The Obr And Immigration

This year’s report
by the Office for Budget Responsibility (OBR) on the sustainability of the
government’s fiscal position included an Annex on immigration. This suggested that the UK’s public debt / GDP
ratio would be considerably enhanced by a higher level of immigration.

The report is remarkably frank about the lack of
evidence for any significant economic benefits as a result of immigration. However, its remarks about the positive
impact of immigration on the debt / GDP ratio underplay its temporary effect
and ignore the wider consequences of another 14 million people.

Their review of the economics concluded that “In
our attempt to summarise the vast literature on the impact of migration on the
labour market and productivity we have not found definitive evidence on the
impact of immigrants on productivity and GDP.
Most of the literature seems to indicate that immigrants have a
positive, although not significant, impact on productivity and GDP…..”
(paragraph A 45). (No mention was made
of the fact that most of the benefit accrues to the migrant. Nor was there any mention of the substantial
additional costs of immigration which are not measured by fiscal calculations
such as interpretation, health, security, integration, remittances etc.)

In view of this outcome, they assumed
that immigrants have the same economic characteristics as natives while being
more concentrated in the working age group than the overall population. They went on to admit that “because of the
mechanical nature of our model, this has a positive effect on participation
rates……and ultimately on GDP and GDP per capita growth (paragraph A 31).

As regards the fiscal impact of immigration they
recognised that “Although it is not possible to quantify the net fiscal impact
of migration in our projections, the impact is likely to be positive because a
greater proportion of migrants are of working age” (paragraph A 32).

They continued “Over the last decade, studies of
the fiscal impact on the UK public finances seem to agree around a positive,
although often not significant, effect because of the working age and nature of
migrants (paragraph A 35). 

The bottom line is that they found no particular
economic benefit from large-scale immigration. 
It is simply that the additional numbers, with a higher proportion of
working age, reduce the ratio of the public sector debt to GDP. Even this is temporary as they recognise that
“It should be borne in mind that, over an even longer horizon, inward migrants
will also retire from the workforce creating new age-related spending pressures”
(paragraph 42). So higher migration
could be seen as delaying some of the fiscal challenges of an ageing population
rather than a way of resolving them permanently.  Put another way, it would be a temporary fix
that, in effect, passed the problem on to our grand children.

report took no account of the effect of an additional 14 million people over
the next 50 years, two thirds of them a result of immigration, on the social
and environmental scene in Britain.

6th August 2013 - Economics, Health, Population

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