Select Committee on Economic Affairs Minutes of Evidence


Examination of Witnesses (Questions 520 - 535)

TUESDAY 15 JANUARY 2008

Mr Liam Byrne, Mr John Elliott and Mr Jonathan Portes

  Q520  Lord Paul: The Government has also argued that migrants are "needed to fill labour and skills shortages" in the UK. Why has the Government facilitated large-scale immigration in response to alleged labour shortages, rather than letting wages rise to attract British workers to fill the vacancies or, where possible, leaving companies to engage in mechanisation and off-shoring? The Government is absolutely right in allowing that. I say that as Chairman of a company that employs 3,500 people in the manufacturing industry. Can I also declare that I am an immigrant.

  Mr Byrne: I am really the grandson of immigrants. There are three points that I wanted to make in response to this. The first point here is obviously that the employment rate for UK nationals in Britain has risen by about 1.6 percentage points over the last ten years. The overall employment rate is now the third or fourth highest in Europe and that is no mean feat. What has been quite interesting about the performance of the British economy over the last decade is that you have not only had an increase in the employment rate but you have also had an increase in average wages. The average wage growth over the last ten years has been 3.4%, which is quite high. That increase in employment has gone alongside the increase in wages which in turn has gone alongside an increase in productivity. That is a very unusual combination. Again, if you look across OECD countries, that is quite a rare combination. It is not simply a case of facilitating immigration in order to fill vacancies but as a broader strategy for productivity growth in the economy. On Lord Lawson's question about whether GDP per capita growth is the key thing to look at, I think it is probably the first among equals, but it would be wrong to ignore the overall impact of migration on growth and, crucially, the overall impact of migration on productivity growth because again that will be what is really important in growing GDP per capita over the long term.

  Mr Elliott: Although I have not examined the data, I would hazard that it might be easier to raise productivity and GDP per capita in a growing economy. So although I agree with Lord Lawson that GDP per capita is probably the most important thing or at least the first amongst equals, having a growing total GDP beneath that is going to be pretty important.

  Q521  Lord Moonie: Does not high immigration risk discouraging British employers from investing in training and skills boosting? How does the Government intend to ensure that the London Olympics and other flagship projects stimulate necessary domestic employment and skills development rather than just a demand for more migrant labour?

  Mr Byrne: Training is at an all-time high and actually the commitment of the Government to invest in training over the next few years I do not think has been matched in recent history. The Leitch Review into this question I think underlines the risk that there is a danger of what you highlight, not at the mid to high end of the labour market but at the low end and that is one of the reasons why I have said that when the points system is introduced we will obviously honour our obligations under the Free Movement Directive within Europe, but I do not see a need for low skilled migration from outside Europe. One of the things that we can do to protect wage growth at the lower end of the income distribution in the labour market and to guard against the risk that employers do not invest in training in that particular part of the economy is to ensure that there is not low skilled migration from outside the EU. It is not a particularly popular policy with some parts of our economy. I do not know if the Committee has had a chance to hear from the National Farmers' Union and from agricultural businesses as well, but certainly in my own region in the West Midlands I have been assiduously lobbied by the NFU and local farmers who make the point that low skilled labour from outside the new EU is really important to getting their job done. We have to try and weigh these things up. If the Leitch Review is underlining this risk, then I think it is right that we guard against it. From the DWP's point of view, you are playing a key part in ensuring the Government's policy is delivered in this area.

  Mr Portes: I think that is absolutely right. There clearly is a risk here that too much migration in some of the wrong sectors would indeed reduce the incentives, which is why we established the Migration Advisory Committee and we will ask them to take this risk into account amongst other factors in advising on which sectors migrants might help to fill in terms of labour market shortages. MAC is going to work together with the new Commission for Employment and Skills, which is the joint DWP/DIUS body which is trying to meet the challenge set out by the Leitch Review of ensuring that we do fill that gap at low and medium skilled levels of the labour market. I think that the policy mix hangs together very coherently.

  Q522  Lord Skidelsky: What evidence has come out of the new Migration Impacts Forum and elsewhere concerning the impact of immigration on the costs of providing public services such as education and public health care? How do these costs affect the economic case for migration to the UK? What measures is the Government taking to ensure that local councils have adequate funds to provide public services?

