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16 June 2016

How much do benefits paid to EU migrants cost Britain?

George Eaton explores the myths around our migrant benefit bill. 

By George Eaton

EU migrants could be forgiven for being confused. Half the time they are depicted as job-pinching Stakhanovites: the rest of the time they are denounced as benefit-milking scroungers.

These twin perceptions are perhaps the greatest cause of public animosity in Britain towards the EU. The Leave side has accordingly made immigration the centrepiece of its campaign, vowing to “take back control” of the UK’s borders by ending the free movement of people. During his EU renegotiation, David Cameron sought an “emergency brake” to control numbers. But opposition from Germany and other member states forced him to settle for a four-year ban on migrants claiming in-work benefits, initially operable for seven years.

After failing to reach agreement on curbing free movement (a cardinal principle of the EU), No 10 was consoled by polling showing that the benefits ban had greater cut-through. The finding confirmed the issue’s salience among the public.

But how many migrants do claim benefits? The answer is harder to determine than it should be. In February the Treasury minister Jim O’Neill was asked by the Labour peer Jeremy Beecham to give an estimate of “the annual benefits paid to EU migrants in the UK and the contribution of those individuals to the public purse through income tax receipts and VAT”. O’Neill replied tersely: “The information is not available.”

Three months earlier, Cameron claimed that in March 2013 “around 40 per cent [130,000] of all recent European Economic Area migrants were supported by the UK benefits system” – a far larger proportion than previously thought. But the figure, based on an ad hoc Department for Work and Pensions statistics release, was undermined by failure to state the methodology used. Last month, an Office for National Statistics study found that a million European immigrants were active on HMRC computer systems in 2013-14 (either paying tax or claiming benefits), suggesting that the 130,000 figure used by Cameron represented far less than 40 per cent. Immigrants were also reported to have contributed more than £3bn in income taxes, while claiming roughly £0.5bn in benefits.

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The finding reinforced previous studies showing the positive fiscal effects of immigration. In March this year, the Office for Budget Responsibility warned that reducing net migration to “tens of thousands” a year, as the government says it aims to do, would wipe out George Osborne’s projected budget surplus.

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An enduring grievance is immigrants’ right to send child benefit to their dependants abroad. Cameron sought a complete ban, but was again obstructed. Immigrants will still be permitted to claim child benefit, though payments will be indexed to local living costs. Yet the numbers involved are out of all proportion to the political attention devoted. A mere £27m (0.004 per cent of annual government spending) is paid out on child benefit to EU immigrants each year, according to the most recent figures. The new benefits system, which will be phased in for existing claimants from 2020, could cost more than it saves by increasing the overall administrative burden.

Cameron has boasted that his reforms will curb immigration by reducing “the unnatural draw that our welfare system exerts across Europe”, but economists believe the effect will be negligible or non-existent. Most migrants enter the UK to work, not to claim, and the financial benefits from doing so will remain. This is truer than ever since the introduction of the National Living Wage of £7.20 an hour, which is due to rise to £9 by 2020 (making it one of the highest in the world). For many immigrants, who account for 16 per cent of low-skilled workers, this will represent a substantial pay increase.

At the last general election, Labour advocated a two-year ban on immigrants claiming benefits. In response to Cameron’s renegotiation, Jeremy Corbyn described the deal as “largely irrelevant to the problems it is supposed to address”. He also rightly noted that there was “no evidence” that the benefits ban would “act as a brake on inward migration”. Some Conservative ministers privately confess they would be happy with that outcome. Were the ban to reduce immigration, it would do so at the cost of ­depressing economic growth and harming Britain’s public services. As employers testify, immigrants fill vacancies that would otherwise remain unoccupied.

The Leave campaign has vowed to replace free movement of EU immigrants with an Australian-style points system. But Australia’s “fortress” reputation (attributable to its restrictive asylum policy) is at odds with its record. Net migration stands at 187,000, proportionately more than half again as high as that for Britain. Besides the points system, employers are permitted to recruit overseas staff on temporary visas: in the year to March 63,000 of these were issued.

Were the UK to abandon free movement, it would face a critical shortfall in its labour supply. The Migration Observatory at the University of Oxford recently calculated that three-quarters of EU citizens working in Britain would not meet present visa requirements for non-EU overseas workers. The UK would also risk retaliation against the rarely mentioned 1.2 million British-born people who live and work abroad.

The enduring truth, as both open and closed societies demonstrate, is that the benefits immigrants provide far outweigh those they receive.