UK immigration policy after leaving the EU: impacts on Scotland's economy, population and society

1. Introduction

1.1 Purpose and scope of the report

In October 2018 the Scottish Government established an Expert Advisory Group on Migration and Population, to provide analysis and advice on aspects of immigration to Scotland. The first commission to the Expert Advisory Group was issued on 25 October, with a remit to:

• review the policy recommendations made by the Migration Advisory Committee (MAC) in their report on EEA Migration in the UK,^[1] in order to identify the potential effects of those recommendations on immigration to Scotland; and
• consider and advise on how such changes to immigration might potentially affect areas of devolved competence in Scotland.

Subsequent to this, in December 2018 the UK Government published a White Paper, The UK's Future Skills-Based Immigration System, which further elaborates proposals for UK labour migration policy after the UK leaves the European Union (EU). This report will therefore consider both the MAC recommendations and the proposals set out in the White Paper, exploring their potential consequences for immigration to Scotland and for areas of devolved competence.

Immigration policy is a reserved competence, with legislation on the entry, residence and employment rights of non-UK nationals adopted at UK level. For this reason, the report will not produce recommendations on immigration policy. However, immigration to Scotland does have a number of important effects on areas of devolved responsibility. These include a range of public services that may be affected by immigration such as education and training, health and social services, housing, and many aspects of welfare, as well as tax-raising and social security powers established in the 2016 Scotland Act. The Scottish Government is also committed to promoting sustainable growth in the Scottish economy, as set out in Scotland's economic strategy; and the sustainability and well-being of communities. It is therefore important to analyse how the proposed changes to immigration will affect the ability of the Scottish Government to deliver public services and achieve these broader economic and social goals.

The Expert Advisory Group decided that the best way to analyse the effects of immigration policy on these areas was to focus on four broad dimensions of change, which would in turn have knock-on effects for these areas of devolved powers. These are:

• Labour market. The supply of labour across different sectors of the economy and in different areas of Scotland has important effects on wages and employment, productivity and growth, as well as the availability of goods and services.
• Population. Immigration inflows and outflows have a direct effect on population growth, and on the age composition of the population. These dynamics affect all areas of devolved competence, including the provision of and demand for public services, economic growth, and the sustainability of communities.
• Fiscal impacts. The scale and composition of immigration has an impact on the public finances through the collection of taxes and national insurance, and the provision of public services to immigrants.
• Local communities. Immigration flows, and how they are distributed across different areas, can have significant effects on local communities in terms of their well-being and sustainability, for example through affecting the viability of local industries and public services.

Our analysis takes on board many elements of the MAC's report on EEA Migration in the UK. This report offered rigorous analysis of the labour market, fiscal and social impacts of immigration in the UK, confirming and further building on previous findings about the broadly positive economic effects of immigration. However, as a UK-wide report, the MAC did not foreground the particular economic, demographic and social challenges faced by Scotland and other parts of the UK. Moreover, given the focus on UK-wide data it did not analyse in detail the impacts of the proposed changes for particular sectors, or for different types of communities, which range from urban to rural and remote. This report therefore helps fill this gap, identifying some of the variegated impacts of the proposed changes for particular sectors and local areas.

The current report responds to the Scottish Government's need for a swift assessment of the MAC and UK Government proposals. It was prepared by a group of five experts based in universities and research centres in Scotland. This necessarily limited the scope of the analysis, and in the report we suggest a number of areas that would benefit from more in-depth analysis.

1.2 The recommendations

The White Paper proposes a single UK immigration system for EU and non-EU nationals which prioritises higher-skilled immigration.

• Free movement of workers will end once the UK leaves the EU, and EU nationals will be subject to UK immigration rules.
• Tier 2 of the points based system (skilled migrants) will be expanded through:
  • removing the cap on numbers admitted through Tier 2;
  • removing the resident labour market test (though retaining the Immigration Skills Charge paid by employers);
  • simplifying sponsorship for employers;
  • allowing nationals of 'lowest risk countries' to apply for a work visa while in the UK;
  • reducing the skills threshold for Tier 2 from RQF6+ to RQF3+ (A‑levels, Highers or equivalent);
  • retaining a salary threshold (the MAC recommended a level of £30,000, but the White Paper proposes consultation to determine the precise level); and
  • retaining a separate Shortage Occupation List (SOL) for Scotland, and considering similar lists for Northern Ireland and Wales, potentially allowing a lower salary threshold for certain occupations facing acute shortages with a skills level of RQF3 or above.
• There will be no route specifically for low-skilled workers, but there is a recognition that some employers will find it difficult to adapt immediately to this change. As a transitional measure, the government will introduce a route for temporary workers, which will feature:
  • a maximum stay of 12 months in the UK, followed by a 12-month 'cooling off' period;
  • workers may move between employers, with no employer sponsorship required;
  • no access to public funds or rights to extend stay, switch to other routes, or bring dependents;
  • the route is only open to specified countries such as 'low risk' countries;
  • visa fees for workers will be increased incrementally each year to reduce reliance on migrant labour; and
  • the possibility of a cap on the route, or early closure, depending on the level of flows and the economic situation, ahead of review in 2025.
• There will be a specific sectoral programme for seasonal agricultural workers open to non-EU nationals, which will be piloted from March 2019. The government accepts the MAC's recommendation that employers should be required to pay an 'upwardly revised national minimum wage'.
• The government accepts the MAC's recommendations for moderate changes to post-study work, including:
  • extending post-study leave for graduates to six months, during which they can find skilled work (under Tier 2), and may work temporarily;
  • extending post-study leave for PhD graduates to 12 months; and
  • allowing students to switch into Tier 2 three months before the end of their course and from outside the UK up to two years after graduation.

