UK GDP Down 11% By Reduced Immigration

British prime minister David Cameron wants to limit immigration | EPA

Study finds that by 2060 taxes will rise and net wages will fall

UK GDP will decrease by 11% should David Cameron’s government achieve its goal of reducing immigration from “hundreds of thousands to tens of thousands” an experiment by the country’s National Institute for Economic and Social Research shows.

The findings, published today, come as the Conservatives, the major partner in the British ruling coalition, are engaged in an apparent effort to by-pass the freedom of movement principle and limit both the numbers of EU and non-EU immigrants entering the country.

“In our study we attempt to model the long-term macroeconomic effects of reducing migration on the UK economy. Careful differentiation between native-born and foreign-born population allows us to capture multidimensional interactions between labour market, public finances and demographic effects of migration. We find that reducing net migration “from hundreds of thousands to tens of thousands” will have a strong negative impact on the UK economy. Our simulations necessarily do not take into account the potential social impacts of higher immigration. This is a hotly debated area, which is beyond the scope of our study, but should be considered when formulating migration policy. Unfortunately, very often on this issue opinions trump evidence,” said Dr. Katerina Lisenkova, a Senior Research Fellow at the National Institute of Economic and Social Research and one of the authors of the study.

The principal net migration assumption in the 2010-based ONS population projections is that it will remain at 200,000 per year over the next 50 years. Thus, if the UK government succeeds in achieving the “tens of thousands” target, then net migration has to be reduced by more than half relative to the ONS assumption, according to NIESR researchers whose study models and analyses the overall economic impact of this policy.

They found that if the British Conservatives get their way, taxes will rise and net wages will fall:

By 2060 in the low migration scenario aggregate GDP decreases by 11% and GDP per person by 2.7% compared to the baseline scenario.

The policy has a significant negative impact on public finances, owing to the shift in the demographic structure after the shock. The total level of government spending expressed as a share of GDP increases by 1.4 percentage points by 2060.

To balance the budget the UK government will have to raise taxes by 2.2 percent just to offset the reduction in immigrant numbers.

The effect of the higher labour income tax rate is felt at the household level, with average households’ net income declining because of the higher income tax despite the initial increase in gross wages due to lower labour supply. By 2060 net wage is 3.3% lower in the low migration scenario.

– New Europe