6. Immigration

Section contents

 

  • Government wishes to reduce immigration, but an ageing population means UK needs migrant workers
    • Policy initiatives to reduce migrant workers (e.g. increasing retirement age) will take years to be effective
    • Freedom of Movement rules include controls over EU citizens, but UK decided not to implement them
  • Net migration from non-EU countries has significantly exceeded that from EU (by four to one over the last decade)
    • Net migration is expected to fall from high levels of 2022/23
  • Migration benefits UK economy overall
    • EU27 citizens of working age are more likely working than UK or non-EU citizens
    • EEA citizens in 2016-17 contributed about £5 billion towards UK public finances
    • Effects of EEA migration on UK workforce wages and employment are small
  • Brexit has already caused:
    • Fewer EU/EEA citizens to arrive and more to leave
    • Rising net migration from non-EU countries

Click here for summary of Brexit FactBase.

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Why does the UK need immigration?


Immigration is a normal feature of a healthy economy. On the supply side, people move regions or countries to acquire new skills and to take advantage of new opportunities. On the demand side, skill and labour shortages cause people to move.

Even though immigration is normal, governments frequently fail to plan for it adequately.

Old-age dependency ratio

There are powerful demographic forces at work. The UK’s old-age dependency ratio (OADR) is increasing, as in other developed nations and the EU as a whole. This is the ratio of older people (aged 65+) to working-age people (aged 15-64). The UK OADR:

  • will increase significantly in the rest of the 21st century within a range of probable outcomes, according to UN projections (see Figure 6.1);
  • was 280 in 2020 and ONS projects it is to reach 352 by 2041 (a 26% increase).

Figure 6.1 Old-age dependency ratio

Probabilistic graph of UK old-age dependency ratio from the UN Population Division

 

Sources:
United Nations, Department of Economic and Social Affairs, Population Division, World Population Prospects: 2022
ONS, Overview of the UK population: 2020, February 2022

Impact on the economy

In simple terms, more people usually means more GDP. However for the standard of living to rise, GDP per capita also needs to increase. As we discuss in the section on economic context, the UK ranked only 28th globally in GDP per capita and had slipped down the table. The Resolution Foundation notes that although high immigration to the UK has supported low levels of economic growth, GDP per capita has remained flat.

The relationship between immigration and economic growth is complicated (see LSE blog below). For example, the economic value created by a migrant creates involves more than simply their salary level or the profit they support. Higher-skilled individuals are likely to create more economic value than lower-skilled, but lower-skilled workers play critical roles in some industries such as agriculture and hospitality, and in the provision of social care. Other considerations include the how long an individual is likely to work, how many dependants rely on, and the impact of immigration on productivity (which is the key driver of national wealth and improving GDP per capita). However, UK productivity also suffers from other impediments such as low levels of capital investment and inefficiencies caused by Brexit red tape.

Policy options

There are potential policy options to address the ‘demographic gap’ for the UK (and other EU countries). These include raising the retirement age or encouraging families to have more children. Policy options like these take years to have meaningful effects and reduce the need for migrants.

In the long-run, the UK will need to find alternatives to migration to sustain its working age population. For example, technological change  (such as artificial intelligence and robotics) is likely to change workforce requirements, which may reduce demand for migrant workers. However, the UK and the EU27 seem likely to need migrant workers for a long time.

Everything else being equal, the rising OADR will increase the UK’s demand for migrant workers, not reduce it.  As the EU’s OADR has also been increasing, the UK has been and will be competing with the EU to attract migrant workers.

Source:
Eurostat, Population structure and ageing, February 2024
LSE, The link between growth and immigration: unpicking the confusion by Professor Alan Manning, October 2022
Resolution Foundation, Life in the slow lane – assessing the UK’s economic and trade performance since 2010, June 2024

 

Foreign nationals in the UK


In 2021 there were approximately 6.0 million people with non-British nationality living in the UK. By country of birth, there are 9.6 million people who were not born in the UK; this larger number includes foreign- born nationals who had become British citizens.

