Culture, Tourism, Europe and External Affairs Committee

Meeting date: Thursday, November 1, 2018

Official Report 795KB pdf

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Immigration Inquiry

Good morning and welcome to the Culture, Tourism, Europe and External Affairs Committee’s 27th meeting in 2018. I remind members and the public to turn off their mobile phones. Any member who uses an electronic device to access committee papers during the meeting should please ensure that it is set to silent.

Agenda item 1 is an evidence session for the committee’s inquiry into immigration. We will hear from the Migration Advisory Committee’s chair, Professor Alan Manning, via videoconference. I welcome Professor Manning. Good morning—can you hear me?

Good morning. I can hear you—can you hear me?

Yes. I will focus on one of the headlines from your committee’s report on migration. You proposed restricting the low-skilled migration route, so that European Economic Area citizens would apply through the tier 2 visa system in the future. That would rule out 75 per cent of current EEA migrants. Applying the salary threshold of £30,000 for migrants would severely restrict the number of people who could come to the United Kingdom and to Scotland in particular.

On the £30,000 salary threshold, you propose to include 142 new medium-skilled jobs in the umbrella of the tier 2 visa. What percentage of those jobs in Scotland would meet the salary threshold?

You raised a number of questions. Would you like me to take the last one first?

Yes—or whatever you feel is best.

To take the first point, we proposed looking carefully at whether a lower-skilled migration route is needed. It is a little misleading to say that the proposal would mean that 75 per cent of existing migrants would not be eligible to be here, because the existing stock would remain. The proposal should be seen as restricting the future flow, rather than influencing the current stock.

Even in the absence of an explicit lower-skilled work route, there are always quite substantial flows of lower-skilled migrants through other routes, such as the family route. For most non-European Union migrants, there is no explicit lower-skilled migration route, but quite a lot of non-EU migrants are in lower-skilled work. I accept that our proposal would restrict the future flow, but it should not be seen as threatening people who are already here.

Our view on why the £30,000 threshold is appropriate is that, first, the figure is close to median earnings in the UK as a whole and in Scotland. Any migrant whose salary was below median full-time earnings would, in a little way, make the UK or Scotland a lower-wage economy, which is not our vision for the future.

You are correct, convener, in saying that the medium-skilled occupations to which we propose extending the current tier 2 will find it harder to meet the salary thresholds. In Scotland, something like 52 per cent of jobs at levels 4 and 5—the upper medium-skilled jobs—pay more than £30,000. For the lower medium-skilled jobs, the proportion is 36 per cent. Those proportions are very close to the national averages.

Although there is a bit more of a stretch for jobs in such sectors, we think that the approach is appropriate, because the reason for wanting to allow migrants to enter those jobs is to alleviate potential problems with skills shortages, and if there are skills shortages we think it appropriate that there be upward pressure on wages in those sectors. We see the salary thresholds as helping to ensure that.

Thank you for that answer. You talk about the UK as a whole, but the median salary for a worker in Scotland is less than the UK average. During this committee’s immigration inquiry, several employers said that the £30,000 threshold is far too high. Do you acknowledge the regional variations across the UK?

We looked at the regional variations. The most recent figures on median full-time annual earnings were published a week or so ago and relate to April of this year. I think that the difference between the UK average and the Scottish average is a few hundred pounds, on a base of slightly less than £30,000. The median level of earnings in Scotland is not very different from the UK average.

That is one of the reasons why we did not think that the regional differences in earnings were sufficiently large to justify different salary thresholds in different parts of the UK. We looked at the question and thought that, if one was to go down the route of regional differentiation, it is much more likely that there would be higher salary thresholds for London and south-east England than that there would be a lower salary threshold for Scotland.

Businesses also told this committee that there is no obvious ready supply of local, UK-born workers to fill low-skilled and medium-skilled roles. Where do you suggest that such workers come from, given what businesses are telling us?

Individual businesses sometimes see migration as a solution to shortages and difficulties with recruitment, but the evidence—when one looks at the economy as a whole—is that that is not really effective.

Let me give an example. An employer who has a vacancy at the moment will naturally think, “If I hire a migrant, I will have solved the shortage issue.” However, that migrant earns money and spends money, and when they do so they create demand for labour elsewhere in the economy, so really all that happens is that one shuffles shortages around the economy.

The evidence that we considered suggests that migration into an economy adds to labour supply and labour demand in roughly equal balance, which is why it does not really alter the balance between labour demand and labour supply.

Oxford Economics said that if your recommendations are implemented and there are fewer EU workers as a result, we might have to have tax rises to compensate for the loss of the money that EU workers currently put into the economy. Is Oxford Economics wrong in that regard?

No, I do not think that it is wrong. We commissioned Oxford Economics to do some work for our report, which makes clear that, at the moment, EEA migrants as a whole are paying more in taxes than they are receiving in benefits or public services. However, that does not mean that every one of those migrants is contributing more in taxes than they are receiving.

