Immigration and the EU Referendum

In my last blog post (Thoughts on the EU Referendum) I quickly skated over some of the immigration issues and was accused by some of not doing justice to the arguments. So let's look a little deeper.

I should start by being clear that my direct personal experience of EU migration has been overwhelmingly positive. As an employer I see the positive side of immigration: young productive people who come here to work, earn money, pay taxes and - in many cases - ultimately return home. The EU migrants that I see couldn't be further from the benefits tourists of tabloid mythology.

I'm well aware that I'm not somebody who is ever likely to perceive myself as competing with migrants for a job and I live in an area that nobody could describe as being "over-run with migrants". Both morally and practically I'm broadly in favour of  migration and my personal circumstances are such that that's a reasonably easy position to adopt.

The point I'm making here is that I'm aware that I risk being guilty of confirmation bias, of seeking evidence that supports my preconceptions. So with that potential bias declared, let's look at some practical realities.

First of all we should be clear that the refugee crisis has nothing to do with our EU membership. The UK was able to opt-out of the Schengen free travel area, so we have border controls and passport checks on immigrants coming from EU countries. That’s why there are refugee camps in Calais; the nature of the UK’s membership of the EU is such that we can prevent non-EU migrants from moving to the UK. Remain or Leave makes no difference to that - it won't stop there being asylum seekers desperate to reach the UK and it won't stop us being able to refuse them entry if that's what we choose.

Secondly a vote for Leave is not necessarily a vote to put a brake on EU migration. Both Switzerland and Norway – who are outside the EU – have far higher levels of EU migration (as a proportion of their populations) than the UK. They comply with the EU’s free movement rules, presumably because they consider this a price worth paying for free trade agreements with the EU.

Thirdly - as covered thoroughly by Full Fact - despite the growth in EU migration in recent years, the majority of migration to the UK still (just) comes from outside the EU.

The EU doesn’t stop us addressing non-EU migration, that is fully within our control.

Which brings me to the final point: the net economic impact of migration.

We’re living longer which means there’s upwards pressure on age-related spending such as pensions, healthcare and social care costs. Migrants tend to be younger people of working age who consume goods and services, pay their taxes and are net contributors to the UK’s public finances. Migrants from the EU are far more likely to have a job or be seeking work than those from outside the EU, so are of the "more likely to contribute" kind.

That's the logic, but what about the research to back it up? I've tried to avoid my own confirmation bias and done a trawl of available research which I summarise below (with links to the full reports in case you want to check if I've been selective with my quotes).

The bottom line is that there seems to be unanimity that EU migration specifically (as opposed to immigration overall which includes less economically productive non-EU migrants) is net positive to the UK's public finances. That's not to say that the freedom to fully control our immigration policies with respect to EU countries might not allow us to make immigration even more beneficial to us, but it shows up the argument that EU migrants damage the UK economy to be the populist nonsense that it is.

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The Strongly Positive

• The IFS: Immigration Limits Won't Lift Britain (June 2016)

"immigration from the EU is good for the public finances. Young people in work contribute, on average, much more in taxes than they take out in benefits and public service spending. [...] Without high net immigration the public finances would be in a worse state. If we were significantly to reduce the number of EU migrants, we would have to borrow more, raise taxes or spend less."

• The Economic Journal: The Fiscal Effects of Immigration to the UK (2014)

"Our findings indicate that, when considering the resident immigrant population in each year from 1995 to 2011, immigrants from the European Economic Area (EEA) have made a positive fiscal contribution, even during periods when the UK was running budget deficits, while Non-EEA immigrants, not dissimilar to natives, have made a negative contribution. For immigrants that arrived since 2000, contributions have been positive throughout, and particularly so for immigrants from EEA countries. Notable is the strong positive contribution made by immigrants from countries that joined the EU in 2004."

