Immigration cap still doesn’t add up

Theresa May yesterday announced the introduction of a temporary cap on skilled immigration to the UK, a policy which the FT estimates will cost every UK household £300 a year in extra taxes or reduced spending.

Theresa May yesterday announced the introduction of a temporary cap on skilled immigration to the UK.  A fairly modest set of changes to Tiers 1 and 2 of the Points-Based System (which govern highly-skilled migration to the UK from outside the European Union) will reduce the number of visas issued in some categories with the aim of making sure that 2010 flows do not exceed 2009 levels.

Some important categories of Tiers 1 and 2 (e.g. international transfers within companies) will be excluded from this temporary cap. Temporary migration under the Points-Based System (e.g. students) is also excluded, as is all non-economic migration (e.g. family formation and asylum) and migration from the EU.

This is a stop-gap measure to prevent a ‘closing down sale’ effect ahead of the introduction of a permanent cap in April – presumably (no data has yet been released), visa applications have increased since the election of the Government as would-be migrants (and employers) seek to fast-track applications ahead of the cap. 

Ironically, had the Government not announced its intention to cap immigration, applications would, in all likelihood, have fallen faster than they now will under the temporary cap – almost all categories of immigration are currently declining (including through the Points-Based System). So, in sum, this temporary cap on immigration seems unlikely to have a significant impact on immigration flows.

However, the temporary cap is a prequel to a permanent (and possibly more comprehensive and/or drastic) cap on skilled immigration. The home secretary has reiterated the Government’s commitment to drastic reductions in net immigration ‘back to the levels of the 1990s – to tens of thousands rather than hundreds of thousands’.

In fact, a cap on skilled immigration risks failing on the Government’s own terms because so much immigration will be outside the scope of even the permanent cap. Of the roughly 500,000 people (British and non-British) who moved to the UK between October 2008 and September 2009, only just over 100,000 (including dependents) came through Tiers 1 and 2 of the Points-Based System.

Ippr analysis suggests that the Government could get net immigration to the UK under 100,000 by implementing policy changes planned by the last government and making some minor changes to policy. (The latest data show net immigration of just over 140,000 in the year to September 2009 and in fact, rapid declines in immigration may mean that net immigration is already below 100,000.)

But to get net immigration down to the levels of the early-mid 1990s (under 50,000 a year) would require drastic reductions in migration to the UK for work and study. Any cap that would deliver the Government’s overall ambition to reduce net immigration levels would mean putting very severe limits on the ability of employers to recruit highly-skilled staff from outside the EU.

Any cap of this sort could damage the UK’s fragile economic recovery, and also put more strain on the public finances.  Even the declines in immigration that have already been seen have led the Office of Budget Responsibility to revise its predictions of future growth downwards, and the Financial Times has estimated that the Government’s immigration policy will cost every UK household £300 a year in extra taxes or reduced spending.

The Government have created a rod for their own backs with their immigration cap policy – the 12-week consultation launched today can be expected to generate significant resistance from business and parts of the public sector.

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14 Responses to “Immigration cap still doesn’t add up”

  1. mike

    Lets see those private nursing homes close ????

    no way can they replace those care workers, nurses

    and not willing to pay more

    and if they do cost Government more in fees

  2. Immigration Tips

    Immigration cap still doesn't add up | Left Foot Forward: Theresa May yesterday announced the introduction of a te… //bit.ly/aCTOzk

  3. Duncan Stott

    RT @leftfootfwd: Immigration cap still doesn't add up //bit.ly/dxz9ev

  4. Duncan Stott

    The whole thing is a farce. I resent the way that immigration is becoming the political equivalent of the All Blacks’ haka dance.

  5. Claire Trev

    Stupid Theresa May & her frustrating immigration cap //bit.ly/aCTOzk #soundslikeaHarryPotterAdventure

  6. Mr. Sensible

    Sarah, this policy, like several from this government wants putting in the bin.

    I think you said last month that this cap was reflective of trends, and I think it was John Mann who said over the weekend that this could either damage the economy or just end up as dangerous posturing.

  7. AJ

    Oh dear, the end of this article is a bit desperate. The FT’s £300 figure shows the ‘cost’ of reduced immigration in terms of foregone revenue, but doesn’t take account of reductions in spending (e.g. on health and education services) resulting from reduced immigration even in the short term let alone the long term. To state, as the FT does and this post repeats, that reduced immigration will ‘cost families around £300 a year in higher taxes or lower public spending’ is, erm, complete nonsense.

  8. USAGC

    I agree with AJ – complete nonsense

  9. Sarah Mulley

    AJ/USAGC: The FT calculation is a bit simplistic, but it’s based on the OBR’s own model, which is what shapes the Treasury’s budget calculations. Yes, fewer migrants means savings can be made in public services (though migrants in general, and highly-skilled migrants in particular, are net contributors to the public purse), but fewer migrants doesn’t reduce the deficit. With lower economic growth and fewer tax payers to pay it off, we all pay more, one way or another. It might be a price that people are willing to pay to reduce immigration, but they should at least know that there is a price.

  10. AJ

    Sarah: you’re just not right about this. Yes, govt revenues are lower if there are less migrants. But departmental spending on health, education, welfare etc. can also be reduced commensurately. The impact on the deficit is probably pretty much neutral (or, if you think the changes will keep out low skilled workers who would otherwise have come to the UK, positive).

    So I’m really not clear how ‘we all pay more, one way or another’. I assume you’re vague about it because you aren’t either. Maybe your argument is that we need high immigration to pay the interest on govt debt? If so you should say it and we can ridicule the argument.

    By the way, it’s fascinating that this website thinks that a moderate reduction in immigration is a bad thing even at the same time as it warns about the impending unemployment crisis resulting from the coalition’s fiscal policies. Intrigued to know how you reconcile those two points of view.

  11. Sarah Mulley

    Hi AJ. I’m going to write some more about the fiscal impacts of migration in the next few weeks, so watch this space. But for now, remember that the cap applies only to highly skilled (and highly paid) migrants who pay a lot of tax, don’t consume many public services, and aren’t eligible for most benefits.

    For the record, I’m not saying that a reduction in immigration is a bad thing given the current economic circumstances, but immigration is falling (rapidly) anyway – the system we have is pretty good at responding to economic need. This cap is just not a good policy, whatever you think about the appropriate level of immigration.

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