By: Dean Hochlaf, Assistant Economist, ILC-UK

Article 50 has been triggered, and the arduous task of Brexit negotiations has begun. Last week, the question of EU citizens living in the UK proved to be one of the prominent issues that are set to dominate the upcoming discussions.

While it is understandable the UK government wishes to keep all options available in order to not prejudice possible demands, the prospect of using EU citizens as “bargaining chips” is undermined by the demographic reality. Simply put, the age profile, concentration and sheer number of EU citizens in the UK relative to UK citizens in the EU mean that the UK would like suffer a worse shock should negotiations fail and EU citizens lost their rights to work and live in the UK.

According to the most recent data, over 3 million EU citizens lived in the UK. In contrast only 890,000 UK citizens lived across all 27 EU member states, with over 60% living in Spain, France and Ireland. This concentration has left the UK economy far more dependent on EU citizens than EU nations are on UK citizens. This problem is further compounded by the demographic structure of these respective migrant groups.

Almost 50% of UK citizens living in the EU are over 50, with many already in retirement abroad. Evidence suggests that consumption tends to fall dramatically as someone reaches the age of 60[1]. Consumption is a key component of economic growth and combined with reduced participation in the labour force, an older contingent is less likely to promote growth compared to those of working age.

Source: Eurostat

In the UK, a much greater proportion of EEA migrants are of working age. Over 60% are between 14-44, while less than 10% are past the State Pension Age in the UK. Furthermore, according to Eurostat in 2015, EU nationals in the UK had an employment rate above 80%, significantly higher than the UK average. Ultimately this means that EU citizens living in the UK have much greater involvement in the national labour force and by extension the economy.

Source: Annual Population Survey

Another benefit of having a younger migrant population is that this group is more likely to put into public services than take out. The below graph shows how after the stage of retirement, tax receipts fall considerably, while spending rises sharply. This is consistent with a broad review of evidence regarding the fiscal impact of EU migrants which highlight their broad positive contributions to the UK’s public finances[2].

Source: Office of Budget Responsibility – Fiscal Sustainability Report 2015

Of course this doesn’t mean that issues at home should be neglected or that the UK government should forsake UK nationals living in the EU, but it does mean that we must be realistic and aware of the role that EU migrants play in the UK economy. Whether people like it or not, the migrant population in the UK plays an imperative role in the economy. Not just through their provision of labour, but also because of their daily activity which increases demand and consumption which drives growth.

A mass exodus of EU migrants would have devastating ramifications for the UK economy. Growth would slow, tax revenue would slump, the uncertainty would deter investment from abroad which the UK desperately needs. It would no doubt sour the upcoming negotiations and leave the UK struggling to get an adequate deal with its largest trading partner. If the future of EU citizens living in the UK is thrown into jeopardy, then UK citizens will have to deal with the economic fallout, potentially lower living standards and a decline in growth.

The truth is EU citizens are too valuable to be used as negotiating weapons. Such a strategy relies on a bluff, that they can be sacrificed if the EU was to make life difficult for UK citizens abroad. If this bluff was to be called, then it will be the ageing population of the UK that suffers.