20 December 2018

The government’s immigration reforms are bad for business and bad for Britain


Thumbing through the Government’s Immigration White Paper, I couldn’t help thinking of the classic short story The Monkey’s Paw. In the macabre tale, a family acquires possession of a cursed mummified monkey paw. The paw has the power to grant wishes but always with disastrous consequences attached.

There are proposals within the White Paper that will be welcomed by entrepreneurs. For instance, the abolition of the bureaucratic resident labour market and the removal of the illogical cap on highly skilled migrants have long been on entrepreneurs’ policy wishlists. But there’s no cause for celebration as the White Paper published yesterday marks the biggest tightening of the UK’s immigration system in decades.

Suppose, for a minute, the UK voted to Remain or opted to keep free movement anyway to secure a better trade deal (by the way, that’s what the British public want), then the reforms proposed in the White Paper (no cap on high skill migration, no resident labour market test, international students can stay for 6 months after graduating) would be welcomed as sensible, overdue changes to the way we deal with non-EU migration. But in the context of a post free-movement immigration system, these positive steps should be seen as the bare minimum.

The problem is that the Government continues to cling on to its widely criticised ambition of reducing net migration to tens of thousands. Now, to his credit the Home Secretary Sajid Javid has managed to purge the White Paper of any mention of the target, which suggests it won’t survive a change in party leadership. But even so, the Government is committed to cutting migration levels.

This is the wrong approach. The Government’s own Migration Advisory Committee found that free movement hasn’t had a negative effect on wages and employment and leads to higher productivity levels overall. On top of that, EU migrants are 45 per cent less likely to receive benefits compared to UK natives and pay £1.34 in taxes for every £1 they receive in state assistance.

The Government itself concedes that this move will make us poorer. They estimate GDP per capita will be between 0.1 and 0.2 per cent lower permanently. The effect on the public finances will be worse. Britain’s fiscal position will be between £2-4bn worse off. The Government has yet to explain whether they’ll plug the gap with higher taxes, more borrowing, or cuts to public services. After all, they’ve already spent the Brexit dividend on the NHS.

The media often presents a caricature of EU migrants. We are often told about low-skilled migrants from Eastern Europe driving down the wages of working class Britons. As an aside, plumbers, builders, and lab technicians don’t count as “skilled” on the Government’s definition. The truth is that EU migrants on average are better educated and higher skilled than the average Brit. They’re more likely to start businesses too.

Some assume that we can pick and choose on immigration. They ask “Why not keep the door open for skilled EU migrants but close it to manual labourers?” The problem is that labour markets are more complicated. Workers often try out a few different roles and professions before settling down. Many come without any work at all lined up, only to go on to found businesses and take high-skilled roles.

When you ask entrepreneurs what their biggest problem is, they don’t say high taxes or excessive regulation (though they are problems), they say “access to talent”. Hardly surprising when unemployment is near-record lows while vacancies are at record highs. Cash-constrained startups who attract talent by offering equity will struggle to meet the proposed £30k salary threshold. Going through the Tier 2 Visa System will also mean more red tape, which will hit startups without large legal departments hardest. Government, by the way, has a record of underestimating the administrative burden of changes to the visa system.

When Britain voted to leave the European Union, the Government should have committed to pulling any policy lever they have to make Britain the best place in the world to do business. Instead they’ve prioritised cutting immigration at the expense of everything else. Until they get this monkey off their back, Britain will become a less attractive place to start, invest in, and grow a business.

Sam Dumitriu is Research Director at The Entrepreneurs Network.