Why the government’s economic Impact Assessment of the Illegal Migration Act tells us little about the Act’s economic impact

by Peter William Walsh & Madeleine Sumption

In July 2023, Parliament passed the Illegal Migration Act (IMA) 2023. The Act prevents most people who arrive in the UK without authorisation from receiving a decision on their asylum claim.

In June 2023, the Home Office published its long-awaited Impact Assessment (IA) of the then Bill, which focused on economic costs. IAs are often one of the few places in which the government lays out expectations on the concrete impacts of proposed legislation in any detail, and so, in theory, provide an important source of information for understanding the policy measures.

This briefing note reviews the Impact Assessment. It concludes that:

• There are such large gaps in the Impact Assessment that it tells us very little about the overall economic impact of the Act. As a result, the numbers in it should be used with great caution.
• The IA does not assess the economic impacts of the central policy in the Act—namely, preventing those who arrive through irregular routes from receiving asylum decisions. It assesses a somewhat different plan: the cost of relocating asylum seekers to third countries like Rwanda.
• The Home Office estimates suggest that it costs more to relocate asylum seekers to Rwanda than to process their claims in the UK, primarily because the estimated payments to the government of Rwanda for each person they accept are much higher than previous public statements suggested they would be.
• Important questions that will crucially affect the impacts of the Act remain unresolved. These include what the government intends will happen to people who come to the UK without authorisation but cannot be removed (for example, because there is no safe country to remove them to); how long it plans to detain people affected by the Act, particularly if they remain in the UK for long periods; and whether people in this situation will ever have their legal status resolved.

For more information on the Illegal Migration Act itself, see the Migration Observatory briefing note, UK policies to deter people from claiming asylum.

A partial assessment

Economic costs or benefits typically play only a secondary role in public debates about the merits of policies towards refugees and asylum since the primary purpose of the policies is not economic. However, one of the main arguments the government has made in favour of the Act has been that it will reduce the growing cost of the asylum system in the UK.

The Impact Assessment (IA) is unusual in that it does not contain an economic cost-benefit analysis of the Act as a whole. The economic impact of the Act hinges primarily on how many people it deters from coming to the UK through irregular routes, and the IA does not attempt to estimate this. Nor does it estimate the costs of financially supporting people who cannot be removed and who may remain in the UK indefinitely without immigration status and without the right to work—one of the main costs the Act is expected to create.

One reason for these omissions is that, as the IA points out, the Act is a “novel and untested scheme”, which makes a full economic assessment effectively impossible. However, it is important to remember when using any of the figures from the Impact Assessment that it does not actually tell us much about the overall economic impact of the Act.

Instead, the IA estimates the approximate cost of removing each individual to a safe third country, such as Rwanda. In this context, a ‘third country’ refers to a country that is neither the country from which an asylum seekers has fled nor the country in which they are seeking asylum (i.e., the UK).

The financial calculation

Estimating the financial impact of any policy requires a counterfactual: what the cost would be if the policy were not implemented. For this, the IA assumes that without the new policy, individuals would not be relocated and would be supported in the UK while their asylum claims are processed.

Costs of relocating asylum seekers to other countries

The IA estimates that the cost of sending one person to a safe third country would be £169,000. This figure comes with caveats.

The largest part of this cost is the UK’s per-person payment to the recipient third country, given as £105,000. However, the IA does not reveal the actual amount the UK has agreed to give to Rwanda because it is “commercially sensitive”. Instead, it uses another (largely irrelevant) figure: a 2016 National Audit Office estimate of the cost of supporting a refugee in the UK under the UK’s Syrian resettlement programme, the Vulnerable Persons Resettlement Scheme.

Presumably, this figure has been chosen because it is similar to the actual per-person payment that will be sent to the government of Rwanda. Otherwise, the entire IA exercise would be rather meaningless.

Members of the government had previously suggested that the per-person payments to Rwanda would be “comparable” to processing them in the UK, which had been said to be around £12,000 per individual.

