(Bloomberg) -- The UK government’s tougher migration rules will hurt growth and damage the Chancellor’s chances of cutting taxes ahead of an election, a former Bank of England rate-setter has warned.
Michael Saunders, senior adviser at Oxford Economics, said the government’s crackdown on visas will make it harder for British companies to fill vacancies and “may lead the Office for Budget Responsibility to downgrade their potential growth forecasts.”
That in turn would mean “the apparent headroom which allowed the recent tax cuts may vanish at the March Budget,” Saunders said in an interview.
Chancellor of the Exchequer Jeremy Hunt and Prime Minister Rishi Sunak have made it clear they want to cut personal taxes in March to boost the Conservative Party’s chances ahead of an election expected next year.
But their efforts to bring down soaring migration could limit the size of the workforce, which would cap the ability of the economy to expand. While Sunak has put boosting growth at the heart of his agenda, he’s moving against immigration to quell an internal party rebellion and deliver Brexit pledges to control the borders.
This week, Home Secretary James Cleverly unveiled a package of measures to cut legal migration, which hit a record 745,000 last year.
Those steps include:
- Raising the minimum salary threshold for foreign workers by almost 50% to £38,700 ($48,652), with a few exemptions including health and care workers.
- Barring migrants from bringing family unless the job pays at least £38,700 a year – up from £18,600 currently.
- Ensuring overseas care workers are employed by a regulated provider.
- Scrapping the 20% salary discount for foreign workers in industries facing staff shortages.
Cleverly said that the measures, combined with an earlier ban on students bringing family, will reduce migration by 300,000 a year. In the year to June, net migration to the UK was 672,000, the most recent official data show.
The government is fighting a separate battle to stop illegal migrants entering the UK on small boats across the English channel.
Saunders said the visa plans will lower potential growth as employers struggle to fill jobs while lowering actual growth as there will be fewer migrants spending money. Because both economic capacity and demand fall, there will be no impact on inflation, he said.
Unemployment is likely to rise and that, combined with weaker growth, will hit tax receipts, removing the limited headroom for giveaways Hunt had last month.
--With assistance from Andrew Atkinson.
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