Under our proposals, we think that the contribution would be even more positive. We think that, if the changes that we propose are made correctly, the public finances would improve. I do not want to exaggerate the likely benefits, but the public finances would not get worse, because one is being more selective about migrants and, if one selects in part on earnings, one is selecting for people who generally pay higher taxes.

I want to press you on that. Oxford Economics has said that tax rises may be necessary to compensate for the disproportionately high contribution that EEA nationals make to the UK finances. Is Oxford Economics wrong?

That does not distinguish between different types of EEA nationals, and there is a huge difference between—

It is about EEA nationals overall.

Overall, they pay more currently, but our proposal is not to restrict all of them; it is to shift towards the more highly skilled. Since 2004, EEA migration has predominantly been into lower-skilled employment, and that now accounts for about 60 per cent of EEA migrants. The work that we commissioned from Oxford Economics suggested that the 60 per cent of EEA migrants who come from the accession countries contribute only 6 per cent of the total surplus of all EEA migrants, and some of those accession migrants will be highly skilled. Therefore, if we restrict lower-skilled migration, that will improve the public finances.

I have questions on regional variation in the immigration system, which the MAC considered. In a debate on the issue in Parliament at the start of the year, there was broad agreement across the chamber. All the political parties were in a different place on the scale, but there was support for a coherent UK immigration policy that allowed for regional variations to respond to Scotland’s sectoral needs, declining birthrate and elderly population.

However, the MAC has ruled that out and suggested that it is not possible. One comment suggests that it would be a political decision rather than an economic one. However, the consensus in the Parliament, with all parties committed to a degree of variation, showed that it is a response to our economic and demographic situation rather than a political choice. Will you explain your committee’s thinking behind that?

The issue that we saw as being for a political decision was whether immigration should be devolved or reserved. We do not express any view on that one way or the other—we had no view in favour of the status quo or of immigration becoming a devolved matter. Even within the current system, it is obviously possible to have a degree of regional differentiation, and there is already a separate Scottish shortage occupation list, although the differences are relatively small.

Our argument was that the economic case for having a distinctively Scottish migration policy was not particularly strong. You mentioned the demographic issues, for example—

I am sorry to interrupt but, although you did not think that there was an argument for a specific Scottish policy, you recognise that Wales and the north of England have similar issues to those in Scotland. Did the committee consider a variation model across the UK that would meet the needs of not just Scotland but other areas and which would be a proper regional system, with a degree of flexibility for regional needs?

The issue that comes up here, which is not unique to migration policy—the national minimum wage is a similar issue—is that there is a trade-off between having a system that is relatively simple and easy to understand and dealing with differing economic needs. One complaint that many employers make about the current system is about how complex it is. Obviously, regional differentiation would introduce a new level of complexity into the system. Our view is that the regional differences are not so large as to justify having a regionally differentiated policy. If there was to be one, the policy for London and the south-east would be different from that for everywhere else.

Let us imagine that it is easier to migrate into some parts of the UK than it is to migrate into the others. One of the issues with a regional migration policy is whether those migrants stay in the long run. If they do not, you would not be addressing the demographic problem that you had hoped to solve.

Canada and Australia have region-specific visas. The evidence on the success of those schemes is a bit mixed. The remotest parts of Canada struggle to retain immigrants who enter under regional visas.

09:00  

Did you look in detail at the Canadian system? It is held up as an example of a national immigration policy that contains regional variations.

Another issue is that the proposals focus very much on work visas, which can be short term. An issue that we have with those who come in on a visa is encouraging them to settle in Scotland, become part of our society and continue to live here. I am not convinced that the proposed system would give people that long-term settlement option; rather, the model focuses on the immediate economic needs, and once those are served by those who are allowed to come, their time is up.

The tier 2 work permit system has a path to settlement. It is possible for migrants to come under that scheme and, after a number of years and meeting certain criteria, attain indefinite leave to remain and eventually citizenship. That system is fairly common around the world. I would not describe it as a work immigration system that is primarily temporary in nature.

We have looked at the Canadian system. The most interesting part is looking at how successful different parts of Canada have been in retaining medium and longer-term migrants who come under regional visas. As I said, areas such as the Atlantic provinces manage to retain only about 40 per cent of migrants who enter under those schemes. It is not an effective way of preventing, for example, depopulation there.

Good morning, professor. Has the MAC done any modelling on the likely impact of its proposals on future patterns of migration in Scotland?

We have not produced estimates of what we think the consequences would be on migration flows in Scotland or in the UK as a whole. We think that it is more important to ensure that the migrants who come to the UK are providing value—those are the ones that we would like to have. We are not so concerned about what the actual numbers are. Those numbers can be extremely volatile, because they are influenced not just by UK migration policy but by economic circumstances in other parts of the world and how the UK economy is doing.

