Scotland's place in Europe: people, jobs and investment

Chapter 4: Free Movement of People

117. Membership of the EU has played a central role in the social progress that Scotland has made over the last twenty years of devolution, with perhaps no aspect of EU membership more important than free movement of people. Scotland has always been an open and welcoming nation, and that welcome has extended to the many EU citizens who choose to study, live, work and raise their families here. Their presence in communities across the country has helped make Scotland the modern, dynamic European nation it is today.

118. More than that, they have also helped turn around the long-term decline in Scotland’s population, and mitigate the effects of an aging society. The demographic challenge Scotland still faces, though, will see more deaths than births every year for the next 25 years. By 2041 there is projected to be as many as 10,000 more deaths than births that year. Migration will account for all of Scotland’s population growth over the projection period 2016-2041. Ensuring EU citizens are free to continue to live and work here is essential for maintaining that population growth, which underpins future economic growth and the sustainability of our public services.

119. The ability to move freely across Europe has also broadened the horizons of many Scottish people who have been able to study in European centres of learning, take up work anywhere in Europe, and live in and join the many and varied cultures across the continent. As these reciprocal rights have been exercised, ties of family and friendship have been developed and strengthened across Europe. The ease of this valuable exchange, and the opportunities it brings, for citizens of the UK as well as other EU citizens, is now at risk.

120. The UK Government’s intention to end this freedom seems not only wrong from this perspective, but will also be damaging to our businesses and economy and would appear to be incompatible with their desire for ‘frictionless access’ to the European Single Market. Moreover, the threat of Brexit, compounding the real and severe damage to the economy and to people’s lives and livelihoods, is a lowering of our sights and an unnecessary and unwelcome retreat from the world. Scotland rejected that narrow vision by voting decisively to remain in the EU, and the Scottish Government will do all it can to reaffirm and reinforce that Scotland remains an open, welcoming member of the family of Europe that values the contribution EU citizens make to our society.

Source: Annual Population Survey, July 2016 - June 2017

Context for Free Movement

121. It is worth making clear what free movement actually entails. Free movement is the Single Market freedom that most directly affects the day-to-day lives of EU citizens, including UK citizens. Rights under freedom of movement have expanded over time, building on the initial conception of the free movement of workers to support the Single Market: it now incorporates the concept of EU citizenship, and includes rights to study, seek work, reside self-sufficiently, be accompanied by non- EU family members, and access certain benefits and public services. Rights have been further reinforced by judgments of the European Court of Justice, and consolidated in the 2004 Citizenship Directive, also commonly referred to as the Free Movement Directive. ^[48]

122. For stays of fewer than three months, the only requirement for EEA citizens, including those from the EU, to move and reside in other member states is that they possess a valid identity document or passport.

123. If EU citizens choose to exercise their right to freedom of movement for stays of more than three months, they must be a ‘qualified person’: which means they must be employed, self-employed, studying, self-sufficient or seeking work. Generally, EU citizens have equal access to benefits and public services as nationals, although there are some restrictions including access to social assistance. In the UK jobseekers have limited access to job seekers allowance, and only after the three month initial period of residence. Many member states also require non-national EU citizens to register their presence in the country, which is permitted after the first 3 months under the relevant EU rules, although the UK has never previously done so.

124. EU member states may refuse entry, or in certain cases remove, EU citizens of other member states on grounds of public policy (such as criminality), public security or public health; or in the event of abuse of rights or fraud, such as ‘sham’ marriages. Furthermore, member states are able to restrict the free movement of citizens of new EU member states, for a limited period after a new country joins the EU. The UK opted not to exercise these controls for the 2004 accession of eight new member states, mostly from central and eastern Europe. It did exercise transitional controls for the subsequent accessions of Bulgaria and Romania in 2007, whose nationals only gained full free movement rights within the UK from 2014, and of Croatia in 2013. Most other member states also applied transitional restrictions to these accessions.

125. These same limitations and restrictions on the exercise of the right of free movement of people apply equally to UK citizens exercising their valuable rights by seeking to live, work or study in other EU member states.

126. As we will demonstrate in this chapter, and as we set out in the Scottish Government response to the Migration Advisory Committee call for evidence ^[49] on the impact of EEA workers, Scotland benefits greatly from the contribution of EU citizens. We want them to stay and we want Scotland and the UK to continue to be able to benefit from free movement of people by remaining in the European Single Market. In supporting ongoing free movement of people, we respect the need for measured and proportionate controls to safeguard against fraud, abuse, security threats and criminality and we support the proper enforcement of those rules. These controls already exist in the framework enabling free movement of people and can ensure that - as we have seen in recent years - the overwhelming majority of EU citizens coming to Scotland are able to make a dynamic and positive contribution to our society.

