Select Committee on Economic Affairs First Report

CHAPTER 8: CONCLUSIONS AND RECOMMENDATIONS

Key features of immigration and migrants in the UK

208.  Government policy can help immigrants raise their productivity and outcomes in the British labour market. In particular, given that language proficiency can be a key factor to economic success in the British labour market, the Government should consider whether further steps are needed to help give immigrants who come and take up employment in the UK access to English language training (para 38).

209.  There is a clear and urgent need to improve the data and information about gross and net migration flows to and from the UK, and about the size, geographical distribution and characteristics of the immigrant stock (para 39).

210.   It is unrealistic to expect that the Government can have complete data on migration. The key questions are how, by how much, and at what cost, the current gaps in the available data can be reduced. But clearly there is ample room for improvement in UK migration statistics. The Government should make a clear commitment to improving migration statistics and facilitating more comprehensive assessments of the scale, characteristics and impacts of immigration (para 43).

Impacts on the labour market and macro-economy

211.  Immigration creates significant benefits for immigrants and their families, and, in some cases, also for immigrants' countries of origin. An objective analysis of the economic impacts of immigration on the UK should focus on the impacts on the resident (or "pre-existing") population in the UK (para 48).

212.  GDP—which measures the total output created by immigrants and residents in the UK—is an irrelevant and misleading measure for the economic impacts of immigration on the resident population. The total size of an economy is not an indicator of prosperity or of residents' living standards (para 49).

213.  GDP per capita is a better measure than GDP because it takes account of the fact that immigration increases not only GDP but also population. However, even GDP per capita is an imperfect criterion for measuring the economic impacts of immigration on the resident population because it includes the per capita income of immigrants (para 50).

214.  Rather than referring to total GDP when discussing the economic impacts of immigration, the Government should focus on the per capita income (as a measure of the standard of living) of the resident population (para 51).

215.  The overall conclusion from existing evidence is that immigration has very small impacts on GDP per capita, whether these impacts are positive or negative. This conclusion is in line with findings of studies of the economic impacts of immigration in other countries including the US. The Government should initiate research in this area, in view of the paucity of evidence for the UK (para 66).

216.  Although possible in theory, we found no systematic empirical evidence to suggest that net immigration creates significant dynamic benefits for the resident population in the UK. This does not necessarily mean that such effects do not exist but that there is currently no systematic evidence for them and it is possible that there are also negative dynamic and wider welfare effects (para 69).

217.  The available evidence suggests that immigration has had a small negative impact on the lowest-paid workers in the UK, and a small positive impact on the earnings of higher-paid workers. Resident workers whose wages have been adversely affected by immigration are likely to include a significant proportion of previous immigrants and workers from ethnic minority groups (para 78).

218.  Effective means must be found for enforcing the law against employers who illegally employ immigrants or who employ immigrants at wages and employment conditions that do not meet minimum standards (para 79).

219.  The available evidence is insufficient to draw clear conclusions about the impact of immigration on unemployment in the UK. It is possible, although not yet proven, that immigration adversely affects the employment opportunities of young people who are competing with young migrants from the A8 countries. More research is needed to examine the impact of recent immigration on unemployment among different groups of resident workers in the UK (para 85).

220.  Our recent report on apprenticeship and skills argued that the Government was not doing enough to develop high quality apprenticeships. Although the evidence is limited, there is a clear danger that immigration has some adverse impact on training opportunities and apprenticeships offered to British workers. The Government should consider further measures to ensure that employers recruiting migrants are also investing in training and skills development of British workers (para 93).

221.  In the short term, immigration creates winners and losers in economic terms. The biggest winners include immigrants and their employers in the UK. Consumers may also benefit from immigration through lower prices. Taxpayers are likely to benefit from lower costs of public services. The losers are likely to include those employed in low-paid jobs and directly competing with new immigrant workers. This group includes some ethnic minorities and a significant share of immigrants already working in the UK (para 97).

222.  In the short term, immigration may put pressure on the employment opportunities of young people. In the long run, the economic impacts of immigration on the resident population are likely to be fairly small. Thus a key question is how quickly the economy adjusts to immigration. Much more empirical work might usefully be done on the labour market and macroeconomic impacts of immigration in the UK (para 98).

Immigration and labour shortages

223.  Although clearly benefiting employers, immigration that is in the best interest of individual employers is not always in the best interest of the economy as a whole (para 102).

224.  Because immigration expands the overall economy, it cannot be expected to be an effective policy tool for significantly reducing vacancies. Vacancies are, to a certain extent, a sign of a healthy labour market and economy. They cannot be a good reason for encouraging large-scale labour immigration (para 104).

225.  Government policy is to ensure that employers make efforts to recruit British or other EEA workers before turning to migrants from outside the EU. How effective this policy has been is unclear and we urge the Government to ensure it is properly monitored. Our concern is to avoid the development of a specific demand for immigrant workers that is based on immigrants' lower expectations about wages and employment conditions or on a preference for labour whose freedom of employment in the UK is constrained by the worker's immigration status (para 108).