That is an interesting answer, particularly your comments about the numbers.

Have you ever heard of a location called Inverclyde?

Sorry?

Have you ever heard of a place, or a local authority area, called Inverclyde in Scotland?

My guess is that it would be close to the Clyde, but I would not be able to locate it exactly on a map.

Given your comments a few moments ago, it is really important that I highlight some numbers for you. Between 1997 and 2017, Inverclyde’s population has decreased by 8.9 per cent, while Scotland’s population has increased by 6.7 per cent. During that period, the 25 to 34 age group has decreased by 28.6 per cent and the 75-plus age group has increased by 20.9 per cent. For the 2016 to 2026 period, it is projected that Inverclyde’s population will decrease by 3.8 per cent, while Scotland’s population will increase by 3.2 per cent. My final point is on the population projections for the age categories. Between 2016 and 2026, the 16 to 24 age group will decrease by 13.2 per cent, but the 75-plus group will increase by 20.8 per cent.

Where are we going to get the people to work in the social care sector and deal with our ageing population?

The area that you are describing sounds like one that used to have quite a lot of heavy industry and those industries are not doing so well at the moment. I am not sure whether that is accurate in relation to Inverclyde.

The problem with asking whether migration is a solution to Inverclyde’s problems is that the reasons why people are leaving Inverclyde will also apply to migrants. An area may be able to recruit migrants to work in social care in the short run, but it is likely that they will, as soon as they have the freedom to do so, leave for better economic opportunities elsewhere. Canada’s live-in caregiver programme, which has some similarities, although it is not identical, has had some of those problems. It offers a specific social care visa, but after 10 years, only 10 per cent of the people who came in through that route were still working in social care, because the fundamental problem is that working in social care is not very attractive.

Social care faces some very serious problems, and the MAC is not convinced that migration is the solution. The answer is much more about ensuring that social care jobs have attractive terms and conditions that appeal to UK residents and migrants alike. That means solving the financing problems. I am not saying that they are easy problems to solve; that is simply our view on social care.

In Scotland, 25 local authority areas are experiencing negative natural change, out of 32 local authorities. We have an ageing population and people will move between different authorities—we all agree and accept that reality—but the population has reduced in 25 local authorities. People have to come from somewhere to work in the social care sector—although it is just one example—across Scotland and not just in areas where there is a population increase. Where are they going to come from?

Our view is that there are plenty of domestic workers—current residents—who are capable of working in the social care sector. However, those people think that they have better opportunities elsewhere because the terms and conditions in social care are very unattractive.

I go back to the point that an area might be able to recruit migrants to plug those gaps in the short term, but unless we address the underlying and fundamental cause of the problems, they will not be solved in the medium to long term.

I described the Canadian system and the problems that it ran into, which resulted in the programme being closed to new entrants in the spring. Canada does not have a problem with an ageing population; it has a problem with social care, as do many countries, and the scheme was not very successful in addressing the problem.

People who work in the sector have a special skill set and businesses have to train people to get them into work in the sector. I accept that the problem cannot be solved by migration on its own. However, at the same time, we want to ensure that people who go into the sector have the relevant skill set. Consider the difference between people whom it would take some time to train to get the skills, and people who already have the skills and could go to work in the sector immediately.

I gave the example of my local authority area to show how acute the issue is. I have not heard anything from you that would provide a solution that would help my local authority or other local authorities in Scotland.

The role of care assistant is the biggest occupation in social care. Employers do not require a person to have done much training before employing them at the moment, and a very big fraction of care assistants are paid the minimum wage. There are arguments made that there should be more training, but training costs money and the sector is short of money. At the moment, training is not an issue for the bulk of employment in the sector.

Migration is not an effective way to solve the problem. If, for example, we consider whether free movement is a solution to social care’s problems, we see that social care has a lower share of EU migrants in its workforce than the economy as a whole has. The same is true of the national health service. If you are worried about social care, you should note that our existing migration system is not an effective way to solve its problems.

We flagged up social care as being a lower-skilled sector that we are concerned about. Migration might provide a short-term fix, but it is not a medium-term or long-term solution.

You have mentioned on a couple of occasions the situation in Canada, and suggested that your inquiries showed that the regional variation did not work. As you know, our committee conducted its own immigration inquiry, in which we were advised by Dr Eve Hepburn of the University of Edinburgh. She pointed to a Canadian Government evaluation of its regional migration scheme that used income tax returns to find out where people stayed. It found that 82 per cent of migrants stayed in the region to which they were originally allocated. Was your research on Canada more in-depth than the Canadian Government’s research?

In the Canadian Government research that I am aware of, there were big differences in retention rates across Canada as a whole and in the provinces. In parts of Canada that are doing well economically—for example Ontario, British Columbia and Manitoba—there were very high retention rates, but in the Atlantic provinces, which have more remote communities and bigger geographic challenges, retention rates were much lower, but those are the areas that migration was supposed to help.

