Thursday 1 December 2016 5:33 pm

UK immigration reached 650,000, its highest levels ever, in the year before the Brexit vote, but cuts to immigration could harm the public finances

Immigration to the UK reached 650,000, the highest level estimate ever recorded, in the year before the Brexit vote, but influential economists have warned that attempts to reduce net migration could harm Britain’s public finances and even result in higher taxes.

European Union immigration also reached its highest ever level, at 284,000, an increase of 19,000 compared to last year, according to the Office for National Statistics (ONS).

However, this was still below the level of non-EU immigration, estimated at 289,000, which did not increase significantly compared to last year.

Net migration figures became the subject of intense focus in the EU referendum campaign after former Prime Minister David Cameron failed to deliver on a pledge to limit it to the “tens of thousands” a year.

Strain on public finances

Yet cuts in the number of immigrants could even lead to higher taxes for UK citizens, according to the National Institute of Economic and Social Research (NIESR).

“The UK benefits from EU migrants because they put in more in taxes than they take out in use of services, so fewer migrants might mean British people have to pay higher taxes to compensate,” said Heather Rolfe, NIESR associate research director.

Immigration from the EU and the rest of the world has increased over the last three years

Migration is expected to fall in the coming years through a combination of lower wage growth, devalued currency, and potential legal curbs on EU workers.

“It could be very damaging to the economy if [the government] were to try to change it too much,” said John Hawksworth, chief economist at PwC.

“It would potentially weaken the public finances,” he added.

Work was unsurprisingly the main reason for immigration, with 130,000 aiming to find a job once they had arrived – an “significant increase” of 23,000, according to Nicola White, head of international migration statistics at the ONS.

Net migration levels were broadly unchanged from a year ago, as emigration and immigration grew in tandem. Annual net migration to the UK has stayed steady above 300,000 for the last two years.

The figures are based on surveys at UK airports up until the end of June 2016, so include only one week after the referendum result.

“There does not appear to have been any significant impact during the run-up to the vote," said the ONS’s White.

Shrinking student population

The ONS data also shows that student immigration has fallen, which could harm the economy in London and across the UK, according to a think tank focused on the capital.

“London’s international students bring over £2.3 billion to our economy each year so the latest drop in numbers signing up to our world-class universities is a huge loss. We need to demonstrate we remain open to talented people instead of turning them off,” said Mark Hilton, director of education and employment policy at London First.

The status of EU migrants is a key issue ahead of the negotiations on the UK's relationship with the union after leaving.

Charlie Pring, senior counsel at law firm Taylor Wessing, said: "All eyes will be on the next quarterly report which will include the first three months after the vote and provide the backdrop for triggering of Article 50 if the government sticks to its timetable.”

Analysts will watch closely for signs that the fall in the value of the pound and the threat of higher inflation have had an effect on immigration, if one of the supposed “pull factors” – the UK’s relatively strong economic prospects – diminishes.

“If as expected the post-Brexit immigration climate, a weak pound and reports of a long-term squeeze on wages lead naturally to a trend of falling net migration, the UK may not need to push so hard for tough immigration controls that could damage businesses already facing a skills and labour shortage."