Migration Advisory Committee takes a hard line on a ‘hard Brexit’

I have just completed a skim through the today’s (18 September 2018) report commissioned by UK Government in July 2017 from the independent Migratory Advisory Committee (MAC).

MAC was asked to report on the current and likely future patterns of EEA migration, which includes the 27 remaining EU countries, and the impacts of that migration – providing a factual and evidence-based design for a post-Brexit migration system.

Under their chair, Professor Alan Manning, they examined a wide range of impacts:  on wages and unemployment, productivity, innovation, training, consumer prices, house prices, public finances, allocation of public resources, public services, crime and subjective well-being.

The scope of the 132-page report includes assessment of impacts across all sectors and all regions of the UK, and of the differing impacts of different types of migration and on the different parts of the resident population.  The full text of the Executive summary is set out in the reference section, below.  If you want to discuss the impact on your business, please contact us at: enquiries@Brexit-Partners.com  

MAC’s key conclusion is that post-Brexit, and in particular a post ‘no-deal’ Brexit, EU citizens should be treated no differently to any other citizen of the World when it comes to applying for rights to enter, stay and work in the UK. 

Summary of first reactions to the publication of the MAC report:

Business leaders expressed concern that a £30,000 salary threshold and skilled worker visa system would make it almost impossible to recruit workers in critical but lower-paying industrial sectors.

The Federation of Master Builders warned that the recommendations would “cripple” the construction industry. The chief executive of the FMB, Brian Berry, said:

“It’s not at all clear that EU workers with important skills already in short supply, like bricklaying and carpentry, will not fall foul of a crude and limited definition of ‘high-skilled’ worker.” 

The chief executive of the Road Haulage Association, Richard Burnett, said:

“We need an immigration policy across all skill levels. It is about what our businesses need. The idea that only high-skilled immigration should be allowed is both ignorant and elitist.”

Jasmine Whitbread, the chief executive of London First, a business campaign group representing 200 big businesses in the capital, said:

“The MAC has missed the mark by failing to recognise the critical role of lower-skilled workers to our economy.”

Stephen Clarke, a senior economic analyst at the Resolution Foundation, said:

“If enacted, these proposals would effectively end low-skilled migration, while prioritising mid- and high-skill migration in areas where we have labour shortages. This would represent a huge shift for low-paying sectors like food manufacturing, hotels and domestic personnel, where over one in five workers are migrants.”

The Home Office said it would consider the recommendations. A spokesman said:

“After we leave the EU, we will take back control of our borders and put in place an immigration system that works in the interests of the whole of the UK. The government is clear that EU citizens play an important and positive role in our economy and society and we want that to continue after we leave.”


References: Highlights from the MAC Report Executive Summary

Labour market impacts

In this report we assessed the impact of migration on the labour market, including on employment and wages. 

Taking all the new evidence into account we found that migrants have no or little impact on the overall employment and unemployment outcomes of the UK-born workforce.  The impact may vary across different UK-born groups with more negative effects for the lower-skilled and more positive effects for the higher-skilled.  However, our robustness checks suggest that these findings are subject to uncertainty.

In terms of wages the existing evidence and the analysis we present in the report suggests that migration is not a major determinate of the wages of UK-born workers.  We found some evidence suggesting that lower-skilled workers face a negative impact while higher-skilled workers benefit, however the magnitude of the impacts are generally small.

We do not conclude what, if any, impact immigration has had on the economic prospects of the self-employed but do present some descriptive statistics taken from Self Assessment and National Insurance Number registration datasets.  These show that self-employed EEA nationals have lower declared profits than UK nationals on average, likely reflecting differences in the type and duration of work undertaken.

Productivity, innovation, investment and training impacts

We reviewed the evidence both on the overall impact on productivity and on what are commonly seen as the most important drivers of productivity: innovation, investment in physical capital and investment in human capital (education and training). 

Overall the existing literature and the studies we commissioned point towards immigration having a positive impact on productivity but the results are subject to significant uncertainty.  While the evidence on overall migration is not entirely conclusive the evidence perhaps unsurprisingly suggests that high-skilled migrants have a more positive impact.

On innovation, the available evidence suggests that high-skilled immigrants make a positive contribution to the levels of innovation in the receiving country. 