The 6.0 million included 3.4 million (57%) EU citizens and 2.6 million (43%) non-EU. In 2016, there had been around 3.6 million EU citizens living in the UK. Table 6.1 shows the breakdown by region.

The UK’s migrant population was concentrated in London where 32% of foreign nationals live. After London, the English regions with the highest proportions of foreign nationals were the South East (12.1%), the East (9.1%), the North West (8.2%), the West Midlands (8.0%), and the East Midlands (6.8%).

Table 6.1: Foreign nationals living in UK in 2021

BritishEUNon-EUTotal% of EU total% of non-EU totalTotal
Scotland 4,997 231 165 396 6.8%6.3%6.6%
Wales 2,994 76 50 126 2.2%1.9%2.1%
Northern Ireland 1,737 88 40 128 2.6%1.5%2.1%
England50,5593,0132,3505,36388.4%90.2%89.2%
UK60,2873,408 (57%)2,605 (43%)6,013100%
100%
100%
English regions
London 7,128 1,053 890 1,943 30.9%34.2%32.3%
South East 8,389 416 313 729 12.2%12.0%12.1%
East of England 5,687 340 208 548 10.0%8.0%9.1%
North West 6,738 253 240 493 7.4%9.2%8.2%
West Midlands 5,388 258 224 482 7.6%8.6%8.0%
East Midlands 4,368 269 140 409 7.9%5.4%6.8%
North East 2,512 48 60 108 1.4%2.3%1.8%
Yorkshire and Humberside 5,095 190 149 339 5.6%5.7%5.6%
South West 5,254 186 125 311 5.5%4.8%5.2%
England total50,5593,0132,3505,36388.4%90.2%89.2%

 

Compared to EU countries, the UK was mid-table with a 9.1% share of foreign nationals in its population (see Figure 6.2).

  • The UK share was 0.7 percentage points more than the EU27 average of 8.4%.
  • The EU countries with the larger numbers of foreign nationals were Germany (10.6 million), Spain (3.6 million), Italy (3.2 million) and France (3.2 million).

Figure 6.2: Share of foreign nationals in population

Bar chart for foreign nationals as percentage of population for EU27 member states and UK in 2021 - sources Eurostat and ONS

The other main measure of immigration is the number of foreign-born nationals in the population. This includes immigrants who have taken citizenship, but were born overseas. As this chart from the Migration Observatory shows, the UK is also middle of the pack on this measure. They observe: “the UK has experienced broadly similar levels of migration compared to other high-income countries, on average, over the past few decades.”

Figure 6.3: Foreign-born population as a share of total population

 

UK nationals living in EU

Estimates of the number of Britons living in the EU ranged from 1.0 to 1.2 million in 2019:

  • ONS estimated the number of Britons in the EU at 994,000 in 2019 (based on nationality).
  • UN estimated that 1.19 million British migrants were living in EU countries in 2019 (based on country of birth). The top destinations were Spain (23%), Ireland (23%), France (14%), Germany (8%), Italy (5%) and Netherlands (3%).
  • In 2017 ONS estimated, there were 785,000 British nationals living in EU member states, excluding Ireland. Separately, ONS estimated that there were 277,200 UK natives resident in Ireland in 2016. These two estimates add up to 1.06 million
Sources:
House of Commons Library, Migration statistics, May 2024
ONS, What information is there on British migrants living in Europe?, January 2024
United Nations Global Migration Database, International migrant stock by destination and origin – 2020, Table 1 
Migration Observatory, Net Migration to the UK, June 2024

 

Long-term immigration trends


Long-term migration means people who intend to stay for 12 months or more. Figures 6.4 and 6.5 show UK trends since 2012:

  • Following the referendum in 2016, net migration remained fairly stable before:
    • dipping in 2019 and 2020;
    • increasing sharply in 2021 and 2022;
    • declining slightly in 2023 (provisional figures).
  • Annual net non-EU migration exceeded net EU migration for the first time in 2018, and has continued to do so.
  • There was net emigration of British citizens of around 80,000 a year until 2021, when net returns exceeded departures.

