Hard evidence: are migrants draining the welfare system?

Are migrants really “costing the taxpayer billions of pounds per year” or is there more to it than that? Carlos Vargas-Silva, Senior Researcher at the Migration Observatory at the University of Oxford, looks at the data.

This article was originally published on The Conversation, where it forms part of Hard Hard Evidence, a series of articles that looks at some of the trickiest public policy questions we face. Academic experts delve into available research evidence to provide informed analysis you won’t get from politicians or vested interests.

Recent data released by the Department for Work and Pensions under the Freedom of Information Act revealed the number of people claiming working age benefits who were non-British nationals when they first registered for a National Insurance Number.

One of the figures from the new dataset that caught the attention of several newspapers was the increase in claims from those who were nationals of EU accession countries (i.e. the new EU members states that have joined since 2004). This number increased from 12,610 in 2008, to 49,720 in 2012. This fact led to statements such as this one from the Daily Mail:

Number of foreigners claiming UK benefits leaps 41% in 5 years … rise has been fuelled by a four-fold increase in benefit claims by Eastern Europeans.

The common narrative was one of growing concern, given the new wave of Eastern European migration that the UK may experience with the relaxation of border controls on Romanian and Bulgarian workers in 2014.

Preliminary number-crunching

It would be tempting to dismiss these new numbers from DWP for three reasons, but these reasons can all be countered convincingly.

1) The data are for those who were non-British nationals when they first registered for a NINO and many of those could now be British nationals.

But this is unlikely to play a big role for nationals of EU accession countries as there is little incentive to become British nationals.

2) The increase in the annual number of nationals of EU accession countries claiming working-age benefits was only 37,000, much smaller than the equivalent increase for British nationals (588,000).

True, but the 2008-2013 percentage increase in the annual number of EU accession country nationals claiming DWP working age benefits was almost 300%, far greater than any other group. The increase was 12% for British nationals.

3) The number of nationals of EU accession countries living in the UK has been increasing over the past few years. Therefore, we should expect the number of nationals of EU accession countries claiming benefits to also increase.

Again this is true, but according to Office for National Statistics there were 497,000 Polish nationals living in the UK during 2008. This compares to 646,000 Polish nationals living in the UK during 2012, representing a 30% increase for the five year period. This increase in the population is much smaller than the increase in nationals of EU accession countries among benefit claimants (close to 300%). Even if you include other major groups of nationals of the accession countries in the UK such as Lithuania, Slovakia, Romania, Bulgaria, Latvia, Czech Republic and Hungary the percentage increase in the population is just 54%.

So the problem is not with the figures, per se. The problem is that some sectors of the media used the data to suggest that migrants (particularly nationals of EU accession countries) drain UK public coffers. The Daily Mail’s conclusion was:

They are costing taxpayers billions of pounds a year.                                    

The fiscal impact of migration

In order to find out whether the Daily Mail was correct in its conclusion, it is necessary to look at two factors: the taxes and other contributions migrants make to public finances and the costs of the public benefits and services they receive. Subtract the second from the first and you get the answer. If the difference is positive, migrants are net-contributors; if the difference is negative, migrants are a burden for the state.

The academic literature on the fiscal impacts of migration suggests that migrants doing highly paid jobs are the ones more likely to make a positive contribution to public finances. These migrants pay more taxes and are less likely to claim benefits. It is well known that nationals of the EU accession countries in the UK tend to do low-paid jobs. Does this mean that they have a negative fiscal impact?

It may come as a surprise that the only study which comprehensively analyses the fiscal impact of migration from the EU accession countries, in their case nationals from the A8 countries (the eight countries that joined the EU in May 2004 – excepting Cyprus and Malta), found that in the four fiscal years after they joined the EU, migrants to the UK from A8 countries made a positive contribution to public finances.

The finding that A8 workers make a positive contribution to UK public finances contrasts with the fact that most A8 workers concentrate in the low-wage sector. However, as shown in Figure 1, A8 workers have one the highest employment rates in the UK, a fact which offsets the effect of their lower wages.

 

Figure 1 – Employment rates of British, Old EU, A8 and non-EU nationals Note: these are ONS estimates from the UK Labour Force Survey

The result that migration has a net positive fiscal impact is not limited to nationals of the A8 countries. The OECD recently estimated that on average, households headed by migrants in the UK contributed about €3,000 more than they received in benefits in 2007-2009.

