Asylum seekers - extending the right to work: evaluation, analysis, and policy options

3. The Economic Impacts of Lifting Work Restrictions on People Seeking Asylum in Scotland

3.1 Introduction

As the previous chapters have discussed, being able to work would have substantial impact on the livelihoods of people applying for asylum, by allowing them opportunities to support their own livelihoods and to start integrating into their new communities. At the same time, as chapters 4 and 5 explore in more detail, such policy change would have significant implications for the welfare system and third sector support provision, as it would be crucial to ensure that support to overcome any barriers to employment would be available and measures to address potential risks of exploitation were in place. This chapter adds to the wider discussion on the implications of lifting the right-to-work restrictions by estimating the potential impacts for Scotland’s economy and labour market.

Under current UK policy, asylum seekers can apply for the right to work if they have been waiting for the outcome of their application for longer than 12 months. However, if this right to work is granted, those individuals can only take up the jobs listed on the Shortage Occupations List (SOL). There is no publicly available data on the uptake of SOL jobs by asylum seekers, however, as discussed elsewhere in this report, there are significant barriers for the uptake of those jobs, including highly specialised skills requirements and issues of recognition of qualifications obtained abroad. For those reasons, this analysis assumes that the policy change of granting asylum seekers in Scotland the right to work would not involve the SOL restriction, but rather would allow individuals to apply for any jobs.

Previous NIESR analysis estimates that granting the right to work to asylum seekers on arrival in the UK would increase tax revenue by £1.3 billion, reduce government expenditure by £6.7 billion, and increase UK GDP by £1.6 billion^[93]. Given the potential for such policy change to bring about significant economic impacts, it is important to understand the scale of potential impact not only on UK-wide but also on subnational levels.

The primary impact of lifting the right-to-work restriction for Scotland’s labour market would come from a greater number of people who are able and willing to work entering it. This could be significant in the context of labour force shortages. Hence, such immigration system reform could contribute to addressing the needs of Scotland’s economy, particularly in the longer term. This would, in part, depend on the skills profile of those claiming asylum. The evidence on the skills profile of asylum applicants is limited, making it is difficult to definitively state how their profiles might or might not align with the needs of the sectors currently experiencing labour shortages. However, of the limited evidence, we know that asylum applicants often display a wide variety of skills^[94]. This is likely because those fleeing conflict and persecution do so for reasons unrelated to their skill level or economic ambitions. Therefore, our assumption is that their skill level is varied. As a result of those individuals moving into the labour market, we could expect to see further impacts on the economy, namely tax revenue increases and savings to the public purse, assuming asylum seekers achieve the same labour market outcomes as an average worker in the economy. Those asylum seekers who were able to successfully find jobs after being granted the right to work, would contribute to the UK economy by paying taxes and would be less reliant on financial or housing support. Those fiscal impacts would be relevant to the central UK Government rather than the Scottish Government, however Scotland’s economy would also feel some of these impacts, as the impacts spread across the UK economy along with increased direct tax take such as through increased income tax or council tax receipts.

3.2 Asylum data for Scotland

As asylum policy is the responsibility of the Home Office and is defined for the UK as a whole, most data on asylum applications are UK-wide. The data available for Scotland are on the numbers of individuals in receipt of asylum-related support from Local Authorities in Scotland.

As of June 2023, there are 5,323 individuals in receipt of support from Local Authorities in Scotland while they wait on the outcomes of their asylum applications.

This number is spread highly unevenly by Local Authority (as seen in the Figures 3 and 4 below). By far the largest number are located in Glasgow City, where 4,520 people are in receipt of asylum-related support.

Notes: the size of the markers are based on the proportion of asylum applicants in a given region. A link to an interactive version of the chart can be found here.

Source: NIESR Analysis of Asylum applications awaiting a decision and Asylum seekers in receipt of support^[95].

Source: NIESR Analysis of Asylum applications awaiting a decision and Asylum seekers in receipt of support.

The geographical spread of asylum seekers currently located in Scotland may not match precisely where those individuals would choose to go if granted the freedom to work and support themselves. These are typically driven by work opportunities and existing familial links. It is not possible to state with confidence precisely where asylum applicants would disperse to, therefore we take the current geographical spread is indicative of the potential spatial impacts of lifting the right-to-work restriction on asylum seekers.

