The Economic Impact of Immigration on the UK: Benefits and Challenges

Does Immigration help or hinder the UK economy.

Some people may argue that immigration benefits the UK, as it brings in necessary needed skilled workers. However this is only a short term fix for a long term problem and in the long run will hinder the economy.  For example, in the case of native workers it has been seen from academic studies, that they tend to have a small decrease in pay  (1)“rise in the immigrant share – that is, larger than that observed over the entirety of the last decade – leads to approximately a 1.5% reduction in wages for native workers”  even though this a trend observed from a larger amount of immigration seen in the last decade. It still shows that native workers will still feel a decrease to there pay this is because there will be a greater supply of workers in that field so the demand for that worker will decrease deflating the native workers salary this is seen more clearly in low skilled workers The Bank of England report found that (2)“a ten percent increase in immigration was associated with a two percent decrease in wages for low skilled worker”  this means that there will be a larger group of people who are being paid less. This then might lead to more people becoming net beneficiaries were the benefits provided by the state are off greater value then the taxes paid by the individuals making them a burden on the economy.

However the UK significantly benefits from bringing in skilled workers, this is because skilled workers make a net positive contribution to the UK economy. According to research by Oxford economics, migrants are (3)“more likely to be employed, less likely to claim benefits, and more likely to contribute to public services through taxes than the average UK-born individual.” This shows that the idea of the migrants becoming net beneficiaries is flawed considering the bigger picture migrants contribute more to the economy then they take out making them less likely to be a burden on the economy as they contributing more to the economy. This allows the government to reinvest there money into other sectors allowing them to grow the economy through initiatives such as subsidising businesses. Highly skilled immigrants help support filling vacancies for critical jobs according to the health foundation (4) “34% of doctors and 15% of nurses in the NHS being foreign nationals.” This shows how crucial immigrants are to our public services as there is a shortage of nurses in the UK and without the 15% of the nurses being immigrants the NHS would be under even more pressure then it already faces. If England did not utilise migrant workers then the government would have had to heavily invest in incentivise citizens to pursue careers as nurses and doctors this would have become a significant burden on government spending likely causing a rise in tax decreasing disposable income for the tax payers.

Immigration is not the main cause for the unaffordability of housing. One of the main reasons for this is due to speculative investment. Foreign investors and landlords drive up prices in key areas, such as London, so that they can make a safe return on their money. According to UCL, the demand for housing as an investment (5) “The UK has become locked into a ‘housing-finance feedback cycle’ where increasing financial flows into housing generate rising prices.” This shows that the more people investing into the housing market, the higher the prices go, and this is a more significant factor than immigration. Another factor which increases housing prices is buy-to-let properties, as it reduces housing availability, inflates prices, and causes an increase in competition for the purchase of housing, especially for first-time buyers. A report from the University of Sheffield states, “The private rented sector has seen substantial growth over the past two decades, with the number of dwellings increasing from around 2 million in 2000 to over 5 million in 2020.” This shows us that buy-to-let properties are rising fast, and with this constant increase, it decreases the number of homes for sale in the UK, making the demand increase. Immigration also plays a key part in the construction workforce, which allows the UK to build more houses and faster. The Home Builders Federation stated that “immigration makes up around 20% of the workforce in the construction sector.” Migrant workers are necessary for meeting the demand for new homes, especially in areas where the local labour force may not be big enough to cope with the demand for housing.

Immigration is not the main cause for the unaffordability of housing one of the main reasons for this is due to speculative investment foreign investors and landlords drive up prices in key areas such as London so that they will be able to make a safe return on their money according to UCL the demand for housing as an investment (5) “The UK has become locked into a ‘housing-finance feedback cycle’ where increasing financial flows into housing generate rising prices” this shows that the more people investing  into the housing market are driving up the prices more and more and is more of a significant factor then immigration. Another factor which increases housing prices are buy to let properties as it is reducing housing availability inflating prices and causing an increase in coemption for the purchases of housing especially for first time buyers a report from the university of Sheffield states “The private rented sector has seen substantial growth over the past two decades, with the number of dwellings increasing from around 2 million in 2000 to over 5 million in 2020” this shows us buy to let properties are rising and fast and with this constant increase it decreases the amount of homes for sale in the UK making the demand increase.  Immigration also plays a key part of the construction work force which allows the UK to build more houses and faster home builders federation stated that “immigration make up around 20% of the workforce in the construction sector”  migrant workers are necessary for meeting demand for new homes especially in areas were he local labour force may not be big enough to cope with the demand for housing.

