The home secretary bowed to concerns raised by business and several cabinet colleagues, announcing concessions to plans to cap yearly migration to the UK.

Theresa May said she would hold a 12-week consultation with companies and business groups before coming up with a permanent way to limit the number of work visas given to non-Europeans every year.

The promise of a cap on yearly non-EU work permits was a key part of the ruling Conservative party’s election manifesto, which proved popular with voters. Immigration was the most important issue for voters in the election after the economy. However, critics derided the move as a “gimmick” because it only applied to a fraction of UK arrivals each year and was dwarfed by the number of students and Europeans who migrate to the UK.

Ms May has also instructed the migration advisory committee, an independent UK government adviser, to carry out a parallel consultation examining the economic impact on the UK of a cap on workers from outside the European Union. This will be used to decide on the number at which next year’s limit will be set.

Business leaders fear a yearly limit would damage Britain’s standing as a global commercial centre, particularly among increasingly important trading partners such as India, Brazil and China.

Business groups welcomed Ms May’s willingness to soften the government’s stance but warned that the “devil would be in the detail” of how the cap was eventually introduced.

The UK will introduce an immediate interim cap of 24,100 for the period until April 2011 to stop an expected flood of applications ahead of the permanent change.

Lady Valentine, chief executive of London First, a lobby group that campaigns on behalf of most of the UK capital’s biggest companies, said she was “delighted” by the consultations launched by Ms May.

Just the facts

What has been announced?
The Home Office plans an immediate limit of 24,100 work visas awarded to non-European Union migrants between now and April – 1,300 fewer than last year. This is to avoid a last-minute “closing down sale” as companies rush for work permits before a permanent rule change in April. In the meantime, the government is consulting business to seek support and assess the economic impact of a cap.

What do the critics say?
Most politicians admit there is public anger about immigration. However, the vast majority of arrivals over the past decade are from eastern Europe and cannot be restricted because of European Union job laws, or as students or family members of previous migrants. The temporary cap equates to 5 per cent of the 500,000 arrivals last year. A cut of 1,300 visas is equivalent to less than a third of 1 per cent of yearly arrivals. As a result, critics say the cap is meaningless but will cut the supply of skilled migrants needed most.

FT verdict
The cap lets the Tories look tough on immigration but is shabby policy. Labour’s points-based system was already limiting non-EU migration to high flyers or people working in professions with skills gaps. Indeed, if the coalition had left well alone, the number of arrivals would feasibly have fallen further than its interim cap. For a government loudly determined to slash bureaucracy, loading an extra burden on business at a time of economic crisis is misguided.

“I hope this means the government will take a more nuanced approach,” she said. “Our biggest concern is about the UK being seen to be open for business. It is the rhetoric that is as important as anything.”

Julia Onslow-Cole, UK head of immigration at PwC, the consultants and a large UK employer, said: “The message here is very much ‘don’t worry, we know we can’t do anything to damage big business’.”

However, smaller businesses have concerns that the new cap will damage them most as the government lifts the level of wages that highly skilled workers must earn and puts restrictions on the number of people coming in to fill jobs with skills shortages such as care workers.

John Faraguna, managing director of Hays Health and Social Care, a recruiter, said: “Despite high unemployment, we are still struggling to recruit certain skills.”

Non-EU workers will also receive more points if they take out private healthcare to ease the burden on the National Health Service.

Ms May eased her stance after several cabinet colleagues raised fears about the cap. They included senior Conservatives such as Michael Gove, education secretary, and David Willetts, university minister, as well as Vince Cable, the Liberal Democrat business secretary.

Some ministers in the new coalition government were concerned particularly that the immigration cap applied only to skilled and highly skilled workers from outside the EU, the migrants that the UK most wants to attract.

Alan Johnson, the shadow home secretary, attacked the policy as “absolutely pointless and at best a gesture” because the vast majority of yearly migration to the UK was either made up of students or people from the EU, particularly eastern Europe. “Only one in seven potential migrants would be subject to a cap,” he said.

Ms May confirmed plans to implement an interim cap for this financial year on non-EU workers to avoid a “closing down sale” as companies rushed to apply for new work permits before the regime was introduced in April.

Lady Valentine said this raised worries about an even greater rush for new permits before the cap of 24,100 is hit. “What if it is reached in four months?” she said. However, people involved in the plans said the government would allow companies some latitude if the interim limit was breached.

In a further concession, Ms May decided against any immediate ban on “intracompany transfers” that allowed businesses to bring staff from overseas offices to the UK. The practice is opposed by IT workers, who contend it is abused by Indian companies to get around immigration laws.

Separately, Damian Green, the immigration minister, appeared to back away from a Tory pledge to bring overall net yearly migration down to the levels of the 1990s – about 50,000.

He said he had only talked about getting it down to the “tens of thousands” over the life of this parliament.