Impact of EU labour on the UK

September 10, 2013

Curbing EU immigration could cost UK £60 billion in lost GDP by 2050 and drive up national debt.

  • Government borrowing would be higher without EU migrants
  • EU immigrants less likely to claim benefit and more likely to be in work than UK born citizens
  • Workers from established EU countries more likely to earn more than British workers and work in more senior jobs

 

An EU exit or tighter measures to control EU immigration will restrict economic growth and worsen the UK’s public finances, a new report from Harvey Nash and the Centre for Economics and Business Research (Cebr) shows.

 

Tighter immigration controls will result in a loss of 2 per cent from GDP by 2050, £60billion in real terms. And without migrants from the EU helping to off-set the UK’s ageing population, government borrowing would be 0.5% higher.

 

According to the report migrant workers are more likely to be in work (63.3 per cent) than UK-born citizens (56.2 per cent) and more economically active – 69.8 per cent of non-UK EU immigrants compared to 63 per cent of UK-born citizens.

 

UK businesses rely on a significant number of EU immigrant workers. Between 2003-2013, the number of non-UK EU-born citizens in employment in the UK more than doubled from 762,000 to 1,647,000. Immigrant EU workers play important roles in several UK sectors. In the financial and business services sectors, non-UK EU-born citizens make up 6.4 per cent of the total workforce while in the manufacturing sector they make up 6.7 per cent.

 

Those migrants from the established EU 14 countries* are more likely to be in higher managerial or professional occupations and they also earn 7.6% (£2,035) on average more than UK workers. This means that on average they are more productive than their UK counterparts and indicates they play a significant role in the UK economy.

 

Using ONS population projections the report has created a number of migration scenarios that consider the dynamics of working age population, economic growth and public finances.

 

  • The Central scenario has long-term net migration at 140,000 per annum and a rise in working population of 7.9 per cent by 2050  Under an EU-exit scenario where net migration averages 100,000 per annum**, the UK working population would decline by 1.9 per cent
  •  Compared with the central scenario, the EU-exit scenario would lead to real GDP being 2 per cent lower in 2050
  • The scenario with zero net migration would lead to a 6.7 per cent (£204 billion) loss of real GDP

 

 The scenarios for the working age population have clear implications for UK economic growth and public borrowing. Without migration to support the size of the working age population going forward, the public finances would become less sustainable. Under the zero net migration and EU exit scenarios, borrowing as a share of GDP stands at 8.3 per cent and 7.0 per cent respectively in 2050. This compares with 6.5 per cent under the central scenario and 5.2 per cent under the higher migration scenario.

 

Albert Ellis, CEO of the Harvey Nash Group, comments:

 

“Non-UK EU born workers are bringing much needed skills and value to the UK and there is little evidence that EU immigrants are having a negative impact on wages or unemployment. In fact, immigrants are helping to create jobs – a broad and diverse labour market fuels growth as this report shows.

 

“Employment among those born in the EU 14 has increased by 21 per cent in the last 10 years suggesting there is a demand for higher skilled workers that EU immigrants are meeting. We know that alongside tax considerations, the availability of talent is a major factor for businesses deciding where to locate. Our EU membership is important to attracting the right people and, in turn, for us to be globally competitive.

 

“UK citizens also enjoy the same freedom to work anywhere in the EU and as a recruitment business we currently place many skilled UK workers in jobs in mainland Europe. This benefit to the British workforce and the flexibility it provides employers would be under serious threat.”

 

Charles Davis, Head of Macroeconomics at Cebr, comments:

 

“If the UK were to leave the EU, the incumbent Government may be tempted to tighten immigration controls. While exiting the EU may allow the government greater freedom in deregulating further the UK labour market, for example reducing the impact of European regulation in the form of the Agency Workers Directive, and paving the way for the removal of other red tape in the market, the benefits of which would likely be offset if significant EU migration controls were imposed.

 

“Non-UK EU-born workers earned £39 billion in total in 2012, bringing a wealth of skills and experience to the UK workforce and adding value to the economy. The departure of such workers for the UK, or new measures to prevent EU migration, could create skill shortages, hold back economic growth and worsen the position of the public finances.”

 

* EU 14 countries: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain and Sweden. A 8 countries: Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, the Slovak Republic and Slovenia

 

**Long-term average calculated as the upper-end of Conservative Party’s aspiration to keep net migration in the tens of thousands per year rather than the ‘hundreds of thousands’. Also it reflects what net migration would be close to in our central population scenario if net migration from the EU accession A8 countries were reduced to close to zero.

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