Immigration cap 'puts economic recovery at risk'
Updated on 09 September 2010
Exclusive: The Mayor of London, Boris Johnson, has told the government that its cap on the number of non-EU immigrants allowed to work in Britain will damage the economy, Channel 4 News learns.
Channel 4 News has seen Mr Johnson's submission to the Home Office consultation on the issue, in which he says the cap is "likely to have a significant negative and disproportionate impact on London" and "put the economic recovery at risk by creating skills gaps and placing London at a competitive disadvantage in the global competition for talent and inward investment".
He says that the economic harm of limiting the number of workers from outside the European Union (EU) "would be substantial given their vital contribution to UK economy, and disproportionately felt in London given their concentration in the capital".
He also argues that leading businesses are "unanimous in their opposition and hostile to the proposal", adding: "They warn that the limit will damage small, medium and large businesses, prevent inward investment, talent and trade opportunities coming to London, and thereby materially damage London's competitiveness".
The mayor believes the interim cap on numbers is "already causing businesses significant recruitment problems", and he concludes that "a major rethink of government policy is required".
The coalition government has imposed a temporary cap on the number of highly skilled people from outside the EU allowed to work in Britain - 24,100 between June 2010 and April 2011. It is planning to introduce a permanent cap in January - the goal to reduce net migration to below 100,000 by the next election.
The latest official figures, released in August, show a 20 per cent rise in net migration - the difference between people leaving the country and those arriving - last year. That's up from 163,000 to 196,000 and includes people from the EU and outside the EU. This rise was largely because fewer Britons left home to settle abroad, and the number of foreign students arriving here rose by 35 per cent.
However, when you look at the number of non-EU workers, rather than students, coming here, the figures tell a different story. More people are leaving than arriving. The latest available yearly figures from the Office for National Statistics reveal that in 2008, 66,000 non-EU migrants arrived in this country, but 74,000 left.
A spokesman for the employers' body, the Confederation of British Industry, told Channel 4 News: "We are comfortable with the idea of a cap, but there are considerations to bear in mind. It must be set at the right level."
Other business organisations are critical. London First, which represents many of the capital's leading companies, says in its submission to the consultation: "The current interim cap is discriminating against economically beneficial high-value-add immigration, even though this group accounted for less than 15 per cent of net immigration in 2009. It places an immediate disadvantage on UK based businesses as they seek to win international business, and in doing so need to deploy internationally sought-after talent.
"The proposed permanent cap is likely to have a similar disadvantaging effect. If business concerns are not properly addressed, it could result in many specialist teams being assembled in other EU and non-EU locations, with a resulting loss of opportunities for UK workforce and lost revenue for UK Exchequer.
"This is the worst of all times to constrain business in its ability to access the skilled global talent it needs to support this growth. London First members and their clients are already experiencing the highly restrictive and disproportionate interim cap measures which are stemming the flow of foreign direct investment into London and the UK, and impacting on business' ability to workforce plan.
"Global businesses, including London First members, prevented by an artificial cap from meeting their need for skilled migrants to fill global positions or specialist knowledge and expertise that will never be available locally, will not recruit local workers with second rate skills.
"They will keep the roles vacant, impacting on their growth and the growth of their supply chain, and the economic benefit that the local service industry would have experienced. Alternatively, they will be more likely to off shore staff or consider relocating their offices out of the UK."
Stuart Fraser, from the Corporation of London, told Channel 4 News: "It would be very serious indeed...These are global firms and they will want to be able to bring the best talent in. If they want to build businesses here, they will normally bring people in. We would really be shooting ourselves in the foot if we end up with the situation where nobody can bring anybody in."
Neil O'Brien, director of thinktank Policy Exchange, told Channel 4 News: "I think we would all agree that there are lots of good things about immigration but it also throws up lots of challenges in terms of jobs, in terms of public services, and in terms of our ability of being able to integrate lots of people into the country.
"I think under the last government there was the feeling that it had got out of hand, migration had quadrupled, we were looking at 10 more million people in the country and effectively having to build seven more cities the size of Birmingham in the course of the next 20 years. That just seems like a bit too much, you do need some kind of cap rather than open door policy. Obviously we've got to get this right."
