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Scottish Economy, , UK Economy

Weekly update: Social security in an independent Scotland and the implications of the changes to immigration policy

This week saw the publication of the latest in the Scottish Government’s ‘Building a New Scotland’ series, this time on social security in an independent Scotland. The paper excludes the state pension, which is by far the biggest element of UK – and Scottish – social security spending, with a separate paper on this to follow.

A large chunk of the paper is concerned with critiquing the UK Government’s social security policy and outlining what Scotland has done so far to adopt a new approach, which includes some mitigations of UK policy.

In a newly independent Scotland, the current system would roll over with a number of short-term changes set out including removing the two-child limit and benefit cap. Encouragingly, these are costed (£250m in 2023-24).

In the medium term, setting in place a higher level of support with better certainty (i.e. not sanctions) through a Minimum Income Guarantee is seen as the preferred route forward. No price tag is included here, possibly because it is not yet clear what it will cost.

Beyond that, things get a little vaguer. Universal Basic Income gets a caveated mention (future governments could do this if they so wished) and other ideas are dangled (new models to link social justice, health and social care, a dynamic wellbeing economy, and a thriving labour market) without much more detail on what this means. Although this vagueness feels a little frustrating, the paper does give a good sense of the principles that would guide changes, the same principals around fairness, dignity and respect which have embodied the changes made since devolution of some social security powers in 2016.

There is, however, little discussion of the trade-offs that might would be required to raise money either for short- or longer-term changes to social security. Reference is made to needing full fiscal powers to implement changes (part of the reason given why more mitigations of UK policy aren’t being done now). The paper also reference that Nordic countries tend to have higher levels of taxation. So there are plenty of hints that personal taxes might need to increase, but not an outright admission that this would be required. There even appears to be a hint of blurring the issue, with a reference to an increase in the tax base that higher migration to Scotland would bring. A bit more honesty would be welcome – people need to know that this ‘jam tomorrow’ scenario may have implications for their own incomes.

The other issue that gets less airtime than it arguably should is the timescales for transition and new systems to be set up. The bulk of working-age social security in the UK is means-tested (i.e. one becomes eligible when one’s income falls below a certain level). The majority of benefits currently devolved to Scotland are disability and carer benefits where eligibility is based on one’s situation, rather than one’s income. Income related benefits, such as the Scottish Child Payment, currently depend on the UK Government’s means-testing infrastructure. Building a Scottish infrastructure to even transition the current UK system to Scotland will be a huge undertaking, and is likely to be more complex than the transfer of the current set of devolved benefits, which is started in 2016 and is still ongoing.

The UK Government has announced big changes to immigration policy in an attempt to reduce numbers

Currently, to qualify for a visa, an applicant must be paid more than the maximum of three figures: £26,200 per year, £10.75 per hour, or the going rate for their job category, which is based on data from the Annual Survey of Hours and Earnings (ASHE).

For instance, health services and public health managers need to be paid at least £41,300 (£21.18 per hour) based on the going rate for their job category, but retail and wholesale managers and directors have a minimum of £26,200 because the salary threshold is higher than the going rate of £22,400 (£11.49 per hour).

The new measures include:

  • Increasing the salary thresholds for skilled worker visas and family visas to £38,700;
  • Banning workers entering under the health and care visa scheme from bringing dependents (accompanying a previous announcement that dependents would no longer be allowed on student visas except for post-graduate research courses);
  • Ending the 20% salary threshold reduction for occupations on the shortage occupations list (SOL) and replacing the SOL with an Immigration Salary list, which will have an unspecified threshold discount;
  • Increasing the immigration health surcharge, which allows immigrants to access the NHS, to £1,035;
  • Requiring English care providers to be regulated by the Care Quality Commission in order to sponsor immigrant workers.

Table 1: Changes in salary thresholds and surcharges

Type Previous amount (£) New amount (£) % increase
Salary threshold – skilled worker visa 26,200 38,700 48%
Salary threshold – family visa 18,600 38,700 108%
Immigration health surcharge (per year) 624 1035 66%

The changes to salary thresholds and the immigration health surcharge represent large increases over previous values. The salary threshold for family visas, for example, will more than double.

The Health and Care visa route will be exempt from the new salary threshold, as will those on national pay scales like teachers.

The changes will take effect from the spring, although a date has not yet been announced.

The going rates for each job category were last updated in April 2023 based on ASHE data from 2022. It is not clear if or how these going rates will change with the new salary threshold.

How this will affect the Scottish economy

The government have estimated that under these changes, 300,000 people who were eligible to immigrate to the UK last year would now not qualify.