Figure 6.4: Long-term migration 2012 – 2024

Line chart of UK immigration trend 2012 to 2023. Source ONS

Figure 6.5:  EU and non-EU net migration 2012 – 2024

Trend in EU, non-EU and British net migration 2012 to 2024. Source: ONS

Source: ONS, Long-term international immigration, emigration and net migration flows, provisional, 23 May 2024

 

Table 6.2 provides the statistics over the thirteen years from 2012 to 2024:

  • Net immigration was 3.95 million made up of:
    • 10.10 million immigrants arriving minus 6.14 million emigrants leaving
    • 3.15 million net non-EU immigration (80% of total)
    • plus 1.52 million net EU immigration (38% of total)
    • less 0.72 million net British emigration (-18% of total)
  • Net EU immigration rose from 206,000 in 2012 to a peak in 2015 of 287,000 (or 214,000 after deducting British net emigration).
  • Net non-EU immigration rose from 334,000 in 2012 to peak at 1,053,000 in 2022.

The OBR’s view is that immigration will decline from its current 2022/2023 levels to around 350,000 a year but flags the uncertainty about future projections.

Table 6.2: Long-term migration trends (‘000s)

201220132014201520162017201820192020202120222023PTotal% of total
Immigration
Non-EU in23023424123823725733036829461110531031 5,12451%
EU in334402457481465411421349316172116126 4,05040%
British in79768178708474715210888619229%
64371377879777275282578866289112571218 10,096100%
Emigration
Non-EU out-169-171-154-150-147-144-152-182-192-115-162-233(1,971)32%
EU out-128-141-180-193-213-235-250-269-247-234-239-202(2,531)41%
British out-151-157-161-151-163-164-147-153-130-76-92-98 (1,643)27%
-448-469-494-494-523-544-549-605-569-424-493-532 (6,144)100.0%
Net migration
Non-EU61638788901141781861014968927973,15380%
EU2062622772872531761708070-62-123-751,52138%
British-72-81-80-73-94-81-72-82-7832-4-37(722)-18%
19524428430324920827618493466764685 3,951100%
EU+British1341811972141599598-2-8-30-127-11279920%
Source: ONS, Long-term international immigration, emigration and net migration flows, provisional, 23 May 2024

 

Reasons for increase in non-EU immigration

As you can see from Figure 6.6 (from the Migration Observatory, based on ONS data) the two main reasons for the 660,000 increase in non-EU immigrants between 2019 and 2023 were work and study:

  • Work visas: almost half of the increase in non-EU immigration from 2019 to 2023 resulted from those arriving for work purposes (21%) and their dependants (27%).
    • Health and care was the main industry driving the growth, including care workers who received access to the immigration system in February 2022.
    • There was also higher demand for some workers who were already eligible for visas under the old system, such as doctors and nurses.
    • However, early data for 2024 suggest that health and care work visas had fallen substantially.
  • A further 39% of the non-EU increase came from International students and their dependants.
    • UK’s strategy is to increase and diversify foreign student recruitment.
    • Reintroduction of post-study work rights post-Brexit has probably made the UK more attractive to international students.
    • 2023 figures do not yet reflect the impact of restrictions on students’ family members, introduced in January 2024. In 2023, there were 102,000 study dependants.

In terms of country of origin of the overall immigration of 1,218,000:

  • Indian nationals accounted for 21%;
  • Nigerian nationals accounted for 12%;
  • EU citizens accounted for 10%;
  • Chinese (9%) and Pakistani (7%) citizens were next.

Please note that asylum seekers formed a small part, totalling 81,000 (7% of the total).

Figure 6.6: Non-EU immigration by purpose

Migration Observatory chart of reasons for non-EU migration.

Sources:
Migration Observatory, Net Migration to the UK, June 2024
ONS, Long-term international immigration, emigration and net migration flows, provisional, 23 May 2024

 

Freedom of movement


 

Overview

The Free Movement Directive lays out the principles on which FOM of people operates. EU citizens have the right of free movement to other member states.