226.  Immigration keeps labour costs lower than they would be without immigrants. These lower labour costs also benefit consumers, who then pay less than they otherwise would for products and services (including public services) produced or provided by immigrants (para 113).

227.   Ready access to cheap migrant labour may reduce employers' incentives to consider other options, in particular changing production methods (para 118).

228.   We recognise that many public and private enterprises currently rely upon immigrants—from the NHS to City institutions, from the construction industry to residential care. We do not doubt the great value of this workforce from overseas to UK businesses and public services. Nevertheless, the argument that sustained net immigration is needed to fill vacancies, and that immigrants do the jobs that locals cannot or will not do, is fundamentally flawed. It ignores the potential alternatives to immigration for responding to labour shortages, including the price adjustments of a competitive labour market and the associated increase in local labour supply that can be expected to occur in the absence of immigration (para 122).

229.   Immigration designed to address short term shortages may have the unintended consequence of creating the conditions that encourage shortages of local workers in the longer term (para 123).

230.  We recognise that there is a case for enabling employers to hire significant numbers of highly-skilled foreign workers. But whether this implies positive net migration is another issue (para 124).

Impacts on public services and public finance

231.   While the overall fiscal impact of immigration is small, this masks significant variations across different immigrant groups (para 133)

232.   Immigration has important economic impacts on public services such as education and health. The current information and data available to assess these impacts are very limited. The launch of the Migration Impacts Forum is a welcome development but so far it has not produced any systematic evidence needed to assess the economic costs and benefits of immigration for public services. The Government should give priority to ensuring the production of much more information in this area (para 148).

233.  More work needs to be done—by both central and local government—to assess whether and how much extra funding for local services is needed because of increased immigration. The Government should ensure that local councils have adequate funding to provide and pay for the increasing demand for public services (para 151)

234.  Arguments in favour of high immigration to defuse the "pensions time bomb" do not stand up to scrutiny as they are based on the unreasonable assumption of a static retirement age as people live longer, and ignore the fact that, in time, immigrants too will grow old and draw pensions. Increasing the official retirement age will significantly reduce the increase in the dependency ratio and is the only viable way to do so (para 158).

Rising population density: Impacts on housing and wider welfare issues

235.   Given the difficulties of meeting the demands for housing, the Government should assess the impact of immigration on Britain's housing provision (para 164).

236.   Immigration is one of many factors contributing to more demand for housing and higher house prices. We note the forecasts that 20 years hence house prices would be over 10% higher, if current rates of net immigration persist, than if there were zero net immigration. Housing matters alone should not dictate immigration policy but they should be an important consideration when assessing the economic impacts of immigration on the resident population in the UK (para 172).

237.   Given the evidence that some immigrants have moved into properties suffering from a poor state of repair and/or overcrowding, the Government should assess whether its housing standards are being compromised and whether more inspections are necessary (para175).

238.   The present and likely future scale of homelessness among A8 and non-EU immigrants should be thoroughly assessed as a first step to determining the implications of recent immigration for social housing provision (para 180)

239.   In addition to its direct impact on the housing market, rising population density creates wider welfare issues and consequences for the living standards of UK residents. These wider welfare issues are potentially significant but in practice difficult to measure and, in part, highly subjective. They do, however, involve economic impacts on, for example, the cost and speed of implementation of public infrastructure projects. It is therefore important to include them in the debate about the economic impacts of immigration. Yet the Government appears not to have considered these issues at all. These wide-ranging impacts should be assessed urgently and the conclusions reflected in public policy as appropriate (para 185).

Immigration Policy

240.  The Government should explicitly take into account the likely impact on the future size and composition of the UK population. The Government should review the implications of its projection that overall net immigration in future years will be around 190,000 people—an annual amount equal to the population of Milton Keynes. The Government should have an explicit and reasoned indicative target range for net immigration, and adjust its immigration policies in line with that broad objective (para 186).

241.  In our view, the primary economic consideration of UK immigration policy must be to benefit the resident population in the UK, although we recognise that there are important practical constraints on the capacity of the UK to control immigration: EU membership, human rights considerations and illegal immigration (para 188).

242.   Rather than serving only the exclusive interest of employers, policy should reflect a balancing of the interests of resident workers, employers and other groups among UK residents. The assessment of the scale and composition of immigration that most benefits UK residents must be based on research and evidence on the economic and other impacts of immigrants (para 194).

243.  The Government should publish periodic Immigration Reports that include the latest data on non-EEA immigrants entering the UK under the various Tiers of the points-based system and on immigrants entering as family members/dependants or as asylum seekers/refugees (para 203).

244.  We endorse the Government's view that all low-skilled vacancies should be met from within the EEA (para 204).

245.  The Government should give further consideration to which channels of immigration should lead to settlement and which ones, if practicable, should be strictly temporary (para 207).

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