This includes an estimated 120,000 visas granted to dependents of people entering the UK on Health and Care visas to work in social care.

The main effect on the Scottish economy will be fewer workers available to take up jobs. These effects will fall differently based on sector and occupation.

A number of sectors will now have median wages that fall below the salary threshold (Figure 2). In particular, workers earning the median wage in the construction, wholesale and retail, and transportation and storage sectors will now likely not qualify for skilled worker visas based on salary.

Figure 1: Median annual gross salary for full-time workers by sector, 2023

Source: ASHE 2023 (provisional)
Notes: The previous immigration salary threshold is indicated in light grey, and the new one is in dark grey.

Although the median wage now falls under the announced salary threshold, the government have said that health, social care, and other occupations on national pay scales like teachers will not be subject to the threshold.

Whether or not someone qualifies for a skilled worker visa will also depend on occupation, with those earning more being more likely to qualify (Figure 2).

Those earning the median in associate professional occupations, administrative and secretarial jobs, skilled trades, and process, plant, and machinery occupations will now fall below the new salary threshold.

Figure 2: Median annual gross pay for full-time workers by occupation, 2023

Source: ASHE 2023 (provisional)
Notes: The previous immigration salary threshold is indicated in light grey, and the new one is in dark grey.

Highlight on universities

While the most immediate impacts will be felt by those looking to hire immigrant workers, the effects of the immigration policy changes will also affect the economy in other ways.

Our recent report highlighted the importance of the university research sector in Scotland.  However, universities may now find it more difficult to attract international students, given that it will be less certain graduates will be earning enough to switch onto a skilled worker visa.

Currently, graduates can switch onto a Graduate visa when they complete their studies. The visa allows them to stay in the UK for two years.

Generally, this would give them time to find a job that can sponsor them in for a skilled worker visa. However, the change to the immigration salary threshold means that those on graduate visas will now need to earn at least £38,700 within two years of graduating to successfully switch onto a skilled worker visa.

Figure 3: Median earnings for graduates of Scottish HEIs by subject

Source: Scottish Government
Notes: The previous immigration salary threshold is indicated in light grey, and the new one is in dark grey. Earnings are for graduates of Scottish HEIs that reside in the UK, measured five years after graduation. Figures for 2020-21 have been uprated to October 2023 using CPI.

There are a number of subject areas where students may now expect to fall below the salary threshold even five years post-graduation (Figure 3). In particular, the median salary in health and social care, nursing, allied health, biosciences, and business and management do not meet the threshold. Decreases in international student enrollment are therefore likely to be unevenly distributed across subjects.

Many students choose to study in the UK because they intend to work here after graduation, but may choose not to come if they are unlikely to qualify for a skilled worker visa when their graduate visa expires.

In 2021-22, 15% of enrolled undergraduates in Scotland were from outside the UK, and 52% of enrolled post-graduate students. Combined with the recent decision to disallow dependents accompanying all students except those on post-graduate research courses, the change to the salary threshold is likely to decrease these numbers significantly.

Decreases in international student enrolment will pose a significant challenge for university budgets, as universities cross-subsidise the teaching of domestic students through international students, and therefore rely on that extra income to maintain provision.

It would be helpful to see the analysis underpinning these decisions

The Home Secretary has said that these policies were agreed after consultation with affected stakeholders, and cited analysis showing that 300,000 of the people eligible to enter the UK last year would no longer be eligible if entering the country under the new rules.

We would urge the Home Office to release their analysis to allow scrutiny. In particular, any analysis of the potential economic impact of these decisions should be made public. This is particularly important approaching a general election.

Authors

Mairi is the Director of the Fraser of Allander Institute. Previously, she was the Deputy Chief Executive of the Scottish Fiscal Commission and the Head of National Accounts at the Scottish Government and has over a decade of experience working in different areas of statistics and analysis.

Emma Congreve is a Principal Knowledge Exchange Fellow and Deputy Director at the Fraser of Allander Institute. Emma's work at the Institute is focussed on policy analysis, covering a wide range of areas of social and economic policy.  Emma is an experienced economist and has previously held roles as a senior economist at the Joseph Rowntree Foundation and as an economic adviser within the Scottish Government.

Hannah is an Associate at the Fraser of Allander Institute. She specialises in applied social policy analysis with a focus on income, poverty, and inequality.

João is Deputy Director and Senior Knowledge Exchange Fellow at the Fraser of Allander Institute. Previously, he was a Senior Fiscal Analyst at the Office for Budget Responsibility, where he led on analysis of long-term sustainability of the UK's public finances and on the effect of economic developments and fiscal policy on the UK's medium-term outlook.