The Directive does not mean open borders. Border controls are a separate issue.

  • There were UK border checks on all foreigners entering, including those from the EU, because the UK had opted-out of the Schengen passport-free travel agreement.
  • The UK, as an EU member state was, of course, able to set its own policy for immigration from non-EU countries.
  • The impact of the refugee crisis on the UK was not directly affected by the UK’s EU membership and FOM. For example, refugees admitted to Germany or Greece had no right to live in the UK. Over the longer-term, if they became EU citizens (after about six years), they would have gained those rights.

 

EU rules and controls

Under the 2004 Free Movement Directive (see panel below), EU citizens may reside in another member state for up to three months without conditions. Afterwards, residence may continue if the individual is working, studying, self-sufficient, self-employed, or – with some conditions – actively looking for work. If not, the citizen may be deported.

The UK had not implemented these controls. However, some EU countries, such as Belgium, use the powers flowing from the Directive to deport EU citizens who are not economically self-sufficient.

EU jobseekers in the UK had limited access to out-of-work benefits. They received no Jobseeker’s Allowance for the first three months of their stay; then, they were entitled to a maximum of 90 days’ support. The allowance was small and not viewed as a magnet for EU migrants.

 

Schengen

Schengen removes border controls for movement of citizens between member countries.

  • UK was not a member of Schengen: the UK had an opt-out.
  • Ireland has an opt-out and is not in Schengen, but UK and Ireland have their own Common Travel Area.
  • Four other EU member states are not in Schengen but have confirmed their intention to join: Bulgaria, Croatia, Cyprus, Romania.
  • Four non-EU countries have opted in and are associate members of Schengen: Iceland, Liechtenstein, Norway and Switzerland.

Refugees arriving in EU countries often receive a temporary permit while waiting to be granted asylum status. This permit does not usually allow them to move between Schengen states.

Posted workers

Posted workers are workers sent by an employer from one EU member state to work temporarily in another. In May 2018, the European Parliament amended laws on posted workers to entitle temporary overseas workers to the same minimum pay as those in the host country. Posted workers will also be able to benefit from regional or sector-specific collective agreements.

This closed a loophole that enabled exploitation of potentially vulnerable workers. Employers will also need to pay for travel, board and accommodation, rather than deducting these costs from wages, and make sure accommodation meets local standards. Postings will be limited to 12 months, with the possibility of a six-month extension.

Member states had two years to enforce the rules. The deadline fell during the UK’s Brexit transition period, which ran until 31 December 2020.

Source: Free Movement Directive, The Schengen area

 

Migrant workers and sectors


In 2016, the UK labour market comprised 26.9 million (89%) UK nationals  and 3.4 million (11%) non-UK nationals: 2.2 million (7%) were from the EU and 1.2 million (4%) from other countries.

The headline finding of a 2017 ONS study was that international immigration was particularly important to the wholesale and retail, hospitality, and public administration and health sectors, which employed around 1.5 million non-UK nationals.

The industry sectors most dependent proportionately on migrant workers were transport and communication (14.4%), manufacturing (13.9%) and wholesale and retail trade (13.5%). See Table 6.3.

The sectors with the most EU nationals were:

  • wholesale and retail (507,000);
  • financial and business services (382,000);
  • public administration, education and health (362,000); and,
  • manufacturing (312,000).

See the Brexit FactBase section on education, science and healthcare for the Brexit impacts on these sectors. Please also see the impact assessment section for expected impacts on other sectors.

