Government and Institutions

Debate – what kind of immigration policy should Britain adopt after Brexit?

Free movement of labour across the EU has become a controversial issue in recent years, and was a key factor in Britain’s decision to leave the European Union in the 2016 referendum. But how should we approach this issue after Brexit? Colleagues Adam Bartha and Catherine McBride weigh up the arguments on the IEA blog – with Adam making the case for EU-wide freedom of movement continuing after Brexit, and Catherine for a system of points-based, controlled migration, the policy in her native Australia.

Should free movement continue after Brexit? 

Adam Bartha, Director of EPICENTER, says YES.

“Take back control”, argued the Leave campaign during the referendum. A laudable idea when it comes to paring down red tape and increasing international trade, but we should be careful what we wish for. If the government attempted to further tighten its grip on immigration, this could prove a major set-back for liberalism.

It is hardly surprising that politicians aim to crack down on migration, given that 20% of people cited it as the most important issue determining their vote —after 21% who stated the economy as the most important factor. Yet, as free-marketeers know all too well, what is popular is not always right – just consider the majority of the British public wanting to nationalise transport and utility companies.

Out of the EU’s four freedoms (free exchange of goods, services, capital, and people) all have benefited the UK – but only the last one is not viewed as an unambiguous success story.

Moreover, free movement within the EU is not just about welcoming foreigners to the UK, but also about being able to emigrate to other countries. At the moment, 1.2 million Britons live in other European countries, where they have equal rights and benefits to the local residents. Opponents claim that Britons overseas benefit their host country more than they cost them. This is certainly true in most cases, and is, of course, equally true for Europeans living in the UK. It’s not only pensioners in Mallorca who have a much higher quality of life abroad, but also British students, who can graduate from top universities — and pay significantly less for their education than they would have in the UK – or professionals, who don’t need to spend valuable working hours complying with visa requirements and bureaucracy. In short, even if some people (wrongly) believe that accepting migrants represents a net loss to the UK, this could well be worth the trade off, since Brits abroad benefit from the same opportunities.

Free-marketeers believe that individuals are the most capable of making free choices that represent their best interests. They understand that state-controlled attempts to assess and plan the needs of their citizens, or to interfere in voluntary transactions, usually end in failure.

For instance, Tesco can determine the number of apples that it needs to import, and it can equally determine the number of employees, and the kind of employees it wants to hire. Few on the liberal side would claim that putting extra tariffs on apples would be a laudable protectionist measure, or that government should be able to assess each and every apple coming into the country to ensure compliance with UK regulations.

Economists and free-market liberals, always keen to defend international trade, risk forgetting that the free movement of people is just another form of trade – only instead of exchanging goods, different nations exchange skills. The British government should hold domestic apples (and British born residents) to the same regulations and legislation as they hold foreign apples and foreign nationals. Free movement within Europe is a first step towards this – which can and should be extended to other parts of the world after Brexit.

NO, says Catherine McBride, Senior Economist for the IEA’s International Trade and Competition Unit

We live in a world of taxpayer-funded unemployment benefits, in-work tax credits, housing benefits, the NHS, and education. So encouraging immigrants who will require the use of these services but not produce enough tax revenue to pay for them, cannot make economic sense. Choosing the immigrants the country needs and wants will surely produce a much more prosperous and sensible economy.

For non-EU immigrants there are 5 tiers of Visas for living and working in the UK.

Tier 1 applies to entrepreneurs and independently wealthy people. Tier 2, for skilled non-EU migrants, Tier 3, for seasonal and low skilled labourers, while Tiers 4 and 5 include students, artists, musicians, and charity workers.

Qualifying for the Tier 2 scheme requires a job offer worth at least £30,000 a year. Since 2015, the holder must also pay an annual £200 NHS surcharge, despite already contributing to the NHS though their UK taxes. An employer willing to import workers on a Tier 2 Visa must prove that no UK national could do the job. So besides adding at least £6,219 to HMRC in Income Tax and National Insurance, Tier 2 workers bring experience and skills to the workforce. The only thing I would change about this system would be to increase the limits, which seem incredibly low at just 20,700 people each year. Bidding for these visas has now become so fierce that, in practice, the required income level can reach up to £60,000 when there is an excess of applications. Great news for the Exchequer, if not for business. An employee on £60,000 will be paying £17,187 income tax and NI each year.

