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Labour has engaged. And, as @Ste_S pointed out, they can't win that way.
http://news.bbc.co.uk/1/hi/uk_politics/7097837.stm
Which legitimized:
http://www.express.co.uk/news/uk/513546/Nigel-Farage-British-businesses-put-UK-workers-first
I agree that Labour should be fighting the lie that immigration is a problem but not engaging on it so far's worked out great, hasn't it?