BrexitCentral: Uncontrolled freedom of movement has resulted in the poorest subsidising unskilled EU immigrants

For some, a key plank of the support for Brexit at the referendum was the impact of uncontrolled immigration into the UK where voters worried about the associated negative impact on their access to public services provision in terms of housing, GP medical appointments, stresses on educational provision, social care and effects on jobs availability. It is often the poorer communities which are at the sharp end of all of this.

The immigration issue is thus central to the fundamental notion that Brexit is about “taking back control” of our borders, our monetary contribution to the EU’s (unaudited) Budget, the right to strike independent trade deals and freedom from subjugation and compliance with EU law and prescriptive EU regulatory requirements. Indeed, concerns about uncontrolled immigration are just not exclusive to the UK as across the EU, there has been a dramatic change in the political landscape in many countries where voters are saying “no” to uncontrolled immigration and “no” to established political parties in Germany, Italy and Sweden to name just a few.

As far as the Remainers are concerned – and as part of the continuing negative drip feed of Project Fear propaganda to thwart the wishes of the Brexit referendum result – immigration control can only result in labour shortages and massive economic disruption as a variety of sectors seemingly dependent on migrant labour,  such as the NHS, will come to a halt. Economists for Free Trade (EFT) research has shown that it is uncontrolled, unskilled migration which imposes costs on local communities as well as imposing a cost on the UK’s public purse.

The Remainers tend to conflate the economic effects of skilled and unskilled migration as many studies produce results that rely on the effects from skilled, better-educated and more highly-paid migrants. The EFT research shows the cost of wage subsidies (20% of wages) are paid to uncontrolled, unskilled EU migrants. As Esther McVey, the former Work and Pensions Secretary, correctly pointed out, the Remainers cannot simultaneously argue that Brexit will produce economic Armageddon and mass unemployment while also arguing that the UK will need migrants to fill jobs. For skilled labour, there should be no particular impediments subject to existing arrangements for entry into the UK – and from an economic point of view no dispute about the positive impact of skilled labour in contributing to the UK economy.

Research I have authored for EFT found that in a region like Leicester, which has the densest immigrant population in the UK, the burden of unskilled immigrants costs £287 every year or £6 a week. This equates to around 1 per cent of average UK household disposable income per head. I found that from a national economic viewpoint, it costs £3.5 billion to support unskilled EU immigrants (£3,500 per year per adult immigrant), but “from the local populace viewpoint it is a proportionately bigger cost per resident – one that we are unwilling or unable to compensate for”.

As Brexit negotiations become more fractious and Theresa May’s Chequers Plan seemingly a “dead duck” as it totally transgresses what Brexit is about, any deal – should there be one – needs to be clear on the immigration issue.

The Prime Minister’s obduracy and unwillingness to consider the “World Trade Option” or “Canada+ deal” is remarkable. But you do not need a trade deal to trade. The EU’s biggest trade partners such as the US and China do not have trade deals with the EU and half our trade is under WTO rules anyway. Our biggest trade partner is already the US. We do not have a deal with the US, and such a deal would be ruled out by sticking with the EU, who rule out any independent trade deals under the EU Treaty.

A no-deal on trade would bring a number of economic benefits, saving the so-called £39bn “divorce bill”, freeing the UK from EU protectionism and reducing prices on goods from non-EU countries to the benefit of UK consumers. Professor Patrick Minford has estimated that the net effect of leaving on WTO terms would provide a net boost to the economy of at least 4% of GDP. This would give fiscal space to the perennially gloomy Chancellor of the Exchequer Philip Hammond to deliver a “Brexit bonus”.

The EFT found that by securing a Canada + deal or a World Trade deal with the EU, the poorest households in Britain will be a massive 15 per cent better off due to “a combination of above average falls in their shopping basket prices, the elimination of the costs of sustaining the unskilled immigrant families, and the reversal of the fall in their unskilled wages.”

Thankfully, it seems that the Cabinet is starting to get the message on immigration though, and has agreed in principle that EU migrants will not be given preferential treatment in a post-Brexit world with government plans aiming to reduce low-skilled migration into the UK. Failure to do otherwise simply from a political point of view would mean the Government paying a price at the next election, with the same applying to Labour if it fails to satisfy its Brexit-voting Northern constituencies where uncontrolled immigration is a sensitive issue. Some reports suggest that there might be an element of “horse-trading” where so called “free movement of labour” is traded in in order to obtain a trade agreement. The risk, of course, is that any bending of “red lines” ends up in an unacceptable concession or runs into vetoes from the rest of the EU.

The Migration Advisory Committee (MAC) has just published its final 140-page report on the immigration issue and recommendations for the UK’s post-Brexit immigration system. MAC recommends moving to a system in which all migration is managed with no preferential access to EU citizens but with a less-restrictive regime for skilled workers who typically do not put any downward pressure on average earnings in the economy, subject to the minimum wage, and make a clear positive contribution to the UK’s public finances.

In particular and quite importantly, MAC’s report focuses on the need for a more restrictive policy on lower-skilled migration with a guideline subject to a minimum annual salary as defining “low-skilled” (£30k although this might end up being nearer £20k). This would mean ending free movement but this would not make the UK unusual, as a country like Canada does not have a free movement agreement with any other country yet has managed to secure a trade deal with the EU without being totally subject to the terms and conditions that the EU would like to impose on the UK.

MAC’s report emphasises that the problem with free movement is that it leaves migration to the UK solely up to migrants, with UK residents having no control over the level and mix of migration. In addition, MAC’s empirical findings note that between 1983 and 2017 the ratio of working age EU immigrants to working age UK-born population increased from 1.3% to 7.9%, leading to the report’s conclusion that EU immigration over this 34-year period has reduced the employment rate of the UK-born working-age population by around 2 percentage points compared to a scenario with no EU immigration.

There is evidence of differential impacts across different UK-born groups with more negative effects for those with lower levels of education. Similar effects are found on the earnings of UK lower-skilled workers. A 1 percentage point increase in the EU-born working age population ratio can reduce UK-born wages for the lower-skilled by up to 0.8%. The EFT report The Economics of Unskilled Migration estimated the cost to the average UK worker of supporting EU unskilled migrants at £3,500 per annum with the cost rising further in areas of dense migrant population. Limiting these costs to the public purse relies on controlling unskilled, uncontrolled migration. This is why uncontrolled immigration is a key economic issue, never mind a political one.

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