Stephen King: This land of opportunity must not close doors to migrant labour

Our policy has allowed us to suck in some of the world's best entrepreneurial talent

How might the British economy have fared in the absence of immigration over the last few years? Dr John Reid, the Home Secretary, thinks he knows. According to the Home Office website, "the overall impact of immigration from Eastern Europe has had positive effects on the UK economy". Which is why, apparently, "now is not really the time for another large wave of migrant workers". I think my nine-year-old daughter could spot something a bit fishy about these two statements so you might think that Dr Reid, with his doctorate in economic history and many years of experience, might also have thought something odd was afoot.

Dr Reid, however, is obviously a wise man alert to the "transitional impacts" from the last round of accession. "A small number of schools have seen a significant increase in admissions. Some local authorities have reported problems of overcrowding in private housing. There have been cost pressures on English language training."

Babies and bathwater spring to mind. To limit immigration simply because of a bit of extra pressure on a small number of schools and, presumably, a salary increase for teachers of English as a foreign language seems bizarre. If the overall impact of immigration has been positive, surely these minor drawbacks are insufficient reason for justifying a wholesale change in Britain's policy towards new EU entrants.

While we've been happy to allow across our borders the Czechs, the Estonians, the Hungarians, the Latvians, the Lithuanians, the Poles, the Slovakians and the Slovenians (the original Accession countries who joined the EU in 2004), Dr Reid thinks that Bulgarians and Romanians are another kettle of fish altogether. We now need to ensure that "the immigration system is both effective and fair" and, therefore, we should now embrace the principle of "managed migration".

The Home Office minister Liam Byrne has been keen to expand on his master's comments. Because the impact of the last wave of migration "has had a positive effect on our economy ... that is why we've decided to take a gradual approach this time around, taking into account the needs of our labour market".

At this point, I begin to splutter. Do Messrs Reid and Byrne really have any idea at all of the needs of "our labour market"? Somehow, I doubt it. The Bank of England, which should have a better idea than most, still struggles to come to terms with the impact of all this immigration on the UK economy, so Dr Reid is unlikely to know any better.

Nevertheless, the Home Office intends to force low-skilled Bulgarians and Romanians to be channelled through the existing quota schemes for foreign workers (which, from next year, will be restricted to Bulgarians and Romanians alone, thereby closing off all low-skilled migration schemes for workers from outside the EU) while allowing skilled workers to apply for work permits on the Highly Skilled Migrant Programme. Eligibility will be determined by a newly-formed Migration Advisory Council. Firms looking to employ Bulgarians or Romanians will need to demonstrate they are facing specific shortages - hiring these eastern Europeans without doing so will lead to fines (presumably the hope is that many companies will be put off from hiring Bulgarians and Romanians altogether).

All this makes for an unedifying mix of nationalism and protectionism. The effects of immigration may be hazy but the UK's economic performance has almost certainly improved as a result of immigration. With more immigrants, wage pressures have been kept in check, allowing the Bank of England to keep interest rates relatively low during a period of rising energy prices. That must be good news: immigration has reduced the risk of a return to the wage-price spirals so commonplace in the 1970s which, ultimately, proved so disruptive to our living standards (and which hit pensioners particularly hard). Immigration has, thus, helped the UK avoid the "boom-bust" cycles of old.

Immigration has also helped fill skill gaps, either because there aren't enough indigenous workers to fill all vacancies, or because British workers aren't willing to do certain jobs. The agriculture, hotel and restaurant industries probably couldn't survive without migrant labour. Moreover, as more migrants have come to the UK in search of work, wages in those industries have dwindled and supply has increased (think of the booming restaurant scene in London). This must be good news for consumers.

And while immigrants themselves obviously consume, and therefore add to UK domestic demand, at least some of their income is typically sent home in the form of remittances, thereby supporting their domestic economies (there may be no improvement in gross domestic product but there is an improvement in gross national product, a more useful measure of a country's living standards).

Perhaps most importantly, the majority of migrants come to the UK because the opportunities here are good and wages are higher than they are at home. People may like to carry round in their heads the image of migrant workers as spongers, living off benefits, but in the majority of cases this simply is not true. Migrants come to the UK because the economy has been successful; it provides opportunities for the many, not the few; and, over the years, it has offered tolerance towards foreigners, whether they be Huguenots or Jews, Italians or Indians. Seen in this light, immigration should be regarded as a peculiarly British triumph. Ours is a land of opportunity where even the most disadvantaged can work themselves up from humble beginnings. We've never been good at "cherry-picking" the right kind of immigrant. Instead, our open-doors policy - in effect, an international version of a free labour market - has allowed us to suck in some of the world's best entrepreneurial talent.

Perhaps, at this point, I should declare an interest. My wife's late mother and father, both Jews, were both born in Baghdad. Their families fled in the 1920s and 1930s, fearing for their safety in the light of growing anti-Semitism. Like so many other Jews, they travelled: my father-in-law headed towards India, while my mother-in-law went to Palestine. Eventually, though, they ended up in the UK, where my father-in-law initially worked for Marconi before establishing a small electrical retailing business.

Fortunately, my father-in-law became a British citizen by virtue of having lived in India when it was the "jewel in the crown". But when they arrived in the UK my parents-in-law were, economically, still immigrants. Were they ever a burden on the UK economy? I don't think so. My father-in-law was successfully selling colour televisions to those who wanted them back in the days when colour TVs were more exciting than plasma TVs. Did they scrounge off the state? I doubt it: they were honest, taxpaying folk and have left behind them children and grandchildren who are making their own, varied, contributions to the UK economy. Would they, on the basis of the new Home Office rules which no longer give out British citizenship to all and sundry, have been allowed in by a Migration Advisory Council? Almost certainly not. My father-in-law may eventually have been an entrepreneur, but he was only a modest man who initially came to the UK looking for work.

Ultimately, the immigration debate boils down to the degree of control or, in Dr Reid's vocabulary, the degree of "management". But if you don't know how to measure the full benefits of immigration in the first place and choose to treat some club members differently from others (the EU is, after all, a club which promises free movement of labour within the club's borders), the suspicion must be that your are pandering only to the worst instincts of those types in British society who can only think of people from abroad as "bloody foreigners".

Stephen King is managing director of economics at HSBC

stephen.king@hsbcib.com