JToday’s immigration figures show the highest levels of net migration since records began, at around half a million on the year to June. Overall, this reflects the increase in flows from outside the EU. Unsurprisingly, this has already generated some hysterical reactions from the usual suspects. However, given the evolution of visas over the period analysed, this is not a big surprise.
The record immigration is driven by particular factors, including the reopening of post-pandemic travel and the economy, and inflows from Ukraine (and to some extent Hong Kong). Separately, the ONS has also changed its mind about what happened during the pandemic, revising down its provisional estimate by several hundred thousand.
So today’s statistics are not as dramatic as they seem. In the three years to June 2022, net migration averaged around 250,000 per year, of which just over 200,000 came from outside the EU. It’s not that different from the general post-referendum trend.
Nevertheless, the statistics confirm my previous analysis which predicted that the new post-Brexit system would lead to a redirection of UK migration patterns from the EU to the rest of the world, with workers and students from South Asia and Africa replacing those of the EU.
But the public debate over what this means for the UK economy and labor market is confusing and contradictory to say the least. Some in government – including the home secretary – appear to believe the new system is far too liberal and was “created to increase” work-related migration.
Nick Timothy, Theresa May’s former chief of staff, is particularly practiced that too many people come from “poor countries”. In the meantime, there is a clear consensus among business groups that the new system, and in particular the end of free movement, is leading to labor shortages, which are holding back growth.
In fact, the data suggests that both are wrong (or right). There are indeed “labour shortages” in certain sectors that are heavily dependent on workers from the EU, notably accommodation and hospitality. But overall, labor migration flows have not diminished: there has been a sharp increase in the number of people coming to work on the new health and care visa, which has more than compensated for the drop in migration to the EU; while other sectors such as ICT and professional and business services saw more modest increases.
This readjustment, from EU migrants to non-EU migrants, is basically what the new system was designed to achieve: it’s a feature, not a bug. Indeed, unlike trade, where it is almost universally acknowledged that Brexit has, as predicted, harmed the UK’s economic performance, post-Brexit migration from the UK delivers more or less what Vote Leave promised. (though not necessarily what all Brexit voters are looking for). As the Office of Budget Responsibility has rightly observed, immigration is about the only area where policy contributes to higher economic growth.
Politicians seem unwilling to acknowledge this. Indeed, when asked directly about labor shortages, the Prime Minister was desperately joking about small boats, while Keir Starmer seems to believe that companies prefer skilled workers from abroad and simultaneously depend on ‘low-paid, cheap labour’. But the longer-term impacts on the UK economy of this change will be profound.
Will the transition to more skilled occupations and sectors help to increase (as predicted and as most economists would expect) not only the size of the economy, but also GDP per capita and productivity? Or will the UK, stuck in a post-Brexit low-growth rut, become less attractive to the “brightest and best”; which of course have other options?
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Meanwhile, how will other sectors adapt – reducing employment and production, or increasing productivity through investment and training, and perhaps increasing wages? So far, at least, there are few signs of the latter. Not only are real wages falling for almost everyone, wages in the hardest-hit sectors don’t appear to have performed better. As economists have long argued, the idea that ending free movement would magically raise the wages of low-paid workers has never been very realistic.
Nevertheless, amid the general gloom over the UK economy, the numbers are good news. The end of free movement does not mean that the UK is closed to migrants; it’s just opened in a different way. The long term effects will be profound.
Jonathan Portes is Professor of Economics and Public Policy at King’s College London and author of ‘What do we know and what should we do about immigration?’