Matthew Fell gave evidence.

Welcome Mr Fell. Would you introduce yourself?

Matthew Fell:

Good afternoon. I am Matthew Fell. I am the chief policy director at the Confederation of British Industry.

Q The CBI has said that the Government White Paper fails to meet the needs of our economy. Can you expand on that? In what ways does it fail?

Matthew Fell:

There are a number of areas where we think there is a challenge. Most specifically, we would be very concerned about the imposition of a salary threshold—£30,000 is most commonly talked about at the moment. When we look at the shape of the economy today, we see a number of sectors—construction, logistics, hospitality—and many regions and nations around the UK where that threshold is significantly out of kilter with median salaries. There are a number of areas where that threshold would lead to a dramatic shortage of skills and of labour availability to meet the needs of the economy today. Although you could envisage a world in which, over time, businesses and other parts of society could adapt, we are concerned about going from the situation in which we are today in a very short period, without knowing precisely the nature of the rules or of the negotiation about what we are going to jump into. That lack of time to adapt is also a source of concern.

Q What are your concerns about the Government’s proposal for short 12-month visas?

Matthew Fell:

There are a number of areas. First, we fear that that could significantly lead to an increase in the rate of churn of people, which clearly creates problems for business: it impacts on productivity, if you are constantly having to get new employees up to speed, for example, it adds to recruitment costs if you constantly need to bring new people into the organisation, and it has impacts beyond business too. Thinking about societal impacts, it could undermine the integration of people into local communities, and so on.

The second bucket or basket of concerns is around the inability to then switch on to a more skilled visa route. For example, if you invest in the training and upskilling of an individual there is currently no proposed mechanism for them to transfer from a lower-skilled 12-month route to a proper skilled visa route, so there are a number of different concerns about that.

Q Do you have concerns about the settled status system and the requirement on employers to check the immigration status of their employees if the UK leaves the EU with or without a deal?

Matthew Fell:

I think I am right in saying, but I am happy to take a little more detail on this, that the Government have confirmed that even in the event of a no-deal scenario there would be no, or no significant, changes to the administrative burdens on employers before the proposed new immigration system came into play. Clearly, if that situation changed, the administrative burden would be a bigger headache for business.

Q I recognise the views you have expressed about having a cap of about £30,000, but do you recognise the impact that immigration potentially has had on suppressing wage levels in certain sectors and certain parts of the country?

Matthew Fell:

The Migration Advisory Committee looked at that heavily in terms of any potential impact on the rest of the economy, society and so on. I think the conclusion it drew was that there was no major evidence of an impact on either jobs availability or wages. I think it highlighted some impacts on public services, and a bit on house prices and so on in certain areas, but I do not think it identified any real evidence of that.

Q Conversely, would having a reduction of free movement see wage levels rise, or changes in the availability of lower-paid work?

Matthew Fell:

This is not primarily an issue that we are looking at as an impact on wage levels; it is purely about skills availability. The issue for many sectors of the economy and for many parts of the country that are currently looking at a situation of at or close to full employment, even in parts of the country, is primarily about the availability of the skills and the talent that they need to fulfil orders and so on. It is not in any way, shape or form about wage levels or undercutting wages; it is about having the people to do a job.

Q In terms of productivity, do you think that immigration has any bearing on the levels of productivity in this country?

Matthew Fell:

In the UK, there are quite clearly issues around needing to raise productivity. I do not think there is any evidence—I think the Migration Advisory Committee confirmed this too—that that is explained in any way by current approaches to immigration and levels of immigration in the country.

We heard the argument this morning from the Migration Advisory Committee, which was supported to some extent by Q Migration Watch UK, that the threshold approach would encourage employers to push up wages and that would solve the problem. What is your response to that argument, which was consistently played back to us this morning?

Matthew Fell:

I am not sure I agree with that. I will paint you a picture of the current situation in a number of sectors. If you take the construction industry, with two thirds of migrant workers, the median salary is currently under £30,000. If you look at the logistics sector, with about 10% or 20% of HGV drivers, or at the warehousing sector, with about a quarter of all fork-lift truck drivers, the wages for EU workers are quite significantly lower than that. I do not think that just changing a threshold level as a way of driving up wages is a helpful thing to happen in the economy.

Q That was very much the argument that we were being given—that if you have a higher threshold, employers will be obliged to pay more for those scarce skills.

