Hamish McRae: Don't ask them if they have the right papers. Ask if they have the right skills

Immigration has again pushed itself to centre stage, with the familiar clash of views on the radio and in the press last week. On one hand it is argued that the economy needs the immigrant labour force to keep growing. On the other it is claimed that immigrants, particularly low-skilled ones, do not bring a net economic benefit and so those who do not have proper status should be squeezed out of their jobs by clamping down on employers.

While both sides cite economic arguments to support their cases, they can quite quickly slip into a more emotive or personal mode. Thus Jack Dromey, the deputy general secretary of the TGWU, noted last week that his parents had been immigrants from Ireland. As an Anglo-Scot brought up near Dublin, I have sympathy for his view - but it does not really help clarify the issue.

Much the same debate is taking place in the US. Michael Bloomberg, the mayor of New York, told a Senate committee on Wednesday that his city was home to three million immigrants, of which half a million had come to the US illegally. But they were needed: "Although they broke the law by crossing our borders ... our city's economy would be a shell of itself had they not, and it would collapse if they were deported. The same holds true for the nation."

On the other side of the debate, George Bush is taking a tougher line, stressing the need to catch illegal immigrants when they try to apply for work.

"Part of a comprehensive immigration plan is to give employers the tools necessary to determine whether or not the workers they're looking for are here legally in America," he said last week.

"Part of a comprehensive immigration plan is to ... say to employers: 'It's against the law for you to hire somebody here illegally. We intend to fine you when we catch you doing it.' "

Whether someone has the right papers ought to be less important than whether they have the right skills. Quite a lot of analysis has been done on the economic impact of migration, which in essence is that the migration of the highly skilled undoubtedly brings a big plus to the host country, while that of the unskilled is more marginal.

This can only be a starting point for there are a host of other issues: the social dimension; the impact on the country losing skilled people; what happens to second-generation immigrants, and so on. But it is not a bad starting point. It may be selfish for Britain, or the US, to try to scoop the pool of global talent, but you can make a strong argument that creating an environment where talented people want to live and work is a decent basis for government policy.

It seems the UK is not doing too badly on this score. The best source here is the annual International Migration Outlook, published by the OECD. Its 2006 edition is just out. If you look at where we are getting our immigrants from, top of the league table is Australia (first graph). The bulk of the people come either from highly developed economies or from the twin giants of China and India.

If I had to bet on which countries it would be in the UK's national interest to have close economic relations with over the next 30 years, I would not mind starting with that list. In so far as we don't just grab human talent but build relationships with other countries by welcoming their people, we are setting out our stall in the right parts of the global market.

A couple of qualifications. The first is that these figures are for 2004, before countries such as Poland, and their citizens, joined the EU. I would expect 2005 to be rather different. But the proposition stands, for having close contacts with the most vibrant parts of the EU, the new member states, will stand us in good stead.

The second qualification is that these are official figures. They don't take into account the undocumented. The OECD report has some estimates for these in several countries, though not the UK. I suppose that must be because our Home Office "doesn't have a clue" how many of these people are here.

But other countries do have a clue. In the Netherlands, they apply the same technique used for estimating fish stocks. You net some fish in a lake, tag them and release them. Then at a later stage you net some more and see how many of the previously tagged fish show up. That enables you to estimate the total number of fish in the lake. The Dutch have adapted this method for migrants and concluded that there are between 125,000 and 230,000 unauthorised people in the country, or 0.8 to 1.4 per cent of the population.

In Switzerland, they get together a group of experts and take their figures. They then challenge these, check them against any other data, chew over them and eventually reach a range that everyone will accept as plausible. In the case of Switzerland, it is 1.1 to 1.5 per cent of the population.

Both the Netherlands and Switzerland are middle of the pack. Using other methods, it is clear the US and Greece have the highest proportions of unauthorised immigrants, at between 3 and 4 per cent of their populations. That is because they both border countries with a much lower GDP per head - Mexico and Albania - making economic migration a practical proposition. At the other end of the scale are Australia and Japan, where undocumented migrants are estimated at 0.2 per cent of the population. Both are hard to reach.

And us? Well, were the UK to get some proper estimates, I would guess we would be middle of the pack too. We are certainly in the middle in terms of foreign-born residents on the official figures.

The OECD's figures for this are shown in the other graph. Luxembourg has the highest proportion, at nearly one-third of the total. We are lower than the US, Germany and France, but higher than Spain and Italy.

What should the sensible outsider - someone not in either politicised camp - conclude from all this? The most obvious point is that migration is a huge global issue and the UK is experiencing just the same pressures as everyone else. If we have attracted more people - from the new EU member states, for example - that is because our economy has been growing swiftly by EU standards.

The second point is that we are probably doing rather well in attracting talent, in terms of study as well as work. Proportionately, we attract many more foreign students to our universities than the US. That must be good for the long haul.

And the third, though more controversial, point is that the distinction between authorised and unauthorised immigrants is pretty arbitrary. What surely matters is what people do when they are here. If they want to come to the UK, use their skills and work hard, then they should stay. If they want to come and commit crimes, they should not.

Meanwhile, more research into the statistics, and honesty about them, would be helpful.

It isn't all quiet on the interest-rate front

When in doubt, do nowt. A lot of background noise is confusing the UK economic signals at the moment, and given the difficulty of gauging just how strong the economy is, the Bank of England's Monetary Policy Committee is right to keep interest rates where they are.

Retail sales seem to have picked up a bit but we don't know whether that is a World Cup effect and is now over. Reports from some shops would suggest it is.

The housing market has shown some easing back after the quite strong start to the year but nothing untoward is happening. Mortgage approvals have picked up, but if the market starts to run away, there will be plenty time to tackle it. Sterling is OK. Inflation is OK - surprisingly so given the upward pressures from the commodity and energy markets, though the downward pressure from the falling price of goods seems to be weakening.

So all in all, not much happening? Well, the most interesting thing on the rate front that I have noticed in the past few days is the line taken by the National Institute, the premier independent economic research group. It does a monthly estimate of GDP, which gives a pretty accurate instant snapshot of how the economy is doing. Its latest report, out last Friday, suggested the economy is growing at 0.6 per cent a quarter, or 2.4 per cent a year. This is pretty much on trend. But the sting is in the tail. The institute's view in June was that given the rising international inflationary pressures, the Bank should be increasing rates. It has stuck to that view and would seem to get some support from the continued solid growth of the economy.

The view of the National Institute will, no doubt, be taken seriously by the authorities, for its head, Martin Weale, has a good intuitive feel for the way the economy is performing. I don't think a rise in rates in imminent, but I do now suspect the next move will be up not down.