At the beginning of the year, a report claimed [1] that up to 1.3 million people born abroad had left the UK during 2020 as jobs in sectors such as hospitality and construction disappeared. Relatively quickly, it became clear that the figure was vastly overblown and that the pandemic had introduced some serious response bias to Labour Force Survey on which this figure was based. More recent estimates put it at 250,000 or less. While much lower than initially feared, the fact that a significant number of people might have left the country is still a cause for concern. Immigration is a key engine for economic growth. At the simplest level, population growth – either through natural population growth or immigration – means output growth.

It has long been assumed that faster migration growth would be likely to lead to faster GDP growth. But because many migrants work in low skilled jobs it has often been assumed at the same time that the impact on productivity and GDP per capita would be negative. Cebr Deputy Chairman Douglas McWilliams in his book ‘The Flat White Economy’ has challenged this. He points out the leading role of migrants in business startups and argues using data from the prevalence of migrants in artistic occupations around the world that, in the digital and creative world, migrants, who have left their comfort zone, raise productivity not only for themselves but also for their co-workers by increasing creativity, the raw material of the digital economy.

Looking at the pandemic, we won’t know the exact impact on population flows for some time to come, but the fact that many workers in the hardest-hit sectors such as hospitality, arts or events are more likely to be young and foreign-born, makes it plausible that there has been at least some outflow of people. While the furlough scheme has helped businesses to keep some employees on their payroll, many others have been laid off and those that have returned to their countries might not be so quick to return. Indeed, the predicted rapid economic recovery over the coming months might lead to some labour shortages for particular roles, ranging from chefs to qualified bar staff. We are less worried about shortages in digital sectors where work can be carried out remotely.

Beyond the pandemic, immigration will remain a crucial driver for the economic prospects of the UK post Brexit. Since January this year, EU nationals wishing to come and work in the UK need to go through the same visa application process as everyone else, making the process of migration considerably more bureaucratic and expensive.

As the country opens up post lockdown the UK, and London in particular, remains one of the most exciting places to start one’s career despite some of the more obvious drawbacks including the high cost of living and the weather. The UK’s excellent universities are a further pull factor that will continue to draw in international students after Brexit. But the cost and hassle of obtaining a visa is now a serious competitive disadvantage and might benefit universities in the EU, many of which also now offer English-speaking programmes.

It also means that places like London will attract fewer ‘speculative immigrants’. Before Brexit, it was reasonably easy for young people from the EU to come to the UK, get an education and try their hand out at a few different jobs in the UK’s relatively unrestricted labour market. Talking to friends and acquaintances, it is not uncommon to hear that these initially often rather vague plans frequently result in people staying much longer than initially anticipated, continuing their career and settling down in their new home country of choice.

Harsh new visa restrictions are likely to be a substantial disincentive for these speculative immigrants encouraging them to look elsewhere. And even if someone from the EU now commits to looking for a job in the UK and is successful, new regulations from the Home Office could still scupper those plans as small businesses are allowed to hire only a certain number of overseas-born individuals – and in many cases, these allowances have not been adopted to reflect the fact that that the entire EU now also falls into this category.

To sort this the post Brexit migration regime needs to be improved in three ways. First, the numbers permitted into the country need to take account of the economic requirements – this means an additional 200,000 places a year. Second, the bureaucracy associated with visas needs to be substantially simplified and the time taken to process them reduced. Thirdly the cost of visas should be reduced to £100 or less. According to the government’s own analysis [2] migrant workers typically contribute £78,000 net to the public purse so scaring them or their employers off with hefty visa fees is a false economy.

Cebr’s own report on potential post Brexit labour market arrangements [3] pointed out that reducing migration by 200,000 a year would lower growth by 0.9% per annum and  GDP per capita growth by 0.1% per annum. This may not sound like much but the effects build up and hit public finances particularly. Scaling from the analysis in our 2017 report, after 10 years the impact on public finances would be a hit of £30 billion per annum after allowing for effects on taxes and public services. On a micro level, at Cebr we have repeatedly stressed the importance of diverse teams and views to foster creativity and innovations. It is urgent that the migration arrangements are improved to enable the UK to stay competitive in attracting talented people.


For more information please contact:Kay Neufeld, kneufeld@cebr.com, 020 7324 2841

 

1: https://www.ft.com/content/def33cfe-45c7-4323-bd08-d4fc42051f09
2: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/759376/The_Fiscal_Impact_of_Immigration_on_the_UK.pdf
3: https://cebr.com/reports/cebr-special-report-economic-consequences-of-limiting-migration/