The total £169,000 figure, which also factors in Home Office administrative costs and the cost of flights, also includes a 9% ‘optimism bias’, to recognise a systematic tendency to underestimate costs in impact assessments.

Costs of supporting asylum seekers in the UK instead of relocating them overseas

The IA then compares the cost of relocating each person with the cost of supporting them in the UK while their asylum claim is decided. It estimates that supporting a person under the current asylum system would cost £106,000. This figure thus represents the estimated cost saving of relocating each person overseas. This estimate includes accommodation and support costs but does not appear to include not the cost of processing a person’s asylum claim or their use of public services during the period their asylum claim is pending.

The £106,000 figure is based on the assumption that without the Illegal Migration Act, a person would be supported in the UK for four years while their asylum claim is processed. This seems surprisingly long. In Q2 2022, the median wait time for people to receive initial decisions on their asylum claims was roughly 2 years, and 12% of people had waited for three years or more (Figure 1). Currently, around three-quarters of initial decisions are positive, so there are relatively few appeals—although where appeals do happen, they can add substantial time to the overall process.

Long asylum waiting times are not inevitable: as recently as 2017, a majority of asylum applicants received an initial decision within six months.

In the IA’s model, the four-year assumption increases the total per-person cost of not removing people and processing their asylum claims and hence reduces the net per-person cost of relocating asylum seekers to third countries. The cost-effectiveness of third-country removals, therefore, depends to some extent on the idea that the government cannot fix long asylum wait times. Somewhat perversely, if the government is successful in reducing asylum wait times—which have been a major driver of the cost of the current system—third-country relocations become less cost-effective.

Figure 1

On the other hand, the IA does not consider the long-term net fiscal impact of people who would settle in the UK permanently as refugees under the current system. (Under the Act, the claims of these individuals would not be heard.)

There is not much research on the net fiscal impact of refugees, perhaps because the reasons for admitting them are not economic. However, employment rates of refugees are low on average (see also Figure 2), and employment rates are one of the most important drivers of fiscal impact. It is thus reasonable to assume that there is a net fiscal cost of supporting refugees in the UK over the course of their lifetimes. While the fiscal impact of migration to the UK is small, refugees are therefore less likely than other migrants to be among those who make net fiscal contributions (i.e. to pay more into government finances through tax and other contributions than it costs to provide them with benefits and public services).

Figure 2

Government data on income tax and national insurance contributions show that in fiscal year 2019-20, people from countries associated with higher refugee flows to the UK, such as Syria or Afghanistan, were less likely than people from other countries to pay more in tax and national insurance than the cost of HMRC-administered benefits.

The IA does make reference to the long-term prospect of a net fiscal cost but does not attempt a full fiscal analysis.

Net cost of relocating asylum seekers overseas

Overall, the IA thus estimates that the net per-person cost of relocating each asylum seeker to third countries such as Rwanda is £63,000. In other words, removing a person to Rwanda is £63,000 more expensive than supporting that person throughout their asylum process in the UK (Table 1), according to the Home Office estimates.

Table 1: The Impact Assessment’s estimated per person cost of relocation to third countries

Cost to relocate one person to third country		Cost of supporting an asylum claimant in the UK
Net per-person cost of relocation to third countries = £169,000 minus £106,000 = £63,000 per person removed
Payment to third country ¹	£105,000	Accommodation (four years)	No breakdown provided
Home Office resources	£18,000	Support (four years)	No breakdown provided
Flight and escorting ²	£22,000
Detention (40 days)	£7,000	Total per-person cost	£106,000
Ministry of Justice cost	£1,000
Total per-person cost	£154,000
Optimism Bias	+9%
‘Optimistic’ per-person cost	£169,000

Source: Home Office Impact Assessment, Illegal Migration Bill.
Notes: (1) Assumed to be equal to the Syrian resettlement 5-year cost per refugee, uplifted from 2016/17 prices to 2023/24 prices. (2) Assumes fifty people per flight.

Deterrence

Because the IA estimates that it is more expensive to send asylum seekers to Rwanda than process them in the UK, any estimate of the cost of the relocation policy depends in large part on how many people would be deterred by it.