I am sorry to interrupt. I accept your point that there are variations in retention rates, but according to the Canadian Government research that we have, the Atlantic region that you mentioned has the lowest retention rate, but it is still 56 per cent. I would have that where there are challenges a 56 per cent retention rate would be rather good.

I am not sure that we are on the same page. The time horizon over which that 56 per cent is retained makes a bit of a difference.

When I first started talking about it, I described the evidence as mixed. We are not convinced that migration is a particularly effective solution to the problem of depopulation. The roots of depopulation are economic disadvantage and so on, so the policies that are used to reduce regional inequalities should be much more about addressing economic disadvantage. There is a danger that migration might be used as a way of avoiding addressing the fundamental causes of regional inequalities.

I note that all the members of the Migration Advisory Committee are drawn from one nation of the UK—England. Can you clarify why?

09:15  

The application process is open to people from all parts of the UK and there is a process to select the most suitable candidates. It is not the case that members are thought of as representing a particular geographical constituency. I think that it would not be appropriate for the MAC to have members who represent particular constituencies.

We make a lot of effort to make sure that we come to Scotland, Northern Ireland, Wales and the other regions of the UK so that we have an accurate picture of what people feel about migration in all parts of the UK.

Scotland is not a region of the UK; it is a nation.

In drawing up your report, what modelling, if any, was carried out vis-à-vis Scotland, to inform your recommendations?

The Scotland-specific aspects were discussed more in the interim update that we published in March than in the final report that we published in September. Many of the issues in Scotland are issues in the rest of the UK, because—

I am sorry to interrupt. That might be your assessment, but did you carry out modelling specifically for Scotland, given the particular issues that we face in the context of the powers of the devolved Government? For example, I am thinking about the need to pursue economic growth by using our devolved income tax powers, which is why I asked whether there was modelling that specifically reflected the Scottish position.

We analysed, for example, the impact of salary thresholds in different parts of the UK, including Scotland. We also looked at the demographic projections for different parts of the UK. We have not done an assessment of how different migration policies would affect the fiscal position of the Scottish Government, specifically.

That raises a question about the validity of your conclusions, as far as Scotland is concerned, given the key importance of the issues that I mentioned.

You argued that one way to address Scotland’s demographic challenges might be to increase the pension age. What pension age do you suggest?

We did not propose an increase in the state pension age. We showed what would happen to the dependency ratio under the proposals for increases in the state pension age that are currently Government policy. The point that we were trying to make was simply that policies to increase the state pension age—which are already in place—are more effective than migration in changing the dependency ratio.

Did you model an increase in the state pension age beyond 67 years?

I think that the current proposal is for the state pension age to rise to 68, over quite a long period. I cannot give you exact dates. In looking at projections for 20 years out, as we have been doing using Office for National Statistics projections, that is what is proposed.

The suggestion that Scotland’s demographic challenges could be met by increasing the state pension age to some unspecified age has been met with incredulity quite widely across Scotland, on the basis that such increases would be unsustainable.

I know that other members want to ask questions, so this is my final question. I think that you said in response to an earlier question that if it were considered appropriate to have regional variations in the approach, such variations would be reflected in London and the south-east—it is in those areas that a differentiated approach would be appropriate. In light of the questions that I just asked and the answers that you gave, I put it to you that what you have come up with is a policy for London and the south-east, which does not reflect the interests of Scotland, as far as this Parliament is concerned.

I do not quite understand why you would say that. Will you elaborate on how you think that our proposals do that?

You have just accepted that you did not carry out any specific modelling reflecting the particular position of Scotland, including this Parliament’s current taxation powers—a key issue. Absent such an analysis, the report does not reflect what we need to see in Scotland. Rather, it seems simply to reflect the interests of elsewhere in the UK—specifically, London and the south-east.

I do not accept that. Just as we did not do any specific modelling of the situation in Scotland, we did not do any specific modelling of the situation in London and the south-east. When it comes to the fiscal impacts of the changes that we propose, I would be surprised if Scotland was very different from the rest of the UK, because its actual economic situation is really quite close to the UK average. It would be wrong to assume that you would get very different answers if you took our proposals about the impacts on the public finances and applied them to Scotland.

Thank you.

I have been really frustrated by this debate, because it is being conducted purely in narrow economic terms. We are not talking about units of labour; we are talking about people, who are so much more than their net economic contribution.

What evaluation have you made of the system changes that would be required to implement the policy changes in your recommendations? For example, the proposed changes to tier 2 are considerable; a far larger number of people would be involved than are involved at present. The Home Office is not famous for its efficiency and accuracy, or the robustness of the systems that it currently employs—some people wait three years or more for a decision. Did you undertake any evaluation of how long it would take the Home Office to grow its capacity and change and improve its systems in order to be able to implement the recommendations?