  Mr Byrne: I would be happy to provide the Committee with a statement of some of the key points that have come out of the Migrant Impacts Forum. The starting point for this answer is to point to the IPPR study which looked at the contribution to the tax-take of migrants and contrast it to estimates about public service consumption, and no doubt that is something that will detain those who are drafting the Committee's report at some length and you will no doubt go into some of the debates about what constitutes a migrant when it comes to a child even if they are born here with two parents and that is all very complicated. The reason that the Migration Impacts Forum was set up was so that we could begin for the first time to try and corral the evidence that we did feel was out there about the impact of migration on public services. I have been very upfront by saying that I do think there are wider impacts of migration on public services. I serve an inner-city community in Birmingham where we have quite high rates of migration, a quite high rate of demographic turnover and I do think that that affects the ability of public servants to deliver education and health services. People were very interested when I said this for the first time but it struck me as blindingly obvious. The Migration Impacts Forum is an attempt to try and bring together public service professionals from across the UK, so we ask individuals to represent not just a particular part of public services but also to represent a part of the country. Very often what we are finding is that people are not able to produce hard statistical evidence that would necessarily allow us to put together a very neat cost-benefit analysis of different patterns of migration. That has not put me off because I do sometimes think that front-line public service professionals pick up trends before they show up in statistics and we do know that sometimes Government statistics are not right. I know that will shock and horrify the Committee, but sometimes I have learned, in my short career in politics, that is the case. We decided that it was ultimately for politicians to take the final decision about migration decisions and to be held accountable for those, but some of the points that have come up from the Committee include these. In housing, there were four out of eight areas that had noted increased pressure on private housing rather than social housing. In education, most regions that we surveyed noted an increase in pupils who needed help with English as an additional language. Two regions that we surveyed noted an increase of pupils arriving and leaving early within the school year. This is something that has been raised in particular by Rodney Green who is an excellent Chief Executive of Leicester City Council. Rodney makes the point that one of the most difficult issues to manage in some schools is actually the churn in pupils inside the year. In health, actually most regions came back and said that they had not really noticed an impact of migration on the health service because most migrants who were living and working in their communities were quite young and healthy and vigorous and full of vitality and were not drawing too heavily on the health service. There was some evidence of inappropriate use of A&E services by migrants but it was quite limited. Two regions noted an increase in some GP caseloads. On community cohesion the evidence again was very patchy. Three regions reported some tensions. On crime and disorder, most areas did note an increase in translation costs. One or two areas noted some reports of increases in certain low level crimes like driving offences. That very brief reprise, which I can provide in more length for the Committee, gives you a flavour that the evidence remains not so much anecdotal but lacking a statistically robust evidence base, but nonetheless I think it is vitally important that we do begin the work of corralling the evidence base in this area so that politicians are able to demonstrate that we are not just looking at the economic benefits of migration but we are taking into account the wider impacts of migration.

  Q523  Lord Griffiths of Fforestfach: Minister, the Government has made affordable housing one of its priorities and it forecasts that by 2026 something like a third of all new houses will be immigrant households. Do you think from that there is a case for curtailing immigration in order to reduce housing demand and make housing more affordable?

  Mr Byrne: I was about to say that one of the big challenges in managing this policy effectively is obviously that migrants move faster than ministers! Communities can change faster than local councils can sometimes react. That is why I think in some communities the pace of change has been deeply unsettling and I would include my own city in there. I do not think that we should be running migration policy in the exclusive interests of the housing market. I think there are a number of interests that we have to balance in the conduct of our immigration policy. There will be evidence that has been presented and will be presented to this Committee that I think will point to a revision in some of the projections about the number of houses that are required because of migration growth. That is not simply because ONS has produced more recent migration projections which have raised the net balance from 145,000 to about 190,000, but there have been quite big changes in the fertility rates of British people and there have also been changes in life expectancy. We do await the DCLG's new projections and what they will show. There are a number of things that will obviously affect the availability of affordable housing, not least the policies of different local authorities towards the right housing mix for their particular communities. The final very interesting point on housing policy is that sometimes in the national debate we lose sight of the ambition of some local authorities and some local communities to grow their population. In Scotland, for example, a part of the UK that has been suffering depopulation for some time, there is an ambition to grow the population. When I was going round the country at the end of 2006 people in Newcastle were saying, "We've got big ambitions to grow the population here. As hard as we try, we're not going to achieve that target by encouraging the good denizens of Newcastle to breed faster, we will need migration to help." Birmingham has got ambitions to grow its population by 100,000 over the next decade. When you poll the public and ask if migration is the problem nationally, many will say yes. When you ask people if migration is the problem locally, only 25 or 26% will say yes. It is important in answering this question to look not just at a national picture but at some of the ambitions that local communities will have as well.
  (House of Commons Division— The Minister left the room).

