Immigration policy should support UK economic growth, not undermine it


 

Ruth Grove-White is a policy officer at the Migrants’ Rights Network

This week the coalition government has new cause to regret strapping itself to a pledge of reducing net migration to the “tens of thousands” per year by 2015. The latest outlook report from the Office for Budget Responsibility (OBR) shows that even the government’s expert advisors assume this target will not be met.

Border-patrolman-inspecting-passportThe independent OBR produces a five-year ‘Economic and fiscal outlook’ every six months, based on an assessment of the UK economy and public finances.

The latest report predicts shaky growth during the coming period, with the government facing significant risks that they will fall short of meeting growth targets.

At the same time, a higher than predicted level of net migration is built into the OBR forecast, with the report (pdf) stating:

“Our assumption for [UK] population growth is based on average net inward migration of 140,000 per annum over the forecast period, in line with our March forecast and with the long-term assumption underpinning the ONS’s low migration variant population projection.”

This is embarrassing for two reasons. Firstly because the government is having a hard time convincing anyone its immigration target can or will be met – and it appears the OBR is among the sceptics. Who could blame them though? Immigration statistics from the Office of National Statistics repeatedly show the government is way off course, with annual net migration to the UK in 2010 252,000, the highest calendar figure on record.

A recent YouGov survey (pdf) for the Sunday Times found just 16% of the public believes it likely the government will deliver on its pledge of net immigration reduction by 2015. Having over-promised on this target, the government is now facing the prospect of a very public under-delivery.

Secondly, the OBR forecast reflects the view of many economists that continued immigration, at levels higher than the government intends, could play a vital role in supporting growth in the UK.

As reported in The Independent, the OBR indicated (pdf) this time last year:

“Net migration can directly affect the economy’s trend growth rate by affecting potential labour supply growth.

“If migrants have a similar employment rate and level of productivity to the existing average, a reduction or increase in population growth of 0.1 per cent would translate one-for-one to a reduction or increase in trend growth of 0.1 per cent respectively.”

Evidence given to the Migration Advisory Committee over the past 18 months has indicated significant risks to the UK of cutting economic migration from outside the EU. Notably, the National Institute of Economic and Social Research (NIESR) estimated (pdfthe immigration cap could cost the UK £2 to £4 billion by 2015.

And despite efforts of the anti-immigration lobby to demonstrate otherwise, the view of the OBR (pdf) is:

“…existing analysis suggest little evidence of a significant effect from immigration on earnings or employment, although there is some evidence of a small effect in the low-skilled sector.”

More difficult to assess but potentially no less important, are the economic implications of withdrawing wider rights to migrants. The government is currently engaged in trying to reduce family migration as well as to end settlement opportunities for most migrant workers.

But making it more difficult to work here is likely to be short-sighted, potentially reducing the attractiveness of the UK as a destination for skilled migrants into the future. Economists know that migration and diaspora networks bring value to wealthy countries. We should be demanding the coalition government’s immigration policies support economic growth in the UK rather than undermining it.

See also:

Crazy May’s immigration policy will make us all poorerAlex Hern, November 21st 2011

New student visa system turning prospective entrepreneurs away from the UKWill Straw, November 18th 2011

Kellner: May’s immigration rhetoric “seems to have backfired with public opinion”Shamik Das, November 14th 2011

FT slam dog-whistle May’s “preference for popular pandering over rational policy”Shamik Das, November 8th 2011

Anti-foreign student rhetoric risks real harm to our global reputationSally Hunt, September 22nd 2011

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  • Anonymous

    This kind of simplistic analysis is one big reason that standards of living are going down for many people right now.

    Of course increasing the number of people / workers in a country tends to drive up economic growth: the size of total economic activity in a country is almost certain to increase if there are more working people buying what they need to live, renting housing and helping to keep the price of labour down. However, this kind of growth is unlikely to help raise standards of living except for the few that rely on profits rather than wages for wealth.

    If we have a housing crisis and high unemployment then more workers will increase rents and other demand based prices for existing workers, making it even more difficult to get a house and a job.

    The only way I can see a coherent argument for this is if one believes that even more workers now will somehow pump prime a return to rapid growth that will then soak up the new people plus the existing unemployed and then also generate a massive and rapid house building boom. If it doesn’t, then the only beneficiaries will be the wealthy few.

    Reducing such a complex issue down to what adds economic growth better is frankly dangerous.

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  • FreddyToot

    @DaveCitizen

    There will be benefits accruing to wider sections of the population if (a) migrants are not in direct competition for the sort of jobs which host workers are qualified to do and are actively seeking and (b) their levels of dependency on tax-funded social benefits amongst migrants is lower than the host population. In these circumstances it could be expected that the host community will benefit from an increase in the total number of jobs which will emerge from the growth of demand in an expanding economy (migrant workers will create the need for supervisors and line-managers, who are more likely to be host workers, and also increase demand for goods and services which will be met by entrepreneurs, a proportion of whom will be host nationals and employ host nationals). With respect to tax-funded welfare benefits, the greater propensity of migrants to be tax-payers rather than welfare recipients than the host community means that they will be making a net contribution to the welfare of welfare-dependent citizens.

    In the circumstances you describe of an economy in recession, the ending of migration will not help host citizens much since the removal of migrants will lower levels of demand in the economy ratcheting the system into negative growth, as well as depriving it of assets which are likely to be of use to progressive firms which are coming up with business plans.

    There certainly are issues about the return to prosperity and migration which this blog hasn’t dealt with, with the chronic failure of the UK economy to increase productivity being to the forefront. Increased productivity would produce better outcomes in terms of per capita GDP gains. There might be an argument that increasing labour supply through migration has made it easier for firms to shirk the task of increasing productivity, but it would be harsh to blame migrants per se for the failures of the British managerial class.

    So, all in all, I thought this item was rather a useful summary of the sound arguments as to why we should continue to favour migration as an instrument helping the economy to return to growth.

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  • Guest12

    okay, so basically, the population growth in the United Kingdom, is very high, and is still increasing today. Mainly being migrated by foreighners, however. The United Kingdom is a tiny country compare to others, but it still has a very large amount of space for populating.

  • Argiebee

    The argument that net migration grows the economy is true but misleading.

    Consider this, if Scotland got independence from the UK then the UK population and GDP would shrink by about 10%. The rest of the UK would not experience a 10% cut in living standards. The GDP per capita might even increase but again it would not have any real impact. Even the fact that more public money is spent per head in Scotland would have minimal affect on the remaining parts of the UK.

    You could also consider the effect of the UK annexing Ireland. GDP would rise but people in the UK would be no better off.

    The idea that economic growth by population growth is good in its own right is flawed.

  • http://twitter.com/Newsbot9 Newsbot9

    True, 6-8% as a result of the fallout from Scotland leaving is reasonable. Wales might then leave, and…

  • http://twitter.com/Newsbot9 Newsbot9

    In reality, this government is turning away HIGHLY skilled workers. Clap for the right!

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  • http://immigrationlawyersnow.org/ Immigration Attorney

    It does really support the economic growth.

  • Arisha

    As you should know, as you write on this issues – the ONS use of net migration estimates are based on historical levels and take no account of the effect of future government policy. Therefore just because the ONS and so the OBR use higher net migration estimates than the government’s objective of tens of thousands does not mean they have passed judgement on the ability of government to deliver on their target of tens of thousands.

    What’s more interesting is the Migrant Rights Network purporting to care about economic growth! Anything to justify the cause eh?

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