The multi-billion-pound pot that could be fuelling Britain’s green recovery
As the Government pushes on to Build Back Greener, capital invested via the investor visa route should be considered as another means of directly supporting the UK’s sustainable recovery.
Finding a pound down the back of the sofa used to be one of those small life wins. Now imagine it’s closer to £1bn – and you’re gearing up the country’s green economic transition. This sum invested under the investor visa route annually is – broadly speaking – the equivalent to Rishi Sunak finding a pound under the sofa in Number 11, and it could be part of the key to unlocking the UK’s green recovery.
While recent changes to UK immigration rules have seen major reforms to the qualifying criteria for skilled workers and other immigration categories post-Brexit, Britain’s investor visa has come through the revamp of the rules relatively unchanged. The investor visa has been a route into the UK since 1994 – in its current iteration since 2008 – and contributes a significant amount annually to UK coffers. If the investor visa route is to remain in the UK’s immigration system, then not seizing the moment to modernise it and direct funds to ESG-related areas risks missing out on a key investment opportunity to drive the UK’s more sustainable future.
The Tier 1 Investor route is one of the most direct ways for wealthy individuals to qualify for leave to remain in the UK. This category is designed to allow those able to commit a substantial financial investment in the UK to be granted permission to reside in the UK as an investor. Within the first three months of entry into the UK, investor visa holders must invest a minimum of £2m according to specific and fairly restrictive criteria, before potentially qualifying for indefinite leave to remain (settlement) after five years. Applicants can apply to settle after three years with a £5m investment, while an up-front commitment of £10m cuts the period to settled status down to just two years.
Relative to European and G8 peers, the UK’s investor category visa has one of the most transparent entry criteria and fastest processing times, yet is arguably behind the curve in terms of the qualifying options for investment.
Investor visa holders must invest their £2m in UK shares or loan capital in active and trading UK registered companies. Prior to 29 March 2019, the purchase of UK governments bonds was also permitted but has since been removed from the qualifying criteria, further trimming the options available.
While the original intention behind this set of investment options may well have been to ensure that this high value visa category would bring the maximum economic benefit to the UK (while mitigating investment risk to capital by allocating to fairly ‘vanilla’ assets) the reality is now falling far short of realising this route’s greater potential.
In the year to September 2020 alone, 164 Tier 1 Investor applicants contributed a minimum of £328m (but potentially much more) in investment to UK active and trading companies, via equity and corporate bonds. These 2020 figures are significantly depressed (a 56% year on year decline) by the pandemic[1], and the minimum annual figure is usually more than double this. In 2019, 357 Tier 1 visas were granted[2], equating to a minimum of £714m. Yet this capital is largely held in segregated, individual accounts, missing out on the economies of scale and impact that this sum could deliver in aggregate, either through a single, centralised vehicle or via a more strategically targeted programme.
Of course, in the current economic climate, multi-millions sitting in vanilla FTSE equities or bonds, could prove rather useful to a government fuelling the nation’s fiscal response.
In December last year, UK government borrowing reached its highest monthly level on record, peaking at more than £1bn a day to top £34bn in a single month, with spending ramping up to offset the effects of lockdowns and a sharp fall in tax receipts. The Office for Budget Responsibility’s central forecast for a 2020-21 deficit of £394bn in 2020-21 draws into sharp relief the reality that every penny really must count to restore the UK economy to a stable recovery trajectory.
Moreover, the Government’s commitment to ensuring that Britain’s economic growth supports the transition to a low-carbon economy is a key part of ensuring that the next phase of the UK’s economic growth is both green and sustainable. The Government’s ten-point plan – part of the PM’s mission to level up across the country – will mobilise £12bn of government investment to deliver up to 250,000 highly-skilled green jobs in the UK. In aggregate, Tier 1 Investor capital could go some long way in supporting that mission if deployed effectively.
Many other countries have already restructured the allocation of their investor visa capital to support the needs of the national and, in some cases, even local economies to a greater degree. Portugal’s closest equivalent is considered to be among the most innovative, offering a broad range of investment options tied to strategic economic targets. Portugal has also floated the idea of a Green Investment route to promote ecological investment and support its transition to a carbon-free economy.
As the UK Government, regulators and financial services industry work together to green Britain’s economy, more thoughtful investment of visa capital could make a tangible difference. There have been a number of unique opportunities presented in this pandemic-reframed world, with demand for responsible investment products at a high, and increasing innovation around immigration policy needed. It would be a missed opportunity to not seize this moment to realign the UK’s investor visa route to a sustainable investment strategy, by bringing ESG to the core of immigration policy.
[1] https://www.gov.uk/government/statistics/immigration-statistics-year-ending-september-2020/summary-of-latest-statistics
[2] https://www.gov.uk/government/statistics/immigration-statistics-year-ending-september-2019/summary-of-latest-statistics#:~:text=There%20were%203.1%20million%20visas,seen%20over%20the%20last%20decade