The Chartered Institute of Personnel and Development (CIPD) is also worried. In August, it warned that the "abrupt introduction" of a cap on skilled workers from outside the EU would lead to skills shortages in Britain - and "tempt employers with global operations to offshore jobs, where they can find the skills".
The CIPD said: "In the context of current migration measures that are working, the CIPD argues that the abrupt introduction of a cap on skilled migration from outside the EU would have damaging effects on organisations looking to hire in areas where there is a UK skills shortage, such as engineering.
"Instead, the points-based system should continue, alongside an increased focus on developing UK talent in those areas where there is a skills shortage. This will gradually reduce net immigration in the long term."
A joint CIPD/KPMG quarterly labour market survey, released in August, found that 45 per cent of the 600 employers contacted reported that they were having difficulties filling vacancies, with 21 per cent saying they were recruiting migrant workers for engineering jobs, and 18 per cent for IT and accountancy/finance positions.
A fifth intended to recruit migrant workers in the third quarter of 2010. In the previous three months, 21 per cent of employers recruited migrant workers, with 37 per cent of these people coming from outside the European Economic Area (EEA). More than half of migrant workers hired by the financial sector came from outside the EEA.
The CIPD said: "The study highlights the complex juggling act the government now faces. The proposed introduction of a migration cap comes at a time when many employers are still struggling to fill skilled vacancies, despite the high unemployment rate.
"The training of local or British workers to fill skilled jobs currently occupied by migrant workers will not happen overnight. And despite our efforts to educate and train staff for shortage occupations, there is no guarantee that they will go on to progress in that career, as we have found with engineers.
"If a cap is to be introduced therefore, it has to be gradually phased in to avoid harming UK competitiveness. Employers running global operations will be forced to offshore skilled jobs to other countries if the right skills mix in the UK cannot be found."
John Philpott, chief economic adviser to the CIPD, told Channel 4 News said a cap would damage the economy. "It would mean slower growth in the short and long run, higher inflation, which would mean higher interest rates, fewer people in work and unfilled vacancies."
In a statement to the House of Commons in June, the Home Secretary, Theresa May, said the government wanted to attract talented people to Britain.
"It is this government's aim to reduce the level of net migration back down to the levels of the 1990s - tens of thousands each year, not hundreds of thousands.
"Of course, it is necessary to attract the world's very best talent to come to the UK to drive strong economic growth, but unlimited migration has placed unacceptable pressure on public services and, worse, severely damaged public confidence in our immigration system.
"Our over-reliance on migrant labour has done nothing to help the millions of unemployed and low-skilled British citizens who deserve the government's help to get back to work and improve their skills.
But there are tensions within the Conservative-Liberal Democrat coalition government over the issue, with the Business Secretary, Vince Cable, telling the Financial Times in August: "It's very clear from the figures that the increase in recorded immigration has nothing to do with the number of non-EU work permits issued; they actually declined.
"I've full confidence that my colleagues understand the need for immigration control measures that support business recovery and economic growth."
Mr Cable was more explicit during a visit to India in July, when he said: "It's no great secret that in my department and me personally, we want to see an open economy, and as liberal an immigration policy as it's possible to have."
Baroness Jo Valentine, chief executive of London First, told Channel 4 News the cap was "ludicrous".
She said: "Stopping specialist doctors and engineers from working here makes no sense. By imposing a cap the government is suppressing business growth and preventing the private sector led economic recovery that George Osborne set out in his Budget speech.
"If the government pushes ahead with this ludicrous cap they risk inadvertently forcing companies to locate specialist teams offshore - sending their best talent out of the UK. Highly skilled and well rewarded UK and overseas professionals will pay their taxes to foreign exchequers, helping to fund their schools, hospitals and road rather than ours.
"There's no doubt the election pledge of reducing immigration to tens of thousands can be met - not by targeting the people the electorate are concerned about, but by rejecting the high value people needed by business, and forcing companies to invest and create jobs somewhere else.