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Will immigration restrictions impact the British economy?

The British government has unveiled measures that, according to it, will result in the most significant net migration reduction ever.

According to Home Secretary James Cleverly, the announced five-point plan will prevent 300,000 individuals who were eligible to enter the United Kingdom last year from doing so in the future.

However, how will these restrictions affect the economy?

Although the evidence is more varied when this metric is adjusted per individual, a smaller workforce typically restrains the expansion of an economy.

Nonetheless, the consequences can be significant in specific industries.

This balancing act influenced the government’s consideration of the proposal unveiled this week. They decided not to implement a “hard cap” on the number of visitors; visas expire for any reason afterward.

An exemption was granted to social care workers, who were responsible for the substantial surge in work visas issued over the last two years, from the primary policy provision outlined in the plan—an increase in the salary threshold from £26,200 to £38,700. This will mitigate the adverse economic impact on a sector already in a dire state.

Reducing 300,000 employees annually would have a substantial impact, accounting for slightly less than 1% of the total workforce. It is anticipated that the overall workforce size in the United Kingdom will decrease in future years, which will have far-reaching consequences for tax revenues, borrowing, and pension support.

Economy Ramifications of Workforce Reduction

Fundamental demographics indicate that for every pensioner in Britain in 2010, there were three employed individuals. In the coming decades, that number will decrease to two. This is a significant change for a tax system in which retiree pensions are funded through worker compensation. Based on the 1901 census, there were ten employees for every pensioner.

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Nevertheless, mass migration (and it is difficult to find another term for an annual figure over 500,000) causes immediate strains on health and education expenditures and, if workers remain in the United Kingdom, can contribute to the long-term expenses associated with an aging population.

Thus, the administration promised 300,000 “cuts” to net migration, mostly impacting labourer and student dependents.

This ought to mitigate the economic impact as a whole. However, it is unknown to what extent this will diminish the appeal of the United Kingdom to specific categories of students and care workers.

The pattern of dependents entering the United Kingdom over the past year has been as follows: 86,789 from India, 47,795 from Nigeria, and 22,235 from Zimbabwe.

This results in a significantly more consequential larger context concerning the points-based visa system following Brexit.

Shift in Migration Dynamics

Every one of the hundreds of thousands of additional migrants was issued a visa by the administration. As a result of “regaining control” of immigration policy, Westminster can now regulate the number of European workers, which was “freedom of movement” ostensibly unrestricted.

EU labor force emigration is currently net. However, over the last two years, this has been supplanted by an even more significant influx of non-EU migration.

Some authorities contend that this is a structural characteristic of restricting freedom of movement. Young European workers without plans to stay in the UK might fill care jobs as needed.

The government has implemented a policy to entice care workers from Nigeria, India, Zimbabwe, Ghana, and Bangladesh to relocate with their families.

Similarly, the government established a two-year graduate route in the United Kingdom to assist universities in attracting students
willing to pay inflated tuition fees (and essentially to supplant government subsidies for domestic students). About 43% of its usage was attributed to pupils in India.

Such are actions of balancing. Age UK claims that tens of thousands of non-EU workers “saved” the social care system. Not only does the influx of international students subsidize young Britons, but it also stimulates economic expansion in every major and minor city in the United Kingdom through the export sector.

Challenges and Unresolved Policies

Some of the workforce issues might eventually be resolved by reintegrating a portion of the economically inactive or providing training to British workers. This has been a publicly declared political objective of various administrations for fifteen years. Since the pandemic, this has not occurred, and the situation has worsened.

Can low-cost foreign labour have reduced the drive of industries like care to recruit internally? Although that is undeniably a factor, the government has essentially acknowledged and reaffirmed this week that the care system will rely on foreign carers in 2021.

There are numerous additional factors. The Institute for Fiscal Studies estimates the NHS workforce plan costs £50 billion yearly and is underfunded. Councils would require additional billions to pay possibly higher compensation in the sector.

Therefore, whether substantial reductions in net migration will impede British development lacks a definitive economic answer.

It appears that the government has attempted to realign its points-based system to prioritize initiatives that yield the most significant immediate economic advantages.

However, British politicians’ long-term pledge to reduce the economy’s reliance on immigrant labor has yet to materialize.

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