Government and Institutions

The government’s immigration policy will raise business costs and stifle productivity

The government’s attempts to reduce immigration are not succeeding. In a piece of classic displacement activity, it now seems determined to impose ever more irksome obligations on business. Already employers must require every one of us moving to new jobs to produce passports or other proof of residence, even when it is obvious that we have lived and worked here for many years: they then have to keep records of these documents in case there are queries in the future. Work visas for non-EU employees are only obtainable after a great deal of time and trouble, and then only in ‘shortage occupations’ which are defined in unbelievably arbitrary detail, as a study of the Tier 2 List will show. Substantial fines penalise employers who have taken on workers turning out not to have permission to be here.

Since the election, this has all stepped up a gear. In the Queen’s Speech we learnt that we are to have a new law allowing the government to seize wages from illegal workers, businesses are being banned from advertising jobs overseas before they have been advertised in this country, new criminal sanctions are to be imposed on employers who fail to check properly, and banks are to be forced to compare accounts against databases of those known (a small proportion) to be in the country illegally. And this week in Prime Minister’s questions Mr Cameron proposed yet more restrictions, including increasing the salary threshold for skilled worker visas, limiting the time for which a sector can claim to have a skills shortage, requiring companies transferring overseas staff to the UK within the firm to pay £200 per worker towards possible use of the NHS. He has also pinched one of Ed Miliband’s wheezes, the imposition of a ‘skills levy’ on businesses who recruit foreign workers, to be spent on apprenticeships – how, exactly, in the case of shortages in all-graduate professions?

These restrictions on employers’ freedom to recruit the best staff they can find have the potential seriously to damage productivity growth. They will cause severe delays, extremely costly in time- constrained projects. And as no restrictions exist on the use of labour from elsewhere in the EU, we have something analogous to the classic ‘trade diversion’ of customs union theory. Instead of an American, firms are obliged to take a perhaps less-qualified German; instead of an Indian, a Dane will have to do. Meanwhile multinational firms contemplating locating offices in this country will likely think twice if it is to be more difficult and expensive to bring in executives and skilled workers from elsewhere in the business.

The government’s hope that businesses will therefore take on more Brits is wishful thinking: if good domestic candidates were available employers would in all probability have taken them. It would be a lot less hassle even without these new requirements.

Often the shortages which compel employers to recruit from abroad can be traced to government policy in any case: they are not yet another alleged ‘market failure’. For instance, the NHS’s increasing reliance on importing doctors and nurses from abroad is the result of hopelessly bad planning by governments over many years. It is weird that we still attempt central planning of university and training places for doctors, with the self-interested medical profession insisting on conservative numbers, warning of a never-materialising excess supply.

The new restrictions will cause considerable inconvenience to employers, and will make it more difficult for us to import talented scientists, technologists, and skilled workers of all kinds. It will send out negative signals about the openness of the UK economy and society. But, and this is the key point, it won’t even succeed in bringing down immigration significantly. Legal flows of non-EU workers into the country are a small minority, less than 15%, of immigrants. Their numbers are dwarfed by overseas students, family reunions and of course nationals from other EU countries (some of whom, ironically, may be rebadged non-EU migrants given citizenship elsewhere in Europe). There is of course zero prospect of other EU countries agreeing to limit their citizens’ freedom to work in Britain.

Yet we have embarrassingly porous borders, no means of checking which individuals enter and leave the country, and a stock of several hundred thousand living here illegally. Our courts find it difficult to deport serious criminals, let alone more harmless visa overstayers who often stew for months in detention centres which are a disgrace. Meanwhile we have the bizarre spectacle of our depleted navy ferrying Nigerian and Pakistani nationals across the Mediterranean to acquire EU residence, which many will no doubt use as a springboard ultimately to enter the UK.

These are all serious problems which the government needs to address.  But making employing people more difficult and expensive for ordinary businesses – especially those smaller outfits without the resources to handle increasingly burdensome procedures – is not the way to go about it. It is a costly sideshow.

Prof Len Shackleton is an Editorial and Research Fellow at the IEA and Professor of Economics at the University of Buckingham.

Editorial and Research Fellow

Len Shackleton is an Editorial and Research Fellow at the IEA and Professor of Economics at the University of Buckingham. He was previously Dean of the Royal Docks Business School at the University of East London and prior to that was Dean of the Westminster Business School. He has also taught at Queen Mary, University of London and worked as an economist in the Civil Service. His research interests are primarily in the economics of labour markets. He has worked with many think tanks, most closely with the Institute of Economic Affairs, where he is an Economics Fellow. He edits the journal Economic Affairs, which is co-published by the IEA and the University of Buckingham.

1 thought on “The government’s immigration policy will raise business costs and stifle productivity”

  1. Posted 12/06/2015 at 13:38 | Permalink

    When I was teaching accounting, the point of cost/benefit analysis, as I understood it, was to identify whether activities being considered were expected to deliver benefits with a larger value than the expected costs. I do realise that ‘the past is a foreign country: they do things differently there.’ But perhaps someone still teaching economics or accounting (or even someone in government with a few minutes to spare from interfering with business) could let me know: has there been some new development, some intellectual breakthrough, so that now it is the objective to find things to do that are expected to involve costs much higher than any expected benefits? (In my day we used to call that a ‘loss’.)

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