Should we welcome immigrants?

Government efforts to reduce net migration to Britain could end up doing more harm than good to the economy. Matthew Partridge investigates.

What's happened?

London Metropolitan University (LMU) has been stripped of its right to host foreign students. The UK Border Agency claims that many students are enrolling at LMU simply to get a student visa, which would entitle them to enter Britain, rather than to do any serious study.

Its latest audit found problems in 61% of files sampled. The university claims this is unfair both on the institution (which relies on international fees) and its 2,600 international students, who must either find a new course elsewhere or leave Britain by December. It is taking legal action against the decision.

The move is seen as part of a crackdown on immigration. Net migration to Britain (the number of immigrants less the number of emigrants) was 216,000 last year. While that's down from 252,000, it's still well above the government's target, announced at the election, of 100,000.

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Why is the government cracking down on immigration?

At the last general election, both main parties campaigned on promises to get tougher on immigration. The main issue is unemployment. Critics of immigration claim migrants crowd out native workers, pushing down wage rates and driving up unemployment.

Think tank MigrationWatch, which lobbies for tougher controls, claims that nearly nine out of ten jobs created between 1997 and 2010 went to those not born in Britain. Last year, Work and Pensions Secretary Iain Duncan-Smith complained that companies were neglecting British-born workers in favour of immigrants and urged them "not to just fall back on labour from abroad", echoing former Prime Minister Gordon Brown's calls in 2009 for British jobs for British workers'.

Is this backed up by evidence?

Economists agree that in most cases the impact of immigration on wages and employment is small and temporary. An American study by Harvard academics George Borjas and Lawrence Katz found that surges in immigration could hit wages and employment in the short-run. However, firms respond to the lower wages by investing more in expansion, causing both wages and employment to recover. The supply of labour and the demand for it end up balancing out.

As for social cohesion, another issue that concerns critics, research by the Centre for Economic Performance at the London School of Economics found that between 1994 and 2006 immigration was responsible for only "a relatively small share (5%-6%) of the rise in [income] inequality". Even MigrationWatch admits that it's hard to be certain that immigration is really that bad for British workers. "The UK labour market is large and complex with nearly 30 million in the work force and, of course, the total number of jobs is not fixed."

What about public services?

Another concern is that migrants place undue strain on public services, especially health and education. Department for Education figures suggest that nearly a fifth of primary school children don't have English as a first language, which some argue puts a strain on school resources.

On the health side, there have been some high-profile cases of "health tourism", including the case of a heavily pregnant woman who recently flew from Nigeria to Manchester to have an emergency caesarean. However, while galling, the cost of such hardcore "health tourism" totals just £26m a year, a fraction of the NHS budget. And hospitals are already able to reclaim the costs of treating short-term visitors.

Do the benefits outweigh the costs?

If we're looking to cut the national debt, the answer is yes. Because immigrants tend to be younger than the rest of the population, and have a higher birth rate, they reduce the pressure on the pension system caused by an ageing population. Indeed, the Office for Budget Responsibility (OBR) points out that if the government managed to cut immigration, more money would have to be found to make up the resulting budget shortfall in the long run. For example, if net migration fell to 140,000, "the additional cost of the elderly would require further spending cuts and tax rises worth £17bn".

One pressure group, The Optimum Population Trust, wants a policy of zero net migration (what they term "one in, one out"), to keep the UK population below 70 million. However, the OBR warns that this would see the national debt rise to nearly 200% of GDP by 2060. The Migration Observatory at Oxford University also notes that immigrants make a net contribution to the national budget, paying more in taxes than they consume in services or receive in benefits.

How much power does the government have?

The government's powers to crack down on immigration are more limited than its rhetoric suggests. Nearly half of all migrants to Britain come from the European Union, according to the Office for National Statistics. Due to the rules of the single market they cannot be stopped from entering the country.

Some of its policies, such as the requirement that immigrants have to earn a minimum amount, have also been challenged on procedural and human rights grounds. There are also complaints that many of its other policies undermine its stance on immigration.

For instance, as The Guardian points out, at the same time as cutting the number of student visas available, the government is trying to get cash-strapped universities to increase the amount of income they get by recruiting students from abroad.

Dr Matthew Partridge

Matthew graduated from the University of Durham in 2004; he then gained an MSc, followed by a PhD at the London School of Economics.

He has previously written for a wide range of publications, including the Guardian and the Economist, and also helped to run a newsletter on terrorism. He has spent time at Lehman Brothers, Citigroup and the consultancy Lombard Street Research.

Matthew is the author of Superinvestors: Lessons from the greatest investors in history, published by Harriman House, which has been translated into several languages. His second book, Investing Explained: The Accessible Guide to Building an Investment Portfolio, is published by Kogan Page.

As senior writer, he writes the shares and politics & economics pages, as well as weekly Blowing It and Great Frauds in History columns He also writes a fortnightly reviews page and trading tips, as well as regular cover stories and multi-page investment focus features.

Follow Matthew on Twitter: @DrMatthewPartri