Immigration: a supply-side measure to boost growth the Tories fiercely oppose

by Stephen Tall on July 18, 2012

I suggested at the weekend that there was one over-riding policy area where the Lib Dems and Conservatives agree more often that we disagree — the economy, and the need for deficit reduction — and that we should focus our combined energies on ‘reforming capitalism’. But of course there are also fundamental disagreements between the two Coalition parties on how best we can boost growth.

The Tories would prioritise implementing in full the ‘Beecroft proposals’ — including no-fault dismissal of employees — to make it easier for businesses to hire and fire workers at will, a supply-side reform they argue would create jobs as firms take the risk hiring new staff knowing they can easily downsize if necessary. Vince Cable rejected the proposal, noting “this has very rarely been raised with me as a barrier to growth”, and also pointing out the potential for increased job insecurity to stifle much-needed consumer confidence.

You want supply-side growth? Then let’s welcome immigration

To some Tories, therefore, Lib Dem opposition to Beecroft marks the party out as ‘roadblocks to growth’. Yet there is a supply-side reform they oppose, and one with a great deal more evidence to back up its likelihood to boost growth: immigration. In a free market economy, there should be as few controls on the movement of labour as are practically possible to ensure the most efficient distribution of the workforce to those areas where there’s demand. Yet the Tory manifesto committed to state-imposed controls of the labour market:

… immigration today is too high and needs to be reduced. We do not need to attract people to do jobs that could be carried out by British citizens, given the right training and support. So we will take steps to take net migration back to the levels of the 1990s – tens of thousands a year, not hundreds of thousands.

A variant of this protectionist policy — diluted though regrettably not deleted by the Lib Dems — made it into the Coalition Agreement:

We will introduce an annual limit on the number of non-EU economic migrants admitted into the UK to live and work. We will consider jointly the mechanism for implementing the limit.

The publication of the 2011 census data showing a 7% increase in the population of the UK has triggered a lot of right-wing frothing, with this Telegraph editorial a case in point: ‘There could hardly be more damning testimony to the malign impact of the last government’s reckless policy of encouraging unfettered immigration.’

Now I have my issues with the last Labour government and their abject failure to manage the economy, but one of the most liberal, positive and growth-boosting policies they pursued was opening up the British labour market to the EU accession states. Not only did incoming migrant workers plug gaps in our own labour market, benefiting British businesses and helping offset the negative impact of the UK’s ageing population, but migrant entrepreneurs also created thousands of jobs. It should be a policy of which Labour is proud; sadly it’s one Ed Miliband prefers to disown as a mistake under the influence of Jon Cruddas.

Immigration = Higher Growth. Simples

Last week, the Office for Budget Responsibility published its Fiscal Sustainability Report, an independent, annual analysis of the sustainability of the public finances. Their message could not have been clearer — if you want increased growth, you should welcome immigration. This table (p.63) shows why:

The OBR’s figures shows high migration provides the UK with a higher rate of growth than zero migration, with the growth ‘premium’ of high migration increasing over the decades to reflect the positive impact of an increased supply of workers offsetting the ‘drag’ of an ageing population requiring increasing public spending on health, long-term care, and pensions. As the Independent highlighted:

… if net inward migration were cut to zero over the next five decades, the scale of the public austerity facing Britain would need to be three times larger, at £46bn. If all migration ended tomorrow, the UK’s average annual growth rate would fall to 2 per cent and the national debt would spiral to 120 per cent of GDP by the middle of the century.

But the Tories’ immigration policies are not only a major factor threatening the UK’s long-term prosperity — they are also harming the British economy in the here and now, with the clampdown on student visas (opposed by Vince Cable and David Willetts) costing a reported £2.6bn a year according to the home office.

There’s not much the UK can afford right now, but I know what the last thing we can afford is: either Tory or Labour protectionism.

* Stephen Tall is Co-Editor of Liberal Democrat Voice, a Research Associate for the liberal think-tank CentreForum, and also writes at his own site, The Collected Stephen Tall.