Too much of a good thing?
Towards a balanced approach to immigration
PETER LILLEY MP
CENTRE FOR POLICY STUDIES
57 Tufton Street London SW1P 3QL
PETER LILLEY is MP for Hitchin and Harpenden. He has served as
Deputy Leader of the Conservative Party, Shadow Chancellor,
Secretary of State for Trade and Industry and Secretary of State for
Social Security. He is the author of a number of recent pamphlets,
including Identity Crisis: the case against ID cards (Bow Group, 2005),
Save our Pensions (Social Market Foundation, 2003), Taking Liberties
(Adam Smith Institute, 2002), Common Sense on Cannabis (Social
Market Foundation, 2001), and Patient Power (Demos, 2000).
The aim of the Centre for Policy Studies is to develop and promote policies
that provide freedom and encouragement for individuals to pursue the
aspirations they have for themselves and their families, within the security and
obligations of a stable and law-abiding nation. The views expressed in our
publications are, however, the sole responsibility of the authors. Contributions
are chosen for their value in informing public debate and should not be taken
as representing a corporate view of the CPS or of its Directors. The CPS
values its independence and does not carry on activities with the intention of
affecting public support for any registered political party or for candidates at
election, or to influence voters in a referendum.
ISBN No. 1 903219 95 7
? Centre for Policy Studies, March 2005
Printed by 4 Print, 138 Molesey Avenue, Surrey
1. The numbers 1
2. Government policy 5
3. Does immigration enrich us economically? 11
4. The true economic benefits of immigration 27
5. Housing and land 30
6. Recommendations 36
FEW SUBJECTS AROUSE such widespread concern and strongly held
views – for and against – as immigration.
On most issues there is lively discussion about alternative
policies, the pros and cons and trade-offs between them.
Immigration is different.
Whenever I mention to people that I am researching the
subject their advice, without exception, is: “Don’t even think about
it. You will either be dismissed as a libertarian crank or labelled a
racist”. When I was writing in favour of legalising cannabis,
friends urged caution – but nothing like this.
Fear of being labelled racist has certainly stifled intellectual
debate. All censorship has malign consequences and this is no
exception. Moderate commentators, who have a positive view of
immigrants and want a generous approach to refugees but believe
in restricting the total numbers of people settling here, have been
effectively silenced. Now the election has forced immigration into
the limelight we urgently need a moderate case for some, but
limited, immigration. Because no one has put that case, the
contest has been between those who oppose any immigration at all
and those who oppose all limits on immigration.
Experience of living in areas with a large number of
immigrants, knowing them as neighbours and working with them
as constituents has convinced me that the caricature of immigrants
– as scroungers, criminals and a threat to society – is the reverse of
the truth. The overwhelming majority of immigrants are decent,
hard working, law abiding people who want to make a positive
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contribution to this country. They tend to epitomise the values of
enterprise and family cohesion that I as a Conservative admire.
Furthermore, the decent majority of British people are not hostile
to immigrants as people. They also instinctively recognise that
stopping all immigration would damage the economy. But they do
not conclude that we should therefore relax all restrictions on
settlement in this country. If moderate mainstream politicians do
not present the public with a reasonable case for allowing some,
but not unlimited amounts, of immigration, voters will become
increasingly susceptible to the irrational appeal of extremist
parties like the BNP.
Throughout this pamphlet, the term “immigrant” refers to
people (be they Belgian bankers or Bangladeshi catering workers)
coming to work or settle here. The terms British, resident or
native refer to the existing population of all races.
The suppression of moderate debate has been convenient for
the Government. Their immigration policies and the arguments
they use to justify them largely escape serious scrutiny. For
example, it is astonishing that Government policy underwent a
reversal – moving from ‘severe restriction’ to active
‘encouragement’ of immigration without the liberal media
reporting that fact. Because this change of objectives has gone
unreported, the public still assumes that the Government is trying
to restrict the total inflow into the UK. They are aware that
immigration has accelerated sharply but assume this is due to the
failure of policy rather than the reversal of policy. They conclude
that most immigration must be illegal or exploitation of the
asylum system. The Government fosters this illusion by regular
claims to be cracking down on illegal immigration and abuse of
asylum laws. Its pre-election pledges are designed to reinforce this
impression while still leaving them free to continue to encourage
more immigration should they win the next election.
The arguments the Government uses to explain why higher
immigration is necessary are largely exempt from criticism. By
contrast, populist arguments against immigration are rightly
subjected to merciless criticism by the liberal media. As it happens,
the arguments the Government uses to justify higher immigration
– that it promotes economic growth, fills labour shortages, staffs
the public services, boosts the public finances and will pay for our
pensions – are often the mirror image of the populist arguments
(that immigration takes away British jobs, creates unemployment
and is a burden on the public services and the taxpayer). Both sets
of arguments have three things in common: they are plausible,
they are bogus, and they rely on the same economic fallacies. Both
deserve to be debunked.
If the Government’s arguments in favour of more immigration
were valid, they would destroy the case for restricting it at all.
They imply that the more immigrants we allow in, the better off
the resident population will be. That matters because civil servants
take ministers at their word. They therefore set about developing,
interpreting and implementing policy accordingly. As we shall see,
that is exactly what they have been doing. They also feel it is their
duty to conceal those consequences of large scale immigration
which do not conform to the rosy arguments enunciated by
Ministers – hence their refusal to acknowledge the extent to which
the Government’s unpopular house-building targets are driven by
There is an obvious humanitarian case for helping refugees. But
there is also a strong case for some economic migration. A two-way
flow of skilled workers is natural and desirable in an open economy.
To stop migration entirely would not only be impractical but would
inflict significant damage on the economy. Some immigration
undoubtedly enriches this country both economically and culturally.
Beyond a certain point, however, there is little reason to suppose
that an increased inflow will enrich us much further. On the other
hand the problems resulting from immigration – not least the
pressures on housing and land – do rise in proportion to the
numbers settling here. The economic benefits that the Government
invokes are largely imaginary and divert attention away from
TOO MUCH OF A GOOD THING?
identifying the real benefits which can flow from certain limited
kinds of immigration. These benefits need to be understood so that
policy can be tailored to maximise them.
There is therefore a strong case for some, but not unlimited,
immigration. So recent Conservative proposals to impose a ceiling
on the annual inflow makes a great deal of sense. However, a
Conservative Government should go further: it should harness
market forces to restrain immigration by charging employers fees
for work permits that fully reflect the social, environmental and
housing costs of increased population. Such fees could possibly be
established by auctioning to employers some of the strict quota of
permits. These charges would also protect resident workers from
being undercut; maintain incentives to acquire scarce skills and
prevent employers treating those on work visas as indentured
labour. Such an approach would be:
! based on a positive view of the contribution individual
immigrants make to the nation’s life;
! compatible with a belief in markets and understanding of how
! and a measured approach to public concerns.
This pamphlet is a modest contribution to that task.
! The big rise in recorded immigration is not so much the result
of Government’s failure to control it as the success of its
largely unreported policy to “encourage… sustain and…
increase lawful immigration”.
! This change of policy escaped critical attention since fear of
accusations of racism stifles serious debate. Now the election
has forced the issue into the limelight, the moderate case for
some limited immigration needs to be made.
! The caricature of immigrants as scroungers, criminals and a
burden on society is the reverse of the truth. Most are decent,
hard working, law-abiding people who want to make a positive
! The Government argues that immigration promotes growth, fills
shortages, staffs public services and boosts the public finances.
These arguments are the mirror of populist arguments against
immigration: that immigrants take British jobs, burden the
public services and cost the taxpayer. Both sets of arguments are
! Growth: immigration contributes to the growth of the work
force and total output. But that does not mean, as the
Government claims, that it increases per capita incomes.
! Shortages: migration cannot, as the Government claims,
assuage a general excess demand for labour since immigrants
add to demand for goods and services as much as they
contribute to increased supply.
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! Fiscal benefits: the Government’s claim that immigrants
collectively pay more taxes than the cost of their benefits and
public services they use is flawed. The data also ignored the large
pension liabilities they are accruing.
! Pensions: today’s immigrants will become pensioners when
the demographic problem they are supposed to alleviate is
most acute. To maintain the current ratio between working
age and retired people would require over a million
immigrants, year in year out.
