Why Business Costs Will Rise Under the UK New Government

04 July 2024

When Rishi Sunak took to the Downing Street lectern in May to call a snap general election, the business community was just as taken aback as the rest of the country.

As soon as the rain-soaked Prime Minister stepped back indoors, one question will have erupted in boardrooms and offices across the country: what will change for us now?

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UK immigration and employment policy 2015-2024: an ever-changing story

UK businesses have operated in a quicksilver environment ever since the 2015 general election. The Conservative government’s introduction of the National Minimum Wage in 2016 first raised labour costs. Since then, a consistently tight job market with significant skill shortages has combined with a two-year bout of high inflation to drive up staffing outlays.

Companies that hire overseas workers have faced an especially volatile policy mix, thanks to headwinds like Brexit and changes designed to bring down net migration. After the end of EU free movement, Boris Johnson’s government introduced a sponsor licence scheme for any employer taking on foreign nationals.

This scheme set a minimum general salary threshold of ￡26,000 for overseas hires, plus an alternative ‘going rate’ measure based on the 25th percentile of earnings for the occupation.

In April 2024, Rishi Sunak’s government triggered a slew of changes ?to this immigration regime. The wage threshold was raised in one heave to ￡38,700, sponsor licence conditions became stricter, and the list of salary requirement-exempt shortage occupations was trimmed down.

Less than two months since these changes came into effect, businesses stand, yet again, at a crossroads. Whether Keir Starmer’s Labour Party sweeps to power or the Conservatives add another five years to their time in office, companies will have to adapt to a new regulatory dispensation.

While the manifestos have not yet been released, we’ve analysed the two main parties’ immigration policies so far to see what they augur for UK companies’ staffing strategies.

Spoiler alert: whoever wins in July, hiring costs are going up.

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Labour immigration policy in 2024

Since the calling of the election, what we know about Labour immigration policy suggests that the party will seek to cut net migration.

The Opposition’s flagship objectives are to raise wage levels for UK workers and reduce Britain’s reliance on overseas workers. The shadow cabinet tote a few policy areas shadow cabinet claim

Training and upskilling

Shadow home secretary Yvette Cooper has proposed training programmes for British workers as a way to fill the skills gaps left by lower net migration.

The party will introduce ‘new training plans and requirements for key occupations’. They have also committed to broadening the existing apprenticeship levy so that firms can use 50% of their contributions to fund training through other routes than apprenticeships, such as upskilling existing staff.

Labour will also pass a new law to compel government bodies to create skills improvement plans in sectors particularly reliant on overseas workers.

Starmer and Cooper seek to formally link the immigration and skills systems through law. In order to get sponsor licences, employers will need to show they are taking steps to train domestic workers. The party will also review the 2021 scrapping of the ‘resident labour market test’ that required employers to prove they had tried to recruit domestically before hiring from overseas.

However, the party will ask the Migration Advisory Committee to review the impact of the Sunak government’s decision to raise the salary threshold for skilled workers. This leaves the door open to potentially reducing this sum or not raising it again for some time.

Compliance crackdowns

Labour has promised to use the money it would save from scrapping the government’s Rwanda bill to take tougher measures against employers who break employment law.

Employers who pay below the minimum wage will be banned from hiring migrant workers.

Graduate route retained

Labour has said comparatively less about its approach to graduate and post-graduate visa regimes. The party has stated it will maintain the ban on foreign students bringing family members but has not commented on the Migration Advisory Committee (MAC)’s recent recommendation to retain the Graduate Route.

Minimum wage increase

As part of its New Deal for Working People, Labour has pledged to deliver a ‘genuine living wage’ that formally factors in the cost of living. This would presumably be an increase on the current ￡11.44 per hour.

What Labour immigration policy means for business

While official Labour immigration policy does not yet involve any defined caps on net migration, the mood music suggests it will be content to see numbers fall. If past trends hold, this will push up hiring costs for roles experiencing skills shortages. While this is happening, an incoming Labour government would also increase businesses’ obligations for both training and compensation.

Increases to the minimum wage would have the most quantifiable impact on firms’ bottom lines. For the over 45,000 businesses that hold sponsor licences, these costs will be compounded by a further set of new charges

If businesses wish to continue sponsoring foreign workers, they will also have to shoulder the costs of training members of the domestic workforce. The modified apprenticeship levy will take some of the financial strain, but costs will still increase. However, given that average employer spending on training has fallen by 27% in real terms since 2011, Labour will be keen to present these policies as simply a reversion to the mean.

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Conservative Party immigration policy in 2024

Having overseen record population increases, the Conservative Party is now seeking to stay in power by promising swingeing cuts to net migration.

Most of their chosen devices for reducing numbers are already in place, having been imposed in April 2024. You can read a thorough assessment of these changes here . We assume that a triumphant Conservative Party would elect to maintain and consolidate them.

Sunak has also revealed a few more policies on the campaign trail that will impact businesses that hire from abroad. Let’s take a look at them, and recap what’s already on the table.

An annually decreasing cap on visas

Sunak has pledged to cap the number of visas available to migrants and reduce this cap every year. This cap would be set according to MAC recommendations, though the MAC would be duty-bound to take into account migration numbers’ impact on public services, productivity, and rates of pay.

Student migration restrictions

The Tories have backtracked from once-mooted plans to scrap the two-year period that overseas students can stay in the UK following graduation. This means firms can still access a pool of skilled young workers.

There is very little chance that a victorious Conservative Party would consider lifting the ban on students bringing family members that it imposed in January 2024.

Salary thresholds and fees

Since April’s increase in salary thresholds for overseas workers, the government has not indicated any plans to raise them further.

There is also no increase to the Immigration Health Surcharge pencilled in, which last rose in February 2024.

Minimum wage

Since the government introduced a ‘National Living Wage’ in 2016, the minimum wage has increased annually. We would expect this to increase further in 2025, though the Tories have not yet indicated how much it will rise next year.

Chancellor Jeremy Hunt has expressed his wish to eventually abolish the National Insurance tax, which would reduce costs for both employees and employers.

What Conservative immigration policy means for business

The impact of the government’s last round of immigration reforms is still soaking through the business world.

Megafirms like Deloitte and HSBC have already rescinded some job offers to overseas graduates due to increased salary thresholds.

The Tory immigration policies announced so far in the campaign have not been well-received by many UK businesses. Since the government announced their annually-reducing visa cap, the startup community has been up in arms. UK tech firms are warning this policy would have a chilling effect on their ability to hire the talent they need to grow.

Companies in tight hiring spots can take some solace in the fact that the Graduate Visa route will remain unchanged. If the Chancellor is able to deliver some of his much-touted tax cuts, this may also offset some of the raised recruitment costs.

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The next five years for UK businesses: higher staffing costs

Whoever wins on 4 July, the cost of doing business will increase for most firms.

Labour’s immigration policies share the same end objective as their Tory counterparts: reducing net migration. While Labour is unlikely to propose anything as radical as an annually-decreasing immigration cap, companies will still have a harder time hiring from a global labour pool.

Skills shortages may lead businesses to invest in automation and productivity-enhancing technologies. The UK economy may well see levels of capital expenditure rise over the next few years.

Both parties share a commitment to a high minimum wage, while Labour will increase businesses’ obligations to train and upskill their workers. These are worthy objectives that will push up companies’ hiring and employment-related costs by design. The question right now is by how much?

Centuro Global will keep you updated on the most significant UK immigration and employment-related news throughout this election campaign.

In the meantime, get in touch if you need any advice on preparing your staffing strategies for the next Parliament.