Migrant Remittances to and from the UK

Key Points

• The UK is a major receiver as well as sender of remittances. World Bank data suggest that since the mid-1990s the UK has been a net-remittance receiver, i.e. remittance inflows have exceeded outflows.
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• There is considerable uncertainty about the value of remittances to and from the UK. Since the end of foreign exchange controls in 1979, there is no official mechanism for recording remittances.
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• The UK accounted for around 7% of annual remittances to Bangladesh in 2010 (about GBP 533 million) and about 10% of annual remittances to Pakistan during that year (about GBP 627 million).
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• The cost of remitting from the UK varies per destination country and transfer method. The major MTOs (e.g. Western Union, MoneyGram) typically charge from 9 to 12% of the total amount remitted.
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• There is little information on the characteristics of remitters in the UK, including characteristics such as income levels and welfare programme participation. Some studies suggest that there are ethnic differences in remittance behaviour in the UK.
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World Bank data suggest that the UK is a net remittance-receiver: inflows of remittances are higher than outflows

The UK is a receiver as well as a sender of remittances. As shown in Figure 1, the World Bank estimates suggest that since the mid-1990s the UK has been a net-remittance receiver. The main countries from which remittances are sent to the UK include Australia, the United States and Canada (World Bank 2010). Real remittance inflows (inflation adjusted) for the UK have increased by an annual average of 6% since 1989, reaching close to GBP 4,647 million in 2009. However, these inflows represent a small share of the UK GDP (about 0.3% in 2009). The UK occupies the fourteenth place in the world in value of remittances received and the sixth place in Europe.

Figure 1

From 1989 to 2009, remittance outflows from the UK increased by an annual average of about 4% in real terms, reaching close to GBP 2,352 million in 2009. The World Bank (2010) estimates, not surprisingly, that the developing countries receiving the larger amounts of remittances from the UK in 2010 were India, Pakistan, Bangladesh and Nigeria. However, the level of remittances sent from the UK to most of these developing countries (with the exception of India) is comparable with the level sent from the UK to Australia, France and Poland in that year. The UK occupies the twentieth position at global levels in regards to the value of remittance outflows and the tenth position in Europe. Remittances outflows account for about 0.2% of GDP in the UK.

Note that because of the lack of separate information on workers’ remittances in the UK, the World Bank Migration and Remittances Factbook estimates remittances to and from the UK as the sum of compensation of employees and migrants’ transfers. Therefore, it is almost certain that estimates of remittances (both inflows and outflows) are lower than the true amount of flows.

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The UK accounts for 7% of remittances to Bangladesh and 10% of remittances to Pakistan

This section only focuses on the UK-Bangladesh and UK-Pakistan corridors due to the lack of data for other important corridors. Bangladesh and Pakistan occupy the seventh and eleventh positions respectively in terms of the global inflow of remittances (World Bank 2011), a significant fact given the size of these economies. The data in Table 1 suggests that the UK accounts for around 7 to 14% of annual remittances to Bangladesh and some 7 to 10% of annual remittances to Pakistan during the 2007-2010 period.

Table 1 – Annual remittances to Bangladesh and Pakistan (nominal, GBP million)

In the case of Bangladesh, for 2011 (January-March period) the total volume of remittances from all over the world increased in nominal terms (i.e. not adjusted by inflation) by 9% in comparison with the previous year, yet the amount sent from the UK increased by 23% (see Table 2). As a result, the share of global flows to Bangladesh represented by the UK increased. Likewise, in the case of Pakistan, the volume received from the UK and the rest of the world increased, but the importance of the UK for flows to this country also increased.

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Table 2 - Remittances to Bangladesh and Pakistan January – March comparison (nominal, GBP million)

Figures 2 and 3 show nominal remittances from the UK to Bangladesh and Pakistan by month. In the case of Bangladesh, the monthly growth rate of remittances was mostly negative for 2010, but these flows seem to be on the growth path in 2011. For Pakistan, the level of remittances was very stable until October 2008 when there was a sudden increase. The reasons for this increase are not clear, yet there are several plausible explanations. For instance, there was a devastating earthquake in Pakistan in October 2008, and international transfers from the UK to help the country may account for some of the increase in money transfers for October and the following months. This period also represents the peak of the global financial crisis. The growth rate of remittances from the UK to Pakistan seems to have returned to pre-October 2008 levels in 2010, but has a somewhat positive tendency in 2011.

Figure 2

Figure 3

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The cost of remitting from the UK varies per destination country and transfer method. The major MTOs typically charge from 9 to 12% of the total amount remitted.