Box Two - EU Citizens in Scotland

EU citizens who live and work in Scotland are an important part of our economy and our society. Despite Scotland and the UK’s best interests being served by continuing to benefit from freedom of movement, the UK Government has set out its intention to end free movement of people in the spring of 2019. As part of any transition to a new system the UK Government will need to clarify the status of the 219,000 EU citizens who are currently resident in Scotland (and many more elsewhere in the UK), as well as the rights of EU citizens who may be looking to work, live and study here after the spring of 2019.

Population by non- UK nationality, Scotland, July 2016 - June 2017

Source: Annual Population Survey, Office for National Statistics, July 2016 to June 2017

Notes:

1. Nationality refers to that stated by the respondent during the interview. Where a respondent has dual nationality the first one is recorded.

2. Republic of Ireland nationals are included in the EU14 category.

The UK Government’s ‘offer’ to EU citizens as set out in June 2017 proposes that ‘qualifying EU citizens’ will have to apply for settled status. If a fee is imposed for settled status, the Scottish Government has committed to look to meet this cost for EU citizens working in the Scottish devolved public services.

Demography and EU Migration

127. Scotland’s historical experience of population change, until relatively recently, has been one of out-migration. Throughout the 1950s and 1960s, when England and Wales saw strong immigration, almost 6% of the population left Scotland in each decade. Natural change through births and deaths also continued to decline in Scotland throughout the 1980s and 1990s, when it recovered elsewhere in the UK. A turning point was reached at the start of this century: from 2001 onwards, Scotland became a country of sustained net in-migration for the first time since records began. Most of the net increase in migration came from overseas, rather than from within the UK; and most of the population inflows from overseas came from EU member states. The improvement predates, but was further boosted by, the accession of Eastern European member states in 2004.

128. However, despite the recent turnaround it is important to stress that Scotland is still facing a significant demographic challenge. While Scotland’s population is growing, this growth is uneven across our communities. Over a third of Scotland’s local authorities will face depopulation before 2039. As previously highlighted, all of Scotland’s population growth in each of the next 25 years will come from migration, with natural change forecast to be negative in each of those years: by 2041, there may be as many as 10,000 more deaths than births that year. This demographic challenge is much more pronounced in Scotland than it is for the UK as a whole, where migration accounts for only 54% of forecast population growth.

Chart 6: Natural change and net migration, Scotland, 2001-02 to 2040-41 ^[50]

129. It is also projected that the population of pensionable age will to increase by 25% over the next 25 years. The anticipated increase is highest for the older age groups (e.g. over 75s), with all age groups below 65 projected to decline in population over the next 25 years. At the same time, the projected growth in Scotland’s population will slow if levels of EU migration are reduced. In scenarios where future EU migration is constrained, the population is projected to peak in the 2030s and then decline after that point. In contrast, the UK overall continues to see its population increase every year over the next 25 years.

130. These trends will have a significant impact on Scotland’s economy. The increase in the number of people of pensionable age will increase demand for health care and other public services. The concurrent fall in the working age population which is projected under reduced EU migration scenarios, will introduce skills shortages across the economy and reduce the tax revenue required to fund public services.

131. Inward migration is therefore key to maintaining Scotland’s working age population, and in turn our economic performance. We know that EU citizens in Scotland have a younger age profile than the Scottish population as whole. 61% of EU citizens living in Scotland are under 35 years of age compared to 42% for Scotland as a whole. This further reinforces the importance of EU migration to sustaining the working age population.

Economic contribution of EU citizens

132. Scotland’s economy benefits significantly from EU migration. EU citizens are helping to grow our economy, address skills shortages within key sectors and make an essential contribution to our population growth. Over the last decade population growth has been the primary driver of GDP growth and this has been driven chiefly by inward migration. The Scottish Government recently undertook modelling of the economic contribution of EU citizens to the Scottish economy (see Box three) which confirms that workers from other EU countries bring real economic benefits to Scotland.

All Of The Increase In Scotland’s Population Over The Next Decade Is Expected To Come From People Moving Here. Without Immigration The Number Of People Of Working Age, Working And Paying Towards Public Services In Scotland Is Likely To Fall.

