Brexit migration curb’s £6 billion a year blow to public finances

OBR reveals economic impact of 'taking back control'

Brexit Nigel Farage Boris Johnson David Davis

 

The OBR yesterday revealed its forecast of the impact of Brexit on UK growth and the public finances. I won’t add to the word count.

But one interesting point was the extent to which the OBR was happy to highlight the negative impact of the reduction in migration it expects to result from Brexit.

While the Treasury under George Osborne was quite prepared to make some rather dubious claims about the impact of Brexit on house prices on the like, it avoided, for obvious political reasons, estimating the much more direct economic impact resulting from falls in migration.

The OBR has no such inhibitions and gives us this useful table, showing that it is expecting Brexit-induced reductions in migration to have almost as large a negative impact on the public finances as Brexit-induced falls in productivity growth – a £6 billion a year hit to the public finances by the end of the parliament, and growing.

obr-migration-table-nov-16

And arguably the impact could be considerably worse: the OBR only looks at the direct, arithmetic impact of fewer workers, not the indirect impacts. Recent analysis by the IMF suggests that immigration – of both skilled and unskilled workers – boosts productivity growth as well as just the labour force.

If the IMF estimates are even roughly right, then the hit to both growth and the public finances will be much more severe. So what will next Thursday’s immigration statistics (1 December) tell us about whether the OBR’s forecasts – and they are only forecasts – will be translated into reality?

On the face of it, not much. The official measure of immigration, based primarily on the International Passenger Survey, will have figures only to the end of June. So it will tell us if there was any pre-referendum surge – but we already know from other data that if there was, it wasn’t large.

And while Home Office data on visas, asylum claims and so on will cover the period to the end of September, by definition – as long as we have free movement – this doesn’t tell us anything much about EU migration.

However, we will learn something.  Already, in the November Labour Market Statistics, we saw the number of EU born in employment flatten off, while the number born outside the EU increased, reversing previous trends.

figure-6b-non-uk-born-people-working-in-the-uk-not-seasonally-adjusted

A sign that migration from the EU for work has already peaked and is beginning to fall back, as I argued back in August was likely to happen, for a variety of reasons, including of course the Brexit vote? Maybe.

Next Thursday’s DWP statistics on National Insurance numbers issued to foreign nationals, which will cover the June-September period, will give us the first real hard data on this. If there’s a significant fall, you read it here first. If it goes up again, this will once again show that forecasting migration is a mug’s game..

And if the numbers do fall, it will show the OBR is on the right track – and we should be worried. In the short to medium run – given the uncertainty about future trading relationships – it may actually be falls in immigration resulting from Brexit, not trade, that has the biggest impact on the UK economy.

Jonathan Portes is Research Fellow at the National Institute of Economic and Social Research

See: Tories offer nothing new on economy despite Brexit challenges

3 Responses to “Brexit migration curb’s £6 billion a year blow to public finances”

  1. IFS says workers face worst pay growth 'since the 1920s' | Left Foot Forward

    […] See: Brexit migration curb’s £6 billion a year blow to public finances […]

  2. Craig Mackay

    In fact, notwithstanding the assertions of hardcore Brexiteers that the OBR projections are far too pessimistic, most other commentators and economic psephologists agree that the projections from the OBR are, if anything on the optimistic side. The idea that Brexit will improve the lives of the middle classes and the poorer classes is simply fantasy. It’s all very well to say we don’t want to listen to the experts, but depending on headbangers like Jacob Rees Mogg and John Redwood instead, both of whom have demonstrated in the past just how non-numerate they actually are, is quite ridiculous!

  3. NHSGP

    The welfare state’s pension debt is increasing at 636 bn a year thanks to Brown.

    Why are you discussing the small change as being a disaster?

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