Migrants in the UK send money home using several channels. These include family and friends returning home, money transfers operators (MTOs) such as Western Union and MoneyGram, banks and hawala brokers (House of Commons 2004). The hawala method of transferring money is informal and it is very difficult to trace most of these flows using official government records. As an example, a Pakistani man working in the construction industry in the UK needs to send 500 Pakistani rupees to his wife in Pakistan. He visits a hawala broker who acts as an intermediary and arranges the transfer. He pays a certain amount in GBP and the broker contacts a counterpart in Pakistan who makes a payment in Pakistani rupees to his wife. The worker sent 500 rupees to his wife in Pakistan but no money crossed the border and there is no official record of the transaction.

It is very difficult to collect data on the cost of remitting on the informal remittance market. However, the World Bank database on the cost of sending money through formal channels, such as MTOs and banks, suggest that remitting from the UK using Western Union and MoneyGram is more expensive for those sending money to Poland and cheaper for those remitting to Pakistan (see Table 3). Sending GBP 120 to Poland costs almost GBP 14, while the same amount sent to Pakistan only costs about GBP 12 (estimates for January 2011). The costs of remitting to India and Bangladesh are in between these two values. However, differences between the costs of remitting to these four destinations are small.

Table 3 – Cost of sending GBP 120 from the UK through Western Union and MoneyGram in January 2011

The remittances industry has also been the object of policy discussion in the UK. In 2005, the UK’s Department for International Development (DFID) published a report on the UK remittances market, based on the results of the UK Remittance Products Survey (DFID 2005). The analysis suggest that UK banks mostly offer remittances services designed to meet the needs of their customers (those who hold accounts with them), while MTOs target those without bank accounts and those looking for low fees.

While the UK government recognizes the need for more efficient remittance services, it is also wary of the possible use of remittance channels for criminal activities. There is a supervisory regime for money service businesses (MSBs) in order to combat terrorist financing and money laundering, and the majority of MSBs in the UK are required to register with HM Revenue and Customs (HMRC). According to the UK Money Transmitters Association (UKMTA), there were more than 3,750 registered MSBs in the UK in mid-2009 (UKMTA 2009). HMRC provides guidance to MSBs on anti-money laundering procedures. There is a regime of civil penalties or prosecution for failure to comply with the regulations, but these are not often applied (UKMTA 2009).

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Surveys on remittances from the UK suggest that those of Caribbean origin are more likely to remit than those of Indian origin

The literature suggests that there are significant differences in remitting patterns across ethnic groups in the UK. For instance, Clark and Drinkwater (2007), using the Fourth National Survey of Ethnic Minorities, find that those of Caribbean and Pakistani origin are more likely to remit (37% of Caribbeans and 30% of Pakistanis) than Chinese (27%), Bangladeshis (21%) and Indians (14%).

DFID (2006) used a sample of almost 10,000 Black and minority ethnic households in the UK to explore their remitting patterns. Results suggest that Black Africans have the highest propensity to remit, accounting for 34% of remitters in the survey, while only representing 10.5% of the sample. Black Caribbeans represented 12% of those who remit, the same share as their representation in the sample (12.2%), while Indians accounted for 14% of remitters, a relatively low share given their sample representation (22.8%).

However, even with these studies, there is very little information on the characteristics of remitters in the UK, including characteristics such as income levels and welfare programme participation. Moreover, the existing research focuses on certain ethnic groups at one period in time. As a result, there is a lack of information about the dynamics of remitting behaviour over time.

Remittances are generally recognised as an important instrument for economic development in receiving countries, although evidence on the impact of these flows on economic growth and poverty in receiving countries remains mixed

Remittances are generally recognized as a more stable source of foreign exchange than other international flows such as foreign aid and foreign direct investment (House of Commons 2004). Moreover, given that many migrants remit for altruistic reasons, these flows tend to increase in times of economic distress in the home country and can therefore be countercyclical. Remittances can also provide the initial capital necessary to start business ventures in receiving countries, which lack strong credit markets (Amuedo-Dorantes and Pozo 2006a). Yet not all the impacts of remittances are positive, as these flows have also been shown to decrease the labour supply of receiving households (Amuedo-Dorantes and Pozo 2006b) and cause appreciation in the exchange rate, potentially affecting the trading sector negatively. The evidence on the impact of remittances on economic growth and poverty reduction remains mixed (Jongwanich 2007; Ratha 2007; Vargas-Silva et al. 2009).

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Evidence gaps and limitations

Remittance data are inadequate for several reasons. First, unofficial transfers (e.g. money sent with friends and family members visiting the UK) may account for a significant portion of remittances from the UK making it difficult for the government to record these flows. Blackwell and Seddon (2004) estimated that around one-third of remittances from the UK flow out through informal channels. Second, the volume of remittances from the UK is difficult to measure because estimates often rely on unstandardised data from recipient countries. Ever since the end of foreign exchange controls in the UK (i.e. 1979), there is no official mechanism for recording international monetary transactions including the volume, destination and use of remittances from the UK (UK Parliament 2011a). The UK is putting more emphasis on regulating, although not necessarily recording, these flows given the importance of controlling the movement of money due to the threat of channelling money to fund criminal and terrorist activities (Vlcek 2008).

