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Taxes Will Rise If Britain Shuts Door On Immigrants: Report

by Robert Lee, Tax-News.com, London

13 August 2014


The National Institute Economic Review has said that if net migration to the UK were to fall by 50 percent over the next four decades, the effective labor income tax rate would need to rise by 2.2 percentage points.

The warning is made in a new article, The long-term economic impact of reducing migration in the UK, by Katerina Lisenkova, Marcel Mérette, and Miguel Sánchez-Martínez. The authors use the current Conservative party migration target to reduce net migration "from hundreds of thousands to tens of thousands" as an illustration. They calculated that by 2060, the economy would suffer an 11 percent of gross domestic product (GDP) hit, and per capita GDP would fall by 2.7 percent.

The effective labor income tax rate required to keep the government's budget balanced would need to be higher in a low-migration scenario, it concluded.

The level of adjustment required would depend on the relative size of government expenditure and revenue. The article predicts that the labor income tax base would suffer significant erosion after the fall in migration. Aggregate consumption would also be reduced in this scenario, resulting in weaker consumption tax revenues. Government spending on health and pensions, for example, would decrease to a significantly lesser extent than revenues.

The article adds that the effect of the higher labor income tax rate would be felt at the household level. Average households' net income would worsen, despite an initial increase in gross wages due to a smaller labor force. By 2060, the net wage would be 3.3 percent lower in the low-migration scenario, it says.

TAGS: expatriates | tax | business | pensions | gross domestic product (GDP) | employees | budget | United Kingdom | tax rates | revenue statistics | tax reform | individual income tax

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