! Immigrants enrich us economically and culturally. But the
benefits do not increase in proportion to numbers whereas the
problems (e.g. pressure on housing) do.
! Net immigration will account for a third of extra households by
2031. Since brownfield sites provide two thirds of new homes,
net immigration is the main reason for green field development.
! The total inflow should be limited to meet humanitarian
obligations and genuine economic benefits. In particular:
– rules for work permits should be restricted to secure the
genuine benefits of immigration;
– market forces should be harnessed to restrict the inflow of
immigrants by charging employers for work permits a sum
reflecting the full environmental, housing and
administrative costs of extra people.
! This would protect UK workers from being undercut,
maintain incentives for Britons (of all races) to acquire scarce
skills and free immigrant workers from being indentured to
an employer if they or their new employers pay the cost of
their remaining visa period.
! The policy objective should be to bring a balance between the
inflow and outflow of non-EU citizens as soon as feasible. That
would still leave scope for a gross annual inflow of nearly
200,000 non-EU citizens as well as the likely continuing inflow
from new member states to which the UK is now committed.
THE PUBLIC TENDS TO OVERESTIMATE the number of people who
have come from abroad. For example a MORI poll asked “What
percentage of the British population are immigrants to this
country (i.e. not born in the UK)?” the average response was
about 21% – more than double the true figure of 8.3%.1
On the other hand the Government tends to play down the
numbers. A Home Office memo released under the Freedom of
Information rules revealed an official rebuke to ministers: “Can
we please stop saying that Migrationwatch forecasts are wrong. I
have pointed out before that Migrationwatch assumptions are
often below the Government Actuary’s Department high
So it is useful to start by giving a few facts.
The Office of National Statistics (ONS) publishes annual estimates
of “Migrants entering or leaving the UK”. Its main source is the
1 Respondents may have confused the term ‘immigrant’ with ‘ethnic
minority’ which includes subsequent generations. Even so, their
perception is too high. On the other hand, when asked “How many
asylum seekers and immigrants do you think come to Britain every year
from outside the European Union?” the average reply was 113,000. This
is well below Government figures for 2003 which show a net non-EU
inflow of 222,000 and less than a third of the gross non-EU inflow of
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International Passenger Survey which involves interviewing one in
every 500 people entering and leaving the UK. Those intending
to stay for a year or more are classified as migrants. Adjustments
are made for those who stay longer or leave earlier than their
intention when interviewed. The figures are also adjusted to
include asylum seekers who do not usually reveal their intention
until after they have entered the country.
The figures reflect legal immigration only. No estimate is made
of the number of illegal immigrants. The most recent year for
which these figures are available is 2003.2
The ONS figures show that there were 513,000 in-migrants and
362,000 out-migrants in 2003. There was therefore a net inflow of
151,000 people into the UK.
Both gross and net figures have risen strongly in recent years.
The net inflow has more than trebled from 47,000 in 1997. For
most of Britain’s history – including the post war decades when
there was substantial immigration from the New Commonwealth –
Britain was a net exporter of people. The UK only became a net
importer on a consistent basis in the early 1990s.
Where are they from?
The figures for both in-migrants and out-migrants include British
(and European) citizens. British people have consistently
accounted for just over half the outflow but the proportion of in-
migrants who are returning British citizens has fallen from a third
a decade ago to under a fifth last year. So there was a net outflow
of 85,000 British citizens in 2003 and a net non-British inflow of
There are large flows in both directions with the EU, US and
the Old Commonwealth. But the net inflow of citizens of these
2 Office of National Statistics, 4 November 2004.
countries is fairly small. People from developed countries typically
come here to work for a limited period then return home. The
major part of the net inflow into Britain is from less developed
countries – New Commonwealth and non-Commonwealth Africa,
Asia and Latin America – since fewer return to their home
How do they enter?
Contrary to popular opinion, asylum seekers do not constitute the
majority of the net inflow. The make up of the net inflow of non-
EU citizens in 2003 was probably as shown in the table below.
Each category shows the net inflow – incomers less those who may
have entered in previous years but left in that year.
Estimated Breakdown by Reason of Entry 2003
Category Number Percentage
Asylum inc. accompanying
dependants 30,000 14%
Work related inc. dependants 105,000 47%
Family formation 65,000 30%
Students and other 22,000 10%
Total non-EU net inflow 222,000 100%
Source: Migration Watch
The Government Actuary’s Department makes projections of
future UK population taking into account trends in migration.
The latest estimates were published in September 2004. The
central projection assumes net immigration runs at 130,000 a year
in future. This is double their previous projections but below the
net inflow over the last six years which averaged 157,000. They
project an increase in the total population of 6.1 million by 2031
of which 84% – some 5.2 million people – is the result of net
TOO MUCH OF A GOOD THING?
immigration (including descendants). These figures also make no
allowance for illegal immigration, nor for failed asylum seekers
who stay on illegally, nor visa over-stayers.
By its nature, the scale of illegal immigration is unknown. The one
category of illegal immigration about which there is reliable data is
rejected asylum seekers. There are up to 250,000 asylum seekers
who have been refused asylum or leave to remain but who have
neither been removed nor are known to have departed. The other
two categories of illegal immigrants are clandestine entrants and
legal entrants who overstay their visa. It is important to recognise
that many in these two categories may also be included in the first
as any illegal entrant of visa overstayer can claim asylum.
Regrettably, the Government does not record how many of the
roughly 50,000 illegal entrants it has detained annually who then
claimed asylum. Until recently, even undetected illegal
immigrants had a strong incentive to claim asylum since, once
they lodged a claim, they gained access to the benefit system,
qualified for the right to work after six months and had immunity
from removal while their claims and appeals were being assessed.
These incentives have at last been curtailed. The recent reduction
in asylum claims may simply mean that fewer illegal immigrants
are now bothering to claim asylum.
Illegal immigration is an important issue. The Government
claims to be strongly against it, and periodically announces
crackdowns. This deflects attention away from the huge increase in
lawful immigration which it has encouraged, and from its relaxation
of border controls (for example, in 1997 it abolished exit checks so
that now, for the 1.5 million visas that are issued every year, there
are no checks on the number who depart).
The inadequate control of illegal immigration should not,
however, distract attention from what is happening to legal
immigration: which is the focus of this paper.
PUBLIC OPINION IS strongly in favour of restricting immigration.
Most people take it for granted that this is the Government’s
objective too. They therefore assume that the large rise in
immigration in recent years must be because the Government’s
attempts to control it have failed – presumably because immigrants
have entered illegally or by exploiting the asylum system. Even the
Government’s political opponents attack it for incompetence and
“losing control of immigration”. In fact, the rise in legal
immigration is largely the result of deliberate policy rather than the
failure of policy. What is the evidence for this assertion?
The Government admits it
Government policy is now quietly to ‘encourage’, ‘sustain’ and
even ‘increase’ legal immigration. The officials who wrote the
Impact Assessment for the ID Cards Bill let the cat out of the bag.
The Government wants to encourage lawful migration to the
country… sustaining and perhaps increasing current levels of lawful
immigration … [emphasis added].3
Ministers try to avoid being so explicit. But when asked
whether he thought the current level of net immigration into this
country is too high, too low or about right the Home Secretary
3 Economic Impact Assessment of the Identity Cards Bill, November 2004.
TOO MUCH OF A GOOD THING?
replied: “I do not really have a view on that …”4 Subsequently he
said “we want more immigration, more people coming to study, to
work… to look for refuge”.5 His predecessor, David Blunkett,
when asked if there would be any limit to the number allowed to
settle in the country, said “No. I see no obvious limit.”6
Ministers no longer even talk of ‘controlling’ immigration, only
of ‘managing’ it. They laud the benefits of immigration at every
opportunity. (Logically those benefits would also result from illegal
immigration so the sharp distinction drawn between legal and
illegal immigration can only be for rhetorical reasons.) They now
refer to those seeking entry as ‘customers’ rather than applicants.
This is a clear reversal of the previous Government’s policy
which was “to restrict severely the numbers coming to live
permanently or to work in the United Kingdom.”7
The Government actively encourages it
The Home Office has written to businesses highlighting the
potential benefits of recruiting employees – including lower skilled
workers – from outside the EU.
