Migrants and tax credits

One useful thing that has come out of the recent spate of stories about so-called “benefit tourism” is that no-one any longer seriously disputes the fact that migrants, especially migrants from the European Union, are much less likely to claim out-of-work benefits than native Britons.  And, of course, they are also far less likely to be in receipt of the state pension and related benefits – benefits to pensioners account for about two-thirds of all DWP benefit spending.  So when it comes to benefits paid by DWP, migrants account for a rather small share of the total bill, much less than their share of the population (or even of the working age population) and much less than they contribute to financing that bill via the tax system.  In that sense, there is little evidence to suggest that "benefit tourism" is a significant issue.

However, it has rightly been pointed out that DWP benefits don’t include tax credits, and that since many migrants – especially recent migrants from the EU – are in relatively low paid jobs, they may well be entitled to tax credits. While, contrary to what some (David Goodhart  for example, debating here with me on Channel 4 News) have claimed, the well-publicised UCL studies here and here do include tax credit expenditures on migrants, they do so on the basis of survey data, as opposed to the more comprehensive DWP administrative data referred to above.

Now, Michael O’Connor, writing here, has partially filled in this gap, via a Freedom of Information request to HMRC on migrants (more precisely, people born abroad who have registered for a National Insurance Number and subsequently claimed tax credits).  [Good for him. More people should do this!].

What does this new data tell us?  The tax credit system is quite complex -  you can get Child Tax  Credit (whether or not you are in work), Working Tax Credit (if you are in work, obviously) or both, not to mention some add-ons (eg for disabled children).  This has led to some confusion. The first version of Mr O'Connor's paper,  looked at those receiving tax credits who are in work, but not those out of work, who account for about 30 percent of both recipients and expenditure. 

This misled some people (notably Douglas Carswell), who claimed, in an often inaccurate critique of the UCL research, that  Mr O’Connor’s paper said that “HMRC data shows they [migrants] are significantly more likely to claim working tax and child tax credit.”    Since the paper did not look at all tax credit receipt, only receipt by those in work – and most of out of work people with children get tax credits – it showed no such thing. 

However, the paper also, in a different way, confused me (and this is not Mr O'Connor's fault at all, but HMRC’s somewhat misleading initial presentation of the data) into thinking the HMRC response covered all migrant tax credit receipts.  As a result, I understated the numbers in some tweets on this topic, although my critique of Mr Carswell’s error was still accurate, as the analysis below shows.  The purpose of this blog is in part to put the record straight and set out the correct numbers as we now understand them.  

Mr O’Connor has now obtained more data from HMRC, covering tax credit recipients out of work as well.  He is planning to revise his paper, but meanwhile he has very kindly shared the data with me.  Aggregating the different categories a bit, it shows the following:

-          The total number of people claiming in-work tax credits is about 3.3 million. Of these, 526,000, or 16%, were born abroad

-          The total number of people claiming out-of-work tax credits (that is, child tax credit for those out of work) is about 1.5 million. Of these, 190,000, or 13%, were born abroad.

-          The total number of people claiming tax credits is about 4.8 million.  Of these, 715,000, or 15%, were born abroad;

How does this compare to the working age population as a whole?   The Annual Population Survey  suggests that about 16% of the working age population (those aged 16-64) were born abroad.  In other words, relative to their share of the working age population, migrants are somewhat less likely to be claiming out -of-work tax credits, about as likely to be claiming in-work tax credits, and (very marginally) less likely to be claiming tax credits overall. 

So what can we conclude? The raw figures and proportions are perhaps not very surprising, given what we already knew about migrants’ employment rates and  wage levels.   It is certainly the case that the disproportionately low migrant claim rates for DWP out-of-work benefits simply do not apply to tax credits, especially in work tax credits – but nobody ever argued that they did. In fact these data are actually quite consistent with the survey data used by the UCL researchers, which also show that migrants and natives are about as likely to claim tax credits overall; this data buttresses their findings rather than undermining them.  So Mr Carswell’s attempt to use this new analysis as a way to attack the UCL results really makes no sense;  quite the opposite.  No surprise there.

But does this analysis support those who say that migrants may be coming here to work, and may not be claiming out-of-work benefits, but many are claiming tax credits and hence are a drain on the welfare state?  In short, not really - for that a full balance sheet analysis is required, as in the UCL research.   And in doing this it is important to remember that, overwhelmingly, expenditure on public services goes on the old (pensions and health care) and, to a much lesser extent, children (education).  Tax credit expenditure, at £30 billion, is much less than expenditure on out of work benefits (£55 billion) let alone pensions and health care (well over £100 billion each).  People who are in work, even if they are in low paid work and receiving tax credits are therefore still on average significant net contributors to the public finances.   This OBR chart shows just how much the welfare state  is basically a mechanism for transferring money from those in work to those not in work (children and pensioners, mostly):

With more data, much more detailed analysis would be possible - for example looking at migrants from different countries of origin (it may well be the case that recent EU migrants, who are often in relatively low paid work,  are quite likely to claim working tax credits) and distinguishing, as the UCL research does, between recent migrants and those who have been here a long time.  But overall, taking tax credits into account does not seem to add to the credibility of the “benefit tourism” argument.