Britain’s long-term economic growth prospects are expected to be downgraded in next week’s Budget because of the impact of Boris Johnson’s post-Brexit crackdown on EU immigration.
The forecast by the Office for Budget Responsibility, the independent fiscal watchdog, is set to be revised downwards, meaning that Rishi Sunak, the chancellor, will have less money to spend on public services than if the prime minister had approved a more liberal migration regime.
The OBR said in its March 2019 forecast that the UK economy would grow at 1.5 per cent to 1.6 per cent a year on average over the next three years, much higher than the Bank of England’s estimate of 1 per cent a year over the same period.
It has emerged that Sajid Javid, former chancellor, failed in his attempt to soften the migration regime, including a special carve-out for the construction sector when the new rules come into effect in January 2021.
“Sajid wanted to help the construction sector — we need workers to build all the infrastructure projects that will be included in the Budget,” said one ally of Mr Javid.
“He also wanted to phase in the new rules to avoid a ‘cliff edge’. He won most of the battles the Treasury had with Number 10, but he lost on that one.”
The government’s new immigration policy, set out by home secretary Priti Patel last month, will impose tougher restrictions on lower-paid workers from abroad than envisaged in the 2018 migration white paper produced by Theresa May’s government.
Ms Patel’s policy will in effect bar most businesses from recruiting outside the UK to fill unskilled positions requiring qualifications equivalent to below an A-level, the exams taken in Britain at aged 18, or who are paid less than £25,600 annually.
The OBR warned in March 2019 that it would revise its forecasts if the immigration regime was stricter than the 2018 white paper. It said “the result would be a smaller population and labour force which in turn would reduce potential output”.
It previously expected net immigration to fall to 165,000 by 2023, based on the Office for National Statistics’ principal population projections, but can be expected to take a view that immigration rates will be lower in future.
The fiscal watchdog rarely issues such warnings and fails to follow through: it is likely to lower its estimates of growth which will result in higher forecasts for government borrowing and less room to increase public spending if the chancellor also wants to limit tax increases.
Ms Patel has dismissed concerns over the reforms and insisted that any labour shortages could be filled by recruiting “economically inactive” people or through new routes for high-skilled migrants.
Treasury officials acknowledged that the OBR had a record of differing with the government’s migration advisory committee on the impact of immigration control, but insisted the policy would deliver benefits.
They argued that controlling low-skilled migration could have a positive effect on the productivity levels of those workers already in the UK and raise economic output per head.
The MAC did not recommend a carve-out for the construction industry or the social care sector — both of which have come to rely on large numbers of EU workers.
Many workers on big construction projects would meet the new skills threshold but building labourers would be harder to hire from EU countries.
Mr Sunak will use his Budget to set out more details of a £100bn five-year infrastructure programme, including rail, road and broadband, which will put an increased burden on the construction sector.
Noble Francis, chief economist at the Construction Products Association, which represents suppliers, warned that the industry already had skills shortages and that these would only increase if the government was serious about achieving its targets for “levelling up” the prosperity of UK regions and building 300,000 homes per year by the mid-2020s.
More than half of construction companies have already reported difficulty recruiting essential trades such as bricklayers and carpenters while there are also skills shortages for site managers, planners and engineers.
“It’s easy for the government to say that the industry should just train more UK workers but employment rates are currently at their highest on record,” Mr Francis said. “Non-UK workers are vital to meet the flexible needs of an industry in which demand is volatile, and often based around major projects.”
Reporting by George Parker, Chris Giles, Robert Wright, Gill Plimmer, Donato Paolo Mancini
