Immigration, free movement and the UK referendum

Jonathan Portes

16 May 2016

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Immigration has long been a salient and disputed issue in British politics.  But it scarcely figured in the 1975 referendum on whether the UK should remain a member of the (then) European Economic Community.  Indeed, those who thought immigration was too high were slightly more likely to vote to stay in (Evans and Mellon 2015).  Today, the opposite is the case.  Negative attitudes to immigration are by far the strongest predictor of opposition to UK membership (Vasilopoulou 2016).

This reflects a huge rise in migration to the UK since the enlargement of the EU in 2004 (and again in 2007); over the last decade the UK resident population originally from other EU member states has more than doubled, to more than 3 million, and continues to rise rapidly. Even this may understate the possible impacts on the UK labour market: over the last four years, more than 2 million EU nationals have registered for UK National Insurance numbers, required for (legal) access to employment.  It is unclear whether the disparity between this and the official immigration statistics reflects very short-term and seasonal migration, or other factors such as under-recording (Portes 2016)

Impact of EU migration

One notable feature of migrants from the new member states was that, although they were not necessarily low skilled, they primarily moved into low-skilled employment, concentrated in certain sectors (for example, construction, retail, hospitality, domestic work, food processing and agriculture) (MAC 2014). Public and policy concern has therefore focused on the distributional impacts – in particular potential negative impacts on employment and wages for low-skilled workers.  But to the considerable surprise of many economists, including this author, there is now a clear consensus that even in the short-term EU migration does not appear to have had a negative impact on the employment outcomes of UK natives (Home Office/BIS 2014).

While the evidence on wage impacts is less conclusive, the emerging consensus is that recent migration has had little or no impact overall, but possibly some, small, negative impact on low-skilled workers. Nickell and Salaheen (2015) find that a 10 percentage point rise in the immigrant share leads to approximately a 1.5% reduction in wages for native workers in the semi/unskilled service sector; this would mean that immigration since 2004 would have reduced wages for native workers in that sector by about 1%, or put another way would have depressed annual pay increases by about a penny an hour.

The Prime Minister's "renegotiation" of the UK's relationship with the EU focused on the issue of "benefit [or welfare] tourism", based on opinion polls suggesting that this was a widespread concern with the public.  In fact, there is no evidence that access to the UK benefit system is a major driver of migration flows.  Overall, migrants are underrepresented among benefit claimants, and especially claimants of unemployment and other out-of-work benefits (Portes 2015). And while it is true that EU migrants do claim significant amounts of “in-work” benefits, which are available to low-paid workers, especially those with children, most do so only after they have already been resident for several years, suggesting it has little to do with their original migration decision (Portes 2015).  The wider economic literature also supports the view that differences in benefit entitlements are not a significant driver of migration (Giuletti 2014). 

Nevertheless, the “emergency brake” will allow the UK to phase in entitlements to in-work benefits for new arrivals from the EU over a period of four years. But this arrangement will be time-limited. The UK will also be allowed to reduce, but not eliminate, child benefit payments paid to those with children living abroad. It is generally accepted (even within the UK government) that the impact of these provisions on benefit payments will be small, and on migration flows negligible.

Perhaps the real significance of the renegotiation is that it has clarified that free movement remains a fundamental EU principle.  The main measures the UK is entitled to impose are temporary and/or time-limited.  That means the dividing lines for the referendum are more clearly drawn.  If the UK votes to stay in, it will have accepted – however reluctantly – that staying entails a commitment to free movement of workers in the EU, both in principle and practice, and the resulting migration flows.

Policy options post-Brexit

If, however, it votes to leave – and, as almost all campaigners on the Leave side now propose, also remains outside the European Economic Area – then the UK could potentially regain a considerable degree of flexibility.  Outside the free movement area, a sensible immigration policy might look quite different to UK current policy.  There would be little rationale for offering completely free access to the UK labour market for workers, skilled or otherwise, from Bulgaria or Belgium, while imposing tight restrictions on even highly skilled workers with a job offer or scarce skills from India or Indonesia.

But this in itself does not say much about what a post-Brexit system would look like. While proponents frequently talk about an “Australian-style points system”, this begs more questions than it answers.  The countries with fully-fledged points systems (Canada and Australia) introduced them as a way of targeting growth in both overall population and human capital (Hansen 2015). So what might it mean in practice for the UK?

If immigration and free movement are indeed the determining factor in the referendum result, there may be strong political pressure on a post-Brexit government to deliver very large reductions in immigration to the UK. Both inside and outside the government, those arguing for Brexit have long made the case that it is EU membership that prevents the government from delivering its popular pledge to reduce immigration to “the tens of thousands”.  Without the “excuse” of freedom of movement, the government might be obliged to turn what is currently little more than an aspiration into a serious policy objective.

