Hard line on immigrants 'holds back the UK'

Tough stance worries investors and makes it harder to beat recession, says leaked report

The Home Office's tough stance on immigration is harming Britain's efforts to win foreign investment and pull out of recession, according to a government report leaked to The Independent. The Coalition has been warned by UK Trade & Investment, the body which tries to woo foreign companies to Britain, that migration is by far their No 1 concern.

It was cited by 50 per cent of potential investors, dwarfing personal and company taxation (13 per cent), red tape (10 per cent), skills (9 per cent) and planning rules (5 per cent). "These 'front of mind' concerns are usually near-term and have the prospect of impacting adversely on companies' immediate business competitiveness and therefore the UK's ability to attract investment," UKTI said in its report.

Whitehall sources say Theresa May, the Home Secretary, is under pressure from the Cabinet to relax the rules for skilled foreign workers, so that Britain is made a more attractive place for investors. Mrs May has tightened some regulations in an attempt to meet the Tories' 2010 election pledge to cut net migration less than 100,000 a year. It is currently running at 250,000.

She is also being urged by Cabinet members to exclude foreign students from the migration "cap" amid fears it sends a negative signal about Britain and will deter the business and political leaders of the future from forging links with the UK, as well as reducing revenue from university fees.

Those pressing for a more flexible stance are said to include the Prime Minister, the Chancellor, the Liberal Democrat Business Secretary, Vince Cable, and the Universities Minister David Willetts, a Conservative. "The Home Office is looking isolated," one Tory minister said. "Growth, investment and jobs have got to come first."

Wednesday's gloomy GDP figures, showing a slide into a deeper double-dip recession, could heap pressure on Mrs May to boost the Government's growth agenda. However, she is reluctant to exclude foreign students from the immigration statistics, telling fellow ministers this would be seen as an attempt to "fiddle the figures". One compromise plan is for foreign students to be shown separately.

The concerns of foreign investors listed by UKTI include:

* problems in obtaining visas for prospective UK workers, particularly those from India;

* the need for a higher level fluency in English for skilled employees;

* having to keep re-applying for intra-company transfer visas;

* artificially inflating salaries to meet the threshold for ICTs;

* a five-year limit in Britain for staff who transfer within firms "could have serious implications on business";

* a threat to being able to bring in scarce engineering technicians.

* needing a UK visa on top of one for EU nations in the "open borders" Schengen Agreement is "a significant barrier" for Chinese investors;

* a ban on skilled workers whose visas have expired returning to work within a year affects recruitment of interns.

UKTI said: "The maintenance of an internationally competitive domestic business environment is fundamental to government being able to deliver the growth agenda. The ability of the UK to attract high value foreign direct investment is central to the ability for growth in the UK."

Yesterday, David Cameron launched a campaign to use the Olympics to win investment and trade deals worth £13bn. He was challenged about the immigration rules by John Chambers, chairman and chief executive of Cisco. Mr Cameron said: "The offer we make, particularly to students, is pretty hard to match. If you have the ability to speak the English language and a place at a British university there is no limit on the number of people that can come."