An amnesty for illegal immigrants living in Britain would add £3bn a year to gross domestic product and generate annual tax revenues of almost £850m, according to a London School of Economics report commissioned by Boris Johnson, London mayor.

The findings will cause further discomfort for the Tory high command, whose policy of opposing an amnesty is at odds with that of the party’s most senior governing official. Mr Johnson has been campaigning on the issue for more than a year.

The LSE report estimates that there are about 618,000 illegal migrants in the UK, with three-quarters living in London.

While the authors say care needs to be taken with immigration figures, given the uncertainty of available data, they calculate about half of illegal migrants are unemployed and those working earn about a third less than legally employed counterparts.

The report argues that regularising the situation for illegal migrants would lift their employment rate by 6 percentage points and their pay by 25 per cent; this would add £3bn to national GDP and £846m to tax receipts.

Mr Johnson said on Monday that the LSE report showed an amnesty would be “far from a financial burden”. “It has introduced some long overdue facts, hard evidence and academic rigour into a debate that has far too often been dominated by myth, anecdote and hearsay,” he added.

Migrationwatch, the anti-immigration lobby group, claimed recently that an amnesty would cost the UK £1m for each newly legal migrant.

While arguing for the econ­omic benefits of an amnesty to be extended to people who have lived illegally in the UK for more than five years and who have not been in trouble with the police, the LSE report acknowledges some potentially heavy costs.

Additional public services costs such as welfare services and housing could amount to about £1bn a year, while a one-off cost for administration would be about £300m. Adding new housing stock to cope with extra demand could cost up to £6.2bn, but the LSE said it was more likely to leng­then waiting lists for al­ready scarce social housing.

The power to grant an amnesty lies with the government, which is opposed on the basis it would en­courage more people to try their luck in coming to the country, as happened in Italy and Spain. But the Liberal Democrats are in favour, as are many Labour MPs. Mr Johnson said effective border controls would halt future incomers.

However, the report comes at a sensitive time in the immigration debate in the UK and with unemployment soaring. Workers at oil and gas plants and construction sites across the country have launched a series of strikes over the use of cheap overseas labour. The far-right British National party made its first national gains in this month’s European parliament elections on an anti-immigration platform, although it failed to make headway in London and the south-east.

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