In practice, this would be extremely difficult. Migration Watch (2016), for example, argue that applying the same migration rules to EU nationals as currently apply to non-EU ones would reduce net migration by about 100,000. It follows that further significant reductions in non-EU migration would be required to meet the government’s pledge.  As Nardelli (2015) points out, in the short term a reduction in migration on this scale would jeopardise the government’s ability to achieve its fiscal targets.   Looking at the longer term, Lisenkova (2014), using an overlapping generations model, finds that migration has significant positive impacts on both GDP per capita and on the public finances over the very long term.

A restrictive policy might have some (relatively small) positive direct impact on wages for low-skilled workers, although little or none for medium and highly skilled workers. However, the impact on incomes would be more than offset by the wider negative economic and fiscal impacts.  Lisenkova (2014) suggests that the small positive impact on unskilled wages from lower migration is more than offset by the tax rises (or public spending cuts) resulting from the negative fiscal impacts, so real post-tax incomes would fall.

By contrast, some proponents of Brexit have argued that it would allow a more liberal approach to non-EU migration. This would mean that immigration continued to run at historically fairly high levels; it could, however, support a rebalancing from unskilled to skilled migration.  What would be the likely impacts? 

  • Relaxing of controls on skilled migration could potentially relieve some of the barriers to growth imposed by current government policy, which prevent some companies from recruiting for skilled jobs. The government intends to further tighten restrictions, despite the evidence that such restrictions are likely to further damage productivity and growth (MAC 2016). 
  • Current restrictions on non-EU migrants have led to significant staff shortage in relatively low-paid, but skilled, occupations in the public sector, such as nurses.  If a new system precluded EU migrants as well in these sectors, this would make things even worse; if, on the other hand, it allowed more non-EU migrants as well, matters might improve.
  • The consequence for some sectors that rely heavily on migration from within the EU to fill relatively low skilled jobs could be significant.
  • Rebalancing towards higher skilled migration could, in principle, both raise wages for the lower skilled and improve the fiscal impacts of migration, boosting post-tax incomes. 

Conclusion

A decade ago, few on either side would have predicted the centrality of free movement in the Brexit debate. While the economic impacts of recent EU migration appear to have been relatively benign – even for the low paid and low skilled – it remains the most important issue for many, perhaps most, likely voters, and the “renegotiation”, which focused on the largely irrelevant issue of “benefit tourism”, has not changed that. This means that a vote to Remain will unequivocally be a vote for the status quo in this area. A vote to Leave, however, will take us into new territory for UK immigration policy, with potentially significant consequences.

References

Evans, G. and Mellon, J. (2015), ‘Immigration and the EU: attitudes and perceptions, myths and realities’, presentation to NIESR Conference on Immigration and the EU-UK relationship.

Home Office and Department for Business and Skills (2014), ‘The impacts of migration on uk native employment: an analytical review of the evidence’.

Hansen, R. (2015), ‘An Australian points system for Britain?’, King’s College London, available at http://ukandeu.ac.uk/an-australianpoints-system-for-britain/.

Lisenkova, K. (2014), ‘The long-term economic impact of reducing migration in the UK’, National Institute Economic Review, 229, August, R22–30.

Migration Advisory Committee (2014), ‘Migrants in low skilled work’, London: Migration Advisory Committee.

—(2016), ‘Review of Tier 2: Balancing migrant selectivity, investment in skills and impacts on UK productivity and competitiveness’, London: Migration Advisory Committee.

Migration Watch (2016), ‘UK immigration policy outside the EU’, available at http://www.migrationwatchuk.org/briefingpaper/371.

Nardelli, A. (2015), ‘Osborne reliant on rising immigration levels to achieve budget surplus’, The Guardian, December.

Portes, J. (2015).  "Migrants, benefits and the  UK's renegotiation: questions and answers", NIESR blog.

Portes, J. (2016), "Evidence to the Public Administration and Constitutional Affairs Committee".

Nickell, S. and Salaheen, J. (2015), ‘The impact of immigration on occupational wages: evidence from Britain’, Staff Working Paper No. 574, available at http://www.bankofengland.co.uk/research/Pages/workingpapers/2015/swp574.aspx.

Vasilopoulou, S. (2016), ‘Explaining UK euroscepticism: freedom of movement, employment, welfare and the UK referendum’, University of York, Political Quarterly (forthcoming).

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Topics:  Europe's nations and regions Migration

Professor of Economics and Public Policy, King's College London; and Senior Fellow, UK in a Changing Europe

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