(Cover page) Immigration: causes, concerns, consequences Felix Bungay March 2014 1
This report was produced by New Direction The Foundation for European Reform, a free market, euro-realist think-tank established in 2010 in Brussels. It is affiliated to the Alliance of European Conservatives and Reformists (AECR). New Direction aims to help shift the EU onto a different course away from the current orthodoxy of ever closer union and centralised bureaucratic governance onto a path that promotes the freedom, prosperity and security of our nations: encouraging free markets, free enterprise, lower taxes and smaller government. The views expressed in New Direction s reports are those of the authors and do not necessary reflect the views of all members of New Direction. New Direction receives funding from the European Parliament and is also required to raise a proportion of its funds from additional sources. The views expressed in this publication do not necessarily reflect those of the European Parliament. March 2014 Printed in Belgium ISBN: 978-2-87555-050-7 Publisher and copyright holder: New Direction Foundation Rue d'arlon 40, 1000 Brussels, Belgium Phone: +32 2 808 7847 Email: contact@newdirectionfoundation.org www.newdirectionfoundation.org 2
Contents Contents... 3 In Brief... 4 Policy recommendations... 5 1. Introduction public perception towards immigration... 6 2. An overview of the UK s immigrants... 10 3. What attracts migrants to their new countries?... 13 Welfare and benefits... 19 1. Unemployment Benefit... 21 2. Family Benefit (Child Benefit)... 23 3. Housing Benefit... 24 4. How do countries try and control migration?... 32 3
In Brief Migration is largely driven by wage differentials, in addition to cultural and linguistic ties between nations. Few migrants actively seek out countries based on the generosity of their welfare states. More broadly the public need not fear that migration is acting as a burden on the public finances. Young migrant workers will make a positive contribution, paying taxes while being no more likely to claim benefits. More generally the effects of migration are fairly small in fiscal terms, and in the case of a number of UK studies, show a small positive contribution to the health of the nation s finances. Anti-immigrant sentiment is indicative of a much wider public hostility to levels of migration. A preference for harsher or tighter immigration rules is similarly popular. A poll from 2007 found that 64 per cent thought immigration rules should be much tougher. A 2011 survey showed British people were more hostile to immigration than people from the other countries surveyed. The trend of increased annual migration and a larger foreign born and foreign citizen comprised population is not limited to the UK. Overwhelmingly, immigrants are motivated by the desire to improve their lives and the lives of their families. Polish families are able to increase their standard of living by four times by moving to the UK. For Bulgaria and Romania, Migration Watch suggest families from these countries can increase their incomes by up to 8 or 9 times by taking a minimum wage job in the UK. While many migrants are attracted by better paid jobs and higher standards of living, the welfare states of the UK and many other wealthier countries also provides an attractive proposition to migrants. Unemployment benefit is considerably more generous in many EU countries when compared with the UK. In contrast to other EU countries, it is much easier for migrants to claim unemployment benefit in the UK. The basic rate of family benefit in the UK is slightly below average at 3.1% of the AW, with the average across the example countries standing at 3.8%. However, the addition of child tax credits raises the UK figure to 8.5% of AW (average wage) almost three times as high as the average. Migrants are far more likely to be in low paid unskilled jobs than the professions, and are therefore able to access the family benefit system. Housing benefits: The United Kingdom is the most generous by this measure, at 22.3% of AW. Migration Watch suggests that the UK is also particularly generous to low earning families. While Migration Watch is right to highlight the generosity of the UK s system in the particular scenario they use, this is not replicated across a wider range of plausible scenarios. 4
An OECD study shows that immigrants are no more likely to claim benefits than the native born population. However, public perceptions of migrants claiming benefits may well be skewed by the fact they are slightly more likely to claim working age and out of work benefits. (In the case of the UK 1.3 times as likely to claim social assistance benefits, and 1.4 times as likely to claim housing benefit.) While the amounts claimed by immigrants are slightly higher than native born households for social assistance, unemployment benefits, family allowances and housing allowances, native born households are likely to draw significantly more from the pensions pot, outweighing the comparatively small extra amounts immigrants claim elsewhere. Studies allow to concluding that the contribution of immigrants to public finances is growing, and is likely to continue to grow in the near future. Policy recommendations Attractions of welfare state should be reduced. Child tax credits should be reduced by a third to lower family benefits. UK housing benefits amount to 22.3% of AW. Reduce them by half to get average EU level (11.7%, mean of Denmark, France, Germany, Netherlands, Sweden). JSA (Job Seekers Allowance) should include the contributory principle, meaning that migrants cannot claim unemployment benefits almost immediately after qualifying a Habitual Residency test. 5
1. Introduction public perception towards immigration Immigration continually ranks as one of the public s top concerns across the UK and the wider European Union. In recent years both populist and extremist parties have grown across Europe, taking advantage of anti-immigrant sentiment. The UK has seen the rise of the United Kingdom Independence Party (UKIP), a party opposed to Britain s membership of the EU, but fuelled, as polling shows, by anti-immigrant concerns. 1 In France, Marine Le Pen s National Front has surged in the polls, Norway has seen the rise of the Progress Party, while in Sweden the Swedish Democrats are currently the third largest party having taken 11 per cent of the vote in 2011 and only grown in strength since. Austria has the Freedom Party while Hungry has Jobbik and Greece the Golden Dawn. All across Europe these anti-immigrant parties have grown in strength. Sky News reports on The Rise of Europe's Anti-Immigration Parties 2, the Economist says far right parties are On the March 3, while the EUObserver concludes that EU Voters have not warmed to immigration. 4 However, anti-immigrant sentiment is not just contained to these parties, it is indicative of a much wider public hostility to levels of migration. Research from the UK s largest survey of public opinion, the British Social Attitudes Survey 2013 found that 56 per cent of British people felt that immigration should be cut a lot and a further 21 per cent thought it should be reduced a little. 5 Similar findings are reflected in 1 Lord Ashcroft Polls, The UKIP threat is not about Europe, 18.12.2012 2 Sky News, The Rise Of Europe's Anti-Immigration Parties, 14.10.2013 3 The Economist, The far right in northern Europe, On the March, 03.17.2011 4 EUObserver, EU voters have not warmed to immigration, 24.10.2013 5 British Social Attitudes Survey, More than 3 in 4 want reduction in immigration, 07.01.2014 6
the 2009-10 Citizenship Survey; a Government run survey of the British population. Here 57 per cent said they wished to see immigration reduced a lot, while over 75 per cent wanted to see immigration reduced either a lot or a little. Only 1 per cent said they wished immigration to increase a lot, while 2 per cent said they wished it to increase a little 6 (see Table 1 below). A preference for harsher or tighter immigration rules is similarly popular. An Ipsos Mori poll from 2007 found that 64 per cent thought immigration rules should be much tougher, while a further 12 per cent said immigration should be stopped altogether. 68 per cent of people in the same poll said that there were already too many immigrants in the UK. 7 However, it would be wrong to say that these attitudes have arisen in recent years, although the success of populist anti-immigrant parties across the EU is a fairly new phenomenon. Data from the British Election Study (BES) tracks public perceptions of immigration going back to 1964, with the table below showing the British public have consistently thought there were too many immigrants for the nearly the past 50 years. If anything, attitudes towards immigration have soften slightly over time, although the Oxford University Migration Observatory suggest that this is down to changes in methodology and the question asked, which changes as times goes on. 8 6 Oxford University Migration Observatory, UK Public opinion towards immigration, 23.02.2012 7 Ipsos Mori poll quoted in, Oxford University Migration Observatory, UK Public opinion towards immigration, 23.02.2012 8 BES and Ipsos Mori polling data quoted in, Oxford University Migration Observatory, UK Public opinion towards immigration, 23.02.2012 7
While anti-immigrant sentiment has been prevalent for some time in the UK, how does this compare to other OECD countries? Are the British more hostile to immigration than people in other countries? The Transatlantic Trends Survey asks the same question about immigration across a variety of European countries and America. The 2011 survey showed British people were more hostile to immigration than people from the other countries surveyed. Compared to Italy (48 per cent), Spain (48 per cent), Germany, (28 per cent) France (33 per cent) and America (47 per cent), Britain had the highest proportion of people 8
