November 23, 2016 / 6:06 PM / a year ago

Post-Brexit immigration fall to push up UK public borrowing - official forecast

LONDON (Reuters) - The British government will have to borrow an extra 16 billion pounds ($20 billion) over the next five years to make up for the impact of lower immigration following the Brexit vote, Britain’s independent budget forecasters said on Wednesday.

Two members a group of unaccompanied minors (L and 2nd L) from the Jungle migrant camp in Calais walk outside an immigration centre after being processed after their arrival in Britain, in Croydon, south London, October 18, 2016. REUTERS/Peter Nicholls

The Office for Budget Responsibility (OBR) also said it did not expect the government to meet its target of reducing annual net migration to below 100,000, even with tighter immigration rules following its exit from the European Union.

Immigration played a key role in the debate ahead of Britain’s June 23 referendum, and Prime Minister Theresa May has said the vote was a message that migration cannot continue at its current levels.

She has reiterated a pledge made by her predecessor David Cameron to reduce annual net migration to below 100,000.

The trade-off between reducing migration and maintaining as much access as possible to the EU’s markets will be central to the coming Brexit negotiations.

The OBR said that if the referendum had not happened, it would have revised up the amount of migration it expected, due to higher-than-projected net migration in the year to March.

Net migration to Britain during that period was 327,000 people, and if Britain had voted to stay in the EU, the OBR would have forecast migration to continue at this rate.

This would have reduced borrowing, it said. Instead, it predicted that annual net migration would fall to 185,000 people by 2021, increasing borrowing every year. The annual cost to the public finances of lower migration would reach 5.9 billion pounds in 2020-21, the OBR said.

“That largely reflects weaker tax receipts through a smaller and slightly older population, marginally offset by slightly lower welfare spending,” the OBR said in a report published alongside Chancellor Philip Hammond’s first budget update.

It also said that without the referendum result, the effect of higher migration would have added around 0.2 percentage points a year to potential output growth and boosted per capita output, as migrants were more likely to be of working age.

The OBR said that in the absence of any detailed information about the government’s aims for its Brexit deal, it had made several assumptions on which to base its five-year forecasts.

“Our central forecast assumes that the UK adopts a tighter migration regime than that currently in place, but not sufficiently tight to reduce net inward migration to the desired tens of thousands,” it said.

The OBR, which assumed Britain would leave the EU in April 2019 following two years of formal exit talks, said it had also based its forecasts on Britain’s trading regime being less open following Brexit.

It said that, based on a range of external studies on possible trade regimes, it had assumed “that the negotiation of new trading arrangements with the EU and others slows the pace of import and export growth for the next 10 years”.

Reporting by Kylie MacLellan; editing by Stephen Addison

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