Most claims that immigration is good for the economy are made simply on the basis of economic growth. Obviously, the more the people there are the bigger the economy is likely to be, but what matters is changes to GDP per capita, the size of the economy divided by the number of people in the country.
In 2008 the House of Lords Economic Committee conducted the first major study of the overall impact of immigration on the UK economy and concluded that:
We have found no evidence for the argument, made by the government, business and many others, that net immigration – immigration minus emigration – generates significant economic benefits for the existing UK population.
The overall conclusion from existing evidence is that immigration has very small impacts on GDP per capita, whether these impacts are positive or negative. This conclusion is in line with findings of studies of the economic impact of immigration in other countries, including the US.
(To read this report click here)
In hard numbers, the Office for Budget Responsibility (OBR) calculated in 2014 that net migration of 225,000 a year would add an average of 0.4% to GDP annually yet it would also add to the population at the same rate meaning that GDP per capita would not improve. Moreover, net migration on this scale would add 21 million to the population by 2064, raising it to 85 million.
Similarly, in a paper published in May 2016 the National Institute for Economic and Social Research (NIESR) projected on the basis of economic modelling that GDP per capita would be barely affected by a reduction of two-thirds in net migration, with a trivial difference of less than 1% by 2065 compared with migration continuing at high levels.
A previous study by the National Institute for Economic and Social Research, carried out for the European Union, found that the long-run impact of migration from Eastern Europe between 2004 and 2009 could actually depress UK GDP per capita by -0.17%.
Whereas the OBR assume for simplicity that all migrants have the same economic impact, this NIESR study supports our own work that observes very different economic characteristics of different migrant groups. (See here for our work on this)
Overall, there is little solid evidence to suggest any marked benefit in the long-term merely from growth driven by increasing population, certainly compared to the dis-benefit of over-crowding and pressure on public services that would result especially from large increases in population. The OBR (and NIESR) are clear that their economic modelling and forecasts take no account of these potential negative externalities.
Like everyone else, migrants pay taxes when they earn more than a certain amount but also have money spent on them in welfare and when they use the National Health Service and other public services. The OBR makes the assumption for forecasting purposes that, because migrants are likely to be of working age when they arrive, they will make a more positive contribution to public finances than the overall population which obviously includes a large number of older retired people. This assumption means that they forecast that high levels of net migration would result in a slightly faster drop in the UK's debt to GDP ratio over the next twenty years than would otherwise be the case. However, the debt to GDP ratio would then start to rise again because migrants will themselves age and push up public spending by their increasing use of the health service and in pension costs.
As the OBR admits:
higher migration could be seen as delaying some of the fiscal challenges of an ageing population rather than a way of avoiding them.
Mass immigration is not the answer to an aging population because migrants get old too. A Ponzi Scheme of ever increasing net migration to try to constrain the dependency ratio of working age to non-working age people cannot be sustainable in the long term.
In addition, there are question marks over the OBR’s assumption that working age migrants are bound to benefit to public finances. There is wide variation in the economic performance of migrants as referenced above. Those in high-skilled, high paid jobs will make a positive contribution but those in low-paid work who pay little or no tax will almost certainly not. Although the relatively younger age of the immigrant population is often hailed as a positive, this means that either now or later they are likely to have children themselves and official statistics from the ONS on the effect of taxes and benefits on household income show that families with children in the lower half of the income distribution are all net recipients of government spending by a considerable amount. Therefore, the contribution of immigration to public finances depends on a number of factors that mean any given fiscal contribution cannot simply be assumed just from the number of migrants in the UK and/or that they are all directly equivalent to the existing population.
Looking at the evidence of what has happened (as opposed to future scenarios) it now seems beyond doubt that migration has actually been a considerable cost to the exchequer. Even on assumptions favourable to migrants, the most recent and extensive academic research found that migration from 1995 to 2011 had cost the taxpayer over £110 billion that is about £18 million per day. This resulted from a lower employment rate of migrants overall, lower wages for some particular groups, and the cost of providing public services and benefits. All of these factors remain in place to the present.
Estimating the size of any migrant impact on the exchequer is a complex matter. There are no precise statistics available to the public so results very much depend on the assumptions made by researchers. The argument turns, of course, on what is paid in direct and indirect taxes by migrants compared to what is spent on them directly plus any increase in general costs caused by migration.
There is consensus that the correct broad approach was outlined in a seminal paper for the Home Office by Gott & Johnston in 2002. The authors made it clear that they had produced only tentative and uncertain results while providing clear pointers as to what would be necessary for more certainty. Their work was updated in a 2005 IPPR paper whose authors used the same methodology and made the same caveats. (See here) In 2008 Professor Rowthorn of Cambridge University showed the very wide variation in possible results that could result from varying assumptions. (See here)
In 2014, the Centre for Research and Analysis of Migration (CReAM) at UCL produced a finalised paper on the overall impact of migration from all countries between 1995 and 2011. Their findings were that immigrants in the UK had resulted in an overall fiscal cost of between £114bn and £159bn over the period, with a negative contribution from recent arrivals from Eastern Europe after 2008. (See here). Migration Watch UK comments on that work can be found here.
Migration Watch UK, using similar methodology to CReAM found that all migrants were a net fiscal cost of £17 billion in 2014/15 (see here) with a negative contribution of at least £1.5bn from recent arrivals from Eastern Europe. This is in line with the general downward trend in net fiscal effect over time observed by CReAM.
Updated November 2016