Home secretary Theresa May is facing a growing coalition revolt about the government's controversial target to slash net immigration, amid growing business anger about the impact of the policy on economic growth.
The promise to cut net immigration to "tens of thousands" was a key plank of the Tories' election platform, but a cross-party alliance of business secretary Vince Cable and universities minister David Willetts is urging David Cameron to force May to water down the pledge.
The chancellor, George Osborne, is also increasingly sympathetic to business concerns about the regime, according to Whitehall insiders, who say the prime minister held a meeting with May in late October to discuss whether the target could be gracefully abandoned.
Relations between the Home Office and the Department for Business are notoriously spiky, but have reached a new low in recent months.
One option favoured by Cable and Willetts, and backed by MPs on the business select committee, would be to separate foreign students from total net migration. Analysts say the total figure is a very blunt measure, because not only does it include students, it varies according to how many British people emigrate.
Sarah Mulley, associate director of thinktank the IPPR, said: "There are two dangers: either you miss the target, or you hit it – or make good progress towards it – but the public say, hold on, there are still a lot of migrants here." The latest data showed that net migration in the year to December 2011 was 216,000.
Since the government cannot restrict immigration from the European Union, it has focused its fire on foreign students, most dramatically by revoking London Metropolitan University's right to accept non-EU students earlier this year.
A cap on skilled migrants from non-EU countries – another group over which the government has control – has not yet bitten in the sluggish economic climate.
But frustrated business groups have been lobbying the coalition hard with two major complaints: they find the new system complex and cumbersome; and they are concerned that the government's rhetoric is sending the wrong message about Britain's openness to the rest of the world.
"Our members report long waits, difficulty in booking appointments, and applications being turned down for minor clerical errors," said Neil Carberry, director for employment and skills at the Confederation of British Industry. "There is a growing sense of anger in the business community with the delays and poor customer service, that means it is proving difficult to bring people in, even where the new rules would allow it."
The battle over immigration cuts across party lines with many pro-business Conservatives sceptical about the policy. Backbencher Nadhim Zahawi warned last month that the net immigration target "pits our border policy against our growth policy".
Gus O'Donnell, the former cabinet secretary recently accused the government of "shooting itself in the foot" by restricting skilled immigration, while Britain's scientific community have also warned about the dangers of appearing to be keen to block new arrivals.
Imran Khan, director of the Campaign for Science and Engineering, says, "the immigration system hasn't really been set up with a view to how it impacts on the science sector. We need UK scientists to be mobile, and to collaborate with India, China and Brazil, and we need to be able to attract the best scientists."
Even the smallest firms report having to hire lawyers to navigate the new regime, which has forced them to shoulder greater responsibility for monitoring the immigration status of their staff.
Mark Hilton, of London First, which represents the capital's businesses, says: "Across immigration, the guidance is so complicated; it's written in the opposite of plain English, and it's tweaked and changed incredibly frequently, which leaves businesses and universities unsure about where they stand."
Julia Onslow-Cole, partner and head of global immigration at PricewaterhouseCoopers, said: "The growth agenda is dependent on the UK attracting the brightest and best global talent. Therefore it is essential that we deliver a more positive immigration message to the international community."
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