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December 4, 2023

Failing to plan for migration means many of its significant benefits are lost

At the time of Brexit, few thought it would be followed by a two- to three-fold increase in net migration INTO the UK. Yet new migration data have recently been released that seem to suggest that this is, in fact, the case. Compared to a pre-Brexit average of around 250,000 a year, net migration into the UK peaked at 745,000 in 2022 and has fallen back only slightly to an estimated 672,000 in the year to mid-2023[1].

Sky News viewers will have been treated to a tour de force from their economics expert, Ed Conway, who managed to explain the new data carefully and accurately in less than 3 minutes. The clip is here for those who missed it.  

The rise in immigration is largely from non-EU countries and reflects the working of the new points-based system for work visa applications and the rise in student visas. These account for 78% of the increase since 2019. To a lesser extent, the total migration figures will also have been affected by those seeking visas on humanitarian grounds, especially from Hong Kong and Ukraine.

We have recalculated the UK population data, assuming births and deaths have remained as previously forecasted. This suggests (see Figure 1) that the population rose by 589,000 in 2023 rather than the 331,000 previously predicted[2]. This means that since 2019, the population has grown by 2.5% compared with a 1.7% GDP rise over the same period, or that GDP per capita has actually declined by 0.7% since 2019.

Figure 1: Old and revised UK populations calculations

Source: Office for National Statistics

One suspects that the OBR had had some advance information about the migration data before it published its November Economic and Fiscal Outlook because it not only contained for the first time estimates and history for GDP per capita but also a box[3] giving very detailed data and projections about net migration in the future.

The OBR made the (reasonable) point that those migrating to the UK to study will not all stay in the country, and the increased historic migration for that reason will eventually largely reverse itself. Historical data shows that about 14% of those coming to the UK to study remain in the UK, but the new(ish) Graduate Visa programme may increase this proportion.

The spike in net migration has reopened a longstanding question – is migration a net benefit to the UK economy? Some claim it is not because it takes jobs that UK workers should fill or allows UK employers to keep productivity down. Yet the former claim seems inconsistent with most employers’ claims that they are short of labour. And although there must at the margin be some impact on productivity from labour availability (e.g. in the UK there seem many fewer petrol stations that have pump-based automatic paying compared with France and also fewer hotels with automated check-in), I’ve never fully believed in the theory that creating a labour shortage and hence pushing up wages will automatically feed through to higher productivity. After all, had that theory really worked the UK in the 1970s, which had rapidly rising wages and aggressive trade unions, would have been one of the most productive economies around. In fact, the opposite was true.

In The Flat White Economy,[4] I wrote that migration helped the economy for three reasons:

1)      Research seems to show that migrants, who, after all, have moved out of their comfort zone, are likely to be harder working and more creative than those who remain in the same location. Research amongst artists, other creatives and sports players supports this. They also create more diversity of approaches where they work and hence stimulate creativity in the indigenous labour force. This becomes increasingly important as the economy gravitates towards the more creative sectors.

2)      Migration helps fill areas where skills are notably lacking – skill shortages can have disproportionately negative impacts on the economy by creating bottlenecks.

3)      More controversially, migration is likely, on average, to keep wages initially lower than they otherwise would be. Although the optimal share of wages is unclear, it is quite likely (though hard to prove conclusively) that the UK wage share is higher than is optimal, and a lower share would ultimately boost not only economic growth but also (paradoxically) longer-term real wages.

Obviously, those who come only to study and then leave the UK do not boost GDP directly, except possibly adding to the ‘production’ of college staff. But those who stay and work are highly skilled and generally highly productive.

However, the UK is unlikely to be optimising its benefits from migration.

First, much of the net migration is unanticipated and, therefore, not planned for.

Second, there seems to be a complete disconnect between migration policy and planning/housing policy or, indeed, policy for economic and social infrastructure. A recent calculation suggested that the UK’s planning policy for housing was reducing long-term GDP per capita by 2.9%[5].

Third, migration should not be an excuse for failing to reform the UK welfare and benefit system to encourage and make it easier for those of working age or who wish to work to do so. The government has plans to do this, but such plans have been made in the past without much success.

The OBR, despite expecting net migration to fall sharply in the future, still has boosted the labour supply by just above 0.2% as a result of its November increased migration forecast. Their estimates – like most past official migration forecasts – seem likely to be on the low side.

But if the UK wants to gain the full economic advantage of the migration which the country has accepted as a result of a deliberate policy, it is critical that we use the benefits to ensure that there is sufficient housing and other economic and social infrastructure. Without that, migration can become something close to a zero-sum game.

[1] Please note that the illegal migration in small boats across the Channel, currently running at about 30,000 a year, is tiny compared with the large numbers migrating legally. This form of migration is not to be condoned, especially if it is associated with the operation of modern slavers and people smugglers. But the numbers are a still a small percentage of legal migration.

[2] This data and that in Figure 1 are from the population forecasts released by ONS on 27 Jan 2023 (available here).

[3] Office for Budget Responsibility (Box 2.3 starting on page 29)

[4] The Flat White Economy, Douglas McWilliams Duckworth 2015

[5] The Growth Commission – Growth Budget (page 95)

For more information, please contact:

Douglas McWilliams, Deputy Chairman
Email: dmcwilliams@cebr.com, Phone: 07710 083652

Cebr is an independent London-based economic consultancy specialising in economic impact assessment, macroeconomic forecasting and thought leadership. For more information on this report, or if you are interested in commissioning research with Cebr, please contact us using our enquiries page.

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