Small Firms Seek More Flexibility in New Immigration System

Small Firms Seek More Flexibility in New Immigration System

Small businesses face challenges in hiring new employees under the new UK’s points-based immigration system that will take effect from 1 January 2021.

Home secretary Priti Patel defended the post-Brexit immigration regime, saying on the BBC’s Breakfast programme that businesses should invest in training “economically inactive” people and develop automation technology to fill any future gaps in the labour supply. “We have over 8.45 million people in the UK aged between 16 and 64 who are economically inactive,” she said. “We want businesses to invest in them, invest in skilling them up.”

However, the BBC Reality Check journalists have pointed out that many of “economically inactive” people are students, carers, sick or retired – and fewer than two million of them say they would actually like to have a job.

Moreover, the latest Federation of Small Businesses (FSB) report shows that over a third of small employers (38%) have struggled to recruit the right staff over the past year, citing the unwillingness of UK citizens to work in their sector. The report also found very few small firms to be in a position to automate processes to cover lost access to EU skills without additional support.

The most obvious beneficiaries of the new immigration system will be the technology industry, financial services, professional scientific and technical services, scientific research and development sector, and market research and advertising industry, with highly qualified, well-paid staff from all over the world.

But many enterprises operating in sectors like farming, manufacturing, hospitality, domestic services, care sector, warehousing, waste collection and disposal, and construction will definitely lose out. They have expanded rapidly mostly because of the supply of cheap labour from countries such as Poland, Baltic States, Romania and Bulgaria, paying workers much less than the £25,600 annual salary floor required under the new immigration system.

The FSB proposes new social care and remote community visas to help remote communities that struggle to recruit talent, including those within popular tourist destinations. For the immigration system to work for Scotland’s small businesses, it could give would-be migrants extra points if they want to work north of the border, which is a common feature of points-based systems in countries such as Canada and Australia. Businesses in Scotland have found it harder to hire the right staff in the last twelve months: 45% of small businesses in Scotland have faced recruitment challenges, compared to a UK average of 38%.

There must also be meaningful options for the self-employed who should be allowed to come to the UK without a job offer under a Global Talent visa because they usually have sought after skillsets. An urgent review of the Innovator Visa is also necessary because the visa has been granted to just 14 individuals since its introduction last year.

A flexible approach should also be taken to other sectors facing skills shortages, such as hospitality and agri-food. To meet the specific temporary requirements of the agricultural sector, the seasonal workers pilot will be expanded in time for the 2020 harvest from 2,500 to 10,000 places, but it might be hardly enough to meet the demand for labour in the sector.

The FSB also calls for reduction in immigration fees and exemptions from the Immigration Skills Charge for small firms as half of them say they cannot meet current costs for non-EU staff. The cost of hiring EU and non-EU staff should be reduced to below £1,000 for small businesses (under the current system, the cost of a Tier 2 visa sponsorship to a small employer exceeds £3,000, a fee that would be unrealistic for smaller firms).

The new immigration law could shut the door on 140,000 workers from the EU. At present, 40% of Scottish small employers have at least one EU worker on the books – an increase of 14% since 2017. By comparison, the UK average is 26%, an increase of 5% over the same period.

EU contractors have been engaged by 41% of small firms that operate in the professional, scientific and technical services and by 35% of small firms operating in the information and communication industries. One in ten (11%) small firms say they will have to radically change their business model or close altogether if they struggle to recruit EU workers in future.

Although the UK’s government has encouraged firms to automate and further train the existing workforce,  small firms acknowledge that they will be unable to invest in machinery, IT processes, automation or training  of their existing workforce if they are faced with a sharp contraction in available labour.

“A points-based model can work, provided costs are kept down and systems are easy to navigate for small firms – the overwhelming majority of which have no experience of hiring a non-EU worker,” FSB National Chairman Mike Cherry said. “Against a backdrop of weak economic growth, record employment and an ageing workforce, it’s critical that we get this new system right, particularly when timeframes are so tight. Otherwise, we risk business closures.”

Image: Nuno Silva

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Jekaterina Belajeva has been MIB Editor-in-Chief since 2017. Alongside her editorial job, she conducts economic research and writes articles about the impact of economic policies and demographic changes on businesses.