Immigration Skills Charge (Amendment) Regulations 2022

Considered in Grand Committee

Moved by

That the Grand Committee do consider the Immigration Skills Charge (Amendment) Regulations 2022.

My Lords, these regulations make some simple but important amendments to the Immigration Skills Charge Regulations 2017.

The immigration skills charge incentivises UK businesses to take a long-term view of investment and training in the domestic workforce. It serves to address historic under-investment in training and over-reliance on cheap migrant labour by UK employers. The charge is paid by employers who sponsor migrants on skilled worker visas or global business mobility visas as senior or specialist workers. The charge is paid when the employer issues a certificate of sponsorship. They pay £1,000 per migrant per year for large businesses, or a reduced fee of £364 for small businesses and charities. In the last fiscal year, the charge raised £349 million. This funding helps to maintain the UK’s skills budgets. As education and skills are devolved matters, a portion of the income is shared with each of the devolved nations. It is distributed using the formula devised by Lord Barnett.

While it remains important that the charge is applied to most employers utilising migrant labour, there are good reasons to make exceptions in specific circumstances. For example, workers are currently exempt if they enter the UK for under six months, because they are unlikely to be filling a skills shortage. These regulations will exempt two new cohorts from the charge.

The first is scale-up workers. The new scale-up visa was launched this August. It enables UK businesses experiencing sustained high growth to attract top international talent and enhance the wider skills ecosystem. The visa was never intended to be subject to the charge. It aims to facilitate rapid recruitment and reduce burdens for UK businesses undergoing sustained high growth. It is designed to be attractive to both businesses and workers and offers migrants highly flexible conditions, including access to the wider labour market, without sponsorship, after six months. Applying the charge would reduce the appeal of this route and would be counterproductive to the policy. As it stands, however, the route falls within scope of the charge due to the wording of the current legislation. A waiver of the charge is in place at present, and these regulations will codify the position by formalising the exemption.

The second cohort to be exempt from the charge is EU workers undertaking intra-company assignments under the EU-UK Trade and Cooperation Agreement, which was ratified by Parliament on 30 December 2020 and secured preferential trading arrangements between the UK and the EU. One such accord was that neither party would apply taxes or charges—of a type such as the immigration skills charge—to workers undertaking intra-company assignments within the terms of the agreement. Both parties committed to drop such taxes and charges no later than 1 January 2023. This is a legal requirement enforceable under international law. The EU Commission has informed us that it is making changes to uphold its commitments in this regard. These regulations will enable the Government to uphold ours.

As set out in the accompanying Explanatory Memorandum, there has been no formal impact assessment for these regulations. This is because the immigration skills charge is considered a tax and is not within scope of the better regulation framework. Nevertheless, we have given this matter due consideration and can assure your Lordships that any loss of revenue will be minimal. This is because scale-up visas are new, and intra-company transfers from the EU account for less than 1% of the annual income from the charge.

The immigration skills charge plays a valuable role in our immigration system. It encourages UK businesses to utilise domestic labour where they can and to invest in skills when they are in short supply. However, it is important that we make exemptions to the charge when there are sufficiently good reasons to do so. These regulations will support UK scale-up businesses to compete in the global market for the skills needed to continue their growth. They will ensure that we deliver on an important trade commitment to our partners in the European Union and thereby secure reciprocal treatment for British workers undertaking business assignments throughout Europe. I commend the regulations to the Grand Committee.

I thank the Minister for that introduction. I will deal with the first item, on the immigration skills charge, and my noble friend Lady Northover will deal with anything I have left out and the second one.

First, this SI is important for what it does not say as well as for what it does. Can the Minister tell me how these proposals link with the research and development tax relief and tax credits, which will come in through the Finance Act? They seem very relevant to what we are talking about. In particular, will the tax credits relating to research and development for work carried out outside the UK impact on this statutory instrument?

Further to that, according to the Explanatory Memorandum, the Minister for Innovation says that these regulations

“are compatible with the Convention rights.”

Is the Minister for Innovation the correct person to make such a ruling? It seems rather like putting the gamekeeper in charge of the poacher.

Paragraph 7.5 of the Explanatory Notes says that

“This amendment to the regulations will codify the exemption.”

It would be useful to have, even in the notes, some empirical examples to show that this is the case.

In his introduction, the Minister talked about the effect in the EU, as distinct from in the UK. I would like him to confirm that the Government see this as reciprocal relief for workers from the UK working in the EU.

Lastly, the Minister said that there was no loss of revenue. However, the notes say very clearly that there is no impact assessment. How can he be so sure and blithely say that there will be no loss of revenue when there is no impact assessment? He may be quite right, but this is really asking us to believe something without empirical examples.

