Reform UK’s Foreign Worker Tax Hike Proposals Explained
Reform UK has announced plans to increase the cost of employing foreign workers through a combination of tax measures designed to favour the recruitment of British citizens.
Under proposals outlined by Treasury spokesperson Robert Jenrick, employers would pay lower National Insurance contributions for British workers while continuing to pay higher rates for non-British workers.
The party has also proposed a separate “migrant labour levy”, an additional annual charge on employers hiring foreign nationals.
The proposals form part of what the party has described as a “British workers first” approach to employment and immigration policy, designed to reduce reliance on overseas recruitment and encourage employers to recruit from the domestic workforce.
Reform argues that lower-paid sectors have become too dependent on foreign labour and that the tax system should create stronger incentives for employers to recruit British workers.
The proposals sit alongside wider Reform immigration policies, including restrictions on long-term settlement routes and measures intended to reduce employer reliance on overseas recruitment.
Lower National Insurance for British Workers
Under the proposals, the increase in employer National Insurance introduced by the Labour government would be reversed for British workers. Employers would therefore pay lower National Insurance contributions for British citizens than for non-British workers.
Reform argues that reducing employment costs for British workers would encourage employers to recruit from the domestic labour market rather than relying on overseas recruitment.
Proposed Migrant Labour Levy
Alongside the National Insurance proposals, Reform has proposed a new migrant labour levy payable by employers hiring foreign workers.
The levy would operate on a sliding scale, with the highest charges applying to lower-paid workers, and reduced rates applying to higher-paid employees and specialist roles.
While full details have not yet been published, Reform has suggested that a worker earning the National Minimum Wage could attract an annual levy of around £3,750, with lower charges applying at higher salary levels.
Who Would Be Caught by the Foreign Worker Tax?
The proposal itself is only part of the story. The more difficult question for employers is identifying exactly which workers would fall within scope.
Reports indicate that preferential National Insurance treatment would be linked to British citizenship rather than immigration status.
If that approach were adopted, the proposals could extend beyond temporary visa holders to workers who already hold permanent rights to live and work in the UK.
The inclusion of settled workers is likely to attract particular attention. EU citizens granted settled status under the EU Settlement Scheme generally have the right to live and work in the UK on a permanent basis. Many have been resident in the UK for years and, in some cases, decades.
Depending on the final design of any scheme, the affected population could include:
- Skilled Worker visa holders
- Graduate visa holders
- Workers on family visas
- Individuals with indefinite leave to remain
- EU citizens with settled status
From an employer perspective, existing immigration compliance requirements focus primarily on a worker’s legal right to work. Once an individual has settled status or indefinite leave to remain, employers generally treat them in much the same way as any other permanent member of the workforce.
The proposals appear to introduce a different test based on citizenship rather than immigration permission. That may create new categories of workers who have full permission to work in the UK but who nevertheless attract different employment costs for their employer.
Until detailed policy proposals emerge, considerable uncertainty remains about where those boundaries would ultimately be drawn. For employers with diverse workforces, the answer could have significant implications for future recruitment costs, workforce planning and employee relations.
Employer Impact of a Foreign Worker Tax
If implemented, the proposals could have significant implications for employers that rely on international recruitment:
Beyond Visa Rules
Reform is effectively proposing to use the tax system to influence recruitment decisions directly by increasing the cost of employing certain categories of workers. That goes beyond the traditional immigration controls of visa rules, sponsorship requirements and salary thresholds.
People Costs
Employers recruiting non-British workers could face higher National Insurance liabilities together with an additional migrant labour levy. For businesses employing large numbers of overseas workers, the cumulative financial impact could be substantial.
Any increase in recruitment and employment costs is likely to be felt most acutely in sectors that have experienced persistent recruitment difficulties in recent years. Social care, hospitality, manufacturing, logistics and food production have all relied heavily on international recruitment to address workforce shortages and fill vacancies that employers have struggled to fill domestically.
Payroll and Compliance Challenges
Current right to work processes are designed to establish an individual’s entitlement to work in the UK and to protect employers against illegal working penalties. They are not designed to operate different employment tax treatments based on nationality or citizenship.
If a future system required employers to distinguish between British citizens, settled workers, visa holders and other categories of workers for tax purposes, employers could face additional payroll, HR and compliance obligations.
Employers would therefore need clarity regarding the evidence required, how status changes should be recorded and what obligations would apply where an individual’s circumstances change during employment.
Workforce Planning Challenges
There could also be wider workforce planning implications. Organisations making long-term recruitment decisions often assess skills availability, labour market conditions and future workforce requirements. A tax regime that increases the cost of employing certain categories of workers would introduce another factor into those decisions.
For employers operating internationally, holding sponsor licences or recruiting from overseas talent pools, the proposals would represent a notable departure from recent immigration policy. Rather than focusing solely on controlling entry through visa eligibility rules, sponsorship requirements and salary thresholds, the measures would seek to influence recruitment behaviour directly through the tax system.
DMS Perspective
Since Brexit, successive governments have largely attempted to influence migration by controlling access to the UK labour market through visa eligibility rules, sponsorship requirements and salary thresholds.
Reform’s proposals would go a step further by seeking to influence employer recruitment decisions directly through financial incentives and additional employment costs. Rather than asking who should be allowed to work in the UK, the focus moves towards how much employers should pay to access international labour.
For employers, that would represent a significant development. Immigration compliance has traditionally centred on sponsorship and right to work checks. A system that links employment taxes to citizenship or immigration status would move immigration policy into recruitment budgeting, workforce planning and wider business strategy, while also creating substantial operational and compliance challenges.
Individuals with settled immigration status and permanent rights to work in the UK could also fall within scope if preferential treatment is ultimately linked to British citizenship rather than immigration status. That would be a notable departure from the way immigration-related obligations have traditionally operated for employers. Any attempt to impose less favourable treatment on settled EU citizens could also raise legal and diplomatic issues linked to the UK’s obligations under the Withdrawal Agreement.
The practical and legal challenges can’t be underestimated. A system based on citizenship rather than permission to work would require employers to distinguish between multiple categories of workers for payroll and tax purposes, while potentially raising wider questions about the treatment of settled workers and the UK’s post-Brexit commitments.
Need Assistance?
Employers that rely on international recruitment should continue to monitor policy developments closely, particularly where future policy proposals may affect recruitment strategies, sponsorship programmes or labour costs.
For advice on sponsor licence compliance, workforce planning, right to work obligations or the potential impact of immigration policy changes on your organisation, contact us for specialist guidance.
