Is migration good or bad for the UK economy?

It’s just over a year since the UK voted to leave the European Union (EU), and just over a few months since the government triggered Article 50 and start two years of negotiations to thrash out a deal for Britain’s exit.

It’s safe to say the whole affair has been something of a farce since the votes were counted, and while the leave vote was cast largely on NHS funding and immigration, the only thing that’s become clear since the vote is that these two issues will not be dealt with as promised.

And that means migration is still a hot-potato in British politics and among the electorate – those who oppose it insist it’s bad for the job prospects of British-born citizens, while those in favour insist it’s essential to grow a thriving and culturally diverse country.

So, is migration good or bad for the UK economy?

The war of the words

Unfortunately, as with most things in UK politics,  whoever shouts loudest gets the ear of the press and the public, and so just last week we were treated to the spectacle of the leave campaign’s latest attempt to rile the masses into an EU exit.

In arguably the most overtly racist piece of campaigning since Enoch Powell’s ‘Rivers of Blood’ speech, UKIP leader, Nigel Farage, stood proudly in front of a poster that wouldn’t have looked out of place in  a Nazi propaganda piece.

nigel-farage-accused-of-xenophobic-fear-tactics-over-disgusting-brexit-poster-136406830219703901-160616153009

It’s also completely wide of the mark. If anything, the opposite is true…

The case for migration

A new report by the International Longevity Centre – UK (ILC-UK), a futures organisation focussed on some of the biggest challenges facing Government and society, has found that migration could boost the economy by £625 billion (an increase of 11.4%) by 2064-65.

New analysis of Local Authority data found that fears that migrants from the European Economic Area (EEA) are crowding some British citizens out of the labour market are unfounded, as on average those local authorities with higher levels of employment amongst non-UK born citizens also have higher employment rates for the white UK born population.

The report, ‘Immigration: Encourage or Deter?’ describes the challenges posed by the UK’s rapidly ageing population

  • Between 2000 and 2050 the number of over 65s is expected to double, while the working age population (20-64 years) will only increase by 20.1%
  • The number of over 85s is expected to more than quadruple between 2000-2050
  • Between 1950 and 2013, the number of working age people for every person over 65 has fallen from 5.5 to 3. This is expected to fall further to 2.2 by 2050*

As the UK’s dependency ratio (the number of people of working age (20-64 years) for each person over 65) declines, tax revenues will fall and public debt as a proportion of GDP will rise. Increased demand for the State Pension and health and social care services from our rapidly ageing population also impact the sustainability of public debt.

The report also notes that while the UK Government has committed itself to raising the State Pension Age beyond 65, this will not stabilise the UK’s declining dependency ratio.

Instead, the report argues that migration could help mitigate the spending pressures a rapidly ageing population create. The report notes that:

  • Non-UK nationals living in the UK are more likely to be of working age than UK nationals. 76.5% of nationals from the EEA are between the ages of 15-64, while only 63.3% of British nationals are between the ages 15-64
  • EU citizens in the UK are more likely to be in employment than UK citizens. In 2015, the employment rate for EU citizens in the UK was 82%. For UK citizens in was 77%
  • Between 2001-2011, migrants from the EEA put in £22.1 billion more in taxes than they took from the state[2]..

New analysis from the ILC-UK shows that if the UK experiences a ‘high migration scenario’ between 2016 – 2064-65, GDP will be 11.4% higher (the equivalent of £625 billion) than if the UK experiences a ‘low migration scenario’. By 2030, the economy could be £71bn bigger (2.9%) and by 2050, £324bn bigger (8.2%).

Migration is also likely to support the sustainability of government finances: under the ‘high migration scenario’** public debt as a proportion of GDP is expected to stand at 70% by 2064-65. Under a ‘low migration scenario’, public debt is set to rise to 104% of GDP.

Ben Franklin, Head of Economics of Ageing at the ILC-UK said:

“Immigration is no silver bullet. The UK’s ageing population is a dramatic shift that will require a myriad of policies to help achieve desirable outcomes. However, we must recognise the benefits of immigration as a means of coping with the challenge. Migrants are typically of working age, in employment and make a net positive contribution to government finances by contributing more in tax than they take out in benefits”.

“Whether we remain in the EU or not, the UK will have to accept that migrants will play a large role in the future of the labour market, as it does in most other developed economies. As long as the UK has a strong and growing economy, more people will want to come to the UK than to leave it. Since migration helps to support growth and the sustainability of public finances as our society ages, we need not fear it.”

References

*Historical population data and projections, 1950-2050, OECD

**Dustmann and Frattini (2014) The fiscal effects of immigration to the UK, The Economic Journal3. As defined in the Office for Budget Responsibility’s 2015 Fiscal Sustainability Report

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