My Lords, I thank the Minister for his introduction to the regulations. I agree very much with the noble Lord, Lord Palmer, about the SI being interesting for what it does not say as much as for what it does say. I have a couple of brief questions for the Minister; I will make some longer remarks on the next SI.

The SI has been through the other place, so we accept it, but we have certain questions about it. Why have the Government come to the conclusion that these exemptions are needed? In line with the point from the noble Lord, Lord Palmer, about what the SI does not say, what are the Government’s plans, at the same time as bringing forward exemptions such as these, to ensure that there are excellent training and opportunities for our resident workforce? How does this SI fit with the stated, explicit intention of the Home Secretary and the Government to reduce levels of migration, something which we have contested?

As the noble Lord, Lord Palmer, mentioned, an impact assessment for the SI has not been published. The Minister gave some limited explanation, but I would like to know why not, and how will the impacts of the changes in this SI be monitored if an impact assessment is regarded as unnecessary or indeed if one appears in future? We have no idea where we are without impact assessments.

For example, these changes are designed to increase the number of skilled migrants in this area. How many skilled migrants have there been under the scheme so far? With no impact assessment, how can we know how successful this charging scheme has been since it was introduced in 2017? It is supposed to incentivise employers to invest in training and upskilling the resident workforce and reduce reliance on migrant workers. As the noble Lord, Lord Palmer, says, without the impact assessment, how do we know that the Government have achieved their own policy objective? The charge was introduced to discourage employers from seeking the skills they needed abroad. Whatever the rights and wrongs of that, that was the whole purpose. How do we know it has been successful?

My Lords, I am grateful for the contributions from the noble Lords, Lord Palmer and Lord Coaker, and for the opportunity to address some of the questions I have been asked.

I start with the point from the noble Lord, Lord Coaker, on the effect of relaxing immigration controls—if I have paraphrased that part of his question correctly. I acknowledge his concerns that creating new exemptions to the immigration skills charge appears contrary to the objectives of reducing net migration and ensuring that employers prioritise investment in resident workers. These are targeted exemptions, however. The Prime Minister recently spoke of the need to promote innovation in the economy and we think it sensible to ensure that sustained-growth businesses benefit from some easement of the usual requirements of the immigration system. That is why we have introduced the scale-up visa and why a disapplication of this charge is part of that package.

Similarly, we wish to promote cross-border trade and inward investment from overseas, and the rules that apply to movements of intra-company transferees fall within the scope of trade negotiations. In the case of the EU, we reached a reciprocal agreement that such charges should not apply to intra-company movements, and UK businesses with a presence in the EU will benefit from the certainty that that agreement provides.

I will address the point raised by both the noble Lords, Lord Palmer and Lord Coaker, on the impact assessment. Clearly, the immigration skills charge is a tax and it is therefore not subject to a formal impact assessment process. The Government have considered this matter carefully and any impacts will be minor. The scale-up visa route is new and was never planned to be subject to the charge; as such, a waiver is in place and so its exemption will not contribute to any reduction in revenue.

In conclusion, it is right that the needs of employers are reflected in our immigration system. At the same time, it is important that the Government ensure that overseas recruitment is considered alongside investment in the development of skills in the domestic labour market, not as an alternative to it.

The immigration skills charge incentivises employers to recruit and train domestically and provides funding to enable the Government to support them to do so. The regulations we have considered today will not fundamentally change the operation of the charge. They simply create additional limited exemptions for highly skilled international workers recruited by UK scale-ups, as well as for EU intra-company workers undertaking assignments within the terms of our trade commitments.

At a time when there is, quite understandably, an intense focus on our economy and its prospects for recovery, these exemptions are designed to support high-growth businesses in the UK and to strengthen trade and investment both to and from Europe. I commend the regulations to the Grand Committee.

Just to take up the points that the Minister kindly referred to, he said that this would not involve additional costs. Surely an impact assessment would have talked about how much take-up there would be. If the take-up is different, the costs will be different, because more people will seek the relief. Without empirical examples, we do not know.

The Minister said that the relevant Minister was correct when he said that this was compatible with the European convention. I would have thought this was a legal matter and should have had a report from the Attorney-General, rather than a Minister who was implicitly involved in it.

I will deal first with the point about the impact assessment. As I say, as a matter of practice on taxes, the requirement to hold an impact assessment in the sense described by the noble Lord is not normally followed. However, as I say, the department closely scrutinised this question and came to the conclusions I already outlined.

On the obligation to the European Convention on Human Rights at paragraph 5 of the Explanatory Memorandum, Section 19 of the Human Rights Act requires a Minister presenting a piece of legislation to certify whether it is compatible. It is not normal practice that that attestation is signed by the Attorney-General. Plainly, all these matters are subject to legal advice, as the noble Lord would expect.