3.3 Methodology

The methodology for this analysis is two-step. Firstly, we estimate the costs associated with imposing right-to-work restrictions on asylum seekers and the potential gains to the economy from those individuals being able to work. Secondly, we apply those changes or ‘shocks’ to the Scotland version of the National Institute Global Econometric Model (NiGEM-S), to estimate the impact on the Scottish economy^[96]. NiGEM is a leading global macroeconomic model, used by both policymakers and the private sector for economic forecasting, scenario building and stress-testing. There are over 7,500 variables within NiGEM, which can be tailored to model and forecast the impact of different events or policy-choices, incorporating own assumptions and judgements.

Unit Cost Analysis

The first step of the analysis is to estimate the potential changes (or units) that would occur in Scotland’s economy as a result of this policy change.

Our analysis estimates the potential gains to Scotland’s economy from:

1. An increase in income tax and National Insurance receipts due to a higher the number of workers in the labour market, and

2. An increase in council tax revenue.

These taxes are chosen based on the availability of estimates of potential tax implications from people entering work (mentioned below). We also estimate the costs associated with imposing the right-to-work restrictions on people applying for asylum, which would be reduced if asylum seekers were granted the right to work. Those costs are:

1. Financial support through Section 95 (S95), Section 98 (S98) and Section 4 (S4) (outlined below),

2. Housing support, and

3. Reduced healthcare costs.

Labour force expansion. We start by estimating the number of working age people applying for asylum in Scotland. The Home Office datasets that provide the information on the numbers of asylum seekers dispersed in Scotland do not provide a breakdown by age. We hence use the data on the overall proportions of asylum applications in the UK to produce this estimate for Scotland. As of June 2023, there are 5,323 individuals in receipt of support from Local Authorities in Scotland while they wait on the outcomes of their asylum applications. Some asylum seekers located in Scotland may not be in receipt of this support and are therefore not captured by this data. From UK-wide data we know these individuals are in the minority at around 31% of the total asylum population^[97]. We can assume that the asylum population in Scotland is around 7,700 by assuming there is a similar proportion of people seeking asylum in Scotland but not in receipt of S95, S98 or S4. As these figures include children, and the intention of this analysis was to estimate to what extent adult asylum seekers could contribute to the economy, UK data was again used to estimate the proportion of asylum seekers in Scotland who would be of working age. The UK data indicated that 78% of asylum applicants are aged between 18-69, and by applying this proportion to Scottish figures, it was estimated that 6,000 people could gain the right-to-work while claiming asylum in Scotland.

As a comparative scenario, we provide this analysis under the assumption that only those waiting longer than six months on the outcome of their asylum application are granted the right to work. To do so, we take the UK wide proportions of asylum applications awaiting a decision for more than six months, which is 68%. We adjust the 6,000 people assumption down to 4,100 accordingly.

In our scenario, those granted the right-to-work enter the workforce immediately. The reasons for this and robustness checks are stated below. Our analysis assumes that around 64% of those find a job based on typical employment patterns in Scotland estimated within NiGEM, this results in a final shock of an increase in the labour force by 3,900 people (or 2,600 people in the six-month scenario).

Tax gains. We then explore the potential changes in tax receipts as a result of those individuals entering work. We estimate the increases in income tax and National Insurance receipts which we base on a modelling exercise undertaken by the Department of Work and Pensions (DWP) that can be found in the Unit Cost Database maintained by the Greater Manchester Combined Authority which simulates the effects of a person in receipt of Job Seekers Allowance (JSA) entering work^[98]. We use this as the most plausible scenario to simulate asylum seekers entering work, rather than assuming all applicants get minimum wage jobs. This choice of scenario is due to (i) there being no data available on asylum seekers entering work in Scotland or in the UK ii) previously cited evidence shows that the education and skill backgrounds of asylum applicants are highly varied^[99].