Box Three - The Economic Contribution of EU Migration to Scotland ^[51]

Introduction

Recent Scottish Government economic modelling shows the economic contribution of EU migration to Scotland.

Approach

In the period from 2007 to 2016, the trend in the number of EU citizens employed in Scotland was equivalent to 7,800 additional people per year. A dynamic computable general equilibrium model ( CGE) of the Scottish economy was used to examine the net additional economic impact of a marginal increase in EU migration into Scotland. By marginal increase we mean a one year increase in labour supply equivalent to a one year inflow of EU migration into Scotland. This approach to modelling migration is similar to the one adopted by PWC in their study of the impact of migrants on London, its workforce and its economy. ^[52]

The Scottish Government CGE model has previously been used to model a wide range of economic policies and variations of this model have also been used in similar analyses by academic institutions. A general description of the model is available on the Scottish Government website. ^[53]

Findings

The key findings are:

• On average each additional EU citizen working in Scotland contributes a further £34,400 in GDP
• The total contribution by EU citizens working in Scotland is approximately £4.42 billion per year
• On average each additional EU citizen working in Scotland contributes £10,400 in government revenue.

Discussion

Our findings are in line with previous research which finds that migration contributes positively to regional economies. The model, however, does not consider complementarities in skills between migrants and native born workers, nor does it account for the positive effects on innovation, productivity and entrepreneurship stemming from migration. Our results, therefore, are likely to understate the full positive impact of EU citizens in the Scottish economy.

133. EU citizens are making a positive contribution across Scotland. They are working in our public services; meeting the skills gaps in our industries, and working as seasonal workers in key sectors. We know that 77% of EU citizens are in employment compared with an overall rate for Scotland of 73% and EU citizens account for over 5% of all employment in Scotland. Rural areas are also more reliant on EEA workers. ^[54] Free movement has been essential, with skilled and unskilled labour fulfilling diverse needs across our economy. Adopting a sectoral approach which prioritises the needs of certain sectors but ignores the needs of others will not address this issue. In addition, increasing recruitment in one sector will reduce the pool of potential candidates for other sectors. We need to view solutions in relation to the whole workforce.

It Is Estimated That On Average, Each Additional EU Citizen Working In Scotland Contributes £10,400 In Tax To Pay For the NHS And Other Public Services.

134. Key sectors of our economy are particularly dependent on the contribution of EU citizens. Distribution, hotels and restaurants and manufacturing are sectors heavily reliant on EU workers: over 30,000 EU citizens are employed in distribution, hotels and restaurants in Scotland, and EU citizens make up over 7% of employees in the manufacturing sector. However, employers in Scotland across all parts of the public and private sector rely on the contribution of EU citizens. EU citizens are also key to our international competitiveness, and make up a significant proportion of employment in sectors which are large exporters within Scotland, such as in the food processing and manufacturing sector as well as in wholesale and retail.

135. EU citizens make a vital contribution to the public sector in Scotland, including in NHSScotland where they fill skilled vacancies in hard-to-recruit specialisms and geographical regions. Many EU citizens work in social care, in roles that may be low-skilled or relatively low paid and so would likely fall below the thresholds in the non-immigration system.

Chart 7: Non- UK EU and non- EU nationals share of sector employment in Scotland, 2016

Source: Annual Population Survey, Jan - Dec 2016 ^[55] , Office for National Statistics

** Estimates are suppressed as they are not considered reliable estimates for use

136. The Annual Population Survey does not record seasonal workers but these workers play a crucial role in our agricultural sector. Our soft fruit and vegetable sectors as well as the fish processing sectors are highly dependent on seasonal EU labour. These jobs and the people employed within them play an important role in our rural communities. While almost half of all EU citizens are resident in the cities of Aberdeen, Edinburgh and Glasgow, there are people born in the EEA living in every local authority in Scotland (see chart 8).

Chart 8: Inward migration as a percentage of population by council area, Scotland, mid-2015 and mid-2016

Source: Mid-Year Population Estimates, National Records of Scotland

137. The importance of migration in meeting Scotland’s demographic and economic needs is felt in particular in our rural communities, where the positive contribution made by EU workers, and their families, can be especially significant. It is difficult to estimate the number of EU workers in rural Scotland, because many are seasonal workers and highly mobile. However, at the time of the census in March 2011, more than 42,000 migrants were living in rural locations, with up to a further estimated 22,000 seasonal workers in summer and autumn. ^[56]

138. Approximately one third of Scotland’s small and medium-sized enterprises are based in rural areas, with some 51,000 businesses operating in a diverse range of sectors including agriculture and forestry, tourism, the manufacture of high-tech niche products and creative services. Low unemployment in rural areas means workers often need to be sourced from outwith the local area, driving the need for migrant workers. Data from the Federation of Small Businesses found that a quarter of small businesses in Scotland employ EU citizens, with that figure rising significantly in rural areas: 41% of small businesses in the Highlands and Islands, for instance, employ EU citizens. Many rural employers are reliant on unfettered access to workers from Europe in order to meet their current and future labour needs, and would be disproportionately disadvantaged by any restrictions on free movement of people.