Many transactions are not recorded as “workers’ remittances” in official data on the Balance of Payments, even though these transactions should be recorded as such. The World Bank (2011) argues that while the definitions of and distinctions between workers’ remittances, compensation of employees and migrant transfers are clear, the actual implementation of recording is less than perfect and it is therefore necessary to take account of all three measures. Nonetheless, Chami et al. (2008) challenged the adequacy of this combined measure of remittances, arguing that these components are essentially different and represent different behaviour. They also argue that government agencies are more proficient at categorizing these flows in the balance of payments than researchers think. The World Bank (2011) position is the prevailing view in much of the macroeconomic level work on remittances.

The UK Office for National Statistics (ONS) does not publish separate estimates for workers’ remittances. In the UK Balance of Payments (i.e. Pink Book), there is a category call “other payments by households”, which includes workers’ remittances and transfers to UK non-profit institutions. The “other payments by households” category is presented in Figure 4 for the 1999-2009 period (nominal values). In total, the credit component (which includes workers’ remittances inflows) was about GBP 2,557 million, while the debit component (which includes workers’ remittances outflows) was GBP 5,336 million. However, it is not possible to disaggregate workers’ remittances from flows to non-profit institutions serving households (see UK Parliament [2011b] and Office for National Statistics [2010]).

Figure 4

Figure 5 divides remittances outflows estimates for the UK from the World Bank Migration and Remittances Factbook into the compensation of employee and migrants’ transfers components (nominal values). As it is clear from the Figure, the most important component in the estimate is compensation of employees (i.e. the earnings of non-resident workers in the UK).

Figure 5

Thanks to Ghada Fayad and Anna Lindley for helpful comments and suggestions in an earlier version of this briefing.

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References

• Amuedo-Dorantes, C. and S. Pozo. “Remittance Receipt and Business Ownership in the Dominican Republic.” World Economy 29, no. 7 (2006a): 939-956.
• Amuedo-Dorantes, C. and S. Pozo. “Migration, Remittances and Male and Female Employment Patterns.” American Economic Review 96, no. 2 (2006b): 222-226.
• Blackwell, M. and D. Seddon. “Informal Remittances from the UK: Values, Flows and Mechanisms.” Report to DFID, Overseas Development Group, Norwich, 2004.
• Chami, R., A. Barajas, T. Cosimano, C. Fullenkamp, M. Gapen, and P. Montiel. “Macroeconomic Consequences of Remittances.” IMF Occasional Paper No. 259, International Monetary Fund, Washington, DC. 2008.
• Clark, K. and S. Drinkwater. “An Investigation of Household Remittance Behaviour: Evidence from the United Kingdom.” The Manchester School 75 (2007):717-741.
• Department for International Development. “Sending Money Home? A Survey of Remittances Products and Services in the United Kingdom.” DIFD Report, Department for International Development, London, 2005.
• Department for International Development. “BME Remittance Survey.” Research Report, Department for International Development, London, 2006.
• House of Commons International Development Committee. “Migration and Development: How to make migration work for poverty reduction.” House of Commons, London, 2004.
• Jongwanich, J. “Workers’ Remittances, Economic Growth and Poverty in Developing Asia and the Pacific Countries.” UNESCAP Working Paper, WP/07/01, UN Economic and Social Commission for Asia and the Pacific, Bangkok, 2007.
• Office for National Statistics. The Pink Book. 2010 ed. London: Office for National Statistics, 2010.
• Ratha, D. “Worker’s Remittances: An Important and Stable Source of External Development Finance.” In Global Development Finance. Washington DC: World Bank, 2003.
• Ratha, D. “Leveraging Remittances for Development.” Policy Brief of the Programme on Migrants, Migration and Development, Migration Policy Institute, Washington DC, 2007.
• UK Money Transmitters Association. “Contribution to the HM Treasury Consultation on 2007 Money Laundering Regulations.” UK Money Transmitters Association, London, 2009.
• UK Parliament. “Written Answers to Questions. Developing Countries: Remittances.” UK Parliament, London, 24 Mar 2011: Column 1271W, 2011a.
• UK Parliament. “Written Answers to Questions. Developing Countries: Remittances.” UK Parliament, London, 12 January 2011: Column 309W, 2011b.
• Vargas-Silva, C., S. Jha, and G. Sugiyarto. “Remittances in Asia: Implications for the Fight against Poverty and the Pursuit of Economic Growth.” Asian Development Bank Working Paper, Asian Development Bank, Manila, 2009: 182.
• Vlcek, W. “Development vs. Terrorism: Money Transfers and EU Financial Regulations in the UK.” British Journal of Politics and International Relations 10 (2008): 286-302.
• World Bank. Bilateral Migration and Remittances 2010. Washington DC: The World Bank, 2011.
• World Bank. Migration and Remittances Factbook 2011. Washington DC: The World Bank, 2011.