Rt Hon Lord Lilley

    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
    2005
    THE AUTHOR
    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
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    values its independence and does not carry on activities with the intention of
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    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
    CONTENTS
    Preface
    Summary
    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

    i
    PREFACE
    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
    TOO MUCH OF A GOOD THING?
    ii
    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
    FOREWORD
    iii
    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
    immigration.
    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?
    iv
    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
    they work;
    ! and a measured approach to public concerns.
    This pamphlet is a modest contribution to that task.
    Peter Lilley
    March 2005
    v
    SUMMARY
    ! 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
    contribution.
    ! 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
    false.
    ! 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.
    TOO MUCH OF A GOOD THING?
    vi
    ! 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.
    CHAPTER ONE
    1
    THE NUMBERS
    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
    migration variant.”
    So it is useful to start by giving a few facts.
    Sources
    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
    343,000. www.mori.com/polls/2003/migration.shtml.
    TOO MUCH OF A GOOD THING?
    2
    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
    Totals
    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
    236,000.
    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.
    THE NUMBERS
    3
    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
    countries.
    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
    Non-EU Citizens
    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
    Forecasts
    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?
    4
    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.
    Illegal immigration
    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.
    CHAPTER TWO
    5
    GOVERNMENT POLICY
    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.
    They wrote:
    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?
    6
    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
    February 2005.
    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.
    GOVERNMENT POLICY
    7
    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
    previously required;
    ! 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
    overwhelmed;
    ! 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
    enlarged EU;
    TOO MUCH OF A GOOD THING?
    8
    ! 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
    December 2004.
    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
    GOVERNMENT POLICY
    9
    and increase” the current unprecedented level of lawful
    immigration.
    ! “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
    TOO MUCH OF A GOOD THING?
    10
    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
    monitoring.

    9 Congressional testimony of Dr Michael S Teitelbaum, 27 September 1989.
    CHAPTER THREE
    11
    DOES IMMIGRATION ENRICH
    US ECONOMICALLY?
    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
    Development Prospects.
    TOO MUCH OF A GOOD THING?
    12
    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
    migrant labour.13
    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
    annually.15
    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.
    Growth
    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?
    13
    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?
    14
    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.
    Shortages
    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
    67.
    DOES IMMIGRATION ENRICH US?
    15
    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?
    16
    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?
    17
    provide. So immigrants do not take away jobs from the
    resident population. Nor do they reduce the total number of
    job vacancies.
    ! 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?
    18
    workers? Second, would it be better if relative pay were allowed to
    adjust to bring domestic demand and supply of that skill into
    balance?
    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
    labor market.23
    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?
    19
    million or more discouraged workers24 – who might be attracted
    back into employment if pay was not depressed by an influx of low
    cost workers.
    Professor Richard Layard – who advises the Government on
    labour markets and devised their New Deal policy, wrote to the
    Financial Times:
    ‘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?
    20
    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?
    21
    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
    67.
    TOO MUCH OF A GOOD THING?
    22
    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
    worst educated.27
    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
    resident workers.
    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
    resident recruits.
    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?
    23
    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
    larger population.
    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?
    24
    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
    taxpayers.
    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?
    25
    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?
    26
    annually”.31 As the Government’s pension Tsar – Adair Turner –
    commented:32
    You only have to look at these figures to realise that this scale of
    immigration is undesirable and impossible. Fortunately, it is also
    unnecessary.
    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.
    CHAPTER FOUR
    27
    THE TRUE ECONOMIC BENEFITS
    OF IMMIGRATION
    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
    example:
    ! 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?
    28
    ! 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
    29
    ! 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
    force.
    CHAPTER FIVE
    30
    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
    31
    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
    repeatedly increased?
    Smaller Households
    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?
    32
    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
    33
    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
    London 1991-98
    (thousands) South
    exc.
    London
    London South
    inc.
    London
    %
    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
    * Residual
    Source: Bate, Best and Holmans, op. cit.
    International Migration
    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?
    34
    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
    35
    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.
    CHAPTER SIX
    36
    RECOMMENDATIONS
    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
    enough
    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
    RECOMMENDATIONS
    37
    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?
    38
    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/
    itaa.real.html
    RECOMMENDATIONS
    39
    of at least a four figure sum for the privilege of employing a work
    permit holder.
    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
    bring in.42
    Wolf outlined the following benefits of an auction:
    ! it would reduce the need for bureaucratic rationing
    procedures;
    ! 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?
    40
    ! 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
    economy.
    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
    market.
    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
    Harriet Sergeant
    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
    Harriet Sergeant
    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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