The White Paper suggests that the changes to Tier 2 in particular represent 'a very significant change… ensuring that there are no limits on the volumes of skilled migrants.' This is intended to align with the UK's industrial strategy, which aims for 'a highly skilled, innovative and highly productive workforce.'

1.3 Methods

In order to analyse the potential impact of the changes, the report maps different scenarios of future migration flows to Scotland, and considers the effects of such scenarios on the labour market, tax revenues and public expenditure, population trends, and on local communities in different areas of Scotland. The first scenario is based on the projection set out in the White Paper, which estimates an 80% reduction in EU immigration for the purpose of work. Based on this figure, we set out a scenario of an 80% reduction in net migration from and to EU countries after 2020. The second scenario is based on our own calculations of the potential impacts of the proposals, and assumes a 50% reduction in net migration of EU nationals after 2020. Both of these projections start from a baseline of overseas in-flows and out-flows averaged over the past five years.

It is important to note that this is different from the principal projection by the Office for National Statistics (ONS) and the National Records of Scotland (NRS), which is based on averaged flows over the past 25 years. This is because in our projections, we are interested in the effect of reduced migration from the EU on the size and structure of Scotland's population. In order to measure the effect of reduced EU immigration, our principal variant assumes that current migration streams (the average in- and out-migration over the last five years) will continue in the future.

These projections are inevitably very approximate, given uncertainty over the future drivers of migration. Analysis of previous migration flows is also hampered by the unavailability of robust data. Flows data are based on the Long-Term International Migration figures, drawn from the International Passenger Survey (IPS). As documented elsewhere, IPS data is unreliable, given the small sample size and reliance on respondents' stated reasons for migration and their future plans. This inhibits in-depth analysis of migration trends and patterns.

Flows data are complemented with data on the population of immigrants in Scotland and the UK, drawn from a range of survey and administrative data from both ONS and NRS, including the Labour Force Survey (LFS), the Annual Population Survey (APS), and Annual Population Estimates, the 2011 Census, and the Annual Survey of Hours and Earnings. To complement these Scotland or UK-level data, we also draw on administrative data such as National Insurance (NINO) registrations.

These data allow some analysis of the local impacts of immigration, and thus allow us to explore the potential implications of the changes. However, even data on local areas cannot capture the range of impacts on local communities. We therefore complement the statistical data with qualitative data on particular sectors, and on specific communities in Scotland.[2] This allows us to illustrate the potential effects of the changes on local communities, including in remote areas of Scotland. It also allows us to capture the effects of different patterns of movement, including a comparison of the effects of longer-term settlement and integration, versus shorter-term mobility.

The next chapter summarises recent trends in overseas migration to Scotland, and suggests how policy changes after leaving the EU might affect current patterns of migration and settlement. The subsequent chapters all deal with a distinct dimension of change, examining the labour market, fiscal, demographic and social effects of the projected changes. The effects outlined in these chapters are in many ways interdependent. Changes to the demand and supply of labour will clearly affect inflows, and the scale and composition of flows in turn affect the fiscal impact of migration, the size and age composition of the population, the spatial distribution of immigrants, and the characteristics and settlement decisions of immigrants. All of these features in turn have an impact on the well-being of local communities across Scotland. While it is therefore difficult to disentangle these interactions, we nonetheless decided to deal with these dimensions in separate chapters, reflecting the different methodologies used to analyse the effects.

Finally, it is important to clarify terminology used in the paper. For simplicity, we use the terms 'EU migration,' 'EU citizens' and 'EU nationals' throughout this report, which also refers to EEA countries (Iceland, Lichtenstein, and Norway) and Switzerland. This follows the terminology used in the White Paper. While we acknowledge that some data also includes non-EU EEA nationals, the numbers involved are very small.

We also distinguish between different sub-groups of EU nationals, notably:

• EU-8 nationals (citizens of eight of the countries that acceded to the EU in 2004: the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia and Slovenia);
• EU-2 nationals (citizens of Bulgaria and Romania, which acceded in 2007, and whose citizens were granted full access to the UK labour market in 2014);
• EU-10 nationals (counting the EU-8 and EU-2 together); and
• EU-15 nationals (the 'old' member states who were members prior to 2004: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain, Sweden and the United Kingdom).

We use the term 'non-EU' to refer to countries outside of the EU, EEA and Switzerland.

The data we draw on also classifies EU and overseas immigration in different ways. In some cases, data refer to residents' country of birth (e.g. when using the term 'foreign-born', 'EU-born' or 'UK-born'). In other cases the data refer to the current nationality of immigrants ('EU nationals', 'UK nationals', and so on), implying that foreign-born residents who have acquired UK citizenship are counted as 'UK nationals'. Data on migration flows, by contrast, often refers to the country from which migrants arrived (for in-flows) or their country of destination (for out-flows), which may not necessarily be their country of origin or nationality.