£1.5bn immigration skills charge ‘blackhole’ revealed

Ministers slammed for 'zero transparency' over whether tax tops up domestic training budget

Ministers slammed for 'zero transparency' over whether tax tops up domestic training budget

Investigation

Ministers have been slammed for offering “zero transparency” over how £1.5 billion generated through taxing employers for hiring migrants has been reinvested into skills training programmes.

An FE Week investigation found the government cannot provide evidence of whether it is meeting its pledge to reduce Britain’s reliance on overseas workers and upskill domestic workers with funding from the immigration skills charge (ISC).

The tax was introduced in April 2017 and an explanatory memorandum published by the Department for Education alongside the legislation specifically stated that income raised will be put towards programmes that “address skills gaps in the UK workforce”.

Receipts from the charge have grown exponentially (see table), starting at £91 million in its first year before ballooning to £586 million in 2022/23 alone. It has generated a total of £1.465 billion in total over the last six years.

The Home Office collects the funding as part of its visa sponsorship process and transfers the income to the Treasury’s consolidated fund. The funding is then apparently spent by the Department of Education and the UK’s devolved administrations. But the charge is not ringfenced for skills training.

A 2022 report by the Migration Advisory Committee laid bare that the revenue generated from the ISC is “not ring-fenced or linked directly to any fund for training to reduce the reliance on migrant workers and is simply a tax on the use of migrant labour which goes to the Treasury”.

Skills minister Robert Halfon admitted in a parliamentary question in September that the ISC revenue does not give additional funding for skills but “maintains the existing level of skills invested in England”.

“It is unclear exactly what this means in practice,” said Jonathan Thomas, senior fellow at the Social Market Foundation, who criticised the use of ISC income in a recent blog.

“There is zero transparency or accountability for how the proceeds of the ISC are applied and used; they seem to disappear into a general all-purpose blackhole,” he added.

FE Week submitted freedom of information requests asking how much ISC revenue has been allocated to the DfE skills budget for the last six years.

But DfE, the Home Office and the Treasury refused to answer.

The DfE confirmed in its response that it does not receive a ring-fenced budget for the ISC and therefore does not hold the information requested, and suggested FE Week asks the Home Office.

The Home Office said it did not hold the information and advised us to contact the Treasury.

The Treasury directed FE Week to speak to the DfE.

Former skills minister Anne Milton publicly claimed in 2019 that revenue from the first year of the ISC implementation contributed £75 million to the department’s skills budget.

But Stephen Evans, chief executive of Learning and Work Institute, questioned how Milton was able to publish the figure because the ISC is not a hypothecated tax.

He added the rise in ISC revenue has not “fully fed through” into increased skills funding.

“The adult skills budget in England, excluding apprenticeships which are largely funded through the apprenticeship levy, has risen by less than the ISC since 2016/17,” he said.

Evans called on ministers to increase the ISC revenue being put into an increased skills budget.

“Ultimately this is not a hypothecated tax – the government decides how much it wants to raise in tax and how, and how much it wants to spend on skills. To boost our economy and widen opportunity, we need to reverse the £1 billion real terms cut in skills budgets in England since 2010, however this is funded.”

The ISC is set at two levels depending on the size of the business. For large businesses (more than 50 employees), they must pay £1,000 per sponsored worker per year and an additional £500 for each six months the worker is sponsored. Smaller businesses and charities are charged £364 per worker for the first 12 months, and an additional £182 for subsequent six-month periods of employment.

Business representatives have also raised eyebrows over a lack of transparency when it comes to how the skills charge is being reinvested.

Martin McTague, national chair of the Federation of Small Businesses, said: “Our research shows that 86 per cent of small businesses say it is difficult to find individuals with relevant qualifications, skills and experience, raising questions as to whether the ISC is serving its purpose of helping to train domestic workers, as set out in 2017.”

A government spokesperson said: “The ISC helps encourage employers to invest in training so that UK workers have the right skills needed to fill jobs. The income raised by the charge helps to support programmes aimed at addressing skills gaps in the UK workforce, and further reduce reliance on foreign workers.”

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