Matthew Fell:

We have a better set of ideas for how you have the right checks and controls in place. If your concern is around whether that is doing any potential damage to local labour markets and local people, first, I do not think the facts bear that out, but even if that was a concern, our suggestions are that there are examples around the world, including relatively close to home in other EEA states, of something akin to a local labour market test where you have to give an initial preference in a simple and quick way. If they were the sort of concerns that you were driving at, there are better ways of doing that than a crude, flat salary threshold.

My other thought on salary thresholds is that, even if they are part of the overall mix of a system design, I venture that, rather than just picking a pure number today that is fixed over time, it would be much better to look at the median salary in the country today or to pick something like the 25th percentile of a particular skill area or something like that, so it adjusts over time and adapts to how the economy evolves. That would feel like a slightly more sophisticated way of going about it than just picking a crude number.

Q What do you think about the argument that salary thresholds are a decent proxy for skill?

Matthew Fell:

If the intention is to use a salary threshold, I think it is part of the answer, but I would not say it is the only thing you should look at. If it goes hand in glove with some other metrics, it is potentially part of a solution as a system design, but I would not have it as the sole arbiter.

Q What other matrix would you suggest?

Matthew Fell:

As I have just said, we think there is something quite interesting to look at in a simple and quick local labour market test.

Q That is to do with shortages rather than skills, is it not?

Matthew Fell:

Yes, but you would have a look at that, then skill levels alongside salary. Salary as a proxy in its own right is not helpful.

Q One of the arguments Migration Watch came up with was the idea, for a middle-area skill, to have a sliding scale: a three-year visa and then a sliding scale where the salary levels are going up. Is that the sort of thing that would be attractive to you?

Matthew Fell:

I have not looked at the specific proposal. I am very happy to go away and have a look at exactly how that would work. The one thing that that would have in its favour is the point I made about time to adapt. Within reason, if you have time to adapt, you can say “Okay, how do I configure around a particular system?”, if that has a combination of certainty to it and a length of time to adapt. As principles, those are helpful things to have.

Q Finally, what are your members’ biggest worries at the moment in relation to this?

Matthew Fell:

The single biggest area is time to adapt. It is not knowing exactly what new system they propose to jump into. They are completely crystal clear that free movement is coming to an end. The fear is whether a new system will be ready in time, with the promised reforms, streamlining and improvements. Will that be ready in time?

The vast majority of businesses in this country do not use the non-EU visa system at the moment. It is something in the order of only 30,000 firms in the country that currently use it and that tells me that it is a really quite restrictive, complex and burdensome system. If we are not ready with a new system that is ready to go from day one, without that clarity and without the time to transition into it, that, I think, is probably the biggest concern of all.

Q You have spoken of the need to streamline and simplify the future immigration system. Following the question put by the Minister to the previous witnesses, did you manage to respond to the Law Commission’s consultation?

Matthew Fell:

Here are a couple of examples around the sorts of streamlining we have in mind for the non-EU system right now. One of the requirements is around asking sponsor employers to provide evidence of their employers’ liability insurance. Nothing wrong with that per se, but you have to have a hard copy of that and today, most of those are issued digitally, so it is a headache. Another example of a day-to-day burden is that you are required to notify a change in salary for any individual. On those sorts of issues, for example, the check is required to make sure you clear the minimum salary threshold requirement, but there is still a requirement even if you raise an individual’s salary. You still have to notify. Again, when we are talking about simplifying and streamlining a system on a non-EU basis, those sorts of administrative headaches are the things that firms find unnecessarily complex.

Q Those are good points, but did you respond to the Law Commission’s consultation, where you could make those points?

Matthew Fell:

I would need to check, to be perfectly honest.

Q The other thing you said in your evidence was around linking migration and labour market access to trade deal negotiations. Can you expand a little bit on that?

Matthew Fell:

Many countries around the world have told us that that is quite important when they have negotiated trade agreements with other countries around the world. That is something they expect to be part of that overall trade negotiation. We have heard from India, Japan, Australia and New Zealand. They have all publicly said that if they are looking to strike trade agreements with the UK, ideally they would like to include migration as part of those talks on a future trade deal. When you look around the world and other trade agreements, it is frequently part of those discussions and part of the final deal and our sense was that, if, rightly, we want to seek to strike the most ambitious trade deals in many parts of the world, this is something that should be part of those conversations.

Q Mr Fell, you have skirted round the issue a little bit. Putting aside the debate about the salary threshold, you spoke about how 30,000 firms are registered tier-2 sponsors. Is that right?

Matthew Fell:

Correct, yes, it is of that order.

Q Do you have a figure for how many businesses in the United Kingdom employ EU nationals?

Matthew Fell:

I do not have that figure off the top of my head, no.