As a committee we are not expert in and do not generally get involved in such operational issues. However, it would be naive of us to be completely unaware of them. Part of our proposal was that the tier 2 system would bear a much greater burden under the future system that we propose than it bears currently. There are concerns about how fit for purpose some aspects of the operation of the current system are. We are very serious when we say that the Home Office really needs to engage much more with users of the system—it does not seem to do that much at the moment—to make sure that it is fit for purpose. However, our proposals are based on the assumption that the Home Office is capable of operating a system that is efficient, transparent and fair.

Will you explain a bit more what your report says about the review or analysis that would be required of tier 2? Much of what you have done has resulted in some relatively specific recommendations. There are specific recommendations in relation to tier 2, but there is also a section in your report, which I think was written in response to a lot of the evidence that was submitted to you, particularly by business, on the need to conduct a much more in-depth review or analysis of the tier 2 system.

Given the timescales to which we are operating, with Brexit fast approaching and the transition not lasting that long after it, the challenge of conducting such a robust review—and then implementing the changes that would be required off the back of it—would seem to be beyond the capabilities of a department that managed, 60 years on, to screw up the application documents of the Windrush generation.

The proposals are for the end of the implementation period—early 2021 at the earliest. There is time, although it is correct to say that the Government would need to come forward with pretty specific proposals in the not-too-distant future in order to give business adequate time to plan.

We said that we are not convinced that the resident labour market test serves much purpose at the moment. That would simply mean that we remove that from the evidence that is currently required. That would not be particularly difficult. It should be relatively easy to remove those sorts of requirements from the current tier 2 system, because it is about stripping out bureaucracy, rather than adding in a set of questions and criteria that people have to satisfy.

The evidence that you collected was robust in showing the clear and substantial economic benefits that freedom of movement brings. The UK Government’s policy position is to end freedom of movement. Were you able to find or produce any data that shows that there would be a net economic benefit of ending freedom of movement, or were you limited in the scope of what you were able to do in designing a system based on the assumption that that policy decision had already been made? Were you trying to find something that reduced the negative economic impacts as much as possible?

I would not describe our conclusions as being that freedom of movement has had clear benefits. We looked at a wide range of outcomes—

I am sorry to interrupt, but did you find any evidence that freedom of movement has not had clear economic benefits to the UK?

Our view is that the effects have been fairly small—there have been neither big costs nor big benefits. Our view is that if we alter the system, we can accentuate the benefits and mitigate the costs. The issue with freedom of movement is that there is no control on the numbers and the mix of migrants who come to the UK. If we have some control of the mix, by making it easier for higher-skilled workers than lower-skilled workers, that would accentuate the benefits and mitigate the costs.

A proposal that makes migration easier for more skilled people is in line with what most other countries, such as Canada, Australia and New Zealand, are doing. The reason that those countries are not choosing freedom of movement is that they want to have some control over the number and mix of migrants.

Given the increasingly competitive nature of international student recruitment and the decline in the number of students coming to the UK from countries such as India, would not a post-study work visa scheme make the UK a more attractive place to come?

A post-study work visa, with unrestricted work rights, would probably increase demand for places in our educational institutions, but we think that demand should be based around the quality of education offered and the opportunity to move into skilled work. We did not propose a specific post-study work visa, but we proposed extending the length of time that masters and PhD students have to find skilled work after the completion of their studies. We also proposed that the advantages that students currently have, if they want to move to a tier 2 work permit while they remain in the country, should continue for some years after graduation, even if they leave the UK.

It is important to build demand for our higher education around work opportunities for graduates, but it is important that that is skilled work and not just any work.

Universities wish to remove students from the net migration target, so why does the MAC recommend that students remain within that target?

We said that if there is a problem with students being in the net migration target, the problem is with the target itself, rather than with the inclusion of students in that target. If we removed students from the net migration target, it would require an awful lot of work because we do not have good statistics, particularly on student emigration. Furthermore, it would make almost no difference to the net migration statistics because most students leave at the end of their studies—currently, they are counted as an immigrant when they come in and as an emigrant when they leave. If we do not count them in and we stop counting them out, all that we do is alter the timing of when they affect net migration. However, it makes almost no difference to the net migration figures.

09:30  

I think that one of the reasons why colleagues on the committee are concerned about the rigid salary criteria is that they give London a competitive advantage. Members raised that issue, so I will not go into it further.

Of course, we have never had completely free movement across the EU, because when the accession states came in a decade and a half ago, the UK was one of only three countries that did not put up barriers against accession-state citizens, as you will probably recall.

