UK needs lower taxes to attract and retain highly skilled workers

 12 October 2011

  • An ageing population means that the government must work harder to keep highly skilled workers from leaving the country, and do more to attract foreign-born highly skilled workers to the UK.
  • Research shows that the best way to attract and retain highly skilled workers is by ensuring that Britain’s tax burden is competitive internationally. That means scrapping the 50p tax, and cutting rates across the board.

New research released today (WEDNESDAY) by the Adam Smith Institute (ASI) calls on the government to scrap the 50p tax, reduce other tax rates, and reform current immigration policies to attract more highly skilled migrants to the UK.

At present, the UK has the 4th highest number of highly skilled immigrants in the OECD, but also has the highest emigration levels in the OECD, accounting for almost 20% of all OECD migrants. With an ageing population the government must focus on policy changes designed to keep highly skilled workers in the UK, while also attracting highly skilled migrants. Unless it can do this, the UK faces economic stagnation and a pensions crisis.

ASI author Alexander Ulrich, a Danish analyst and consultant at the Danish Confederation of Business, highlights ONS statistics that show that the proportion of people not working, and thus dependent on those employed, will increase by 75% in the next 40 years. The problem of an ageing population is made worse by the fact that the UK only takes in slightly more highly qualified workers than it loses. Almost 10% of Britons live abroad and these high emigration rates constitute a problem to the UK economy. Government solutions must therefore be focused on making the UK attractive to both native and migrant workers who produce more than they consume.

The report, Taxing talent: how Britain can attract and retain the world’s best workers, draws on established academic studies of migration and identifies the overall tax burden as a crucial factor influencing highly skilled migrants’ choice of where to emigrate to. In order to attract and retain the most productive workers, the government must abolish the 50p tax rate and reduce taxes across the board. International competition over highly skilled workers is becoming increasingly intense and to remain competitive the UK must offer an attractive tax regime. The report adds that if the tax burden remains high the UK may experience a ‘brain drain’ in the future.

Concerns about migrants’ abuse of the welfare system could be addressed by the introduction of an ‘open borders, closed public accounts’ system for migrants over whatever level the government deems necessary. This would require immigrants to use private insurers for healthcare and other large welfare state expenditures for the first few years of working in the UK before becoming eligible for full benefits. Such a system would address current concerns without the possible negative economic consequences of the government’s current migration cap.

Sam Bowman, Head of Research at the ASI, adds: “People are the ultimate resource, and Britain should be the world leader in attracting and retaining talent. We should be trying to adapt to migration, not restrict it. That means flexible public services and policies that attract the very best people the world has to offer.

“Of the things that highly-skilled migrants consider when deciding where to move, the tax burden is the only one the government can influence. If Britain is to keep its competitive edge, it needs to cultivate policies that attract the best workers from around the world and keep more Britons at home. That means cutting income taxes – not just the 50p rate, but the 40p and 20p rates as well.”

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