In recent days the BBC have been repeating as if it were a fact a claim that the Office for Budget Responsibility has forecast that reducing net migration to 100,000 a year would cost the Exchequer up to £6bn a year.
This followed Thursday’s Newsnight review of the Conservative manifesto in which their presenter repeatedly referred to this without giving any context or any detail about the assumptions underpinning the OBR’s forecasts.
The OBR assumes that migrants have the same economic characteristics as people of the same age and gender in the existing population and, therefore, that they will make a similar contribution to public finances, which for most of the working-age population is positive overall. However, this is a questionable assumption especially in relation to the likely economic performance of new arrivals as, for example, it attributes to any 30 year-old male on arrival the same employment prospects, earnings etc., as a 30 year-old lifelong resident. But, in fact, large numbers go into lower skill-level jobs and, as a consequence, have lower earnings and pay less tax.
There is no dispute that, while some migrant groups make a positive contribution to the Exchequer, others do not and that, within every group, some individuals will contribute and some will not. The OBR do concede this. They accept that their assumption would not hold for all migrants but they maintain that this assumption provides a reasonable guide to the overall effect of net migration in their long-term projections.
However, even if this is so, the present context is the possibility of reducing net migration through tighter and more discerning controls on immigration for work. The OBR forecast appears to assume that reductions in net migration are as likely to affect someone coming to fill a £100,000 a year job as someone seeking whatever minimum-waged work might be on offer.
This is of course the opposite of proposals made by Migration Watch UK (among others). Indeed, the Government’s intention is precisely to prevent the free flow into the UK of people coming for low-paid work. In practice they are unlikely to make anything like an average fiscal contribution and in many cases would be an actual fiscal cost.
Important evidence for this was published in 2016 by HMRC and the Department for Work and Pensions. These publications showed that in 2013/14, while nationals of the original EU14 member states paid more income tax than the average taxpayer, EU10 (East European) nationals paid less than the average taxpayer and also received considerable amounts of welfare payments. Indeed, the working age benefit bill for EU nationals exceeded £4bn in the year, and may well have increased significantly since then in line with increasing numbers of EU10 nationals who have arrived in the UK following the final lifting of transitional controls on Romanians and Bulgarians.
I would go further. The assumption that migrants overall make a positive contribution to public finances over the longer term has no basis in fact. The leading academic research in this area for the UK found that between 1995 and 2011, the fiscal cost of immigrants in the UK was well over £100 billion. Clearly, skilled migrants in high paid jobs will make a positive contribution but those in low-paid work who pay little or no tax will almost certainly not. The make-up of the migrant population is therefore hugely important in determining their fiscal contribution.
Nevertheless, the OBR seems simply to assume that the mix will be unchanged. That is clearly wrong. It is now clear that government policy, following Brexit, will be to change that mix by restricting the numbers of lower-skilled and lower-paid migrants who contribute the least. Indeed, our own research suggests that this could reduce net EU migration to the UK by perhaps 100,000 a year. Naturally, this is likely to be positive for the public finances.
Furthermore, the OBR is very clear indeed that its forecasts take no account of potential costs associated with large-scale population growth such as congestion and pressure on public services. These remain major factors in the widespread concern about current massive levels of immigration that was so important in the outcome of the referendum. They must not be obscured, nor their importance minimised, by statistical noise.