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To the Tories, size clearly matters

November 22nd, 2010 Posted in Uncategorized by

The Liberal Democrats are not the only party faced with the uncomfortable consequences of a bad pre-election promise.

The Conservatives are coming under increasing pressure to abandon their growth-destroying immigration cap, and David Cameron has promised that the new immigration regime would be “business friendly” by ensuring that intra-company transfers were exempted.

Unsurprisingly, the representatives of the Blue Chips and Multinationals are cock-a-hoop.
Neil Carberry, CBI Head of Employment policy, said, described the report as “a thoughtful contribution to the debate about how a cap on migration might work.” For him, what was “important [is] that companies with an international operation can transfer their own staff, as required, on a temporary basis, and we would like to see these ‘Intra-Company Transfers’ exempted from the cap.” His new Chief Executive had previously said that “Introducing a cap for work permits is a valid way of balancing the need for skilled workers with the social pressures caused by immigration”.

But before the Tories are allowed to walk off into the sunset, hand-in-hand with their big corporate partners, we need to consider whether these policies really are business friendly, or whether they are in fact anti-competitive and harmful to small and medium enterprises that are not able to operate across numerous jurisdictions.

The Director General of the British Chambers of Commerce, David Frost, said last week: “The prime minister has said Britain is ‘open for business’. Our migration policies must reflect that sentiment.” Earlier in the month he went further, saying that “arbitrary restrictions on the number of talented non-EU nationals will not help increase jobs for UK workers… The Government needs to think again – and create a balanced migration policy that limits the number of low-skilled migrants, while allowing us to entice top global talent to the UK.”

Before the election, David Yeandle, head of employment policy at manufacturers’ group the EEF, warned that “with a cap there’s a danger that it will be set not on the needs of businesses but what politicians feel will be acceptable to the general public, but the two might not be the same…  A cap is very inflexible and doesn’t take into account the differences that take place in the economy during the year, and we could end up in a situation half-way through the year where companies need people but they have all been taken, and employers then can’t meet their business needs.”

At the same time, John Philpott, chief economist at the Chartered Institute of Personnel and Development (CIPD), warned that a cap could leave employers struggling to find skills, while wages could be forced up as competition for workers increases. “When a cap is put on the supply of labour, demand that otherwise would be met is not met. That means either vacancies are unfilled, or that employers compete for staff and drive up wages costs” (though he did also suggest that in the long term employers would seek to train existing workers).

The immigration cap is a truly moronic piece of legislation that not only prevents the UK economy from benefiting from some of the most hard-working and entrepreneurial people in the world, but doing so in a particularly cack-handed and economically illiterate way. This was recognised by Lib Dem business secretary Vince Cable, who described its effect on the economy as “very damaging”.

So, on one level, the decision to exempt intra-company transfers (the relocation of staff by a company from an office outside the UK to an office based here) is to be welcomed: it prevents one of the negative effects of this legislation, and hopefully will mean that more places are available for those whose decision to immigrate to the UK is not based within the operations of one firm.

But on another level, it shows exposes the Tories’ longstanding and unhealthy relationship with big business. The problem is that, while multinationals may benefit from being able to move staff into and out of the UK, smaller, domestic firms will not share the benefits. Thus, not only does it do nothing for Small and Medium Enterprises, it actually hands yet-another regulatory-imposed anti-competitive advantage to the UK’s largest firms.

It is typical of the Conservatives that they should add to the woes of SMEs by firstly preventing them from recruiting talent from the widest possible pool, and then providing loop-holes only for the largest firms. Some might also note that foreign companies operating in the UK will benefit at the expense of domestically-based UK competitors.

This week we have seen two sides of the Tories: the anti-competitive side that supports big business at the expense of smaller companies; and the anti-economic side that puts political expediency before economic science. There’s two sides to every story, and neither leaves the Tories looking good!

"Your business is too small. Get out!"

"Your business is too small. Get out!"

5 Responses to “To the Tories, size clearly matters”

  1. Stephen W Says:

    How the hell does a migration cap of 43,000 leave SME’s at a disadvantage?

