Lower migration and the tax gap: raise taxes or ease restrictions?

[Mouldemort]

James Cleverly introduced some serious restrictions on immigration, which Labour have upheld. Mahmood is going to introduce further restrictions. This has had the effect of reducing immigration substantially and forecast immigration (yes, even taking account the new method of counting.)

Immigrants, especially new immigrants, are disproportionate contributors to the UK's tax take, because they tend to be high earners and have no recourse to public funds. The low earners (who have mainly been blocked) are the bedrock of social care. The decrease in immigration has been more that the Chancellor planned for, so that leaves a substantial tax gap - at least £4bn and possibly £6.5bn annually.

Note this is from the Times, not a bastion of leftist thought.

So the question is, what do we do about this? Are you willing to pay higher taxes to pay for the shortfall? Should we lift restrictions on immigration to keep taxes lower?

Rejoining the single market or at least the customs union might help, but the same people who oppose higher taxes also oppose immigration and a closer connection the the EU

"Falling migration numbers could cost the chancellor as much as £7bn in fiscal headroom as he writes his first budget, The Times has been told. Government insiders believe that John Healey, who already faced an uphill battle to balance the books next month, is likely to have an even bigger challenge after immigration significantly undershot projections from the Office for Budget Responsibility (OBR). The Institute for Fiscal Studies think tank estimated last month that the success of Shabana Mahmood’s reforms, which have seen net migration cut to the low hundreds of thousands, could cost Healey some £4bn. Labour sources familiar with the budget process, however, said that the figure was now closer to £6.5bn. The OBR’s migration forecasts have been consistently higher than real numbers in recent years. Treasury officials, who have long expected Mahmood’s reforms to cause a hit to headroom, described the number as “pure speculation” but did not deny that Healey would have to contend with a larger funding gap than expected because of falling migration"

"At the same time, the OBR also observed that a ‘low migration’ scenario would – even after taking account of reduced pressures on public spending – push up borrowing by about £14 billion per year in 2028-29, considerably more than the cost of a 2p cut in National Insurance contributions, and raise the debt to GDP ratio – the government’s key fiscal target – by about 2.5%, or about £75 billion"

"In the short term, the biggest impact will be on social care, already struggling with workforce pressures and years of underfunding. Over the last two years, only a very large influx of migrant workers – 70,000 new starters in the last year – has saved the sector from an even deeper crisis. If the fall in visas issued is sustained, and there is not a large infusion of taxpayer funds, prospects are bleak."

https://www.thetimes.com/uk/politics/article/falling-migration-john-healey-headroom-zsw9rdcnr

https://ukandeu.ac.uk/immigration-is-falling-but-the-economic-cost-may-be-high/

Immigration is making us poorer in so many ways. We certainly don’t need more of it.

Yes, governments love it because it increases GDP. It doesn’t increase GDP per capita though, which is the only thing that would make us better off. We then have an extra 13 million people in the country, all using the same limited resources.

Governments also love it because, as you say, for the first 5 years, legal immigrants are very limited in what they can claim from the state. So the costs are kicked down the road to the next party to be voted in.

The care worker visa was an absolute disaster, rife with fraud and corruption. We imported approximately £300k people, some close to retirement age, who will now cost the country anything from 10 billion to 60 billion, unless labour’s proposed reforms come to pass.

At least having imported all these people at a great cost, we no longer have any unfilled vacancies, right?

That is just the financial cost. We are already way past what this island can comfortably support. Unless we want to eventually concrete over every inch of it, we have to call a halt at some point. Immigration is still extremely high by any standards. It is no longer a million extra people a year though, that is true.

I would choose quality of life over GDP every time.

Your response seems to be saying that you think the benefits of lower immigration are worth any cost. You are entitled to hold that opinion. However, you have not responded directly to the OP's question about what you think we should do about the lost revenue.

Would you support raising taxes to cover the shortfall? More borrowing? Or something else?

Nothing wrong with immigrants who are highly qualified/skilled and WILL be relatively high earners and doing high quality work.

The problems are the ones who aren't, i.e. non working family members/spouses, their generally above average number of dependent children, dependent elderly relatives, and the sheer number "working" in the black economy paying no taxes etc.

We need to get the balance right, have proper controls, etc. We need the "doctors and engineers", not the shirkers and food delivery cyclists!

Get those people not in work into work that can work. There are 1.2 million of them. AI will mean we will have a lot more people unemployed over the next few years. We shouldn't be importing people who will need to rely on taxpayers. I feel this argument has already been had and won in the country?

To quote the OP " "In the short term, the biggest impact will be on social care, already struggling with workforce pressures and years of underfunding."

I think there is another factor in here, and reform will make it even worse. Privatization.

We have ended up with loads of private companies, all competing on cost. This drives down the wages of people working in this sector, to the point where they need government benefits to survive. And the companies, who are being paid for by the taxpayer for services, all have shareholders, who are taking a cut.

We should be bringing public services back into public ownership, not farming them out to the lowest bidder, who then takes a chunk of the money.