The evidence on the impact of immigration on levels of investment is extremely limited and therefore it is not possible to draw robust conclusions. 

The research we commissioned showed that overall there is no evidence that migration has had a negative impact on the training of the  UK-born workforce.  Moreover, there is some evidence to suggest that skilled migrants have a positive impact on the quantity of training available to the UK-born workforce.  Any potential impact on the quality of training provided is unknown.

Consumer and house price impacts

Migration may affect prices if it alters the balance between supply and demand of goods and services. In the report we look at the impact of migration on consumer prices and house prices.

We found some evidence that migration, particularly from New Member States (NMS) and non-EEA, has reduced prices of personal services, more so in middle and lower-skilled personal services.  

Our analysis suggests that migration has increased house prices. The impacts of migration on house prices cannot, however, be seen in isolation from other government policies. The evidence points towards a higher impact of migration in areas with more restrictive planning policies in which it is harder for the housing stock to increase in line with demand.

Public finance and public fund impacts

Our commissioned research found that EEA migrants pay more in taxes than they receive in benefits. The positive net contribution to the public finances is larger for EU migrants than for NMS migrants.  

There is, however, a great deal of heterogeneity amongst the fiscal impact of EEA migration.  Across all EEA migrants, the average level of household income at which taxes exceed benefits is estimated to be about £30,000, though there is uncertainty about the exact figure.  A more selective approach to EEA migration, which is not available under free movement, could provide an even more positive impact of migration on the public finances.  Net fiscal contribution is strongly related to age and, more importantly, earnings so that a migration policy that selected on those characteristics could produce even higher gains.

We also considered the relationship between immigration and the allocation of public funding to assess whether money flows to the areas where there is increased demand for public services.  The existing funding formulae are very complicated, but we are not convinced sufficient attention is paid to ensuring that increased immigration brings forth the extra resources needed to manage the consequences of that immigration. 

Public service impacts

We considered the impact of migrants on four key public services: healthcare, social care, education and social housing. 

EEA migrants contribute much more to the health service and the provision of social care in financial resources and through work than they consume in services.  EEA workers are an increasing share of the health and social care workforces though these sectors employ greater numbers of non-EEA migrants.  There is no evidence that migration has reduced the quality of healthcare.

Social care is a sector that struggles to recruit and retain workers which is a cause for concern as demand is rising inexorably.  Its basic underlying problem is that poor terms and conditions paid to workers in this sector, in turn caused by the difficulty in finding a sustainable funding model.  We are concerned that special immigration schemes for social care will struggle to retain enough migrants in the sector if work in it is not made more attractive.

In education, migrant children and the children of migrants are a higher fraction of the school population than migrants are of the school workforce.  However, we find no evidence that migration has reduced parental choice in schools or the educational attainment of UK-born children.  On average, children with English as an additional language outperform native English speakers.

Migrants are a small fraction of people in social housing but a rising fraction of new tenants.  The share of new tenancies going to migrants from the NMS in particular is rising.  Given there is little building of new social housing this is inevitably at the expense of other potential tenants.

Community impacts

The impacts of migration on communities are hard to measure owing to their subjective nature which means there is a risk they are ignored.

In line with previous research, we found that migration does not impact crime and there is no evidence to suggest that migrants are linked to any increases in crime in England and Wales.

We also found no evidence that migration has reduced the average level of subjective well-being in the UK.  We found a hint of a positive effect for those with more positive views of migrants and a negative effect for those with negative views. 

Policy recommendations

Free movement has the virtue of a low bureaucratic burden but at the price of losing control over both the level and type of immigration into the UK.  With free movement, the decision to migrate rests solely with the migrant.  Ending free movement would not make the UK unusual – for example Canada combines a relatively open policy to migration without any free movement agreement. 

Ending free movement would not mean that visa-free travel for EEA citizens would end, just that a visa would be needed to settle in the UK for any period of time and to work as is the case for the citizens of some non-EEA countries at the moment.

If the UK decides on its new immigration system in isolation from the negotiations about the future relationship with the EU we do not see compelling reasons to offer a different set of rules to EEA and non-EEA citizens.  A migrant’s impact depends on factors such as their skills, employment, age and use of public services, and not fundamentally on their nationality.

