UK spending on trying to halt the flow of refugees is a classic false economy | Larry Elliott

Donald Trump never did manage to build the wall on America’s southern border. Rishi Sunak may have no better luck stopping the small boats with his plan to put refugees on barges or send them to Rwanda.

But the extent to which governments will go to “defend” their borders shows just how hot a political topic migration has become across developed western nations. Nor is it just the case in the US and the UK. Both Sweden and Germany have seen the emergence of anti-immigration parties in recent years as the number of migrants has increased.

In the case of the UK, net migration – the numbers arriving minus the numbers leaving – has been positive for the past three decades. According to figures from the House of Commons library, immigration exceeded emigration by more than 100,000 in every year from 1998 to 2020. Boosted by one-off factors, such as the war in Ukraine, net migration hit a record of just over 500,000 in the year to last June.

This 30-year trend marked a break with the past. In the 1960s and 1970s, more people left Britain than arrived, and it was only in the early 1990s that net migration really started to increase. This is perhaps understandable. The 1980s and early 1990s saw mass unemployment and the UK was not the most attractive place for someone looking for work.

But the UK economy grew uninterruptedly from 1992 to 2008, and there were plenty of jobs, both of the high-paid variety in the post big bang City of London and of the low-skilled variety in hospitality and social care.

This was also the period when globalisation took off, with cheap goods from newly opened-up low-cost countries – such as China – boosting consumer purchasing power in western economies. The prosperity of the developed world was not lost on those in lower-income countries, leading inevitably to more people seeking to find a better standard of living in Europe or North America. In a way, higher net migration into the west was the flip side of capital flows out of it to the emerging world. The money went one way, people went the other.

By no means all the people arriving in the UK come to work. Indeed, only around a third cite that reason, with a slightly higher proportion coming to study, and much of the rest seeking asylum. Even so, net migration has boosted the size of the labour force and filled vacancies that might otherwise have gone unfilled. Under the new post-Brexit arrangements, which scrapped free movement for EU citizens and introduced a points-based system for work visas, net migration has gone up.

In Britain – and elsewhere – this raises two questions. The first is whether the level of net migration matters. From a free-market perspective it doesn’t, because labour – like capital – should be allowed to find its way to the parts of the world where it can be most productively employed. Demographic change means populations in the west are getting older and the lack of available workers is adding to inflationary pressure. So why not allow migrant labour to plug the gaps?

In reality, no mainstream political party agrees with this approach, not least because unrestricted immigration strains the developed country’s social infrastructure, especially housing. It also deprives developing countries of their brightest workers.

The corollary of open borders – at least in a small country such as Britain – is that the planning laws would need to be liberalisedso that millions of new homes could be built to accommodate a growing population. Otherwise, demand for property would massively exceed supply and house-price inflation would rocket. The prevailing economic model – low wages and expensive rents for those at the bottom coupled with soaring property prices for the better off – would be further entrenched.

There is, though, a second question: how should governments in the west seek to manage migration? The stock answer is by improving education and training so that domestic workers eventually do the jobs currently done by migrants, coupled with strictly policed quotas for sectors hardest hit by labour shortages.

As far as it goes, this approach has merit. It does, though, ignore the fact that the desire to move to the west has almost certainly intensified as a result of the over-lapping crises of recent years. Climate change, which has a disproportionate impact on low-income countries, is bound to increase this pressure.

The head of the International Monetary Fund, Kristalina Georgieva, said last week her organisation had revised down growth projections for low-income countries, where per capita income growth was falling further behind the rates needed to catch up with advanced economies. “This threatens to reverse a decades-long trend of steadily converging living standards,” she said. David Malpass, the World Bank president, was equally gloomy, noting that 700m – almost 10% of the global population – were living on less than $2 a day.

Both the IMF and the World Bank are urging developed nations to do more to help poor countries build economic resilience, but these appeals are more often than not falling on deaf ears. There is a lack of urgency about finding a solution to the looming debt crisis, or in providing the resources needed to tackle the impact of global heating.

Sunak talks tough on immigration but is doing little to reduce the incentives for people to come here in the first place. It would be naive to expect instant results from a less penny-pinching approach but, after cuts to aid, the government is spending five times as much on refugees in the UK than it is spending on assistance to Africa. This represents a classic case of false economy because any short-term gains to the Treasury will be dwarfed by the longer-term costs.