Table 6.3: Analysis of 2016 workforce

Industry sectorUKEUNon-EUNon-UKTotalEUNon-EUNon-UK
Industry sector000's000's000's000's000's%%%
Wholesale and retail trade, hotels and restaurants 4,861 507254761 5,623 9.0%4.5%13.5%
Financial and business services 4,528 382233615 5,143 7.4%4.5%12.0%
Public admin, education and health 8,362 362339701 9,063 4.0%3.7%7.7%
Manufacturing 2,439 31282394 2,833 11.0%2.9%13.9%
Transport and communication 2,361 243156399 2,760 8.8%5.6%14.4%
Construction 1,901 18547231 2,132 8.7%2.2%10.9%
Other services 1,569 8471155 1,724 4.9%4.1%9.0%
Energy and water4712315385104.6%3.0%7.5%
Agriculture, forestry and fishing26322-222857.7%0.0%7.7%
Not allocated to sectors15960969228
Totals 26,915 2,181 1,206 3,387 30,302
Total %88.8%7.2%4.0%11.2%100.0%
Note: the ONS figures were not seasonally adjusted and probably understated short-term and temporary workers.

Source: ONS, International immigration and the labour market, UK: 2016, April 2017

Over time, the numbers of non-EU workers have increased at a faster rate than the numbers of EU workers (see Figure 6.7). The EU share by birth (rather than nationality) was 7% in 2016 and 2022, but the non-EU share had risen from 10% in 2016 to 12% in 2022.

Figure 6.7: Non-UK born workers in employment, 2004 to 2022

 

By 2022, the migrant workforce (by birth) had increased to 6.2 million or around a fifth (19%) of the employed workforce. The presence of migrant workers continued to vary across sectors (see Figure 6.8). For example, migrants were relatively over-represented in the IT and communications, transport and storage, and hospitality sectors, but under-represented in public administration.

As an excellent Migration Observatory report notes, EU workers were relatively evenly distributed across sectors, with manufacturing, retail, health, and care the most common. Almost a third of workers born in EU-8 countries were working in either retail or manufacturing jobs in 2022, while workers from EU-14 countries were most likely to work in education.

For non-EU workers, those born in Sub-Saharan Africa and East & Southeast Asia were more likely to work in health and care than any other region-of-origin group, although workers from these regions did different types of work in the sector: 42% of Sub-Saharan Africans were care workers, while 40% of East & Southeast Asians were working as nurses.

Figure 6.8: Distribution of migrant workers across sectors

Source: Migration Observatory, Migrants in the UK Labour Market: An Overview, January 2024
Sub-sectors dependent on EU workers

Within sub-sectors, large numbers of EU workers are found in logistics, the NHS and social care.

  • Logistics industry: nearly 300,000 (14%) EU workers are employed. 93,000 EU nationals work in warehousing and other storage jobs, 23% of the total workforce. 31,500 Large Goods Vehicle drivers (10% of the total), 22,500 van drivers (9%), and 20,500 forklift truck drivers (21%) are from elsewhere in the EU. As with the food and drink industry, EU workers are filling the gap left by an undersupply in the domestic labour market. This is partly a reflection of the ageing workforce: for example, 67% of LGV drivers are aged over 45.
  • NHS and social care: In 2019, there were approximately 180,000 EU nationals working in health and social care. They represented 5.5% of the NHS workforce and 9% in adult social care. In 2019, just under 11,000 doctors were working in the NHS (9.5% of doctors), who had received their primary medical qualification in another EU country. Mutual recognition of professional standards across the EU makes it easy for nurses and doctors to work in different EU countries. (Sources: House of Commons Library, July 2019 and The Kings’ Fund, October 2019)

EU citizens account for a high proportion of the workforce in food and drink manufacturing (29%), the creative industries (around 25%) and higher education (16%).

  • Food and drink manufacturing is more reliant on EU workers than any other sector of the UK economy. c29% of the UK’s food and drink manufacturing workforce are non-British EU nationals (almost 120,000 workers).
  • Creative industries: according to the Creative Industries Federation, EU workers currently constitute 25% of all workers in the UK visual effects industry, with non-EU workers accounting for another 12%. Similarly, UK video games companies currently draw 20%-30% of their staff from the EU.
  • Higher education: the UK sector employs significant numbers of non-UK EU nationals. Non-UK EU nationals make up 16% of the UK-based academic workforce.
Source: Nick Clegg, Freedom of movement, Nov 2016  (unless otherwise stated)

 

Contribution to economy


 

MAC conclusions

The government’s Migration Advisory Committee (‘MAC’) gathered extensive evidence on the effects of ‘EEA’ migration on the UK. It published its final report in September 2018. By ‘EEA’ MAC means the EU27 plus Iceland, Liechtenstein, Norway and Switzerland (which is in EFTA but not in the EEA).

