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24 Nov 2022

Economy

Policies

Jonathan Portes unpacks the latest immigration figures from the Office for National Statistics, highlighting that high levels of net migration are partly driven by special factors.  

Today’s immigration figures show the highest levels of net migration since records began, at about half a million over the year to June. Overwhelmingly, this reflects rising inflows from outside the EU. No doubt this will generate some hysterical headlines. However, given trends in visas over the period analysed, it’s not a great surprise.

On the face of it, the statistics reinforce earlier analysis that predicted that the new, post-Brexit system would result in a reorientation of UK migration patterns from the EU to the rest of the world, with workers and students from South Asia and Africa substituting for those from the EU. But there’s a lot of other things going on as well:

1. ‘Record’ immigration is driven by special factors, not least the reopening of travel and the economy post-pandemic, and inflows from Ukraine (and to some extent Hong Kong). Moreover, the ONS has also changed its mind about what happened during the pandemic, revising down its provisional estimates by several hundred thousand. So, today’s statistics are not as dramatic as they look. Over the three years to June 2022, net migration averaged about 250,000 annually, of which a bit over 200,000 was from outside the EU. This is not that different from the general post-referendum trend.

2. Higher immigration is driving growth. Amid a host of downward revisions to growth and tax revenues in the Office for Budget Responsibility forecasts last week, a rare piece of ‘good news’ was an upward revision to forecast net migration, which boosts tax revenues by £6-7 billion per year by the end of the forecast period. Today’s figures suggest the OBR’s numbers – about half the ONS estimate for this year – may still be on the low side. Moreover, since new migrants are likely to be higher paid than average, the OBR may be understating the impact on tax revenues and GDP. As I noted previously, immigration seems to be the one remaining plank of Liz Truss and Kwasi Kwarteng’s ‘plan for growth.’ The OBR seems to agree: ‘Only the higher-than-expected numbers of migrants coming to the UK under the post-Brexit migration regime adds materially to prospects for potential output growth.’

3. Is there a ‘labour shortage’? There is a clear consensus among business groups that the new system is leading to labour shortages, which are inhibiting growth. Equally, some in the government claim the new system is far too liberal, and was ‘created to increase’ work-related migration. The data suggests both are wrong (or right). There are indeed ‘labour shortages’ in some sectors which were heavily dependent on EU-origin workers, especially accommodation and hospitality. But work-related migration flows overall have not declined: there has been a sharp increase in those coming to work under the new Health and Care visa, more than offsetting falls in EU migration, while other sectors such as ICT and professional and business services have seen more modest rises. This readjustment is broadly what the new system was designed to achieve: it’s a feature, not a bug.

Source: Home Office.

4. Students come and (mostly) go. By far the largest single component of ‘international migration’ remains students, who, for statistical purposes, are recorded as immigrants when they enter and emigrants when they leave – at least if we manage to count them, which has not always been the case.  Rising inflows of international students feed directly through to higher net migration in the short term, although this effect will gradually reverse over time as outflows rise. However, the introduction of the new Graduate Visa – which allows graduating students to stay on for two years – will delay departure for some students, and will also make it more likely that some will stay permanently, although they would need to move from the Graduate Visa to a skilled work visa to make this possible.

5. This is not an ‘invasion.’ ONS figures do not include asylum seekers or irregular migration (or those removed from the country, although this is a relatively small number).  However, the Home Office Immigration Statistics do show asylum claims running at their highest since the early 2000s. Nevertheless, it cannot be repeated often enough that most migration flows occur through regular channels, with total immigration well over 10 times as high.

Brexit has not reduced net migration. But future flows are unlikely to reach the levels seen today, and it is too soon to say whether overall work-related migration will increase. There are three key questions:

  1. What happens next for work migration? Will skilled work visas fall back, as the post-pandemic backlog eases, the UK labour market shifts from boom to recession, and the crisis in NHS staffing eases?  Or, as employers become more familiar with the new system – which is, in principle, relatively liberal and covers a wide range of occupations – will it rise, particularly in some occupations which historically have not seen large migrant flows?
  2. What about students? Will apparently large levels of net migration of non-EU students prove, as previously, to be in large part a statistical artefact, which doesn’t have much impact on underlying levels of net migration?  Under Theresa May, this misperception was a key driver behind some disastrous policy failures.  Or will the shift in countries of origin and the introduction of the post-study work route mean more students staying for longer, or indeed permanently?
  3. Most importantly, how will individual sectors – and the UK economy as a whole – adjust to these shifts in labour supply? Will the shift towards higher skilled occupations and sectors help boost growth and productivity?  Or will the UK, stuck in a post-Brexit low growth rut, become less attractive to the ‘brightest and best’ who of course have other options. Meanwhile, how will other sectors adjust – by reducing employment and output, or by increasing productivity through investment and training, and perhaps increasing wages?

Overall, the figures are good news. While Brexit has been a very clear negative for UK trade, the story on migration is much more mixed. The end of free movement doesn’t mean the UK is closed to migrants; just open in a different way. The long-term effects will be profound.

By Jonathan Portes, Senior Fellow at UK in a Changing Europe. 

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