Jonathan Portes analyses the latest ONS immigration statistics. He argues that net migration has dropped significantly, but that this will expose the tension between migration reductions and the economic growth necessary to improve living standards and finance better public services.
While Yvette Cooper might be celebrating, Rachel Reeves will not be. Net migration has halved in the last 18 months. This is no surprise to anybody who has been paying attention to recent trends. Unfortunately that doesn’t seem to include the Office for National Statistics. Their population projections, published in January, showed rapid population growth, driven entirely by very high levels of net migration. This generated considerable alarmist comment. But it was clear at the time that the ONS assumptions made no sense, as today’s statistics show. Indeed, it seems likely we are now overestimating net migration, since the statistics incorporate a frankly implausible fall of about 50,000 in the number of Britons leaving the country compared to the pre-pandemic period (for this group, we only have unreliable survey data).
We can also confidently say that net migration will continue to fall. By how much depends both on broader drivers like the trajectory of the UK labour market, and on the impact of the restrictions announced in last week’s Immigration White Paper. No doubt the government will welcome this – and claim credit. But at the same time it will throw into sharp relief the tension between migration reductions and the economic growth necessary to improve living standards and finance better public services.
This will come to a head in the October budget, when the OBR produces its latest fiscal forecast. Sensibly, the March forecast assumes much lower migration in the short term than the ONS’s central projections, but still implies that immigration averages well over 300,000 over the forecast period. This in turn increases total employment by about a million. That now looks very optimistic; it might just have been plausible without the new measures in the White Paper, but the government estimates they will yield a further reduction in immigration of about 100,000 per year. That would, the OBR has previously estimated, push up the deficit by about £7 billion annually by the end of the forecast period, (even taking account of the increased public spending necessitated by having more immigrants using public services). That, it’s worth noting, is more than the savings estimated from cuts to disability and incapacity benefits.
What’s the government’s response to this unpleasant fiscal arithmetic? Taking a leaf from Liz Truss’s book, it is to attack the credibility and competence of the OBR. Apparently, the view in the Home Office and Number 10 is that the OBR isn’t taking account of the “low skills profile” of recent migrants; if it did, then lowering net migration would not have such an adverse fiscal impact. Problem solved.
In principle, this is not unreasonable. The OBR assumes that new migrants have the same (age-specific) employment rates and earnings profile as existing residents; as it recognises, to the extent that migrants are different, the fiscal impacts will also. But in practice, the data simply doesn’t support the government’s case. Indeed, it’s notable that the White Paper, while claiming that there has been a shift in recent years towards “low-skilled” migration, doesn’t cite any evidence to back this up.
Perhaps not surprising, because if it did, it would have to start with the latest HMRC data. This shows that overall migrants earn slightly more than employees of UK origin; more detailed analysis shows that recent migrants are seeing healthy earnings progression. Meanwhile, the rise of more than 2 million in non-EU origin employees strongly suggests that recent migrants have high employment rates. So overall, if anything, it looks like the OBR’s assumptions are slightly too pessimistic about migrant contributions.
But this doesn’t end the argument. Not all migrants are average – and the stated aim of the White Paper is to reduce low-skilled migration, primarily by restricting work visas. If those who now can’t come would indeed earn much less than the average worker or the average migrant, then perhaps the government’s right, and the impact would not be as bad as the OBR methodology suggests. Helpfully – for the OBR and for researchers, if not for the government – alongside the White Paper, the Home Office published new research which sheds light on precisely this.
What this shows is that in every sector – including those where the White Paper will reduce the number of work visas issued – median earnings for those on work visas are at or above the national average for all employees of about £28,000; and for most sectors much higher. Even care workers, who are indeed generally low paid, had earnings of about £24,000; others coming on the health visa route, mostly nurses, earn considerably more. It also suggests that employment rates are high not just among those who get work visas, as you’d expect, but also among those who accompany them on “dependent” visas, especially those accompanying care workers. In other words, the Home Office’s own research and data contradicts both the White Paper and the “Home Office view”. The logical conclusion is that the reduction in net migration resulting from the White Paper will cost us at least as much as the OBR’s simple methodology would suggest.
What about the long term? Six months ago the Centre for Policy Studies published a report claiming that, based again on OBR assumptions, allowing recent migrants to settle here permanently would have a long-term fiscal cost of well over £200 billion, and that we should therefore restrict their rights to do so. Unfortunately, the government in part adopted this agenda in the White Paper, proposing to extend the qualifying period for most migrants from 5 to 10 years.
As I pointed out at the time, however, the CPS calculation was based on two clear errors. They mistakenly assumed that new migrants earned much less than residents, and had much lower employment rates; as the data shows, this just isn’t true. Had they got their sums right, they would have found a net benefit of over £100 billion. The new Home Office research underlines this point. The CPS claimed that about 70% of those coming on work visas have less than average earnings: this appears to be almost exactly the opposite of the truth. Moreover, those who extend their stay, and their dependents, see both their earnings and employment rates increase significantly. In this light, the proposals in the White Paper appear not just unfair and vindictive, but also economically irrational.
By Jonathan Portes, Senior Fellow at UK in a Changing Europe.