Dear Sir or Madam:
Are you struggling to find the quality staff you need to run your
business effectively? Do you want to employ an individual from
outside Europe but aren’t sure how?… High, medium or low skilled
vacancies can be filled from overseas… Work Permits(UK) is a
department of the Home Office… We have set up a Small Business
Unit with the specific aim of raising awareness of the work permit
arrangements …8 .
4 Reply of Charles Clarke MP to Peter Lilley MP – Hansard 7 February 2005.
5 Charles Clarke MP, speech to Labour Party Spring Conference, 14
6 David Blunkett, speaking on Newsnight, BBC2, 12 November 2003.
7 Home Office Immigration and Nationality Department, Annual Report, 1994.
8 Home Office 2 May 2003.
The Government has systematically made immigration easier
Since 1997 the Labour Government has:
! promised to give a decision on a work permit within 24 hours
in 90% of cases – removing the possibility of any serious
examination of the application;
! more than trebled the number of work permits issued
annually from 47,000 in 1997 to 156,000 in 2004;
! abolished the ‘primary purpose rule’ making it easier to bring
in spouses and fianc?(e)s;
! enabled several categories of students to apply for jobs in the
UK at the end of their courses without returning home as
! allowed anyone with sufficient points to enter the UK to look
for work without being sponsored by an employer under the
Highly Skilled Migrant Programme (HSMP);
! increased uptake of the HSMP by reducing the points
threshold since when the administration has been
! introduced two new quotas for low skilled workers 9,000 for
Hospitality and 6,000 for Food Processing;
! extended the Seasonal Agricultural Workers Scheme (SAWS)
all year round;
! changed the SAWS quota from 10,000 in the 1990s to 25,000
in 2003. Half that quota was filled from states which are now
EU members. Their citizens are now not included in the quota
which has been reduced to 16,250, thereby effectively
increasing the number available to workers from outside the
TOO MUCH OF A GOOD THING?
! promoted the Holiday Workers Scheme, which was designed
for the old Dominions, to New Commonwealth countries; and
allowed participants to switch into work permit employment;
! changed the default position for many categories of applicant
from ‘refuse unless they can prove a good case’ to ‘accept
unless it can be shown that they are ineligible’. Hence the
revelation that the Home Office were allowing in wholesale
applicants from pre-accession countries who did not provide
adequate documentation. Failure to provide the information
necessary to decide whether they met the official criteria
meant they were given the benefit of the doubt;
! Britain was the only major EU member that did not invoke
restrictions on nationals of the new member states resulting in
130,000 workers registering for work here between May and
It is remarkable that, because of the lack of debate on
immigration in this country, the Government has been able to
effect a significant change in policy without attracting attention.
Recent Government policy
The Government responded to recent Conservative proposals for
an annual limit on the number of immigrants by announcing its
own package of measures. These were clearly designed to give the
impression that they would significantly reduce the level of
immigration. If they had that effect, it should be welcomed. But
that would represent a complete U-turn away from the policy of
relaxation pursued over the last eight years.
On inspection, however, the Government’s proposals appear to
be a smokescreen under the cover of which the Government is
free to pursue its previous course. Those measures that are
welcome are minor; and those which appear more substantial in
fact leave the Government free to continue to “encourage, sustain
and increase” the current unprecedented level of lawful
! “Australian style points system for immigrants”. This is the
Government’s main proposal. But in Australia the points
system works alongside an annual limit: points are used to
select the most qualified applicants up to that quota. However,
Tony Blair has refused to set an annual limit. Even he would
have found it difficult to square a tight annual limit with his
rhetoric about the importance of allowing immigration to
meet the ‘needs’ of the economy.
Indeed, the Government already operates a points system
without a quota: the Highly Skilled Migrants Programme,
introduced in 2002. The Government initially set the number
of points that defined the level of qualifications and
experience needed to be considered Highly Skilled. When the
number of qualified applicants turned out to be fewer than
expected, the Government promptly reduced the number of
points required. As a result, the number of applicants has
surged, overwhelming the administration. In February 2005,
they were still working on applications received in June 2004.
In short, the Government has manipulated the points system
to increase immigration rather than to restrict it. There is no
reason to suppose they will do otherwise with a more
comprehensive points system.
! “No right of settlement for 5 years.” The Government has
proposed extending from four to five years the period before
which migrants gain the right to apply for permanent
settlement. This will be restricted to “skilled workers”. This is
sensible enough, but will have little effect in practice. Most
people from developed countries do eventually return home.
By contrast, most people from developing countries want to
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settle here. They will be prepared to work an extra year before
applying. The minority who are not originally classified as
skilled will still gain the right to settle if they acquire either
skills or wives and children. Dr Michael Teitelbaum put it
more emphatically in his evidence to Congress:9
There is no such thing as a temporary immigrant moving from a low wage
economy to a high wage economy… Don’t be tempted by the siren song
of temporary worker programs. If they involve movement from poor
countries to rich countries, they universally prove to be more permanent
than temporary, and very difficult to turn off once turned on.
! “Ending chain migration.” Chain migration in the broadest
sense is one of the main drivers of immigration. People come to
the UK because their relatives, friends and fellow nationals have
preceded them. However, it emerges that the Government only
proposes to address one aspect of this process. At present those
who have settled here on a family reunion basis can in turn
sponsor further family members. The Government’s proposals
would merely delay this right until they have been here five
years or have obtained British citizenship. In any case,
exploitation of the right to bring in a spouse was only re-opened
by the abolition of the ‘primary purpose rule’ in 1997. This has
led to a doubling of the number of spouses brought in from the
Indian sub-continent. It would be far better to introduce rules
similar to those in Denmark that would also protect British
Asian women from forced marriages.
! “Tightening up on overstayers.” The proposals to use bonds,
biometrics for visas and residence permits are sensible and
should help to cut down on abuses. Regrettably the
Government does not propose to reinstate comprehensive exit
9 Congressional testimony of Dr Michael S Teitelbaum, 27 September 1989.
DOES IMMIGRATION ENRICH
THE GOVERNMENT IS RIGHT to reject the popular fallacy that most
immigrants come here to claim our benefits and are then a drain
on the economy. The vast majority want to work and better the lot
of themselves and their families. As long as they are able to work
and do not get embroiled in the benefits system, they ought not to
be a burden on the economy.
But does immigration positively improve the economic
wellbeing of the resident population? The Government claims that
it is economically essential and brings substantial economic
benefits. That claim is often accepted uncritically. Yet most serious
academic attempts to identify such benefits have found that at best
they are marginal. For example:
There is not a compelling long-term case for increased immigration
purely in terms of economic benefits.10
The arguments that there are large overall economic benefits to the
existing population from immigration are questionable.11
The broad consensus… is that high levels of immigration will increase
aggregate variables such as labour force, investment and real gross
income, but cause… real wages to decline.12
10 Mark Kleinman, The Politics of Migration, IPPR, 2003.
11 Martin Wolf, Financial Times, 28 January 2005.
12 The 1985 Canadian Royal Commission on the Economic Union and
TOO MUCH OF A GOOD THING?
In general, migration increases the supply of labour: this is likely, in
theory, to reduce wages for workers competing with migrants, and
increase the returns to capital and other factors complementary to
The economic benefits from immigration are small… not a single
academic body has concluded that they are higher – and some studies
have concluded that they are lower.14
… immigration creates a net loss to US natives of nearly $70 billion
Despite this the Government argues that immigration brings
substantial benefits: by boosting economic growth; by filling
labour and skill shortages; by staffing public services; by paying
more in taxation than the cost of the services and benefits they
receive; and by offsetting the effect of an ageing population on
our pension crisis.
According to the Treasury, our economic growth rate would be
almost 0.5% lower for the next two years if net migration ceased.
Lower growth means less individual and family prosperity.
Tony Blair, speech to the CBI, 27 April 2004.
Tony Blair confuses growth in total national income (which is
what the economic growth rate measures) with growth in per
capita incomes of the existing population (which measures
individual and family prosperity). Immigration increases the size
13 “Migration: an economic and social analysis,” Occasional Paper No 67,
Home Office 2001.
14 Professor G Borjas, Heavens Door: Immigration Policy and the American
Economy, Princeton University Press, 2001.
