MAC Skewers Tier 1 Entrepreneur Visas

The home secretary’s advisers – the Migration Advisory Committee (MAC) – have found that the Tier 1 (Entrepreneur) visa route under the Points-Based System (PBS) is being used by “low quality businesses”. MAC, which consists of a publicly appointed chairman and four other independent economists, is adamant that it “found substantial evidence” for reaching this conclusion and opined that industry experts and leaders ought to be selecting entrepreneurs rather than civil servants. These criticisms are a further jolt to the UK’s high global ranking (6th) for entrepreneurship and opportunity because just two weeks ago while giving evidence to the Home Office Select Committee, Professor David Metcalf CBE, MAC’s chairman, hammered Tier 1 (Investor) “golden” visas as “absolutely not fit for purpose”. The UK is giving settlement and citizenship rights away to foreign elites he protested. British residents are footing the bill and he considers it pointless to reward foreign businessmen investing in gilts with accelerated settlement rights and citizenship. Metcalf also approves of the onerous minimum income requirements for spouses and partners under (the inexorable) Appendix FM of the Immigration Rules, which cannot be met by half of the UK’s population and are now being litigated in the Supreme Court – the court of last resort and the highest appellate court in the land.

Irrespective of the hardship caused by the harshness of the family migration rules, Malthusians such as Metcalf and Mrs May – who symbolise nothing short of a “population police” – must feel vindicated by recent estimates released by the Office of National Statistics (ONS) that Britain’s population will rise by 10 million over the next 25 years, and net migration will drive two-thirds of this growth. This figure makes a striking contrast with the rest of Europe as a whole where population is expected to rise at a rate of 3% in comparison with the UK where the rate is predicted to be 15%. The ten-year projection is that the UK population will rise by 4.4 million with the result that England’s population could swell as much as 7.5% by 2024. These trends suggest that the UK will leave France and Germany behind to become Europe’s most populous country by 2047. One reason driving growth is that people aged 80 and above will double over the next 25 years, however the overall increase is generally attributable to international migration and the indirect impact of immigration.

On the other hand, a 200-page study by the Organisation for Economic Co-operation and Development (OECD) comparing healthcare in 34 countries entitled Health at a Glance 2015 suggests that the UK needs 75,000 more doctors (26,500) and nurses (47,700) – or yet more immigrants – to achieve parity with medical standards in other developed countries. OECD found that the quality of care in the UK was “really disturbing”. Moreover, OECD claims NHS staff have “too little time to care” and British lifestyles remain “dire” in relation to childhood obesity. Although the government counterclaimed that the NHS still remains the “envy of the world”, OECD concluded that the British healthcare system was “lagging behind” other rich nations. “The UK is world leader in developing innovative approaches to healthcare but often does not do the basic things very well,” said OECD’s deputy director of employment, labour and social affairs – Mark Pearson.

In other developments, Statement of Changes to Immigration Rules HC 535 (29 October 2015) has made changes to asylum, settlement, family/private life and to Tiers 1, 2 and 5 of the PBS. Notably, the UK is also being trumpeted by the Legatum Institute as “the third cheapest place in the world to start a business, far cheaper than the US or Germany.” The strength of the UK economy, which makes it one of the world’s most prosperous countries, is the underlying reason for creating successful businesses and opportunities for those seeking entrepreneurial roles. The Legatum Institute 2015 Prosperity Index, which is a league table ranking countries on the basis of economic success and a series of wellbeing indicators, ranks the UK (behind Germany) as the fifteenth most prosperous country in the world. (However, many independent economic analysts find that investment in the UK is low and that exports are weak – see below.) Interestingly, Norway has topped the ranking for the seventh consecutive year as the world’s most prosperous country.

As highlighted above, in its 198-page report entitled Tier 1 Entrepreneurs: Review of the Tier 1 Entrepreneur and Graduate Entrepreneur routes, MAC wants the government to substantially reform the visa route for entrepreneurs who wish to come to the UK. It estimates that since their introduction, some 13,746 Tier 1 (Entrepreneur) and Tier 1 (Graduate Entrepreneur) visas have been issued and that 1,580 active corporations – registered with the Inter-Departmental Business Register – employ a total of 9,850 individuals, generating a combined total annual turnover of £1.45 billion. On the other hand, MAC was of the view that less than 1% of companies (15 businesses) are responsible for 64% of that turnover (£930 million). In sum, lots of room for improvement exists in light of the fact that some low quality businesses are being established under the entrepreneur category. This is so despite MAC’s clear acknowledgement that foreigners are establishing highly innovative and high-growth potential businesses in the UK.