(57 per cent) saying there were too many immigrants. 9 The UK also had the highest proportion of people saying that immigration was more problem than opportunity at 68 per cent (See Table 3). The UK also had the highest proportion of people saying immigration would influence their vote a lot and that immigration was their top issue (see Table below). While underlying negative attitudes to immigration have persisted for some time, antiimmigrant stories have found new life in the headlines across Britain 10 with the end of transitional controls on migration from fellow EU states, Bulgaria and Romania. Bulgaria and Romania who joined the EU in 2007 had initially had restrictions on migration to other EU countries (each EU country has the decision to apply transitional migration controls to new EU member states) but these came to an end on the 1 st January 2014, giving Bulgarian and Romanian citizens access to free movement across the EU. It is in this climate of consistent dissatisfaction at the levels of immigration and the rise of anti-immigration parties across the EU, that this paper sets out proposals to improve the policy response to the challenge of migration. It is often the case that those who are otherwise well disposed to the free market in goods, services and capital do not extend the same logic to the free movement of labour. Leaving aside the issue of public sentiment pushing parties towards stronger anti-immigration positions, this can be for several reasons. Some fear that new migrants will erode a countries cultural identity and create tension between diverse groups as different cultures rub up against one another. In other cases it is the problem of immigrants taking advantage of the welfare state that is specified. Indeed, the free market economist Milton Friedman said you could not have both a welfare state and free movement of people. 11 Given these concerns, how can we best balance addressing them with the need to have a prosperous free market economy of which the free movement of labour is an important component? While the information on public opinion above shows hostility to further immigration, we also know that immigration and trade is important to Britain. British people are fond of driving their German cars to Irish pubs where they drink Belgian beer. On the way home they may stop off for a Turkish kebab or an Indian curry, from immigrant run restaurants. They will get home and sit down on their Swedish made sofa where they will watch America television shows on a Japanese TV. Beyond any technical debates about data concerning GDP growth, jobs or benefits, this anecdote which has circulated on the internet neatly points out the benefits of open trade and immigration to people s everyday lives. While it is 9 Transatlantic Trends Survey quoted in, Oxford University Migration Observatory, UK Public opinion towards immigration, 23.02.2012 10 The Daily Mail, the UK s second best-selling paper, ran a series of headlines about Bulgarian and Romanian migration, culminating in the claim that flights and buses to the UK had sold out of places, given the scale of migration from these countries. These claims turned out to be totally inaccurate 11 Open Boarders, Friedman on Immigration and the welfare state 9
important that the public can have trust and confidence in any immigration system, it is also important that the benefits of immigration are not lost because of an openly populist stance seeking to exploit the public s anti-immigrant sentiment. This paper will look at both the factors driving immigrants to emigrate as well as the migration systems various countries have in place to restrict immigration. It will look at evidence comparing wage rates and benefit levels across a range of EU and OECD countries to show the large economic gains that migrants gain from migrating. It will also look at how countries attempt to restrict immigrants entering their territory and how these systems balance the tensions between keeping immigration numbers low and having migrants fill important gaps in the domestic labour market. It will assess both the contribution and negative effects immigrants bring to the economy and ultimately how immigration can be controlled while still benefiting the economy. The paper is split into three parts. The first part will assess the incentives pulling immigrants to new countries, looking at wage differentials and benefit systems. Part two will look at different countries migration policies and how different countries go about trying to control and reduce migration. The final part of the paper will spell out our proposals for effective reforms the light of the evidence presented in the first two parts. 2. An overview of the UK s immigrants Before discussing the incentives surrounding migration it is important to get a picture of recent increases to immigration. Since the 1990s annual migration to the UK has more than doubled, 12 while between 1993 and 2012 the foreign-born population in the UK increased from 3.8 million to around 7.7 million, almost doubling in size. In the same time span, the number of foreign citizens in the UK increased from nearly 2 million to 4.9 million. 13 In 2012 11.4 per cent of the UK population was foreign born, up from 7 per cent in 1993, while 7.2 per cent of the population were foreign citizens compared to just 4 per cent in 1993. This is a huge increase in migration into the UK, and a dramatic change to the number of foreign born people living here. When looking at which countries these people come from we can see that India tops the table with Pakistan coming in third. India only gained independence from the UK in 1947, and both countries continue to be part of the British Commonwealth. Both countries have large populations with India s alone currently standing at over 1.2 billion. Its population size helps to explain its top place in the table. When combined with both strong ties to the UK, and as we shall see, much lower standards of living, it is unsurprising to see both countries high up the table. 12 Oxford University Migration Observatory, Determinants of migration to the UK, 21.01.2014 13 Oxford University Migration Observatory, Migrants in the UK: An Overview, 17.12.2013 10
Top ten sender countries of migrants by country of birth and nationality, UK 2012 Country of birth Share of all foreign born (%) Country of citizenship Share of all foreign citizens (%) India 9.1 Poland 14.9 Poland 8.7 India 7.3 Pakistan 5.8 Ireland 6.9 Ireland 5.1 Pakistan 3.6 Germany 3.8 United States 3.2 United States 3.0 Lithuania 2.9 South Africa 2.7 France 2.8 Bangladesh 2.7 Germany 2.4 Nigeria 2.4 Italy 2.4 Kenya 1.9 Nigeria 2.3 Poland s second place in terms of foreign born migrants and top place in the foreign citizenship side of the table can largely be attributed to the UK Governments decision in 2004 not to place restrictions on migrant workers from the A8 countries (the group of eight countries which joined the EU in 2004; Poland, Czech Republic, Latvia, Lithuania, Estonia, Hungary, Slovakia and Slovenia). The UK was one of only three countries to open their doors, the other two being the Republic of Ireland and Sweden. Other EU member states chose to restrict access to their labour markets, fearing massive disruption to their domestic labour supplies. Germany and Austria, for example, only lifted these restrictions in April 2011. The previous UK government massively underestimated the numbers that would arrive, suggesting that 5,000 to 13,000 would come when the average number for the years 2004 to 2010 was in fact 42,000. 14 Not only did this help fuel mistrust in the Government s ability to manage migration, but it also confirmed the fears seen in the surveys above, that there was too much immigration and that it was out of control. The growth in migration from accession countries, Poland being chief among them, can be attributed to the UK being only one of three EU member states to allow labour to move more or less freely from the A8 but flows continued to rise until the recession started despite the relaxation of restrictions in other member states. 15 While looking at the percentage of foreign born population gives a good picture of the total immigrant population to the UK, the Office for National Statistics (ONS) also provides figures on the top countries of origin for UK migrants on an annual basis. 16 14 Stephen Booth, Christopher Howarth and Vincenzo Scarpetta, Tread Carefully: The impact and management of EU free movement and immigration policy, Open Europe, March 2012, p3 15 Stephen Drinkwater and Catherine Robinson, Welfare participation by immigrants in the UK, IZA Discussion Paper No. 6144, November 2011, p6 16 ONS, Long-term international migration in the year to September 2012, 23.05.2013 11