As we have aimed to calculate the economic contribution of allowing asylum seekers the right to work in an abstract sense, rather than providing a context specific analysis, we do not make any assumptions about '2023 specific' factors. Nor do we seek to calculate the impacts of barriers to employability for those who have been prohibited from working for a substantial amount of time. Instead, our scenario is based on assuming that those claiming asylum have that right from the point of arrival, and face no greater barriers to finding employment than other UK residents who move from benefits to work.

Based on these assumptions, we can expect an asylum applicant entering work to contribute an additional £6,000 through increased income tax and national insurance (GMCA, 2023).

Asylum applicants being allowed to work and provide for themselves would likely mean that those who are able to find jobs would be able to pay council tax, rather than being exempt under current policy. To produce estimates of the gain local government would make from this policy change, we take the average council tax bill of £1,400 per year, and apply it to the number of assumed asylum seekers entering work. Capturing regional variation of where asylum applicants may choose to be located if they are able to work is challenging, since the current data on the LAs where asylum seekers are located is influenced by the dispersal policies of the Home Office accommodation.

Financial support. While asylum applicants have no recourse to public funds, if they are at risk of destitution or already destitute they qualify for financial support, covered by Section 95 (S95), Section 98 (S98) and Section 4 (S4). S95 (along with Section 4) provides people with £6.40 per day (£45 per week) should they be at risk of becoming destitute otherwise, whereas S98 provides people with £9.10 per week for those in full board Home Office accommodation who already appear destitute and are awaiting on a decision on the S95 application. The latest data on asylum seekers supported by Local Authorities in Scotland shows that, as of June 2023, 4,660 individuals in Scotland were in receipt of Section 95 support, 109 individuals were in receipt of Section 98 support and 554 individuals were in receipt of Section 4 support^[100].

Housing costs. We capture the cost to the Home Office of having to house people seeking asylum who cannot house themselves while they do not have the right to work. To cost for this, we use existing estimates from the National Audit Office (NAO) who have studied the cost of housing asylum applicants^[101]. Since there is variation in the housing costs based on where the person seeking asylum is housed and in what type of accommodation, we use average cost to produce our estimates. The average estimated cost (uprated to 2023 prices) is £660 per month, or around £8,000 per year.

Healthcare costs. The relationship between work and health is well-documented. In the case of people applying for asylum, this relationship is magnified by the social isolation and the destitution that being out of work causes. While asylum seekers have no recourse to public funds, they are able to access the NHS, thus their exacerbated health carries with it an economic cost as well as the cost for the individuals. To capture the potential health effects of lifting the right-to-work restriction, we use another DWP modelling exercise, which estimates the reduced healthcare needs due to an improved wellbeing following JSA recipients entering work^[102].

Other costs. There may be other costs or savings that would occur as a result of lifting the right-to-work restriction, which are harder to estimate. Firstly, there would be an administrative cost of implementing this policy change, such as the cost of issuing work permits. However, this is not included in this analysis due to a lack of evidence to base such estimates on. The Home Office states that it would anticipate “substantial” administrative cost associated with “moving asylum seekers on and off support as they cycle through periods of employment and support”^[103], however as they do not publish any estimates of this cost, this is hard to estimate and incorporate in the modelling of fiscal impacts. There are also potential savings that are not included in this analysis, for similar reasons of limited quantitative evidence available. Lifting the right-to-work restriction would likely result in the cutting of the costs associated with monitoring and imposing this restriction, such as some of the costs of enforcement visits to uncover instances of people working while being subject to this restriction. The existing barriers to work asylum seekers face could result in lower participation rates among those granted the right to work. Brell et al (2020) find evidence of lower short-term employment rates among the refugee population in high income countries^[104]. The relationship between lower participation rates and the repercussions of the right-to-work restriction itself is discussed in qualitative terms in chapter 4. However, there is currently insufficient quantitative insight to allow us to include this in our analysis simulating the removal of this restriction.

The subsequent analysis estimates the overall impact of this policy change on Scotland’s economy (measured as nominal GDP). Each tax gain is apportioned to the Scottish government directly, which in turn impacts future tax rates due to allowance for the government in our scenario to respond to changes in economic conditions (known as government solvency). The fiscal savings outlined above would benefit the UK economy as a whole. For example, the Scottish Government would benefit from additional income tax revenues from increased employment. At the same time, the exact impact on Scotland's budget would be determined through the operation of the Fiscal Framework which sets out the funding arrangements between the Scottish Government and the UK Government.