Migration is a two-way street. In your report, you focused on the work route—I think that that is a weakness of the remit that was set for you. You said that you see no compelling reason for having different inward migration policies for EEA and non-EEA countries, following Brexit. What will be the impact on UK citizens who want to live, work and study in the EU if there is no differential in that regard? Will EU countries immediately feel obliged to put up barriers against UK citizens?

Our recommendation was for a scenario in which immigration has not been part of the negotiations with the EU and, in some sense, the UK is setting its immigration policy on its own after the end of the implementation period. We expressed no view at all on whether immigration should be part of the negotiations. I think that the natural place for providing for some preference for EU citizens in the UK and, correspondingly, UK citizens in the EU, would be as part of the negotiations, rather than in a situation in which those issues have not been part of the negotiations.

You are quite right to say that freedom of movement is a reciprocal right and that there is a risk that UK citizens will lose their rights to go to European countries. Prior to 2004, I think that freedom of movement was reciprocal not just on paper but in practice—it was more or less balanced. What happened after the accession of the eastern European countries in 2004 was that it became not reciprocal in practice: there were many more people from eastern Europe who wanted to exercise their treaty rights in the UK than there were UK citizens who wanted to exercise their treaty rights in eastern Europe. That is probably one of the sources of the concern that people have had about freedom of movement, which I think was of less concern to people before 2004.

As I said, only three EU countries did not restrict the number of accession-state citizens who could come in, initially, and the freedom of movement policy was not thrown out at that point. The baby was not thrown out with the bath water.

You looked at the impact of restricting migration to the UK. Surely there is a quid pro quo. If we restrict immigration, our citizens might be restricted in their ability to go to the continent. What economic impact would that have? Surely such an approach would diminish the UK and the remaining EU states.

One has to be realistic. If immigration does not end up being part of the negotiations and, as a result, the UK ends up in a situation in which it sets its immigration policy more or less on its own, as countries such as Canada and Australia do, we will be a third-party country in the eyes of the other European countries in the context of how they treat immigration of our citizens into their countries. That is something to bear in mind in considering whether immigration should be part of the negotiations.

If restrictions were to be imposed on our citizens, that would be detrimental for the considerable number of UK citizens who want to live and work in the European Union, would it not?

It would be; it would be a restriction of choice. It would not be that unusual: Canada, Australia and other countries restrict the right of our citizens to immigrate to their countries and do not consult us when they make changes in that regard. It would not be a completely new situation, in the global sense, although it would obviously be new in relation to Europe.

I want to understand the arguments that Professor Manning made at the start about the £30,000 salary cap and how it impacts on industries across the UK that rely heavily on people who are paid less than that. Is it your contention that that is for those industries to sort out? If I heard you correctly, you said that migration will absolutely not be part of the solution to the problem of such labour shortages.

Our view is that migration can address skills shortages when we are talking about jobs using skills that require a relatively long training period, but it does not really solve the problem of generalised skills shortages. A shortage is essentially labour demand running ahead of labour supply. Migration increases labour supply, but because those migrants spend money and so on, they also increase labour demand. Migration, therefore, does not solve the problem.

Since 2004, most EU migration has been for lower-skilled jobs. Earnings of migrants from the accession states are 30 per cent below the average. The availability of labour for those lower-wage and, generally, lower-productivity sectors gave them a tail wind, which led to expansion. However, it is not obvious that such migration has contributed to the vision of making Scotland a high-wage, high-productivity economy, and there has probably been a little bit of movement in the other direction.

Last Thursday, I was at an event here in Edinburgh for the UK hospitality industry. I sat next to a person who owns a hotel in the west country of England, where I have family, and who also has hotels in Scotland. He told me that they simply could not get staff to do some of the lower-wage jobs in those hotels without hiring people who come from different parts of Europe, who currently work for them. If the salary cap is £30,000 he will not have those people, will he? Have I misunderstood the proposals that your committee made?

Many of the jobs in hospitality would not be eligible under our proposals. The hospitality sector has been fantastic in creating a large quantity of jobs, but it has not been very good at creating quality jobs—95 per cent of jobs in hospitality pay below average earnings. It is obviously an important sector in the west country and parts of Scotland—no one is saying that it will not be important—but if we want to move towards a high-wage, high-productivity economy, hospitality, as it runs at the moment, paying really rather low wages, is not a sector in which we would want to encourage growth. Since 2004, the hospitality industry has found it rather easy to grow, but our proposal is that such growth should not be so easy in the future. It is about restricting growth, not getting rid of what is there already.

Are you saying that the hospitality industry should not grow or that the number of people who come in from different parts of Europe, who work in the hospitality industry, should not grow?

On average, every extra job in the hospitality industry makes the UK a lower-wage, lower-productivity economy. In considering which sectors we want to grow as a share of employment in the UK, we should not focus on hospitality. However, since 2004 we have had a migration policy—not by design but by accident—that has favoured lower-wage, lower-skill sectors. We are saying that we have to sit back and think about whether that is really the way that we want the UK to go.

