The Government would have to raise taxes or make deeper spending cuts if immigration to Britain was reduced, the Office for Budget Responsibility (OBR) has warned.
The Treasury’s spending watchdog said cutting inward migration would create “additional fiscal pressures” that would blow George Osborne’s deficit reduction drive off course.
The Tories pledged in their manifesto to cut migration from the “hundreds of thousands to the tens of thousands” – but have so far overseen a rise in net migration to record levels.
The OBR however believes the contribution of migrants to the economy is such that if the target was somehow hit, taxes would have to go up to compensate and deficit targets could be missed.
“If a government succeeded in reducing net inward migration from what would otherwise occur then that would be likely to create additional fiscal pressures, but it could always choose to offset those pressures through additional spending cuts or tax increases,” the watchdog said.
The warning was buried deep in the watchdog’s 250 page report on how likely the Government is to hit its spending targets, released alongside this month’s Budget.
In its analysis the OBR modeled three immigration scenarios – a “high migration” scenario, a “natural change” scenario, and a “low migration” scenario.
The lower immigration scenario saw interest payments on government debt rise and tax receipts fall, while higher immigration had the opposite effect and actually shored-up public finances.
Worryingly for the Chancellor, the watchdog said that hitting the Conservatives’ target of reducing net migration to 100,000 by the end of the Parliament would likely wipe out any budget surplus.
“Multiplying the results of the ‘low migration’ scenario by 1.5 would be illustrative of the impact on the public finances if net migration fell below 100,000 by 2019-20. On that basis, the surplus in 2019-20 would fall closer to zero,” its warned.
While the OBR has said it is neutral in the upcoming European Union referendum, the calculations are a blow to Brexit advocates who say leaving the bloc would reduce the rate of immigration to the UK.
“We have long been witness in Britain to the failed policy of the EU’s open borders, supported by the establishment politicians to the detriment of our nation,” Ukip leader Nigel Farage said last year, urging a Leave vote.
“When the referendum comes, the British people will finally have their chance to reject these open borders by saying No to the European Union.”
The calculations however suggest that any significant cut to immigration caused by Brexit would leave Britain facing significant economic problems.
Jonathan Portes, senior fellow at the National Institute for Economic and Social Research (NIESR) said the OBR’s calculations were economically uncontroversial.
"The OBR is simply pointing out the obvious: since immigrants more than pay for themselves over time, a substantial reduction in immigration will mean either higher taxes or worse public services for the rest of us,” he told the Independent.
10 things immigration has done for Britain
10 things immigration has done for Britain
1/10 The Mini
The 1959 classic, that is, perhaps our greatest piece of industrial design, a miracle of packaging and revolution in motoring. Its genius designer was Sir Alec Issigonis, who was an asylum seeker. His family, Greek, fled Smyrna when Turks invaded this borderland in around 1920, and he wound up studying engineering at Battersea Polytechnic. He went on to create that most English of motor cars, the Morris Minor, as well as the Austin-Morris 1100, all much loved products of his fertile imagination.
2/10 Marks and Spencer
Once upon a time there was no M&S in Britain, difficult as that may be to believe. We have one Michael Marks to thank for our most famous retailer, and he was a refugee from Belarus, arriving in England in about 1882, and soon after set off to flog stuff around Yorkshire. He eventually teamed with Thomas Spencer to create the vast business we know today.
And many other TV shows created, funded and otherwise produced by that largest of larger-than-life characters, Lew Grade (also a world class tap dancer). The man who dominated commercial television gave us memorable entertainment such as The Prisoner, the Saint and brought the Muppets to Britain (a sort of fuzzy felt wave of immigration), as well as puppet shows where you could see the strings. All this from a penniless Jew from Ukraine, born Lev Winogradsky, who escaped the pogroms in Ukraine with his family in the 1890s. His nephew Michael Grade has also done his bit for British television.
4/10 The House of Windsor
Or the House of Saxe-Coburg-Gotha until George V prudently rebranded the family during the First World War. Well, our royals are a pretty German bunch, as well as having various types of French and other alien blue blood coursing around their veins. ‘Twas ever thus. There was William the Conqueror, Norman French, who certainly broke the immigration rules; William of Orange, a direct import from Holland; the Hanoverian King Georges, the first barely able to speak English; Queen Victoria, who married a German, Edward VII, who couldn’t stay faithful to his wife, a Danish princess; George V wed another German princess; Edward VIII married an American (though she hardly visited England and prompted his emigration and exile); and the Queen is married to man born in Corfu. The embodiment of the British nation, to many, but one thinks of them as quite multicultural really.
5/10 I Vow To Thee My Country
Our most patriotic hymn was the product of a man named Gustav Holst (pictured), born in Cheltenham, but of varied Swedish, Latvian and German ancestry, who adapted part of his suite The Planets to put a particularly stirring and beautiful poem to music, just after the Great War. As the second verse has it, “there's another country/I've heard of long ago/Most dear to them that love her/most great to them that know”. Imagine if the Holst family had been kept out because the quota on musical European types had been reached.
6/10 Curry and Cobra
Chicken Tikka Masala is, so they say, a dish which not only the most popular in Britain but specifically designed to cater for European tastes. For that we probably have to thank an Indian migrant, Sake Dean Mahomed, who came from Bengal to open the first recognisable Indian restaurant, the magnificently named “Hindoostanee Coffee House”. History does not record if a plate of poppadoms and accompanying selection of pickles and yoghurts were routinely placed on the table for new diners, but we do know that we had to wait until 1989 to taste the ideal lager for a curry - Cobra. That brew was brought to us by Karan (now Lord) Bilimoria, a Cambridge law graduate who hailed from Hyderabad.
7/10 That big red swirly sculpture at the Olympic Park
Or Orbit, to give it its proper name, the work of Anish Kapoor, who arrived in 1973 from India and had the artistic imagination to fill a power station.
8/10 The Sun
Love it or hate it, and many do both, this has been a symbol of much that is successful and a lot that is awful in British journalism since its inception in 1969. In its turn it spawned the Page 3 Girl and some nastily xenophobic headlines. All the stranger when you consider its creator was, of course, Rupert Murdoch, born 11 March 1931 in Melbourne, Australia.
OK, Karl Marx’s philosophy was not much of a gift to the world, but for a while it seemed like a good idea. Though we might not dare admit it, Marxism still has a few insights to offer to anyone wanting to understand the workings of capitalism, though too few to excuse everything that was done in its name. Born in Germany spent much time in the British museum and the British pub, buried Highgate Cemetery. Oddly, his ideas never really caught on in his adopted homeland.
10/10 The NHS
They came from many, many backgrounds, including Ireland, the Philippines, east Europe, the Indian subcontinent, and Africa, as they still do, but the contribution of the black nurses who came to the UK from the Caribbean to heal and care for is a debt of honour that must be recognised. It so sometimes forgotten that it was Enoch Powell, then Minister of Health (1960-62), who campaigned to recruit their skilled nurses to come and work over here. One abiding legacy we can thank Enoch for.
“Reduced immigration would come at a significant economic and fiscal cost.”
Previous studies have suggested other major economic benefits to immigration. University of Oxford research published last year found that areas with higher migrant populations tended to have lower NHS waiting times, while a landmark LSE study found that migration had not on average reduced wages or increased unemployment.
An HM Treasury spokesperson said: “As the Chancellor has said, fixing the public finances should not be incompatible with the government’s ability to control migration. The Government remains committed to both controlling migration and running a surplus in normal times – the OBR themselves expect a surplus would be achieved in 2019-20 whether migration is assumed to be low or high.”Reuse content