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Plan B: Lift the cap on immigration

Dear Chancellor,

Your short-term priority should be to reverse what the Financial Times's Martin Wolf has accurately described as "fiscal policy set on kamikaze tightening".

There is, however, a simple way the government could boost growth not just in the short term but over the medium to long term, too, while reducing the deficit. That is to reverse the damaging restrictions the government has introduced on skilled immigrants and on students from outside the European Union.

You don't need me to tell you that these restrictions are bad for growth. The Treasury's analysis implies that the cap on skilled migrants will knock between £3bn and £4bn off the UK's GDP by the end of this parliament, while the Home Office's impact assessment of the curbs on students suggests that they will cost us between £1.5bn and £3.5bn over the course of the parliament. In both cases, there will be knock-on effects to tax revenues.

The damaging impact of these policies is hardly surprising. Skilled migrants, by definition, are significantly better qualified and more productive, on average, than natives, so they boost not just overall GDP but also GDP per capita, giving additional benefits to the rest of the economy. And the UK needs to increase exports in sectors where we have a natural comparative advantage - such as higher education - instead of deliberately reducing them.

In my view, even these figures, which are based on short-term impacts, underestimate the potential for long-term damage. In your speech to the Conservative party conference, you praised "the two brilliant scientists I met this morning who have just been awarded the Nobel prize for physics". What you did not mention was that both are of Russian origin and that one came here in 2001 as a postdoctoral student - precisely the sort of immigrant that would be excluded by the new cap.

As Imran Khan, director of the Campaign for Science and Engineering in the UK, puts it: "Why should the UK have a limit on the number of 'exceptionally talented' people we can welcome? If we're to be one of the best places in the world for research, we need to attract as much exceptional talent as we can. It's not rocket science."

And it is going to get worse. The latest proposal is that most skilled migrants should be kicked out after five years even if they are still in skilled employment. This will ensure that the most talented and valuable migrants with established careers don't come here in the first place. At the same time, younger migrants who do come here and make a success of it will then be asked to leave.

You know these arguments well, as do the Treasury and the Department for Business, Innovation and Skills, yet you remain constrained by your party's foolish pledge to reduce net immigration. This is a question of priorities. In September, you said: "I am determined to put growth first and take the political risks necessary to make it happen." If you and the coalition government are serious about this, you know where to start.

Jonathan Portes is director of the National Institute of Economic and Social Research. Previously he was chief economist at the Cabinet Office, where he advised the Prime Minister and the Cabinet Secretary on economic and financial matters

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Jonathan Portes is senior fellow The UK in a Changing Europe and Professor of Economics and Public Policy, King’s College London.

This article first appeared in the 17 October 2011 issue of the New Statesman, This is plan B