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Neil O’Brien: Challenges for the new Prime Minister

Written by Neil O’Brien

Immigration. But we should keep our promise to voters and reduce it. How hard will the new Prime Minister want to try?

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Immigration will be one of the hottest issues facing the new Prime Minister.

First, many Leave voters assumed Brexit would reduce immigration. But since the referendum it’s increased. And people are starting to notice.

Second, the small boats crisis highlights it. If the new Prime Minister doesn’t grip that, could be the spark for a new populist party.

Third, the Johnson government loosened the rules substantially. David Cameron’s goal to cut numbers was dropped. Boris Johnson liberalised non-EU migration, ending caps on work visas, lowering qualification requirements and removing the requirement to earn over £30,000 to qualify as a skilled migrant. People can now come for jobs paying £20,480 in various sectors, just above fulltime earnings on the National Living Wage. Johnson axed requirements to advertise jobs in the UK first, and dropped limits limiting students staying on. New stats this autumn will show us what effect this had.

Fourth, with no caps, the new system automatically becomes more liberal over time: earnings thresholds aren’t uprated with inflation. High inflation means more lower wage jobs are opened to the world, increasing immigration further. As Jonathan Portes notes: “Our immigration system for work and students is possibly the most ‘liberal’ of any advanced economy, with fully half of all jobs in the UK labour market open in principle to anyone from anywhere in the world”.

What should the new Prime Minister do?

The context

In the postwar years net migration was pretty flat.

But since 1997 there’s been unprecedented net migration to the UK, increasing the population sharply. England and Wales’ population rose just 1.2 million from 1971 to 1991, but 7.6 million over the last twenty years.

But net migration doesn’t tell the full story. The churn of people coming and going is what drives demographic change.

Between 1991 and 1997 about 210,000 people a year came, 120,000 left, so net immigration was about 90,000 a year.

Between 2015 and 2020 about 575,000 a year came, 250,000 left, so net immigration was about 320,000 a year.

This churn meant the proportion of UK residents born overseas increased from 7.5 per cent to 14.5 per cent since 2000. In Manchester and Birmingham it’s over a quarter. Thirty-seven per cent of Londoners were born overseas. Although we think of the USA as a “melting pot”, we now have a slightly higher proportion born overseas.

Since 1997 about 60 per cent of the increase in the population has been directly from net migration. Over the last three years it’s been three quarters, and accounts for 84 per cent of projected growth.

Migration is concentrated among younger people, and migrants to the UK have more children on average.

Obviously, many people from ethnic minorities were born here, and are 100 per cent British, but ethnic trends reflect recent migration. Thirty-five per cent of state school pupils in England, aren’t white British, up from about 20 per cent in 2007. Twenty per cent have a language other than English as their first language.

In Greater London three quarters are not white British and 45 per cent don’t have English as their first language. In Newham, 95% aren’t white British and two thirds don’t have English as a first language.

The policy

In 2010, David Cameron said:

“In the last decade, net immigration in some years has been sort of 200,000, implying a two million increase over a decade, which I think is too much. We would like to see net immigration in the tens of thousands rather than the hundreds of thousands.” The census revealed that between 2011 and 2021 net migration caused a two million increase in the population – exactly what Cameron warned against.

What went wrong?

After 1997 changes Labour made increased net migration from outside Europe. After 2004 net migration from new EU members picked up too.

After 2010 we capped work-related migration from outside Europe, introduced minimum skill levels and earnings thresholds, shut down bogus colleges, toughened sponsorship requirements.

Non-EU migration fell sharply. At 2013 Conservative conference we put up posters saying net migration was down by a third.

However, the Eurozone crisis sent EU migration up. And over time caps on non-EU migration were eroded away, driven by employer lobbying.

Since the referendum net EU migration has fallen. But we’ve loosened non-EU migration, so we’ve essentially just shifted from European to non-European migration.

Whether they concluding the impact is positive or negative, studies of the fiscal impact of immigration agree that the fiscal impact of European immigration is more positive (or less negative) than from the rest of the world. Migrants from richer countries pay more tax.

Yet as well as shifting from European to non-European migration, the balance within non-European migration appears to be shifting towards poorer countries: towards south Asia, and away from the USA, Canada, New Zealand and Australia.

Visa numbers from China have fallen back, but numbers from Nigeria have increased, particularly in the first quarter of this year.

Some people argue the numbers above represent not a failure, but a success. I think that’s delusional.

“The same very high immigration, but more from poorer countries” wasn’t what people wanted from Brexit. Polls show former conservative voters are more concerned than those who’ve stuck with us, particularly working class voters.

The economic debate

Migration has many upsides, and has brought me friends and great colleagues. Migrants bring ideas and skills, which are sometimes invaluable, particularly in the NHS.

But I think the economic benefits of migration are overstated. Recent high immigration actually coincided with lower productivity growth.

I’m not suggesting the one caused the other, but if immigration really was magic rocket fuel for growth, the chart below would look different.

It would be surprising if a sudden glut of labour didn’t change the price of labour, and it certainly sets up incentives to swap capital for labour.

Economist Duncan Weldon notes that in 2000 the UK had about 9,000 mechanised roller car washes and 4,000 hand car washes. By 2015 it was more like 4,000 vs 20,000.

In an economy making progress you would expect capital to be substituted for manual labour. Abundant low wage labour may be one reason Britain has among the lowest rates of automation and capital investment of any major economy.

As the TUC note: “For too long, bad employers have been able to use migrants, as well as UK workers on precarious contracts, to drive down pay and conditions in certain sectors.”

Lower skilled migrants don’t bring much capital. Instead, Britain’s inherited capital stock of land, houses, roads, trains, machinery, hospitals etc is divided between more people, cramping productivity.

But the real economic downsides of migration are felt where supply is inelastic. In 2018, Dominic Raab published a MHCLG note suggesting net migration had pushed up house prices by 21 per cent.

That’s an underestimate, only counting those born abroad, ignoring larger family sizes among those who move here. Nonetheless, that’s a big effect on your mortgage or rent.

The choice

My own view is Britain should aim to be the grammar school of the world, maximising upsides and lowering downsides by admitting a very small number of highly skilled people.

It’s quite right that we help with humanitarian crises – indeed we currently have Ukrainians living with us.

And we’ll need migration to fill critical splanning to meet our own skills needs.

But we should keep our promise to voters and reduce migration. Recent history suggests the new Prime Minister has lots of options to reduce immigration, but it requires sustained focus.

The real question for our new Prime Minister is how hard they want to try.

The graphs in this piece were compiled from publicly available sources other than the third – which comes from the Office for National Statistics.

Original article here: https://conservativehome.com/2022/08/15/neil-obrien-challenges-for-the-new-prime-minister-immigration-but-we-should-keep-our-promise-to-voters-and-reduce-it-how-hard-will-the-new-prime-minister-want-to-try/

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Neil O’Brien