I am a bit puzzled. Tourism is Scotland’s biggest industry, and as the hotel owner from the west country said to me last week, it is the biggest industry in that part of England, too. Your analysis—I do not mean this personally, in any sense—suggests that we should give up on tourism. The only people who will be able to afford to stay in hotels will be those who can afford to pay £500 a night for a room in the middle of Edinburgh or London, because if we follow the logic of your argument, everyone’s wages will have to go up and, by definition, businesses will push up their costs, so staying overnight will cost a huge amount more than it currently does. That cannot do anything other than destroy the tourism industry in the west country.

I do not think that it will destroy it—

But it will be just for rich people—

It is important that the sector competes for labour with other sectors, such as retail. Many jobs in hospitality could be done by people who are not currently working in hospitality, but the problem is that hospitality often pays very low wages. As I said, 95 per cent of hospitality jobs pay below-average earnings. The sector needs a little pressure on it to increase productivity and provide quality jobs, rather than the quantity of jobs. Making migration harder—but not impossible; we are not saying that there is no source of labour for the sector—is an appropriate nudge for the sector to go down that route.

Has that Government policy been advised to the owners of the hotel chain that is letting out rooms in London and Glasgow for £19 a night?

Ultimately, we are interested in providing high-quality jobs and a high quality of life for UK residents. I do not know about the hotel chain to which you referred, but if we were to look at the wages that such chains pay their workers, we might ask whether they are contributing to the provision of a high quality of life for UK residents.

Thank you.

Another important area of the Scottish economy is agriculture. The National Farmers Union is concerned about your proposals, because 99 per cent of seasonal agriculture workers in the UK come from EU countries, and if employers have no access to those workers there is a real possibility that crops will go unharvested.

I am concerned by some of your comments in response to concern that the seasonal agricultural workers scheme was not sufficient to meet the needs of the industry. You said in your report:

“While the failure to have some type of SAWS would be bad for the sector it is a small, low-wage, low-productivity sector in the wider UK context so this should not be seen as catastrophic for the economy”.

Do you think that crops going unharvested is not catastrophic for the economy?

First, we proposed a seasonal agricultural workers scheme, for exactly the reason that you gave, which is that close to 100 per cent of seasonal agricultural workers are migrants and we see no realistic prospect of sourcing that workforce in the resident labour market.

We also said that we must recognise that productivity in agriculture as a whole is 40 per cent of the national average—some parts of agriculture are more productive but, overall, agriculture is a very low-productivity sector. We have nothing against the sector; we would like it to produce output in a more productive way. We do not want crops to go unharvested; we want the sector to be more productive in producing crops, which means that it will be able to pay higher wages than it currently pays. Like tourism, agriculture tends to be a rather low-wage sector at the moment.

The NFU has said that the pilot seasonal agricultural workers scheme is not enabling employers to recruit the number of workers that they need. You seem to be saying that you want some agriculture businesses to collapse; they are not productive and you would like to see them go to the wall. Is that what you are saying?

09:45  

No. We want to see those businesses increase their productivity. We want to see all businesses thrive, but at the end of the day there is the question whether a business is productive enough to pay competitive wages. I am afraid that no business has the right to be in business if it is paying wages that it says it cannot afford. I am afraid that that is true not just in agriculture, but everywhere.

We recognise that the agriculture sector is very dependent on seasonal labour. The pilot is a Government proposal; it is not the MAC’s proposal. I think that the NFU was concerned that the numbers involved were rather small relative to the total seasonal agricultural workforce.

It is important to understand that the problems that farmers in Scotland and the rest of the UK have had over the past two seasons have occurred without changes to the current migration system. They have primarily been driven by the fact that, when the pound fell in value after the referendum, the wages of seasonal agricultural workers who were earning in pounds essentially fell by 15 per cent, and they could earn more if they went to Germany or other parts of the eurozone. The recruitment problems have come about because the sector struggles to compete for labour with farmers in other parts of Europe.

Does that being the situation before Brexit make the point that things will get even worse after Brexit?

In the report, we showed that, since 2004, land that is planted with labour-intensive crops has increased a lot. Agriculture is one of the sectors that have had a tail wind with the ready availability of lower-skilled workers from eastern Europe who are prepared to work for lower wages, and it is possible that it will not expand as fast as it has over the past 10 to 15 years. Indeed, it is even possible that it will contract a bit. However, it is important to have a sense of perspective. That contraction would send the sector back to where it was a few years ago; it would not be a matter of the sector being completely destroyed in a way that we have never seen before.

Is contraction in the food and drink sector in Scotland an acceptable price of Brexit?