Meanwhile, the Tier 3 Visa for low skilled and seasonal workers has been suspended. Why? Because despite a common tendency to overestimate the skill levels of EU migrants, in reality, the majority are employed in low-skilled or seasonal jobs – even though 40% are over-qualified for this work.

Why is this a problem? Well, earning the minimum wage for 40 hours a week, 52 weeks a year, an over 25-year-old will earn a maximum of £16,286 annually, on which they would pay £1,860 in income tax and NI. This is about the same cost per capita of last year’s NHS budget and certainly won’t cover housing, schools, police, transport etc. EU nationals in the UK are also eligible for tax credits and housing benefits – and are more likely to report receiving tax credits than UK-born residents. It has been estimated that every minimum wage employee costs the taxpayer £6000 in subsidies. So why would any country with high social provisions import a minimum wage workforce?

The employers of low-skilled workers will say “full steam ahead”. They will tell you they can’t get the UK staff. But what they really mean is that they can’t attract staff who will work as hard, for such a low price. The Great Brexit Sandwich Shortage is not about running out of bread but rather about running out of cheap, human, sandwich makers, subsided by the UK taxpayer. Some might argue that subsidised takeaway food is good for productivity – but, in general, the consumer has not benefited from the lower labour input costs of most products. Despite wages for builders’ labourers in London falling by 20-40% in the last two decades, London houses have not become cheaper. Nor, for that matter, have takeaway coffee or sandwiches.

Britain should, of course, welcome the best and brightest – but it is hard to justify the unlimited import of cheap labour, which undercuts UK wages and lowers productivity.  Eventually turning the UK into a low wage economy will weaken the population’s purchasing power, leading in turn to lower economic growth. And that is before we even consider the political discontent that undercutting your own population has caused. But that issue is best left for another debate.

Senior Economist

Catherine McBride is an economist with 19 years’ experience working in financial services, primarily trading financial, equity and commodity derivatives. Before joining the IEA, she worked for the Special Trade Commission at the Legatum Institute and ran Financial Research for the Financial Services Negotiation Forum (FSNForum), developing ideas about financial service governance and policy to support growth and prosperity after the UK leaves the EU. Catherine has previously worked in derivatives with ADM Investor Services International, Chase Manhattan, Baring Securities, Bain & Co Securities part of Deutsche Bank Australia and as a financial analyst for IBM.

2 thoughts on “Debate – what kind of immigration policy should Britain adopt after Brexit?”

  1. Posted 11/09/2018 at 13:45 | Permalink

    Immigration policy should address these issues.
    1 Are the would be immigrants useful. Do they have skills we need? Flexibility will be required here, it may well be that we are short of fruit pickers one year, car washers another, bricked another doctor’s another. Alongside immigration policy we should be adapting our training and incentives to increase the domestic supply of skills where there is a shortage.
    2 Have we got accommodation for them? This includes not only housing but medical facilities,schools, and transport. If not are we prepared to allow their provision? Unlimited immigration plus limited development produces homelessness, at present in the form of twenty somethings living with their parents but things could get get worse.
    3 Are they compatible with the resident population? People who wish to ignore our laws, despite our institutions and change our governance are a menace to the happiness and prosperity of everyone else, including those recently arrived. Indeed, assuming that they immigrated to better their own lives they are a menace to themselves.

  2. Posted 12/09/2018 at 14:34 | Permalink

    I am generally in favour of both free trade and the free movement of people. However, Catherine makes a good point that in a society that heavily subsidised the individual through state funded education and health etc, and employers through tax credits, there is some benefit in managing the numbers of people who are not contributing to the overall wealth of the economy. I do think we need to be careful not to lump average population costs onto migrants as they may not be as big a burden on services as the general population.

    There may also be issues around productivity with cheap labour being used instead of investment into technology. Robot sandwich makers will be a boon.

    Perhaps we need to look at the system of employment taxes, NIC is effectively a tax on employing people, and tax credits a subsidy that supports low wages. But also support companies to invest more in tech, our investment levels are woeful. All this in persuit of a balanced approach that allows migrants to come and share their talents at a benefit to the economy.

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