by Christian Dustmann,
Tommaso Frattini
Centre for Researchand Analysis of Migration (CReAM) at University College London
Two pieces on the Telegraph blog criticise our recent report on the
fiscal impact of immigration to the UK [http://www.cream-migration.org/publ_uploads/CDP_22_13.pdf].
The first by Tim Wigmore [http://blogs.telegraph.co.uk/news/timwigmore/100244413/the-immigration-debate-everyone-ignores-the-inconvenient-facts/ ] suggests that the press release summarising our report only highlights the positive effect of recent immigration to the public purse, while ‘hiding’ the fiscal cost represented by earlier non-European immigrants. He says that it is not ‘OK for a report to whitewash out inconvenient facts’.
In the report, we compute the fiscal net contribution for two immigrant
populations: first, all those who arrived after 1999; and second, all those
immigrants who lived in the UK between 1995 and 2011, whenever they arrived. In
both cases, we distinguish between immigrants from the European Economic Area
(EEA) and non-EEA immigrants. The press release focuses on the first population
because recent debate has been about the fiscal impact of immigrants who
arrived over the last decade, many of them from Eastern Europe [http://www.cream-migration.org/files/Press_release_fiscal_costs_benefits.pdf]. But the paper also reports results for all immigrants
who reside in the UK in each year between 1995 and 2011.
As to Mr
Wigmore’s criticism, we first note that if we had wanted to ‘hide’ numbers
relating to all immigrants who resided in the UK between 1995 and 2011, we
would not have put them in the report in the first place. We could easily have
written a report that dealt exclusively with recent immigrants. And these
numbers are not ‘hidden away’ in the report – in fact, they are not only shown
in the Table 5 Mr Wigmore refers to, but also, and broken down by years, in
Table 4a and in Figures 1a and 1b, which features on the BBC website [http://www.bbc.co.uk/news/uk-24813467] for everybody to see.
As for the
findings for the non-EEA immigrants who resided in the UK between 1995 and
2011, the fact that their average contribution is negative just means that they
are similar to the native British-born. This is as much a reflection of the
fact that the exercise is being conducted for a period of overall budget
deficit, when the average contribution must be negative, as it is of anything
distinctive about their fiscal contribution. The fact on which we focused is
the noteworthy one that a particular group of immigrants (EEA-immigrants) are
net contributors even when there is an overall deficit.
Further, the
deficit that we attribute to older non-EEA immigrants is likely to be
significantly overstated because we are taking a very cautious approach. This
group has large numbers of UK-born second generation children and the cost of
educating them is counted as a cost associated with the ‘Immigrant’ group even
though, for data reasons, we cannot include grown children’s tax payments as
benefits to set against that. Thus, this contributes to understating immigrant
contributions.
The piece by Douglas
Carswell MP [http://blogs.telegraph.co.uk/news/douglascarswellmp/100244371/why-the-experts-are-wrong-about-immigration/] raises a number of methodological points relating to our study and
suggests that some points are intentionally not made clear. He then challenges
some of our conclusions.
We first note
that – precisely because we very clearly lay out how every single number is
constructed, as is good academic practice – Mr Carswell is actually able to try
to ‘deconstruct what the experts say’. Precisely because we do not want people
to believe experts' opinions as if they were true by definition, we have
clearly detailed how we have apportioned each item of government receipt and
expenditure.
Our study
uses the best data available to reach conclusions on the fiscal impact of
recent immigration. But even those data are not perfect, and as in every such
analysis, some assumptions have to be made when using them to compute the
fiscal net contribution of population groups.
As to the
first point Mr Carswell raises, that we are misallocating business rates as we
allocate their revenue based on self-employment shares: this method is
well-established in the research literature predating our work; it is not an unreasonable
criterion to use; and any other criterion would be more arbitrary. In any case,
business rates account for about 4% of total revenues, so changes in the
apportioning coefficient will certainly not ‘massively distort the balance
sheet’ as Mr Carswell claims.
As regards Mr
Carswell’s other points: the allocation of company and capital taxes accounts
for the fact that a substantial fraction of UK companies is owned by
non-resident shareholders. After removing their estimated payments, we allocate
the remaining revenues on a per capita basis to the resident population. We clearly
explain the assumption that we are making in choosing our apportioning
criterion. Again, we do not believe other assumptions are more justified or
better grounded.
