Response To Cream Paper On Contribution Of Migrants To Economy


Economics, Employment, European Union, Office for National Statistics, Welfare Benefits

Summary

1.  The press release, much publicised by the BBC, was heavily slanted to obscure the report’s finding that all migrants in the UK, regardless of their year of arrival, made a negative fiscal contribution of £95.4 billion between 1995 and 2011.   It also obscured the finding that, in respect of those who have arrived since 2000, the fiscal contribution of non EEA migrants was only £2.9 billion.

EEA migrants contributed £22 billion but this result was achieved by conflating A8 and EU 15 migrants when the former are the main immigration issue.

 Introduction

2. The Centre for Research and Analysis of Migration (CReAM) at University College London has this week issued a paper which seeks to analyse the fiscal costs and benefits of migration to the UK. The paper received significant media coverage, especially across the BBC[1], which almost exclusively focused on the contents of the accompanying press release.

3. The paper analysed the fiscal contribution of ‘natives’[2] EEA born migrants and non-EEA born migrants by trying to estimate  their contribution towards government revenue[3] compared to their receipt of government spending[4]. The study found that natives did not make a positive fiscal contribution and in fact consumed £604.5 billion more in public services than they paid in taxes, over the period studied, 1995-2011; this reflects the public sector deficit in many of those years.

4. If migrants are to be different from natives in terms of their fiscal contribution they need to contribute more in tax and/or consume less in public services.  Some migrants may well pay more tax than they consume in public services. For example, if they come to work in the UK for five years and then leave, they will have placed no burden on the education system, made little use of the NHS and will not have drawn a pension. They are likely to pay in more than they consume.

5. However, settled migrants will likely have children, send them to school, claim family benefits, use the health system and eventually draw a pension. These migrants will place a similar strain on public services as a native. Whether an individual’s net fiscal contribution is positive or not depends on how much they earn compared with how much they consume.

The Press Release

6. The press release claimed that the ‘central findings of a comprehensive analysis’ were that ‘UK immigrants who arrived since 2000 are less likely to receive benefits and less likely to live in social housing than UK natives. What’s more, over the decade from 2001 to 2011, they made a considerable positive net contribution to the UK’s fiscal system, and thus helped to relieve the fiscal burden on UK-born workers.’[5] The press release notes that these findings are particularly pronounced for migrants from the EEA.

7. However, on the key issue of the fiscal contribution of immigrants, the press release was heavily slanted.

8. By giving it the title “Recent immigration to the UK” the authors were able to avoid including some of the reports key findings. For example:

        a) The fiscal contribution of all migrants in the UK, regardless of their year of arrival, was negative at -£77.9 billion, over the period 2001 – 2011.

       b) Extending the period to cover 1995 – 2011 gives a negative contribution of -£95.4 billion. 

9. The press release also fails to make the crucial distinction between EEA and non EEA migrants:

      a)    EEA migrants contributed £22 billion between 2001 and 2011

      b)   Non EEA migrants, despite being much more numerous, contributed only £2.9 billion

Problems with the methodology

Combining migrants from the EU15 and the A8

10. Those from the EU 15 earn considerably more than workers from the A8 countries; EU 15 workers have a median wage of £13 per hour compared to the A8 median wage of £7.89[6]. The contribution of the EU15 to the exchequer is therefore greater so combining them with the A8 obscures the impact of the latter. In any case, the EU 15 are not an immigration problem.   The A8 and the forthcoming migrants from Romania and Bulgaria are the most relevant to policy.

Overstating the Contribution of Migrants to Government Revenue

11. The authors have assumed that business rates paid to the exchequer – approximately £10 billion – are equally paid by all self-employed people. Given that there are 4 million self-employed individuals in the UK this implies a payment of £2,500 per self-employed person. However, revenue from business rates comes  mainly from large firms so this assumption is likely to overstate the contribution of self-employed migrants. The same applies to company and capital taxes; a natives are more likely to have investments, particularly pension investments, than new migrants since they are lifelong residents.[7]

Understating the costs of Migrants to Government Spending

12. There is no data on the actual amount of money spent on each group through tax credits and benefits. The authors therefore ‘assume that every recipient receives the same’.[8] This is manifestly incorrect and consequently underestimates the costs of government spending on migrants in the form of benefits. Indeed, the authors recognise that EEA migrants as a whole earn considerably less – 15% – than natives and would therefore be eligible for more significant sums of tax credits than natives. The paper also demonstrates that non-EEA nationals on average have more children than natives meaning that they will be eligible for more significant sums of family benefits and housing benefit than natives.

13. The authors have neglected a significant element of government spending.  They claim that immigration helps in sharing the cost of fixed public expenditures.   However there are substantial capital costs for the infrastructure required solely to accommodate a growing population 60% fuelled by immigration. For example the overall birth rate has increased significantly in recent years due to the higher birth rate amongst migrant women. To cope with this more schools have to be built. The costs of the new school, under the authors’ assumptions, have been attributed equally based on the numbers of children born to each group although the need for the extra facilities is a result of immigration.  Similar considerations apply to transport and other infrastructure.

Future Costs

14. The report does not include the future costs of health care and pensions. The authors speculate that the youthful age of recent migrants and their higher educational qualifications will mean they will improve their earnings and hence their fiscal contribution in future years such as to cover the considerable costs of health care and pensions.   However, the report itself suggests that the opposite has so far been the case since it finds that migrants that have been here the longest are a fiscal cost.  



[1] The Paper was covered on BBC Radio 4’s Today programme, BBC One’s Breakfast, the BBC One O’Clock News, Six O’Clock News and the Ten O’Clock News as well as during bulletins on radio and Television throughout the day. The paper was also covered in a news article on the BBC News Website.

[2] This is the phrase used by the authors and refers to British born adults and children.

[3] Government Revenue encompasses Income tax and National Insurance, VAT and excise duties, company and capital taxes, council tax, business rates, gross operating surplus and rents and interests and dividends, and inheritance tax.

[4] Government Expenditure encompasses pure public goods and services such as defence, congestible public goods and services, medical and other health services, education, social protection, prison and law courts, housing development and police services

[6] ONS Labour Force Survey median gross hourly pay by country of birth groupings Q1 2013

[7] See Michael O’Connor, URL: http://www.strongerinnumbers.com/page5.html

[8] CReAM, p. 15. 

10th November 2013

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