David Cameron delivers a speech on welfare in Hove, East Sussex, on February 17, 2015. Photograph: Getty Images.
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What the Tories can't say about today's immigration figures: political failure is economic success

 The Conservatives' failure to meet their pledge to reduce net migration to "tens of thousands" is one of the best things to have happened to the economy. 

One might have thought that the news on immigration couldn't get any worse for the Conservatives - but it just has. The figures released by the ONS this morning show that net migration rose to 298,000 in the year to September 2014, an increase of 88,000 compared to the previous 12 months. In other words, the level is now nearly three times the Tories' target of "tens of thousands" (of which David Cameron declared in 2010: "If we don't deliver our side of the bargain, kick us out in five years"). Worse, net migration is now higher than when the government took office, meaning that the Conservatives can't even boast that the trend is downwards. 

What they also can't say is that while an extraordinary political failure, the figures are an economic success. That the UK is the destination of choice for so many migrants (immigration rose to 624,000, while emigration was static at 327,000) both reflects and reinforces its status as a centre of prosperity. Since immigrants are younger and more economically active than the population in general they stimulate growth and increase employment (currently at a record high; proof, if needed, that migrants don't "take" jobs, they create them). But the Tories' "tens of thousands" target, which is premised on immigration being a negative force, means they are incapable of telling this positive tale. After political humiliation, they have largely stopped talking about the subject on the correct grounds that doing so only aids Ukip (the only party promising to regain control of the UK's borders through EU withdrawal). 

Labour will assail Cameron today for breaking his pledge to the electorate but this is not a simple political victory for the opposition. The rejoinder to their criticism of the Tories' failure is "what would you do?" Ed Miliband has long emphasised his aim of reducing low-skilled immigration to the UK (partly through more apprenticeships for British citizens) but has remained ambiguous on the question of what level of migration is ultimately desirable. Like the Tories, Labour is torn between the awareness that more immigration is an economic positive but that it remains a political negative. The danger for Miliband, as he tries to simultaneously woo pro-migration Greens and anti-migration Ukippers, is that his balancing act struggles to convince anyone. 

George Eaton is political editor of the New Statesman.

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There are risks as well as opportunities ahead for George Osborne

The Chancellor is in a tight spot, but expect his political wiles to be on full display, says Spencer Thompson.

The most significant fiscal event of this parliament will take place in late November, when the Chancellor presents the spending review setting out his plans for funding government departments over the next four years. This week, across Whitehall and up and down the country, ministers, lobbyists, advocacy groups and town halls are busily finalising their pitches ahead of Friday’s deadline for submissions to the review

It is difficult to overstate the challenge faced by the Chancellor. Under his current spending forecast and planned protections for the NHS, schools, defence and international aid spending, other areas of government will need to be cut by 16.4 per cent in real terms between 2015/16 and 2019/20. Focusing on services spending outside of protected areas, the cumulative cut will reach 26.5 per cent. Despite this, the Chancellor nonetheless has significant room for manoeuvre.

Firstly, under plans unveiled at the budget, the government intends to expand capital investment significantly in both 2018-19 and 2019-20. Over the last parliament capital spending was cut by around a quarter, but between now and 2019-20 it will grow by almost 20 per cent. How this growth in spending should be distributed across departments and between investment projects should be at the heart of the spending review.

In a paper published on Monday, we highlighted three urgent priorities for any additional capital spending: re-balancing transport investment away from London and the greater South East towards the North of England, a £2bn per year boost in public spending on housebuilding, and £1bn of extra investment per year in energy efficiency improvements for fuel-poor households.

Secondly, despite the tough fiscal environment, the Chancellor has the scope to fund a range of areas of policy in dire need of extra resources. These include social care, where rising costs at a time of falling resources are set to generate a severe funding squeeze for local government, 16-19 education, where many 6th-form and FE colleges are at risk of great financial difficulty, and funding a guaranteed paid job for young people in long-term unemployment. Our paper suggests a range of options for how to put these and other areas of policy on a sustainable funding footing.

There is a political angle to this as well. The Conservatives are keen to be seen as a party representing all working people, as shown by the "blue-collar Conservatism" agenda. In addition, the spending review offers the Conservative party the opportunity to return to ‘Compassionate Conservatism’ as a going concern.  If they are truly serious about being seen in this light, this should be reflected in a social investment agenda pursued through the spending review that promotes employment and secures a future for public services outside the NHS and schools.

This will come at a cost, however. In our paper, we show how the Chancellor could fund our package of proposed policies without increasing the pain on other areas of government, while remaining consistent with the government’s fiscal rules that require him to reach a surplus on overall government borrowing by 2019-20. We do not agree that the Government needs to reach a surplus in that year. But given this target wont be scrapped ahead of the spending review, we suggest that he should target a slightly lower surplus in 2019/20 of £7bn, with the deficit the year before being £2bn higher. In addition, we propose several revenue-raising measures in line with recent government tax policy that together would unlock an additional £5bn of resource for government departments.

Make no mistake, this will be a tough settlement for government departments and for public services. But the Chancellor does have a range of options open as he plans the upcoming spending review. Expect his reputation as a highly political Chancellor to be on full display.

Spencer Thompson is economic analyst at IPPR