Immigration (EAC Report)

Part of the debate – in the House of Lords at 12:03 pm on 14th November 2008.

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Photo of Lord Wakeham Lord Wakeham Conservative 12:03 pm, 14th November 2008

My Lords, I am very pleased to introduce this debate. This is the last debate on a report of the Economic Affairs Committee that I shall have the privilege to introduce. I have had the honour of introducing in excess of 10 or 12 reports as chairman, starting with the report on climate change, which caused a certain stir. Most of our reports, whether noble Lords agreed with them or not, have usually made Members pause to think, if nothing else. The noble Lord, Lord Vallance, has been chairman of the committee for almost a year. The inquiry began while I was chairman and continued into the first few months of his term, but, at the request of the committee, I chaired work on the inquiry through to the end.

I thank my colleagues on the committee for their work on our report. As has been the case with all the reports of the committee under successive chairmen, this report is evidence-based and entirely non-political, and was agreed by all members of the committee. I stress this point because the report proved to be controversial in some quarters. I thank also our excellent specialist adviser to this inquiry, Dr Martin Ruhs of Oxford University, as well as the successive clerks to the committee and their small team. In particular, I should mention Robert Graham-Harrison, now retired, who was the clerk for this and many previous reports.

Immigration has, of course, become a major issue in British politics. Net immigration—that is, immigration minus emigration—rose sharply in the past decade to record levels. In 2006, net immigration was running at around 190,000 a year, almost the equivalent of the population of Milton Keynes. Against this backdrop of high immigration, the Government have argued that immigrants bring large economic benefits to the UK. In particular, they argue that immigrants boost economic growth, fill jobs that Britons cannot or will not do and pay more tax than those born in the UK. However, the committee found no evidence of these large economic benefits. We did find serious flaws in the Government's arguments and we concluded that, on average, the economic benefits of immigration were small and close to zero.

While it became clear that the Government had wildly overstated the economic benefits, I should stress that we did not find that Britain as a whole lost out from immigration or that particular groups of the resident population in the UK lost out significantly. We recognised, of course, the valuable contribution that many immigrants make to the economy. I should also make it clear that we looked only at the economic impact on Britain, not on the countries from which immigrants came, nor did we look at the social and cultural impacts of immigration.

The Government rejected our main conclusions. The Immigration Minister suggested in June that our report,

"combined conclusions that were over-spun with analysis that was under-done".

Thoughts of pots and kettles came immediately to mind; the Minister's words accurately described the Government's position, not our report. However, while the Government are loath to admit it, I am glad to say that they have in fact accepted some of our points.

Let us take in turn each of the Government's claims for large economic benefits. The first is that immigrants boost the economy. The Government point to the fact that immigrants boosted Britain's GDP by £6 billion in 2006. That sounds like a boon for Britain, but it is entirely irrelevant. Net immigration increases the population. More people working and spending naturally increases GDP but, in percentage terms, recent immigration has increased Britain's population roughly in step with the impact on GDP. The effect on GDP per head, the key measure of a country's standard of living, is therefore close to zero. It is remarkable that the Government got away for so long with basing their argument on GDP rather than on GDP per head.

This is not to say that every immigrant makes the same contribution. In general, the more highly skilled naturally contribute more to GDP than the less skilled. However, the object of our inquiry was to assess the overall economic impact of immigration. The Government's response to our point about GDP per capita was as revisionist as it was heartening. It was heartening because the Government now say that,

"GDP per capita growth must be the principal determinant of success".

That is a key point that we made in our report. The Government say that they have been "crystal clear" on this point. If that had long been the Government's position, they certainly did not tell many people about it. The first reference by the Government to GDP per head that I have been able to find was when the Minister appeared before the committee in January.

Until then, the Government had based their case for high net immigration on overall GDP. Even on the day that our report came out, the Minister continued to base his arguments on £6 billion of extra GDP. Moreover, the Government's written submission to the inquiry said that there was no quantitative evidence of the impact of immigration on GDP per head. If the Government had long focused on GDP per head, why had they not researched this?

