MWUK press release on the impact of immigration on the public finances


May 17, 2016

In 2014/15, the cost to the Exchequer of immigration was £17 billion

The cost of European immigration was over £1 billion

Migration Watch today issued a working paper on the impact of immigration on UK public finances.

Their finding is that, in 2014/15, those in the UK from other European Economic Area (EEA) countries [1], whatever their date of arrival, cost the Exchequer £1.2 billion or over £3 million a day.

The paper, following previous research, also considered the impact separately of migration from 2001 onwards and found a significant difference between Eastern European and other EEA migrants. For those who arrived from Eastern Europe there was a fiscal cost of £2.8 billion but this was offset by a fiscal contribution of £2.8 billion made by those who arrived from elsewhere in the EEA in the same period. This made the overall effect in 2014/15 of 'recent' EEA migration broadly neutral. Taking only these more recent arrivals gives a more favourable outcome because, like the UK-born, those who have been in the UK for some time tend to cost the Exchequer more as they grow older and start families.

The population in the UK from outside the EEA, whatever the date of arrival, cost £15.6 billion in 2014/15. Those who arrived in 2001 and thereafter cost £6.2 billion in the same year (see the table of results below).

These results cannot, of course, be used as a criticism of migrants. Most of those who are of working age are in employment, or want to be, and many do make a positive fiscal contribution. But many others do not, and the oft-made argument that migration makes a positive contribution to the Treasury and thus contributes to reducing the UK fiscal deficit is clearly not correct in respect of migration overall.

The Migration Watch UK study follows the methodology of the widely-publicised research by the Centre for Research and Analysis of Migration (CReAM) at University College, London and applies it to the most recent year for which data is available.

This new study finds that people who are born in the UK who are of working age make a positive contribution to public finances. However, the cost of pensions turns this into a deficit. For migration to reduce that deficit it would have to itself make a positive fiscal contribution. Yet the key findings of this study are that immigration in the UK, taken as a whole, continues to be a fiscal cost, as it was in each year of the CReAM study. These findings challenge one of the key justifications given for a policy that permits mass immigration.

Commenting, Lord Green of Deddington, Chairman of Migration Watch UK, said:

This report shows that EU migration, taken as a whole, is not making the positive fiscal contribution that has so often been claimed. Furthermore, it is adding to the rapidly increasing pressures on housing and public services. It also contributes to our population increase of half a million every year – roughly a city the size of Liverpool.

1. Table of results

All immigrants (whatever their year of arrival in the UK)Only immigrants who arrived 2001 onwards
EEA- £1.2bnA 10 - £2.8 bn
Other EEA + £2.8 bn
Non EEA- £15.6 bnNon EEA - £6.2 bn
Total- £ 16.8 bn- £6.2 bn

2. Methodology

We have followed the methodology in the CReAM/UCL study closely. Where we have done something different we have carefully explained why. More broadly, we have continued with an approach to the fiscal cost of immigration that has been refined over time by successive researchers. It is notable that a number of our suggestions on the CReAM/UCL discussion paper issued in November 2013 were taken up in their final paper. The CReAM study found a cost of £114 billion (or £18 million a day) over the period 1995-2011 from all migration (see below).

3. Consistency of results

Our results are consistent with the earlier research in the field. The OECD, estimating over a large number of countries, finds that the fiscal impact rarely amounts to more than a single percentage point of GDP either way. Our finding is of a negative impact of slightly less than one percent. This is a cost equivalent to about 2% of government current receipts. Our findings of overall cost in money terms are similar to those of CReAM in the most recent years of the period they examined.

4. Don't the OBR say that we need high migration to reduce the deficit?

The OBR has always made clear that it assumes migrants have the same economic characteristics as the existing population, and thus - all other things being equal - that they contribute in just the same way. We do not think that the data provides support for that assumption, as even the CReAM/UCL paper showed that migration overall had resulted in a fiscal cost. If the overall fiscal impact of immigration to the UK is negative (and our work confirms that finding by CReAM/UCL) then we have been and are actually paying more taxes as a result of migration or have less to spend on public services.

5. But aren't the UK-born even more of a fiscal cost?

The UK-born have a 'fiscal deficit' of around £90 bn. This is more than accounted for by the fact that over £100bn of government spending is on pensions and social care for their elderly. The economic contribution of immigrants varies by group but overall the migrant population is not making a positive fiscal contribution even though it does not (yet) have that large elderly component to support.

6. How is it that Migration Watch UK found a negative contribution from EEA migrants when CReAM found a positive contribution?

CReAM found a positive contribution from EEA migrants only by adding up the fiscal impact over a number of years. What they did not make very clear was that they had observed a downward trend in fiscal contributions across the time period and by the 2011, only the EEA Other group (comprising the EU15 together with Norway, Iceland and Switzerland) was making a positive contribution. So, although CReAM found an overall positive result between 1995 and 2011, the annual fiscal impact of all EEA migrants was negative in the final three years they observed. Our findings are that this remains the case.

7. How is it that Migration Watch UK found a negative cost of £15.4 billion for non-EEA migrants for just one year (2014/15) when CReAM estimated a cost of £115 billion between 1995 and 2011 or around £7 billion a year?

The cost of non-EEA migration increased over the period, and CReAM estimated that by 2009 the fiscal impact of non-EEA migrants in that year was over £15 billion. Our findings are that the annual fiscal cost has remained around this level in real terms.

8. Haven't HMRC just published figures showing recent EEA nationals pay five times more than they get?

No. They only compare receipts of income tax and National Insurance with payments of child benefit and tax credits. The same comparison shows the UK general population paying six times more than they get. While on the one hand the comparison does not include taxes like VAT and excise duties, on the other hand it doesn't include housing benefit or any other DWP payments, and most importantly does not include the cost of any public services whatsoever.

9. HMRC say recent EEA migrants make a net fiscal contribution of £2.5 billion

This is nonsense. No one would describe this sum as a net fiscal contribution for the reasons given in paragraph 8. If the calculation were carried out for the UK population as a whole it would give a 'net fiscal contribution' of over £220 billion. If that were so, the UK would not be in deficit!

10. HMRC say recent EEA migrants pay £3 billion in income tax and National Insurance

That is consistent with our estimation of around £9 billion paid by EEA migrants arriving from 2001 onwards who obviously comprise a larger group than those arriving in the four years used by HMRC. It takes no account, of course, of costs.

11. HMRC say recent EEA migrants only receive £0.5 billion in tax credits and child benefit

This compares with our estimation of around £3.6 billion in working-age benefits paid to EEA migrants arriving from 2001 onwards, again a larger group than the arrivals over a four year period used by HMRC. That is quite consistent too, bearing in mind that we now have official figures for EEA-led claims to DWP benefits of £1.7 billion in 2013/14 (for all years of arrival), and the consensus that claims to tax credits and child benefit - unsurprisingly - are less likely to be made in the earliest years after arrival.

12. Why do you call people arriving in 2001 onwards 'recent'?

To allow comparison with previous research that chose this date as distinguishing two different 'generations' of migrants. We imagine HMRC chose four years because this is the period of their proposed benefit restrictions.

To read the full paper, click here




Notes

  1. The EEA comprises the EU plus Norway, Iceland and Liechtenstein
  1. The EEA comprises the EU plus Norway, Iceland and Liechtenstein

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