Immigration: a supply-side measure to boost growth the Tories fiercely oppose

I suggested at the weekend that there was one over-riding policy area where the Lib Dems and Conservatives agree more often that we disagree — the economy, and the need for deficit reduction — and that we should focus our combined energies on ‘reforming capitalism’. But of course there are also fundamental disagreements between the two Coalition parties on how best we can boost growth.

The Tories would prioritise implementing in full the ‘Beecroft proposals’ — including no-fault dismissal of employees — to make it easier for businesses to hire and fire workers at will, a supply-side reform they argue would create jobs as firms take the risk hiring new staff knowing they can easily downsize if necessary. Vince Cable rejected the proposal, noting “this has very rarely been raised with me as a barrier to growth”, and also pointing out the potential for increased job insecurity to stifle much-needed consumer confidence.

You want supply-side growth? Then let’s welcome immigration

To some Tories, therefore, Lib Dem opposition to Beecroft marks the party out as ‘roadblocks to growth’. Yet there is a supply-side reform they oppose, and one with a great deal more evidence to back up its likelihood to boost growth: immigration. In a free market economy, there should be as few controls on the movement of labour as are practically possible to ensure the most efficient distribution of the workforce to those areas where there’s demand. Yet the Tory manifesto committed to state-imposed controls of the labour market:

… immigration today is too high and needs to be reduced. We do not need to attract people to do jobs that could be carried out by British citizens, given the right training and support. So we will take steps to take net migration back to the levels of the 1990s – tens of thousands a year, not hundreds of thousands.

A variant of this protectionist policy — diluted though regrettably not deleted by the Lib Dems — made it into the Coalition Agreement:

We will introduce an annual limit on the number of non-EU economic migrants admitted into the UK to live and work. We will consider jointly the mechanism for implementing the limit.

The publication of the 2011 census data showing a 7% increase in the population of the UK has triggered a lot of right-wing frothing, with this Telegraph editorial a case in point: ‘There could hardly be more damning testimony to the malign impact of the last government’s reckless policy of encouraging unfettered immigration.’

Now I have my issues with the last Labour government and their abject failure to manage the economy, but one of the most liberal, positive and growth-boosting policies they pursued was opening up the British labour market to the EU accession states. Not only did incoming migrant workers plug gaps in our own labour market, benefiting British businesses and helping offset the negative impact of the UK’s ageing population, but migrant entrepreneurs also created thousands of jobs. It should be a policy of which Labour is proud; sadly it’s one Ed Miliband prefers to disown as a mistake under the influence of Jon Cruddas.

Immigration = Higher Growth. Simples

Last week, the Office for Budget Responsibility published its Fiscal Sustainability Report, an independent, annual analysis of the sustainability of the public finances. Their message could not have been clearer — if you want increased growth, you should welcome immigration. This table (p.63) shows why:

The OBR’s figures shows high migration provides the UK with a higher rate of growth than zero migration, with the growth ‘premium’ of high migration increasing over the decades to reflect the positive impact of an increased supply of workers offsetting the ‘drag’ of an ageing population requiring increasing public spending on health, long-term care, and pensions. As the Independent highlighted:

… if net inward migration were cut to zero over the next five decades, the scale of the public austerity facing Britain would need to be three times larger, at £46bn. If all migration ended tomorrow, the UK’s average annual growth rate would fall to 2 per cent and the national debt would spiral to 120 per cent of GDP by the middle of the century.

But the Tories’ immigration policies are not only a major factor threatening the UK’s long-term prosperity — they are also harming the British economy in the here and now, with the clampdown on student visas (opposed by Vince Cable and David Willetts) costing a reported £2.6bn a year according to the home office.

There’s not much the UK can afford right now, but I know what the last thing we can afford is: either Tory or Labour protectionism.

* Stephen was Editor (and Co-Editor) of Liberal Democrat Voice from 2007 to 2015, and writes at The Collected Stephen Tall.

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11 Comments

  • Bill le Breton 18th Jul '12 - 9:10am

    Did anyone see Professor Mary Beard’s ‘Meet the Romans’? http://www.bbc.co.uk/blogs/tv/2012/04/meet-the-romans-mary-beard.shtml

    She made the point that the way Rome managed to expand was by using immigration. Anyone who wished to come to Rome and build a life was welcome. Their race or creed or origin did not matter.

    The Roman approach to life was more important than class or ‘belonging’ or history.

    Where came this great confidence and its attendant openness?

    And before you come down heavy on the issue of slavery, she made the point of just how many people were given their freedom and became Roman’s without any attaching stigma.

  • We have to take into account the impact on housing, health and education – especially in the densely populated inner cities, where a significant further increase in population will cause problems without proper measures to mitigate these negative impacts.

    Though I’m generally sympathetic to elements of the argument, the opinions of much of the public/press remain aggressively anti-immigrant. It’s going to take a brave, creative and informed politican to question the status quo on this issue.

  • Good points by DavidC (and indeed by Steven) – but surely a more relevant measure would be growth in GDP per head? There is also some evidence that immigration tends to benefit high skilled workers and can be detrimental (at least in the short run) to low skilled workers. I generally agree that protectionism is bad (and the arbitrary immigration cap is madness), but it’s worth having a think about the distributional impact/externalities caused by immigration.

  • *Stephen (apologies!)

  • All this is wonderful if economic growth is the only measure of public good and it can keep growing for ever. As the famous quote from Robert Kennedy reminds us ‘GDP measures everything except that which is worthwhile’. As well as taking account of rising population on housing, education and health you can add broader environmental issues such as water supplies, food security , power generation, protection of natural habitat and biodiversity etc. Free movement of people and labour is to be welcomed as much as possible but if overall numbers are too great then our ability to provide a basic, let alone good, quality of life we would want for everyone will be compromised.

    Speaking of Rome, perhaps the Club of Rome and their ‘limits to growth’ thesis might be more relevant to today as we try to find a way forward.

  • Laura Gordon 18th Jul '12 - 12:23pm

    The current policy is madness.

    Case in point: my Indian ex-housemate is a science researcher with a masters degree and several years’ experience. Happy to live in a shared house, doesn’t claim benefits, pays his taxes, long-term plans to go home so unlikely to grow old here, and working on amazing research around bacteria (not a scientist = don’t quite understand exactly what, but it sounds important), in a growing sector for which we can’t train people fast enough. Got his visa just in time under the old system, and would have been refused under this one.

    How does this possibly make sense? Surely this is EXACTLY the kind of person we want coming to this country?

  • Richard Dean 18th Jul '12 - 1:24pm

    An alternative view of immigration is that it is an imperialist wolf dressed as a sheep. It improverishes the countries that immigrants come from. It does this by removing from those countries both the pessures and the skills to improve.

  • Richard Dean 18th Jul '12 - 1:42pm

    Remittances are another way of keeping a country poor. They allow recipients in those countries to not work to improve the wellbeing of their fellow citizens. They further reduce the pressures in those countries for improvements to their own country’s productive capacity. They damage the cultural development of those countries by making the foreign, remitting country into a shangri-la.

  • Another aspect of the ‘clamp down’ on welcoming outside EU students is the extra restictions to being able to work part time to support yourself while studying. I have heard of a couple of anecdotal cases, one in which a non EU student finding funds from home had stopped ( for whatever reason) could not legally work to support herself, she has finished in mid course and gone home. The other thought is that some students would then look to work in the black market, indeed, maybe in work they may otherwise not wish to do. The damage this is doing to our reputation i s enormous. Soft power, we will lose out badly in the longer term asstudents go to other countries and will then have a life long affiliation to that country , not ourselves

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