MAC’s principal conclusions about the impacts on employment and wages were:

  • Migrants have no or little impact on the overall employment and unemployment outcomes of the UK-born workforce. The impact may vary across different UK-born groups with some negative effects for the lower-skilled and some positive effects for the higher-skilled.
  • Migration is not a major determinate of the wages of UK-born workers. However lower-skilled workers face a small negative impact and higher-skilled workers a small benefit
  • There is evidence that, overall, migration has a positive impact on productivity and GDP.

The evidence contrasts with the common view that immigration reduces the pay and job chances of the UK-born (due to more competition for jobs). This erroneous view is often based on the ‘lump of labour’ fallacy – the idea that the number of jobs or vacancies in an economy is fixed. This is not the case. Instead, research suggests that immigrant workers increase overall employment, GDP and productivity. Also, immigrants consume goods and services and increase demand, which helps create more employment opportunities.

Another useful source for key studies is the Bruegel Institute, the Economic Effects of Migration. January 2017.  Oxford University’s Migration Observatory provides extensive impartial analysis on migration.

Impact on public services

The UK does not collect data on how the contribution and use of public services differ by citizenship. This means that most studies about the economic impact of migrants assume they follow the same pattern of contribution and use of public services as the rest of the population.

Different types of migrant have different impacts. Some benefit the economy and public finances more than others. For example, several studies show that non-EU migrants  have a negative impact on public finances (in aggregate).

Impact on wages

Compared to the UK-born, EU immigrants tend to be more educated, younger, more likely to be in work and less likely to claim benefits. About 44% have some form of higher education compared to 23% of UK-born. In London, there are many EU citizens in finance and business services: occupations which are highly-skilled and highly-paid. In addition, EU immigrants pay more in taxes than they take out in welfare and the use of public services (see below).

The consensus is that recent migration has had little or no overall impact on wages. There is possibly some, small, negative impact on low-skilled workers (evidence to Migration Advisory Committee, Professor Jonathan Portes). However, the London School of Economics (LSE) found that UK regions with large increases in EU immigration did not see the jobs and pay of UK-born workers fall. LSE concluded that the big falls in UK wages after 2008 were due to the financial crisis and a weak economic recovery, not immigration.

Sources:
Migration Advisory Committee (MAC) report: EEA migration in the UK: Final report, September 2018
Centre for Economic Performance, LSE, Brexit and the Impact of Immigration on the UK Jonathan Wadsworth,Swati Dhingra, Gianmarco Ottaviano and John Van Reenen
Migration Observatory, The Fiscal Impact of Immigration in the UK, May 2017
Home Office, Impacts of migration on UK native employment: an analytical review of the evidence, March 2014
 

Fiscal impact of EU citizens

The fiscal impact is the taxes and other contributions to public finances, minus the cost of the public benefits and services received. It is easier to estimate the amount migrants are paying in taxes and receiving from benefits than to quantify their contributions to and use of public services.

The net fiscal impact of all migration on the public finances is relatively small. Overall, EU migrants tend to make a positive contribution while, overall, non-EU migrants do not. However, EU14 citizens contribute more (net) than other EU citizens, who claim more benefits relative to their tax contribution.

MAC conclusions

The MAC, which commissioned independent research, concluded that EEA migrants pay more in taxes than they receive in benefits. The Committee analysed the overall contribution to public finances in 2016/17. MAC found that EEA citizens made a positive contribution of £4.7 billion compared to non-EEA migrants who cost £9.0 billion. UK citizens cost £41.4 billion. These figures take into account the rise in national debt that occurred in 2016-17. 