Looking at the most recent year on record, from September 2011-12, the top five countries of origin for immigrants (as a percentage total of all immigration) to the UK were India (12 per cent), China (8 per cent), Pakistan (8 per cent), Poland (6 per cent) and Australia (5 per cent). With the exception of China, all these countries also feature among the top countries in terms of percentage of the foreign born population, suggesting the major sources of UK migration are fairly consistent, which China growing in recent years. As the ONS says, There was a significant increase in the numbers of migrants coming to the UK from China, from 29,000 in 2010 to 44,000 in 2011. The majority (40,000) of these intended to study in the UK. Prior to 2010, Pakistan had not been in the top five countries of origin since 2007. However, there has been an increase in the number of migrants from Pakistan, to 43,000 in 2011. Of this number, 30,000 arrived to study. Over the last five years, fourth and fifth places in the ranking have fluctuated between Australia, Germany, the USA, Pakistan and China. 17 Looking at other countries in the foreign born population table, Ireland is the only country in the world to share a land border with the UK, and as an English speaking country is both geographically close and culturally similar. While further away, both America and South Africa have strong historical and cultural ties to the UK. Beyond the top countries listed in the table above, Dr Diane Coyle of the UK s Migration Advisory Committee (MAC) points out that the single biggest category of immigrant stock comes from other EU states. 18 This is unsurprising given that the UK is a fellow EU member state and there is free movement of people between the EU 27 (Croatia which became the EUs 28 th state in 2013 does not yet enjoy free movement, while Bulgaria and Romania, the two most recent countries to join prior to Croatia in 2007 have only just gained it). This trend of increased annual migration and a larger foreign born and foreign citizen comprised population is certainly not limited to the UK. Coyle points out that other economically advanced economies across Europe and North America have seen similar trends, in particular America, Australia, Ireland (until the recession) and Switzerland. 19 Looking at America we can see its foreign born population percentage of its population increase from 7.9 per cent in 1990 to 13 per cent in 2011. In terms of absolute numbers the increase is from some 19.8 million foreign born persons to 40.4 million over the same period. 20 The UK s dramatic increase in migration and foreign born persons is not an 17 ONS, Long-term international migration in the year to September 2012, 23.05.2013 18 Diane Coyle, Commentary on The Challenge of Immigration - a Radical solution, in The Challenge of Immigration - a Radical solution, IEA, 2011, p50 19 Diane Coyle, Commentary on The Challenge of Immigration - a Radical solution, in The Challenge of Immigration - a Radical solution, IEA, 2011, p50 20 Migration Policy Institute, Country and Comparative data on America 12
exceptional case, but part of a wider trend of increased migration. In the next part of the paper we look at why that migration has taken place and what attracts people to migrate. 3. What attracts migrants to their new countries? What would make someone leave the country in which they grew up, had their family and their friends, where they spoke the language and were a part of the culture and instead choose to move somewhere entirely different, often where they would have no ties, face linguistic and cultural barriers, and try to make a new life for themselves and possibly their family as well? Overwhelmingly, immigrants are motivated by the desire to improve their lives and the lives of their families. This drives them to travel across nations and continents in search of a job or a higher wage. At the same time, there is also the concern that some immigrants are attracted by generous welfare states which provide benefits far in excess of anything expected in their native countries. For people living in poorer countries, migration to a much richer country, whether for a job or to access the welfare state can often provide the easiest way out of poverty. Firstly let us look at the income differentials between countries and the availability of jobs as a motivator for migration. A variety of academic papers point to economic incentives as a key driving force behind much migration. A 2005 paper by Timothy Hatton of Essex University suggests that the large increases in immigration to the UK have largely been driven by economic factors, principally wage and income differentials. 21 Similarly, a 2003 paper by James Mitchell and Nigel Pain finds that the much larger per capita incomes in the UK compared to the migrants source countries is a chief contributor to the UKs migratory pull from other countries. 22 Between 1997 and 2007 the UK economy experienced what Governor of the Bank of England, Mervyn King termed the NICE (non-inflationary, constant expansion) decade, with consistently low unemployment, inflation and over a decade of uninterrupted economic growth. This understandably made the UK a relatively attractive proposition for immigrants from poorer countries. Research by Migration Watch suggests that Polish families are able to increase their standard of living by four times by moving to the UK. When combined with high Polish unemployment which was running at nearly 20 per cent in 2004, at the time Poland gained 21 Timothy J Hatton, Explaining Trends in UK Immigration, Journal of Population Economics 18, no. 4 (2005): 719-740 22 James Mitchell and Nigel Pain, The Determinants of International Migration into the UK: A Panel Based Modeling Approach, NIESR Discussion Paper No 216, National Institute of Economic and Social Research, London, 2003 13
free movement to the UK, and only dropped to the still high levels of 10 per cent in the middle of 2007, we can see a large and discernable economic incentive for Polish migrants to come to the UK. 23 Similarly when looking at the case of Bulgaria and Romania, Migration Watch suggest families from these countries can increase their incomes by up to 8 or 9 times by taking a minimum wage job in the UK. 24 Looking at the wider picture, a comprehensive study by the International Labour Organisation (ILO) looked at average incomes in 72 countries in purchasing parity terms. The study looks at the pre-tax incomes of wage earners in different countries, and excludes selfemployed people and those who are out of work or on benefits. The table below shows their findings, giving us an easily comparable average income for each of these countries all measured in American dollars ($). Luxembourg has the world s highest average income at $4,087 per month. The UK has the fifth highest ($3,065) and besides Luxembourg has the highest average monthly earnings of any EU country, making it a highly attractive destination not only globally, but in particular for the other EU countries which enjoy free movement. Poland by contrast has average monthly earnings of $1,536, suggesting that an average worker could double their monthly income by moving to the UK. This figure suggests the gain is not as large as the four times multiple suggested by migration watch, but a large increase all the same. The figure for Romania is $954 and for Bulgaria $750, again suggesting lower multiples than the Migration Watch research, but significant differentials between the UK and these countries. When looking at other countries which comprise the highest percentage of the UK s foreign born population we can see that India and Pakistan which come first and third respectively, have large income differentials between their average monthly incomes and those of the UK. India is the 4th poorest country of the ILOs chart of 72 countries, with an average monthly income of just $295. Pakistan does even worse, coming second from last, with only Tajikistan being poorer. Pakistani s average monthly income is just $255. Compared to the UKs figure of $3,065, we can see the opportunity for India and Pakistani people to increase their month incomes by over 10 times. Bangladesh, Nigeria and Kenya which all feature in the top ten countries in terms of the UK s foreign born population, fail to make it into the ILO s study which deliberately excluded the world s very poorest countries. 25 23 Migration Watch, Incentives for Polish migration 24 Migration Watch, Incentives for Romanian and Bulgarian migration to the UK 25 International Labour Organisation, Average world wages in Purchasing Power Parity dollars (2012) 14
ILO World Incomes Chart (2012) - Average world wages in Purchasing Power Parity dollars 26 26 International Labour Organisation, Average world wages in Purchasing Power Parity dollars (2012) 15
While not all the countries comprising the top foreign born population countries in the UK are significantly poorer (America and Germany are the obvious exceptions) these exceptions can easily be accounted for by a combination of cultural, economic and political ties. Clearly in a large number of cases the much higher standards of wages and living in the UK, when combined with cultural ties (in the cases of India, Pakistan etc.) or policy decisions (in the case of Poland and other A8 countries) helps to go a large way in explaining migration trends to the UK. Moreover, leading aside the UK we can see a clear correlation between the countries with the highest average monthly incomes and the countries with the highest percentages of foreign born population. Luxembourg, which tops the ILO s average monthly incomes table, also tops the list of OECD countries in terms of its foreign born population, with a huge 42.1 per cent of its population being foreign born. 27 Switzerland is not included in the ILO study, but has one of the world s highest levels of GDP per capita 28 and comes second in terms of the foreign born percentage of its population (27.3 per cent). Australia (26.7 per cent) and Israel (23.9 per cent) which rank third and fourth again feature towards the top of the ILO study. This correlation suggests that richer countries are often the most attractive places for migrants to migrate to, although the correlation may also suggest that immigration and the large percentage of foreign born citizens makes these countries as wealthy as they are. Both Luxembourg and Switzerland are 27 OECD, Country comparison tool, foreign born as a percentage of total population 28 IMF, International GDP per capita comparison 2012 16
