Cutting immigration by 50 per cent would require a two per cent tax increase, new research suggests
On the two issues that will decide the outcome of the EU referendum, immigration and the economy, the Brexit camp want us to believe they can simultaneously drive down immigration numbers and negotiate a string of highly lucrative trade deals.
Unfortunately, these two outcomes are mutually exclusive, according to a new paper from the National Institute of Economic and Social Research (NIESR).
Author of the research, Jonathan Portes, suggests that post-Brexit the UK would have to choose between:
- Retaining access to the single market and reap the economic benefits, but being expected to accommodate free movement in return, similar to Norway and Switzerland, both of whom currently have higher migration from within the EU than Britain, despite not being members.
- Significantly reducing migration from both inside and outside the EU, but facing major fiscal pressures as a result. A 50 per cent reduction of migration (required to hit the government’s ‘tens of thousands’ target) would necessitate a labour tax increase of two per cent to balance the budget.
- Increasing skilled migration from outside the EU, which could relieve some barriers to growth and increase wages, but would create significant staff shortages in certain low-skilled jobs, and in nursing.
Essentially, the message is that there is no way to significantly cut migration without incurring major economic costs, including for low-paid workers.
While Iain Duncan Smith yesterday launched an impassioned defence of ‘people who can’t find work because of uncontrolled immigration’, Portes highlights that there is little evidence that EU migration negatively impacts the employment outcomes of UK natives, even in the short term.
Additionally, he 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.’
Yet it remains the case that migration is an issue of primary concern for many voters. According to new Ipsos MORI polling, 48 per cent of people say EU immigration will be an important factor in their voting decision, which rises to 72 per cent among Leave voters and 55 per cent among potential swing voters.
However, the economy is still the most significant issue overall, with 57 per cent saying it will be an important factor in their voting decisions.
As Will Somerville, a UK Senior Fellow at the Migration Policy Institute, writes:
‘The conclusion that immigration is the trump card for the Leave campaign is perhaps misguided. While a majority has expressed support for migration restrictions on European migrants, that support drops below the 50 percent threshold needed to win a referendum if these restrictions result in penalties on trade and business. Likewise, there is majority support for policies that support the entry of international students and high-skilled workers. The more strident anti-immigration rhetoric similarly puts off the majority of the public.’
The Remain campaign has, understandably, been treading gingerly around the issue of migration so far, focusing instead on the economy.
But with growing economic consensus that the Leave campaign is overstating the potential for both immigration cuts and economic growth — and evidence that highlighting the discrepancy will persuade voters — it may be time for a strategic shift.
Niamh Ní Mhaoileoin is editor of Left Foot Forward. You can find her on Twitter.
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