the UK’s ability to attract international students. As an international student interested in settling in the UK, you must secure a job that sponsors your visa and pays a salary above the requirement. Yet, even graduates from leading UK universities may find it difficult to secure a well-paid job immediately after graduation. Thus, this change may inadvertently push away ‘the most talented and highly-skilled’ talents that come from top universities, which is the precise group the policy is intended to retain.
Admittedly, some international students can find a job that pays at the required salary level and obtain visa sponsorship: international students graduating from UK universities can receive sponsorship for Skilled Worker visas while being eligible for a salary discount (70% of their job’s going rate). Thus, some international students with an offer paying below £38,700 but above £27,090 may still be eligible for sponsorship. Yet, even this strategy is not without its pitfalls: if students take the salary discount, their total stay in the UK cannot exceed four years. Moreover, not all companies nor industries sponsor visas and offer salaries of over £38,700: in the short term, the gloomy economic outlook has made salary freezes and job cuts increasingly common.
Certain students may find this visa pathway easier – students from departments such as the LSE Department of Economics and LSE Department of Statistics, a median salary greater than £38,700 15 months after graduation. Consequently, increasing difficulty in seeking sponsorship may induce a talent overallocation into ‘money-making’ programmes offered by these departments or industries such as finance, accounting, or law. This talent overallocation may reduce a country’s sustainable growth and long-term innovation.
In the long term, international students must ferociously compete with a large pool of candidates for a small set of jobs in an even smaller set of industries offering sponsorship and a salary high enough to meet the visa condition. Given this, even top talents from leading universities may struggle to find a suitable job, reducing the UK’s capacity to retain international student talent.
Concern 3: Will this policy change negatively affect economic growth?
In contrast to the UK’s government’s aim to increase innovation and economic growth, which Protopia Group’s research focuses on, imposing high barriers to immigration may be counterintuitive for economic growth.
International students provide the insights, knowledge, and resources pivotal for economic growth. In 2021-22, they accounted for only 24% of all students but still contributed £41.9 billion to the UK's economy. International students are also more typically recruited by leading universities, with 40% of Cambridge’s and 70% of LSE’s student body being international. Thus, given the injection of money into the economy via student fees, as well as international students' increased prevalence in top universities, the extensive economic importance of international students for stimulating the UK’s economy is clear.
There are also obvious benefits to attracting and retaining international students, especially given the UK government’s ambition to promote economic growth and build its country as an international innovation hub. Besides raising the average human capital of immigrants, international students can bring distinct insights and unique cultural experiences to help drive the economy’s growth.
However, the UK is an increasingly unattractive place for international talents to study and work, given its exacerbating economic downturn, escalating living costs, and soaring tuition fees post-Brexit. The number of study visas issued declined by 33% in 2023-24 and the enrolments in postgraduate taught courses have also dropped by over 40%. Tightening visa restrictions will not only cause financial crises for universities with a traditionally high international student population but also hand international talents to universities in other countries on a silver platter.
Concern 4: How does the policy change affect ‘High Potential Individuals’?
The UK government's recent launch of the High Potential Individual visa may allay fears about the loss of international talent. The scheme aims to attract talents that can ‘benefit the UK workforce’. Under the new scheme, students who recently graduated from a Top 50 university can apply for a two-year work visa (three years for doctoral degree holders).
Yet, together with the move of clamping down legal immigration through the Skilled Worker route and reviewing the Graduate Visa route, the launch of this two-year work visa instead sends a concerning message about the strength of the UK's education system. It appears that the UK government believes the country can source better talent from elsewhere rather than from their universities. Such implicit messaging demonstrates the need for improvements to the higher education system, to address the UK’s failure to cultivate human capital internally, instead of relying on talents from abroad: this is a problem that Protopia hopes to tackle.
Overseas talents are not necessarily more competitive than their UK-educated international counterparts. With experiences living, studying, and potentially working in the UK, international students are accustomed to the UK’s cultural mores. Compared to international talents who may have never lived in the UK, international students are expected to be less likely to withdraw from the UK workforce due to difficulties in integration and cultural shock. While it is reasonable to assume that students who have studied and lived in the UK are more work-ready than those on the High Potential Individual route, there is currently no information and research on the difference in the two groups’ readiness to contribute to the UK’s economy. This topic warrants further investigation, and Protopia hopes to address the existing research gap.
Moreover, international talents face the same stringent sponsorship requirements as international students. HPI applicants are recent graduates who were awarded a qualification by an eligible university in the last five years. Once the two-year HPI visa expires, the holders must switch to other visas such as a Skilled Worker visa. Such inflexibility and uncertainty may compel HPI individuals to enter particular industries, adopt a risk-averse mindset, or not come to the UK at all.
Conclusion
Ultimately, international students remain a driver of an economy’s growth and development, combining the advantages of domestic students and international talents, namely local experience and diverse perspectives. Imposing excessive requirements for Skilled Worker visa sponsorship will diminish the hopes of international students and even the brightest ones to contribute to the UK, which will disrupt the country’s pursuit of obtaining the best talents. This will also drive talents and fresh perspectives away from the country, thus risking backlash to the national economy and overall innovation progress.
Our analysis shows how a policy change can have far-reaching impacts on a country’s economic development and innovation. However, immigration is just one of the many issues that are inextricably linked to growth and progress; with an ambition to promote important discussions about progress and growth, Protopia is on a mission to research new ideas for better innovation.