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13 October 2016

How a weaker economy will reduce immigration

Lower wages are likely to deter newcomers more successfully than any government policy. 

By George Eaton

As Home Secretary, Theresa May fought a losing battle to reduce immigration. The government had vowed to limit net migration to “tens of thousands” a year. But the eurozone crisis and Treasury resistance meant it never fell lower than 177,000, reaching a new peak of 333,000 in 2015.

After May entered No.10, some hoped that the “tens of thousands” target would be put out of its misery. Her “tough” reputation, an MP told me, could enable a “Nixon goes to China” moment. The new home secretary, Amber Rudd, appeared to agree, stating only that migration should be reduced to “sustainable levels”.  She was seconded by Boris Johnson who said his colleague was “entirely right to be careful about committing to numbers” because the government did “not want to be in a position where we are disappointing people again”. Yet rather than retreating, May doubled-down. “In her view a sustainable level does mean tens of thousands,” a spokeswoman told me.

May intends to further tighten restrictions on foreign students (whom Rudd unsuccessfully sought to remove from the target) and non-EU migrants. But by far the greatest cause of reduced numbers could be a weaker economy.

Jonathan Portes of the the National Institute of Economic and Social Research has predicted that EU immigration could fall to 60-80,000 a year, levels last seen in 2009-12. The pound’s depreciation, which makes British wages less competitive, reduced vacancies and increasing anti-foreigner sentiment are likely to be the main deterrents. 

As Portes noted: “We know from previous research that there is some exchange rate impact. People coming from eastern europe take into account value of wages in euros. Since we’ve devalued the pound 15-20 per cent against the zloty you might well expect to see some impact on future migration flows as Poles and others realise the pound isn’t what it used to be.” 

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As well as reflecting weaker growth, reduced immigration is likely to reinforce it. Migrants pay far more in tax than they claim in benefits, with a net contribution of £7bn a year. An OBR study found that with zero net migration, public sector debt would rise to 145 per cent of GDP by 2062-63, while with high net migration it would fall to 73 per cent.

In recent history, there has only been one reliable means of reducing net migration: a recession. Newcomers from the EU halved after the 2008 crash. Should the UK suffer the downturn that historic trends predict, it will need immigrants more than ever. Voters may yet only miss them when they’re gone.