UK response to Treasury Select Committee Chairman Rt. Hon. Andrew Tyrie MP writing for Open Europe
The Rt Hon. Andrew Tyrie MP writes for Open Europe (see full report here) that the Government needs to state clearly that stronger controls on free movement “may also carry an economic and fiscal cost for the UK, controversial though saying this remains.” He notes that a reasonable interpretation of the evidence would suggest that inward migration from the EU has provided a substantial fiscal dividend (around £20bn during 2001-2011).
UK has comprehensively examined the ‘widely-cited analysis’ by Dustmann and Frattini to which Sir Andrew refers (see 2014 briefing paper here). The £20bn figure was an estimation of the net fiscal contribution by EEA migrants arriving during 2001-2011. It is not a figure for the overall impact during that period of inward migration from the EEA as it ignores an increasingly negative contribution during that period from migrants from the EEA who had arrived earlier. In fact the overall impact in the best-case scenario in the CReAM analysis was only around £5bn.
As we have pointed out, even looking at the £20bn contribution that was said to have been made by only the more recent arrivals, this was the headline of a ‘best-case’ scenario. The authors provided a number of alternative scenarios all of which reduced this headline figure significantly. When they assumed a different basis for allocating migrant contributions to business taxes this alone reduced the figure to £13bn and the contribution to this total made by Eastern European migrants essentially to nil. The headline of £20bn further obscures that the contribution of recent EEA arrivals peaked in 2007 at £3.6bn and had declined to barely a third of that amount by 2011 with a negative contribution from Eastern Europeans even in the best case scenario. The chart below takes account of previous arrivals too and shows in addition that the overall impact was decidedly negative after 2008, with a peak contribution from all EEA migrants of just over £3bn in 2006 having become a cost of over £2bn by 2011.
UK has also extended the Dustmann and Frattini research by applying their methodology to the most recent year 2014/15 (see 2016 briefing paper here) and found that the contribution from Eastern Europeans had followed the deteriorating trend observed by Dustmann and Frattini and in the year amounted to a fiscal cost of around £1.5bn even on similar assumptions to their best case scenario.
The evidence is clear – and unsurprising – that at an individual level some contribute fiscally and some do not. These differences persist at a group level – for example the finding that migrants from Western Europe contribute quite differently from those from Eastern Europe is confirmed by recently-released statistics from HMRC (see August 2016 HMRC release here) that show taxpayers from Western Europe pay twice the amount of direct personal taxes as the average taxpayer while taxpayers from Eastern Europe pay only half as much as the average taxpayer. These statistics also show that for the most recent arrivals, nearly half of the personal taxes received by HMRC were paid by only 2% of these individuals.
Unrestricted free movement means the UK has no choice but to admit everyone whether they make any contribution or not. The evidence is that large numbers, even of recent arrivals, do not make a positive contribution. We have recommended (see 2016 briefing paper here) a robust system of work permits to ensure the admission only of those EU migrants who will make a positive contribution. It must be entirely uncontroversial that such controls on immigration cannot possibly carry a fiscal cost for the UK.
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