small countries, and being able to draw on a global talent pool may significantly boost their countries average monthly earnings and GDP. Alongside these income differentials, there is also the factor of employment opportunity. The UK has consistently enjoyed some of the lowest unemployment rates in the Eurozone, with unemployment hovering at around 5 per cent between 2000 and 2008. Even with the recession, unemployment has not risen as high as many economists predicted and has been falling consistently since 2012, with total employment now standing at record levels. The UK s flexible labour market and demand for labour makes it attractive to other countries which face higher levels of unemployment. 29 The UK compares favourably to the Eurozone, where the unemployment rate has never fallen below 7 per cent, and is often in doubled digit numbers. 30 29 UK Unemployment rate chart, TradingEconomics.com 30 Euro Area Unemployment rate chart, TradingEconomics.com 17
These low unemployment rates help explain the rise in the number of A8 nationals living in the UK. In 2004 125,000 A8 nationals lived in the UK. This had increased to 1,038,000 in 2011; an increase of 913,000 (730 per cent). Two thirds of the increase is accounted for by Polish nationals, whose number rose from 69,000 to 687,000. 31 Looking at the A8 countries which joined the EU in 2004, we can see that the unemployment rate in the UK was lower than in every A8 country, in some cases by a large margin. Poland had an unemployment rate of nearly 20 per cent, the highest of all the A8 countries. When coupled with far the largest population of the A8 countries it is easy to understand why it is the country with the highest levels of migration to the UK (of the A8 countries). A8 Country Unemployment Rate (2004) 32 Czech Republic 8.3% Estonia 9.7% Hungry 6.1% Latvia 10.4% Lithuania 11.4% Poland 19.0% Slovakia 18.2% Slovenia 6.3% Comparing the UK to Ireland and Sweden, the other two countries not to apply transitional controls to the A8 in 2004, reveals the importance of attractiveness of a strong labour market. Swedish unemployment was running at between 7 and 8 per cent between 2004 and 2006, while Ireland had low unemployment than the UK at just over 4 per cent. 33 So while the UK has a clear advantage over Sweden, the picture in Ireland was very similar. Clearly in this case, the difference between unemployment rates was minor, and the UK has a much larger labour market, given the size of its population compared to Ireland, explaining the higher levels of Polish migration to the UK. Both India and Pakistan, the two countries alongside Poland which contribute most to the UK s immigration levels and immigrant population, have also seen relatively high unemployment compared to the UK over the past decade. Between 2000 and 2010 unemployment in India hovered around 8 per cent, reaching over 9 per cent in 2010. In Pakistan unemployment was above 7 per cent from 2000 to 2005, were it dropped off to lows of 5 per cent in 2008 before rising again more recently. 34 This further helps to explain, alongside much higher wages and colonial ties, why the UK has been a highly attractive destination for these countries. Ultimately, the UK s flexible labour laws mean that, when companies want to expand, they are more likely to invest in labour rather than capital goods, because it is easier and cheaper to do so relative to comparable European economies. Demand for labour in the UK is high, with much of this demand for labour translating into higher migration (rather than solving 31 ONS, Population statistics by country of birth, August 2012 32 Figures taken from Stephen Booth, Christopher Howarth and Vincenzo Scarpetta: Tread Carefully: The impact and management of EU free movement and immigration policy, Open Europe, March 2012, p19 33 Figures taken from tradingeconomics.com 34 Figures taken from tradingeconomics.com 18
the worklessness problem at home). This raises questions of both the domestic education system and the structure of the welfare state in tackling the demand for more immigrant workers, a subject which is explored later in this paper. Welfare and benefits While many migrants will be attracted by better paid jobs and higher standards of living, the welfare states of the UK and many other wealthier countries also provides an attractive proposition to migrants. As both Angela Merkel and George Osborne have remarked, the EU has 7 per cent of the world s population, 25 per cent of the world s GDP, but over 50 per cent of the world s welfare spending. 35 The welfare states of many European countries are highly generous by international standards, and offer a chance for migrants to substantially improve their incomes simply by moving to a new country. Immigrant s access to welfare and benefits in the UK differs depending on the country the immigrant has come from. Immigrants from the European Economic Area (EEA), which includes the EU member states, have a different set of rules from immigrants outside of the EEA, owing to the EU s rules on freedom of movement. Non-EEA immigrants In the case of non-eea migrants, their ability to claim benefits depends on their immigration status and on conditions attached to their leave to remain. Non-EEA nationals with indefinite leave to remain (often called settled status ) have no time limit on their right to stay in the UK, and no conditions may be attached to their leave. They can therefore access social security benefits and tax credits on the same basis as UK nationals (unless their right to remain was awarded as a result of a formal undertaking by another person to maintain and accommodate them). Earning indefinite leave to remain is difficult. Immigrants must have been in the UK for a period of over 5 years in most cases, or 2 years if married to a British citizen. Most people admitted to the UK from outside the EEA will however have limited leave to remain and will be subject to the condition that they have no recourse to public funds during their stay in the UK. A person with limited leave to remain who has recourse to public funds in breach of their leave conditions can find themselves liable to removal, refusal of further leave and/or prosecution. Public funds covers a wide range of benefits including means-tested benefits such as income-based Jobseeker s Allowance, income-related Employment and Support Allowance, Pension Credit and Housing Benefit; Child Benefit; tax credits; extra-costs benefits such as Disability Living Allowance and Attendance Allowance; and Social Fund payments. 35 George Osborne quoted in The Daily Mail, EU has 7% of world's population, 25% of its economy and HALF of welfare spending... Osborne warns: 'We can't go on like this', 15.01.2014 19
Separately, section 115 of the Immigration and Asylum Act 1999 provides that a Person Subject to Immigration Control (PSIC) is not entitled to most social security benefits and tax credits, except in certain limited circumstances. A person is a PSIC if they require leave to enter or remain in the UK but do not have it; are subject to a public funds restriction; or were given leave to remain as a result of an undertaking another person to maintain them during their stay. The benefits a PSIC is prevented from claiming include Attendance Allowance, Carer s Allowance, Child Benefit, Child Tax Credit, Disability Living Allowance, income-related ESA, Housing Benefit, income-based JSA, Income Support, Pension Credit, Personal Independence Payment, Social Fund payments, Universal Credit and Working Tax Credit. Until recently, immigration status did not affect eligibility for those benefits which depend on National Insurance contributions, such as contribution-based Jobseeker s Allowance (JSA) and contributory Employment and Support Allowance (ESA). Other work-related benefits including Statutory Maternity Pay, Statutory Adoption Pay, Statutory Paternity Pay, Statutory Sick Pay and Industrial Injuries benefits were also payable regardless of immigration status. However, as a result of measures in the Welfare Reform Act 2012 eligibility for these benefits is restricted to those who are entitled to work in the UK. There are some exceptions these rules. For example, sponsored immigrants may be able to claim means-tested benefits if they have been resident for at least five years (or before then, if their sponsor has died). People with limited leave to remain may also be able to claim means-tested benefits (but not Universal Credit) on a time-limited basis, if their funds from abroad have been temporarily disrupted. For couples with mixed immigration status (ie where one partner is a Person Subject to Immigration Control but the other is not) the rules are complicated, but there are special provisions which allow mixed-immigration status couples to claim tax credits on the same basis as couples where neither partner is a PSIC (and without it breaching any public funds restriction). In addition, the UK also has a number of reciprocal social security agreements with non-eea countries which may help individuals gain entitlement to certain UK benefits where they would not otherwise have been able to. However, the scope of the reciprocal agreements varies widely, in terms of who is covered, the benefits in question and the provisions which apply. Benefits and EEA immigrants A different set of rules apply to EEA immigrants. When arriving in another EU country, EU migrants cannot immediately claim benefits. A migrant has permission to stay for up to three months after which they must pass a Habitual Residence Test. This test covers the duration of the migrant s stay, their economic activity (are they employed), their source of income if a student (or if not, whether they have sufficient means to extend their stay without becoming a burden on the welfare state), their family status, their housing situation and in some cases their command of the 20
