A government plan to restrict the work foreign students can do after graduation in the UK is a “retrograde step” that will undermine Britain’s higher education sector, a leading business group has warned.

Simon Walker, director-general of the Institute of Directors, said: “it is pure sophistry to manipulate immigration figures by shooing to the door highly-trained international students with MBAs to make way for unskilled migrants from the EU.”

Under rules to take effect within weeks, only graduates who have a job earning more than £20,000 a year from an approved employer may stay in the country after completing their studies. Alternatively, graduates with £50,000 to invest in a business may obtain an entrepreneur visa.

The proposals are part of efforts to reduce net immigration to under 100,000 people a year by the end of the parliament. In 2010, immigrants outnumbered people leaving the country by 252,000. In 2010, students made up 238,000 of a total 591,000 immigrants.

Combined with restrictions on student visas, the government hopes the proposals will cut net immigration by 60,000 a year.

Referring to students from middle eastern and emerging market nations, Mr Walker said: “Other countries welcome such students: Britain makes it difficult and artificially expensive for them to enter, and now proposes to eject them ignominiously when their studies are finished.”

Sir Andrew Green, chair of MigrationWatch, an anti-immigration group, said: “If the ‘highly skilled MBAs’ referred to by the IoD cannot secure a salary of £20,000 a year they cannot be as vital as implied. Some employers may want cheap labour but British graduates need jobs.”

Universities support the IoD, as they have resisted attempts to reduce the number of foreign students. These make a substantial contribution to their incomes – 9.6 per cent of the higher education sector’s income in 2009-10 came from fees paid by non-EU students.

Edward Acton, vice-chancellor of the University of East Anglia and a prominent advocate for the higher education sector’s position, said: “The British national interest will not be well served . . . [by] some of the restrictions on post-study employment.”

The universities are lobbying to have students removed from the migration statistics altogether. But Damian Green, immigration minister, said on Monday: “While many think of students as temporary visitors, around 20 per cent of student arrivals were still in the UK five years later.”

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