Warped incentive structures in vital political institutions are putting the future of the UK economy in doubt, and the immigration system is a case in point.
By Zain Ali | 7 April 2025
Britain’s economic malaise is seeping down from boardrooms into the cultural consciousness.
Don’t believe me? In the last fortnight, one in 50 UK adults has reportedly watched a 2.5-hour debate on wealth inequality and tax policy.
Stevenson vs Priestley: Redistribution vs Entrepreneurship
Diary of a CEO’s recent episode pits former Citibank trader Gary Stevenson against entrepreneurial coach Daniel Priestley for an extended tete-a-tete on the root causes of widening inequality and stuttering prosperity.
Their diagnoses and prognoses differ hugely. Stevenson proposes heavy taxes on wealth to stave off a decline into generalised destitution. Priestley blames an ingrained suspicion of success, the erosion of economic freedoms and a decline in business acumen. He pours cold water on wealth taxes and advocates for a smaller state that encourages ‘everyone’ to be an entrepreneur.
These two viewpoints are not easily reconciled. But where Stevenson and Priestley find common ground is in their dismay at British stagnation. They both perceive that the engines of wealth, that for so long made British living standards the envy of much of the world, are spluttering. Judging by the viewer metrics for this blockbuster-length chat, millions of people feel that sense of precariousness too.
As ‘Awful April’ brings with it a slew of price hikes, more people will awake to the bristling realisation that they are, in fact, broke in the world’s sixth-largest economy. This isn’t going away.
Government Growth Policy: A Middle Way?
The Labour government realises that the economy is not producing the wealth that people need to feel secure. That’s why they have made so much noise about increasing growth. Their supply-side reforms are designed to permanently raise the future growth rate of the UK economy.
So far, that growth is proving elusive. The economy eked out a 1.1% increase in GDP over 2024, before contracting by 0.1% in January 2025. Rachel Reeves may protest that it is too early for her efforts to bear fruit, and that a change in fortunes is on its way. So what exactly does she have up her sleeve?
We are still waiting on the full industrial strategy that the Government have promised since coming to power. But we can refer to the ‘seven pillars’ of economic growth that the Chancellor unveiled in her Autumn Budget. These are:
- Economic and fiscal stability: delivering macroeconomic and financial stability, fiscal sustainability and policy certainty
- Investment, infrastructure and planning: increasing public and private investment, unlocking better infrastructure and liberalising the planning system
- Place-based growth: amending regional disparities by pushing regional growth through investment, devolution and reform, plus support for house building
- People and skills: raising the domestic skill base so that ****more people can find good jobs in productive companies
- Industrial strategy and trade: delivering on an industrial and trade strategy to boost key sectors and tap global markets
- Innovation: building up the UK’s research and development capacity and cultivating technologies like AI
- Net zero: decarbonising the economy in a way that delivers economic opportunities ****
This is less a plan than a wish-list of abstractions. Nonetheless, it illustrates a ‘theory of growth’ that sits somewhere in between the worldviews of Stevenson and Priestley.
On the one hand, the Government clearly believes that wealth produced in the UK is unevenly distributed. The recognition of deep regional inequalities and localised skills gaps trapping people in poverty echo Stevenson’s fears of middle-class decline.
On the other hand, the Government clearly agrees with Priestley’s emphasis on the UK’s tech industry as a bellwether for growth. Starmer has, after all, become a late convert to the potentials of AI.
The Government is walking a middle way, with a strategy that synthesises key recommendations from very different wings of political opinion.
The question is – are Britain’s key institutions actually wired to produce the affluence the country is desperate to regain?
Institutions, Incentives and Inaction
Nobel Prize-winning economists Daron Acemoglu and James A. Robinson describe the inclusiveness of institutions as the historical determining factor of national success. Strong nations are founded on political and economic bodies, like parliaments, civil services and open markets, that grant participation based on merit, rather than status or connections.
Britain has long scored high on this front, and continues to. But the country’s dwindling recent fortunes suggest we might need to add another condition for success. Are our institutions governed by the right incentives?
People typically go into public life with good intentions. But once they’re in their roles, internal pressures and twisted reward structures can push them into collective actions (or inaction) that produce terrible outcomes.
