Brexit: Immigration: Ian McConnell: Why did Tory Brexiters think this was a good idea?

The IFS concluded that “not since Margaret Thatcher – who enacted substantial tax cuts in the latter years of her premiership – has a prime minister announced policy changes that act to reduce, rather than increase, the overall tax burden”.

It declared that “tax-raising governments have, over the last 30 years, become the norm”.

And, crucially, it predicted a continuation of this trend given the need to support an ageing population.

The IFS highlighted its view that “the longer-term direction of travel is clear”, declaring the Boris Johnson administration will “not be the last to raise taxes in [the] face of the inexorable spending pressures of an ageing population”.

The think-tank observed “Boris Johnson and Rishi Sunak have announced tax rises worth 2% of GDP (gross domestic product) in just two years – the same as Tony Blair and Gordon Brown did in ten”.

It added: “To give a sense of scale, an additional 2% of GDP would be enough, in today’s terms, to roughly double the nation’s annual defence budget or increase education spending by around 50% a year, though, in reality, most will likely flow to the burgeoning health and social care budget.”

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Health and social care spending has been very much in focus, not just because of the coronavirus pandemic but also as a result of increasing awareness of the major implications of the UK’s ageing population.

The hike in national insurance rates which has come into effect this month was dressed up by Mr Johnson last September as a “health and social care levy” amounting to around £12 billion per annum, in a seeming effort to sweeten the pill. It seems like a bit of a curious idea to allocate a specific taxation move to a particular area of public spending. However, such window dressing is very much in keeping with the path of populism pursued by this Government.

There are undoubtedly huge challenges ahead in terms of the implications for public spending of an ageing population, at a particularly inopportune time when the UK is reeling from the effects of the global financial crisis, the ill-judged Tory austerity programme which kicked off in 2010, the Brexit folly, and the coronavirus pandemic.

And it was impossible on reading the IFS’s analysis not to wonder again why on earth the Tory Brexiters thought it would be a good idea to rip the UK out of the European Union, and make sure the country lost the huge benefits of free movement of people and frictionless trade by also leaving the single market and customs union.

Even before they got their technical Brexit in January 2020 and then went on to ensure major economic damage over years and decades by exiting the single market at the end of that year, the Leave vote had caused a dramatic decline in net immigration to the UK from EU countries.

The loss of taxes that would have been paid by many tens of thousands of workers who would have moved to the UK from the EU by now or in the future – had it not been for Brexit – should be a matter of great regret to the Tories. Especially given how much the Conservatives obsess over the public finances (usually, it seems, in a counter-productive way by choking off growth with their ill-judged measures).

The UK has of course become a far less attractive place to live and work for people from EU countries because of Brexit. It is a sorry state of affairs, with some EU citizens no longer feeling welcome in Brexit Britain. And many people who could have relocated previously from the EU to the UK to live and work cannot do so now anyway because of the replacement of free movement of people with a points-based immigration system.

All of this will, as well as continuing to cause the hugely damaging labour and skills shortages highlighted by a raft of companies and industry leaders across Scotland and the rest of the UK, undoubtedly also make paying for an ageing population even harder.

Official long-term international migration figures published last November estimated that, in 2020, 94,000 more EU nationals left the UK than arrived in the country. And the Office for Budget Responsibility last month flagged the impact of Brexit, as well as the pandemic, as it highlighted the lasting effect of a tumble in immigration to the UK.

Of course, as we know from the Theresa May government’s forecasts from November 2018, the Johnson administration’s clampdown on immigration, as well as the loss of free trade, will weigh heavily on UK economic growth over the long term. This will have a more general detrimental impact on tax revenues. And it will also, obviously, affect living standards.

The May government forecasts showed Brexit would, with an average free trade deal with the EU, result in UK GDP in 15 years’ time being 4.9% lower than if the country had stayed in the bloc if there were no change to migration arrangements. Or 6.7% worse on the basis of zero net inflow of workers from European Economic Area countries. Yet the Johnson administration, incredibly, decided clamping down on immigration was a good idea.

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The Office for Budget Responsibility highlighted the challenges for the UK in terms of working-age population in its economic and fiscal outlook published last month to accompany Mr Sunak’s Spring Statement.

Giving some more dismal numerical news on population, the body set up by former chancellor George Osborne in 2010 to provide independent forecasting said: “Our increased estimate of scarring to the adult population since October is partly because we now assume that none of the 170,000 shortfall in net migration during the pandemic is made up over our forecast period, whereas in October we assumed that half (85,000) of the shortfall would be made up.

“This change has been driven by emerging evidence that most of the shortfall in net migration in 2020 was due to a fall in immigration rather than an increase in emigration, and is therefore less likely to be recovered. This is because it seems less likely that forgone inward migrants will choose to come to the UK at a later date – especially in light of the post-Brexit migration regime that took effect in January 2021 – than individuals who left the UK at the start of the pandemic and are more likely to have a legal right to return.”

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The OBR added: “We expect there to be 400,000 fewer people in the labour force at the forecast horizon than was assumed in our pre-pandemic baseline. Of this, around 190,000 is due to a smaller population, and 210,000 is accounted for by a higher inactivity rate among those of working age. The latter figure reflects our judgement that only around half of the increase in inactive individuals observed to date relative to our pre-pandemic forecast will return to the labour force by the forecast horizon.”

The ageing population challenge has long been plain for all to see, and it looks as if it will be compounded by higher inactivity levels, yet the Johnson administration does not appear at all up to speed with what is going on.

The data last November from the Office for National Statistics showed immigration to the UK was much lower in 2020 than in previous years.

The ONS said this was “likely caused by a combination of the coronavirus…pandemic and Brexit”. It noted an estimated 268,000 people immigrated to the UK during 2020, compared with 592,000 people in 2019.

And it said: “EU net migration was negative in 2020, with an estimated 94,000 more EU nationals leaving the UK than arriving. EU immigration dropped considerably in 2020 compared with previous years, while numbers of EU people emigrating held steady. This reduction in immigration is most likely to be because of a combination of the impact of both the coronavirus pandemic and Brexit.”

One very good way to help pay for an ageing population is to make the UK attractive to younger workers from other countries. The UK was doing okay on this front, notably attracting large numbers of people from the EU who have provided valuable labour and skills, and paid taxes. Brexit, and the Johnson administration’s pathetically ill-judged clampdown on immigration have changed things dramatically on this front. And these enormous mistakes have exacerbated the woes of a country facing huge demographic challenges which has seen its economy hampered for more than a decade now by one policy error after another from the Conservatives.