15 Professors D Davis and D Weinstein, US Technological Superiority and the
Losses from Migration, Center for Immigration Studies, National Bureau of
Economic Research Working Paper 8971, February 2005.
DOES IMMIGRATION ENRICH US?
of the labour force and therefore the size of the total national
income. But that does not mean that incomes per head of the
existing population will rise any faster. Indeed, the Treasury16
simply assumes that net migration will add 0.4% p.a. (which Mr
Blair rounds up to ‘almost 0.5%’) to both the labour force and
national output, implying no increase in per capita incomes and
therefore no impact on “individual and family prosperity”.
The Chancellor also attributed the success of the US economy
(relative to that of the EU) to the large inflow of immigrants into the
US.17 It is true that the US economy has grown faster than the EU
because immigration has increased the US labour force; but growth
of productivity per worker has risen at almost exactly the same rate
– 2% p.a. – on both sides of the Atlantic. Moreover, since the flow of
immigration into the US has increased, the rate of growth in income
per worker appears to have slowed down. Likewise, since the
Government began increasing immigration, the rate of growth in
productivity per person in the UK has slowed.18
Economic theory suggests that rather than boosting incomes
per head, an increase in the supply of labour will normally reduce
labour’s share of total national income, while increasing the
returns to capital and property.
The 1985 Canadian Royal Commission on the Economic Union
and Development Prospects noted that: “The broad consensus …
is that high levels of immigration will increase aggregate variables
such as labour force, investment and real gross income, but cause
… real wages to decline.”
The main factor that might offset this effect would be where
there are increasing returns to scale. In general there is no
correlation between either the size or the rate of growth of a
16 HM Treasury, Trend Growth: Recent Developments and Prospects, April 2002.
17 Gordon Brown Budget speech, April 2003.
18 Bank of England Structural Economic Analysis Division, “Measuring
Total Factor Productivity for the United Kingdom”, Bank of England
Quarterly Bulletin, Spring 2004.
TOO MUCH OF A GOOD THING?
country’s population and the level of income per head. Many of
the countries with the highest incomes per head have smallish
populations – like, Singapore, Switzerland and Norway.
Economies of scale may have existed in sparsely populated
countries like Australia, Canada and the US when they needed a
certain size of population to justify the infrastructure necessary to
develop their resources. However, the reverse is the case in a
densely populated country like Britain. An increase in population
here generates diseconomies of congestion and pressure on scarce
land and housing.
Arguably there may be economies of scale in certain industries.
The City of London, in particular, undoubtedly benefits from its
unrivalled aggregation of related financial businesses. To achieve
that it needed to import a large number of talented people who
could not realistically have been replaced in the numbers required
from the pool of domestic British talent. But it is not easy to think
of examples of other industries where scale is constrained by the
size of the UK labour force which is, after all, 27 million strong.
There are half a million vacancies in our job market and our strong
and growing economy needs migration to fill these vacancies.
Tony Blair, Speech to CBI, 27 April 2004.
There is clearly unsatisfied demand at all skill levels in the labour
market. … skill shortages and unfilled vacancies manifest
themselves at all skill levels.
Home Office briefing.19
The idea that we need to import labour to fill shortages is so
plausible that it is almost never questioned. Yet there are strong
reasons why it should be questioned: there is no symptom of a
19 Migration: an economic and social analysis, Home Office Occasional Paper No
DOES IMMIGRATION ENRICH US?
labour shortage; immigration does not in practice seem to reduce
the level of vacancies; the argument that immigrants will fill our
vacancies is based on the same economic fallacy as the racist claims
that immigrants take our jobs; and shortages in specific sectors can
only persist if pay is held down.
! No symptom of a shortage. In any economy there are always
some vacancies waiting to be filled. If the current level of half
a million vacancies were too high and there were a general
labour shortage – as the PM and the Home Office researchers
claim – the symptom, as of any shortage, would be rising pay.
Yet pay inflation has rarely been lower since the war.
! Immigration does not end shortages. The idea that importing
more people would remove a general labour shortage is
plausible – but it patently does not work in practice. There
were half a million vacancies when Tony Blair began using
that figure to justify high immigration. Since then there has
been a net inflow of over half a million people – yet there are
still half a million vacancies. London in particular, which is
supposed to have had a labour shortage for decades, has not
seen that shortage diminish even though over a quarter of the
population came here from abroad. Precisely the same
phenomenon is observable in other places experiencing mass
immigration – from California and Miami to West Germany
and Australia. Is this just an extraordinary coincidence or is
there something wrong with the theory that immigration will
mop up excess demand for labour?
! Based on a fallacy. There is a perfectly simple reason why
immigration creates as many new jobs as it fills: immigrants
are not only producers, they are also consumers. The new
workers not only produce goods and services, they also
consume goods and services. And those goods and services
they consume will require yet more workers to supply them.
TOO MUCH OF A GOOD THING?
The value of what immigrant workers produce automatically
equals the extra demand they generate for goods and services
which in turn generates demand for a similar number of extra
workers. So if there are unfilled vacancies at the start there
will still be a similar number of unfilled vacancies – though
probably in different occupations – once the migrants have
joined the workforce.
! The same fallacy as extremists use. The Government should
not be surprised by this phenomenon. They rightly reject the
demagogic argument that immigration ‘takes away jobs from
British workers’. Yet the assertion that immigrants are needed
to fill vacancies, and the fear that immigration will cause
unemployment by taking jobs, are remarkably similar. Both
claims are fallacious. Indeed they rest on the same fallacy –
known to economists as ‘the lump of labour fallacy’; the idea
that there is a fixed amount of work to be done. The
Government assumes there is a given number of jobs to be
done, which exceeds the resident labour force; so we need to
encourage immigration. Some opponents of immigration
assume there is a given number of jobs, which is barely sufficient
to employ the resident workforce; so we must stop
immigration.20 Both are wrong.
! The amount of work that needs doing is potentially infinite.
A well-working labour market with flexible wages will generate
as many jobs as there are people willing and able to do them.
Additional workers will not divert demand away from resident
workers because ‘supply creates its own demand’. The wages
and profits which the new employees earn will be spent or lent
generating extra demand equal to the extra supply which they
20 For simplicity, this assumes monetary policy accommodates the increase
in supply – which will normally happen more or less automatically and/or
with the support of the monetary authorities.
DOES IMMIGRATION ENRICH US?
provide. So immigrants do not take away jobs from the
resident population. Nor do they reduce the total number of
! Shortages only persist if pay is not flexible. In a free and
flexible market the very idea of a ‘shortage’ is problematic. As
Dr Michael Teitelbaum, who became Vice-Chairman of the
US Commission on Immigration Reform, told Congress:
…the very phrase itself ‘labour shortage’ provokes puzzlement or
amazement among most informed analysts of… labour markets.21
His colleague Eric Weinstein later added:
Long term labor shortages do not happen naturally in market
economies. That is not to say they don’t exist. They are created when
employers or Government agencies tamper with the natural
functioning of the wage mechanism.22
By definition, in a free market, relative wages adjust to the
market clearing levels – the levels which bring supply and demand
for all types of labour into balance. So shortages cannot persist.
The idea of a general labour shortage is particularly alien to
economists. It would mean that monetary demand had
outstripped the growth of output. The solution would be to rein
back monetary demand in line with the supply of labour.
As for shortages of particular skills, they can only persist if
relative pay rates are not able to adjust to bring supply and
demand for those skills into balance. Before importing immigrants
to meet specific shortages, two questions should be asked. First,
why is pay for that occupation unable to adjust to a level at which
demand is equal to the supply of suitable and willing resident
21 Congressional testimony of Dr Michael S Teitelbaum 27 September 1989.
22 Eric Weinstein, How and why Government, Universities and Industry Create
Domestic Labor Shortages of Scientists and High-Tech Workers, National
Bureau of Economic Research.