  Q524  Lord Oakeshott of Seagrove Bay: The Office for National Statistics are projecting the UK population will increase to over 71 million by 2031, with about half of that increase accounted for by net migration. Is there a desirable rate of population growth or an optimum level of population for the UK? If either of those things is true, what are the implications for immigration policy?

  Mr Elliott: My answer to that question would be that it would not be easy to try and estimate what the optimum population would be. One could think in principle how it might be done. One might start with the current level of population and then look at the costs and benefits of moving either side of that level, as migration and population change for other reasons. Many of the economic things that would change could be quantified and many of the other things that would change, such as the community cohesion that the Minister was referring to earlier, could not be so quantified. Firstly, it would be very difficult to arrive at that position. Secondly, I have the sense that any optimal rate of population growth or an optimal level of population growth would be heavily influenced by where we are now because it would be quite difficult to say at this point if we would actually be better off if the country only had 40 million people or 80 million people because you are then moving a long way from your current range of experience and the quantification gets quite difficult.

  Mr Portes: Clearly, the desirability of any particular level of population, leaving aside whether it is an optimum, depends crucially on how it is distributed. If everybody wanted to live in London and the South East, that would have quite different implications to a much more even spread, eg the fact that the most recent significant wave of migration, that coming from the new A8 Member States, has been much more dispersed and much less concentrated in London than the previous waves of migration, has significant implications for what you might say about the impact. Just to look at the overall UK level in itself is clearly not going to be enough; you also need to know about the distribution both of migrants and of the existing population. On pensions, the Government's position is clearly that we do not think that solving the pensions problem or addressing the issue of the long-term sustainability of pensions is the objective of migration policy. Nevertheless it is a fact that some level of positive net migration does ease the long-term financing constraint for the pension system and in that respect makes a positive contribution, although that is clearly not a driver of policy in itself.

  Lord Oakeshott of Seagrove Bay: I think you would both make very good ministers. I am taking both answers as a no!

  Q525  Lord Best: An article in the Economist suggested that the new points-based system will only cover about 40% of migrant workers coming into the UK and a very much smaller percentage of all migration into the UK. How do you expect the introduction of the new system to affect the overall number and skill levels of migrants coming in? How big an influence would this have on totals?

  Mr Elliott: I think it is too early to say at this stage exactly what effect the points-based system will have because it is still being developed. The Minister has said previously that he expects that the points-based system will cover close to six out of ten non-British immigrants flowing into the country, because it will cover not only those people that are coming to work but also students and the dependents of those people will also be in scope. The impact of the PBS will be to enable us to manage that total volume of non-British inflow, that is excluding EU citizens, these will have to be non-EU.
  (The Minister returned).

  Q526  Lord MacGregor of Pulham Market: My question was really related to your answers to both the points on education and health care and housing, which I thought were very interesting. I think you said you would give us another paper. You indicated that 25% of the people in the survey you were doing in the regions indicated real concern and we know that about 65% of immigrants work and live in the London area. That raises a whole series of issues away from the purely macro-economic ones. You cannot make it a condition of a visa that you have to go and live and work in Newcastle, the area you suggested. In the paper, could you make a distinction between the regions that are really impacted and, within that, localities that are particularly impacted, and in so doing deal with the question that you were asked about what was Government doing to ensure that local councils have adequate funds to provide public services in these areas that are most impacted?

  Mr Byrne: I will certainly break down the feedback to the extent that I can. The point I was making about concerns about migration locally was that—that was a MORI poll—only 25 or 26% said they thought immigration was a big issue locally. It is just quite an interesting contrast with the number of people who are concerned about immigration for the UK.

  Q527  Lord MacGregor of Pulham Market: Which makes the point about regional and local impacts even greater?

  Mr Byrne: Absolutely right. What DCLG ministers would tell you if they were sitting here is that the support to local government has been increased very considerably over the last ten years. £5 billion or so has now been consolidated from different kinds of grants. There is much more flexibility now available as ring-fences have been taken off. One of the conclusions from the Commission for Integration was that funding for community cohesion activities was increased markedly and actually that funding has been increased quite dramatically from £2 million around a decade ago to something like £50 million over the next three years. That is quite a considerable increase.

  Q528  Lord Oakeshott of Seagrove Bay: I would like to ask one last question on the points-based system. You were asked a question when you were talking about spouses about how important it was that immigrants should be able to speak English. Why is it that investors of a million or more in regulated institutions are exempt from being able to speak English? Is it not quite important if we want the best in this country that they should be able to speak English?

