UK: Letting international students stay for work could bring £3.2b in taxes

25 Mar 2019

The UK’s “hostile environment” policy is costing the country billions in potential revenue from international students.

Global learners who stay on to work in the UK post-graduation could have contributed £3.173 billion to the Exchequer in tax and national insurance contributions over 10 years, according to a new report by London Economics for the Higher Education Policy Institute (HEPI).

“There are sizeable economic contributions made by those international graduates entering and remaining in the UK labour market post-graduation,” the report wrote.

Of the total £3.173 billion figure, close to half comes from employer and employee National Insurance contributions (£1.538 billion), a third comes from income tax (£1.043 billion) and the balance of £592 million comes from VAT contributions.

Master’s graduates contributed the most (£1.591 billion), followed by first degree holders (£1.119
billion), PhD graduates (£300 million) and international students obtaining other undergraduate qualifications (£163 million).

EU and non-EU students generate roughly the same amount in contributions to the UK Exchequer – £108,000 and £104,000 respectively.

Researchers state that with these findings, advice provided by the Home Office’s Migration Advisory Committee (MAC) should change accordingly.

Released September last year, the MAC report rejected calls to reintroduce post-study work visas. However, they advised for leave to remain in the UK be extended from four to six months or 12 months post-graduation for Master’s and PhD students, respectively.

The higher education sector disagrees with the stance, with Universities UK pushing for a two-year post-study work visa that is far more attractive to foreign candidates. Previously, international students could stay and work in the UK for two years before the then home secretary Theresa May abolished the policy in 2012.

The new HEPI report said its findings provide support for bringing back this longer-term post-study work visa.

“In light of the huge taxation contribution made by international students, the impact of international students on mitigating skills gaps in the UK labour market, as well as the economic damage that has occurred as a result of post-study visa restrictions, [the need for] a longer post-study work period for international students has been clearly evidenced,” they write.

‘Acute skills shortages’

One of the reasons for MAC’s advice against a longer post-study work visa is that international students who remain to work in the UK have “suprisingly low” earnings and are “not the most highly skilled”. Acknowledging their evidence for this is not as strong as it could be, it had called for a proper evaluation of these students’ post-study employment.

The new HEPI report supports the MAC report on both counts. It revealed undergraduate international students have higher median earnings at five years post-graduation – £29,000 for both EU and non-EU students, compared to their UK counterpart who commanded a median salary of approximately £25,700. This gap persists at the Master’s and doctorate level too, though to a smaller degree.

“…many international students finding sustained employment in the UK are doing so in sectors that suffer from acute skills shortages,” the report wrote. Source: Shutterstock

The data also found that international students of the 2009/10 cohort are plugging the UK’s acute skills gap. For example, foreign-born graduates who studied Computer Science and Mass Communications are closing the skills shortage in the Information and Communications sector. Same goes for the Professional, Scientific and Technical Activities Sector, as well as the Human Health and Social Work sector.

“There are acute skills shortages in many sectors of the UK economy (in both the public and private sectors). Rather than displacing domestic graduates from these opportunities, international graduates play a key role in filling the vacancies available and reducing these labour market gaps,” said the report.

For the purpose of this report, figures from the UK government’s Longitudinal Education Outcomes dataset from a mix of historical cohorts was used, the same used by MAC.