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Cable's warning to the Tories: lower immigration will harm deficit reduction

The Business Secretary tries to appeal to fiscal conservatives by highlighting that reduced EU migration will lead to "a much slower reduction in the public debt".

The Business Secretary tries to appeal to fiscal conservatives.
Business Secretary Vince Cable speaks at the Liberal Democrat conference in Glasgow last year. Photograph: Getty Images.

With the exception of the EU, there is no issue that the coalition parties are more publicly divided over than Europe. While the Tories have pledged to reduce net migration to "tens of thousands" a year by the end of the parliament (it rose from 154,000 to 212,000 in the most recent period), this is not, as the Lib Dems have emphasised, a government target. As a result, ministers from the two parties are able to adopt diametrically opposed positions on the subject. 

In his first speech as immigration minister, Conservative James Brokenshire will declare at Demos today that "For too long, the benefits of immigration went to employers who wanted an easy supply of cheap labour, or to the wealthy metropolitan elite who wanted cheap tradesmen and services – but not to the ordinary, hard-working people of this country". This despite the supressed government report revealed by Newsnight showing that the number of UK workers unemployed as a consequence of immigration is well below the figure used by ministers of 23 for every 100 additional migrants. In a rebuke to Cable, Brokenshire will add: "In the past year net migration from the EU has doubled, and this figure is – frankly – just too high. Some have tried to claim that this rapid increase is somehow 'good' for the country. Well, just like the Home Secretary, I disagree." He will also claim: "Uncontrolled mass immigration can force wages down and house prices up and put pressure on social cohesion and public services. And let me be clear – it can also cause displacement in the labour market."

But as luck would have it, Cable will deliver his own speech on the subject at Mansion House tonight, giving him the chance to deliver a rapid-fire rebuttal. It's the kind of stage-managed row that both parties believe will benefit them. The Tories get to remind a sceptical public that they are pushing for an even tougher line on immigration, while the Lib Dems get to remind their liberal target audience (the 25 per cent of the electorate who would consider voting for them) that they are fighting back against Conservative dogma. 

Cable will say: "We just have to stop treating people coming to work here as if they are a problem. We need to kill off all the scare stories" and will rightly warn that "Bear down on immigrants, and you lose some of the most dynamic, innovative and imaginative workers in your economy". It is certainly odd that those who are so supportive of the free movement of capital are so opposed to the free movement of labour, but perhaps a more promising line of argument is his warning that reduced immigration will hinder deficit reduction. He will point out that a "marked reduction" in newcomers from the EU will lead to "an increase in the budget deficit and a much slower reduction in the public debt". 

Since immigrants are net contributors to the economy, paying far more in taxes than they receive in benefits and service (they are younger and more economically active than the population in general), their removal increases fiscal pressures on the government. As the Office for Budget Responsibility has shown, we will need more, not fewer migrants, if we are to cope with the challenge of an ageing population and the resultant rise in the national debt. Should Britain maintain net migration of around 140,000 a year (a level significantly higher than the government's target of 'tens of thousands'), debt will rise to 99 per cent of GDP by 2062-63. But should it reduce net migration to zero, debt will surge to 174 per cent. As the OBR concluded, "[There is] clear evidence that, since migrants tend to be more concentrated in the working-age group relatively to the rest of the population, immigration has a positive effect on the public sector’s debt…higher levels of net inward migration are projected to reduce public sector net debt as a share of GDP over the long term relative to the levels it would otherwise reach."

One might expect David Cameron and other fiscal conservatives to act on such advice but, as so often in recent times, the PM is determined to put politics before policy. The irony is that by exacerbating, rather than easing, public fears over immigration (thus handing a propaganda victory to UKIP), he isn't even succeeding in these debased terms. 

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