main language of the country. The migrant has to display a degree of attachment to the host country. If the migrant is able to pass the Habitual Residence Test, they are then entitled to claim some benefits. Benefits are divided into two broad categories: Social Security benefits and Social Assistance benefits, with the main difference being that social assistance benefits are provided outside of a social insurance scheme and are therefore not conditional on previous contributions. EU member states are not obliged to provide social assistance benefits to migrants for the first three months of residence or if they are still actively looking for work beyond three months the premise being that after three months foreign EU nationals must be either in work or able to support themselves (as defined by the habitual residency test). Social Security benefits must be made available to all nationals of EU member states without discrimination but can only be claimed by those who are habitually resident. 36 Examples of Social Security vs Social Assistance Benefits Social Security Job Seekers Allowance Sickness Pay Child Benefit Maternity Pay Social Assistance Housing Benefit Council Tax Benefit Working Tax Credits Under various EU treaties, the European Court of Justice (ECJ) has ultimate jurisdiction on how rules governing access to welfare benefits are applied meaning national governments have given up control to a greater degree over their welfare systems. 37 Whilst the UK is bound by the same laws as other member EU states, individual welfare systems vary between countries in both the generosity of the system and crucially for new arrivals into a country the accessibility of the system. 1. Unemployment Benefit The following outlines the structure of unemployment benefit (Job Seekers Allowance in the UK) across the following countries: Australia 38, Denmark, France, Germany, Italy, The Netherlands, Sweden, Switzerland 39 and the United Kingdom. Australia: Information not available. 36 Stephen Booth, Christopher Howarth and Vincenzo Scarpetta: Tread Carefully: The impact and management of EU free movement and immigration policy, Open Europe, March 2012, p13 37 Ibid, p14 38 For comparative purposes: a wealthy country subjected to high levels of immigration outside Europe. 39 For comparative purposes: a wealthy country subjected to high levels of immigration outside the EU, but within the EEA. 21
Denmark: France: Germany: Italy: E: Claimants must have worked 52 weeks out of the last 3 years. C: Membership Fee. A: Eligible for 90% of base earnings, up to a maximum of 52% of the AW. E: None. C: Four months out of 28. A: Eligible for 57-75% of base earnings, up to a maximum of 227% of the AW. E: 12 months. C: 12 months of last two years. A: Eligible for 60% of base earnings, up to a maximum of 91.7% of the AW. E: None. C: 52 weeks in 2 years. A: Eligible for 60% of base earnings, up to a maximum of 45.6% of the AW. Netherlands: E: 26 weeks out of 36. C: 52 days in 4 of 5 years. A: Eligible for 75% of base earnings, up to a maximum of 79.9% of the AW. Sweden: E: 6 months of last 12. C: Must be a member of an insurance fund for 12 months. A: Eligible for 80% of base earnings, up to a maximum of 48% of the AW. Switzerland: E: 12 months in 2 years. C: 12 months in 2 years. A: Eligible for 70% of base earnings, up to a maximum of 103.7% of the AW. United Kingdom: E: None. C: 12 months in two years. A: 9.9% of the AW. Source: OECD Tax and benefit calculator data Notes: E = Employment Conditions; C = Contribution Conditions; A = Entitlement Amount; AW = Average Wage Generosity: Unemployment Benefit is considerably more generous in the examples above when compared with the UK. The amount paid is related to your previous earnings ranging from a maximum of 45.6% of the AW in Italy to a maximum of 227% in France. In contrast the UK pays just 9.9% of the AW without distinction. Accessibility: As the above shows, in every country an individual can only claim unemployment benefit when they have either worked for a specific amount of time and/or made a certain number of social security payments, ranging from 4 months in France to a year in Germany. In the United Kingdom, there are two types of unemployment benefit 22
contribution based which stipulates 12 months of contribution in the past two years - and income based which can be accessed if you have not made any payments. Crucially the rate of pay is the same, which should be seen as a disincentive to contribute to the system before claiming from it. Migrants would be able to claim unemployment benefit if required as soon as they are eligible to do so. 2. Family Benefit (Child Benefit) The following outlines the structure of family benefit (Child Benefit in the UK) across the following countries: Australia, Denmark, France, Germany, Italy, The Netherlands, Sweden, Switzerland and the United Kingdom. Australia: C: A: 7.2 % of AW. Denmark: France: Germany: Italy: C: Can also receive an extra 300 Euro per child through the tax system, available after 12 months. A: 3.6% of AW. C: From the 2 nd child only, no support for first child, available immediately. A: 2.1% of AW. C: Additional tax refunds available, available immediately. A: 5.2% of AW. C: Benefit paid by employers, and spouses are also considered as dependents. A: 3.9% of AW. Netherlands: C: Universal child benefit, available immediately. A: 2.5% of AW. Sweden: C: Available immediately. A: 3.4% of AW. Switzerland: C: Varying level by canton and paid by employers. A: 3.5% of AW. United Kingdom: C: Fixed rate from 2 nd child. Restrictions on high earners. Available immediately. A: 3.1% of AW up to 8.5% of AW with Child Tax Credit. Source: OECD Tax and benefit calculator data Notes: C = Conditions & Observations; A = Entitlement Amount; AW = Average Wage 23
Generosity: The basic rate of family Benefit in the UK is slightly below average at 3.1% of the AW, with the average across the example countries standing at 3.8%. However, the addition of child tax credits raises the UK figure to 8.5% of AW almost three times as high as the average. Whilst this generosity is means tested, as stated previously, migrants are far more likely to be in low paid unskilled jobs than the professions, and are therefore able to access the family benefit system. Accessibility: Family Benefit is defined as a social security payment, and host countries are therefore obliged to provide it to migrants once they have satisfied the habitual residency test. The examples above highlight that there are few, if any restrictions on accessibility, with just a few counties notably Switzerland and Italy that link the payment of family benefits to employment, by ensuring that employers pay the cost. Only Denmark has any form of qualifying period. 3. Housing Benefit The following outlines the structure of housing benefit across the following countries: Australia, Denmark, France, Germany, Italy, The Netherlands, Sweden, Switzerland and the United Kingdom. Australia: Denmark: France: Germany: Italy: C: Rent assistance for benefit claimants, subsidised public housing. A: 5.2 % of AW. C: Difference between 60% of rent and own payments up to 18% of personal income. A: 10.1% of AW. C: Variety of schemes for low income households, available immediately. A: 14.5% of AW. C: General scheme with differing upper limit depending on quality of accommodation, available immediately. A: 15.5% of AW. C: Rent subsidies for low income households, regional variations. A: Netherlands: C: Minimum amount paid by household, amount above this paid by the state depending on quality of housing, available immediately. A: 7.7% of AW. Sweden: C: Age dependent, with 50-75% added to a flat rate available to all, available immediately. A: 10.7% of AW. 24
Switzerland: C: No general scheme, some cantons provide assistance to low income families. A: United Kingdom: C: Amount variable dependent upon savings, income and spare room capacity. If actual rent is lower than entitlement level, excess can be kept up to 180. Available immediately whether in work or unemployed. A: 22.3% of AW. Source: OECD Tax and benefit calculator data Notes: C = Conditions & Observations; A = Entitlement Amount; AW = Average Wage Generosity: Individual schemes vary wildly by country but also within each system, the level of claim is dependent on a variety of local and personal factors. The OECD figures do give a maximum amount as a percentile of average wage, and these are given above. The United Kingdom is the most generous by this measure, at 22.3% of AW. Accessibility: Housing Benefit is available immediately in most of the countries outlined above. From these examples we can see that the UK is broadly in line with other countries in terms of the generosity and accessibility of its benefit with the exception of Job Seekers Allowance (JSA), its unemployment benefit. JSA tends to be much less generous than other European welfare states, but lacks the important contributory principle which means that it can be claimed by migrants almost immediately after qualifying a Habitual Residency test. This means in contrast to other EU countries, it is much easier for migrants to claim unemployment benefit in the UK. The campaign group Migration Watch suggests that the UK is also particularly generous to low earning families. Using the assumption of a family in which one parent works in a low paid job (50 per cent of average earnings) and the other parent stays at home to look after two children, we see that the person who be paid 17,484. They would pay 2,002 in income tax and 1,231 in National Insurance, making their take home pay 14,251. However, the family would also receive housing benefit worth 2,954 and family related benefits of 7,897 alongside 124 of in work benefits, making for a total income of 25,227, significantly higher than their earnings for 17,484. This is a 77 per cent increase in earnings from post-tax income. 40 Comparing other EU countries to the UK, using this same scenario of a sole income earner, with a partner and two children, reveals that there are only three countries which see a 40 Figures taken from OECD tax and benefits calculator: Methodology taken from Migration Watch, Comparison of UK Benefits with those of the EU14, I use a more recent data set than Migration Watch 25
