By Chris Dorrell
In last week’s Spring Budget, the Chancellor was clear that he did not want to build an economy that was reliant on cheap foreign labour.
“Our plan,” Jeremy Hunt said, “is for economic growth not sustained through migration, but one that raises wages and living standards for families. Not just higher GDP, but higher GDP per head”.
Sir Keir Starmer argued the Chancellor was saying one thing while doing another.
Discussing his own plans for boosting the economy, Starmer said “I don’t think that it should be done in the way the government has done it… their only plan for growth is migration.”
The exchanges made it clear that both parties want to reduce immigration. However, neither party is willing to be honest about the potential costs.
The latest forecasts from the Office for Budget Responsibility (OBR) show growth accelerating over the next couple of years, with the improvement explained – at least in part – by higher levels of immigration.
The OBR now thinks that net migration will average 350,000 over the next five years, up from a previous estimate of 290,000.
While the fiscal watchdog said its forecasts were uncertain, the economic impacts look clear. As well as lifting growth, more immigration is also expected to reduce borrowing to the tune of £7.4bn by 2028-29.
Why? Historically migrants are more likely than the domestic population to be economically active, and therefore pay taxes, the OBR said.
The vast majority of migrants also face limitations on their ability to take out benefits, meaning government spending barely moves.
While it is true that higher levels of immigration puts pressure on already squeezed public services, in the short term, the economic benefits of immigration outweigh the costs.
But things might look a little bit more complicated over the longer term, as the OBR itself acknowledged.
“The fiscal impacts of migration are likely to become less beneficial over time, reflecting that after a minimum of five years, migrants can apply for indefinite leave to remain and therefore become eligible for welfare benefits,” it said.
However, what little research has been done in the UK points in the opposite direction.
Analysis from Oxford Economics shortly after the Brexit vote showed that the 2016 migrant cohort – including both EU and non-EU migrants – was likely to add a total of £26.9bn to the Treasury.
Put another way, the fiscal boost from migration in 2016 was the equivalent of adding 5p to all three income tax rates for one year.
Whether those conclusions still stand is difficult to assess as the composition of migration has changed substantially since Brexit. Students and dependants are less likely to be economically active, and they now make up a much larger proportion of migrants than before the UK left the European Union.
But there’s strong evidence suggesting that they too eventually join the workforce and start contributing to the economy.
“Migrants may come as students or dependants, but that doesn’t mean that they can’t work, and it turns out that a large proportion do,” Jonathan Portes, professor of economics and public policy at King’s College, noted.
For example, the OBR said that the rate at which migrants join the workforce after coming to the UK to study has increased from 30 per cent in 2019 to 48 per cent in the year to June.
This was largely a result of reintroducing the post-study work visa, which gave students the right to work in any job for two years after finishing studying.
In short, if the government – no matter its political stripe – tries to drastically slash immigration, it is in danger of cutting off one of the UK economy’s success stories.