In terms of impact on public services, the MAC concluded:

  • Health and social services: EEA migrants contribute much more financially and through work than they consume in services. 
  • Education: migrant children and the children of migrants form a higher fraction of the school population than migrants are of the school workforce. The Committee found no evidence that migration has reduced parental choice in schools or the educational attainment of UK-born children. 
  • Social housing: migrants are a small fraction of people in social housing but a rising fraction of new tenants. Given there is little building of new social housing, this is inevitably at the expense of other potential tenants. The Committee also noted that the provision of public services and social housing was complex and slow to respond to changes in demand.

 

HMRC analysis

HMRC conducted detailed analysis, limited to income tax and some benefits. For the tax year 2014/15 EU citizens’ net contribution to taxes was £13.3 billion. For recently-arrived EU citizens (defined as over the last four years), the net tax contribution was just under £3.0 billion (see Table 6.4). Non-EU EEA and Swiss citizens contributed a further £271 million (net). Please note the limitations of the HMRC analysis:

  • Restricted to benefits administered by HMRC: tax credits and Child Benefit. It did not include benefits administered by the Department of Work and Pensions (DWP), such as Housing Benefit, State Pension, working-age benefits, and other benefits. DWP estimated that in 2013-14, EEA citizens claimed £1.7 billion in benefits.
  • Excluded the benefit of other taxes paid by individuals such as VAT or business taxes such as Corporation Tax or Business Rates.
  • There may be regional imbalances between the taxes collected and the benefits claimed (for example between London and other regions).
All EU citizensRecently arrived
£m£m£m£m
Income tax collected9,1701,810
National insurance collected6,9401,750
Tax collected16,1103,560
Tax credits paid(2,026)(438)
Child benefits paid(804)(163)
Tax benefits paid(2,830)(601)
Tax contributed 13,2802,959
Sources:
Migration Advisory Committee (MAC) report: EEA migration in the UK: Final report, September 2018
HMRC, Income Tax, NICs, Tax Credits and Child Benefit Statistics for EEA Nationals 2014 to 2015, August 2017 

 

 

Brexit impact


 

Overview

The challenge for the UK government is to decide what size of migrant workforce the UK will need in the future and to plan for it. The government’s Migration Advisory Committee (MAC) reviewed the impact on EEA workers in the UK labour market. The consultation closed on 27 October 2017. On 27 March 2018, MAC published an interim report, which summarises the evidence received to date but did not include interim conclusions or draft recommendations.

The Committee published its final report with policy recommendations in September 2018. Any policy changes to mitigate the impact of Brexit (such as re-training) are likely to take a long time to have an effect and are unlikely to have much impact over the next 5-10 years. The government published its White Paper on future immigration policy in December 2018 (see details below).

During the transition period to December 2020 existing rules remained largely unchanged. The Political Declaration described aspirations for future mobility.

Negotiations of independent trade deals with other countries, such as India, are likely to involve preferential visa requirements and increased immigration from those countries. There is pressure from India for easier access for its citizens. The UK, as an EU member state was, of course, able to set its own policy for immigration from non-EU countries.

Impact of reduced migration on economy

The Office for Budget Responsibility (OBR) and the Centre for Economics and Business Research published Brexit migration impact studies in late 2016 and 2017. Both flagged major risks to the economy and the public finances from reducing EU migration.

The studies used simplifying assumptions, but the overall direction of impact was clear. Given the many EU citizens in the UK workforce and their positive fiscal contribution, the findings are not surprising.

PwC published an economic assessment in November 2017 which demonstrated that restriction of future migration from the EU could have a marked effect on certain industry sectors and regions (for example, the London construction sector). PwC highlighted food manufacturing, hotels, restaurants and warehousing as sectors at risk.

Broad scenarios (not forecasts) indicate that reduced migration will have a negative impact on GDP, potentially approaching those resulting from reduced trade. By contrast, the increase in low-skilled wages resulting from reduced migration is expected to be, if anything at all, relatively modest.