    We have 2.5 million unemployed and the highest graduate unemployment for 20 years. We have centres for excellent education in every conceivable subject, skill and training area. I just do not believe there are no skilled people in this country unemployed and SME’s desperately need more than 100 skilled people every day to fill their staffing shortages.

    Please explain precisely how this works?

  2. Niklas Smith Says:

    There are of course unemployed skilled people in Britain – including yours truly – but by definition skills are often very specific: for example, all civil engineers can build a basic building but far from all of them are capable of tunnelling under London without causing damage or drifting off course. (Crossrail is one of the projects that needs foreign skilled engineers because we don’t have enough tunnelling experts in Britain.) Likewise, try finding enough Britons who know how to run a mass spectrometer (when the Oxford Project To Investigate Memory and Ageing advertised they only had one qualified applicant, who was Peruvian).

    Also, in economics you always need to remember about the opportunity cost of doing something. If an existing worker (say a maths teacher) is retrained for a more specialised job (say trading for a City investment bank), their new employer benefits from their work but their old employer loses out.

    And even if you retrain someone who is currently unemployed, a large amount of time needs to be spent: it takes four years to train a civil engineer at university, and seven years to train a doctor before they can be let loose on patients in a hospital – and even longer before they can qualify as a specialist. If a hospital has a staff shortage it doesn’t do much for the patients to tell them to come back in seven years’ time rather than allow in already qualified doctors from other countries! Likewise, holding up Crossrail until some British civil engineers can be retrained seems an unjustifiable expense to me.

    Phillipe Legrain’s book Immigrants: Your Country Needs Them goes into rather more detail than I have time for here on the economic impact of immigration and is well worth a look. The notes on those chapters also give useful pointers for further reading.

  3. Ed Joyce Says:

    Could Stephen W give an indication of any experience as the owner of a SME. Whilst I sympathise with his emotions his comments do not strike me as being formed by owning a SME. I have owner run a SME for ten years and it is clear that if large companies can bring in overseas programmers this will leave small programming houses at a disadvantage.

    Ed Joyce

  4. Stephen W Says:

    @Niklas Smith.
    Yes, I would class myself as an unemployed skilled person myself.
    Looking at your examples though. I wouldn’t have thought either Crossrail or the NHS would count as SME’s. In some cases the long term solution is surely to increase training provision in this country, especially since we have several qualified applicants for each place at medical schools.

    In the more short term I agree, qualified immigrants are economically essential. But there is considerable evidence that not all currents immigrants are the type of very specialist experts you are talking about. In many cases companies are just using it as an excuse to bring in lower paid labour simply and easily, rather than going through the bother of hiring our own unemployed to do the job for slightly more. In this circumstance an immigration cap is a very reasonable measure.

    Also, it is not like the Coalition is just banning further immigration. More than 100 people a day from outside the EU, companies can still bring in as many EU people as they like, doesn’t seem too extreme or likely to hit SME’s that hard.

    @Ed Joyce.
    No I don’t run an SME, but I know people who do, including family members, and I know numerous others who work in them. Maybe I should have been a bit clearer. I don’t deny that relatively speaking this will be a disadvantage for small businesses. I just deny that this will be a major economic problem, whether generally or for SME’s. There are plenty of unemployed, skilled people out there in this country. And unlimited EU immigration and a reasonable immigration quota of 110 people a day from outside the EU. Of all the SME’s I know very few genuinely need large amounts of skilled migration from outside the EU because the skills just don’t exist here. Now I’m sure examples are out there, but I genuinely don’t think in sufficient numbers to make the cap a terrible idea.

  5. Julian H Says:

    Stephen W – the point is that, under the proposed laws, large companies can pick from a wide (global) range of employees, while smaller companies cannot. That is the disadvantage.

    The thing is – while you may consider the effect of this to be insignificant, the economy is wrapped in regulation which also favours larger companies. Cumulatively this has a big effect, creating all manner of barriers to entry and competition.