Theresa May announced the new immigration cap, to commence in April 2011, ignoring many of the Migration Advisory Committee’s key recommendations.

The total Tier 1 and Tier 2 Visas that will be approved has been limited to 21,700 and does not include the Intra-Company Transfer route. The new limit will be set annually and thus allow no flexibility in terms of the number of visas that can be issued should unforeseen business requirements arise.

Tier 1 General, formerly known as the Highly Skilled Migrant Programme, as effectively been scrapped. Instead, Tier 1 will allow for up to 1,000 people of ‘Exceptional Talent”, such as scientists, academics and artists.

May also made clear that this route would not be just for those who have achieved international recognition but would also include those who show “sufficient exceptional promise to be awarded such recognition in the future”. It is unclear at present how this would be assessed.

The announcement was met with strong criticism from the Scottish Government, which said the economy will suffer.

External Affairs Minister Fiona Hyslop said: “We are deeply concerned about the damaging impact the annual limit will have on the Scottish economy.

“Scottish businesses, employers, universities and the NHS share our concerns that the UK proposal is not right for Scotland.”

Ms Hyslop said a flexible approach to immigration was needed, with regional variation to support the Scottish economy.

She added: “The immigration cap will do the opposite. It will have a negative impact on business investment.”

Colin Stanbridge, chief executive of the London Chamber of Commerce and Industry (LCCI), said his member organisations were worried by more severe limits on highly-skilled workers: “While we are pleased that the Government has listened to business on intra-company transfers, we are still concerned that the lack of flexibility inherent in a cap will have a detrimental effect on London’s competitiveness and productivity.

“The Government’s decision to reduce Tier 1 to just 1,000 people a year was an unwelcome surprise which will deprive London of some the brightest and best professionals in the world.”

The NHS, which is highly reliant on foreign recruitment, reacted with concern, saying that the health service would be disproportionately affected. Karen Charman, head of employment services at NHS Employers, said: “The immigration cap introduces an unreasonable administrative burden on the NHS, resulting in costly bureaucracy, extensive paperwork and delays in recruitment.

“The intra-company transfer route is not available to the NHS and, as such, a 25% reduction has effectively been applied to the supply of visas available.”

The new rules are being seen by many internationally as Britain closing the door to skilled workers.

May said the changes would limit the number of staff that international corporations are permitted to transfer to Britain from offices overseas by the Intra-Company Transfer (ICT) route by only allowing the visa to be issued for more than 12 months if the salary offered was at least £40,000 per annum.

A key part of this announcement was the fact that allowances can be included towards this salary requirement. This will please a some of the large IT Companies, a number of these being Indian, who currently pay a salary outside the EU and a UK allowance within the UK on which no tax is paid for those staying less than 2 years. There is no restriction on leaving and then coming back and the Unite union has criticised this practice as it allows a non-EU worker to be employed at a lesser cost than a British worker.

The Government is unable to limit the number of ICTs that can be issued as there is a ban on a numerical limit under a GATT-WTO treaty.

The immigration cap will have only a limited impact on Britain’s overall immigration rate, as work-related visas account only for about 20 percent of migration.

Attempts to reduce the net immigration figures would therefore have to also include students and family members if the Government are to reach their stated goal of net immigration being in the ‘tens of thousands’.

Legislation that attempts to restrict family reunification could be in breach of laws relating to the rights to a family life and are likely to be legally challenged. It is hard to see how Britain could be an attractive destination for highly skilled workers if they might be forced to be apart from their families.

International students are an essential source of funds for British Universities and many expect reduction of student migrants to be focussed on the large number of English language courses that are below degree level. While this could be good news for British Universities, there remains concern over the Tier 1 PSW visa. This allows international students who have successfully graduated from a UK University to remain in the UK for up to 2 years with permission to work. This is seen as a valuable benefit for international students – to remove the Post Study Work visa would be to diminish the attractiveness of studying in the UK.