Immigration (EAC Report)

Part of the debate – in the House of Lords at 12:17 pm on 14th November 2008.

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Photo of Lord Layard Lord Layard Labour 12:17 pm, 14th November 2008

My Lords, I strongly support what the noble Lord said and pay tribute to him for his excellent chairmanship of this committee and of the many others on which I have been privileged to serve. I want to make four points on this topic.

First, we obviously need a considerable amount of gross immigration into this country. People coming in bring in new blood and the movement improves international exchange. Of course, many noble Lords here are immigrants or, like myself, descended from immigrants. We are permanent immigrants, which is what the report is about, but, as a country, we also want temporary immigrants, such as students, who will carry back to their countries connections with Britain that are good for them and good for us.

In every year since the Second World War, there has been substantial gross immigration of this kind by people intending to stay in this country. The result has been that the proportion of the population born abroad has steadily risen and is now at around 12 per cent. This is a natural part of the process of globalisation. However, until 1997 this gross immigration had little impact on the total population of the country because it was balanced by an equivalent amount of gross emigration. The change since 1997 has been extremely dramatic. This type of permanent, long-term immigration has risen sharply to an average over the past 10 years of roughly half a million, while emigration has remained much lower at only just over 325,000 a year. If we take the difference, we have net immigration of about 150,000 a year over those 10 years, but rising during that period. Of course, that has a substantial impact on the size of the total population of the country

The Government Actuary's Department has to make assumptions for the future, so looking at the current levels of immigration, its principal projection is for net immigration of 190,000 a year for the indefinite future. That will have a major impact on the population, increasing it by about 18 million over the next 50 years. That is a major change and it was incumbent on our committee to consider the issues involved in a change in population of that order, created mainly by net immigration. It was important to look at how net immigration affects the economic variables which are relevant to the voters of this country. Without my speech sounding like an economics lecture, those are: real wages and profits, and what will happen to them; unemployment and labour shortages; and the housing market. Those are the three remaining topics I want to discuss.

In the short run positive net migration is likely to increase profits and decrease wages, but in the long run its effect is likely to be small on both. Which wages are affected will depend, as the noble Lord said, on the types of workers who come in. If the immigrants are highly skilled the effect will be beneficial to unskilled workers, but if they are less skilled it will increase competition for low-skilled jobs and will exert downward pressure on low wages. That is one reason why unskilled immigration is less popular in many working class communities than in Hampstead and Kensington. Unfortunately, there is remarkably little information on the skill structure of net immigration. We know about the national origins because we know that the number of immigrant workers currently in the UK increased between 1997 and 2007 by 3.8 million of whom 2.4 million came from Asia and Africa. On the issue of wage inequality there is another aspect to consider. If the immigrants are skilled, that can deter employers from training native-born workers, which is another mechanism that can work against the interests of already disadvantaged people in this country.

However, none of these effects is huge. They should certainly not be exaggerated, and were not in our report. One thing is clear: employers want immigration because net immigration is good for profits at least in the short run. However, that is not how employers put the argument. They have a different language for it. They say that immigration is necessary to reduce labour shortages, which brings me to the next topic—labour shortages and unemployment.

Immigration does not reduce labour shortages except in the very short run; nor, as is often alleged by critics of immigration, does it increase unemployment. In the medium term the economy has an equilibrium rate of unemployment and vacancies, which is independent of the size of the total workforce. If the labour force increases, the number of jobs increases in proportion. There is massive evidence for that. We can compare countries and see that the level of unemployment is completely unrelated to the rate of growth of the labour force. We can look at our own history. I went back to 1856 which shows that the population increased by many times and the number of jobs increased by exactly the same proportion. It is completely wrong to think that immigration affects the rate of unemployment or, linked to that, the rate of vacancies.

In the short term, if suddenly there was an inrush of immigrants, that would relax the labour shortages but that would be short lived because employers would recruit them. In due course, the economy would return to where it was with more employment and a bigger workforce, but the same rate of unemployment and level of labour shortages. As the noble Lord said, we have seen that happening over the past 10 years; the level of vacancies has simply not changed at all in spite of massive increases in immigration. Employers' broad claim that they need immigrants to fill labour shortages has no substance. They have genuinely held fears about what would happen if there was a reduction in net immigration, but those fears are misplaced. They say that if the rate of net immigration were reduced that would reduce the number of immigrants they could employ. We know that many industries are heavily reliant on immigrant labour, but that is a mathematical fallacy. There are a certain number of immigrants here already, and there will be a continued inflow. The gross stock of immigrants would continue to increase, so employers would employ more immigrants than before, but the rate of growth would be slower.

I have argued so far that we can have similar levels of wages, profits, unemployment and labour shortages at many levels of net immigration. Why should the Government take a view about the scale of net immigration? As the noble Lord said, we believe they do largely because of its impact on the size of the population, the housing market and the need for infrastructure following increases in population. The size of the population has a major influence on the decision-making of government. It is a real issue that applies particularly to the housing market. Experience shows that the supply of houses responds poorly to changes in demand, which is why house prices are so much higher relative to earnings than they used to be. Why is the supply so unresponsive? One reason is the planning system, which immediately shows how deeply we are into the area of political decisions, which are now being influenced very much by net immigration.

That brings me to the central point of the report, as I saw it. The size of the population is central to many political decisions; it is a matter of deep political importance. It touches on so many aspects of our lives that Governments cannot ignore it. Many countries have detailed population policies affecting, for example, the birth rate. I do not think that we want to have a policy influencing voters' choice of fertility, but it is reasonable to take a view on net immigration which is the main driver of population change today. We believe that when the Government set the rules on the potential immigrants' entitlement to come here, and, likewise, when the committee defines categories of labour shortage, they should be influenced by some governmental view about the overall scale of immigration within a broad range that is desirable. That is what our report argues.