Tory plans to limit immigration could cost the UK billions of pounds

24 May 17

Conservative plans to limit immigration could cost the economy and public finances billions, a report from the Centre for Economics and Business Research has found.

Today’s study from the think-tank warned that limiting immigration to tens of thousands as suggested in the Tory manifesto could shrink the UK economy by between 1.5 and 3% by 2025.

By 2030, it could be reduced by between 4.1% and 5.7% and the think-tank gave a cautious estimate that by 2040 it could be down between 8.9% and 10.4%.

Douglas McWilliams, founder of Cebr and author of the report said: “If the UK cuts off migration without making adjustments to boost productivity, especially productivity in the public sector, the scale of the economic damage could be huge.”

The report states cutting the flow of migrants to an economy as dependent on them as the UK’s could have “alarming” consequences for fiscal growth.

McWilliams analysis of the economic impact of immigration suggests a threefold effect:

  • First: migration alleviates skill bottlenecks and hence removes barriers to faster growth
  • Second: migration boosts diversity and also boosts creativity which enhances productivity with both direct and indirect effects on economic growth
  • Third: migration makes business more profitable, enhancing investment and hence growth. Even if the initial impact is to place downward pressure on wages through the enhanced supply of labour relative to demand, the secondary effect is to boost wages through faster growth

There are similar issues facing GDP per capita in the Cebr study, by 2025, GDP/capita is reduced between 0.9% and 1.5%.

By 2030 it is cut between 1.9% and 2.7%, by 2040 is would be cut by as much as 4.1% and 4.9%.

The report highlights this would have a negative impact on tax collection and therefore public finances.

The treasury could lose between £15.6bn and £32.7bn in 2025, £43bn and £60.2bn in 2030 and £93.3bn and £109.3bn in 2040.

Although the report states “these numbers exaggerate the impact on the deficit since with fewer people in the country the need for public services would be reduced”.

Assuming public spending would be scaled to the population, the net impact on the deficit is between £9.5bn and £20bn in 2025; £25.9bn and £36.3bn in 2030 and £57.7bn and £64.5bn in 2040.

McWilliams concludes: “The numbers here are quite shocking – they display the extent to which the UK economic model has become based on migration and show the scale of the potential negative consequences if migration slows to a very small amount compared with the current pace.”

A report released by the think-tank Global Future last week said that manifesto pledges to cut immigration could be hugely damaging for public services and national debt.

The Institute for Government earlier this month called for the government to keep freedom of movement for years after Brexit.

Paul Johnson, director of the Institute for Fiscal Studies, wrote for PF in March that any idea restricting migration would help public services was “ill-founded”.  

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