Immigration is an issue it would be easy to file away in the “too difficult” drawer. Is it one of those where good economics – most economists would say it brings net benefits for the country – can never be good politics? Or is it a bit more complicated than that?
A few days ago the International Monetary Fund, in its annual assessment of Britain’s economy, was generally supportive of the coalition government’s policies but warned that “restrictive immigration policies could have a negative impact on productivity growth”.
It called for a relaxation of immigration restrictions in areas where there are labour shortages, as well as a loosening the visa regime for foreign students, which it said “could contribute to expanding the skilled labour force and to improving the prospects of higher education exports”.
The Office for Budget Responsibility (OBR), the government’s fiscal watchdog, in its latest assessment of Britain’s long-term fiscal sustainability, demonstrated that the lower the level of net migration, the higher the level of future government debt. Migrants tend to be of working-age and pay more in taxes than they take out in benefits.
In 50 years’ time, in 2063-64, public sector net debt will be just over 40% of gross domestic product in a “high migration” assumption; net migration continuing at 225,000 a year, similar to its recent rate. If, however, net migration was reduced into the “tens of thousands” as suggested by ministers – the OBR uses a figure of 90,000 a year – net debt in half a century will be closer to 90% of GDP. Migration is good for the public finances.
I can hear some harrumphing as I write that sentence, about the inability of anybody to predict the state of the public finances in half a century, about the assumption that the economic benefits of migration outweigh the costs and about the fact that it is easy for bodies with three-letter acronyms to ignore the politics of immigration.
Those politics were exposed about the time the IMF published its recommendations. Following up on a newspaper article and broadcast coverage, David Cameron invited me (by e-mail) to “share the facts” on an “immigration system that puts Britain first”.
The Conservatives, he said, were closing bogus colleges, cutting benefits for EU immigrants – reducing the time they can claim them from six to three months – and outlawing the practice of advertising British jobs in other countries but not here.
The prime minister’s announcement that he was cutting benefits for immigrants drew much mockery, while his apparent claim that it would save £500m over the next few years brought a clarification from the OBR. Its chairman, Robert Chote, pointed out that the £500m referred to a series of measures unveiled in the March budget, for which the costings were uncertain. The measure to limit benefits from six to three months will affect only a few thousand people.
There is a tendency among the chattering classes to dismiss any measures that target the benefits immigrants receive, or the use by foreigners of the National Health Service. Most migrants do not come here to receive benefits but to work, and heath tourism is a bigger issue in the tabloid newspapers than it is in reality.
Perceptions are important, however, and though neither benefit nor health tourism are not huge, there is some of each, and no government in the current climate could get away with ignoring it.
Cameron’s problem, of course, is that he can tinker around the edges of immigration but he is competing against two fundamental difficulties. One is that he there is very little he can do about EU migration. The other is that the more successful the economy and job market, the more that Britain becomes a honeypot for migrants.
Net migration to Britain, which for many years was negative or insignificant, has fluctuated between 150,000 and 300,000 for the past decade. Last year’s figures of 212,000 (up from 177,000 in 2012) was roughly in line with its recent average.
Most people, I suspect, think that recent migration is all about the enlargement of the European Union to the east in 2004 and the Labour government’s decision to admit the EU’s new citizens. In fact, while EU migration to Britain – 124,000 last year – is important, it was exceeded by non-EU migration, 146,000, though this was the lowest since 1998. The other key fact was that there was net migration of 57,000 by British citizens moving overseas.
If we take the last 10 years, there was 900,000 of net migration into Britain from the rest of the EU, less than half the 1.98m of non-EU net migration. Over the same period, there was net outward migration of 780,000 by British citizens. So, net migration of 2.1m over 10 years. The proportion of non-UK born workers in Britain, now just over 9%, is almost three times its 1997 level, though is probably not as high as most people would guess.
What has been the effect of this migration? In surveys of the evidence produced by the Department of Business, Innovation and Skills and the University of Oxford’s Migration Observatory, there has been some negative impact on employment for British workers, though this effect is mainly when the economy is weak. Immigration has also reduced the wages of lower-paid workers, including earlier migrants, because they tend to compete most in the job market with new migrants. It is quite likely that higher levels of migration have contributed to the weak growth in wages of recent years.
The other big effect is on housing. Though not every migrant worker requires their own house or flat, met migration is running at roughly twice the level of new housebuilding. More than 2m of net migration puts a lot of pressure on available housing. The IMF is right to say, as it also did in its report, that Britain needs a lot more new housing. But we know this is far easier said than done, and for the moment, its encouragement of more immigration will add to housing shortages and the upward pressure on prices.
I said this was difficult. Immigration brings long-term fiscal benefits and probably does raise growth more than population (it boosts per capita GDP as well as GDP itself). But it also produces short-term losers in the job market and adds to pressure on available resources including housing, as Bob Rowthorn pointed out in a report for the think tank Civitas on Friday.
It also leads to political responses that take us close to the worst of all worlds. The prime minister is obliged to oversell policies that make little difference, and fail to satisfy those, including the UKIP tendency, who want a clampdown on migration that they only think can be achieved by leaving the EU.
Meanwhile, though non-EU migration remains high, businesses and universities complain that the restrictions that have been introduced make it hard for them to attract key employees and the best students. The result is a policy that satisfies nobody. It is all a bit of a mess.
This piece is cross-posted from EconomicsUK.com with permission.