Computer says no - is the Tier 2 visa scheme a threat to your business?

Immigration lobbyists say that the Tier 2 Intra Company Transfer visa is a loophole that companies use to move staff to the UK from outside the EU

According to a report by immigration lobbyists Migration Watch UK (MW) the answer is: yes, the Tier 2 visa scheme can pose a threat - at least, part of it.

MW has flagged concerns that British IT workers are missing out on job opportunities as some companies are transferring IT staff to the UK through a ‘gaping loophole'. The loophole, it argues, is being used by multinational companies to fulfil contracts, in particular in the outsourcing space, by transferring staff to the UK from another country to fulfil specific vacancies that cannot be filled from the UK resident workforce.

What is the concern?

MW has warned that the Tier 2 Intra Company Transfer visa (ICT) route, under which multinational companies transfer skilled employees to the UK to carry out skilled and time-limited roles, is being heavily used by companies delivering contracts for UK-based firms or public sector organisations to undercut competitors by relying on cheaper overseas workers.

The practice is particularly notable in third-party IT contracting due to a handful of large companies, predominantly Indian, who operate this model as a means to deliver contracts cheaply. MW considers this is to be at odds with the intention behind the ICT scheme, namely providing flexibility for all companies to fill skilled roles only where the talent pool is not available in the UK.

Is the point valid?

Arguably, yes. Unlike the other Tier 2 route, there is no cap or restriction on the number of ICT visas that can be sponsored in any year. This means, for example, that since 1992 the number of ICT visas has risen eightfold, to approaching 60,000 in 2017 (including dependants).

Tax rules exempt companies and employees from paying national insurance contributions for the 52 weeks after someone transfers to the UK. Also, in many cases, there is no income tax payable for up to two years. This, combined with the ability to count housing and cost of living allowances towards the minimum £42,500 salary level for ICT visas, means that it can be significantly cheaper for a company to transfer staff to the UK rather than hire, train and pay local staff. The cost-saving enables them to undercut domestic competitors and may negatively impact wages in the sector.

It is important to note that the ICT route is not a cheap one. The £200 annual immigration health surcharge expanded to ICT visas in 2017 and the Home Office also introduced an up to £1,000 immigration skills charge. For a single applicant's five year visa, sponsors pay around £7,500 in Home Office fees in addition to relocation costs. These costs must be factored into pricing.

What is the recommendation?

MW has recommended a number of changes to protect local IT workers. These include increasing tax; increasing the ICT salary threshold to match the going rate for UK IT workers (many of whom are consultants); mandatory prior advertising of roles; and annual audits for heavy users of ICT visas on client contracts. None of these recommendations have been adopted.

How has the Government reacted?

In 2015, the Home Office commissioned the Migration Advisory Council (MAC) to report on the ICT route. MAC advised the Home Office that it should consider changes, and identified third party contracting ICT visa as the most problematic area. The MAC said it had not seen evidence that the third-party contracting use of the ICT route was contributing to the stock of IT skills within the resident UK workforce. Further, it commented that inflows of IT workers of this magnitude had continued for years, suggesting a more structural skills issue in the UK. The route was not changed.

How does it impact on the UK skilled IT workforce?

In 2017, 644 companies issued 35,385 or all ICT visas, with eight companies issuing over 1,000 ICT visas a year each. Within that total, 66.2 per cent were for client contracts, or 72.7 per cent of those issued by the eight companies. This means that a significant number of client contract roles are filled by workers under the ICT route, lessening the opportunities open to UK skilled workers.

What options are open to you?

Lobbying the CBI and trade bodies such as techUK or DIT may lead to pressure on the Home Office to reconsider the ICT rules. However, this can be a slow and uncertain process especially when, for a number of large companies, it remains in their interest to retain the status quo.

Instead, companies working in the IT space may wish to consider other options. For example, could you pitch for work requiring security clearance which is unlikely to be available to an ICT visa holder? Have you invested time and money in training staff, for example under the apprenticeship levy, who could carry out work more cost effectively? Some IT companies are establishing academies to train skilled young talent or working with schools or universities at an early stage to identify talent they can recruit. Such graduates, if they are not from Europe, would not be subject to the immigration skills charge which would reduce hiring costs. Furthermore, all companies can access and rely on the Tier 2 visa route with many using it as a way to recruit a small number of highly skilled staff to support their UK workforce.

What about the future of IT recruitment?

With the Brexit transition period nearly upon us, and a deal not in sight at the time of writing, UK companies may soon find that they have access to a decreasing pool of skilled European workers in the coming months and years. Countries such as India could look to capitalise on this with trade deals that are conditional upon further relaxation for their nationals to come into the UK to live and work here. Looking to and investing in training new graduates, as well as home grown talent to fill roles, will be increasingly important in the coming years.

Vikki Wiberg is senior counsel in the Employment, Pensions & Mobility practice groups at Taylor Wessing, and specialises in advising on employment and immigration matters to a broad mix of corporate and individual clients