News this week that the government’s Office of Budget Responsibility is building continued migration into economic growth forecasts should serve as a reminder that migration policies which secure rights could bring substantial benefits to the UK economy at a time of real need.
This week the coalition government has new cause to regret strapping itself to a pledge of reducing net migration to the “tens of thousands” per year by 2015. The latest outlook report from the Office for Budget Responsibility (OBR) shows that even the government’s expert advisors assume this target will not be met.
The independent OBR produces a five-year ‘Economic and fiscal outlook’ every six months, based on an assessment of the UK economy and public finances.
The latest report predicts shaky growth during the coming period, with the government facing significant risks that they will fall short of meeting growth targets.
At the same time, a higher than predicted level of net migration is built into the OBR forecast, with the report stating:
“Our assumption for [UK] population growth is based on average net inward migration of 140,000 per annum over the forecast period, in line with our March forecast and with the long-term assumption underpinning the ONS’s low migration variant population projection.”
This is embarrassing for two reasons. Firstly because the government is having a hard time convincing anyone its immigration target can or will be met – and it appears the OBR is among the sceptics. Who could blame them though? Immigration statistics from the Office of National Statistics repeatedly show the government is way off course, with annual net migration to the UK in 2010 252,000, the highest calendar figure on record.
A recent YouGov survey (pdf) for the Sunday Times found just 16% of the public believes it likely the government will deliver on its pledge of net immigration reduction by 2015. Having over-promised on this target, the government is now facing the prospect of a very public under-delivery.
Secondly, the OBR forecast reflects the view of many economists that continued immigration, at levels higher than the government intends, could play a vital role in supporting growth in the UK.
As reported in The Independent, the OBR indicated (pdf) this time last year:
“Net migration can directly affect the economy’s trend growth rate by affecting potential labour supply growth.
“If migrants have a similar employment rate and level of productivity to the existing average, a reduction or increase in population growth of 0.1 per cent would translate one-for-one to a reduction or increase in trend growth of 0.1 per cent respectively.”
Evidence given to the Migration Advisory Committee over the past 18 months has indicated significant risks to the UK of cutting economic migration from outside the EU. Notably, the National Institute of Economic and Social Research (NIESR) estimated (pdf) the immigration cap could cost the UK £2 to £4 billion by 2015.
And despite efforts of the anti-immigration lobby to demonstrate otherwise, the view of the OBR (pdf) is:
“…existing analysis suggest little evidence of a significant effect from immigration on earnings or employment, although there is some evidence of a small effect in the low-skilled sector.”
More difficult to assess but potentially no less important, are the economic implications of withdrawing wider rights to migrants. The government is currently engaged in trying to reduce family migration as well as to end settlement opportunities for most migrant workers.
But making it more difficult to work here is likely to be short-sighted, potentially reducing the attractiveness of the UK as a destination for skilled migrants into the future. Economists know that migration and diaspora networks bring value to wealthy countries. We should be demanding the coalition government’s immigration policies support economic growth in the UK rather than undermining it.