TOO MUCH OF A GOOD THING?
workers? Second, would it be better if relative pay were allowed to
adjust to bring domestic demand and supply of that skill into
Pay rates may be rigid or slow to adjust because competition is
absent or prevented from working. But even in competitive
markets pay may be held down below the level needed to attract
sufficient home grown employees to match demand if employers
are allowed to recruit immigrants from cheaper labour markets
abroad. As Dr Teitelbaum warned Congress:
[To attract native] workers, the employer may have to increase his
wage offer… So when you hear an employer saying he needs
immigrants to fill a ‘labor shortage’, remember what you are hearing:
a cry… to allow the employer to avoid the normal functioning of the
Naturally, employers prefer importing cheap foreign labour to
bidding up pay at home. The better off prefer employing cheap
nannies, builders and cleaners from abroad. They also benefit
indirectly from restaurants and hotels employing cheap waiters
and catering staff. Conversely, the British employees in these
fields suffer from having their wages depressed.
Filling jobs British workers shun
… some [of these vacancies] are for unskilled jobs which people
living here are not prepared to do.
Tony Blair, Speech to CBI, 27 April 2004.
This is an excuse for importing cheap unskilled labour. There is
no shortage even for supposedly menial tasks if pay is sufficient to
compensate for the unpleasantness. For example, there is no
shortage of dustmen. Britain has a relatively high proportion of
unskilled and semi-skilled workers – including many of the two
23 Congressional testimony of Dr Michael S Teitelbaum 1990.
DOES IMMIGRATION ENRICH US?
million or more discouraged workers24 – who might be attracted
back into employment if pay was not depressed by an influx of low
Professor Richard Layard – who advises the Government on
labour markets and devised their New Deal policy, wrote to the
‘Europe needs immigrants skilled and unskilled’, you say. This may
now be the conventional wisdom, but it glosses over the conflicts of
interests between different groups of Europeans.
For European employers and skilled workers, unskilled immigration
brings real advantages. It provides labour for their restaurants,
building sites and car parks and helps keep these services cheap by
keeping down the wages of those who work there.
But for unskilled Europeans, it is a mixed blessing. It depresses their
wages and may affect their job opportunities.”
It is amazing that a Labour Government should be prepared to
use the reserve army of third world labour to depress the living
standard of the lowest paid British workers to provide cheaper
services for the better off.
When Tony Blair says we need to import labour to do jobs
which British workers are no longer willing to do, he is implicitly
assuming that we will import a permanent class of helots – people
who will always be willing to undertake work too menial for
resident workers to undertake. Catering workers will remain
forever catering workers. Nurses will remain forever nurses, and
so on. But that neither will nor should happen. The shortage of
resident labour in a sector exists only because there are more
attractive alternatives available for resident workers. British nurses
do not stay in nursing or return to it after bringing up a family
24 J Fuchs and D Schmidt, The Hidden Labour Force in the UK, Bundeszanstalt
fur Arbeit, 2000.
TOO MUCH OF A GOOD THING?
because they discover that it is more attractive to work as a
secretary or whatever. Once settled here, immigrants have the
same right to change jobs as resident workers and will be at least
as upwardly mobile. So they will need to be replaced by a
continuous stream of fresh immigrants.
Reliance on immigrant labour to fill shortages is likely to ensure
that the shortage becomes permanent. As a report published by the
UN International Labour Organisation (ILO) explained:25
What may begin as a simple temporary ‘spot shortage’ of trained
native workers, can be made considerably more permanent by
attempting a quick fix from migrant labor. Any program which
imports migrants into a sector whose employers are complaining of
insufficient trained natives, can be expected to exacerbate (rather than
alleviate) its native shortage. Rather than raising incentives to entice
new workers to seek training to fill the empty slots, visas are likely to
be used to avoid the needed market response.
Public services would collapse without immigrant workers
…a quarter of all health professionals are overseas born… 23% of
staff in our HE institutions are non-UK nationals… Our public
services would be close to collapse without their contribution.
Tony Blair, CBI speech, 27 April 2004.
In a market economy we are all dependent on each other. If a
quarter of the staff of any institution were suddenly removed, it
would probably collapse. No one is proposing to remove the foreign
born staff from the public services. So Tony Blair is implying that if
those foreign born staff had not been allowed to come to this
country, the NHS would be short of a quarter of the staff it needs
and would collapse. If, instead, resident people had taken all those
NHS jobs, that would have left gaps in other parts of the economy.
25 IMP 40. Migration for the Benefit of All, Eric Weinstein, ILO, Geneva 2001.
DOES IMMIGRATION ENRICH US?
This once again ignores the fact that the immigrant workers
employed in the NHS are also consumers. They not only provide
health services to the rest of the nation, they also consume goods
and services that have to be produced by other people. The value
of the manpower immigrant workers provide to the NHS is
exactly equal to the value of the person-hours devoted elsewhere
in the economy to satisfying their needs for food, clothing,
entertainment, housing and so on. So, if those immigrant workers
had not come to work in the NHS, then all the resources currently
supplying their needs would have been available, directly or
indirectly, to work in the NHS.
It is certainly possible to staff a health service with indigenous
employees. Most other EU countries have done so. That leaves the
question whether Britain would have had to pay far higher
salaries to persuade sufficient resident workers to take jobs in the
NHS. Put crudely, are we getting health and other public services
on the cheap by exploiting labour from developing countries?
Public services would cost us much more
In health and education, wages are constrained by policy…
Migration in these sectors, therefore, benefits the public sector – and
hence the general public, as taxpayers …
Home Office briefing.26
This is an unusually frank admission that migration is used to
keep pay low in health and education. People are normally
reluctant to boast about using cheap labour. But it is implicit in
the arguments deployed by Tony Blair. How satisfactory for the
liberal intelligentsia to be able to sneer at the racism of the British
working class while enjoying the benefits of cheap Polish builders
and Filipino nurses.
26 Migration: an economic and social analysis, Home Office Occasional Paper No
TOO MUCH OF A GOOD THING?
When confronted with the argument that the benefits of
immigration rely on exploiting cheap labour, which also drives
down the pay of the least skilled resident workers (not least British
ethnic minority workers), proponents of immigration deny that
this happens. They point out that most econometric studies have
found little or no effect on the wages of residents. But the absence
of proof is not proof of absence. Recent studies – notably those
that allow for differences between different gradations of skill and
expertise in the resident labour force – have found that
immigration depresses pay, particularly of the least skilled and
Some of those who claim that economic studies prove that
immigration does not depress pay nonetheless argue that if we turn
off the immigration tap, we will have to pay a lot more for our
nurses and teachers, not to mention our builders and nannies.
One thing is clear. Defenders of immigration cannot have it
both ways. Either immigration depresses pay in sectors like health
care; or it does not depress pay in which case we are not getting
health and other services more cheaply than if we relied on
It is probable that an inflow of migrant workers can depress
pay rates, but usually not by a large amount. That means that if
less immigration was allowed in future and if there was a greater
reliance on resident workers to staff the NHS, schools and other
public services, salaries would only have to rise by a comparatively
modest amount relative to other occupations to attract sufficient
Moreover, although using immigrant labour can reduce
employers’ direct payroll bills, it may simultaneously impose other
burdens on the taxpayer, and social costs on the community. Most
27 G J Borjas, “The Labour Demand Curve is downward sloping: re-
examining the impact of immigration on the Labor Market”, The Quarterly
Journal of Economics, November 2003.
DOES IMMIGRATION ENRICH US?
attempts to buck the market tend to end up costing as much or
even more than they were intended to save. In the case of the
public services, paying nurses and teachers below the British
going rate ends up with the taxpayer having to pay a high
premium for agency staff. The use of agency staff adds over 5% to
the total NHS pay bill before any allowance is made for their lack
of familiarity and consequent lower productivity.
Because pay is depressed, public sector employees (both
immigrant and resident workers) are often unable to afford
housing, particularly in the South East to which most migrants
come. The public sector will often have to bear the cost: either by
providing tied housing (as the NHS does for nurses) or by hidden
subsidies to make houses affordable for key workers, or via
housing benefit and other in-work benefits. The whole community
will pay the environmental cost of providing housing land for a
Taking these factors into account, it is far from certain that less
reliance on immigrant labour in the public services would increase
the overall cost to the taxpayer and the community as a whole.
Immigrants pay more tax than the benefits and public
services they consume
Migrants in the UK contributed… a net fiscal balance of
approximately ?2.5 billion… This is equivalent to around 1p on the
basic rate of income tax.
