‘Guest worker’ plan would hurt the economy

The economists who advise the Home Office on immigration policy have come out against a plan to turn economic migrants into 'guest workers'. Last week, the Migration Advisory Committee (MAC) published their response to the government's proposals on restricting settlement rights for skilled workers from outside the EU.

With all the debate around David Cameron's pledge to cut net immigration to the 'tens of thousands', many of the detailed policies for achieving that overall aim have been somewhat neglected. It should be clear, however, that these particular proposals would represent a very significant change, with serious implications for employers. While a few exceptional migrant workers would be invited to stay, the great majority would be told to leave after a maximum of five years, regardless of how well they are doing in their job and what contribution they have made.

The MAC consulted a wide range of employers in preparing its report, and it is worth quoting in full their summary of what they were told:

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'Employers we met were generally, albeit to differing extents, hostile to many of the government's proposals. There was a good deal of general concern expressed over the potential impact of restricting or removing settlement rights and, particularly, the implication that migrants would be required to leave the UK after five years. It was felt that a negative signal could be sent about the UK's position as being seen as "open for business". Many respondents said that uncertainty about prospects for future settlement in the UK would deter top talent from coming at all, with repercussions for the UK's international competitiveness.'

Given this reaction, it is not surprising that the MAC refuse to endorse a blanket ban on settlement for economic migrants, although they do support a major tightening of the rules. Of course, MAC's advice is not about whether reducing net immigration is a good idea or not. Instead, it's about the least economically damaging way to achieve this objective.

They recommend allowing a sizeable proportion of economic migrants to settle permanently, based on a salary threshold higher than those which already apply at entry. They suggest a threshold somewhere between £31,000 and £49,000 per year. According to their estimates, this would disqualify between 20 and 60 per cent of migrant workers. Without any changes, the MAC estimates 10,000 and 40,000 migrants would be granted settlement per year, so the highest threshold would reduce this to 4,000 to 16,000.

This may seem on the face of it to be a model of good policymaking: the democratically elected government sets the broad objectives, the technical experts advise on the best (or least damaging) way to achieve them, and the government makes the final choice. Many will also welcome the resistance to lobbying from employers, who they see as just another interest group, with a preference for cheap foreign labour rather than investing in local talent.

But while there is some force in this view, it is too simplistic. The broad objective of reducing immigration does indeed have strong democratic support, but there is far less support for the way the government is going about it. The area where people really want to see reductions, apart from illegal immigration, is among low-skill migrants – but for many years now, the great majority of low-skill migrants have come from the EU, which the government can do nothing about (at least in the short to medium term). Only a minority support reductions in the categories which the government is actually cutting, namely foreign students and skilled migrants. It is perverse to end up targeting these categories simply because they are the easiest to control, especially given that they are the most economically valuable. And the problem for democratic legitimacy is that the Conservatives, the only mainstream party to advocate a big overall reduction in immigration before the election, never attempted to explain the difficulties and trade-offs involved, implying instead that it would be a simple matter of 'getting it under control'.

  At the IPPR, we were able to ask the questions the MAC cannot: whether it makes sense to have the net immigration target driving decisions in every area of policy – and whether the detail of the government's plans really does have public support. We looked not only at economic considerations, but also implications for integration. Even more important, we looked closely at how similar policies have fared in other countries – starting with the infamous 'Gastarbeiter' programme, launched fifty years ago last week, in which Turks were invited to come to Germany as temporary workers. Decades later, the German government was forced to admit that the policy was a spectacular failure, as millions of Turkish migrants ended up staying permanently, but suffering a legacy of segregation. The government will reject this comparison, arguing that it fails to compare like with like: the 'Gastarbeiter' were unskilled workers. But the evidence shows that a wide range of similar programmes, including more recent ones which apply to skilled workers, have evolved in exactly the same way: as the moment approaches when the workers are supposed to go home, the enforcement of this policy is first postponed, and then quietly abandoned. At the very least, any such policy requires a serious analysis of the issues around compliance, incentives, and enforcement – issues which are entirely absent both from the Home Office's consultation and the MAC report.

There is nothing wrong in principle with trying to shift the balance of migration towards the temporary, but the current proposals are the wrong way to go about it. The MAC's recommendations, while welcome as far as they go, would merely limit the damage. They concede that their recommended approach may still 'have a negative impact on GDP and, to a lesser extent, on GDP per head', and they also accept the less easily quantifiable risk that it will deprive Britain of some of our best migrants – or even discourage them from coming here in the first place. The majority of economic migrants don't stay permanently anyway, but they value the option – and if Britain no longer offers it, the 'brightest and best' may choose to go elsewhere. Finally, as noted earlier, the MAC have nothing to say on whether the policy will actually work – whether the migrants will go home when they are told to.

Rather than trying to turn economic migrants into guest workers, the government would be better advised to go with the grain of migration patterns, which are becoming increasingly temporary anyway. For example, they could divert a share of National Insurance Contributions for each migrant to act as an incentive to return home. Such an approach would be fairer for those who come here, work hard, and play by the rules. It would also be more realistic, and better for our economy.

Matt Cavanagh is an Associate Director at IPPR.