Many public services receive funding per capita

One of the Leave campaign’s successful messages was to reflect people’s belief that immigrants are a burden on public services. They are not: they fund them at both national and local level. London4Europe Committee member and former HM Treasury senior civil servant Michael Romberg writes that we can put forward the rarely-made argument that local services are often funded per capita.

What people believe

Labour MP Alison McGovern reported a door step encounter in her constituency in the Wirrall (98% white; 92% born in England):

Gentleman: Well, you know, that we don’t have enough money for our pensions, and the hospitals.  How can we afford more people coming in?

Me: Well, immigration helps pay for pensions and the NHS.  As a country, we are ageing.  There are more pensioners compared to people of working age, so if the people coming here are younger, the tax they pay really helps the public finances.  Unless people like me start having masses more children, we are going to be in real trouble in the future, without immigration.

Gentleman: No?  Are you sure?

Me: Yep. 

A woman comes to the door: Who’s this?

Gentleman: It’s our local MP.  I was just saying that you might want a word with her.

Woman: Oh yes. How can we stop all these people coming into our country? We can’t afford our pensions, never mind all these people coming here.

Gentleman: Well, she says people coming here helps pay for pensions.  And the hospitals.

Woman: What nonsense...

National Level Fiscal Effects

Alison McGovern is absolutely right. Every respectable study shows that the difference between what immigrants pay in taxes and what they consume in public services is small - plus or minus 1% of GDP. Given the size, fiscal effects are not much of an argument either for or against immigration.

Most studies show that at the national level EU citizens contribute more in taxes than they consume in public services; or that, if the fiscus - the public Treasury - is running a deficit, EU citizens contribute more than UK citizens do.

That is because the two biggest elements of public services spending are health and pensions which go largely or wholly to older people, while EU citizens are disproportionately of working age or children. Expenditure on children is largely education which is of course an investment – we’ll get our money back when they become productive adults.

The picture for non-EU immigrants is more mixed. But there is no real doubt about EU citizens.

NIESR have produced a three minute video showing the positive impact that EU citizens in the UK have on jobs, wages and public services.

If you wish to get into the sources, there is a useful recent overview in: The Fiscal Impact of Immigration in the UK - Dr Carlos Vargas-Silva - Migration Observatory – 30 May 2018.

The overview includes references to work by Migration Watch, the anti-immigration pressure group. It too finds the effect to be very small but generally finds it to be negative. They reach their numbers largely by different assumptions. For example Migration Watch treats children born to mixed British/ non-British couples as immigrants. This approach does not seem sound. Children of migrant parents tend to identify with the host country and it may be assumed that children of mixed marriages do so even more.

Local Funding Formulae

The overall arguments are often made. We can also explain how money gets to individual local services. That argument is less often put.

Many local services have funding allocated by formula. The largest element in formulae is typically a capitation element. Put simply, if a Polish child goes to your school he or she walks in carrying a cheque from the government. The same is of course true for an English-born child. That is how schools get their money.

Most schools are funded by local authorities who use local formulae which include a substantial per-pupil amount. The Government is moving to a national funding formula. Over 70% of that will be driven by basic per pupil funding, and another 18% by weighting factors related to pupils, eg more for deprived children. The number of children is determined by the annual October pupil census. You can read more in this House of Commons Library Research Briefing.

Clinical commissioning groups (which fund hospitals and fund GPs either alone or with NHS England) are funded by NHS England on a weighted capitation basis – the size of the population adjusted for age, health and other factors. Population is based on GP records. GP practices in turn are funded largely on a different (Carr-Hill) weighted capitation formula.

No funding formula is perfect. They are all complex so there is more to it than capitation. There are lags in the system.

But we can counter the implicit idea that a school receives a total of £x and if it takes in another child just has to accommodate the cost within that budget. Another child – whether native-born or an EU citizen – brings increased funding.

The reason schools and hospitals have less money than people wish they had is due to austerity, not immigration.

Migration Impact Fund

It is of fundamental importance that we respond to Leavers' concerns - they will not vote Remain otherwise. Nonetheless, we  should hesitate to support reforms like a revival of the Migration Impact Fund which sent money to areas affected by high immigration. They already receive more money through funding formulae – we should try instead to make the formulae work better and respond faster.

What calls for a Fund risk doing is validating people’s concerns about immigration.

Individuals’ concern about immigration may be presented as economic. But it is normally values based, or cultural. That is, people talk about the threat to jobs or public services; but they really worry that immigrants pose a threat to their way of life or their sense of identity.

So, economic measures will not allay cultural concerns. But economic measures will validate mistaken economic views, and so reinforce values-based views.

The way to address cultural concerns is to talk about how well immigrants assimilate into British society.

Conclusion

In addition to the well-known arguments that EU citizens contribute more to the Exchequer than they take out we can make the argument that EU citizens contribute to the funding of local public services because the amount of money a school or GP gets is determined in large part by the number of pupils or patients.

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