Home Office briefing.28
Tony Blair draws on this study to claim that migrants reduce the
burden of taxation on British taxpayers. However, the authors of
this study emphasised that their conclusion was extremely tentative.
Nonetheless, the Prime Minister uses it as an incontrovertible truth.
28 The migrant population in the UK: fiscal effects, Home Office Occasional
Paper No 77.
TOO MUCH OF A GOOD THING?
The figures are generally discounted for two reasons. First,
they refer to a year when the public finances were in surplus. So
the nation as a whole, and not just immigrants, were paying more
taxes than the cost of benefits and services they were using. That
accounted for about half the net contribution the immigrants were
making. Second, the study includes all the revenues from
corporation tax, oil revenues and other non-personal taxes. It
attributes them to immigrants and natives in proportion to their
share of population. Even if that ratio were correct, this ignores
the fact that a large proportion of corporation tax is attributable
neither to immigrants nor to natives since it is paid by foreign-
owned companies. If the foreign-owned portion of corporation
tax revenues were removed from the calculation, the remaining
fiscal contribution of immigrants would largely disappear. Of
course, it would also reduce the fiscal contribution of natives.
Far more important than either of these factors is the fact that,
like most studies of this kind, it entirely excluded the pension
liabilities accruing to the immigrant workers. Relatively few of them
are yet retired and drawing state pensions or pension credits. But
those currently of working age will be entitled to do so when they
retire. Expenditure on the elderly is by far the largest element of
public expenditure yet no allowance has been made for the future
costs that immigrants currently of working age will impose on
If that had been taken into account the Home Office study would
certainly have shown a net negative fiscal contribution. It would then
be quoted by opponents of immigration confirming their beliefs that
‘immigrants are burden on the rest of us’.
In fact it would be absurd to base policy on such aggregate
studies. They bundle together everyone who comes here to work
even though that covers a wide range of people. It needs no study
to show that high earning immigrants, like high earning residents,
pay more in taxes than they ‘cost’ in benefits and services over
DOES IMMIGRATION ENRICH US?
their lifetime. For low earners the reverse is the case. The
aggregate figure merely reflect the mix at any time.
A Swedish study (which is far more accurate than the British one
since it was based on access to the actual tax records of a sample of
immigrants) showed that the net contribution of immigrants has
moved from slightly positive in the 1970s to a negative, amounting
to 2% of GDP by 1994.29 This is simply because in the earlier
periods a higher proportion of immigrants were relatively high
earners from neighbouring countries whereas recent inflows have
been dominated by low earning asylum seekers.
The logic of Mr Blair’s argument is that we should only allow
in immigrants who are likely to be net taxpayers over their
lifetimes. This implies that immigrants are essentially a fiscal milch
cow. As a very thoughtful study30 of the morality of immigration
policy from a Christian perspective remarks, to treat people as a
commodity is morally dubious.
Paying our pensions
If we are to have the workforce to pay the pensions of future
generations… the UK needs skilled migrants.
Sir Digby Jones, Director General of the CBI, 27 April 2004.
Immigrants also grow old. Those arriving now will retire when
the support ratio is far worse, thereby exacerbating the problem
rather than solving it.
The UN calculated that for Britain “keeping the potential
support ratio [working age people to those of pensionable age]
constant would demand more than one million immigrants
29 J Ekberg, “Immigration and the public sector: income effects for the native
population of Sweden”, Population Economics, Springer Verlag, 1994.
30 Nick Spencer, Asylum and Immigration: A Christian Perspective on a Polarised
Debate, Jubilee Centre and Paternoster Press, 2004.
TOO MUCH OF A GOOD THING?
annually”.31 As the Government’s pension Tsar – Adair Turner –
You only have to look at these figures to realise that this scale of
immigration is undesirable and impossible. Fortunately, it is also
Encouraging a higher proportion of existing workers to work
to the current pension age and enabling more to work beyond
that would be far more effective since it simultaneously increases
the workforce and diminishes the pension burden.
31 Replacement Migration: Is it a solution to declining and ageing population? UN
Population Division, 2000.
32 A Turner, Demographics, Economics and Social Choice, London School of
Economics, 6 November 2003.
THE TRUE ECONOMIC BENEFITS
SOME IMMIGRATION UNDOUBTEDLY does enrich us economically
and culturally. But beyond a certain point the benefits it brings do
not increase in proportion to the numbers who come here,
whereas the difficulties (notably pressure on housing and land)
do. So it is sensible to set some limit on the total allowed to live,
work and settle here.
Although the economic arguments Labour uses to justify large
scale immigration are fallacious that does not mean there are no
benefits. It is essential to analyse correctly the nature of the genuine
benefits that immigration can bring so that they can be maximised.
The Prime Minister’s belief that we have labour shortages that
only immigrant labour can fill is bad economics and bad policy. In
general it is best to encourage domestic workers to acquire the
relevant skills by letting pay adjust until the incentive to acquire
the skill is adequate. But there are some circumstances and certain
types of skill which it is sensible to recruit from overseas, for
! Company specific skills or experience. International companies
may want to bring in, with a minimum of inconvenience,
employees with company specific skills or experience. For
example, a company setting up, expanding or changing its
operations in Britain may want to bring over staff who are
familiar with the procedures used by that company elsewhere.
By definition, such experience cannot be hired in the market
place. Invariably such employees return home.
TOO MUCH OF A GOOD THING?
! Temporary shortages may need to be filled from abroad when
it will take time for sufficient domestic workers to acquire the
necessary qualifications or experience. However, as
emphasised earlier, there is a danger that a temporary
shortage will become permanent if migrant labour is allowed
to depress the differentials necessary to persuade resident
workers to acquire that skill.
! Star performers. In some businesses success depends on having
the top individuals in the world in your team. Premier league
football is an obvious example where clubs need to be able to
recruit the star performers world wide. The same may be true
in certain aspects of fields such as finance, law and medicine. By
definition, the number of people involved under this heading
will be limited but their economic impact may be significant.
! Entrepreneurs. People intending to invest and set up new
businesses should be welcomed to Britain because they create
additional or more rewarding jobs for existing residents. It used
to be a requirement that potential businesses should employ
people in addition to the entrepreneur – i.e. that he or she
could not be self-employed or a sole trader. Unfortunately, the
accession treaties with Bulgaria and Romania and the
association agreement with Turkey allow business people to
enter without this condition. In addition, people who come here
for other purposes can switch to being self-employed sole
traders. The Sutton inquiry discovered that “a typical case could
be a Romanian student coming to the end of their course of
study in this country and planning to set up in business as a
cleaner.” Many thousands of similar applications were granted.
Unfortunately, these treaties can only be altered by consent.
That should be sought. In future EU treaties, only
entrepreneurs intending to establish businesses which will add
to domestic employment should be allowed entry. Meanwhile,
existing terms should be enforced strictly.
THE TRUE ECONOMIC BENEFITS OF IMMIGRATION
! Economies of scale. Economists recognise that migration can
be beneficial where an industry experiences economies of scale
which cannot be met from the existing labour force. The City
of London is an example where potential economies of scale
and aggregation required skills and experience not all of
which could conceivably be filled entirely from the national
workforce. Few other industries where there are economies of
scale are so large relative to the total economy that they cannot
meet the vast majority of their needs from the local labour
HOUSING AND LAND
ASK THE PUBLIC WHY they believe that immigration should be
controlled and they often reply: “there is no room; we have a
housing shortage and not enough countryside left to build more.”
It is certainly true that England is one of the most densely
populated countries in the world. It has even more people per
square mile than Benelux, four times that of France, and 12 times
that of the US. The South East of England including London has
twice the population density of the Netherlands.
The current debate about housing targets, particularly in
southern England, has raised the profile of the housing issue. But
what part does immigration play in the pressure on building land?
To listen to the Government one would conclude that it is
irrelevant. The Deputy Prime Minister, John Prescott, has made
17 statements to Parliament about housing since 1997. He has
progressively raised the target for house building in England
between 2001 and 2021 from 3.0 million to 3.78 million. He has
frequently emphasised the disparities between North and South,
implying that internal migration is the main factor affecting
demand for homes. Not once has he mentioned the impact of
immigration from abroad.
