Immigration Skills Charge (Amendment) Regulations 2025
(Limited Text - Ministerial Extracts only)
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Lord Hanson of Flint
That the Grand Committee do consider the Immigration Skills Charge (Amendment) Regulations 2025.
Relevant document: 40th Report from the Secondary Legislation Scrutiny Committee (special attention drawn to the instrument)
The Minister of State, Home Office (Lord Hanson of Flint) (Lab)
My Lords, these regulations were laid before Parliament on 15 October 2025.
The immigration skills charge was introduced in April 2017. Its aim is to incentivise UK-based employers to take a long-term view of investment and training. It is designed to address historic underinvestment in the training of domestic workers by UK employers and to deter some from turning to immigration as a cheaper alternative. The skills charge is currently paid by employers looking to sponsor skilled workers for visas lasting more than six months; it also applies if they wish to extend the employment for a further limited period. Senior and specialist workers also pay the charge unless they are an EU national coming to work in the UK for less than three years. The increase will not prevent service supply by intra-corporate transferees continuing as it does currently, in line with our international trade commitments.
The charge, which is paid up front by employers, has raised approximately £2.7 billion since it was introduced. That income is providing financial support to help maintain existing skills budgets across the whole of the United Kingdom, which is important for a range of reasons, including ensuring that immigration is not seen as the sole solution to deal with skills shortages. As education and skills are devolved, the income raised is helping to maintain funding levels for each of the devolved nations; it is distributed between England, Scotland, Wales and Northern Ireland under the Barnett formula.
These regulations give effect to a government commitment in the immigration White Paper, published on 12 May, to increase the immigration skills charge by 32%. That is in line with inflation and takes into account the period since the charge was introduced, when no increases have been effected. This will mean that, from 16 December 2025— a few days from now—medium and large employers will need to pay £1,320 per person whom they sponsor per year. There will continue to be a reduced rate for small and charitable organisations of £480 per person per year. As I mentioned, the money raised will continue to support skills programmes across the country.
Upskilling workers already here in the UK will also help us fill future jobs in our country. It will reduce the need for businesses and organisations to rely on recruiting international workers. The Government have been clear that the levels of net migration have been too high and must come down.
As is currently the case, there will continue to be exemptions from the charge, such as where an employer is seeking to recruit people into PhD-level occupations; where they are recruiting a person who is switching from the student route; or where the person is being recruited for less than six months. These regulations also make a minor update to the list of exempt occupations to reflect the latest occupational codes from the Office for National Statistics. Crucially, they do not add to or remove any occupations that are currently exempt, but, in some cases, they reflect where occupations have been separated from groups.
We have set out a comprehensive plan to restore order to our broken immigration system. We must ensure that the system strikes the right balance. The immigration skills charge is designed to ensure that employers contribute to our continued investment in skills. These regulations support the Government’s ambition to reduce overall net migration and to aid our resident workforce in finding high-quality jobs through skills training. I commend them to the Grand Committee and beg to move.
Lord German (LD)
My Lords, I declare my interest: I am supported by RAMP. Inflationary increases are recognised as an appropriate way to deal with charges of this sort. I will return to the amount and what has been happening since 2017 in a moment, but the core policy intent of the charge remains the same: to encourage employers to look at training resident workers rather than recruiting internationally.
The impact assessment accompanying the regulations suggests that the increase will have only a small disincentive effect, putting off “less than 1%” of sponsorships that would have occurred without the higher charge. The overall package of immigration measures, including the ISC increase, is estimated to reduce net immigration by between 1,000 and 2,000 people per year. I am sure that noble Lords will recognise that this net effect is very small in relative terms as compared to the number of people in this country: it represents about 0.3% of long-term immigration figures.
Although the Government aim to reduce reliance on international recruitment, the job needs are exceeding training provision. In any case, there are the implications of the increasing need for jobs as we face the growing older demographic—a subject to which I will come in a moment. For employers, the ISC is simply a mandatory fee that must be factored into hiring budgets, and there is no direct benefit or service provided in exchange for the outlay; the fee cannot be passed on to the sponsored worker.
