A change in official estimates of immigration to reflect a recent surge in hiring of overseas workers by British employers could fill as much as £5bn of the hole in the UK public finances, according to economists.
Ministers are examining reforms to boost high-skilled immigration that could involve cutting the fees and red tape associated with visas for overseas workers.
One Whitehall official said major changes were not required. “People within the government don’t realise just how flexible and generous the points-based [immigration] system is, which is why the numbers are tracking as high as they are,” he added.
Lower visa fees matter to employers, who often pay thousands of pounds in charges currently when recruiting skilled overseas workers under the post-Brexit immigration regime.
But a far bigger issue for the public finances is whether the Office for Budget Responsibility updates assumptions on population growth that underpin its borrowing forecasts.
In March, the UK fiscal watchdog took the view that net migration would settle at an annual rate of just 129,000 — well below its historic average — because it expected Brexit to have a significant lasting effect on arrivals from the EU that would be offset only partly by immigration from outside the bloc.
Data released since then suggests immigration has already rebounded from its post-pandemic slump to much higher levels. The Office for National Statistics estimated net migration at about 239,000 for the year to June 2021.
Home Office statistics on visas issued in the year to this June point to a big rise in immigration from outside the EU, partly reflecting arrivals from Ukraine and Hong Kong and a surge in overseas recruitment by the NHS.
Alan Manning, former head of the government’s Migration Advisory Committee, said 2022 was likely to be a “record-breaking year” for inward migration and that even if inflows subsequently moderated, the OBR’s long-term assumptions looked “way too low”.
Madeleine Sumption, director of Oxford university’s Migration Observatory, said that even without policy change, it would be surprising if net migration settled below 200,000, with higher inflows likely in the short term.
Higher immigration would not necessarily change gross domestic product per capita, but it could make a big difference to the OBR’s forecasts for the public finances.
This is because it boosts the tax-paying workforce without changing the government’s short-term plans for public spending. Since migrants are more likely to be of working age, they also raise the employment rate and make little difference to welfare spending.
OBR analysis from 2016 suggests an 80,000 rise in net migration could cut borrowing by almost £6bn after five years. But a later OBR study focused on lower-earning EU migrants showed a smaller impact.
Jonathan Portes, professor at King’s College London, said there were good grounds for the OBR to raise its forecast for net migration by at least 100,000 and that this could cut borrowing by as much as £8bn by the end of its five-year forecast horizon.
Other economists said that even if the OBR took a more conservative approach, the cumulative effect of higher immigration could cut about £5bn of the estimated £30bn to £40bn hole in the public finances that chancellor Jeremy Hunt aims to fill in the autumn statement on November 17.
This improvement in the outlook for the public finances could be bolstered by any steps the government takes to ease the visa regime. However, economists said policy changes would be unlikely to make a big difference to the numbers entering through an already liberal system.
Towards the end of Boris Johnson’s government, then home secretary Priti Patel was preparing a significant package of reforms to speed up the processing of visas.
This was paused when Johnson quit, as was a Migration Advisory Committee review of the list of occupations for which visa rules are relaxed, much to the frustration of employers in sectors struggling with acute labour shortages.
Under Liz Truss’s government, wider reforms to admit more low-skilled workers were considered, but these sparked a dispute between Truss and Suella Braverman linked to the then home secretary’s resignation.
Officials said Braverman, reappointed home secretary by Rishi Sunak, was now focused on proposals to speed up the processing of visas, but her allies insisted no decisions had been taken.
The government declined to comment, as did the OBR.
