Slashing migration ‘will net everyone £1,100 a year’

Growth Commission to say reducing annual net migration would improve living standards over long term

Slashing net UK migration would leave people more than £1,100 a year better off over the long term, research suggests.
Analysis by the Growth Commission ahead of next month’s Budget also found that abolishing inheritance tax would deliver a bigger increase in per capita GDP than an equivalent cut to income tax.
The commission was launched by Liz Truss, the former prime minister, last year to investigate how to boost Britain’s anaemic economic growth.
In research to be published this week, it will say that reducing annual net migration would improve living standards over the long term.
The commission modelled a reduction in the UK’s annual net migration from 315,000 from 2028 to a figure of 150,000. It said such a move would reduce GDP by 2.4 per cent by 2045 but raise GDP per capita by 2.1 per cent by the same year. This would be equivalent to a £1,157 boost per person per year in 2023 prices.
The commission said high migration lowered per capita GDP because it increased the UK population and put additional strain on housing stock.
Its research suggested that increased housing demand resulted in higher house prices and rents, eating into people’s disposable income and the consumer power needed to stimulate the economy.
Douglas McWilliams, the Growth Commission co-chairman, said: “We’ve tried to move the migration argument away from crude assertions on all sides to more carefully quantified estimates of its economic effects.”
Mr McWilliams said that because Britain has an “especially degraded planning system”, with excessive red tape “making house-building a nightmare”, extra demand “largely goes into higher house prices rather than into new house-building as in other countries such as the US”.
He added: “Ultimately the answer is to reform the planning system, but 3,240 pages of rules won’t be reformed overnight – which is why it makes sense to slow down net migration.”
In 2022, net migration hit a record of 745,000, but a package of measures being introduced by the Government from next month is expected to reduce that by 300,000. Cutting the number to 150,000 would require far more stringent measures.
As well as modelling the impact of migration, the Growth Commission analysed the effect that different tax cuts would have on growth, finding that reducing corporation tax or scrapping inheritance tax would deliver a bigger boost than action on income tax.
For each tax, the research looked at the effect of reducing the tax by £7.6 billion – the amount inheritance tax is expected to deliver in 2024-25.
According to the analysis, cutting corporation tax by this amount – equivalent to about a 2p cut – would boost per capita GDP by 1.6 per cent, around £865 per person per year, by 2044.
Scrapping inheritance tax would deliver a 1.4 per cent increase – a £757 boost – while cutting income tax by about 0.5p off the basic rate and similar proportionate amounts to the higher rates would deliver just a 0.3 per cent increase (£162).
The Growth Commission said abolishing inheritance tax would be so effective because it could lead to 4,300 of the richest taxpayers remaining in the UK, while the move would also boost employment by 1.1 per cent by reducing early retirement.
While the initial benefit would go to those wealthy enough to be caught by inheritance tax, it said the “overall long-term economic benefit would support a better fiscal environment for higher living standards in the general population”.
The research comes ahead of the Budget on March 6, with Jeremy Hunt, the Chancellor, understood to be leaning towards action on income tax or national insurance rather than inheritance tax.
Mr McWilliams said: “Before we ran the analysis, I was not convinced that abolishing IHT [inheritance tax] was a good idea. But the research is pretty persuasive, showing that the tax has bad effects on savings, which leads to an exodus of high taxpayers and  encourages early retirement.
“With an ageing population and with so many other countries with low or zero rates of inheritance tax, keeping this tax for purely ideological reasons looks to be a luxury the UK cannot afford.”
Shanker Singham, the commission’s other co-chairman, said: “Not all taxes lead to the same GDP per capita impacts. By being more forensic about the type of tax cuts we choose, we can boost growth, while at the same time protecting the public finances.”