For us, a significant point of contention is the application of the increase to the health and social care sector. Increasing the charge for the health and social care sector is a mistake in our view, because this penalises hospitals and care homes attempting to hire desperately needed staff. The increase transfers money from the National Health Service to the Home Office, when GPs, hospitals and hospices desperately need funds. The Government are trying to ensure that the public sector, like the private sector, recruits from the British workforce, but transitioning takes time, and estimates of posts required are far outstripping the provision and recruitment to training opportunities in order to fill those posts.
The ISC rates have not changed since the charge was introduced in 2017. The Secondary Legislation Scrutiny Committee noted that, when asked why the charge had not increased previously, the Home Office responded only that
“there have not been any substantive reviews of the ISC”
and, importantly,
“Ministers had not sought to make changes”.
I am not suggesting that it was the current Minister, but somebody somewhere was asleep on the job. Perhaps the Minister can inform us why that has not happened in the intervening years and why businesses will therefore now be subjected to a large increase because we did not continue with the proper process of increasing with inflation each year.
The Secondary Legislation Scrutiny Committee also considered the Home Office’s replies on plans for future timely reviews of the charge to be “unhelpfully vague”, so it remains for the Minister today, I am afraid, to be encouraged to ensure that the ISC will be kept under regular review to ensure that it retains its real-terms value and to avoid large step changes in the amounts payable in the future.
The SLSC says that the Home Office “did not respond” to it regarding consultation on these increased charges. The SLSC says that, if no consultation was undertaken, it regretted that and suggested that that would continue a trend of “inadequate consultation” on many immigration policies. Can the Minister correct the committee? Alternatively, will he take into account its criticism of what is happening inside the department? The Home Office deemed a formal public consultation unnecessary, arguing that it would be
“disproportionate given the nature of the changes”.
A 32% increase is not a disproportionate amount, so some form of public consultation should have been undertaken.
I have five questions. First, I want to concentrate on the impact upon the health and social care sector and the transfer of money from the NHS. I do not know whether the Government plan to undertake a study of what impact this has on the NHS and our care services, but if they wanted to find out how much cost falls upon the National Health Service, it would be difficult to track down. The Budget produced last week—these are documents from the Budget—says that, between now and March, £48 million will be raised from these charges. In the year from next April, it will be £180 million. Altogether, that is a substantial amount of money in the next 15 or 16 months. It is necessary to understand how much of that charge falls upon the National Health Service, because taking with one hand and giving with another is not a way of ensuring that we get appropriate transparency of public funding. The documents produced for the Budget say that the £180 million next year will be offset by increased DEL expenditure, but we have just heard from the Minister that the DEL expenditure is going on training.
My main question is: if they are putting this money towards training, to achieve the objective set out by the Minister at the outset, getting domestic employment rather than none, it is important to understand how much of that charge is being taken from the NHS budget. According to the statement just made by the Minister, it is certainly not transferred back into the National Health Service, as far as we can understand it. This is really a question about how we can measure that impact and whether, if there is a negative impact, the Government will try to reduce the rate for the National Health Service to the charitable small organisation rate, so that we can at least minimise the hit upon that service.
The impact assessment estimates that the increase in the immigration skills charge will deter less than 1% of sponsorships. Does the Minister believe that this modest impact is sufficient to address the stated objective that levels of net migration—I am talking here about illegal migration for work—have been too high and must continue to come down? That impact is quite small compared with what I suspect the need is.
Lord Sandhurst (Con)
My Lords, I am grateful to the Minister for introducing these regulations and setting out their purpose. These regulations increase the immigration skills charge, or ISC, for the first time since its introduction eight years ago in 2017, and they align it with inflation. This is a sensible measure, and we are pleased to support it.
As has been noted, the ISC raises revenue to support skills funding, and, in the words of the Migration Advisory Committee, it also encourages employers to invest in the development of domestic workers rather than relying on migrant labour. We welcome the Government’s recognition that the charge should reflect the rising cost of living and their continued focus on linking skills, migration and wider labour market policies. By increasing the charge by 32%, it is estimated that the ISC could raise an additional £180 million. This could contribute to funding skills development in priority sectors and, over the medium term, reduce reliance on migration.
