Britain’s open-door immigration entirely changes the economics of Brexit

Worker visas require a salary of at least £25,600, or £20,480 for some jobs on the shortage list. Special regimes for care workers and seasonal farm labour are a messy work in progress.

The latest figures show that there were 331,000 work visas issued, led by India (111,000) with a 99pc approval rate, Philippines (22,000), Nigeria (18,000), Ukraine (15,000), US (11,000), Zimbabwe (9,000, South Africa and Australia (8,000), Pakistan (7,000), and Russia (5,000). 

No EU country is in the top ten any more but that is distorted by the rush to get settled status before the deadline. The flow of workers from Poland and the Baltics has been drying up anyway because wages have been rocketing at home and there is a structural labour shortage.

The UK’s earnings barrier has left gaps. Most waiters, hotel cleaners, or baggage handlers cannot get visas. This is a headache for employers, and it is something that we all notice, but it is not a big macroeconomic issue. 

There were 492,000 study visas, topped by: India (117,000), China (115,000), Nigeria (66,000), and Pakistan (23,000). Some will stay after their courses end, further enlarging the pool of immigrant talent. There were 230,000 resettlement visas, chiefly for migrants from Ukraine, Afghanistan, and Hong Kong. A percentage will ultimately join the workforce.

Add it all together and you are looking at 400,000 migrants joining the labour force each year, and possibly more. This is at least four times the assumption in The Economic Consequences of Brexit, published by the OECD just before the Referendum. It is a name-play on Keynes’s brilliant (but glib and erroneous) hatchet-job on the Versailles Treaty. 

This report is indicative of most studies written by the academic/policy fraternity, all arguing from the same premise. In a nutshell, the lion’s share of the alleged Brexit damage comes from lower immigration and therefore also from lower productivity, since their models assume a mechanical linkage between the two – a questionable premise even in academic theory. Take those two away and the argument disintegrates.

The OECD said immigration accounted for half of the UK’s total economic growth from 2005 to 2015. It argued that curbs on free movement and a weaker economy would lead to “a smaller pool of skills”. It would reduce “managerial quality and technical progress.” From these assumptions it predicted a Brexit loss of 5pc of GDP, or 7.7pc in its pessimistic scenario.

If this is the reasoning, then presumably the OECD should be revising up its forecasts dramatically in light of the actual migrant policy and incoming data. Its own model must surely infer blistering economic growth over the 2020s and great improvements in “skills and technical progress”, unless it deems Indians and the Hong Kong Chinese less capable than Europeans. 

Immigration has of course been running hotter since 2016 than 100,000 a year – outside the pandemic – and that explains why OECD forecasts (like others) have so consistently erred in predicting that the UK would vastly underperform the major eurozone economies.

In fact, the UK’s aggregate economic growth since the Brexit vote has been roughly equal to that of France, and higher than in Germany, Italy, and Spain. The recent surge in legal migration may explain why the UK’s output surveys this year keep catching forecasters by surprise. The PMI indexes since January have been more resilient than in Europe or the US. 

The Office for Budget Responsibility (OBR) still assumes in its reports that net immigration will be 100,000 even though this has long been implausible. The error shapes its analysis of what the public finances can carry. 

The OBR argued in one report that a fall of 140,000 in the rate of net migration would push up the national debt by 40 percentage points of GDP in the long-run. Following this logic, might one conclude that if the actual rate is 300,000 higher than supposed, the debt ratio will come down rapidly through organic economic growth?

The new visa figures have large implications. The worst combination we can have in this country is a restrictive fiscal watchdog at a time when we need ample public spending on infrastructure to cope with a larger population. This investment has a high fiscal multiplier, if spent and timed correctly, and more than pays for itself via stronger growth.

In my view, the OBR has had a contractionary bias ever since its creation in 2010. It played a large role in the austerity overkill of the post-Lehman era, and has fostered a malign pattern of thinking. It has led the political class to think that we cannot afford the sort of public investment that we most assuredly can afford and urgently need, and that is the hallmark of growth stars over the last quarter century such as Korea and the Nordics.

Furthermore, the OBR mimics EU machinery demanded by Germany to prevent fiscal free-loading by Club Med states within the monetary union. It is unclear why such an institution should exist in a full democracy with fiscal and monetary sovereignty.  

The widely-believed narrative of a Britain turning its back on the world and retreating into Trumpian tribalism has been a giant canard. The economic models built upon this false architecture have been abject. The policy prescriptions that follow from the errors have been toxic.

I look forward to the OECD’s next report on the Economic Consequences of Brexit with eager curiosity. The OBR might wish to chuck its last report in the dustbin and rush through an emergency revision in light of reality. If these bodies persist with a false model, their own political integrity comes into question.

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