Seven days from today, new immigration rules will come into force that will dent entrepreneurship in the UK, deterring foreign-born founders from starting and growing their business in the UK, while making it harder for domestic startups to hire the talent they need.
The headline is that there will be a significant increase in the overall minimum salary threshold from £26,200 to £38,700, but in many cases the 'going rate' for a job will be the key concern. This will mean many startups won’t be able to hire from abroad, with some having to let go current employees if they can’t justify the pay rise. At this point, you’re probably asking: what’s the ‘going rate’ they’re using to calculate if people get to stay? Well, it depends on the sector. To pick one almost at random, the minimum salary requirement for electrical engineers will jump from £31,440 to £53,500. And as Nick Rollason from Kingsley Napley told me: “Tech startups wanting to hire foreign software developers, programmers and developers will now need to pay them £49,900 (up from £34,000), an increase of 46%.”
Ambitious startups will be hit particularly hard. They often use equity as a form of compensation for early employees because they can’t always afford to pay them a competitive wage right away. But this alternative form of compensation isn’t factored into the system. Not always being cash rich, equity compensation is often the only way startups can compete with large companies to attract top talent, while aligning interests so they help scale the business over the long term.
To go from bad to worse, the changes will impact the entrepreneurs starting these companies. As Rollason informs us, “foreign founders who are being sponsored with Skilled Worker visas as directors of UK companies will need to be paid £84,100 (as opposed to the current £59,300).” Yet it’s very unusual for startup founders to pay themselves such high wages – especially not in the first few years. This is not just unreasonable. It is short-sighted. As our research has shown, 39% of the fastest growing companies in the UK have a foreign-born founder or co-founder. These include companies such as Oddbox, Zapp, Synthesia, Kroo, and Zilch. And remember, we no longer have a devoted entrepreneur visa, due to the poor design and implementation of previous attempts. So how is the UK supposed to maintain its competitive edge in innovation and entrepreneurship?
It gets worse. Rollason adds: “accessing the talent pipeline of foreign graduates coming out of UK universities will also be made much more difficult. Startups trying to sponsor these graduates have benefitted from a ‘new entrant’ discount on salaries paid to recent graduates. But again, with the increase in the ‘going rates’, the salaries to be paid to these new entrants are going up to £30,900. This compares to the current £23,800 pa for programmer and software developer roles.”
Some people think that going into an election there is a political inevitability to all this. After all, immigration ranks as the third most important issue for Conservative voters according to British Future’s latest Attitudes Checker.
Yet, despite Brexit, successive Conservative governments didn’t then close the door to talent (quite the opposite). Boris brought back the vital post-study work visa (admittedly it was Theresa May’s Government that got rid of it). And it was Sunak himself who brought in the innovative (if limited) High Potential Individual visa. There’s no denying that there are strong anti-immigration voices in the Conservative Party, but there is an equally strong cohort of growth-minded fiscally prudent business types who are aware that even when you account for the need for greater spending on public services, the evidence adds up to immigration being hugely beneficial to the UK.
As for Labour, it has vowed to review new foreign worker visa rules if the party wins the general election. But the party has already confirmed they won’t reverse the ban on foreign students bringing dependents to the UK and there are risks that some in Labour believe restricting labour supply is a way to boost wages. You don’t need to understand basic economics to know why this would be a terrible idea (but it helps). Nevertheless, the issue is only the twelfth most important issue for those planning to vote Labour, with most content with current levels of immigration. And given the state of public finances and demographic challenges, businesses will make the case for why they need talent to thrive (as will universities which appear to suffering from a massive drop in international students).
The election will be won from the messy middle, between the polar ends of ideology, but what constitutes the middling orthodoxy is up for grabs. For our part, we know whose side we’re on: Britain’s entrepreneurs. As The Economist argued on its cover: immigration is Britain’s real superpower.
On the topic of immigration, our friends at Jobbatical have an event on rethinking skilled immigration for UK business on Thursday, 18 April. Find out more and register for a place here. At the event you’ll here more about a report that I have been involved in.
Evidence in Session
Earlier this month, we launched our Private Business Commission, which is looking at the idea of whether Britain’s scaleups are able to hit their full potential. Chaired by Steve Rigby and supported by a team of expert Commissioners, it will be one of our biggest research projects to date.
As such, we’re looking to crowdsource facts and opinions on various questions relevant to the topic at hand. You might be an entrepreneur who’s faced challenges when scaling, or a researcher who’s close to the policy detail. Either way, we’re keen to hear from you. Learn more about the Call for Evidence by clicking here.
Britain's Superpower