In 2010, when I was chief economist in the Cabinet Office, I wrote a note to David Cameron suggesting that his manifesto pledge to reduce net migration to the “tens of thousands” was not compatible with sustained economic growth. He didn’t want to listen. But after a few years, during which Theresa May did her best to prevent students and skilled workers from outside the EU (as well as those who had the poor judgement to marry a British citizen) moving here, with precisely the damaging results that I had predicted, the government quietly reversed course. Indeed, the new post-Brexit migration system is a lot more pro-growth than many of us had expected, to the point where May’s adviser Nick Timothy describes it as “obscenely generous”.
So now that Suella Braverman, the Home Secretary, has declared she is reinstating Cameron’s target, she is explicitly signing up to the “anti-growth coalition” that Liz Truss claims threatens her objectives of higher growth combined with lower taxes and better public services. This contradiction within government isn’t just a long-term, theoretical problem, but an immediate one.
When the Office for Budget Responsibility (OBR) produces its delayed forecasts for growth and the public finances – which will now, ironically, get far more attention from the media and the financial markets than they would have if the government hadn’t blocked them last week – it isn’t going to take account of supply-side measures such as planning reform and infrastructure spending. Not because it doesn’t think such policies affect growth, but because successive Conservative chancellors have repeatedly promised almost exactly the same things and failed to deliver.
But the OBR will, as it has in the past, include the impact of immigration policy changes. After Brexit, it downgraded its forecasts. Now, the organisation has a dilemma: it can listen to Truss and Kwarteng, and upgrade them again to reflect recent trends and in recognition of the government’s aspiration to liberalise further; or it can listen to Braverman’s restrictionism, and do the opposite. If the government’s new “immigration plan” does credibly reduce future immigration, it will make the Chancellor’s task that much harder.
That immigration is good for growth isn’t controversial. More people, more jobs, more output. But the impact on productivity, and hence wages, is more so. Alan Manning, the former chair of the government’s Migration Advisory Committee has set out what you might call the common-sense view – that high-skilled migration is likely to boost productivity, while low-skilled migration will do the opposite. Since most of the recent growth in migration has been among students and skilled workers, especially in health, this suggests that a tightening-up would be counterproductive.
Even, as has been trailed, restricting students’ ability to bring dependents would be a net negative: they are already required to have sufficient funds to support themselves during their stay here. So, either they don’t work but spend money, effectively boosting net exports and hence the economy at no cost to us; or they do work, in which case they are contributing directly to higher output and tax revenues.
But more broadly, there is some evidence, both theoretical and empirical, that a more liberal immigration system overall, even one that is not solely focused on high-skilled workers, may boost productivity – whether by freeing up skilled workers, or by simply making the economy more competitive, flexible and dynamic. The idea that reducing barriers to trade can increase growth and productivity is generally accepted; if Liz Truss genuinely wants “growth, growth, growth”, she’s going to have to convince people that the same applies to immigration. Starting with her own cabinet and party.
[See also: The Tories are trapped – what can they possibly do now?]
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