Immigration can put pressure on the pension scheme as it increases the population. This then causes an increased strain on the pension scheme. This is due to the fact that more migrants entering the country will increase the number of people taking out pensions in the UK. According to Womble Bond Dickinson (6), “By 2024, more than 24% of the UK population will be aged 65 or older, up from 18% in 2016.” This is because people are living longer due to healthcare advancements, which leaves people taking out money from the government for longer, making the government spend more into the pension scheme, which they would not be able to afford. The government may respond to the increase in fiscal pressure by increasing the age at which you are able to take out your state pension. This forces people to work for longer if they are unable to afford retirement. It could also mean the government might reduce some of the benefits that you are able to receive from the pension scheme. The pension scheme is also likely to be affected by wage suppression. Immigration can lead to an increase in labour, especially in lower-wage sectors. Lower wages mean that workers contribute less to the pension scheme, as contributions are most of the time a percentage of their wage. According to Wiley Online Library (7), “Low-skilled native workers experience a small but significant negative wage effect due to immigration.” Even small wage declines can reduce pension funds over time, even more so for low-income workers, as the budget will have to be stretched further in order to accommodate the decrease in pay into the pension scheme and an increase in the number of people trying to take out money from it.

Immigration is very impactful in helping grow the pension fund. This is due to the fact that England has an aging population, as people have fewer and fewer children. According to the Royal Geographical Society, (8)“Over the last 40 years, women in the UK have been having fewer children. Women in the UK are currently having 1.9 children, the highest figure since 1973, but far lower than 2.93 in 1964.” This shows us that birth rates have been dropping, and they are not high enough, as we need women to have 2.1 children to combat people living longer. This means that more people stay in retirement for longer and take out pension money for longer. To afford this, the UK has to bring in immigrant workers so that we have enough people contributing to society. Most immigrants come to the UK to work and contribute to the economy. According to a study done by LSE,(9) “Up to 500,000 immigrant workers per annum might be necessary to maintain the system’s viability.” This study reinforces the fact that immigration plays a substantial part in addressing the issues faced by an aging population and the pension system. Immigrants coming in and replacing the workforce that retires can help uphold the pension scheme. More migrants coming into the country allows people to retire earlier, as we are able to replace the labour force of those who are looking to retire. This way, we are not dependent on the older generation, as they can now be replaced. Without immigration, the UK will have an unsustainable pension plan, which could lead to higher taxes. Therefore, having an immigration policy that is up to scratch is necessary for the UK economy.

Reference (1)

Portes, J. (2018). The economic impacts of immigration to the UK. [online] CEPR. Available at: https://cepr.org/voxeu/columns/economic-impacts-immigration-uk [Accessed 4 Feb. 2025].

Reference (2)

Nickell, S. and Saleheen, J. (2008). The Impact of Immigration on Occupational Wages: Evidence from Britain. SSRN Electronic Journal. [online] doi:https://doi.org/10.2139/ssrn.1310269.

Reference (3)

Oxford economics (2018). The Fiscal Impact of Immigration on the UK. [online] Oxford Economics. Available at: https://www.oxfordeconomics.com/resource/the-fiscal-impact-of-immigration-on-the-uk/

Reference (4)

Baker, C. (2023). NHS staff from overseas: statistics. commonslibrary.parliament.uk. [online] Available at: https://commonslibrary.parliament.uk/research-briefings/cbp-7783/.

Reference (5)

Ryan-Collins, J. (2024). The demand for housing as an investment Drivers, outcomes and policy interventions to enhance housing affordability in the UK. [online] Available at: https://www.ucl.ac.uk/bartlett/public-purpose/sites/bartlett_public_purpose/files/241009_iipp_policy_report_ukhousing_layout2.pdf.

Reference (6)

www.womblebonddickinson.com. (2019). The impact of the UK’s ageing population on pensions | Womble Bond Dickinson. [online] Available at: https://www.womblebonddickinson.com/uk/insights/articles-and-briefings/impact-uks-ageing-population-pensions.

Reference 7

Ottaviano, G.I.P. and Peri, G. (2012). RETHINKING THE EFFECT OF IMMIGRATION ON WAGES. Journal of the European Economic Association, 10(1), pp.152–197. doi:https://doi.org/10.1111/j.1542-4774.2011.01052.x.

Reference 8

www.rgs.org. (n.d.). Britain’s ageing population – RGS. [online] Available at: https://www.rgs.org/schools/resources-for-schools/britains-ageing-population.

Blake, D. (2003). Is Immigration the Answer to the UK’s Pension Crisis? [online] Available at: https://eprints.lse.ac.uk/24864/1/dp465.pdf  [Accessed 4 Feb. 2025].

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