Is being put out of a job through companies employing cheap migrant workers all for the greater good of UK PLC?

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The Migration Advisory Committee's (MACs) latest report on the immigration cap has revealed a steep rise in the use of Intra Company Transfers by UK businesses, bringing workers into the UK from non-EU locations.

In respect to ICTs the latest report says "....it is possible that the UK economy is benefitting in aggregate terms while at the same time some displacement of British workers is occurring."

See the latest report in full here.

ICTs allow multi-national businesses that have a UK operation to bring workers to the UK. This route is used by IT suppliers to bring lower cost staff to the UK. About 80% on non-EU workers in the UK are on ICTs and a large proportion of these are IT professionals from India. Despite this ICTs were not included in the cap.

I wrote a blog post last week which asked: Have Tory immigration policies helped UK IT professionals?

And the answer is no.

In 2009, the last full year analysis before the immigration cap, there were 22,000 ICTs, according figures from the MAC. For the 12 months up to September 2011, the first 12 months following the immigration cap, the MAC has reported an increase to 29,700 workers in the UK on ICTs.

Although ICTs weren't included in the immigration cap the government did introduce a minimum pay threshold for ICT workers of £40,000 to try and make it less attractive from a cost perspective for suppliers to bring staff in from offshore.

There is a way for suppliers to be less impacted by the raised minimum pay threshold. Expenses can be included within the pay and tax does not have to be paid on it.

One reader said of the latest publication: "A very disappointing report, I thought the MAC had some backbone as the previous year they recommended that allowances should be excluded from the definition of pay to ensure resident workers were not undercut and because of the loss of tax revenue. They don't actually mention why in this report their position has changed 180 degrees in 12 months."

See this video explaining how the use of ICTs to bring IT workers to the UK.                                

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Read this blog post, which contains a series of blogs, to see how the ICT loophole impacted one IT worker.

See this post for all the figures on the number of overseas workers in the UK between 1997 and 2008 and what they are doing.

Please give me your views on how outsourcing is impacting UK IT skills

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1 Comment

Two phrases spring to mind:

"Do the math" and "follow the money".

Small companies and SMEs by and large do not offshore many jobs directly because they're not in much of a position to gain from the economies of scale offered by the great programming barns of Mumbai, and they can't import ICTs because they don't have offshore offices anyway.

But big companies and the fat consultancies in particular have made a fortune out of offshoring jobs by the thousand, and importing ICTs by the thousand, often still charging their end clients the same consultancy rates as they used to charge for "expensive" UK-based staff.

For example, one outsourcing consultancy used to charge its clients up to £800 per day for "experienced" developers, but would fill the roles with inexperienced (and in some cases downright incompetent) developers from India. The Indian staff were on revolving-door ICT-type permits and had to go home for a few weeks every 6 months before being shipped back into the UK. They were paid an Indian salary at home (modest by our standards), plus modest living expenses in the UK. Many of them did their best to save any spare cash while they were in the UK, so they were spending relatively little in the UK and paying nothing in taxes, NI, pensions, or any other contributions to the UK economy. Meanwhile, the UK offices of their employer paid their Indian offices relatively high notional fees for the services of these staff, thus shipping the profits offshore where no UK taxes would apply. So out of the £800 per day being paid for them, probably as little as £100 per day was really staying in the UK.

Contrast the use of ICTs with the same role being filled by a UK-based developer on the same £800 per day charge-out rate to the end client. The developer might be paid the equivalent of £200 per day including taxes, NI, pensions, training etc, most of which probably gets spent in the UK. Hiring a UK_based contractor directly for the same role would have cost only £400 per day (leaving the client with an extra £400 to spend in the UK), and most of the contractor's money would get spent/taxed in the UK as well.

The company can still dodge corporate taxes to a large extent, of course, but there is probably less scope for black-bagging all the money offshore, so more of it ends up contributing to the UK economy, one way or another.

The net result is that under the ICT scam little or no tax is paid in the UK, relatively little of the money from the end client is invested or spent in the UK, and all the job opportunities are on the other side of the world. Any "savings" are mostly delivered in the form of ever fatter margins for global companies with bases in foreign countries, rather then real savings for their end clients in the UK, which might have released cash for other investments here.

Messing about with the official minimum salary level for ICT staff makes no difference, because the fat consultancies run rings around the regulations anyway - claiming taxes (which are not paid) and tax-free living expenses as part of the salary, and so on. In any case, the consultancies have the ear of politicians of all parties - Vince Cable is a lot more interested in listening to the likes of TCS and the CBI than the PCG or TUC, for example.

The interesting thing is that many of the fat consultancies have been offshoring and ICT-ing jobs on government projects for years, where the taxpayer is ultimately paying the £800 per day per developer. This creates a triple whammy for the taxpayer and the UK economy.

1. It costs the taxpayer a lot more to hire staff from these consultancies than to hire a UK-based contractor or permanent employee directly.

2. Using offshore staff (or ICTs on revolving-door permits) means more of that money goes offshore instead of being spent/invested/taxed in the UK, where it might contribute to our own economy.

3. The lost jobs result in additional costs to the taxpayer for welfare benefits, not to mention the wider impact on the rest of societyof losing relatively well-paid skilled jobs.

Finally, has anybody noticed any real improvement in the quality of IT systems in the 10 years or so that we have been importing all these "skilled" graduates from India? Or have you noticed instead how skilled UK-based staff are being replaced wholesale with inexperienced semi-skilled imports under the ICT scam?

And does anybody else notice the irony of IT industry figures finally asking questions about where the next generation of UK IT staff are going to come from, when they have spent the last 10 years systematically eliminating the jobs of the previous generation? The phrase that springs to mind here must surely be "No s**t, Sherlock".

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This page contains a single entry by Karl Flinders published on March 1, 2012 12:14 PM.

Has IT outsourcing created the UK skills shortfall? was the previous entry in this blog.

Government shared services increased costs and reduce flexibility, says NAO is the next entry in this blog.

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