There are very low unemployment rates generally in Scotland and in the UK, at the moment. Therefore, our problem is not really with the quantity of jobs; it is with the quality of jobs and real wages. It is important that the sectors that we really want to grow are those that pay higher wages. We want upward pressure on wages in sectors because wages ultimately determine people’s living standards. We want competition among employers for workers, but workers will go to employers that can pay them better wages, and they will generally be the more productive workers. That is the mechanism by which the economy and society become more prosperous.

To me, what has been said is like something that has been thought up in a laboratory. Ross Greer talked about real people. Will someone in his mid-50s who has a small guest house in the Highlands, employs four or five workers and is trying to compete for customers not just locally but internationally, suddenly work in the artificial intelligence industry as a result of wages being forced up and his business being made uncompetitive? A lot of those people do not have other options. It is simply not the case that the quarter of a million people who work in the Scottish tourism industry or the tens of thousands who work in agriculture can change, and it is quite flippant to talk about effectively destroying people’s livelihoods and businesses by saying that we can go back to where we were in 2004. People have invested their time, money, skills and emotions in building up businesses, and you seem to think that, at the end of the day, they are not particularly economically productive and therefore, “So what?”

You talk about quality of life. If ordinary families cannot afford to stay in a hotel because it is no longer competitive, and instead take their money overseas and do not spend it holidaying in the Highlands, Cornwall or Wales, how does that help the UK economy? I simply do not understand the arguments that you are putting forward, even from an economic perspective.

From an economic perspective, the employer of that guest house should be competing for workers with all other employers in the local economy. That is what is appropriate.

In small Highland villages, or other rural parts, there may not be available workers. Workers have to be brought in from elsewhere because there are simply not enough people available, who have the aptitude and attitude for the work. Working long shifts in far-off rural places is not an easy job. Many people might want to do it for a year or two when they are young, but then move on to something else in life. I do not see how strangling that opportunity because we are effectively making Scotland and the UK uncompetitive in the world tourism market—we have had an inquiry on that in relation to a possible tourist tax—helps the communities, the business owners, individuals or the UK economy overall.

Such communities also often have a problem in retaining people who have grown up there. That is connected to the fact that the employment opportunities in those areas are not terribly appealing. One of the things that those communities should be trying to do is provide higher-quality jobs. It is not just a question of the wages that they pay; it is also about productivity. There are often ways of using current employees more productively. No one is saying that Scotland should not be allowed to retain your current employees. That is the route that we would like to nudge business down. Ultimately, productivity growth leads to rises in living standards, which is what we are trying to achieve.

No one is threatening the businesses: we are saying that we would like those businesses to be less reliant on there being a continual flow of workers. I do not know about specific cases that members have referred to, but some such jobs are at the minimum wage. We want people to think more about how their business could thrive without the continual flow of lower-skilled migrants, who the businesses do not retain because they go on to better opportunities elsewhere.

I understand the argument that we have identified low-skill, lower-wage sectors including tourism and agriculture, and that there is a desire to increase wages in those sectors. However, I am not convinced that cutting off the labour supply is the way to do it. Has the Migration Advisory Committee done any analysis of the impact on the sectors that members have identified this morning?

We have already spoken about Scotland’s low birth rate and elderly population, and we can see that other areas across the UK are facing similar problems. If freedom of movement is ended, where in the UK economy will the workers come from to replace those who have been coming from overseas?

There is the current stock of people who are already here. No one is proposing any change to those people—they have settled status and so on. Even under our proposals, the flow of lower-skilled migrants would not be cut off completely. There is always a flow through other non-work routes.

What do you mean by “other non-work routes”?

I mean the family route, asylum routes and so on. There are quite a lot of other routes. We see quite a lot of people—not trivial numbers—coming in through the family route and working in lower-skilled jobs.

What we mean to do is restrict the growth in the labour supply for those sectors. We are not proposing to reduce the overall labour supply. That would put more pressure on those sectors. Since 2004, growth in them has been relatively easy. It would get a little bit hard.

It would be more than a little bit hard. Members have described the extreme difficulties that sectors will face. You have also expressed the opinion that we should be looking at restricting growth in tourism and agriculture. It is astonishing that you make those statements.

If we ask people what sectors they would like to grow as a share of the economy, they find those questions easy to answer. They talk about tech, high-end manufacturing, universities and things like that. The other side of that coin is that we have to be prepared to see some sectors’ share of total employment fall. People find that much harder to talk about because it might mean that it will be a little bit harder for people who have worked hard on their small businesses.

Those are the hard decisions that you will have to make. The UK as a whole has gone down a low-wage, low-productivity route by accident rather than by design, The question is whether you want to continue down that route or rebalance towards a higher-wage, higher-productivity economy. Our view is that if you are going to do that, you need migration to be easier for higher-skilled workers than it is for lower-skilled workers.

Thank you, Professor Manning, for giving evidence today. I suspend the meeting briefly for a change of witnesses.

09:56 Meeting suspended.  

10:02 On resuming—