We also observe that, while this measure is straightforward and proportionate, it is important to consider its impact on businesses. We recognise that the charge is lower for certain sponsors, such as charities and small businesses, which helps to mitigate any disproportionate effect. None the less, we encourage the Government to continue monitoring the balance between supporting skills investment and avoiding undue burdens on employers.
We also take the opportunity to underline that the original purpose of the ISC is to support skills development in the United Kingdom. While the income raised is not hypothecated, it does contribute to maintaining the Department for Education’s skills budgets, which, in turn, supports apprenticeships and workforce development. We hope that the Government will continue to ensure that this connection between the charge and skills investment remains robust and effective.
In conclusion, we welcome the increase in the immigration skills charge. We recognise its potential to help upskill the domestic workforce and encourage employers to invest in British talent, while also contributing to the broader objective of aligning skills and migration policy.
Lord Hanson of Flint (Lab)
My Lords, I am grateful to the noble Lord, Lord Sandhurst, for his broad support for the measure before the Committee. I am also grateful for his questions, which I hope to answer in line with the questions from the noble Lord, Lord German.
As noble Lords will be aware, the immigration skills charge has not been increased since it was introduced in 2017. The noble Lord, Lord German, asked me why that was the case. Had I been the Minister then, it would have been increased on an annual basis, but that was not the case. Now that I am the Minister, it is being increased. I hope that that is helpful.
The charge has risen by 32% because that is the rise in the consumer prices index between 2017 and March 2025. That is a fair increase to make in these times, in order to achieve the Government’s objectives, which remain to invest in training and to ensure that we reduce net migration.
Both noble Lords asked whether this will be kept under regular review. The answer is yes. I am responsible overall for examining budget matters with the Home Secretary in the Home Office. I will make sure that, as part of our annual reviews, this charge is looked at—along with a range of other charges for a range of other services. It is important that we undertake that.
Noble Lords asked whether there was consultation on this matter. The skills package, which was welcomed by the noble Lord, Lord Sandhurst, and the measures on raising the charge price were trailed in the immigration White Paper, which was subject to widespread consultation; it has also had much debate and discussion in both Houses, as well as among the public at large. I accept that there has been no specific consultation on the immigration charge itself, but the trail was put in the immigration White Paper. As noble Lords know, the Explanatory Memorandum says that, when the immigration White Paper was published, the devolved Governments were invited to discuss and contribute to it. It is a tax, and therefore a full regulatory impact assessment is not required.
The noble Lord, Lord German, asked about the National Health Service. First—this also goes to the concerns raised by the noble Lord, Lord Sandhurst—the Home Office is the point of collection for money, but that money is given to the Treasury, which disburses it elsewhere. As ever, the Treasury remains all-seeing and all-powerful in all matters; we are simply the conduit for such funds to be passed on in due course.
Following another question from by the noble Lord, Lord German, it is difficult to give a figure on the costs to the National Health Service because of a range of factors. They include: which organisations sponsor a worker; whether they are large or small organisations, in the health service context; whether the people being recruited are exempt, such as those with PhD roles and students; and how many people are ultimately recruited. Again, I have overview of this, so I will look at that and at the impact on the health service as a whole.
We keep all immigration routes under regular review, including charges. We also keep under review—in answer to the question from the noble Lord, Lord Sandhurst—the impact on businesses.
As I hope both noble Lords have recognised, the broad purpose of this instrument is to encourage businesses, first and foremost, to look at training a UK-based workforce, recruiting a UK-based workforce, and recruiting workers from overseas only if they have a shortfall or feel that such workers bring specific skills. If they bring a set of specific skills or are on the exempt list, there will be no charge. If they are not on the exempt list and do not bring specific skills, there will be a cost to the employer, but, again, the employer must decide whether that is a cost worth bearing because they are recruiting individuals who help make them productive and efficient.
I hope that, with those remarks, I have answered both noble Lords’ concerns; I welcome their views. I commend these regulations to the Grand Committee.