Q Putting aside issues of salary threshold, could you talk us through what difference it would make to me as an employer if previously I have never been involved in the tier 2 system? From time to time I have employed chefs from Europe, for example, at £35,000. What difference will it make to me next year or in a couple of years’ time when a new system comes into force if I want to employ this chef from Italy at £35,000?

Matthew Fell:

I would make a couple of observations which may be helpful. Clearly, the example I am going to give is retrospective, which does not apply. My understanding is that the figures are something in the order of three quarters of all EU workers in the UK today. If these rules were enforced with the new system as envisaged, those would be out of scope for the new proposed system. That gives you a little about the order of magnitude of the volume and scope of workers currently here that would be caught by that—that is what we believe.

You ask what an employer would face additionally. Those 30,000 firms are principally focused around the largest businesses in the UK. We know that the non-EU approach is quite complex. You typically enlist significant legal advice—it is sensible to do so—or you develop in-house expertise. While it is an administrative headache for the largest businesses, they are employing a sufficient volume of people to make it sensible and worth their while to invest in expertise and legal advice and so on—at least it is feasible for them to do that. I think it would have a stark impact on small and medium-sized businesses that possibly do not use the system with sufficient frequency that they get familiar with it, and in which the resources would bite even more if they needed to take on outside expertise and advice.

Q They would need legal advice and help, and there would be a cost as well, because you would have to register as a tier 2 sponsor, which is the first process. After that, you also have to get a certificate of sponsorship for each individual that you are recruiting. Is that correct?

Matthew Fell:

That is correct. Some of the admittedly small administrative examples that I just referred to are the sorts of things that you would have to be familiar with and continue to do. While they might be a headache in larger firms with dedicated teams, HR functions, compliance and so on who are able to provide those facilities, they are an even bigger headache for smaller businesses.

Q Small businesses that are becoming tier 2 sponsors for the first time would also have to start paying a skills charge and the health surcharge for employers.

Matthew Fell:

That is correct. That is my understanding of it.

Q I saw a report yesterday, I think from Global Future, which suggested that between now and 2025 it would add £1 billion of costs to businesses.

Matthew Fell:

I have not seen that specific report so I would need to go away to confirm that.

Q Sure. May I also ask about the settled status scheme and the checks on a person’s right to work? Are you aware that there have been any difficulties because this is not in a hard document and is essentially a bit of code?

Matthew Fell:

This is relatively new for many businesses. We have been working with the Government and businesses to help to inform the employer guide. We have been providing some guidance ourselves. We found that the level of interaction with businesses has been quite good, and there has been a spirit of helpfulness to be able to navigate that, recognising that it is a new approach. We are building up more familiarity with it.

Q Do you have concerns that even if the Home Office puts everything it can into making this scheme as successful as it can be, we are going to end up with tens of thousands if not hundreds of thousands of people who will miss the cut-off date just because they did not understand that they had to apply, or maybe they were even born here?

Matthew Fell:

There is a challenge of awareness. Organisations such as the CBI and other business organisations have a role to play in that, not just in raising awareness for their own employers, making sure they are properly informed about what they need to do and helping them through the process, but by encouraging them to do that with their friends, colleagues and contacts. There is a good role that business can play. That being said, however good the intent, awareness is clearly an issue. I do not have an exact feel for how many would or would not be aware. Ultimately, that is a bit of a judgment call, but that is the risk that would open up.

Q We are looking at schemes that have been put in place internationally. On some of these schemes, even a 10% failure rate would be a magnificent achievement, but you are still talking about 400,000 people. Would you support, or have sympathy for, calls not to have a deadline at all? For example, if somebody is trying to switch jobs and their employer says, “You apparently haven’t got your settled status and you need it,” they could still go and put that right, even though they have missed the deadline by a couple of weeks.

Matthew Fell:

We have not explicitly gone on the record and said that that is an approach we would advocate. My view is that you would hope that pragmatism would prevail. My feeling is that, if an individual and a business are coming forward with good intent and saying, “I am ready to do it and have everything I need,” pragmatism ought to prevail in such situations.

Q What is the significance of what the White Paper says or does not say on self-employed people?

Matthew Fell:

The CBI’s natural constituency, if you like, is typically employers as opposed to the self-employed. The self-employed population is a huge contributor and hugely important to the UK economy. It is not an area that we particularly speak about, though, or which I focus on.

Q You talked about a number of sectors such as hospitality, logistics and construction. Are there any other sectors that would be impacted by this £30,000 threshold? You talk about sectors, but can you also expand on the impact on different regions?

