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On Question, Motion agreed to.

Immigration (EAC Report)

12.03 pm

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

The noble Lord said: 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.

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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,

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,

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

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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.

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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,

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.)

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12.17 pm

Lord Layard: 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

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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

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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.

12.30 pm

Lord Vallance of Tummel: My Lords, I, too, thank the noble Lord, Lord Wakeham, for his admirable chairmanship of our committee over the years. He is indeed a very hard act to follow.

Soon after the publication of our report, I recall hearing Trevor Phillips on the radio saying in so many words that the legacy of Enoch Powell is that it is no longer possible to have an impartial discussion of immigration as the participants tend to be more concerned with sounding out each other’s prejudices than with the objective facts. The immediate reactions to our report, whether in the media or elsewhere, rather confirm that view, as they ranged from thinly disguised xenophobia to high moral dudgeon, with rather less than one would wish in between. This debate gives us the opportunity to stick to the facts as we know them.

I shall not rehearse the economic arguments that the noble Lords, Lord Wakeham and Lord Layard, have already expounded, except to note with approval the Government’s conversion to our committee’s view that the appropriate measure of the economic benefit of immigration is the impact on GDP per capita rather than on GDP itself, on prosperity rather than on the size of the economy. As to the precise measure of that impact over the past decade of exceptionally high levels of net immigration, all that we could reasonably conclude against the background of what the Government have acknowledged as inadequate data was that the effects were likely to be small in one direction or the other. Put in layman’s language, the average immigrant to the UK is likely to end up making the same sort of contribution to the economy as the people who were here already. That is not an altogether startling conclusion; in fact, I found it rather reassuring.

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Another lesson that sprung from our work on the report was that averages in this area can be misleading and veil significant differences. The average immigrant does not exist. In practice, there is a host of individuals with widely different attributes and aspirations. It is important to try to unpack that average and see what is there. First, it is clear that some immigrants are more likely to bring economic benefits to the UK than others. As has been mentioned already, highly skilled immigrants, particularly if their skills are complementary to those of the home population, are more likely to add to the party than the unskilled or dependents who may not be economically active. Perhaps I should declare an interest here; I chair an Indian-owned and managed specialist IT company based in London whose employees come in the former category of the highly skilled and who, in my view, make a positive contribution to GDP per capita, albeit a small one. The point I am making is that if—and I stress the “if”—you want the driver of your immigration policy to be its economic benefits, you clearly need to be selective. Selectivity seems to be what the Government's new points-based system is about and I shall return to that later.

The second bit of unpacking we have to do is to acknowledge that some immigrants are more equal than others. We have moral, as well as legal obligations to asylum seekers, for example, which offer them the undoubted right to come here. As you will see from the report, their numbers are small and of no real economic significance. Europeans, too, have reciprocal rights to come and go. Interestingly, the wave of immigrants from eastern European A8 countries, which was the centre of a lot of attention for a while, made up no more than 20 per cent of gross immigration even at its peak. Whether those people were true immigrants, or just itinerants, remains to be seen. The remainder, the non-European arrivals, make up some 70 per cent of the total and are subject to immigration controls—the same controls, whether they are from Africa, America, Asia or Australia, which is just as it should be.

The third bit of unpacking is to recognise that immigrants to the UK do not spread themselves evenly across the country. They concentrate in particular locations. Over the 15-year period to 2006, almost two-thirds located in London and the south-east and, indeed, in particular boroughs. This is perhaps the most important bit of unpacking to be done, and the evidence of some of the local authorities most affected was particularly relevant. The inescapable fact is that if you have large numbers of people arriving in a limited number of locations, the shoe will begin to pinch. Educational facilities, health facilities, housing and indeed job markets will all be affected. That is what has happened over recent years, and the local authorities' complaint is that, partly because of shortcomings in the data on immigration, they have not had the right resources in time to deal with it. Scale is important here, as the noble Lord, Lord Layard, said, and, looking to the future, the Government's principal projection of population growth between now and 2031 is about 10 million, almost half of which is directly attributable to net immigration. If, on past form, two-thirds of that half—some 3 million—were to locate in specific parts of London and the south-east,

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the scope for pinching shoes would be considerable, as it would be in other areas of concentration elsewhere in the country.

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