Netting the benefits

Has there been a significant increase in the number of nationals of the EU accession countries claiming DWP working age benefits? Yes.

Has the positive fiscal impact of migrants from the EU accession countries changed since 2008-2009? This is less clear.

Establishing whether the increase in the proportion of nationals of the EU accession countries claiming benefits has been offset by their increase in the working population or increased wages in that group is not possible to know without further study.

The only thing we can say for certain is that the concept that they are “costing the taxpayer billions of pounds per year” is pure speculation and is not supported by the data.

Carlos Vargas-Silva does not work for, consult to, own shares in or receive funding from any company or organisation that would benefit from this article, and has no relevant affiliations.

The ConversationThis article was originally published at The Conversation. Read the original article.

A protester holds a sign during a march hoping to draw attention to claims of exploitation and discrimination of migrant workers in 2007. Photo: Getty

Carlos Vargas-Silva is a Senior Researcher at the Migration Observatory at the University of Oxford.

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BHS is Theresa May’s big chance to reform capitalism – she’d better take it

Almost everyone is disgusted by the tale of BHS. 

Back in 2013, Theresa May gave a speech that might yet prove significant. In it, she declared: “Believing in free markets doesn’t mean we believe that anything goes.”

Capitalism wasn’t perfect, she continued: 

“Where it’s manifestly failing, where it’s losing public support, where it’s not helping to provide opportunity for all, we have to reform it.”

Three years on and just days into her premiership, May has the chance to be a reformist, thanks to one hell of an example of failing capitalism – BHS. 

The report from the Work and Pensions select committee was damning. Philip Green, the business tycoon, bought BHS and took more out than he put in. In a difficult environment, and without new investment, it began to bleed money. Green’s prize became a liability, and by 2014 he was desperate to get rid of it. He found a willing buyer, Paul Sutton, but the buyer had previously been convicted of fraud. So he sold it to Sutton’s former driver instead, for a quid. Yes, you read that right. He sold it to a crook’s driver for a quid.

This might all sound like a ludicrous but entertaining deal, if it wasn’t for the thousands of hapless BHS workers involved. One year later, the business collapsed, along with their job prospects. Not only that, but Green’s lack of attention to the pension fund meant their dreams of a comfortable retirement were now in jeopardy. 

The report called BHS “the unacceptable face of capitalism”. It concluded: 

"The truth is that a large proportion of those who have got rich or richer off the back of BHS are to blame. Sir Philip Green, Dominic Chappell and their respective directors, advisers and hangers-on are all culpable. 

“The tragedy is that those who have lost out are the ordinary employees and pensioners.”

May appears to agree. Her spokeswoman told journalists the PM would “look carefully” at policies to tackle “corporate irresponsibility”. 

She should take the opportunity.

Attempts to reshape capitalism are almost always blunted in practice. Corporations can make threats of their own. Think of Google’s sweetheart tax deals, banks’ excessive pay. Each time politicians tried to clamp down, there were threats of moving overseas. If the economy weakens in response to Brexit, the power to call the shots should tip more towards these companies. 

But this time, there will be few defenders of the BHS approach.

Firstly, the report's revelations about corporate governance damage many well-known brands, which are tarnished by association. Financial services firms will be just as keen as the public to avoid another BHS. Simon Walker, director general of the Institute of Directors, said that the circumstances of the collapse of BHS were “a blight on the reputation of British business”.

Secondly, the pensions issue will not go away. Neglected by Green until it was too late, the £571m hole in the BHS pension finances is extreme. But Tom McPhail from pensions firm Hargreaves Lansdown has warned there are thousands of other defined benefit schemes struggling with deficits. In the light of BHS, May has an opportunity to take an otherwise dusty issue – protections for workplace pensions - and place it top of the agenda. 

Thirdly, the BHS scandal is wreathed in the kind of opaque company structures loathed by voters on the left and right alike. The report found the Green family used private, offshore companies to direct the flow of money away from BHS, which made it in turn hard to investigate. The report stated: “These arrangements were designed to reduce tax bills. They have also had the effect of reducing levels of corporate transparency.”

BHS may have failed as a company, but its demise has succeeded in uniting the left and right. Trade unionists want more protection for workers; City boys are worried about their reputation; patriots mourn the death of a proud British company. May has a mandate to clean up capitalism - she should seize it.