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Immigration limits won’t lift Britain

Date: 14 June 2016
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At the weekend Sir James Dyson came out in favour of Brexit. One of the reasons he gave was that at present it is too difficult to hire talented engineers from outside of the European Union. Like much of the debate, this is as best confusing. It is not EU rules but our own home-grown ones that make life difficult for companies wanting to hire non-EU nationals.

The facts around immigration more generally have been tough to discern amid the guff put out on either side of the argument. So let’s start with three important facts.

First, we have experienced an extraordinary surge in net migration from the rest of the EU in the past decade or so. Until about 2004 it was near enough zero. It currently stands at more than 180,000 a year. Over the past decade the number of UK residents born in other EU countries has more than doubled to more than three million people. The number from other EU countries in work in the UK has risen from half a million to two million.

Second, while the numbers are now close, it is (and always has been) the case that net immigration from outside the EU is bigger than that from inside.

Third, on average immigrants from the EU are better educated, younger and more likely to be in work than native-born Britons.

From these facts alone we can conclude two things. One is that the government’s supposed target to reduce net immigration to less than 100,000 has been missed by a country mile even if we ignore immigration from the EU. It should never have been promised. Yet we cannot simply blame EU membership for failing to meet it.

The second is that immigration from the EU is good for the public finances. Young people in work contribute, on average, much more in taxes than they take out in benefits and public service spending. A large part of what government does is to take money from young workers and give it to pensioners. Without high net immigration the public finances would be in a worse state. If we were significantly to reduce the number of EU migrants, we would have to borrow more, raise taxes or spend less.

All of that is simple arithmetic.

But aren’t all these foreigners taking our jobs? That’s true in the Premier League. The more foreign footballers there are playing for the top clubs, the fewer English players there will be. There’s only room for 11 players in a starting XI.

Yet there is not a fixed number of jobs in the economy. There are seven million more people in work in the UK than there were 40 years ago. Astonishingly, there are nearly two million more than immediately before the recession in 2008. Employment rates among the UK-born are close to record levels. More people means more jobs, not more unemployment. There is absolutely no evidence that higher levels of immigration have increased unemployment among native-born Brits.

Evidence on wage impacts is a bit less conclusive. While many studies do not find any evidence of immigration depressing wages, a recent Bank of England paper suggests that the impact of migration on UK-born lower-skilled workers might have been to reduce wages by 1 per cent over a period of eight years. Thus it may have played a part, though only a minor one, in recent experience of low or negative pay growth.

There are other effects of course. For example, where central government or local councils have not responded to big increases in local populations, local services may well have struggled. Immigration will push up housing costs, though the wholly inadequate level of housebuilding is the main culprit for sky high rents and house prices.

All that said, economists can’t answer questions about immigration in the way that we can about trade and investment. Brexit would pretty much definitely make the UK financially worse off as a result of reductions in trade and investment. The economic impacts of immigration are of a different kind. Immigration boosts the economy and probably makes the rest of us marginally better off on average, but with some distributional consequences. The social impacts are obviously important in a way that is quite different from the effects of trade and investment. And free movement rules that allow anyone from the rest of Europe to come and live here are perhaps the most obvious examples of shared sovereignty.

So what happens if Britain does leave the EU? We don’t know because we don’t know what policies will be put in place. One possibility is that we would respond by liberalising our non-EU immigration policy, as Sir James suggested. Note again that is something entirely in our power to do right now.

On the other hand, if the plan after Brexit is to get net migration down below 100,000, then we might well end up making it just as hard for highly qualified Europeans to move here as we make it for highly qualified people from the rest of the world. That is effectively a big increase in regulation, not part of the bonfire of regulations envisaged by the Leave campaign. And not what Sir James would appear to favour.

If we do leave, EU decisions over immigration policy will be among the most important and contentious to be made. Assuming an end to free movement, and even if we wanted to reduce immigration, a rational policy would likely focus less on present targets and more on making high-skilled immigration much easier. I suspect that is what Sir James has in mind. Whether that is what we would get I am less sure.

This article was first published by The Times and is reproduced here with full permission.