139. However, EU citizens should not be seen as just workers. Their contribution to the communities in which they live, and to wider Scottish society and culture is significant and must also be recognised. EU citizens are not just colleagues and co-workers they are also friends and in many cases family - people who have chosen to build a future in Scotland and to bring their families up here and become part of the communities within which they live and work.

140. Freedom of movement within the EU enriches Scotland’s culture. Artists from around the EU are able to bring their work to Scotland and EU citizens can travel freely to Scotland to experience our unique culture and world-leading festivals. Creative industries have been the fastest growing sector of the UK economy over the last two decades and it is important that Scotland’s cultural and creative industries companies are able to recruit the talent and skills that they need from as wide a pool as possible. This allows our homegrown talent to seize opportunities and gain new skills and perspectives from working across the EU.

141. Within Scotland, there are specific challenges faced by many of our rural and island communities. Population growth is uneven across communities. Many local authority areas, particularly those which include Scotland’s islands, are expected to experience population decline over the next 25 years. This pattern of distribution, and the depopulation trends in remote and rural areas means that the value of migrants to these areas is more than the skills they bring to gaps in the labour market; their presence in rural areas makes a contribution to the demographic and economic sustainability of rural and remote areas, which is critical for these communities to survive and thrive.

142. EU citizens are making a positive contribution across the economy in urban and in rural Scotland; as employees and as entrepreneurs they provide employment within our communities. Free movement also allows Scots to easily live and work in Europe allowing people to build the skills, gain experience and develop the networks to support Scottish business. They may choose to settle permanently or to bring those skills and experiences back to Scotland.

Future Policy

143. Scotland is a progressive outward-looking nation. We recognise that migration strengthens our society and that our nation benefits from the skills, the experience and the expertise of those people from other EU countries who have chosen to live, work and study in Scotland. In some rural areas the presence of EU citizens is a crucial factor in maintaining key services, like schools. We value the contribution of those EU citizens who have chosen to make Scotland their home - people who have brought their families with them or who have chosen to start their families in Scotland; children who have never lived anywhere other than Scotland. These individuals are part of our communities, yet at the moment many of them are feeling uncertain and worried about their future. They need clarity about their future rights and what Brexit will mean for them and for their families. EU citizens who came to the UK with their families, and who have built lives here on the basis of an expectation of ongoing EU law rights, should not find that those rights have been diluted.

144. Attracting skilled migrants is key to Scotland’s future economic growth and to mitigating the demographic pressures arising as a result of Scotland’s ageing population. Scotland has distinctive needs, and the Scottish Government has set out Scotland’s particular needs in response to the Migration Advisory Committee’s call for evidence.

145. What is now required is a migration policy that reflects those distinct needs. There is a growing consensus that different parts of the UK should be empowered to develop their own solutions to migration. The House of Lords Committee on the EU, and the All-Party Parliamentary Group on Social Integration, have both published reports recommending that UK Ministers should devolve substantive immigration powers to the constituent nations of the UK.

146. Our Programme for Government ^[57] included a commitment to publish a series of evidence-based discussion papers setting out the case for further extending the powers of the Scottish Parliament in a number of key areas including in relation to immigration. The Scottish Government will publish a paper setting out why it is vital to our economy to be able to attract talent from across Europe and the world; why the current UK Government policy is so harmful to Scotland’s interests; and how a more flexible and tailored approach to immigration with more autonomy for the Scottish Parliament could operate.

147. Scottish Ministers’ position, set out in Scotland’s Place in Europe and reinforced in this paper, is that Scotland’s best interests are served by continued membership of the European Single Market, and continuing to benefit from free movement of people. The case for immigration policy to be devolved to the Scottish Parliament is strong, even with the outcome of continued European Single Market membership. However, it becomes critical for Scotland to have an immigration system that works for our interests in the event that the UK Government chooses to leave the European Single Market against our will.