I am today announcing the findings of the review of the Sectors-Based Scheme (SBS). The scheme, which currently has the status of a pilot, was introduced on 1 May 2003 and provided for the issuance of work permits for low skilled vacancies in the hospitality and the food-processing sectors. The scheme is quota based. The current quotas for 2004–05 are 6,000 permits for food processing and 9,000 permits for hospitality. The main aims of the scheme were to alleviate the recruitment difficulties in the relevant sectors by providing employers with a means of recruiting workers from outside the European Economic Area (EEA).

Following the decision to grant free movement of work to nationals of the new accession states and in light of the number of accession state nationals undertaking low-skilled work, we have undertaken a review of the SBS to establish whether there exists an ongoing need for it. In addition, the review has also assessed evidence of any immigration abuse in connection with the scheme. The aims of the review are in line with the Government's five-year immigration and asylum strategy, published on 7 February 2005. This contained a commitment to phase out the current low-skilled schemes in light of the additional labour now available from the new EU accession states and after consultation with the sectors.

The findings of the review of the SBS are based upon an extensive consultation with the sectors, which has included an employer questionnaire, as well as meetings with employers, sector representative bodies, trade unions and available management information. The review has looked at each sector separately and the main findings are:

Food Processing:

We have found that the SBS has operated satisfactorily in this sector and that there is a continuing need for the scheme. Employers have been able to use the scheme to meet labour shortages in those areas, particularly Northern Ireland, where tight labour markets and the unattractiveness of the work in question have resulted in a difficulty in recruiting resident labour. There is little evidence of abuse of the scheme in this sector. It does appear that workers admitted under the scheme to work in this sector have returned overseas after one year, with a view to participating again in the scheme, as was originally envisaged.

While employers in this sector have indicated a willingness to recruit workers from Accession states they have pointed to a difficulty in retaining workers who are free to engage in other, more attractive employment. The consistent message from employers in this sector has been that if the SBS were discontinued, they would face acute difficulties in recruiting the workforce they require without significantly increasing their costs. The likely consequence of their doing so would be that they would face closure. As such the current pilot scheme will be extended for a further 12 months before undergoing a further evaluation. Based upon current usage the annual quota for 2005–06 will be set at least 3,500 permits, but we will consult further with employers to establish the precise figure.

Hospitality sector:

By contrast, the findings of the review do not point to a compelling case for continuing to operate such a scheme for the hospitality sector. The review points to evidence of abuse of the scheme and a high level of employment of Accession nationals in this sector.

There is evidence of abuse of the scheme in relation to this sector. This includes numbers of entry clearance refusals on the basis of submission of fraudulent documentation or where, on examination, it is apparent that the individual does not meet the age criteria of the scheme. There is also evidence that third party representatives have submitted applications for SBS permits in respect of fictitious jobs or without the knowledge of the employer specified on the application form. There is, therefore, a concern that the scheme in this sector is being used as a means of facilitating illegal entry.

In addition, many participants in this scheme have been unable to satisfy immigration criteria designed to test their credibility as temporary entrants. It is a criterion of the scheme that entry clearance may be refused to the holder of an SBS permit if the entry clearance officer is not satisfied that the holder will return overseas upon the expiry of his permit. Many SBS participants in the hospitality sector presenting themselves to the visa issuing authorities have been unable to satisfy this test and hence many of the workers the employers have sought to recruit under the hospitality quota have not been admitted.

It is also apparent that the hospitality sector in general has been able to draw upon nationals of Accession states to meet labour shortages following expansion of the EU. The latest published figures for the worker registration scheme show that between 1 May 2004 and 31 March 2005, 42,070 Accession nationals registered to undertake employment in the hospitality sector. This represents 25.5 per cent. of the total number of registered workers and is to be contrasted with 8,665 permits issued under the SBS scheme. Retention of these workers appears to be less of an issue in this sector due to its preferred employment practices and the seasonal variance in demand of labour.

In view of the above, the consequences of discontinuing the scheme in relation to the hospitality sector in general do not appear to be acute as employers do appear to be drawing upon alternative sources of labour, such as nationals of the new accession states. Any adverse consequences on discontinuing the scheme for this part of the sector are outweighed by the risk of continuing abuse of the scheme.

Accordingly, the SBS hospitality quota will be terminated. This does not mean that employers in this sector will immediately cease to have the benefit of non-EEA workers with the specific skills that they require. As a transitional measure, we will continue to issue SBS permits under the existing quota for the hospitality sector until 31 July or until the current quota is exhausted, whichever is sooner. In addition, many of those admitted as the holder of a SBS permit issued under the current quota have permission to remain for several more months and may remain in employment here until they are due to leave. I should also emphasise that where employers in the hospitality sector require skilled workers from overseas, they may continue to apply for permits under the main work permit scheme.