Taxing talent: How Britain can attract and retain the world’s best workers

  • International competition over highly skilled workers is becoming increasingly intense. Migration is critically important to the British economy. An ageing population and dynamic labour market mean that a flexible workforce is central to economy prosperity.
  • UK has the 4th highest number of highly skilled immigrants in the OECD, but also one of the highest rates of emigration by highly skilled workers. The next policy challenge is to both attract immigrants and retain potential emigrants.
  • Because of the UK’s ageing population and the structure of the state pensions system, Britain will have to attract about 270,000 migrants each year between 2005 and 2050 to avoid a pensions crisis.
  • In order to attract and retain the most valuable migrants, the UK must focus on policy reforms that have the greatest impact on migrants’ decisions to move to or stay in Britain. These are: 
  1.  Wages
  2. Employment prospects
  3. Professional development prospects
  4. Social and professional networks
  5. Socioeconomic and political conditions

Professional development prospects and wage differences are of particular interest to highly skilled migrants.

  • The tax burden is a crucial factor influencing highly skilled migrants’ choice about where to emigrate to. This is one of the only variables that the government can influence in the short run with any success. Special tax breaks for highly skilled immigrants, however, have not worked where tried.
  • Abolishing the 50p tax rate and reducing taxes across the board could have a significant impact in attracting the most productive migrants to Britain, and in retaining potential emigrants.
  • Fears over abuse of the welfare system may be overblown but could be addressed by an “open borders, closed public accounts” system. Immigrants could be obliged 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. This would address concerns behind the government’s proposed migration cap while avoiding the negative economic impact of the cap itself