Can immigration save us from debt and spending cuts?

Immigration will save us from debt and spending cuts is the lead story in today’s Independent. The story is based on these graphs from the OBR’s annual Fiscal Sustainability Report. Ben Chu has more detail here.

The High Migration scenario, says the OBR, ensures greater economic growth and therefore brings debt down almost to its pre-recession levels by 2050. The logic behind this is similar to the argument for older people working longer. The greater the proportion of the population in work, the more likely the economy is to grow. Immigrants are disproportionately young so more of them are of working age. Therefore more immigrants equals more workers, which equals more growth.

The OBR’s High Migration scenario does not imply an ‘open door’ policy, though you can bet that it will have been described as such before the weekend is out. It simply means that migration continues at its current level, which would see the UK’s population rising to around 85m by the middle of the century. The OBR’s Central projection assumes that migration will fall to around half its current level, presumably due to government policy, although they don’t explicitly say that.

The same figures, more or less, were in last year’s report. You can pretty much rely on government documents to put the same things in the same places. In the 2011 report, the growth projections are in Table 3.3 and the debt and demography graph is  Chart 3.11. Both the Central and High Migration projections in this year’s report are slightly more optimistic than they were in 2011.

The only difference between this year’s and last year’s report is that the 2012 one contains the zero net migration projection, which sees debt shooting off the scale. It’s a clever piece of attention-grabbing by the OBR because zero net migration is a scenario so unlikely that it’s verging on the abstract. It seems to have worked, though, because it has got people talking about the impact of migration on growth. As far as I can remember, nobody picked this up last year.

It may be true that migration could dig us out of the debt but, if you follow the grey line, you’ll see that it goes up again after the middle of the century as the migrants start getting old and becoming net claimants on the state too. The only scenario in which debt continues to fall is the Young Age Structure one which assumes a return to high fertility rates. This would see the population rising to 88m by the middle of the century.

We therefore go back to the problem of the ageing society. It’s the higher proportion of older people that is increasing the pressure on state finances. Immigration, then, is simply a way of bringing in younger people to reduce the proportion of oldies. If we want to maintain something more like a younger, pyramid-shaped demographic structure, rather than a beehive-shaped one (see yesterday’s post) we either have to have lots more children or nick other people’s.

Maintaining a young age structure, either through immigration or reproduction, inevitably increases the population. (Unless you start culling old people.) If everyone tries to do that the global population will shoot up.

If the whole world wants to maintain a pyramid-shaped society, which would imply maintaining current global fertility rates, the population would reach 27 billion by the end of the century, rather than the 10 billion the UN predicts.

But if we decide that having lots of children is the only way to secure our future prosperity, an assumption aid agencies have spent decades fighting, then that implies an ever-increasing world population. Now, suggesting that there may possibly be some situations at some point where Malthus might be even a bit right is enough to get you put up against a wall and shot in most economics departments but surely population increase has to stop somewhere.

The costs and the social adjustments associated with ageing societies will have to be faced by us all at some point. Immigration might be a temporary solution to our debt and growth problem. (I say might because I can’t entirely understand how the OBR gets to its figures. Maybe I’m just being thick.) But this just means kicking the problem down the road for grandchildren, rather than children, to solve. If the demographers are right, the ageing beehive-shaped society is coming to us all sooner or later. We will just have to find ways of dealing with it.

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4 Responses to Can immigration save us from debt and spending cuts?

  1. Pingback: Can immigration save us from debt and spending cuts? - Rick - Member Blogs - HR Blogs - HR Space from Personnel Today and Xpert HR

  2. What the OBR’s treatment of migration shows is the high degree of sensitivity such long-range projections have to specific variables and the associated assumptions. It is for this reason that we should be sceptical about claims that an ageing population spells economic doom, which is the central assumption of the report.

    You say nobody picked up on the impact that high migration would have in last year’s report, but I recall Paul Mason making this very point during the doomfest on Newsnight on the 13th of March. His intervention was ignored because it didn’t suit the premise of the debate, namely that the welfare state (and the NHS in particular) was unsustainable.

    It’s worth noting that this year’s OBR report attempts to address some of the obvious flaws exhibited in last year’s (see appendix B). There is now an acceptance that increased years of longevity will not all be spent in illness. Against that, the questioning of their assumption that health service productivity will lag behind wage inflation has led them to add even more pessimistic scenarios.

    They continue to project declining revenues from existing taxes (North Sea oil, fuel duty, tobacco duty etc) while failing to make any provision for new or substitute taxes, even though they recognise that politicians will have to come up with these. This year they have added in further revenue dampening factors by speculating on corporation tax arbitrage (i.e. profits being exported) and a decline in VAT due to commodity deflation.

    The purpose of the OBR report is to project what will happen if current tax and spend policies are maintained against anticipated changes in demographic and other factors. This is obviously unrealistic. Stuff happens and governments change policy accordingly.

  3. rogerh says:

    So why would immigrants want to come to post-growth UK? Some might look after the old and do cleaning jobs but without the prospect and hope of better for their children I doubt they would stay and fewer would come. In the end we will get into a spiral of having to accept the more desperate immigrants from poorer and poorer countries. What price then UK Border Force?

    Traditionally immigrants have gone where there is prospect and hope, second choice is as a remittance worker. The UK’s main USP is the English language not our streets paved with gold.

    The latest figures show a big surge in immigration over that last 10 years, but with pressure on housing and benefits all round I wonder what the data will look like in 2022.

  4. Rick says:

    Roger, you raise a really interesting question and one that drifted through my mind as I was writing this. We tend to assume that highly skilled migrants will continue to want to come to the UK but, with smaller populations and even skill shortages at home, and a slow down in the UK, they might decide things are better at home.

    Britain might not look like such a good bet in the years to come.

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