Immigration and free movement: the way forward
[This is my contribution to the VoxEU e-book "Brexit Beckons: Thinking Ahead by leading economists", which is available for (free) download here. It is edited by Richard Baldwin and includes contributions from my NIESR colleague Angus Armstrong and many others]
If the UK’s vote to leave the European Union was a vote against anything, it was a vote against free movement of workers within the EU – a vote to “take (back) control” over immigration policy. For most economists, this is paradoxical. There is a clear consensus that in the UK the economic impacts of immigration, particularly from within the EU, have been largely benign (Portes 2015). In particular, there is little or no evidence of economically significant negative impacts on native workers, either in terms of jobs or wages, while the public finances and hence public services have, if anything, benefited (Wadsworth et al. 2016).
Nevertheless, immigration was a major factor – perhaps the major factor – in the Brexit vote. Looking at voting behaviour at a local level, while areas with relatively high numbers of immigrants overall were actually more likely to vote to Remain, areas which have seen particularly rapid recent growth in immigrant numbers were more likely to vote to Leave (Carozzi 2016).
So what does that mean for UK immigration policy? Before the referendum, it appeared that a Brexit vote would mean that the UK faced a clear choice on immigration policy (Portes 2016). If we wanted as far as possible to retain access to the Single Market – either by maintaining membership of the European Economic Area (like Norway) or via a series of bilateral agreements (like Switzerland) – then we would need to accept that freedom of movement would continue much as now. Recognising this – and regarding it as an unacceptable price to pay – those campaigning for a Leave vote rejected Norway/Switzerland-type options, accepted that we would not be a member of the Single Market on anything like the current terms (although we could negotiate a bilateral trade deal), and argued for an immigration system that did not discriminate between EU and non-EU nationals.
However, since the referendum result, political and economic realities have made both of these options look increasingly unattractive. There appears to be a growing consensus, uniting almost all pro-Remain politicians (including the new prime minister) and much of the Leave camp, that the UK should seek to maintain as full access to the Single Market as possible. At the same time, as noted above, it is impossible to view the referendum result as anything other than a rejection of free movement in its current form. Some degree of control of EU migration for work purposes would appear to be a political necessity.
As a consequence, it looks likely that the UK’s negotiating position may coalesce around what has been described as ‘EEA minus’. This implies that while free movement would not continue as now, we would not move to an immigration system that gives effectively equal treatment to EU and non-EU nationals; there would still be a considerable degree of preference for the former. What might this entail, in terms of a negotiating position for a government that wanted to demonstrate that we can indeed control immigration from the EU, within the limits of administrative and political feasibility?
The first point to make is that it seems highly probable that EU nationals currently resident will be granted permanent residence rights. There is clearly majority support for this; it is very difficult to see in practice that depriving significant numbers of people who have lived here for any period of time of the right to remain would be politically or administratively sustainable, regardless of the legal position. Another important point is that it does not seem likely or feasible that we would restrict EEA nationals’ right to enter the UK without a visa.
Nevertheless, this does not mean that it is infeasible to restrict future EU migration for work purposes. How would this work? There are two obvious ways to implement a system that imposes restrictions on EEA nationals that are more restrictive than the current system, but less so than that applying to non-EEA nationals:
- To oblige EEA nationals who want to work legally to apply for a work visa, as non-EEA nationals, but with less restrictive rules. This could mean lower qualification thresholds, a wider variety of occupations for which work visas were automatically issued, a separate and higher quota for Tier 2 visas, fewer or no restrictions on intra-company transfers, and so on. EEA nationals would presumably, unlike most non-EEA nationals, be permitted to apply for work visas from within the UK as well as from their home countries.
- To impose no specific restrictions with respect to occupation or skill level, but simply to restrict the issuance of new National Insurance numbers to EEA nationals, with a monthly or annual ceiling. Once that ceiling were hit, any further EEA nationals seeking to work in the UK would have to apply through the system that currently applies to non-EU nationals. This would not stop them travelling to or living in the UK, but they would not be able to work legally.
Either system would in principle be feasible, albeit complex. The advantage of the former would be that it would at least partially address the concerns of those who complain that, unlike non-EEA nationals migrating for work purposes, we do not ‘select’ EEA nationals by occupation or skill level, and as a consequence a very large proportion work in low-skilled or low-paid jobs. The disadvantage, however, is that it would replicate the bureaucratic and inflexible Home Office work visa system, albeit at a different level. This would require significant extra resources, which are unlikely to be forthcoming, and even if properly resourced would result – if the current system for non-EEA nationals is anything to go by – in large costs to business and a significant reduction in labour market flexibility. It is reasonably safe to assume that the consequent extra regulation would, in itself, more than outweigh any remotely plausible gains from reducing ‘EU red tape’ post-Brexit.
The second option also has disadvantages – it would mean that much continued EEA migration would be for relatively unskilled or low-paid jobs. Another possible downside might be an increase in irregular work. But against that, it could be administered in relatively cheap and light-touch way – the only obligation on employers would be to verify that an EEA national had a valid National Insurance number. And, although it is difficult to judge at present, since it has at least some resemblance to the type of ‘emergency brake’ currently available (though never used) by EEA members, it is likely to be considerably easier to negotiate with the remaining EU member states than something which looks like a watered-down version of the system applying to non-EEA nationals. Finally, it also has the potential advantage that if EEA migration does indeed fall sharply over the next two years, as the UK economy weakens and EEA nationals feel less welcome here, any quota may in practice not have much impact.
Such a system would inevitably be bureaucratically and administratively complex, further complicated by the position of EEA nationals who have already exercised their free movement rights. It would constitute a significant increase in regulation and ‘red tape’ and a reduction in labour market flexibility, with the attendant economic costs.
There are those who argue that, if the UK wishes to retain all or most of the privileges of membership of the Single Market, no meaningful restrictions on free movement, of the sort described above, are feasible. They may be right; negotiations that traded off such controls for concessions from the UK side will be complex legally, economically, and politically. The UK cannot have its cake and eat it. But that does not mean that, given the alternative – UK exclusion from the Single Market and an end to free movement, both of which would be economically damaging, both to the UK and to the remaining EU – it is not worth trying. We are in damage limitation mode.
And what if this is not negotiable? In that case, at least we will have an opportunity to reshape UK immigration policy outside the constraints currently imposed by free movement rules. This might allow a more liberal approach to non-EU migration, while rebalancing from unskilled to skilled migration. Relaxing controls on skilled migration could potentially relieve some of the barriers to growth imposed by current government policy, which prevent some companies from recruiting for skilled jobs (Migration Advisory Committee 2016). This could, in principle, both raise wages for the lower skilled and improve the fiscal impacts of migration, boosting post-tax incomes.
Again, the political obstacles may seem formidable, but that does not mean that – in the interests of the country as a whole – economists should not continue to press for a rational approach to migration policy.