As far as MAC is concerned, maximising economic benefit is the core policy under Tier 1 of the PBS and efficiency remains at the heart of official policy in this area. Thus, a more selective approach improving the quality of entrepreneurs is desirable. In fact, despite overall disappointment with the system, praising the visa route specifically for talented entrepreneurs interested in establishing start-up businesses in the UK, Metcalf explained that:

The Tier 1 (Graduate Entrepreneur) route works well and it makes sense to expand this route to allow a small number of UKTI-approved accelerator programmes to endorse high potential entrepreneurs.

MAC’s report consists of eight chapters and has three annexes. It provides a detailed appraisal of policy and data, draws international comparisons, assesses practice and economic impacts and addresses issues in relation to reform. In the report, among other things, Metcalf and his team recommend:

  • the government should consider introducing a separate visa route for talented entrepreneurs looking to establish start-up businesses in the UK; this low-volume, highly selective route would aim to attract the best entrepreneurial talent, with UK Trade & Investment (UKTI) approved accelerator programmes allowed to endorse individuals for a limited number of visas.
  • that appropriate partners are identified, the government may wish to build third party endorsement into the selection process; in particular, the home office could work with UKTI and the UK Business Angels Association (UKBAA) to explore the feasibility of approving selected angel investor networks or syndicates to provide third party endorsement under the Tier 1 (Entrepreneur) route.
  • the selection of migrant entrepreneurs should be carried out by industry experts where possible; options for assessing the applications could include: appointing a panel of experts with expertise in early-stage entrepreneurship, such as angel investors or venture capitalists; recruiting specialist immigration officers qualified to review business plans; working with other government departments such as UKTI or BIS; or outsourcing the assessment of business plans to a professional services firm.
  • the entrepreneur visa routes should aim to attract entrepreneurs with innovative business proposals.

The report makes wide-ranging recommendations and despite the overall conclusion that low quality businesses are utilising the entrepreneur route, MAC wants some relaxation of the rules and it has advised the home office that potential entrepreneurs with access to £50,000 funding from a suitable third party – such as approved angel investors syndicates or a government department – should no longer be required to pass the genuineness test.

MAC’s recommendations are laced with plenty of PBS/immigration jargon and are predicated on responses, to calls for evidence, by influential corporate immigration law firms who are of the view that the poor quality of immigration schemes for entrepreneurs is related to a lack of precision about the role of such individuals in the economy as distinct from small business owners and the self-employed.

Some of the points in the report suggest that a militantly cautious approach to entrepreneur visas does not necessarily help the situation. Thus, arguments in favour of initially granting shorter terms of leave to remain to reduce abuse raised eyebrows with MAC which thought that “a system of monitoring ought to be effective no matter the length of the initial leave to remain provided that the updates are sufficiently frequent.”

Abuse of the system is a key theme running through the report. Gaming the system is one of the concerns that officials are troubled by – but no matter how much things are tightened up to prevent abuse, the trouble is that unscrupulous individuals are always inventing new ways to defraud the system and of course this is nothing particular to immigration law. The sad thing is that because of the “hostile environment” we are now living in, some gullible people in the refusal pool are being induced to part with large sums of money by fraudsters who make promises about making successful immigration applications under Tier 1 (and other parts of the PBS) and then disappear! The victims of such crimes, who may at times also be colluding in fraud in order to remain in the UK, have no possibility of exercising a right of redress which makes their predicament even more pitiful. (Go home with dignity and keep your money in your pocket is all we can say to them!)

For example in Statement of Changes to the Immigration Rules HC 532 (10 July 2014), the home office complains that it continues to receive very high volumes of entrepreneur applications, around two-thirds of which are refused on the basis that officials are not satisfied that the applicant genuinely intends to establish a business. Equally, investigations have also revealed that large numbers of applications under the Tier 1 (Entrepreneur) category are associated with organised attempts to obtain leave to remain by fraud.

In relation to non-genuine applicants, MAC was given feedback in light of its call for evidence that the Tier 1 (Entrepreneur) route remains highly susceptible to abuse and the process for assessing the suitability of entrepreneurs often fails to identify non-genuine applications and is therefore flawed irrespective of the introduction of the genuine entrepreneur test in 2013 to reduce the perceived abuse of the route.

MAC also unlocked the issues that dog “special” allowances made for entrepreneur teams and it found evidence that identical business plans were being utilised by multiple applicants; unsurprisingly, this situation also raised eyebrows with the authorities. Caseworkers disclosed to MAC that entrepreneurial teams are prone to having one active and one inactive member and that such cases are indicative of abuse. MAC considered ruling out joint applications for entrepreneurial teams altogether to stop manipulation of the route. However, the report concluded that because abolishing the joint route would prejudice genuine entrepreneurial teams it may be more “sensible” to change the terms of the visa to ensure that each member in the team matches the minimum income threshold so as to remove any financial incentives to apply as a team.

