Falling EEA migration could cost UK over £20 billion annually

07 December 2017 Consultancy.uk 5 min. read

As the unknown quantity of Brexit continues to hang over the future of the UK, the movement of European Economic Area (EEA) migrants into Britain has seen the largest fall since records began. Many now anticipate poor economic conditions and rises in anti-migrant hostility, following the conclusion of negotiations with Brussels in 2019 – with EU arrivals in the UK declining by 43% since the 2016 referendum.

While this news will likely please some Brexit supporters, who voted to end free movement with the continent, new analysis shows that a continuation of this strong reduction in EEA-born migrants could see a reduction of 1.1% in GDP growth by 2030, costing the sluggish British economy billions each year.

The concrete impact that Brexit will have on immigration remains a major unknown. With negotiations still faltering between the beleaguered Conservative Government and European Union officials, potential outcomes remain as diverse as retaining freedom of movement in line with other non-member continental states like Switzerland, or implementing stringent new migration controls including a hard border between Norther Ireland and the Republic of Ireland – a policy strongly favoured by the Government’s hard-line coalition partners of the DUP.

Before such a severe scenario officially emerges, understanding the impact of a significant change to net migration remains a key factor in better equipping businesses, government and the wider economy with the insights needed to deal with potential disruptions to their operations.

Trends in long-term net immigration

A new report from PwC models the potential impact of shifts to immigration policy, in terms of changes on economic output, both across the UK economy as well as various across stress points in sectors more dependent than others on the help of migrants and expats.

Immigration into the UK has been promoted continuously as a point of contention by a large section of the national press, as well as a number of political groups both in and outside of Parliament. As such, it became one of, if not the most defining point of the EU referendum in 2016. Prior to the EU referendum, the UK’s net migration figure stood at around 300,000 additional arrivals per year – interestingly seeing equal numbers of EU27 and non-EU citizens entering the UK.

The Brexit vote, however, saw a considerably negative impact on net migration levels, with a rise in the number of EU27 citizens leaving, or becoming less interested in moving to the UK. Net emigration also rose by 31,000 to 342,000, with more UK citizens performing Brexits of their own than returning.UK industry sectorsAccording to the analysis by PwC, the impact of foreign worker changes are most likely to be felt in certain sectors, and select regions. Recently, the Bank of England suggested that as many as 75,000 jobs in financial services could make their way out of London following Brexit, while EU talent is likely to leave with them. However, the financial sector is unlikely to be hardest hit by returning labour. The sectors most dependent on EEA-born workers include food manufacturing, accommodation, warehousing, building services and food and beverage services. Each has seen considerable increases in their proportion of EEA-born workers since 2004.

Food manufacturing is now 30% represented by EEA-born workers, while accommodation comes in at almost 20%. Warehousing has also seen a significant increase since 2004, from less than 2% to more than 15%. Building services have seen more than a 10 percentage point increase in the same period.% Difference in GDPIn terms of the region to most likely be impacted by changes, London has almost double the average number of EEA-born workers, at 14% of total employments (7% is the national average). Construction workers in London are also heavily skewed towards EEA-born workers, at around 30%.

New models

Various recent studies have highlighted potentially negative impacts on the UK economy as a result of stricter immigration rules, particularly as a result of Brexit negotiations going south. The report aims to convey the firm’s own analysis, based on the ONS’ “principal projection”, whose long-term projection sees net migration decrease by around 20,000 to 165,000 net positive onwards from 2023. The firm then compares the outcome of the ONS’ “50% future EU migration reduction” variant, whereby Brexit results in a 50% reduction in net EU immigration by 2019, with total net immigration at 117,000 from 2023. The firm notes that it does not model various policy outcomes in relation to possible future migration targets set by the UK government post-Brexit.Difference in per capita income

The study suggests that the impact of a reduction in net migration would see the UK economy around 1.1% smaller by 2030, or around £22 billion per year at estimated 2017 GDP values. It is also worth considering the average GDP per capita change from a reduction in net migration. This figure, researchers note, comes in at 0.2%, or £60 per person at 2017 equivalent levels. Fewer total workers in an ageing population, as is expected, generate lower overall economic output, and slowed output is generally thought to be at the heart of Britain’s faltering growth projections, which continue to trouble the embattled Treasury.

Beyond the business impact, however, it is also essential to consider the societal impact of falling net migration. Certain sectors seeing net migration losses are not profit or growth driven. However, they are essential to the performance of society and the economy as a whole, such as the NHS, schools, infrastructure as well as construction.