EU migrants contribute to UK public finances, but the money hasn’t gone where it’s needed
EU migrants contribute positively to UK public finances. According to recent research, they pay more into the system through taxes than what they take out by using public services and receiving benefits. Furthermore, EU migrants’ contributions over their entire lifetime are usually much higher than those of natives, partly because most migrants arrive fully educated and many leave before the cost of retirement and old-age starts to weigh on public finances.
Still, the public’s opposition to EU migration is driven, in large part, by economic factors, often focused on migrants’ use of state funds, welfare and public services such as the NHS and schools. While the British public has become increasingly positive about the overall economic impact of EU immigration since the EU referendum in 2016, the same opinion polls still show that a substantial part of the population think migration has had a negative economic impact.
So why do experts and parts of the public view economic impacts of EU immigration so differently? One explanation could be that the public’s economic concerns are centred around low-skilled EU migrants rather than the aggregate effect. Indeed, a recent study found that low-skilled migrants contribute less to public finances than high-skilled migrants. But their contribution was still positive, and this is before accounting for the fact that low-skilled migrants often fill important shortages in the labour market.
Another explanation would be that parts of the public are simply ignorant of EU immigrants’ positive impact on public finances, or that their judgement is biased by other considerations. For example, those who oppose immigration for cultural reasons may simply be choosing to ignore or reject the economic facts. But it’s also possible that the public are simply looking at the issue from a different perspective, and that this is view is as informative as the perspective of experts.
Recent NIESR and British Future research found that people operate with a hierarchy of evidence. People tend to trust local and personal experiences including what they hear from friends, family and colleagues, more than narratives from experts and the media.
So, what have their personal experiences been? The rise in net EU migration since 2004 has coincided with an economic downturn, followed by a decade of austerity including deterioration of public services and cuts to welfare. Quite understandably, parts of the public have connected this rise in net migration with their perception that living standards have declined.
Of course, experts would take care not to mistake correlation for causation. They would argue that any deterioration in living standards has resulted from recession and government austerity policies rather than the impact of EU migration. But even if the public’s economic concerns about EU migration are not statistically bullet-proof, the reality is that the government has neglected to respond to population increases, which have resulted in part from higher net EU immigration.
The fact that migrants’ fiscal contributions could, in principle, make up for the increased demand on public services ‘is not so much comfort in practice if those revenues are in fact being allocated elsewhere, for tax cuts or deficit reduction, as in fact has been the case,’ argues Professor Jonathan Portes.
The Migration Advisory Committee, an independent body that advices the government on migration issues, recognised this back in 2012. In a much overlooked part of their recent report, written to inform future immigration policy, they explore whether the allocation of public funding has allowed money to flow to areas where migration has increased the demand for public services.
They found that migration only makes a few direct appearances in the funding formulae, including by adjusting school funding to take account of numbers of pupils who speak English as an Additional Language. They concluded that the existing funding formulas are ‘very complicated’ and that ‘…we are not convinced sufficient attention is paid to [this issue].’
Faced with this absence of information on how national funds find their way to parts of the UK, people are understandably sceptical about statements that migrants put more into the economy than they take out. Instead, they rely on personal judgements. As our NIESR research found, conveying evidence on the fiscal contribution of migrants with a ‘produced by experts’ label lacks appeal compared to a simpler explanation based on personal experiences.
The design of a new, post-Brexit immigration system is an opportunity to address public concerns, yet the White Paper proposals contain no considerations about how migration funding is distributed. Given the role of immigration in the Leave vote and the tensions it exposed, it is crucial to address the widespread assumption that migration is a drain to the economy and to public services rather than a benefit. Otherwise, the public and experts will keep talking at cross-purposes on the impacts of immigration.
This blog was first published on the LSE Blog's page.