His Housing Minister emphasised a different factor:
Much of the need for new homes comes from increased housing need
within the region. People are living longer, more people are living
alone and young people leave home earlier. Approximately 60% of the
homes proposed by EERA are to meet this household formation from
HOUSING AND LAND
the East of England’s current population. There are also pressures for
more housing in the East of England due to the general strength of
the economy and because the demand for housing continues to
outstrip supply, leading to rising house prices.33
Again no mention of international migration. What are the
facts? Why are such high housing targets being set and then
The trend towards fewer people per household is certainly a major
factor. Indeed, in recent decades it has been the major factor
accounting for the need for extra homes. It is the result of parents
having fewer children, young people leaving home earlier, parents
living longer after their children have left the nest, couples splitting
up, and elderly people living alone after their spouses have died. As
a result, the average number of people per household has steadily
declined from 2.67 in 1981 to 2.34 in 2001. That may sound a small
change but it means that, even if the population had remained static, the
number of households and therefore the number of dwellings they
required would have increased by 14% over 20 years. The trend
towards smaller households is projected to continue but at a
somewhat slower pace in future – to 2.15 in 2021 – requiring 9%
more dwellings over 20 years. The trend is almost bound to slow
further since household size cannot be less than one and single
person households are already a significant proportion of the total.
The need for extra houses to accommodate the same number of
people in smaller households is qualitatively different from building
extra homes for an expanding population. Smaller households, on
average, require smaller homes. More important, if the same number
of people occupy more dwellings they do not require more
infrastructure. They do not need any more schools, hospitals, shops
and so on. Nor do they use more water or create more waste. Nor
33 Letter from Nick Raynsford MP to Peter Lilley MP, 27 January 2005.
TOO MUCH OF A GOOD THING?
should their demand for transport, roads, gas or electricity increase
remotely in proportion to the number of households.
By contrast, building more homes to house a growing
population does require more infrastructure as well. That is true
even if the population grows in one part of the country simply
because of internal movement from elsewhere in the UK.
The North/South Drift
The Deputy Prime Minister’s statements to Parliament implied
that the growth in demand for housing in southern England is
largely the result of internal migration from the rest of the UK.
Most commentators take it for granted that the North/South flow
is the main reason for extra house building in the South East. In
fact it is the least important factor of all. Only 9% of the population
growth in the South of England in the 1990s came from a net
inflow of people from the rest of the UK. 34
Births less Deaths
A somewhat larger source of population growth is the excess of
births over deaths. The British birth rate is well below the
replacement rate. However, while the increase in life expectancy is
still working its way through there is still a modest excess of births
over deaths over the UK as a whole. That excess is heavily
concentrated in London.
Natural population growth [i.e. births minus deaths] in London
accounted for 70% of the total natural growth in the UK in 2001, even
though London was home to only 12% of the population.35
34 R Bate, R Best and A Holmans, On the move – The housing consequences of
migration, Joseph Rowntree Foundation, February 2000. Robert Holmans
and colleagues are accepted by the Government as the leading authorities
on housing demand.
35 National Statistics www.statistics.gov.uk/cci/nugget.asp?ID=384
HOUSING AND LAND
This is because London’s population is skewed heavily towards
those of childbearing age – largely the consequence of
immigration. It is not that those of immigrant origin have
substantially larger families than the rest of the population. Their
family size tends to converge on the national average. But most
immigrants tend to be young.
Estimated composition of population change in South and
Births minus deaths +183 +273 +456 44%
Net migration from rest of UK +61 +33 +94 9%
Migration from London +370 -370 – 0%
Net international migration* +137 +335 +472 46%
Other changes -16 +26 +10 1%
Total population change +735 +297 +1032 100%
Note: South includes East, South East, South West and London
Source: Bate, Best and Holmans, op. cit.
The largest cause of population growth, even in the period of the
1990s analysed by Holmans, was the net inflow of immigrants. As
the table above makes clear, London attracts a disproportionate
number of immigrants. In that period there was a net inflow from
abroad into London of 40,000 a year. A similar number of
Londoners moved out largely into the surrounding Home
Counties. Currently the numbers flowing into London from
abroad and out of London into neighbouring counties is probably
twice that of the 1990s.
The major impact of immigration on housing pressures in the
Home Counties is therefore indirect. This enables Ministers and
officials to deny that immigration plays a major direct role in the
TOO MUCH OF A GOOD THING?
housing pressures in neighbouring regions. That is mere word
play. London itself cannot conceivably provide additional housing
for both its existing population and a net inflow now approaching
100,000 a year.
Those who claim that immigration plays no part in the housing
crisis in southern England are reluctant to admit this fact. Their
immediate reaction36 is to allege that anyone who says the outflow
from London is the result of immigrants moving in is saying that
‘people are moving out of London because they cannot abide
living among immigrants’. That is nonsense. Those moving out
are Londoners of all ethnicities. As incomers buy, rent or are
allocated houses that would otherwise have been occupied by
Londoners (of all races) prices are driven up. So Londoners look
further a field. This in turn drives up house prices in the Home
Counties and beyond.
Holmans and his colleagues were in no doubt about the
importance of net immigration:
The starting point of an assessment of what might be done to reduce
the pressure of… housing demand and need in the south of England
… is the rapid growth of the total national population … Without a
large fall in net international migration, the situation in the 1990s …
will run on into the future.
Rather than there being ‘a large fall in net international
migration’, the net inflow has doubled since the 1990s.
Until recently, Government housing targets were based on 1996
population projections that assumed a net inflow of 67,000 people
annually for the whole UK. More up to date population projections
assume a net inflow of 130,000. This is double the old figure though
still lower than the average recorded legal net immigration of
157,000 over the last six years. As a result, the latest official
projections show Britain’s population growing by 6.1 million people
36 See for example, St Albans Observer, 13 May 2004.
HOUSING AND LAND
by 2031 and that 5.2 million of this (84%) is due to the projected
level of net immigration (130,000 p.a.).37
In the light of this projection a Minister, Lord Rooker, has
finally admitted that about one third of the projected number of
new households over the next 20 years will be due to net
immigration into this country.
It is estimated that, in the 2002-based interim household projections
for England, about 59,000 additional households per year are
attributable to net international migration out of a total of 189,000
additional households per year between 2001 and 2021.38
This is a highly significant figure. The Government has set a
target of building at least 60% of new homes on brownfield sites
which means that up to 40% of homes will have to be built on
greenfield sites. But for the third of new households resulting
from net migration, the need to build on green fields, let alone
Green Belt, would be much diminished.
That is particularly true for southern England. Immigration is
overwhelmingly concentrated in London resulting in an outflow to
southern England. Ministers have refused to give a full breakdown
of projected household formation on a regional basis. However,
figures they have given39 indicate that nearly half of all new
households projected in southern England over the next 20 years
will be due to net immigration from abroad.
37 Government Actuary’s Department, 30 September 2004.
38 House of Lords, 8 December 2004.
39 Letter from the Minister for Housing and Planning at the ODPM, Keith
Hill MP, to Peter Lilley MP, 4 October 2004.
FOR THE ECONOMY, immigration acts as a lubricant, not a fuel.
Without lubrication, a car will suffer severe damage. But once it
has enough, adding more does not make it go better – indeed it
may cause problems. Likewise, stopping all immigration would
damage the economy. But beyond a certain point more
immigration will not make it grow better.
Unfortunately, the Government mistakenly believes that
immigration is a fuel which makes the economy grow faster and
has duly put its foot on the accelerator. If it believes, as its rhetoric
implies, that the economic benefits of immigration are
proportionate to the number of immigrants, it should remove
openly (rather than by stealth) the remaining controls and
confront the issues for housing, land use and pay relativities.
Alternatively it should spell out any non-economic reasons for
retaining restrictions on immigration.
Although the benefits of immigration are not proportionate to
the number of immigrants, as the Government appears to believe,
the costs – particularly pressure on housing and land – are.
The Conservative proposal: the right direction, but not far
The Conservative proposal to set an Australian style annual limit is
sensible. However, no indication has been given of what that
target might be.