We use data
from the UK Labour Force Survey (LFS) in our study. This is a large
representative survey of the UK population, which provides the most
comprehensive data available and over a long period of time. The DWP data to
which Mr Carswell refers are not as complete (they start in 2002), and using
them to study the welfare take-up of immigrants requires a number of
(potentially questionable) assumptions, as the author of that report correctly points
out, since immigrant status is not recorded. Moreover, the report to which Mr
Carswell refers [http://www.strongerinnumbers.com/komposersitelocal/NonUKreportfinal.pdf] does not distinguish between different groups
of immigrants, as we do.
Further, Mr Carswell’s
claim (in point 4) that we mix together all benefits in our analysis of the
fiscal contribution is simply untrue. In fact, we know from the LFS who is
receiving what type of benefit, and we use that information to allocate the
cost of each benefit (as we detail in Table A1).
Finally, on
Mr Carswell’s point 5, although it may be true that different immigrant groups
have different claiming patterns, this is not at all a concern for our analysis,
as we are looking at broad groups of individuals, and we effectively consider average
behaviour across national groups, within the groups we define (EEA and non-EEA).
Thus, even if we would distinguish between immigrants from Poland, Estonia,
etc. when assigning benefit receipts, by aggregating them up to larger groups,
this distinction would be averaged away. Therefore, Mr Carswell’s claim that
this aspect of our methodology ‘undermine(s) the claim that European Economic
Area migrants contribute 34 percent more in taxes than they receive in
benefits’ is simply incorrect.
Although both
of these pieces base their critiques on the suggestion that there are things
hidden in the report, the ease with which each has identified
the facts which have interested them shows that our report is on the
contrary unusually open about how its figures are arrived at. And contrary to
the impression that might be given by these two pieces, we have at all points
leaned towards conclusions that understate immigrants’ contributions. We
disagree with some of the interpretations on which these critiques are based,
but welcome any fair-minded discussion of the reasonableness of the procedures
we adopt.
I have at least 5 concerns regarding the reasonableness of some of the assumptions used and I would be genuinely interested in a fair-minded discussion. The first concerns indirect taxes and the use of disposable income and the effective rates for indirect taxation from “The Effect of Taxes and Benefits on Household Income”.
ReplyDeleteAs I understand from your previous work on A8 migrants, the positive net fiscal contribution depends heavily on the regressiveness of indirect taxes i.e. those on low salaries pay a much larger percentage of their income on indirect taxes. As explained by this ONS document, this is due to low income households spending much more than they earn and indirect taxes may be progressive based on expenditure (rather than disposable income):
http://www.ons.gov.uk/ons/rel/household-income/how-indirect-taxes-can-be-regressive-and-progressive/2001-02---2008-09/art-regressive-and-progressive-taxes.pdf
For example, groups like students, the temporary unemployed and the retired (including the 1.6 million early retirees) may spend much more than their income by using savings or by borrowing.
It seems much less likely that recent low paid migrants will spend much more than they earn. In this recent paper, you even consider whether they may spend much less than their disposable income e.g. if they intend to work in the UK for a couple of years, save and return home.
Using a very roughly calculated example around VAT, and if I remember correctly from a few years ago (and I have not looked at more recent figures), low income households contribute about 11% of their disposable income to VAT, but based on expenditure it is closer to 7%. Using your own assumption that they spend 80% of disposable income (unlike low income natives that may be spending 150%), recent low paid migrants may pay an effective rate of VAT/disposable income of 5.6%. In other words, your estimation of their VAT (and other indirect tax) payments may be close to double what is paid in reality, and may also underestimate the VAT paid by natives.
The CREAM blog post above says ‘As for the findings for the non-EEA immigrants who resided in the UK between 1995 and 2011, the fact that their average contribution is negative just means that they are similar to the native British-born. …The fact on which we focused is the noteworthy one that a particular group of immigrants (EEA-immigrants) are net contributors even when there is an overall deficit’
ReplyDeleteThis is disingenuous. Non-EEA immigrants’ contribution is *more negative* than that of the native British born. This is clearly noteworthy.
@Dan Dennis - you might also want to read this:
ReplyDeletehttp://ftp.iza.org/dp6144.pdf
It breaks down welfare claims in a lot more detail. UK born are less likely to claim benefits than immigrants in general except for sickness/disability benefits. Child benefit is the big one for all groups in terms of numbers but I suppose it might not be based on value (e.g. housing benefits and tax credits are claimed by fewer people but are much larger)