greater uplift in post-earnings, Denmark, Luxembourg and Ireland. Denmark sees total household income rise by 272 per cent on post-tax earnings while in Luxembourg the figure is 91 per cent and in Ireland 81 per cent. 41 This makes the UK the fourth most generous EU country for this scenario. Country One earner married couple on 50 per cent of the average wage with two children Wage (all figures in native currencies) Tax + Social insurance Post Tax Income Benefits Total Income Percentage uplift on Post Tax Income from benefits Austria 19846 3507 16339 7366 23705 45% Belgium 22318 2300 20018 3232 23250 16% Denmark 193228 115359 77869 211816 289685 272% Finland 19968 5085 14883 9539 24422 64% France 17964 3855 14109 6718 20827 48% Germany 21841 4559 17282 7060 24342 41% Greece 10725 1770 8955 296 9251 3% Ireland 16132 445 15687 12730 28417 81% Italy 14410 1368 13042 3150 16192 24% Luxembourg 25275 4072 21203 19337 40540 91% Netherlands 22949 4714 18235 6580 24815 36% Portugal 8104 891 7213 1250 8463 17% Spain 12758 810 11948 582 12530 5% Sweden 188155 50669 137486 56336 193822 41% UK 17484 3233 14251 10975 25226 77% However, Migration Watch suggest that this makes the UK far more generous than most other EU15 countries in topping-up low wages by just over 80% through in-work and housing benefits. 42 But using a different set of assumptions we can see that this isn t the case. Take away the income earners partner and children and they continue to earn 17,484, pay 2,002 in income tax and 1,231 in National Insurance. However the only benefit they receive is 305 of Housing benefit taking their total income to 14,556 up on their 14,251 post-tax income. If the person has a partner, but no children the picture is only slightly more generous. This time they receive 1693 in housing benefit and 124 in in-work benefits, making for a total income of 16,068 up on their 14,251 post-tax income. In both these scenarios the person continues to be a net contributor to the state, paying more in tax than they receive back in benefits. 41 Migration Watch, Comparison of UK Benefits with those of the EU14 42 Migration Watch, Comparison of UK Benefits with those of the EU14 26
It is also important that we look at the amount of tax people pay across these scenarios, looking at the uplift on post tax income alone is unfair as many countries simply recycle higher taxes back to people through benefits; the net fiscal picture is more important. When we consider this the UK is far more in line with other EU countries, which either provide some tax incentives for married couples, or offer a small boost to such people s incomes through housing benefit and in-work benefits. 43 Country One earner married couple on 50 per cent of the average wage with no children Wage (all figures in native currencies) Tax + Social insurance Post Tax Income Benefits Total Income Percentage uplift on Post Tax Income from benefits Austria 19846 4337 15509 0 15509 0% Belgium 22318 3504 18814 0 18814 0% Denmark 193228 86412 106816 107203 214019 100% Finland 19968 5085 14883 3651 18534 25% France 17964 3855 14109 2707 16816 19% Germany 21841 4613 17228 0 17228 0% Greece 10725 2165 8560 0 8560 0% Ireland 16132 448 15684 0 15684 0% Italy 14410 2028 12382 441 12823 4% Luxembourg 25275 3564 21711 7605 29316 35% Netherlands 22949 4714 18235 2470 20705 14% Portugal 8104 891 7213 0 7213 0% Spain 12758 810 11948 0 11948 0% Sweden 188155 50669 137486 13200 150686 10% UK 17484 3233 14251 1817 16068 13% Country One earner on 50 per cent of the average wage with no children Wage (all figures in native currencies) Tax + Social insurance Post Tax Income Benefits Total Income Percentage uplift on Post Tax Income from benefits Austria 19846 4337 15509 0 15509 0% Belgium 22318 6210 16108 0 16108 0% Denmark 193228 69283 123945 10766 134711 9% Finland 19968 5085 14883 1418 16301 10% France 17964 4169 13795 548 14343 4% Germany 21841 6810 15031 0 15031 0% 43 Figures taken from OECD tax and benefits calculator 27
Greece 10725 2165 8560 0 8560 0% Ireland 16132 448 15684 0 15684 0% Italy 14410 2733 11677 0 11677 0% Luxembourg 25275 4211 21064 0 21064 0% Netherlands 22949 6010 16939 0 16939 0% Portugal 8104 891 7213 0 7213 0% Spain 12758 1378 11380 0 11380 0% Sweden 188155 50669 137486 13200 150686 10% UK 17484 3233 14251 305 14556 2% So while Migration Watch is right to highlight the generosity of the UK s system in the particular scenario they use, this is not replicated across a wider range of plausible scenarios. Nevertheless, given the relative ease with which these benefits can be claimed by migrants after an initial three month period, it is important to assess the uptake of claims made upon the welfare state by migrants in contrast to the native population, and more broadly to look at the overall fiscal impact that migrants have on the public finances. Do immigrants pay their fair share towards the tax and welfare systems of the countries they choose to migrate to? The OECDs International Migration Outlook 2013 44 provides not only a comprehensive study of the fiscal impact of immigrants across OECD countries, but also compares the uptake and pay outs to migrants and native born residents across a range of benefits. Broadly speaking the OECD study shows that immigrants are no more likely to claim benefits than the native born population. However, public perceptions of migrants claiming benefits may well be skewed by the fact they are slightly more likely to claim working age and out of work benefits (In the case of the UK 1.3 times as likely to claim social assistance benefits, and 1.4 times as likely to claim housing benefit), although importantly they are less likely to be claiming pensions, an unsurprising fact given the average age of an immigrant to the UK is 22 45, and which as the second OECD table shows, are by far the most generous portion of the benefits pie. As the OECD says, [Pensions] are of particular relevance since they tend to be the single largest item of government expenditure, accounting for 17% of total government spending in OECD countries. 46 So while the amounts claimed by immigrants are slight higher than native born households for social assistance, unemployment benefits, family allowances and housing allowances, native born households are likely to draw significantly more from the pensions pot, outweighing the comparatively small extra amounts immigrants claim elsewhere. This also shows that benefits are unlikely to be a 44 OECD, International Migration Outlook 2013, 13.07.2013 45 Diane Coyle, Commentary on The Challenge of Immigration - a Radical solution, in The Challenge of Immigration - a Radical solution, IEA, 2011, p51 46 OECD, International Migration Outlook 2013, 13.07.2013, p156 28
major pull factor for the majority of immigrants, given that their claims fall broadly in line with the rest of the population. Furthermore, although we have seen countries like Sweden and Switzerland have much tougher contributory requirements for their unemployment benefits both of these countries have some of the highest immigrant up takes for these benefits. Swedish immigrants are 5.6 times more likely to claim for social assistance schemes than the native population and 1.3 times more likely to claim unemployment benefits. In the case of Switzerland, immigrants are 2.5 times more likely to access social assistance schemes and 1.8 times more likely to claim unemployment benefits. The OECD sums up the benefit picture by concluding that Overall, there seem to be few differences between the benefit receipt of immigrant and native-born households 47 and that immigration is neither a major burden nor a major panacea for the public purse. 48 47 OECD, International Migration Outlook 2013, 13.07.2013, p155 48 OECD, International Migration Outlook 2013, 13.07.2013, p161 29
Looking at the UK specifically, several other studies have suggested that immigrants have a small positive impact on the UK s public finances. A 2005 report by Dhananjayan Sriskandarajah, Laurence Colley, and Howard Reed for the Institute for Public Policy Research (IPPR) 49 uses the same methodological assumptions as a 2002 Home Office report, to measure the fiscal effects of migration. They find that immigrants have higher average weekly earnings than the domestic population ( 405.83 for foreign born residents versus 355.06 for the native born population in 2003/4) and that despite there being more immigrants now than five years ago, they continue to pay a greater share of income tax than their population share. 50 They conclude that the contribution of immigrants to public finances is growing, and is likely to continue to grow in the near future. In 1999 2000, immigrants accounted for 8.8 per cent of government tax receipts (and 8.4 per cent of government spending). By 2003 04, immigrants accounted for 10.0 per cent of government tax receipts (and 9.1 per cent of government spending). 49 IPPR, Paying their way: The fiscal contribution of immigrants in the UK, April 2005 50 IPPR, Paying their way: The fiscal contribution of immigrants in the UK, April 2005, p8 30
