On December 4, 2023, Home Secretary James Cleverly announced a series of changes to the UK’s immigration policy (although the timing at which some of these changes come into effect was subsequently modified). These changes are intended to reduce net migration into the UK, which the most recent immigration statistics (according to the Office for National Statistics (ONS)) show has reached 745,000 people in 2022. The changes aim at reducing net migration.

Measures announced by the Home Secretary included:

• Increasing the salary threshold for skilled migrants coming to the UK for work from £26,200 to £38,700 (those coming on the Health and Care visa route will be exempted from this increase, and so will those on national pay scales (for example, teachers)),
• Ending the 20% going rate salary discount for shortage occupations and replacing the Shortage Occupation List with a new Immigration Salary List, which will retain a general threshold discount,
• Increasing the minimum income required (to £38,700 from £18,600) for British citizens and those settled in the UK to bring in dependants to join them,
• Increasing the Immigration Health Surcharge (IHS) by 66% – from £624 to £1,035 per annum per migrant, and
• Preventing overseas care workers from bringing their dependants to the UK.

Given the substantial nature of the changes, they are likely to impact on various sectors of London’s economy and carry implications for the capital’s broader economic growth and labour-market outcomes.

Summary of overall impacts

Some of these changes (notably increasing the skilled worker salary threshold and ending the 20% going rate salary discount) are likely to hit sectors that are very important to London’s economy – including Hospitality and Construction – as these have a higher share of non-UK national payrolled employees (Figure A1). Health and Social Care also has a higher share of non-UK national payrolled employees, although the impact may be softened by the exemption to the salary threshold on the Health and Care visa route.

Figure A1. Non-UK national payrolled employments by industry (%) London residents, December 2022

Source: HMRC PAYE-RTI

In particular, data from the 2021 Annual Population Survey would suggest that women, younger job holders, and workers from BAME communities will be disproportionately impacted by these changes. For example:

• In London’s Hospitality sector, 38% of workers are aged 16-29, with 48% of them being women and 43% from BAME backgrounds.
• In London’s Health and Social Care sector, 71% of job holders are women, 30% are over 50 years old, and nearly half (47%) are from BAME backgrounds.
• London’s Construction sector, meanwhile, is less diverse (only 21% of job holders are from BAME backgrounds).

Overall, there are over 1,000,000 jobs in these sectors in London, of which around 47% (at least 500,000) are held by non-UK nationals.

The changes proposed (as a whole) are likely to impact all of these individuals to varying degrees. For example, all of them will be facing higher IHS fees unless they already secured indefinite leave to remain (ILR). Moreover, as many non-nationals have protected characteristics and either earn far less than the revised skilled worker threshold of £38,700 or are dependents of individuals who do not meet that threshold, they risk losing the right to remain in the UK.

Initial reactions from NGOs and business representatives

The impacts of this announcement extend beyond the economic, and several organisations have immediately reacted to the different measures.

For example, Reunite Families UK (RFUK) supports and advocates for couples and families affected by the UK spouse/family visa rules. They issued the following statement:

“British Family Values” just took a nosedive today…By doubling the minimum income threshold to an amount that around 75% of this country do not earn. It seems being a family here is only valued if you are wealthy #priceonlove #haveaheart #CostOfLovingCrisis The situations and feelings being expressed by our members is truly heart-breaking. [source here]

The Migration Observatory also issued the following in response:

“The decision to raise the family income threshold to £38,700 is the biggest surprise of the day, and one of the parts of the package announced today that could have the most significant impacts on individuals. This threshold determines whether British citizens can bring a foreign partner to live with them in the UK, and the level has been more than doubled. Family migration makes up a small share of the total, but those who are affected by it can be affected very significantly. The largest impacts will fall on lower-income British citizens, and particularly women and younger people who tend to earn lower wages”

There have also been early reactions from business representatives. For example:

‘‘At a time when businesses in London and across the country are struggling with acute skills shortages, raising the salary threshold at which workers can be recruited from abroad would make it much harder for firms to access the talent they need to drive growth. The Government should put the economics before the politics by working with businesses on building an immigration system which is flexible, fair and responsive, while also implementing long-term measures that help to boost the domestic pipeline of talent like reforming the apprenticeship levy” – Mark Hilton, Policy Delivery Director, BusinessLDN

Meanwhile, Kate Nicolls, the Chief Executive of UKHospitality, said this:

“The Government seem to be running out of answers to fix the UK’s long-running labour market shortages. These changes will further shrink the talent pool that the entire economy will be recruiting from, and only worsen the shortages hospitality businesses are facing. There were 8,500 hospitality visas issued last year, which helped bring in talented chefs and managers of the future. Around 95% of those would no longer be eligible under these plans, despite being offered competitive salaries. We urgently need to see an immigration system that is fit-for-purpose and reflects both the needs of business and the labour market.”

Sector-by-sector estimated impacts

Hospitality

The number of newly posted online job advertisements for the hospitality industry continues to be at an elevated level relative to pre-pandemic levels (Figure A2); restricting the entry of migrants is likely to exacerbate this, for a sector that is worth at least £25bn annually to London’s economy and one that is inextricably linked to other sectors with an even larger economic size such as wholesale and retail trade.