The home office has said that MAC’s recommendations are under consideration and that it will respond to the concerns raised by its economic/migration advisers in due course.

Ultimately, Professor Sir David Metcalf and his colleagues concluded:

We found a wide spectrum of activity on the Tier 1 (Entrepreneur) visa route. At the top end we found examples of Tier 1 (Entrepreneur) migrants establishing highly innovative, high growth potential businesses. At the bottom end of the spectrum, we found activity that is neither entrepreneurial nor of economic benefit to UK residents. In between, we found that a large proportion of Tier 1 (Entrepreneur) migrants establish low-value businesses with limited potential to grow or contribute to innovation or productivity growth.

Just to expand upon the Legatum Institute’s findings a bit more, Norway tops the list because of “the freedom it offers its citizens, the quality of its healthcare system and social bonds between its people.” The other countries on the top-five list in order of ranking include Switzerland (2nd), Denmark (3rd), New Zealand (4th) and Sweden (5th) whereas those ranking right at the bottom – i.e. the least prosperous countries – are Central African Republic (1st), Afghanistan (2nd), Haiti (3rd), Chad (4th) and Burundi (5th). Although the UK is not counted in the top ten most prosperous countries in the Legatum Institute’s league table, the report nonetheless concludes:

The UK is an increasing world-leader in entrepreneurship. The UK ranks 6th for Entrepreneurship & Opportunity. The country now ranks as the best place in Europe to start a business and 88% of Britons believe that if you work hard you can get ahead in life, up from 84% last year and 78% in 2010.

However, as stated at the outset, the fact that both the Tier 1 (Investor) and Tier 1 (Entrepreneur) visas are not fit for purpose cannot be taken to compliment the UK’s attractive ranking for entrepreneurship and opportunity and will inevitably deflate it. For example, in its policy briefing entitled Business priorities for growing UK exports the Confederation of British Industry (CBI) has voiced concerns over a weakening of the British economy. According to CBI, weak export orders, the strength of the pound and falling demand are the main reasons for the softening of the UK economy. CBI is clear that challenges remain and therefore:

Despite some notable successes, the UK’s overall performance on exports has disappointed since 2011 against a tough global economic backdrop.

Similarly, the Institute of Chartered Accountants in England and Wales (ICAEW) has also found that business confidence in the UK is weakening and that investment is muted and exports are low. For example, the Q4 2015 ICAEW/Grant Thornton UK Business Confidence Monitor results argue that though “still firmly in positive territory … the post-election honeymoon maybe over”. Exports and manufacturing have not been rebalanced which means there is continued reliance on domestic demand. The upshot is that business confidence is at its lowest level since 2013. Confidence in the services sector remains positive but is declining in the production sector. In particular:

  • business confidence sank again this quarter and is down on a year ago, but remains well into positive territory.
  • turnover and gross profit growth has been slowing, although firms expect faster increases ahead.
  • employment growth looks to be steadying at buoyant levels of close to 2%.
  • as the labour market recovery continues, skills shortages appear to be worsening, particularly in construction and logistics.
  • wage growth has slowed only marginally, and with continued “no-flation”, these increases are adding significantly to household spending power.
  • confidence is rising in the retail and wholesale sector, but sliding back almost everywhere else.
  • the South of England continues to see optimism levels holding firm, but Northern England and the Midlands are experiencing a confidence decline.

In addition to the fall in business confidence after the post-election bounce, the Q4 2015 ICAEW/Grant Thornton report further found that exports are sliding below domestic sales, firms are restricting their budgets for R&D because they lack long-run confidence and skills shortages are rising – albeit wages are increasing steadily.

Overall, despite the fact that the home secretary is urging “moral restraint” (by disallowing spouses easy access to visas) and “positive checks” (through the new “hostile environment”) to keep the population from soaring further and irrespective of the fact that “low quality businesses” are using the PBS, the overall message from the above discussion is very clear – fraud needs to be suppressed but the UK also needs more immigration in the form of entrepreneurs, doctors, nurses and lots of other types of people who are in short supply in the local labour market. Perhaps the home secretary should take her cue from Britain’s new despotic Chinese masters, who have finally abandoned their one child policy because of the demographic crisis it created (e.g. the Little Emperor generation), and just drop her mad immigration mania.

About Asad Ali Khan, BA, MSc, MA, LL.B (Hons), LL.M

Senior Partner, Khan & Co, Barristers-at-Law
This entry was posted in Appendix FM, Economy, Employment, Entrepreneurs, Immigration Rules, PBS, Tier 1 and tagged , , , , , . Bookmark the permalink.

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