Society

Fiscal Impact of UK Immigration Becomes a Public Debate Issue

Fiscal Impact of UK Immigration Becomes a Public Debate Issue
Bernadine Racoma

A current debate in the United Kingdom today on UK immigration is focusing on the issue about the impact of continued migration to the nation’s economy. The matter in question is on whether there is a disparity on the benefits that immigrants receive as against the taxes they are paying.

Wide concern

Sources say that the debate is not really pointing on wages, but the net fiscal effects that immigration is putting on the UK. Accordingly, this is also a concern among other European nations. From a study data covering 20 European countries, it is shown that there is a wide concern on the issue of migration burden on public resources as brought about by competition in the labor market.

Group of economists

The Centre for Economic Policy Research (CEPR), a group of economists conducting researches on various international organizations’ financial policies, has made an effort to summarize and analyze the real score on UK immigration and the country’s fiscal situation. Based on their recent study, immigrants in the UK who arrived to the country since year 2000 have actually paid back more taxes than the benefits they have obtained. The research further shows that based on the same age, gender and education level, Britons receive more benefits than new immigrants on a 21% ratio.

Little evidence

Amidst the ongoing public debate on the pros and cons of immigration, economists conducting the study on said issue are surprised that there is little evidence on the actual benefit that immigrants are receiving and how much they are contributing to the public coffers. In the UK where the subject is a hot issue, the evidence has been disseminated but so far it covers only a few years and involves just a few selected population groups. Survey data from Gott and Johnston in 2002, Sriskandarajah, Cooley and Reed in 2005, Dustmann, Frattini and Halls in 2010 and Preston in 2013 merely generated concepts about the major questions in calculating the economic impact of immigration.

New report

In a new report, the CEPR strives to check the imbalance by taking a closer look at the study on immigrants’ net fiscal payments from 1995 to 2011 as conducted by Dustmann and Frattini 2013. In this endeavor, CEPR economists drew a distinction between all UK immigrants from 2000, who are referred to as “recent” immigrants. Two more groups are classified as immigrants from EEA (European Economic Area) and immigrants from non-EEA (European Economic Area) zones.

Evaluation of fiscal effects of immigration

From the results of the UK Labor Force Survey and other government sources, the CEPR has computed the net fiscal contribution of the different migrant population groups. This was done by individually designating every person’s corresponding share to each item of government spending. Based on this, the CEPR identified the contribution of each immigrant to every government revenue source. The result is a precise estimate for each year from 1995 for old immigrants and 2001 for recent immigrants. The evaluation generated the overall expenditure on all immigrant groups and the taxes they have paid back compared to workers who are UK native residents. From this assessment a fresher picture about the net contributions of UK immigrant groups and the benefit system provided by the government for the past 17 years has been unfolded.

UK immigration flow

Native population in the UK has gone up by one million from 53.4 to 54.4 million over the past 15 years. Meanwhile immigrant population has grown from about 3.8 million in 1995 to 7.6 million in 2011, marking an increase of 12.1 % of the overall population in a period of 17 years. The immigrant population’s educational achievement is remarkably higher than that of the native citizens with the gap consistently increasing every year since 1995. Notably, half of native-born Britons are classified under the “low education” category compared to only one in five among EEA immigrants and one in four among non-EEA immigrants.

1995-2011 fiscal contribution

From 1995 to 2011, EEA immigrants contributed a positive net fiscal amount of about 8.8 billion pounds while that of the natives is negative net fiscal revenue of 604.5 billion. Conclusively, from 1995 to 2011, EEA immigrants paid 4% more to the fiscal system than what they received in benefits. On the other hand the natives’ input to the system is 93% of what they obtained in terms of benefits, thus producing a negative contribution on the overall. This indirectly explains UK’s deficit over this period of time.

Non-EEA nations meanwhile have impacted a negative fiscal input since they contributed 104 billion pounds only from 1995 to 2011. The explanations to this are: Firstly, non-EEA immigrants have more children than those of the natives. Educational allocation to the children of these immigrants has taken a bulk amount from the government coffers. Secondly, the immigrant status of parents cannot be reflected on adult individuals. This goes to show that the positive fiscal contributions of second-generation immigrants have not been taken into account. The outcome is an underestimation of the total net contribution of the whole immigrant population.

2000-2011 fiscal contribution

In further analysis of the fiscal effects of UK immigration, the CEPR goes on to illustrate the contribution of recent immigrants as strong and positive. Accordingly, EEA immigrants have contributed 34% more than they benefited from with a net fiscal contribution of 22.1 billion pounds. Recent immigrants from non-EEA countries have made a net fiscal contribution of 2.9 billion pounds, which means they have given back 2% more than they received in terms of benefits. Contrastingly, the natives’ fiscal contributions amounted to 89%, resulting to an overall negative fiscal payment of 624.1 billion pounds. Overall, net contribution of UK immigrants amounts to a positive net input of about 25 billion pounds during the time when the UK was running a budget deficit.

Analysis

Significantly, the analysis of CEPR resource persons indicates that immigrants who arrived since early 2000 are not draining the fiscal system of UK based on their substantial net contributions to public funds. The opinion being pushed by public debate that immigrants are putting a burden on the economy is thereby unsubstantiated. The conclusion from this study is further supported by the fact that recent immigrants are less likely to get benefits from the state (on a 45% probability rate) in terms of tax credits. Even when compared side by side with natives of the same age, gender, education and composition, it turns out that the natives will more likely get higher benefits. Evidence points also on the cost sharing made by the new immigrants, which accounts to 23% of total public spending for the benefit of the natives.

A look on demographics

The positive image of recent immigrants to the UK may be attributed to their age structure. Most of them are young thus their tax credits and benefit receipts are on the lower bracket. Moreover, despite the fact that while the immigrant population grows old and become entitled to more benefits, this will be more likely neutralized by two factors. The first factor is that there is a big possibility that many of the immigrants will return to their countries of origin, as they get older. The second factor is that a big part of the recent immigrants are just starting with their careers and may not have full skills to command higher salaries. While they stay longer in UK, they develop their careers and their contribution to the economy increases as well. Furthermore, most immigrants come to the UK fully equipped with educational qualifications. If they arrive and yet still seek educational benefits from the government, the amount would be very significant.

Photo Credit: Lunar House, UK Immigration

Comment Below
  • Elaine Franklin

    UK government are separating partners and families through their arbitrary income threshold and immigration rules for Brits with Non Eu partners. Forcing some brave people down the SS route these people could be paying taxes into the UK.. the excuse that the Income threshold is to protect the tax payer from the Non EU partner from becoming a burden on benefits is ridiculous as Visa are stamped with no recourse to public funds., Please watch this

    .http://www.youtube.com/watch?feature=youtu.be&v=VBbu4sX4tuo

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