Total revenue from immigrants grew in real terms from 33.8 billion in 1999-00 to 41.2 billion in 2003 04. This 22 per cent increase compares favourably to the six per cent increase for the UK-born. 51 A 2007 report by the Home Office found that In the long run, it is likely that the net fiscal contribution of an immigrant will be greater than that of a non-immigrant. For migrants of working age who enter the country this is relatively clear; the UK is receiving the fiscal contribution of their work, without paying for the education and training that enables them to work. 52 The most recent comprehensive study of the fiscal impact of immigrants to the UK was produced by the Centre for Research and Analysis of Migration (CReAM) at University College London 53. The report looks at immigrants who have come to the UK after 1999; relatively recent arrivals which make up around a third of the UK s immigrant population. The report shows that the UK has benefited fiscally from immigrants from EEA countries, who have put in considerably more in taxes and contributions than they received in benefits and transfers. Between 2001 and 2011 recent EEA immigrants contributed to the fiscal system 34% more than they took out, with a net fiscal contribution of about 22.1 billion GBP and At the same time recent immigrants from non-eea countries made a net fiscal contribution of 2.9 billion GBP, thus paying in the system about 2% more than they took out. 54 Importantly this report did not consider the fiscal impact of the total UK foreign born population, but only more recent arrivals. This may well explain why it concludes that immigrants had a larger positive contribution compared the OECDs report which concluded the fiscal effects were broadly neutral when looking at the total immigrant population. However, the report s findings do suggest that recent arrivals, especially those from EEA member states including A8 member states, has been positive and that the recent increase in immigrant numbers has contributed positively to the public finances. As the report s author concludes, fears that "benefit tourists" are coming to the UK simply to take advantage of the welfare states are "disconnected from reality." 55 Dr Carlos Vargas Silva, senior researcher at the Migration Observatory at Oxford University said that the CReAM s paper s findings were in broadly in line with the existing evidence : "This latest research supports most existing evidence suggesting that the net contribution of recent migrants, and particularly EEA migrants, to Britain's public finances is positive. However the report highlights that not all groups of migrants make a positive fiscal contribution to the UK and in some cases migrants can represent a burden for public 51 IPPR, Paying their way: The fiscal contribution of immigrants in the UK, April 2005, p12 52 The Home Office, The Economic and Fiscal impact of immigration, October 2007, p9 53 Christian Dustmann and Tommaso Frattini, The Fiscal effects of immigration to the UK, CDP No 22/13 CReAM, November 2013 54 Christian Dustmann and Tommaso Frattini, The Fiscal effects of immigration to the UK, CDP No 22/13 CReAM, November 2013, p27 55 Christian Dustmann quoted in The Huffington Post, UK immigrants pay more in taxes and draw less benefits than native Brits, 04.11.2013 31
finances. In any case, the net estimate of the fiscal impact of migrants, whether positive or negative, is relatively small given the size of the UK economy." 56 From the basis of the available evidence we can conclude that migration is largely driven by wage differentials, in addition to cultural and linguistic ties between nations. Few migrants actively seek out countries based on the generosity of their welfare states. More broadly the public need not fear that migration is acting as a burden on the public finances. Young migrant workers will make a positive contribution, paying taxes while being no more likely to claim benefits. More generally the effects of migration are fairly small in fiscal terms, and in the case of a number of UK studies, show a small positive contribution to the health of the nation s finances. 4. How do countries try and control migration? Every developed country has a system in place to control migratory flows into their territory. Most have tended to tailor their systems to meet policy makers objectives in filling gaps in the domestic labour market or to counter certain demographic trends. The noble prize winning economic Gary Becker says that all countries now have very restrictive laws 57 on immigration, but which systems are more effective at controlling migration and meeting the aims of policy makers? An increasing number of countries have begun to adopt Points Based Systems (PBS) for managing immigration, including the UK which adopted its PBS in 2008. 58 Australia, New Zealand and Canada all had points based systems before the UK, and at the time of its adoption, the change to the UK system was sold as a move to a tougher Australian style system. Since 2008 Denmark, the Netherlands and Austria have also adopted points based systems, while Japan and South Korea have also recently established them. The UK s system applies to non-european Economic Area (EEA) migrants who wish to enter the UK for work, invest, study or train. The system divides applicants into five different tiers, with eligibility for each of the tiers being based upon passing an assessment which successful demonstrates you have enough points to qualify. Each tier requires a different number of points to quality and points are awarded for English language skills, education and qualifications, income and experience. Tier 1 Visas are reserved for High Value immigrants and covers entrepreneurs, investors and those deemed to have Exceptional Talent. Tier 2 applies to Skilled Workers who have possession of a job offer and a certificate of sponsorship from a valid UK employer. Tier 2 is sub divided into 4 categories, General, Intra Company Transfers, Sports People and Minister of Religion. Tier 3 was intended as the tier for Unskilled Workers, but with the introduction of the new points system in 2008, the Government felt that there was no 56 Carlos Vargas Silva, quoted in The Huffington Post, UK immigrants pay more in taxes and draw less benefits than native Brits, 04.11.2013 57 Gary Becker, The Challenge of Immigration - a Radical solution, IEA, 2011, p24 58 OECD, International Migration Outlook 2013, 13.07.2013, p46 32
needed for any unskilled workers from outside the EEA. In 2013, the Prime Minister, David Cameron, announced that Tier 3 was to be shut down completely. 59 Tier 4 applies to students aged over 16 wishing to study in the UK, while Tier 5 covers six sub categories of temporary worker schemes, including a youth mobility scheme which allows roughly 55,000 young people to temporarily live and work in the UK, in exchange for a reciprocal arrangement with the countries that are a part of this scheme. While the same system has been in place since 2008, the incoming Conservative-Liberal Democrat coalition government has sought to tighten the system in a number of ways in order to try and reduce net migration. This has involved capping the number of Visas, with 1,000 places available under the Tier 1, Exceptional Talent Visa and 20,700 places a year for the Tier 2 General Visa coupled with an earnings threshold and a 6 year limit on the stay of a Tier 2 worker 60. In addition there has been a crackdown on bogus colleges and universities which sponsored students for Tier 4 Visas. In addition to the PBS Visas, there are also EEA migrations, who enjoy free movement to the UK on a reciprocal basis, as well as family related migration and asylum seekers. Looking at a breakdown on the number of migrants to the UK from the year starting September 2012 to September 2013, we can see that a total of 526,736 migrant Visas were issued for the UK; just over half a million. The table below gives a more detailed breakdown: The composition of UK migrant Visas 61 Type of immigration Number of immigrants Percentage of Total immigration Tier 1 (High Value) 12316 2.3% Tier 2 (Skilled) 76951 14.6% Tier 5 (Seasonal + Youth) 40697 7.7% Total Work (Tiers 1 + 2 + 5 + others) 152139 28.9% Tier 4 (Students) 216895 41.2% Family 33747 6.4% Asylum 23765 4.5% Total 526736 100.0% This table shows that the largest single category of migrants is made up of students coming to study in the UK, making up over 40 per cent of all migrant Visas. Work visas form the second biggest component at nearly 30 per cent, but with the exception of Tier 5 workers who don t stay long, are going to be fairly wealthy individuals, all of whom are in work or have significant capital, as this is a requirement of their visas. Migration for family reasons 59 Work Permit.com, Tier 3 Visa overview, May 2013 60 Immigration Minister, Damian Green MP, Immigration Rules: Statement of Changes, Written Ministerial Statement, 15.03.2012 61 All data taken from Home Office, Immigration Statistics July to September 2013 33