  Mr Byrne: What we do not want to do is cut off the opportunity of bringing in large amounts of capital that are going to be invested in productive things from the UK. As with all questions in the migration system, I think you have got to apply a balance. I think that the number of investors that we perceive coming in would actually be quite small. If the Committee would find it useful I would be happy to give the number of people coming in through that route over the last few years. I cannot remember what it is but it is quite small. You run into those questions in all sorts of different categories. If you take sports people, who will be one of the categories within Tier 2, should we be insisting that absolutely all footballers or indeed England managers should be able to pass an English test before they come in? At the moment I am afraid our proposal is that they should. Let me give you a different example. If you look, for example, at people coming in through intra-company transfers; intra-company transfers are about 25% of work permits that were issued last year. If you talk to many Japanese investors, they will say that people coming over under an intra-company transfer from a Japanese company, skilled engineers contributing quite considerably to the strength of the UK manufacturing base, are quite nervous about the kinds of English requirements that we would insist on. You cannot look at migration policy purely in terms of the economics; I think you do have to look in terms of the wider impact that migration has on Britain and that is why the Prime Minister has been right to stress the ability to speak English.

  Q529  Lord Lawson of Blaby: He is right to stress that succinctly. I believe the Canadian points system does have the English language as quite an important component of it. I would like to ask you a question about the points system. Many people think there are too many foreign footballers in our Premier League and it is not doing any team any good, certainly the England team is not doing any good. I would have thought, judging by what they earn, they would come in easily under Tier 1, so I do not think you need Tier 2 for that. Why do you need Tier 2 at all? I do not understand this. Tier 1 is the genuine points system, rather like the Canadian system where you are trying to choose those immigrants who are likely to be most beneficial to the economy of this country. That seems to me perfectly rational and sensible. Why do you need Tier 2? How do you balance one against the other? Why not have what the Canadians do, a single system, which is a genuine points system? Why not have only Tier 1? I thought it was a very sensible thing when you said you were going to introduce that. Why do you want anything else?

  Mr Byrne: I am going to disappoint you even further and say there are two more tiers: one is the tier for students and the other is for temporary workers.

  Q530  Lord Lawson of Blaby: What we are talking about in this context is permanent settlement.

  Mr Byrne: Tier 1 applicants will not require a sponsor in the UK. There is a group of people globally who we think it is in the UK's interest to either retain in the UK once they have graduated from college or university or we want to attract to the UK as they have such a level of qualifications or earnings capacity that we think they should be perfectly able and perfectly free to find their own place in the labour market. In order to try and get the policy as correct as possible, we have published a statement of intent on how we see that working. There will be questions that we need to iron out. For example, if you are looking at past earnings, how do you translate those past earnings into UK earnings, because obviously people are coming from different kinds of economies? In Tier 2 however, we want people to be linked to a sponsor, a business which has conducted the "resident labour market" test on the job that it is offering to the individual from abroad or which is employing people in a shortage occupation. I think the Committee is going to hear from the chair of the Migration Advisory Committee. I suspect the lion's share of the Migration Advisory Committee will be advising government upon where in the economy there are genuine shortage occupations places which can "sensibly" be filled by migration. We did want to create a difference in the points system between those individuals that we thought should find their own place in the labour market and those that we thought ought to be tied to a particular employer. It could be that in the future, as the system evolves, everything moves to the kind of regime that we envisage for Tier 2.

  Q531  Lord Lawson of Blaby: For Tier 2?

  Mr Byrne: For Tier 2. I cannot actually foresee a situation where we are just letting anybody come in and find their own place in the labour market. I think that might create administrative difficulties of its own. I think the challenge is absolutely right. What I wanted to do is start with what is deliberately a two-tier approach.

  Chairman: Can I bring Lord Lamont in here.

  Q532  Lord Lamont of Lerwick: Could I just come back, if I might, to the very, very beginning and your theory of the benefits—

  Mr Byrne: It is not my theory.

  Lord Lamont of Lerwick: Well, the theory which you said was pure Adam Smith and you drew the analogy between labour and trade in goods and services. What I am not clear about is why you are not in favour of unlimited immigration. It seems to me that the limitations you have argued for are entirely arbitrary. You have said, well, let us have a limit on non-EU immigration as opposed to EU immigration, in order not to have an impact on domestic wages, as though EU immigration did not have an impact on domestic wages. You have said, let us have a limitation outside the EU because of the wider impact on things like housing, as though immigration did not already have an impact on what you call the wider effects. Is not the limit you are seeking to draw entirely arbitrary?

  Chairman: Can I just group a couple more points before we finish. If I could bring in Lord Skidelsky and then Lord Griffiths as well, and then perhaps you could take the three questions.

