Economy suffers brain drain as Britain’s population takes flight

24 November 2007

WE all know of the millions of Mexican emigrants who have left their country in the hope of a better life, usually to head to America.

If the émigrés were to float away in one lump every Christmas, it would be the equivalent of Leicester or Coventry – 380,000 people. The image is of them being pensioners. And there are, indeed, more people drawing a UK state pension from abroad than there are pensioners in Wales and Scotland put together. The people whose taxes built the British welfare state seem understandably unwilling to test the latter part of its cradle-to-grave proposition. But they are less than 10% of the émigrés.

The current phenomena is more of a 1970s-style brain drain than a 1980s-style Auf Wiedersehen Pet bricklayer exodus. The OECD showed this for the first time, using the spate of censuses conducted around the world at the turn of the century (2001 for Britain). It found 1.26m British graduates abroad – a higher figure than any other country. It counted only 865,000 German expat graduates, 438,000 French and just 390,000 American.

Expand the definition to “high skilled” and the picture becomes even bleaker. Of all the Brits categorised in this way, a staggering 15% were earning a living abroad – a rate of haemorrhage exceeded only by the famously itinerant Irish and New Zealanders. Even Poland did a better job of hanging on to its best people: just 9% of its high-skilled workers were found living abroad (this was before EU membership). America’s retention rate was extraordinary: just 1% of its best workers were abroad.

Yet far from being a scourge, immigration here has been Britain’s salvation. For every 100 highly-skilled people who have left these shores, 105 have come to settle – so the stock of skilled workers gently rose, and speaks with a slight foreign twang. But it is a mistake to see this as symbiotic, to believe that a law of labour replacement sucks in the people who leave. In America, for every 100 high skilled workers out of the country, 1,600 foreign high-skilled workers have settled. A quarter of all PhDs in the country are held by foreigners. This data does not, alas, exist for Britain. We only have census data showing that 34% of immigrants have degrees, against 20% of the population.

There has never been a study of the financial services sector, of crucial importance to the economy of London. The City may employ a tiny share of the British workforce but given that the richest 1% of Britons generate 22% of all income tax collected, their migration patterns are crucial to economic output. The surge of non-domicile workers certainly suggests a favourable trend, but one which ground to a halt in 2005/06 and is likely to be set into reverse by the £30,000 flat tax proposed by the government on this group.