Current inflows are huge. There is therefore ample scope for
reducing the net inflow whilst still allowing a high level of gross
immigration. In 2003, the estimated number of people (including
returning Britons) entering to stay for a year of more was 513,000
whereas some 362,000 people left to live abroad for a year or
more, giving a net inflow of 151,000. Even if the aim were to
secure a balance – no net inflow – to end the pressure imposed by
net immigration on housing and land, the ceiling on immigration
could still be set at nearly 360,000 people a year in all categories.
That leaves plenty of room to accommodate our humanitarian
obligations given that the peak number of asylum seekers granted
asylum or leave to remain was 42,000.
There is likely to be a net inflow from the new EU member
states until their living standards begin to catch up with ours. As
the Government surrendered the right to restrict this movement,
we must accept it. Meanwhile the aim should be to bring non-EU
migration into balance, with particular restraint on forms of
immigration which tend to result in permanent settlement.
But Conservative policy should go further than promising a
limit in two respects.
First, it should spell out the categories of entrant most likely to
make a genuine economic contribution – notably, but not
exclusively, the categories explained in Chapter 5: employees with
company specific skills, star performers, entrepreneurs, investors,
workers to meet temporary shortages and where an industry has
economies of scale which it is constrained from achieving because of
the domestic pool of talent is too small. The visa scheme can then be
tailored to restrict economic immigration to those categories.
Second, it should harness market forces to limit demand and to
ensure that the benefits are secured by the community as a whole.
Relying purely on bureaucratic procedures to ration immigration is
bound to create distortions in the labour market. Employers will
continue to try to exploit the system simply to bring in cheap
labour. That undercuts the pay of domestic workers in those
occupations and reduces the incentive for the resident population to
acquire the imported skills. Many employers like to import workers
TOO MUCH OF A GOOD THING?
on work permits, not just because they are cheaper, but because
they are more beholden to the employer. They are in effect
indentured labour. Most workers on a work permit assume they
must stay with their sponsoring employer until they have been here
four years and can apply for indefinite leave to remain. (Moving to
another employer who is willing to reapply for a work permit is
possible but not easy). Tying workers to an individual employer
risks injustice to the employee. It is also economically damaging
since the employer has less incentive to motivate the employee and
the employee is precluded from moving to another job where he or
she may be more productive.
These problems can all be diminished if employers are charged
a fee representing not just the administrative cost of the work
permit system but also the other social costs that expanding the
population involves as well as the economic benefit of being able
to import workers from abroad.40 At present the maximum fee for
an employer applying for a work permit is ?153. This covers only
the administrative costs. It compares with fees of ?500 to ?1,000 in
Australia and the US. British agencies charge an additional ?1,500
simply for helping companies obtain these permits. This is an
indication of how valuable foreign workers can be to employers.
American studies show that even though US employers, like those
in the UK, are supposed to pay the prevailing wage to employees
brought in on a skilled workers visa, in practice they pay on
average 15% to 30% less than resident workers with identical
experience and job description.41 So the value of work permits is
substantial. It would be far more effective to charge an annual fee
40 E. Weinstein, “Migration for the benefit of all: towards a new paradigm
for migrant labor”, UNILO Paper 43.
41 Dr Norman Matloff in evidence to Congress updated in “Debunking the
Myth of a Desperate Software Labour Shortage” in 2002 cites seven
studies reporting immigrants with H-1B visas earning between 15% and
33% below comparable Americans – see www.heather.cs.ucdavis.edu/
of at least a four figure sum for the privilege of employing a work
This would make employers think twice about bringing in
foreign workers just because they are cheaper than British
workers. It would stop domestic pay rates being artificially
depressed. It would maintain the differentials necessary to give
domestic residents the incentive to acquire scarce skills. And it
would make it easier to stop employers treating migrant workers
as indentured labour. They could be permitted to move to
another employer if he (or they) were prepared to pay the annual
fee for the remaining visa period. Work permit holders would
then be more likely to be employed in a more productive way.
Martin Wolf of The Financial Times has suggested that work
permits should be sold to employers by auction. Presumably the
Government would set an annual quota of work permits it
proposes to issue for the year and then hold monthly auctions. To
be eligible to bid, employers would still need to satisfy the criteria
set by the Government as would the candidate they wished to
Wolf outlined the following benefits of an auction:
! it would reduce the need for bureaucratic rationing
! the market would allocate the scarce resource of access to the
UK labour market more efficiently than a bureaucracy can;
! businesses that genuinely need a specific applicant will be
prepared to pay for the privilege of bringing them here;
! those who merely wanted access to cheap or indentured
labour are likely to be outbid by firms with a compelling
business case or at least will find that much of the benefit is
siphoned off to the benefit of the public purse;
42 See M Wolf, The Financial Times, 25 February 2005.
TOO MUCH OF A GOOD THING?
! those who put the highest value on the right to work here are
likely to be those who will gain most from it and therefore to
be the most economically productive;
! the general public has a right to benefit from the value, which
they collectively own, of access to a high productivity
However, it would be wise to be cautious before adopting such
a proposal. In theory, employers wishing to bring in cheap labour
might outbid those needing to bring in staff with company specific
skills, for example, to establish a new venture. Yet the latter would
bring more benefit to the British economy than the former. It
might nevertheless be useful to auction some permits on a trial
basis to help establish the true market value of access to the UK
Whether the fee is set administratively or by auction it could in
aggregate raise substantial sums. At present work permits are
being issued at the rate of over 120,000 a year for up to four years
each. Even at ?2,000 per annum those are worth well over ?1
billion. At present that value accrues primarily to employers. Of
course, a tight limit on the number of work permits issued would
reduce the yield unless the reduction in numbers is offset by
increased scarcity raising their market value.
In fairness, a portion of these revenues could be used to
compensate poorer countries for the cost of training the graduate
staff whom we poach.
A SELECTION OF RECENT PUBLICATIONS
WELCOME TO THE ASYLUM ?10.00
The Government has lost control of immigration. Britain is now seen
as the softest touch in Europe. Government failure corrupts and
criminalises. And immigrants, who are dependent on criminal gangs
to claim asylum, are the first to suffer. Can the next generation of
refugees survive all the indignities of immigration – the gangs, the
slave labour, enforced prostitution, a sink estate in Glasgow – and go
on, as their predecessors did, to dazzle us with their achievements?
As Harriet Sergeant shows in her pamphlet for the Centre for Policy Studies, the
shambolic way in which the Western world, and Britain in particular, is dealing
with illegal immigration is encouraging criminal racketeering, prostitution and a
black market in jobs – Philip Johnston, The Daily Telegraph
NO SYSTEM TO ABUSE ?7.50
The NHS is being exploited. It is being taken advantage of by
people from other countries who have no entitlement to our
system of free health care. This is not the fault of the individuals
concerned, but a systemic failure at the heart of the National
Health Service. The problems are threefold. Firstly, the system is
open to abuse. To the determined health tourist, it is relatively
easy to get free health care. Secondly, the number of people
arriving in this country who have a legal entitlement to free health
care is also growing, and putting increasing pressure on the NHS.
Thirdly, the great majority of immigrants – whether legal or not –
are coming from countries where diseases such as TB, Hepatitis B
and HIV are all endemic. In the absence of any system of control,
the Department of Health is unfair on NHS staff, on genuine
asylum seekers and on the ordinary citizen.
“Harriet Sergeant’s explosive report on the abuse of the NHS by asylum
seekers and illegal immigrants suggests Britain has taken
leave of its senses” – Daily Mail
A SELECTION OF RECENT PUBLICATIONS
PEOPLE, NOT BUDGETS: valuing disabled children ?7.50
Florence Heath and Richard Smith
Social services and the NHS are failing the 49,000 severely disabled
children in this country. Care is fragmented, seemingly arbitrary and
often inadequate. It is time to give disabled families more control
over their own lives. To this end, the money spent by social services
on ‘assessment and commissioning’ tasks (over a quarter of the total
spent by social services on disabled children) should be paid directly
to disabled families. In addition, the supply of respite and residential
care homes should also be liberated by modernising the regulatory
approach (through the adoption of the ISO 9000 quality control
system) and by providing a more attractive fiscal regime. These
proposals are consistent with the broad direction of public sector
reform: they are based on giving greater choice to disabled families
and greater freedom to suppliers of care to respond to that choice.
“An important and eloquent pamphlet” – Minette Marrin in The Sunday Times
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