OBR migration ‘black hole’ is highly questionable

November 24, 2016

The Office for Budget Responsibility assume that, were it not for Brexit, net migration would be 80,000 a year higher for each year in the five year period covered (see Chart 5.6 of the March 2016 Economic and Fiscal Outlook [EFO]).

The implication is that, under this scenario there would be 400,000 more migrants in the UK by the end of the period. They estimate that this would have resulted in an improvement to the public finances in that year of £5.9bn (see Table 1.4 of the November 2016 EFO).

The OBR spelled out in their March 2016 EFO (see para 5.48) that they assume that net migrants to the UK on average have the same age- and gender-specific characteristics as the native population, with the same employment rates and productivity and the same net contributions to the public finances and demand for welfare. The OBR accept, however, that what is true on average will of course not be true of every individual migrant.

Dividing the extra borrowing of £5.9bn that the OBR say will result from lower migration means that, on average, each potential migrant would have been credited with a net contribution of £14,750 in 2020/21. This seems implausibly high.

Firstly, it should be clear that any new controls imposed by the UK following the referendum are most likely to be on entry for low-paid or low-skilled work. Thus the reduction of 80,000 a year is likely to be in migration primarily from Eastern Europe. Statistics published by HMRC show that such migrants pay only about half the income tax and national insurance as the average UK taxpayer.

Secondly, even if these new migrants on average made the same contribution as the native population, it is most unlikely to be true for migrants on arrival.

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

It is now clear that the OBR estimate of the fiscal effect of restricting migration may well have been seriously exaggerated. They seem not to have considered which migrants would be involved.

Click here to see HMRC's release, 'Further statistics on EEA nationals', August 2016.

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