Response To Comments On Our Report On The Fiscal Impact Of Immigration

Has Migration Watch UK “distorted UCL research”?

Not at all.  This can only be based on a misunderstanding or misreading of our paper.

UCL/CReAM calculated a scenario in which business taxes were shared out as an equal cost among everyone in the UK including even the most recent arrivals, and  a scenario in which they were only shared among the UK-born population and those who had arrived before 2001. The second scenario shows a higher fiscal cost. Migration Watch UK reproduced both these scenarios.

UCL/CReAM reported the first scenario as its headline result and relegated the higher-cost scenario to the back page of their paper. While Migration Watch UK thinks the second scenario is to be preferred, it put the results from both scenarios one after another in the main body of its paper precisely to ensure transparency and to ensure that readers could make a direct like for like comparison with the UCL/CReAM headline results.

The purpose of the Migration Watch UK paper is not to challenge the UCL/CReAM research, which has the particular value of observing the annual fiscal impact of immigration over a number of years, but to estimate the current fiscal impact to see how this has evolved since the period they observed. Necessarily, this means  using as far as possible the same evidence base and methodology, otherwise no relevant comparison can be made.

The UCL/CReAM headline scenario is the only one available for comparison, as they did not break down their alternative scenarios on a year by year basis. Compared to the final year they observed, using the UCL/CReAM headline scenario, Migration Watch UK finds that in 2014/15 the fiscal position of arrivals from 2001 onwards from the A10 Eastern European countries has deteriorated to a net fiscal cost of around -£1.5 billion, and that of arrivals from 2001 onwards from the rest of the EEA (comprising the EU14 together with Iceland, Norway and Switzerland) has improved to around £3 billion. Earlier arrivals from all parts of the EEA are a cost of nearly -£1.2 billion. The net fiscal impact in 2014/15 of non-EEA migrants is a cost of -£3.8 billion for those arriving from 2001 onwards, and -£9.6 billion for earlier arrivals. These results are compared with the UCL/CReAM observations in previous years in the charts at the foot of this blog.

These figures are all shown in Table 3 in the main body of the Migration Watch UK paper.

It is absolutely the case that Migration Watch UK made only slight differences in assumptions in its calculations. These included for example applying effective tax rates to more accurately estimated income, and better alignment of children’s ages with expenditure headings for schools in PESA. In the business tax scenarios, Migration Watch made no different assumption in the first scenario, and in the second scenario actually allocated more business tax to EEA migrants.

In the circumstances it is very disappointing and quite untenable for InFacts to claim that Migration Watch UK in any way ‘distorted’ the UCL/CReAM research.

For the reasons why Migration Watch UK believe the second scenario is to be preferred, see the question below.

Why does Migration Watch think it is an extreme view to share out business taxes as an equal cost among everyone in the UK, including EEA migrants?

No one disputes that EEA migrants fall into two quite distinct categories in term of earnings and this will be reflected in their ability to acquire investments in the UK.

As the group comprising the EU14 together with Iceland, Norway and Switzerland might well have the financial capacity to accrue investments from when they arrive, those arriving from 2001 onwards were treated as reaching over time the average for the prior resident population. In the Migration Watch UK central scenario this did not mean allocating no business taxes, but business taxes at half the average rate, assuming no investments on arrival and that accrual at a straight-line rate would bring their investments up to the average after fourteen years. Business taxes were allocated at the average rate to all EEA migrants who first arrived before 2001. So it is quite incorrect to say that Migration Watch allocated no business taxes to EEA migrants.

The group comprising migrants from the A10 Eastern European countries are in contrast characterised by much lower earnings than average and comprise large numbers of singles or people in couples with children. The ONS Wealth and Assets survey showed that working-age single person households had median net financial wealth of £600, and couple households with dependent children had  median net financial wealth of £2,900. From an income point of view, households even in the third income decile had median net financial wealth of £1,400. These figures compare with overall median financial wealth of £5,800. This group is also characterised by being of young age – and nearly half of people in the UK under the age of 35 have financial wealth of less than £500. It should be borne in mind too that financial wealth includes money held in current accounts, and that a quarter of the population has no formal financial asset beyond what is in their current account.

It is for these reasons, that it seems extreme indeed to allocate business taxes – as a proxy for investment interest in UK plc – to this group on an average basis because on the key criteria that denote household wealth this group is simply not average. These have to be taken together too with the fact that on arrival they are unlikely to have any formal financial UK assets at all.

The Migration Watch UK central scenario, in allocating business taxes at the ‘full’ rate to all EEA migrants in the long term, at a half rate to more recently-arrived Western Europeans, and a nil rate to more recently-arrived Eastern Europeans seems far more realistic than allocating them at a ‘full’ rate to everyone from the moment that they enter the UK.

Do your report calculations take into account that migrants coming here have had their education already paid for?

No, because this would mean crediting them with an imaginary contribution. When someone arrives in the UK from Portugal for example, their education might have cost Portugal £20,000, but they do not bring that sum with them and pay it into the Exchequer. The paper looks – as does previous research – at the fiscal balance. While of course on the one hand there are arguably non-fiscal benefits like this, on the other there are non-fiscal disbenefits like rising rents and over-crowding.

Doesn’t the government say that data released by HMRC only last week showed recently-arrived EU migrants paid £2.5billion more in tax than they received in tax credits or child benefit in 2013/14.

That may be, but it is simply nonsense to call this a net fiscal contribution. A comparison just of personal taxes paid directly to HMRC with cash benefits paid out directly by HMRC is not in any way a measure fiscal impact. The same calculation for the whole population – putting over £260 billion of income tax and national insurance against £41 billion of tax credits and child benefit – would suggest the UK is in fiscal credit to the tune of over £200 billion. On this basis the Chancellor would not have a deficit to deal with.

May 18th, 2016

What difference does the treatment of business tax make to our results?

‘Business taxes’ are made up of Corporation Tax and Business Rates. Both are taxes on businesses rather than individuals, and so may be treated as falling essentially on the shareholders in the company. The central assumption by previous researchers was that everyone had the same stake in UK companies regardless of when they arrived in the UK, so that even a new arrival on day one had the same investment portfolio as a lifelong resident. After this issue was raised by a number of commentators, the researchers calculated an alternative scenario in which these taxes were allocated to long-term residents only.

The Migration Watch UK analysis repeats these two scenarios. In both cases the total cost of immigration is high, around £17bn in one and £13bn in the other (see the black line in the two charts below). While it is of course a matter of debate as to the degree to which these taxes should be treated as falling on different groups, it does not fundamentally change the result, and the following figures show how the two different scenarios match the results of the earlier CReAM research.

17052016 Fiscal Chart 1

170516 Fiscal Chart 2

To read our full report, click here.

17th May 2016 - Economics, European Union

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