The evidence from this report points in the direction of high-skilled migrants having a clear benefit to existing residents while the same is not true for lower skilled migrants.  As a result, a policy on work migration that provided greater access for higher-skilled migration while restricting access for lower-skilled workers to enter the UK would be consistent with the available evidence.

Currently the main scheme for high-skilled workers from outside the EEA with a job offer in the UK is Tier 2.  The two most important categories are Tier 2 (Intra-Company Transfer) and Tier 2 (General) – for new recruit coming to work in the UK. We do not propose any change to the way the current Intra-Company Transfer (ICT) scheme works.

The existing Tier 2 (General) scheme can provide a useful template for a work permit scheme although criticisms of the administrative burdens the scheme imposes should be taken seriously if it is to be extended to EEA citizens. 

High- and medium-skilled workers

If free movement ends and if Tier 2 (General) is extended to cover EEA citizens we recommend the following:

Abolition of the Tier 2 (General) cap.

 Medium-skilled jobs should be eligible for Tier (2) General not just high skilled jobs as at present. 

 The salary threshold at £30,000 should be retained even though we recommend expanding the list of eligible occupations.  This would allow employers to hire migrants into medium-skills jobs but would also require employers to pay salaries that place greater upward pressure on earnings in the sector.

The Immigration Skills Charge should also cover EEA citizens.

 Abolition of the Resident Labour Market Test (RLMT).  A robust approach to the salary thresholds and the Immigration Skill Charge are a better way to protect UK workers against the dangers of employers using migrant workers to under-cut UK-born. 

 In-country ability to change employers should be made easier for Tier 2 migrants. 

Low-skilled workers

We do not recommend an explicit work migration route for low-skilled workers with the possible exception of a seasonal agricultural workers schemes.  This is likely to be strongly opposed by the affected sectors.

If there is to be a route for low-skilled migrant workers we recommend using an expanded youth mobility scheme rather than employer-led sector-based routes.

If a seasonal agriculture worker scheme was introduced we recommend that employers pay a higher minimum wage in return for the privileged access to labour this scheme would give the sector in order to encourage increases in productivity.

Self-employment 

Tier 1 (Exceptional Talent) and Tier 1 (Entrepreneur) visa routes should be better evaluated to gain more clarity on how this may apply to EEA self-employed migrants

Regional variation in the immigration system

The current UK immigration system has only very limited regional variation.  A number of regions and countries in the UK have expressed the wish to have more regional variation, most commonly in the form of lower salary thresholds.  In line with previous MAC reports, we do not recommend introducing more regional variations, though abolition of the Tier 2 cap would help some lower-wage regions.

Northern Ireland

Northern Ireland has the added complexity of a land border with the EU via the Republic of Ireland.  We think there are some grounds for concern in lower wage sectors especially in the agri-food sector which is relatively large in the Northern Irish economy.  Dealing with the problem would require either a different scheme for the whole of the UK or a special scheme for Northern Ireland, neither of which are very attractive. 

The public sector

There is often a claim for public-sector workers to be treated differently, most commonly on the grounds that the value of the work is not reflected in the salaries paid.  The MAC does not think the public sector should be treated differently: it would be better to pay public sector workers salaries that reflect the value of the work.

Managing the consequences of migration and evaluating migration policy 

There is little attention given by the Government to monitoring or evaluating the impact of migration policy changes.  There is a need for much more systematic evaluation of whether labour migration policies are achieving their intended economic goals.

This would require much better data, including the development of administrative data sources that would enable us, and others, to understand the economic contributions of migrants admitted to the UK under different policy routes. 

Conclusion

A managed migration system could benefit the resident population though there would be winners and losers and the size of the benefits are likely to be modest. The evidence shows benefits would be best achieved through shifting the mix of work migration towards higher-skilled workers.  If freedom of movement ends, the migration of EEA workers will become harder.  

Our proposals for changes to the Tier 2 visa system – removing the cap, widening the range of jobs permitted, and reducing bureaucracy - mean that the change would be less for medium-skilled workers than low-skilled workers and less still for high-skilled workers. For non-EEA workers, our Tier 2 proposals would make it easier to hire migrants into high and medium-skilled jobs but make no change for lower skilled.

 
John ShuttleworthComment