Just take absurdities in the planning system, like the process to secure approval for the Lower Thames Crossing roadway project to the east of London. This was finally approved by the Transport Secretary two weeks ago. But this sign-off took 16 years and 359,000 pages of application documentation – if laid end-to-end, nearly five times as long as the road itself – at a cost of £300 million. The incentive to dither in endless consultations with NIMBYs trumped the clear benefits of improving connectivity in the South East of England.
But maybe the most dysfunctional example lies in the immigration system.
How the Skilled Worker Visa Failed
When Britain left the EU in 2020, UK employers could no longer rely on an easy flow of skilled workers from the continent. To fill the gap, the Conservative government launched a new Skilled Worker visa.
This was presented as part of a shift to a points-based system that would welcome the brightest and best from around the world. In order to alleviate pressures on the NHS, this visa was given a sub-route: the Health and Care visa. At the time, officials anticipated that they would receive between 6,000 and 40,000 annual applications. In actual fact, over 146,182 visas were issued between February 2022 and October 2023 alone.
This led the previous government to institute a raft of restrictions on the Skilled Worker visa, including a 48% hike to minimum salary thresholds and a crackdown on dependants. All of a sudden, it became much more expensive for companies to hire from overseas.
Some might ask what the problem is here. After all, isn’t it a good thing that British companies are incentivised to hire from the domestic talent pool, rather than look abroad for cheaper labour?
The issue is that the Skilled Worker visa’s current design can’t absorb these restrictions without hurting high-value companies looking to fill advanced roles. Such positions, like mechatronics engineers and AI specialists, are so specialised that they simply don’t exist in high enough numbers in Britain to go around. That’s a major risk to the UK’s present and future economic prospects.
This is the consequence of a visa that makes no distinction between rarefied technical talent and lower-skilled roles. In fact, the Skilled Worker visa eligibility list specifies that these high-qualification positions should be treated no differently to charity shop managers, take-away food shop managers, estate agents, online sales assistants and call centre supervisors.
So did the previous government, faced with numbers spiralling beyond its projections, keep cool heads and fix this ingrained flaw? They did not. Instead, they responded to the political pressure caused by surging migration by simply clamping down on this broad visa route, wholesale.
Unintended Consequences
Even before the restrictions came in, up to 55% of firms in strategic sectors were struggling with shortages in strategically vital occupations. The visa restrictions have only exacerbated them.
Our consultations with businesses have found that 55% of respondents have suffered material financial consequences, with 22% reporting that they would now be unable to fill key roles. This is not a good omen for restoring the affluence that everyone, from Stevenson to Priestley to Starmer, agrees is slipping away. If companies are to grow, something needs to change.
In our new report – How to Fix the UK’s Broken Visa System – we demonstrate how the Skilled Worker visa has been, if anything, underutilised as a mechanism to hire for scarce roles. We segment the official immigration data to include only positions requiring higher levels of qualifications and experience.
Between the start of 2021 and the end of 2024, only 32% of total working visas went to skilled professionals. These numbers don’t even touch the sides of the skills gaps facing our most crucial sectors.
Fixing the Incentives, Fixing the Future of the UK Economy
The Government has two objectives: reducing net migration and raising UK growth. These are sometimes seen as incompatible. But the small share of high-skilled professionals within the total migration numbers suggests it’s not quite as clear-cut.
If the Government is serious about fulfilling both these goals, it will need to fix the system to ensure these negative second-order effects don’t simply recur. We have a proposal to ensure this happens.
Centuro Global is calling for the Skilled Worker visa to be replaced by a Growth Visa. This new route would have higher eligibility thresholds to ensure it’s tailored to the highest-skilled foreign nationals. It would come with conditions that rule out future cost hikes beyond 5% at a time, so that governments are less able to suddenly gouge firms’ recruitment budgets.
And, crucially, it would be overseen by a Joint Unit of inputs from across government, such as the Treasury, the Department for Business and Trade and the Department of Science, Innovation and Technology. This would help broaden the incentives that inform immigration policy design beyond those of the Home Office.
The reward would be a migration system that’s aligned with the needs of the economy, giving firms access to high-value labour without producing destabilising spikes. The cross-departmental implementation process could even be a test bed for fixing the incentive structures that pollute other parts of the state.
We believe that this proposal would pave the way for a return to the prosperity that even the bitterest debate opponents can agree is sorely lacking.
