A poll by Lord Ashcroft in the aftermath of the EU referendum established that immigration was the second most prominent reason for voting to leave, with a third of Leave voters agreeing. Yet despite valid arguments on both sides of the immigration argument, the quality of debate has been poor. Figures from last year show that net migration stood at 336,000, with freedom of movement set to become a hotly-contested point of debate during Britain’s EU exit negotiations. The government must rise above the sensationalist arguments to produce a flexible immigration policy.
It is important to look at the impact of immigration. Statistically migrants from Europe have made a positive economic contribution in recent years. A 2014 UCL report concluded that between 1995 and 2011, migrants from the EU had a positive fiscal impact of £4.4bn. It is estimated that the productive human capital which migrants have endowed on the UK would have cost the country £6.8bn in education spending had they been educated here. The fiscal impact of immigration on public finances has been more positive than in most other developed countries, valued at +0.46% of GDP.
Migrants also add extra demand to the economy which boosts growth. Most migrants tend to be of a working age so they are more likely to contribute to the economy than burden it. Migration has helped to mitigate the fiscal imbalance caused by an aging population; the UK now has the most sustainable old-age dependency ratio of any major economy.
Furthermore, migration has benefited employers. Immigrants mostly come from poorer countries so they are willing to work for less which reduces costs, making British business more competitive. They are more flexible in moving for employment and tend to be more highly skilled – in 2011 32% of recent EU migrants and 43% of non EU migrants had university degrees, in comparison with 21% of the native population. Foreign students make a substantial financial contribution, estimated by the Russell Group to be around £2.5bn a year, which provides higher education institutions with vital investment.
A frequent criticism of immigration is that it raises the level of unemployment for native workers. However, there is no clear link between migration and unemployment and net migration can be compatible with low unemployment - the UK unemployment rate recently fell to an 11-year low.
Yet this does not tell the whole story. Net migration inevitably results in a larger population, which puts pressure on public services. Whilst European migrants have provided a positive fiscal contribution, between 1995 and 2011 non-European migrants had a negative fiscal impact, estimated to be -£118bn. A larger populace exacerbates the demand for housing and this has contributed to rising house prices across Britain. Migration delays fiscal problems, it does not necessarily solve them. Recent immigrants provide a positive net benefit because they tend to be of working age, but as they age and retire they will start to depend on state support and their contribution to the state will become negative.
There is also evidence in some labour markets that immigration has a small negative effect on low-skilled workers’ wages. Immigrants in low-skilled jobs mostly come from poorer countries so there is an incentive to migrate, and this invariably puts pressure on low-skilled jobs. A Hungarian worker could earn in a year in the UK the equivalent of four years’ wages back home. Many migrants send back a proportion of their wage to their country of origin in the form of remittances, thus reducing the demand they may stimulate into the British economy. In 2014, migrants sent £8.8bn in remittances. This partially leads some studies to show that immigration’s impact on GDP per capita, a key indicator of national prosperity, is negligible.
There can be negative social effect of immigration. A rapid influx of migrants into an area can be unsettling for those already inhabiting it and can lead to tensions within communities. The government may also decide not to use the contributions immigrants make to target the areas under the most pressure from immigration. In an age of reduced public spending, immigration is putting an extra burden on the state and the services it provides. This has led to resentment amongst the native UK population. A poll earlier this year found that 76% of the UK population want migration reduced. All future policies must go hand-in-hand with boosting the skills of the native population, through apprenticeships and formal education, so that the British population can compete with migrant workers.
The government should use the positive fiscal contribution of immigrants to target the areas most affected by migration. In Barnsley the proportion of immigrants has shot up from 0.5 per cent for 5 per cent in the last four years. At the same time Barnsley’s local council has been dealing with 40% spending cuts. It is not surprising then that 68 per cent of voters in Barnsley chose to leave the EU. In order to reduce long-term migration, a more sustainable approach could be to allow immigrants entry only if a guaranteed job in the country has been secured. This would eliminate jobless migrants putting an excess burden on the state and it would put less pressure on the wages of low-skilled jobs. English language tests for migrants can accelerate cultural assimilation and ensure that immigrants are not exploited upon arrival. It will mean that Britain gets the most qualified migrants who will contribute more.
A more radical proposal to tackle mass immigration from poorer countries undercutting low-skilled wages, is to suspend free movement from such countries until wages are more equal. As the country ages and we live longer, Britain will have to look into raising its retirement age to relieve some of the pressure on the state in the long term. Now that Britain is set to leave the EU, we need a fresh approach which will find the right balance and maintain Britain’s competitive edge.