Gordon Brown yesterday launched a staunch defence of the UK Government's immigration policy, insisting it had benefited Britain "very substantially" and that a cap on migrants as proposed by peers and the Conservatives would deprive the country of highly skilled workers.

However, last night David Davis for the Tories stepped up his party's attack, saying the Prime Minister was "in denial" and that their policy of placing a ceiling on numbers "would ensure Britain attracted not only the right people but also the right number of people".

Earlier, the Prime Minister defended his policy on migrant workers after the House of Lords economic affairs committee claimed high levels of immigration had brought "little or no" economic benefit to the UK.

It called for a cap on migrant levels, saying the UK Government "should have an explicit target range" and set rules to keep within that limit. In 2006, net immigration was at a record high of 190,000.

Peers also claimed that high levels of migrants had harmed the job prospects of young, low-paid and unskilled workers and argued that Whitehall's assertion - that immigration was needed to prevent labour shortages - was "fundamentally flawed".

Moreover, they warned that the much-trumpeted new points-based immigration system carried a "clear danger of inconsistencies and overlap".

In the face of such a devastating critique of his government's immigration policy, Mr Brown told his monthly press briefing that the flow of foreign workers had been good for Britain. He noted how, since 1997, wealth creation had risen from £13,900 per year to £22,840.

"Most people in the City of London know they have benefited very substantially not just from the inward investment that's coming from international companies but (from) the number of key workers coming to join them and making a huge contribution to the British economy," he declared, adding: "But we want to get the balance right between that and, of course, being sensible about the pressures on our economy."

The Prime Minister defended the points-based system, which would ensure that no unskilled workers from outwith the EU would work in Britain. He also pointed out how a cap of potential immigrants would have only limited impact as it would just apply to those outside Europe.

"Most people who are proposing a cap are proposing a cap of only 20% of possible migrants into this country and, of course, many of these people are the highly skilled workers, who are important to the economy," added Mr Brown.

At the weekend, First Minister Alex Salmond made clear that he would like to see more migrant workers coming to Scotland, saying he wanted to "enhance" the advantage of having skilled workers from abroad.

Last night, Chris Hannant from the British Chambers of Commerce supported the PM's view, stressing how the value of immigration to the UK had been "substantial".

He said: "By focusing on GDP, the report ignores the contribution made by migrant labour in plugging the skills gaps that blight our economy."

However, Chris Huhne for the Liberal Democrats said the peers' report had confirmed the UK Government had "completely lost track of the number of people who live in this country" while Sir Andrew Green, chairman of Migrationwatch, which campaigns against mass immigration, said the report had "torn to shreds the government's economic case for the massive levels of immigration".