Will Tanner is Director of Onward and a former Deputy Head of Policy in Number 10 Downing Street.
No one disagrees that the UK has had too little growth for the last decade and would benefit from more of it. The Prime Minister and Chancellor are right to place growth at the heart of their agenda, and they are brave to weather unpopularity for the sake of serious reform. But the Government is deeply mistaken if it believes that relaxing immigration rules for low-skilled migrants will boost UK productivity, wages and investment. The evidence suggests it will in fact do the opposite.
For starters, it is hard to argue that the rate-limiting factor for growth in recent years has been a lack of immigration. The last decade has been a period of extraordinary inward migration to the UK: despite Conservative efforts, annual net migration has regularly exceeded 300,000 and between 2011 and 2021 net migration contributed around two thirds of total UK population growth, equivalent to 2 million people. Yet GDP growth has been weak and labour productivity growth averaged just 0.4 per cent a year between 2009-2019, compared to an average of 2.3 per cent between 1971 and 2006, when net migration was low or even negative.
In fact, for much of the last decade the Conservatives have made the opposite economic case – that it is precisely because they want to increase productivity and sharpen incentives for investment that they want to curb low-skilled migration. Because access to a perennial source of cheap labour only serves to sustain low-wage, labour-intensive industries and discourage investment in labour-saving technology, which in turn holds down wages for those at the bottom of society. This was the argument made by David Cameron, Theresa May, and Boris Johnson, and which Dominic Cummings prosecuted at the heart of the Leave campaign.
Almost exactly a year ago, Boris Johnson used what was to become his final Party Conference speech to make this case forcefully. He argued: “we are not going back to the same old broken model with low wages, low growth, low skills, and low productivity, all of it enabled and assisted by uncontrolled immigration… The answer is to control immigration, to allow people of talent to come to this country, but not to use immigration as an excuse for failure to invest in people, in skills and in the equipment, the facilities, the machinery they need to do their jobs.” In other words, immigration control is vital to building a high growth economy.
And you do not need to look very far to find evidence to support his case. The economist Duncan Weldon has shown how around two thirds of the UK’s car washes were automated roller washes at the turn of the century. But by 2015, around four in every five washes were operated by hand. Low skilled labour, and weak capital investment incentives, have made an industry less productive. The same pattern is visible in British agriculture, which has become heavily reliant on a model of imported seasonal labour and has experienced half the total factor productivity growth of New Zealand’s farming industry and a third that of the United States since 1991.
The Government knows this, deep down. The White Paper announcing the Points-Based Immigration System was clear that “employers have to some extent become reliant on lower skilled workers from the EU for certain jobs. Leaving the EU provides an opportunity to drive business change and ensure that UK companies are at the forefront of innovation going forward.” The Migration Advisory Committee (MAC), which advises the Home Office on immigration rules, has repeatedly reviewed the academic literature on the economic impact of low-skilled migration and found little or no effect from low-skilled migration on wages, productivity and investment overall, but negative effects in low skilled occupations or industries, and stronger negative effects during an economic downturn.
For example, Bank of England research has estimated that a 10 per cent rise in immigration in semi- or unskilled service industries, such as care homes, bars, shops or restaurants, reduces wages for native workers by the equivalent of two per cent. A 2018 study by the prominent advocate for the economic benefits of migration, Jonathan Portes, found that while migrants with at least tertiary-level education generate positive productivity benefits in a local area, no such effect is visible from migrants with less than tertiary-level education (and in fact the coefficients are negative). Further evidence commissioned by the MAC in 2018 showed that EU migration between 1983 to 2017 lowered the employment rate of the UK-born working age population by around 2 percentage points and increased unemployment by 0.6 percentage points.
Evidence from other countries reinforces the case that increasing low-skilled migration is a route to penury rather than prosperity. One analysis of migration across 24 OECD countries in 2010 found that while higher skilled migration can have a positive impact on growth, migration that is predominantly low-skilled tends to lower per capita GDP – by an estimated 0.69 per cent for every one per cent increase in immigration – and induces a shift towards more labour-intensive and less productive processes. This is not a recipe for higher growth.
Alongside the economic evidence lies the political argument. If there is one issue that unites the Conservative’s post-Brexit coalition, it is immigration. Conservative voters on the whole believe that Britain has experienced unsustainable migration in recent decades and should accept fewer migrants in future. It is why many voted Conservative in 2019: at the last election 81 per cent of voters believed that a Conservative victory would mean fewer migrants. This was not an unreasonable assumption: the manifesto explicitly promised that “there will be fewer lower-skilled migrants and overall numbers will come down.”
The new Prime Minister has made a point of sticking to manifesto commitments, noting of her decision to reverse the National Insurance increase that “I believe in doing what you say you will do, and… I think it is wrong to renege on a manifesto commitment”. But if the Government presses on with plans to loosen restrictions on low-skilled migration, that is exactly what they will be doing. And the political repercussions of reneging on a migration commitment may well be considerably worse than raising taxes to pay for the NHS. Far better to reduce low-skilled migration, drive up growth and wages, and honour your promises to voters.