Osborne reliant on rising immigration levels to achieve budget surplus

George Osborne is relying on rising immigration numbers to reach his fiscal target of a budget surplus by the end of the decade, according to a Guardian analysis of official data.

Without the UK’s current levels of net migration, the chancellor would be faced with the choice of missing his fiscal goal or achieving a surplus by adding more spending cuts and tax rises to his existing plans.

Analysis of figures from the Office for Budget Responsibility (OBR), the government’s independent forecasting body, has found that Britain’s finances would not be forecast to hit a budget surplus by 2019-20 without recent upward revisions to net migration numbers.

The OBR has raised its projections for inward migration twice this year. Eight months ago, its projection went from 105,000 people a year to 165,000. The figure was revised again to 185,000 as part of the OBR’s economic and fiscal outlook published alongside Osborne’s spending review and autumn statement last week.As a result of the extra jobs and tax incomes, and changes to the composition of the UK’s working-age population, generated by the influx, the OBR has revised up the level of potential economic output for the UK by 0.9%.

Under the OBR’s calculations, if projected net migration had remained unchanged at 105,000 a year, the boost to output would have been negligible. Without the additional output generated by those changed migration forecasts, the projected budget surplus would drop to zero and the only feasible way to achieve one by 2020 would have been through additional spending cuts or tax rises.

Furthermore, based on OBR data and the evidence available, it is highly likely that the government’s intention of reducing net migration to the “tens of thousands” is directly at odds with its fiscal target.

The OBR’s latest fiscal sustainability report, published in June, stated that net inward migration in line with the Office for National Statistics (ONS) high migration scenario of 225,000 a year would reduce the primary budget deficit by 0.5% of GDP and net debt by 17% of GDP by 2064-65, relative to the OBR’s central projection. In the low migration scenario (105,000 a year), the primary budget deficit would increase by 0.5% of GDP and net debt by 20% of GDP by 2064-65.

During last week’s autumn statement, Osborne boasted: “The OBR has seen our public expenditure plans and analysed their effect on our economy. Their forecast today is that the economy will grow robustly every year, living standards will rise every year, and more than a million extra jobs will be created over the next five years.”

However, the OBR’s outlook provided further details behind Osborne’s claims:

• The 1.1m increase in employment cited by Osborne is mostly because of upward revisions to net migration.
  
• The upward revisions to GDP growth forecasts in 2016 and 2017 reflect higher population growth (driven by higher net migration) and the government’s decision to slow the pace of fiscal tightening.
• Net migration is predominantly concentrated among people of working age: this boosts the employment rate, GDP, potential output and tax receipts.
  

The chancellor made no reference to immigration in his statement, while mentions of immigration in the Treasury documents are limited to foreign students’ contribution to education exports – largely through fees for further education. The documents also refer to improved management of UK borders and the removal of illegal immigrants.

It is not the first time the OBR has presented high net migration in a positive light.

Its 2014 fiscal sustainability report suggested that across the whole economy, inward migration adds more to government income than to expenditure on services like schools and health. The report said higher net inward migration is likely to improve the long-term fiscal position and any reduction in immigration would be likely to create additional fiscal pressures.

However, keen to emphasise that any political judgement lies outside its remit, the OBR also said a government that succeeded in reducing net inward migration could always choose to offset those fiscal pressures through additional spending cuts or tax increases.

The chancellor’s office had yet to provide a comment at the time of publication.

Figures released last week by the ONS show that annualised net migration to Britain hit a new high of 336,000 in June, indicating that further revisions to the OBR’s projections may be in store.