Figure A2. Online job postings for top 10 occupations in Hospitality in London
3-month moving average, January 2019 – September 2023

Source: Lightcast

Note: Based on new unique postings for top 10 occupations in sector in terms of number of jobs, not seasonally adjusted. Grey line coincides with start of COVID lockdowns

Non-UK nationals comprise 58% of London’s hospitality workforce. This indicates the importance of these workers to employment in a sector that already experiences substantial labour tightness. Raising the salary threshold, increasing the Health Surcharge, and making it difficult for UK nationals to bring their non-UK spouses to the country is likely to impact approximately 250,000 hospitality workers in London.

Arts, Entertainment and Recreation (AER)

People born outside of the UK make a large contribution to employment in the AER sector in London. In 2021, around two out of five (38.5%) jobs in the creative industries sector in London were held by workers born outside the UK (25.2% from non-EU countries and 13.3% from EU countries). This compares to 17% of the sector’s workforce in the rest of the UK (Figure A3). Meanwhile, there are just under 13,000 online job postings in the creative industry sector in London at present (Figure A4).

Figure A3. Job holders by country of birth London and the UK creative and non-creative sector (2021)

Source: ONS, Annual Population Survey (APS)

Figure A4. Online job postings for top 10 creative industries occupations in London
3-month moving average, January 2018-September 2023

Source: Lightcast

Note: based on new unique postings for top 10 occupations in sector in terms of number of jobs. Grey line coincides with start of COVID lockdowns

There are just under 40,000 non-UK nationals working in London’s AER (including creative industries) and they are likely to be impacted by the changes, with many earning below the £38,700 revised threshold (given that the median salary for this sector currently stands at under £24,000; see Table A1 in the appendix).

Construction

Non-UK nationals also constitute around 40% of employees in London’s construction industry. The proposed changes are estimated to impact approximately 60,000 workers accordingly.

The labour market in this sector also remains incredibly tight, as can be seen from the online job postings data (Figure A5) – something that is very likely to be exacerbated by the reduced flow of foreign workers. Moreover, the percentage of non-EU nationals working in the sector continued to increase since the COVID-19 pandemic, as the share of EU nationals in payrolled employment in the industry dropped from mid-2021 onwards (Figure A6)

Figure A5. Online job postings for top 10 construction occupations
3-month moving average, London, January 2018-September 2023

Source: Lightcast

Note: based on new unique postings for top 10 occupations in sector in terms of number of jobs. Grey line corresponds with start of COVID lockdowns

Figure A6. Construction payrolled employment by nationality
London residents, July 2014-December 2022

Source: HMRC PAYE-RTI (not seasonally adjusted) and Migrant Worker Scan

Note: Grey line corresponds to start of COVID lockdowns in early 2020

Further, we see that the median worker in the industry earns just under £25,000 (Table A1). Therefore, foreign workers are less likely to meet the new salary threshold, meaning that the industry is likely to experience greater tightness at a time when London’s economy is slowing down. Therefore, the sector will economically contract, with reverberations across London’s broader GVA growth.

Health and social care

Non-UK workers account for more than two out of five jobs in this sector in London (43%). Of those non-UK nationals working in the sector, non-EU nationals make up the largest share of employees, with numbers growing strongly in recent years following Brexit (Figure A7).

Figure A7. Health and social care payrolled employments by nationality
London residents, July 2014-December 2022

Source: HMRC PAYE-RTI (not seasonally adjusted) and Migrant Worker Scan

The number of online postings for jobs in key health and social care roles remains high, close to 2018 levels (Figure A8).

Figure A8. Online job postings for top 10 health and social care occupations in London
3-month moving average, January 2018 – September 2023

Source: Lightcast; grey vertical line corresponds to start of COVID lockdowns

Note: not seasonally adjusted and based on new unique postings for top 10 occupations in sector in terms of number of jobs. March 2020 indicated by dotted line.

The announced changes are expected to impact at least 200,000 non-UK nationals working in London’s health and social care sector. While the median employee wage in this sector is higher than in the previously listed sectors (£32,134), it still falls short of the new threshold for skilled worker visas (Table A1). That said, non-UK nationals working in the sector won’t be affected by the salary threshold increase as they would be exempt; they would, however, be impacted by other changes (e.g., their inability to bring dependants to the UK).

Final thoughts

In summary, while it would be difficult to isolate the exact effect of each of the changes announced by the Home Secretary on a given sector of London’s economy, it is evident that collectively, these changes are expected to make recruitment and retention of non-UK employees more difficult. This is likely to affect sectors that have an over-representation of non-UK employees, which also happen to be crucial to London’s economy and its standing as a global, 24-hour city.

As the changes are expected to affect hundreds of thousands of employees, they could reinforce existing shortages that have been reported in sectors such as hospitality, retail, and construction. In turn, this is likely to carry considerable implications for London’s economic growth and labour market outcomes.

Appendix

Table A1. Number of employees and earnings by sector, London residents

Source: HMRC PAYE-RTI

Note: The table shows an annual median salary for London sectors taken from the latest RTI PAYE dataset. Note that average median salary is multiplied by 12 to get annual equivalent.