Matthew Fell:

I would be happy to share with the Committee a significant piece of work that the CBI published in the summer of 2018, where we took an in-depth look at a number of business sectors around the economy. The key conclusion was that it is hard to identify any sectors that are not impacted in this way. The reason for that is the interconnected nature of business today.

To give you a small example, we have a huge challenge in this country around house building. In order to build the 300,000 homes a year that we need, we need everything from architects to electricians, bricklayers and on-site labourers. The conclusion we drew was that if you take one piece out of that, the whole project does not get done. Our findings were that you could almost extend that logic to any part of the economy. For example, take the retail sector and its dependence on the logistics sector for distribution, and so on. It is really quite hard to identify any part of the economy where, even if we think it is not directly impacted by these issues, indirectly they do have a consequence.

On the regional aspect, looking at the statistics, we have a piece of work out today that looks at analysis by region. Even if you take a really quick glance at the numbers, median wages today are somewhere between £21,000 to £24,000 in most regions of the UK outside London. That tells you that the impact is quite significant across the country.

Q On the question of impact, we know that there is inequality between different regions; do you feel that having the figure of £30,000 may further increase inequality?

Matthew Fell:

I do not know whether it would further increase inequality. As part of my job I travel around the country quite extensively. I think it would create huge headaches in parts of the UK, not least in respect of the time to adapt. I spend quite a lot of time in Belfast in Northern Ireland and in some of the northern regions in England, for example, where it is really quite significant and they are deeply concerned by it.

If there are no other questions from colleagues, I will bring the Minister in next.

Q Thank you very much, Sir David. At various points earlier today, we heard suggestions that short-term visas and short-term contracts were inevitably exploitative. Does the CBI have a view on that?

Matthew Fell:

I do not believe that short-term visas and short-term contracts are linked to exploitation. I think it is more a recognition of the way the world works today. Many businesses are done on a contracting basis, as well as a longer-term basis, so I do not recognise the link between the two.

Q Would the CBI therefore support a seasonal agricultural workers scheme, for example, and do you see any other sectors that might benefit from something similar?

Matthew Fell:

Our starting approach on that has been to say, “Could we look to design a system that works for all parts of the country and for all business sectors?” Working towards that is our ideal goal. That would be our preference before reaching for carve-outs for different industry sectors.

If that aim cannot be achieved—we know that seasonal agricultural workers are very important for the sector—and if that is the best solution that we can arrive at, clearly it has a part to play alongside a reformed and simplified system. However, our preference is to get the overall system right in the first instance in a way that works for everyone.

Q I am conscious that we invited the Scottish CBI to come and give evidence, but it deferred to you and said it was happy that you would be able to represent its views. Was there anything specific that you would like to say about either regionality more generally or Scotland in particular?

Matthew Fell:

I have made remarks about recognising different wage levels in different parts of the country and so on. I refer people to my colleague who gave evidence in Holyrood earlier today. There will be quite a bit on the record from that evidence session if you would like to tap into the Scottish-specific dimensions to it.

Q Fabulous. I am sure we will. I was interested in your comments on a local labour market test. You will be conscious that in the White Paper are proposals to remove the requirement for a resident labour market test. Do you not support that?

Matthew Fell:

Overall, I think we do support the removal of the resident labour market test. I was just illustrating that, if there is a desire to provide a sense of greater control of migration, you can use different mechanisms to provide that control that we think would provide the right balance between openness and the public assurances that are sought on control. It was an example of another mechanism to achieve it, but we do support the removal.

Q In your evidence, and just now, you said that you do not think that the short-term, 12-month visas may lead to exploitation, but you gave a long list of concerns regarding training, recruitment, integration and switching between skills. Those were your concerns, so what is your solution? What do you think is better?

Matthew Fell:

In the piece of work that we published in summer 2018 we asked, “How do you really build confidence and align that to control?” At the time, we proposed dropping the net migration target, because we felt that continually missing it was undermining confidence in the system. We said that there could be a number of different controls, such as registration on arrival. If you are not in work, in training or self-sufficient after three months, that would be a test of whether you can stay in the country.

We looked at other examples of labour market tests. The other issues that we identified at the time were the better and more rapid use of things such as the controlling migration fund, so that in areas of high immigration where there are clear impacts on public services we could better address and mitigate those concerns. Those were the clutch of proposals that we were talking about at the time.

If there are no further questions, I thank Mr Fell very much indeed for his evidence to the Committee.

The final session starts at 4.30pm, so I suspend the sitting.

Sitting suspended.