EU Referendum


Immigration: scoring political points


31/07/2014



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The Mail and others were busy yesterday on a particular slant to the immigration story, based on input from Migration Watch. While the story was also picked up by the Telegraph, who gave it to Farage to play with, it was only the Mail which claimed an exclusive.

The gist of the reports is that Britain is spending £5 billion a year on tax credits for migrant workers, with official figures showing that 415,000 foreign nationals out of 2.45 million claimants are benefiting from the "perk" –equivalent to 17 percent of all recipients.

The reports also tell us that migrant workers are more likely to be claiming tax credits, paid to 6.7 percent of all non-UK nationals of working age, compared to six percent of Britons.

The expenditure, we are told, "dwarfs the total savings achieved by David Cameron's latest crackdown on out-of-work welfare payments to migrants, which was unveiled amid great fanfare on Tuesday", which will reduce the benefits bill by just £100million a year.

What is seriously awry with all this, though, is the idea that this spending, which actually totals £30 million, constitutes a "perk" paid to the recipients. In fact, this is a covert subsidy to employers, who are able to pay their workers below subsistence wages, with the taxpayer obligingly topping them up.

As to whether this constitutes a "pull" factor for migrants, we have Robert Rowthorn, Emeritus Professor of Economics at the University of Cambridge and Fellow of King's College, assisting us in deciding.

He says in a recently published research paper: "The main driver of migration is the big difference in wage rates and job opportunities. There is also the attraction of in-work benefits as a wage supplement".

The question is what would happen if no tax credits were paid to immigrants. In order then to conform with EU law, they would also have to be ended for the indigenous population, amounting to a saving for the taxpayer of £30 billion and an effective wage cut of the same amount for one of the poorest sections of our society.

For sure, that would probably dissuade many immigrants from joining the ranks of the employed, and thus deter some migration. However, the effect of that would be to create a huge gap in the lower-paid jobs market and, as employers competed for labour in a diminished pool, wages would rise.

Increased wages – and vastly enhanced job opportunities - would then, as Professor Rowthorn suggests, act as a driver for migration. It doesn't take a genius to work out that we would probably end up in very much the same situation as before – if not worse: the initial loss of benefits would drive more indigenous workers onto the better-paid dole, opening up more jobs to migrants.  

If we were to follow the Farage route, however, we could pull out of the EU in order to exclude immigrants from tax credit and other in-work benefits. That, presumably, would also create a national labour shortage as the "pull" of [relatively] high wages stopped dragging in immigrants. And that, of course, would drive up wages, to attract new workers into the market.

The end result would be rather difficult to predict. One outcome could be the state regulating income for some workers, but not for others, interfering in the jobs market to a greater extent than it is already. This would not be pretty.

However, what Mr Farage does not tell his acolytes is that price of achieving this mess is to rule out any possibility of post-exit participation of the Single Market. It would not meet with EU minimum standards for its EEA trading partners, which require non-discrimination on the grounds of nationality, and freedom of movement.

Thus, we have to decide whether we want a messy half-solution to one part of the immigration problem in exchange for locking us out of existing trade relations with the EU. The price of the latter would doubtless be huge economic disruption and massive job losses, negating any advantages we might get from limiting immigration.

As far as solutions go, this is not very far from the idea of burning down your house to save on heating bills – good while it lasts, but rather short-lived and horribly expensive.

This is the trouble with these easy nostrums. A partial solution is actually no solution. We have to have a complete, balanced solution, or none at all. To pretend otherwise is fundamentally dishonest – Mr Farage's stock in trade.

To deal with immigration, as well as maintain all our other post-exit objectives, we will need to be more subtle and more considered, making compromises to achieve the desired end. We can manage immigration, but it has to be a steady, negotiated process, relying on a combination of "push" and "pull" factors.

And this is why we need a comprehensive exit plan – I've posted version 18 but there is still a long way to go. Unlike Farage, we have to live in the real world: scoring political points is not any sort of solution.

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