•  Centre for Economic Performance, LSE: Brexit and the Impact of Immigration on the UK (May 2016)

"EU immigrants pay more in taxes than they take out in welfare and the use of public services. They therefore help reduce the budget deficit. Immigrants do not have a negative effect on local services such as crime, education, health, or social housing"

• Office for Budget Responsibility: Fiscal Sustainability Report (June 2015) 

"The migration scenarios illustrate that migration reduces upward pressure on debt over our 50-year projection period"

• University College London: Positive economic impact of UK immigration from the European Union (November 2014)

"European immigrants to the UK have paid more in taxes than they received in benefits, helping to relieve the fiscal burden on UK-born workers and contributing to the financing of public services"

• The IPPR: Europe, Free Movement and the UK (April 2014)

"The IPPR is clear in saying that free movement within the European Union brings great benefits to all of its member states, including the UK."

The More Nuanced 

• The OECD: Is Migration Good For The Economy (May 2014)

"Immigrants are thus neither a burden to the public purse nor are they a panacea for addressing fiscal challenges. In most countries, except in those with a large share of older migrants, migrants contribute more in taxes and social contributions than they receive in individual benefits."

• The NIESR: The Long-term Economic Impact of Leaving the EU (May 2016)

"there is evidence that EU migration has net fiscal benefits for the UK, and these might counterbalance any positive fiscal impact from repatriating the UK’s net contributions to the EU.26 At the same time, it is at least conceivable that if the freedom to set migration policy were used optimally, then this might have some positive impact on productivity."

• The NIESR: The Treasury's Brexit analysis and immigration (April 2016)

"... if post-Brexit the UK chose to adopt a restrictive migration policy  - that if it chose to use the newly won flexibility afforded by Brexit to significantly reduce migration – that this would significantly damage the UK economy. However, if the UK adopted a relatively liberal policy – that is if we allowed a substantial increase in non-EU migration to partly counterbalance any reduction in EU migration – that any negative impacts would be mostly mitigated and indeed, if sufficiently liberal, there would even be economic gains"

• The Migration Observatory, University of Oxford: The Fiscal Impact of Immigration in the UK (March 2015)

"The evidence suggests that the fiscal impact of migration in the UK is small (less than +/-1% of GDP) and differs by migrant group (e.g. EEA migrants vs non-EEA migrants, recent migrants vs all migrants)."

• Migration Watch: The Fiscal Effects of Immigration to the UK 2014/15 (May 2016)

negative contributions by immigrants from the EU A10 group of countries and countries outside the EEA outweighing a positive contribution by immigrants from the EU15/other EEA countries [...] Estimates for the whole immigrant population residing in the UK in the fiscal year to end-March 2015 are that immigrants from EEA countries made a negative contribution of £1.2 billion in the year while those from non-EEA countries made a negative contribution of £15.6 billion, compared to an overall negative fiscal contribution by the UK-born population of £88 billion.

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It's worth looking at the Migration watch figures a little more closely as it stand out as being the only analysis to suggest a negative contribution for EEA countries (i.e EU + Iceland, Liechtenstein & Norway).

A quick read of the report shows these figures are based on the "average cost" method - that is public expenditure costs are allocated to migrants whether or not the presence or absence of migrants affects these costs. For example, defence costs are attributed to migrants on a population share basis as are things like medical research and street lighting. Clearly (unless you think we'd cut these budget if we had less migration) this is at best a rather dubious way to look at the figures. Migration Watch deal with this themselves in their own Appendix B where they state

where these expenditures will not vary directly in proportion to the size of the population, a different approach is to say that the cost to be allocated to migrants should be reduced to take account of the fact that the increase in population resulting from migration does not increase these costs to the same extent. This is the marginal cost method.

They say "different", I say "better".

Below is a table summarising Migration Watch's  own analysis on both a marginal and average cost basis and - lo and behold - on this more meaningful basis even Migration Watch show EEA Immigrants making a net positive fiscal contribution.

*** UPDATE ***

I'm indebted to Jonathon Portes of NIESR for highlighting the distorting assumption Migration Watch make about business taxes. They use the incredibly pessimistic assumption that immigrants don't make any contribution to business taxes (corporation taxes, business rates, capital gains tax) until they have been in the UK for more than 10 years. As UCL have pointed out, this is counter to their own peer-reviewed, evidence based assumptions. We can safely say that Migration Watch have gone out of their way to paint the worst possible picture of the impact of migration - and even they struggle to show EU-Migrants being anything other than positive contributors to the UK's finances

*** UPDATE ENDS ***

EU migration is not one of the causes of the economic challenges we face, it’s one of the solutions to them.

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