How much damage will lower EU immigration inflict on the UK economy?


The latest immigration data from the Office for National Statistics suggests a sizeable fall in net migration into the UK in the year to June 2017, with a fall in net migration from the European Union accounting for most of the drop.

“These changes suggest that Brexit is likely to be a factor in people’s decision to move to or from the UK,” said Nicola White from the Office for National Statistics.

The ONS said that it is still too early to say whether this fall is the start of a long-term trend of falling immigration.

Yet the Conservatives have an explicit pledge to reduce net migration to the tens of thousands.

And the end of freedom of movement for EU citizens after Brexit in March 2019 will, ministers claim, enable them to deliver it.

But what would the implications be for the UK economy? What would it mean for our public services and domestic living standards?

What do the numbers show?

In the year to June 2017 around 230,000 more people came to live in the UK than left to live abroad. This is the definition of net migration.

In the year to June 2016 (the month of the Brexit vote) net migration was estimated by the ONS to be in the region of 336,000.

Net migration from the EU between the two periods fell from 189,000 to 107,000.

Immigration by EU citizens to the UK fell to 230,000, down from 284,000 previously.

Emigration by EU citizens from the UK rose to 123,000, up from 95,000.

What could falling EU immigration mean for the economy?

The view among most economists who specialise in immigration studies is that incomers from the EU have boosted the UK economy over the past 15 years or so relative to what otherwise would have happened.

And not just by making national income bigger but with more people to divide it between. They argue that GDP per capita has also increased thanks to immigration.

This is because analysts believe immigrants have filled gaps in the workforce that would otherwise not have been filled by natives and they have helped raise the nation’s rate of productivity growth.

Lower rates of immigration are likely to work in the opposite direction, meaning a smaller economy than otherwise.

Research by Jonathan Portes and Giuseppe Forte released in January suggested that lower net migration from the EU over the coming years will be negative for GDP per capita, and might even be as economically damaging as the impact of Brexit on UK trade.

What about the public finances?

Again, the expert view is that EU migrants have been beneficial for public finances.

Fewer immigrants will mean less demand on public services.

Yet most of the EU immigrants have been of working age and they have high employment rates relative to natives.

That means they pay more tax. They are also less likely to claim out-of-work benefits than natives.

Lower inflows of these kind of working immigrants are expected to be a net negative for the UK’s public finances.

That’s why the Treasury’s official forecaster, the Office for Budget Responsibility, revised down its tax receipts outlook in response to lower EU net migration forecasts last year.

Weaker public finances mean more pressure for either spending cuts or tax rises.

What about particular industries?

Construction, social care work, the NHS and agriculture are four sectors that have been particularly reliant on EU immigrant labour.

Lower immigration is likely to mean higher prices charged by some of those sectors or disruption in their supply.

This is an alarming prospect for the NHS and social care given they are severely overstretched after having experienced effective cuts in funding since 2010.

And construction industry disruption would be especially unwelcome when the Government is trying to encourage a large increase in housebuilding.

What about wages and housing?

EU immigrants have been widely blamed for holding down wages and pushing up housing costs.

But there is little empirical support for either proposition. One oft-cited study published by the Bank of England did show a negative impact on the wages of the low-skilled, but its author has described the impact to The Independent as “infinitesimally small”.

On housing, the data on private rents has not pointed to a large increase in costs in most areas over the period of higher EU net migration.

The main drivers of weak wages are more likely to be inadequate skills, underinvestment by firms and generally feeble productivity.

The housing crisis stems from a collapse in the supply of social housing, cuts in housing benefits, a regressive property taxation system and a lack of adequate regulatory protection for private sector renters.

A major fall in immigration will not in itself solve any of those long-standing structural problems of the UK economy.