Peers, including two former Chancellors and several Cabinet Ministers, found that record immigration levels had had "little or no impact" on economic well-being and certain groups, including some ethnic minorities, might have had more difficulty in finding work because of increased competition.

The inquiry, by the Lords all-party Economic Affairs Committee, also rejected as "fundamentally flawed" the Government's claim that immigration is needed to prevent labour shortages.

Inquiry chairman Lord Wakeham said: "Looking to the future, if you have got that increase in numbers and you haven't got any economic benefit from it, you have got to ask yourself, is this a wise thing to do?"

The report warned that the much-trumpeted new points-based immigration system carried a "clear danger of inconsistencies and overlap". Instead, it said, a target range for immigration levels should be set.

Committee member and leading economist Lord Layard said: "We are suggesting that the Government should set a target range for net immigration and then the rules should depend on the target range, rather than the numbers following from the rules as at present.

"You would have the scope to vary the scale of net immigration by varying the rules, by choosing how tight the rules should be."

The report also questioned the "ancestral rights" registration, which allowed just under 60,000 people to follow their relatives to Britain in 2006, and said the Government could modify the rights of such relatives if it chose.

"The Government should give further consideration to which channels of immigration should lead to settlement and which ones, if practicable, should be strictly temporary," it added.

Of the points-based system, which breaks immigration into five new tiers based largely on earning power, the report said: "It is not clear whether the new system will in fact constitute the radical overhaul of the UK's immigration system suggested by the Government.

"There is a clear danger of inconsistencies and overlap."

The Government's decision to use Gross Domestic Product (GDP) as the main measure of immigration's economic contribution was "irrelevant and misleading", added the report. Instead, the yardstick should be income per head of population, or GDP per capita.

The report says: "In the short term, immigration creates winners and losers in economic terms. The biggest winners include immigrants and their employers in the UK. The losers are likely to include those in low-paid jobs and directly competing with new immigrant workers.

"Our general conclusion is that the economic benefits of positive net immigration are small or insignificant."

Tory Shadow Home Secretary and Haltemprice and Howden MP David Davis said the report "demolished the Government's claim on several fronts" and proved that current immigration policy was of "largely non-existent" benefit to ordinary UK citizens.

"There is a series of long-term risks to the economy, not least the disincentive to train, and it presents absolutely no answer to the pensions crisis," Mr Davies said. "We are delighted they say there should be an explicit target range for immigration through controls on non-EU applicants.

"This is a policy that we have been arguing for, for years and which the Government has consistently rejected."

Liberal Democrat home affairs spokesman Chris Huhne said the report showed the Government had "completely lost track of the number of people who live in this country".

He said: "We have to be tougher on non-EU immigrants precisely because there are so many more EU immigrants than the Government predicted.

"We must get back control of our borders with an effective national border force and proper entry and exit checks."

The chairman of pressure group Migrationwatch, Sir Andrew Green, said the Government should now have "no alternative but to implement a sharp reduction in numbers". He added: "The public will accept nothing less."

But Immigration Minister Liam Byrne described the report as a "welcome contribution to our huge immigration shake-up".

He added: "This year will also see the establishment of a new UK Border Agency to give the UK one of the toughest border protection systems in the world and the return of systems to count foreign nationals in and out of Britain."


Main points in report

Record immigration levels have had "little or no impact" on economic well-being and could have made it more difficult for some people to find work.

The Government's claim that immigration is needed to prevent labour shortages is "fundamentally flawed".

Ministers should set a target range for immigration and set the rules to keep within that limit.

The rights of relatives to follow their family members to the UK should be modified.

The Government's new points-based immigration system comes with "a clear danger of inconsistencies and overlap".