Tuesday 24 May 2016 1:10 pm

Think tank warns lower levels of immigration will mean higher taxes


I'm City A.M.'s economics reporter, looking at the news, stories and data that move markets in the UK, Europe and around the globe. I also cover broader developments in the business and political worlds at home and abroad.

I'm City A.M.'s economics reporter, looking at the news, stories and data that move markets in the UK, Europe and around the globe. I also cover broader developments in the business and political worlds at home and abroad.

A post-Brexit fall in migration would hit growth across the UK and result in higher taxes for UK citizens, according to a new think tank report.

If net migration from the European Union were to drop – as it might should the UK vote to leave the European Union – the National Institute of Economic and Social Research (Niesr) has calculated that the UK economy would be nine per cent smaller than it otherwise would have been by 2065.

On a GDP per capita basis, the difference would be considerably smaller at 0.8 per cent. However, the demographic effect of lower immigration would cause government spending to rise, adding £402 to the tax bill of every UK citizen, Niesr said. This would result in post-tax wages being two per cent lower.

Coming over here …

  UK native EU15 New EU non-EU
Employment rate 77 per cent 79 per cent 82 per cent 68 per cent
High qualification 25 per cent 51 per cent 38 per cent 49 per cent
Medium qualification 29 per cent 29 per cent 51 per cent 30 per cent
Low qualification 46 per cent 19 per cent 11 per cent 21 per cent

Employment rates by country of origin and qualification levels (source: Niesr)

EU 15: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain, Sweden (United Kingdom).

New EU: Bulgaria, Croatia, Cyprus, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Romania, Slovakia, Slovenia


“Significant reductions in immigration should the UK leave the EU would lead, in the long run, to lower GDP per capita, this in turn would necessitate higher taxes,” the report concludes.

The calculations are based on the assumption that net migration runs at 185,000 per year if the UK votes to remain, and half that level – 92,000 – if the UK leaves the European Union. The analysis on GDP and taxes is based only on immigration, so is better seen as research into the effect of immigration on the UK economy, rather than a new Brexit study.

Immigration benefits

  High qualification Medium qualification Low qualification Total
UK native £1,034 £2,229 £3,326 £2,509
EU 15 £730 £2,095 £3,466 £1,726
New EU £1,501 £2,372 £3,451 £2,168
Non-EU employed £1,225 £2,409 £3,300 £1,957
Non-EU unemployed £2,759 £4,843 £5,265 £4,135

Average annual benefits payments to each group (Source: Niesr)

Net migration is currently running at 323,000, though the Conservative government maintains its aim is to bring this down to the “tens of thousands”.

Read more: Refugees could be a boon to European economies

Various independent assessments – including the public finance figures compiled by the Office for Budget Responsibility (OBR), show that if migration were to fall then economic growth would slow and the chancellor would find it increasingly difficult to balance the books.

Share