Bring in migrants to cut billions from deficit, says Osborne's watchdog

OBR figures sound alarm on plans for drastic limits to immigration

Higher levels of immigration over the next 50 years would spare taxpayers from the need to endure much greater austerity, the Government's fiscal watchdog has said.

The ageing population will put growing financial pressure on future taxpayers and governments, and Britain will need to undergo an extra £17bn of spending cuts and tax rises to bring down the national debt to 40 per cent of gross domestic product by 2062, the Office for Budget Responsibility said.

This is on top of the £120bn fiscal consolidation the Chancellor, George Osborne, is pushing through as he seeks to close the budget deficit. But higher levels of immigration would help the economy to grow faster and ease the pressure to cut spending, according to the OBR.

Boosting immigration would prove controversial, however, because the Coalition has pledged to reduce the annual figure to the "tens of thousands" of people by the end of this parliament in 2015, down from the current official level of 260,000 a year.

The Treasury is already warning other departments that a "very tough" government spending review will be needed before the 2015 election – and the OBR's verdict provides Mr Osborne with ammunition. The OBR's analysis was based on the assumption that annual net migration over the following five decades will fall to 140,000.

It also showed that if annual immigration were to remain at present levels of 260,000 the economy would grow more quickly. The OBR said that higher immigration would raise the annual growth rate over the next five decades from 2.4 per cent to 2.7 per cent. Under these circumstances the size of the fiscal consolidation needed to bring down the public debt to 40 per cent of GDP would be three times smaller, at just £4.6bn.

Even the OBR's central projection, which sees net inward migration falling to 140,000 per year, would prove contentious if enacted because of the Coalition's pledge to dramatically reduce immigration.

The Government is struggling to meet its target of just "tens of thousands" of immigrants coming to the UK each year, and some ministers want to see foreign students taken out of the figures on the grounds that few of them remain in the UK permanently. The move would be controversial as it would be seen as an attempt to "move the goalposts" so the Government can hit its target.

The economic benefits of migration highlighted by the OBR could make it harder for the Conservatives to justify their tough approach on the issue. Private polling for the Tories suggests that the three issues of most concern to voters are the economy, immigration and welfare. Tory strategists plan to exploit immigration in the run-up to the next election as the two Coalition parties diverge.

The OBR's analysis showed that with annual immigration of 260,000 the UK's population, presently 62.3 million, would reach 85.8 million by 2060, and the working age population (16-65) would be 50.3 million. If annual migrant flows were 140,000, the British population would reach 77.2 million and the working age population would be 44.5 million. With zero migration the population would rise to 64.1 million and the working age population would fall to 35 million.

The OBR also forecast that if net inward migration were cut to zero over the next five decades, the scale of the public austerity facing Britain would need to be three times larger, at £46bn. If all migration ended tomorrow, the UK's average annual growth rate would fall to 2 per cent and the national debt would spiral to 120 per cent of GDP by the middle of the century.

The OBR said: "Higher net migration than in our central projection – closer to the levels we have seen in recent years, for example – would put downward pressure on borrowing and PSND [public sector net debt], as net immigrants are more likely to be of working age than the population in general." The OBR said that an ageing population would put pressure on state finances through increasing health spending, higher state pension costs and rising social care bills.

Case study: 'Immigrants have more drive to be successful'

Mumtaz Khan Akbar arrived in Britain from his home in Kashmir in 1972, aged just 12.

In 1979 with capital of just £1,500 and with the guiding help of his mother, he opened a tiny Asian delicatessen measuring just 12sq m bearing his name. Today he employs more than 350 people and is at the head of a company turning over £25m a year.

Now one of the richest men in Yorkshire, with a personal fortune estimated at £25m, Mr Akbar owns three factories manufacturing ready meals and condiments.

He puts his success down to hard work and determination to succeed. He said: "What I found is that many immigrants have more drive to be successful. You want to be an entrepreneur so you want to do business because you came from a country where there were not many opportunities.

"In Britain there is equal opportunity for everybody and that is what is so great about it."