  Lord Skidelsky: My question is complementary to Lord Lamont's. You say that you cannot envisage a system in which everyone is free to find their place in the labour market, but in fact that is the system for EU migrants. Why then do you need a Tier 2? Why can they not actually fill all these shortages just through normal market supply and demand within a huge market where everyone is free to move? Just adding to that very briefly, when you, rightly, talk about the importance of clusters, that tells you nothing about the size of the overall population at all; it is simply about its distribution.

  Chairman: Lord Griffiths and then finally Lord Lawson, and then we can have a ministerial sweep-up.

  Lord Griffiths of Fforestfach: Mine is about the points-based system. It seems to me there is a spectrum. On one side of the spectrum you have a free-for-all, a free market, people come in and they find themselves and wages adjust and so on. At the other extreme you have manpower planning. Mr Elliott was with the Manpower Services Commission. My impression—and I need to go back and look at some things—is that manpower planning did not really work and what I am not clear about is where conceptually the points-based system is on that spectrum. Is it quite near a free market approach or is it nearer a manpower planning approach?

  Chairman: Lord Lawson?

  Q533  Lord Lawson of Blaby: Yes, I agree with Lord Griffiths. This is, curiously, the only relic of the planned economy which the Government continues to embrace.

  Mr Byrne: There must be others!

  Lord Lawson of Blaby: And I would also agree with Lord Skidelsky, that insofar as even if you do have a Tier 2, you could get skilled people, not just unskilled people, from the European Union; they are quite civilised people there! And so I am completely puzzled by this idea that there are these shortages. Of course there are employers, both in the public sector and the private sector, who would like to get cheap labour, but in fact that does not prove anything at all. What is more instructive, if you look at a country like France for example, we are told that the Health Service needs all these people, and presumably a lot of them are going to come under Tier 2—I think that is what the Home Secretary said in his speech a few weeks ago—France has immigration but on a far smaller scale than ours, and yet their health service is at least as good and probably better than ours. So there cannot be any reason why in fact you need the Tier 2, whether it is for the Health Service or anything else.

  Q534  Chairman: Minister: discuss!

  Mr Byrne: The World Bank put this rather well, I thought, in Global Economic Prospects 2006, where it made the point that if you introduced complete free movement of labour around the world, it would probably have a more positive impact on GDP growth across the world economy than lifting all trade restrictions. So you are absolutely right to say that an unfettered labour market is going to be economically more efficient, but the point that I have consistently made is that we are not actually running British immigration policy in the exclusive interests of the British business community. I have gone on the record consistently over the last year and a half to two years, to say that I think that migration brings wider impacts on British national life, British public services, and local communities that need to be managed. What that means is what we have to try and do is manage the pace of change. It is not a scientific process but what we should be trying to do is adopt a couple of principles, first the principle of flexibility; we need to be able to change the system and the system management in response to the way in which the world changes. The second is accountability—I think that politicians in a question like immigration should be held to account for the decisions that they make. The third is evidence, and that is what we are trying to do with the Migration Advisory Committee and the Migration Impact Forum, to put in place a much more robust evidence base than we have had before. The fourth is transparency. We need to try and make this evidence as transparent as possible so that politicians can be held to account for the decisions that they take, but also, frankly, so that we can have a more rational debate in this country about the benefits and the costs of migration. It is quite true to say that we have a completely different policy for the EU to everybody else. That happened to be a decision that was so important that we actually had a referendum on it, and over the course of the years since we joined the EU there have been nine Directives that have driven forward free movement. Seven of those Directives were under Conservative Governments; two of them were under Labour Governments. They were consolidated in 2004 and when those Regulations were laid they were not opposed by any party. Thus it is quite true to say that the EU is a special case, but I think there was a pretty clear decision by the British people made on it. Markets will take time to adjust. Although there has been considerable migration from Eastern Europe, when you look at, for example, the British agricultural industry, given the size and scale of the European labour market, I think you would be expecting to see many of those pressure points, those rubbing points, in the British agricultural industry that the NFU and others are talking about, filled by people from the European Union. But for some reason that is not happening, and I think what is going on is it is simply taking time for markets to adjust. All of that is a long way from saying that we should be running British migration policy in order to maximise the business case, if you like, for the economy. I do think that there are wider costs to take into account. Many of those costs are difficult to manage. What we will try and do, though, is do that in a much more open and transparent way and in a way that strikes a new balance in the years to come.

  Q535  Chairman: Thank you, Minister. I am sure any questions that you feel need amplification we will get from your Department in writing. Apologies for keeping you longer than we had intended to. One of the benefits of young ministers is clearly the speed with which they get here, so thank you very much for that.

  Mr Byrne: Thank you very much.





 
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