We are glad that the Government have come, however belatedly, to see the light and to accept GDP per head as the key measure. They have now tried to produce estimates of the impact on GDP per head, which is claimed to be significant. However, we do not accept that. Let us take the example of wages. Economists at University College London found that from 1997 to 2005 immigration delivered a small gain in the wages of the better paid but caused the wages of the lowest paid to fall slightly, as many immigrants competed for relatively low-skilled jobs. On average, there was a small gain, but any loss—even a small one—for people earning little more than the minimum wage has to be taken seriously.

The second claim was that lots of immigrants are needed to fill the vacancies created by Britain's booming economy over the past 15 years. That is beguilingly simple but badly flawed. The Government apparently assume that, when immigrants fill some vacancies, the story of the economic impact ends there. However, that is simply not the case. Once immigrants fill some vacancies, they naturally spend some of their earnings. This increases demand for goods and services. Companies respond to this extra demand and seek to increase production. However, in order to increase production, companies need more staff, creating more vacancies, thus defeating the objective of reducing vacancies.

The total number of vacancies has remained at around 600,000 since 2001, despite high net immigration, and it recently rose to 680,000, despite record levels of immigration. Therefore, expecting high immigration to reduce vacancies is futile. The Government's response to our report did not explicitly disown the argument that immigration reduces total vacancies but it clearly showed some departure from the comments of former Prime Minister Tony Blair in 2004, when he said:

"There are half a million vacancies in our job market, and our strong and growing economy needs migration to fill these vacancies".

Then there is the argument that immigrants are needed for jobs that Britons refuse to do. On this, the Government omit a key point. It is true that many Britons refuse to do certain jobs, but only at the current pay rates. In many cases, higher wages—never popular with employers—could solve the "shortage" by attracting more people to do the jobs, yet, entirely unsurprisingly, not a single employer responding to the committee's inquiry mentioned the option of increasing wages. In other cases, other solutions, such as increased mechanisation, could also bypass the need for immigrant labour.

So far, employers have been allowed to get away with asserting that immigrant labour is essential. They will naturally argue for ways to keep down costs, including by using immigrant labour. However, in many cases, immigrant labour is not essential but, as I said, simply one alternative among others. In every case, the costs and benefits of each possible approach should be examined.

The third plank of the Government's argument is that immigrants' net tax payments—that is, taxes paid minus consumption of public services—are greater than those of UK-born citizens. To enable the government calculations to show that immigrants contribute more to the Exchequer, all the costs of health and education for the children of one migrant parent and one UK-born parent are attributed to the UK-born side of the balance sheet. Common sense suggests that such costs should be split 50:50 between the immigrants and the UK-born. Once that is done, the increased net payments to the Exchequer from immigrants disappear. In any case, even on the Government's preferred calculations, the fiscal impact is very small, relative to the size of the economy.

However, the data in this area, as in many other areas of immigration, are entirely inadequate. Much more work needs to be done on the fiscal costs and benefits of immigration. We are glad to note that the Government and, specifically, the Office for National Statistics are now taking much needed steps to improve the data. A key recommendation of the committee, taking into account the high level of net immigration, as well as the overall small economic benefits, was that the Government should have,

"an explicit and reasoned indicative target range for net immigration".

It was widely reported, and indeed implied in the Government's response, that we were proposing a cap. Let me be very clear: we were not. A cap suggests that the next immigrant after the cap has been reached will simply be turned away. An indicative range, on the other hand, would provide sensible flexibility. The Government would need to have, for the first time, a coherent immigration policy that would explain why immigration should be at a certain level. However, if circumstances changed and there were good reasons for exceeding the range, that could justifiably be done. The Government would simply have to explain why it was right to exceed the range. I hope that the Government will give further thought to this proposal.

In summary, the supposedly large economic benefits from high net immigration do not exist. Overall, there is a small benefit but some on lower incomes lose out slightly. To exaggerate the benefits with little supporting evidence and flawed economic arguments, as the Government have done, is unacceptable. I hope that they will now undertake a much more rigorous assessment of the economic impact of immigration. However, even before that is done, there are clear conclusions for immigration policy, to which the committee has drawn attention. The Government should act on these without delay. I beg to move.

Moved, That this House takes note of the report of the Economic Affairs Committee, The Economic Impact of Immigration (First Report, HL Paper 82).—(Lord Wakeham.)