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Cameron's posturing putting the UK economy at risk

David Cameron is refusing to admit the unpopular truth that both immigration and the EU have provided big benefits to the UK

DAVID Cameron has a lesson to learn – and it is about leadership. Despite what voters will tell opinion pollsters, they want more from their leaders than to have their own opinions repeated back at them. A great leader is willing to try to sell an unpopular message that is in the country’s best interests.

Public debate in the UK is taking an anti-immigration and anti-EU tone. In this debate, not only is David Cameron refusing to admit the unpopular truth that immigration and the EU have provided big benefits to the UK, but he is also putting the economy at risk.

The UK’s population is ageing. From 2015 growth in the working age population will fall to virtually zero. Meanwhile, the number of pensioners will grow by 2.9% a year. Immigration will become an economic issue, and not just in Europe. China’s workforce began to shrink in 2013. Fertility rates in Taiwan, Japan and South Korea are well below replacement rate, and all three countries are much more hostile towards immigration than is the UK. The debate is framed in economic terms because growth is harder when the workforce is shrinking: investment and productivity need to increase just to keep output at the same level. Looser immigration controls are considered to maintain competitive workforces and support elderly populations. Implementing reforms will require overcoming the political and cultural biases that act as barriers to change.

While demographic trends mean that the importance of immigration will increase in the future, immigration has already provided a net boost to the UK economy. A study by Professor Christian Dustmann and Dr Tommaso Frattini of University College London released in early November calculated that the amount of taxes paid by immigrants to the UK from the European Economic Area was just over one-third higher than the benefits they received. This is in stark contrast to the tone of public debate in the UK.

Why, then, is David Cameron stoking anti-immigrant and anti-EU sentiment? He is playing a balancing act: when immigration is an issue, it hurts Labour. On the other hand, the more Europe and immigration are in the headlines, the more UKIP benefits. Meanwhile, throwing morsels to UKIP sympathisers only leads to them asking for more – and changes in regulations are not going to take the sting out of their passions. The frenzy of false information is driving the UK further down the path towards an exit from the EU. The PM is sacrificing strategy and national interest for short-term political tactics. In order to stem the rise of UKIP, political leaders need to take the argument to them and to the electorate.

Of course, economic evidence is just one input into government policymaking, and it is far from the only consideration. There is good evidence immigration has pushed down wages for unskilled workers, and inaccurate population figures in some areas have led to inadequate provision of public services. But these are issues that can be addressed through targeted interventions. It’s also true that a higher population is not always better – but fuelling such a debate through xenophobia is unlikely to lead to sensible policymaking.

The EU’s rules are a commitment mechanism. The all-or-nothing package means that, while the UK has to accept elements of the single market that it doesn’t like, other EU member states also have to accept the parts of it that the UK likes but they don’t – such as the bits that help make London Europe’s leading financial centre.

As one of the UK’s working immigrants, I have a personal interest in this. As a manager, I also value the flexibility that the EU gives. We employ people from all over Europe in our London headquarters. If free movement were curtailed, the result would be an increase in the number of staff working for us elsewhere. While few would shed a tear at the loss of some economists, Cameron should think carefully about the gamble he is setting up before it becomes irreversible.

Simon Baptist is chief economist at The Economist Intelligence Unit 

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