and asylum seekers are both very small proportions, each making up around 5 per cent of total migration inflows. Illegal Immigration The UK has over recent years toughened its approach to illegal immigration. The previous Labour Government brought in a variety of new immigration offences in response to public concern about illegal immigrants. The period between 1999 and 2009 saw the fastest and largest expansion of immigrant offences since 1905, with 84 new offences being introduced. 62 Prosecutions and convictions for immigration offences at both magistrates and crown courts have also increased since 2000, as the graphs below show. 63 62 Oxford Migration Laboratory, Immigration Offences: Trends in legislation and criminal and civil enforcement, 09.07.2013 63 Oxford Migration Laboratory, Immigration Offences: Trends in legislation and criminal and civil enforcement, 09.07.2013 34
64 The number of cases before magistrates courts has fallen since 2005, but still remains above the levels seen in 1999, prior to the raft of new offences being introduced. However, while prosecutions and convictions have increased, the vast majority of immigration offences are not dealt with by prosecution, but rather through enforcement actions, typically deportation. In 2011 553 people were prosecuted at magistrates courts and 503 people prosecuted in crown courts. By comparison 30,763 people were subject to enforced removal or refusal of entry at port and subsequently removed. The table below illustrates the comparatively small number of prosecutions compared to enforcement action. 64 Oxford Migration Laboratory, Immigration Offences: Trends in legislation and criminal and civil enforcement, 09.07.2013 35
65 As the table shows the number of immigrants deported or removed on entry has continually fallen in recent years. Given the number of new offences introduced just prior to and during this period, there are two possible explanations for this trend. One would suggest that these new measures have been successful in encouraging fewer illegal immigrants to try and enter the UK, and that the number of illegal immigrants needing to be deported has decreased. The other would be that they have been ineffective as the numbers deported has fallen, while there continues to be a large illegal population resident in the UK. These alternative explanations, based on the same data, speak to the problem of assessing illegal immigration generally. We do not know how many people have been deterred from illegal entry given the new measures put into place. It is also hard to know how effective the UKs system is as we can t know what proportion of people are turned away and deported compared to those who make it to the UK undetected. Estimates for the number of illegal immigrants living in the UK tend to conclude that there are around 500,000 illegal immigrants, with a study by the London School of Economics (LSE) suggesting a range between 417,000 and 863,000 illegal immigrants. 66 This compares favourably to America where the population of illegal immigrants is estimated to be between 7 and 20 million, 67, which taking a mid-range number of 12 million illegal immigrants would suggest that roughly 1 in 26 or so people is an illegal immigrant, out of a population of 320 million Americans. This compares to 1 in 120 in the UK, given the estimate of an illegal population of 500,000 compared to a population of 60 million. In France, a country with a population size very similar to the UK s at roughly 60 million, the French Ministry of the Interior estimates there to be between 300,000 and 400,000 illegal immigrants living in France, 68 a lower number than in the UK. However, when looking at both the US and UK range of estimates, the Government own official estimates were on the lower end of the spectrum. In 2013 France expelled 27,000 illegal immigrants down from 65 Oxford Migration Laboratory, Immigration Offences: Trends in legislation and criminal and civil enforcement, 09.07.2013 66 Iain Gordon, Kathleen Scanlon, Tony Travers and Chris Whitehead, Economic impact on the London and UK economy of an earned regularisation of irregular migrants to the UK, London School of Economics, April 2009, p6 67 Brad Knickerbottom, Illegal immigrants in the US: How many are there? May 2006 68 RFI, France deports fewer illegal immigrants in 2013, 31.01.2014 36
36,000 in 2012. These figures are broadly similar to the UKs figures for 2011 and 2010 in the table above, being just over 30,000 in both years. However France also has an amnesty system in place for illegal immigrants, with the country granting over 36,000 legal statuses in 2012 and 46,000 in 2013 69, suggesting that French figures may well be lower due to the amnesty taking illegal immigrants out of the illegal immigrant numbers. How does the UKs migration system compare to other countries? While the UK has recently had relatively high levels of migration, countries like Germany and France who have similar population sizes and levels of wealth, have been experienced lower levels of migration. Is this because of tighter systems or due to other factors? The German migration system is renowned for being very restrictive. The OECD says that German system is often seen as a recruitment ban with exceptions. 70 Discussing the Dutch migration system, Dr Jeroen Doomernik says that the Dutch government deemed it necessary to restrict labour immigration from the mid-1970s but, this did not mean as it did in Germany that all such migration was made impossible. 71 However, more recently the German government has begun to see the need for attracting more skilled migration and has consequently sought to try and liberalise its very strict labour migration rules. The new German Immigration Act came into law on 1 st January 2005, stream lining Germanys Visa system for economic migrants and allowing high skilled migrants to gain permanent residency rights from the off, in addition there is no annual cap on the number of these migrants unlike in other countries 72. According to the OECD this has made Germany one of the OECD countries with the lowest barriers to immigration for high-skilled workers. 73 In spite of this Germany remains one of the OECD countries with the lowest levels of labour migration, with the total number of immigrant workers outside the EEA averaging some 25,000 a year, some five to ten times lower than the number of labour migrants to countries like Denmark, Cananda, Australia and the United Kingdom. 74 Considering that Germany has a more liberal labour migration system than these countries, a view which considered migration systems to be central in explaining countries levels of migration would find this hard to explain. The table below shows an OECD poll of German employers, which explores a variety of other factors explaining why labour migration continues to be low in Germany (this includes requirement from EEA countries which enjoy free movement.) 75 69 Letizia Orlandi, France follows Italy s lead on processing illegal immigrants, 18.11.2013 70 OECD, Labour migration: Germany is open to graduates but immigration is difficult for mediumskilled workers, 04.01.2013 71 Jeroen Dommernik, Overview of Dutch asylum and immigration system, Migration Watch 72 Work Permit.com, Introduction to Immigration to Germany 73 OECD, Labour migration: Germany is open to graduates but immigration is difficult for mediumskilled workers, 04.01.2013 74 OECD, Labour migration: Germany is open to graduates but immigration is difficult for mediumskilled workers, 04.01.2013 75 OECD, Recruiting Immigrant Workers: Germany, p140 37
76 As we can see, nearly half of the employers surveyed did not even consider the possibility, while many others found it easier to recruit locally citing both the complexity and lack of contact with candidates from foreign countries. The lack of German language skills also played an important part. While the system does remain relatively opened for highly skilled immigrants (generally those jobs for which a University degree or post-graduate qualification is required), the German system continues to be very restrictive for low and medium skilled workers whose jobs do not require University education. Significantly, the OECD finds that this has helped create acute labour shortages in these areas with SME s expecting an even greater shortage of medium-skilled in comparison to high-skilled workers in the future. 77 This suggests that while the Germany system is much more restrictive for migrants without high skill levels, this is not necessarily to Germany s advantage. While Germany experiences lower levels of economic migration, it also experiences many fewer students coming to study, taking just 72,900 students in 2011 compared to 226,000 in the UK, over three times as many as Germany. 78 France featured a similar level of student migration to Germany with 69,900 students coming in 2011, again more than 3 times less than the UK. In fact the UK ranks as the most popular destination for foreign students in the EU, and outside of much larger countries like the United States which took 447,400 students in 2011, one of the world s most popular destinations for foreign students. This speaks to the popularity and world renown of the UKs higher education system, and while the UK Government could take action to curtail this flow of migrants, there would be little benefit in 76 OECD, Labour migration: Germany is open to graduates but immigration is difficult for mediumskilled workers, 04.01.2013 77 OECD, Labour migration: Germany is open to graduates but immigration is difficult for mediumskilled workers, 04.01.2013 78 OECD, International Migration Outlook 2013, 13.07.2013, p 255+305 38