To me, it's like the government pay an agency to do something. The agency charges 20 quid an hour. Pays the worker 10 quid and keeps 10. Meanwhile, the worker can't live on a tenner, so the government pay them an
extra fiver in benefits.

Cut out the agency, and the guv could pay 15 to the worker, and save a fiver cos they are not paying the agency.

Over simple I know. But hey.

Has the argument actually been had and won? I'm not convinced that it has.

What exactly are you proposing needs to happen to get all of these people back into work and contributing at a level which will replace the lost tax revenue?

You've avoided the question. How would you like us to pay for the net shortfall to the Treasury?

Cut welfare.

To quote the OP "In the short term ...
The answer is: stop thinking in the short term.

But most of the money paid in welfare goes back into the economy. And that economy pays tax.

Consider something like bread. Zero VAT. But the farmers, the drivers, the bakers, all pay tax. So a chunk of that goes back to government.

So lets change the system where the rich get richer. That does not mean they buy more bread. But now the poor can't afford bread. Bread sales go down, bread price goes up, because economy of scale.

Cut benefits, and tax revenues go down.

Well, we’ve been paying the high benefit bill for years and if your theory was right, then things would be all
rosy and fragrant by now, which does not appear to be the case.

Time to try the other option.

Cut benefits, cut immigration, cut tax.

Unpacking the real fiscal costs of immigration

Please read this FT.com article, unfortunately OP's statements re benefits of immigration don't hold anymore.

where did you learn this? on TicTok or reddit?

It’s Economics 101.

This.

Also, get rid of some of the ridiculous tax cliff edges to increase productivity and raise more tax.

It doesn’t seem to working.

With the record welfare bill we have the economy ought to be booming, if your Economics 101 was right.

I say no to that. Because look at the stongest economies in terms of percapita GDP. All high welfare states. I looked it up the other day, and the UK is something like 17th in the world in terms of % of total GDP spend on welfare.

The data global data says, less welfare = lower per capita GDP.

You can play with the data here. It is pretty interesting.

Public social spending as share of GDP (ourworldindata.org)

Well, l know it's not worth trying but still

Scenario 1.
Tom earns £100 and pays £35 in Income tax+NI. He spends £50 and saves £15 for rainy day.
Bob earns £25, pays £2 in Income tax+NI, spends £23, no savings.

Overall, £73 goes into economy (50+23), £37 (35+2 taxes) into NHS/Defence/Education, £15 is invested in other businesses (FYI - the money held in savings accounts are invested by banks so technically grow economy).

Scenario 2
Tom earns £100 and pays £35 in Income tax+NI. He spends £50 and saves £15 for rainy day.
Bob decides not to bother and get on benefits instead. He gets £15 in benefits, pays no Income tax+NI, spends £15, no savings.

Overall, £65 goes into economy, £20 left to NHS/Defence/Education (£35 of Tom's tax receipt less £15 of Bob's benefits).
This £20 not enough, so state increases taxes and Tom now pays £50 in tax. He only has £50 left, so spends £40, saves £10.
Economy now gets £55 (£40 of Tom's spend and £15 of Bob's), only £10 investments.

The most interesting thing happens when Tom says "enough" and stops working or goes part time.
Can you try to work your numbers in this scenario.

Economics 101...

A question

Thing is, when you say it is not working, in what way is it not working ?

Because while likes of Farage say things will be better HIS way, they might equally be worse. And also worth remembering, that it is likes of Farage who is shouting loudest that " ITS NOT WORKING".

So how is it not working ?

There is a huge difference though between spend on health, pensions, family, active labour market programs and working age welfare. In your graph it's all bulked together so impossible to make any meaningful conclusion.

In Sweden childcare in universally free/heavily subsidised (high earners not excluded), but unemployment benefits are time limited and linked to previous earnings. Of course it would be much better to have such system.

ETA: UK is about 20th in terms of GDP per capita, so 17th in welfare table is a bit higher than it should be

Some privatisations were essential as the taxpayer couldn't afford the infrastructure improvements needed, such as the railways. Tens if not hundreds of billions were needed to replace virtually every single locomotive and carriage due to the health & safety laws, disability discrimination laws, waste disposal laws etc. Virtually our entire fleet in the 80s was non compliant. Instead of the taxpayer funding that, we got private finance to put up the money via train leasing companies, so slightly similar to PFI for hospitals and schools in the 00's.

Several train operating companies have now been put back under Government ownership and control (Northern, TPX etc) but the service/prices are no better, so it kind of disproves the theory that things are better under governmental control.

Reducing immigration is an argument that has definitely been won. Hence why even Labour are trying to reduce it. It only benefits big business as they have access to a cheap workforce. I though that would be something you would be against?

British Rail was AWFUL! Or it was where I used to get the train to school. Always really late, dirty, amd with those awful single compartment carriages that you couldn't escape from while the train was moving.

We are out of the top 20 for GDP/capita sadly.