Calibrating a Macroeconomic Model

The analysis outlined above estimates the changes that would occur in Scotland’s economy and labour market if asylum applicants were allowed to work while waiting on the outcome of their applications. When estimating the impact of those changes on the economy, it is important to account for the potential feedback multiplier effects. For example, if the government can reduce its expenditure on support for asylum applicants, it could use this windfall to increase public sector investment which would have a positive effect on output and eventually increase future tax intake (see Figure 4 for an illustration). There is also an income effect, as moving from £45 per week to a wage will increase the amount of money asylum applicants can spend in the economy, which again could increase output and subsequent tax intake. There can also be negative feedback effects too, for instance an increase in the working age population could be associated with an increase in the competition for jobs. This in turn could drive down wages and subsequent tax take.

Including these feedback multipliers requires the use of a comprehensive macroeconomic model. We use the Scotland version of the National Institute Global Econometric Model (NiGEM-S), which can be set to reflect the estimates from the above analysis for Scotland’s economy. The first shock we apply is the increase in the working age population. We allow NiGEM-S to compute a probability of an asylum applicant being successful in finding work, based on the wider labour market factors, such as a typical labour force participation rate of around 65%. The second shock applied to the model is the fiscal savings from a reduction in UK government expenditure on supporting people seeking asylum following the right-to-work restriction being lifted. This shock is applied to the assumed number of people who find work, whereas the current level of support is applied to those who are assumed not to find work under our studied scenario.

This analysis therefore is limited by the following key assumptions:

1. The right to work is not subject to further restrictions on the types of jobs asylum applicants can take up, such as a SOL restriction.

2. Only 64% of those granted the right to work find a job based on NiGEM estimates of the Scottish economy. This is based on our macroeconomic model’s prediction of the probability of both being economically active and finding a job, which is based on the wider labour market factors.

3. There are no further reforms to the entitlements that asylum applicants have, i.e., those individuals who are assumed to not enter work under this analysis are assumed to receive the current level of support from the Government. We also do not include estimates of support services to facilitate successful entry to the labour market due to a lack available estimates.

4. Those who, upon being granted the right to work, are able to find a job do so immediately. This is a simplifying assumption to aid interpretability of the findings. This not a reflection of reality: as other chapters explain, potential barriers to employment for forced migrants can result in delays in asylum seekers looking for work being successful in securing jobs, and the right support should be in place to overcome those barriers. However, for the purposes of our quantitative analysis, robustness checks have been conducted and did not identify that this assumption poses any issues on the overall numerical findings.

5. The shock is a one-off event based on the 2023 asylum application levels. Our analysis does not make predictions about future flows of forced migration, as this is dependent on a wide range of factors including levels of conflict internationally, natural disasters and impacts of climate change.

3.4 Results

We project that granting the right to work to people seeking asylum in Scotland would add £30 million per year on average to the Scottish economy via nominal GDP if granted to all those seeking asylum in Scotland. If, like many other European nations, the right to work is granted only to those waiting longer than six months, the annual GDP impact would be lower, at around £16 million per year. Figure 4 displays the profile of this increase over a three-year horizon. The impact in the latter scenario last longer than the former before beginning to taper off. This reflects any feedback effects taking longer to influence the results in the latter scenario, as positive and negative secondary impacts can take time to influence the results. The dotted line displays the yearly average in both scenarios, which can be interpreted as the steady state impact.

Source: NIESR Analysis of data on Asylum applications awaiting a decision, Asylum seekers in receipt of support and NiGEM-S^[105]

Therefore, lifting the right-to-work restriction on asylum applicants is likely to have a significant contribution to Scotland’s economy. This policy change would therefore have scope to support multiple priorities of the Scottish Government, by not only supporting integration of refugees and asylum seekers from arrival, but also by benefitting local economic growth and communities. As discussed in the previous chapters, for the policy change to be successful it would need to be accompanied by the right level of support to address potential barriers to employment and risks of exploitation.