The cost of immigration
David Green, 5 November 2014
The UCL Centre for Research and Analysis of Migration has produced another report claiming that immigrants from the European Economic Area made a net contribution to the Treasury between 2001 and 2011. But, the shallow focus of the UCL report on whether immigrants pay more in taxes than they receive in benefits misses out some vital costs.
The UCL study ignores the Europe-wide consequences of migration by focusing on a shallow comparison within the UK. People who migrate tend to be young, better educated and energetic. They make good employees here in the UK but they are a loss to their own country. If Europe is to escape from the current economic downturn every member state needs to increase its GDP. If other EU countries fail to prosper because their brightest and best have travelled to the UK, we are all worse off.
The report points out that many EEA migrants are well educated, but they disregard the fact that people with university degrees often end up working as baristas in coffee bars or as waiters. The justification for free movement of labour is that workers will move to locations that promise to make the most efficient use of their time. When skilled individuals perform jobs well below their capabilities, it is a waste of their human capital.
The authors claim that the arrival of individuals with skills saved £6.8 bn in UK spending on education and skills. This claim disregards the fact that employers have been reducing the training of apprentices over the same period, thus leaving native-born young people with fewer skills. It may explain why youth unemployment is still well over 700,000.
The report also fails to disaggregate migrants. A sensible immigration policy would select people capable of making a major contribution to the UK and avoid the disruption caused by the arrival of a large number of newcomers in a short period. Yet, the UCL study includes all immigrants in its calculations. For example, it includes the thousands of wealthy French people who live in London to escape punitive French taxation. They add a lot to GDP whereas immigrants who work for the minimum wage or just above do not.
The UCL claim that EEA migrants made a net contribution to the Treasury is only true of single migrants in most cases. Counting only cash benefits and personal taxes (income tax, national insurance and council tax) single people contribute more than they receive in benefits, but couples with two children often receive five times more. It is the inevitable result of our extensive system of income redistribution, which means, according to the Institute for Fiscal Studies, that about 45% of all UK families receive more in benefits than they pay in personal taxes.
Compare two family types: a single person on half the average wage (about £7.20 per hour) and a couple with a single earner and two children, also on half the average wage. Assume that both families work a 35-hour week for £250, and live in north London paying rent of £100 per week.
The single person will have a gross income of about £13,000 a year and pay council tax of over £700, income tax of about £700 and national insurance of just over £600. He will receive benefits of £800 a year (almost all housing benefit).
The couple will also pay about £2,000 in council tax, income tax and national insurance, but their benefits will add up to nearly £12,000. (Working tax credit, child tax credit, housing benefit and child benefit.) That is, they will receive in cash benefits well over five times the amount they pay in personal taxes. In total, their disposable income will be well over £22,000. Not only do they fail to make a net contribution to the Treasury, they make bigger demands on schools, hospitals and housing.
The UCL study has such a narrow focus and misses out so much of real importance it is useless for public policy evaluation. This study by Professor Rowthorn of Cambridge University is rather more useful.