Long term illegal immigrants should pay tax and National insurance and be given legal status, according to a Lords report.

But an amnesty on people who have entered the UK illegally should be "handled very carefully" to prevent others from taking advantage.

Long-term residents should not remain in an irregular position

Lords EU committee

The House of Lords European Union committee argued that "some form of regularisation of long term illegal immigrants is unavoidable" if a growing underclass of people who are "vulnerable to exploitation" is not to be created.

"It is in the interests of society as a whole that long-term residents should not remain in an irregular position, but should pay their taxes and National Insurance contributions as well as have proper access to public services," the committee's report says.

"Any such regularisation needs to be handled very carefully to minimise the 'pull factor'.

"It may be preferable to deal with cases on an individual basis rather than on the basis of a large-scale amnesty."

Skilled workers

The peers welcome government steps to increase opportunities for legal employment for people from abroad.

But they argue that ministers should open up a legal migration channel to allow skilled workers unfettered access into the UK.

The report's findings come as an immigration pressure group warns that London and south-east England faces a crisis in public services unless ministers cut the arrival of asylum seekers.

Migration Watch UK claims mass immigration is damaging services in the capital and even the position of settled minorities.

The National Audit Office has also weighed into the debate by stressing that the cost of legal aid for asylum seekers has doubled and is still rising.

Taxi drivers

But the Lords report argues that it would be better to allow in skilled workers without censure to fill the shortage in professions such as medicine and teaching.

However, the influx of cheap illegal labour is putting pressure on the market for unskilled work, with many young and skilled immigrants turning to work illegally in sandwich bars and taxi firms, it says.

"If legitimate ways for foreign workers to enter the labour market were increased and accelerated, governments would have no justification for turning a blind eye to illegal working and would have an incentive to crack down on it more effectively," the report says.

"Illegal immigration poses a serious problem to almost all the member states and to the EU as a whole.

'Finding a better life'

"Trafficking in human beings is a particularly pernicious crime and the involvement of organised crime in people-smuggling is a matter of serious concern.

"Despite its possibly positive economic effects, illegal immigration undermines the whole structure of legal migration and places increasing strain on a country's social acceptance of immigrants."

But the peers warn that in its attempts to manage illegal immigration effectively, the government must not forget they are dealing with people, many of whom are motivated by a desire for a better life.

However, they welcome Home Office research into the scale and nature of illegal immigration and recommend that it should be pursued energetically.

Attention should be given to producing a reliable estimate of how many immigrants stayed in the UK longer than they are allowed, they added.