The OBR forecast in late 2016 that reduced migration will reduce trend output growth by 0.3% per year, based solely on slower labour force growth. Separately, the Scottish Government’s assessment of the economic impact of Brexit said in January 2018 that Scotland requires continued EU migration to support continued economic growth.

The OBR forecasts assumed that net migration will fall to 185,000 a year from 2020-21 onwards, from 273,000 over the year to September 2016.

Impact of reduced migration on public finances

Reduced migration from the EU will have damaging effects on the UK’s public finances. Two reputable studies expected the cost to public finances to be greater than the UK’s net contribution to the EU.

Firstly, the OBR developed two scenarios of net migration to assess the impact of reduced migration on forecasted fiscal aggregates—such as net government borrowing and debt as a percentage of GDP:

  • ‘High migration’ scenario, net migration falls to 265,000 by 2021.
  • ‘Low migration’ scenario, net migration falls to 105,000 by 2021.

In their central forecast, the OBR used the ONS principal population projection, which assumed net migration of 329,000 in 2015 and 256,000 in 2016, declining to 185,000 in 2021.

The OBR projected a £16.9bn surplus in 2020-2021 under the high migration scenario, compared to £5.2bn in the low migration scenario.

Secondly, the Centre for Economics and Business Research in May 2017, found the numbers were “quite shocking”. Their analysis showed that if the UK cuts off migration without improving productivity, especially in the public sector, the scale of the economic damage could be huge.

  • In the slow reduction scenario (reducing inward migration by 200,000 p.a. over 8 years from 2019), the net impact on the deficit was £9.5 billion in 2025; £25.9 billion in 2030 and £57.7 billion in 2040 (assuming public spending would be scaled to the population).
  • The fast reduction scenario (reducing inward migration by 200,000 p.a. in two years from 2019, showed tax receipts down by £32.7 billion in 2025. Allowing for the reduced need for public services the net impact on the deficit was £20.0 billion in 2025; £36.3 billion in 2030 and £64.5 billion in 2040.
Sources:
Office of Budget Responsibility, Economic and Fiscal Outlook, November 2016
Centre for Economics and Business Research, Special report: economic consequences of limiting migration, May 2017
NIESR, Portes and Forte, The Economic Impact of Brexit-induced Reductions in Migration, December 2016

 

Government White Paper

The government published its long-delayed White Paper on immigration on 19 December 2018. The recommendations were subject to 12 months consultation.

The White Paper failed to acknowledge that Brexit is removing the benefit of Freedom of Movement from 65 million UK citizens. UK citizens who want to live and work in Europe are likely to be subject to the visa requirements of the country they want to live in. This is also likely to apply to UK expatriates already living in Europe who wish to move between EU countries.

The paper reflected recommendations from the MAC to prioritise higher skilled people and to avoid preferential treatment for EU citizens. The White Paper:

  • Aims for migration to reach sustainable levels but does not include a numerical target.
  • To prioritise skilled workers, proposes no cap on workers earning over £30,000 a year.
  • Proposes no limits on unskilled migrant workers from low-risk countries but limits their stay to 12 months with no access to social security benefits.

To avoid cliff-edge effects after Brexit, the government says it would implement new rules in a phased approach from 2021.

The paper recognises the need for flexibility in future trade negotiations, where the UK is likely to experience pressure to relax immigration rules.

in February 2020, the government announced new rules to apply from January 2021.

 

EU Settlement Scheme

For EU citizens living in the UK, a new EU Settlement Scheme requires EU citizens to apply for permanent residence in the UK once free movement has ended. The government has assured citizens that this scheme will still be used in the event of no-deal.

The Settlement Scheme, allows those who have been in the UK for five years to receive Settled Status and those who have been here less than five years to hold pre-Settled Status until they meet the requirement.

EU citizens can apply for residency online, and the Scheme requires less documentary evidence than the previous system for applying for permanent residence.

Please go to ‘Implementing the Withdrawal Agreement” in 2020 Negotiations for details on progress.

Source: HMG, The UK’s future skills-based immigration system, December 2018
 

Last updated on 9th June 2024 by Richard Barfield