The IA does not estimate this deterrent effect, except to say that there is “little to no evidence suggesting changes in a destination country’s policies have an impact on deterring people from leaving their countries of origin or travelling without valid permission”. The IA does cite some interesting international examples of cases where policies may have reduced irregular migration: Australia, Spain, Italy, the EU, Scandinavia, and the UK with regard to Albanian arrivals. However, with the partial exceptions of Australia and UK-Albania, all the cases are examples of enforcement measures that physically prevent irregular arrival, such as boat interceptions and pushbacks, and not deterrence measures of the type contained in the Act.

Nonetheless, the IA estimates the cost saved for each person deterred from entering the UK irregularly. This figure is given as £106,000: that is, the same as the cost (estimated above) of supporting someone in the UK for four years following an asylum claim.

The IA calculates that for every 1,000 people who might have entered the UK without authorisation, 37% need to be deterred from coming for the government to recoup the net cost of removing the remaining 63%. Note that this is not the same as saying that irregular migration must fall by 37%, but rather that, for the government to break even, 37 people must be deterred for every 63 who are relocated. However, this comparison makes little sense without considering a third, crucial group of people: those who are neither deterred nor relocated.

A missing third group: people who are not removed

In examining the per-person cost of removing an individual to a safe third country, the IA makes no assumptions about how many people will be removed or how many will be deterred in total. As such, it does not give any consideration to a crucial third group: people who still come to the UK and cannot be removed (e.g., because of insufficient capacity to send them to third countries like Rwanda) and who are therefore detained or supported in the UK indefinitely. At the time of writing, the Court of Appeal had recently ruled that the UK could not remove asylum seekers to Rwanda, although the Supreme Court’s stance on this question was not yet known.

If the group of people neither deterred nor removed is large, the costs of supporting them would be a major driver of the Act’s fiscal impact. This may especially be the case if the government decided to detain people rather than support them in something equivalent to current asylum accommodation. Building new detention capacity has costs, and holding people in detention is more expensive than providing them with regular accommodation (see below). The Act implies an increase in detention, given the numbers of people arriving through irregular routes to claim asylum (tens of thousands of people per year). The detention estate’s capacity was around 2,500 in 2022, and as of 31 March 2023, around 1,600 people were in detention.

How much would it cost to support this third group of those neither deterred nor deported? The IA assumes a cost of £85 per day to support someone in accommodation, and in Q1 2023, the cost of holding someone in immigration detention was estimated at around £113 per day. This implies an annual cost of supporting someone in asylum accommodation of around £31,000 per person per year, and more if long periods of detention are involved. Unlike the IA figures for people who are either deterred or relocated (where the costs are incurred either once or for four years), these figures would be accrued each year for an indefinite period. Unless the government found a way to resolve the cases of people in this situation, the long-term cost of supporting them could become quite high.

Concluding remarks

Calculating the financial implications of complicated policies is exceedingly difficult. This is especially the case when a policy is novel, untested, and has yet to be implemented. While a fuller accounting of the Illegal Migration Act’s implementation costs may be possible in time, it is likely that the overall economic impact will never be possible to assess properly because the number of people deterred will not necessarily be clear.

Asylum applications go up and down for different reasons. It will not be easy to disentangle the deterrent effect asylum policies from the range of other factors that affect the number of people crossing the Channel, such as geopolitical developments or operational cooperation on enforcement (e.g., with France or Albania) that are not part of the policy package proposed in the Act. In Australia, for example, there is still substantial debate about whether deterrence policies or physical enforcement (pushbacks at sea) were primarily responsible for the large decline in boat arrivals.

If the number of people crossing the channel in small boats declines in future, we will not necessarily know how much is due to the Act. If it does not decline, we will not know whether the number would have been even higher without the new policy.

In other words, because the government’s position is that it is cheaper to keep people in the UK than send them to Rwanda, the cost-effectiveness of the Illegal Migration Act will depend fundamentally upon its deterrent effect. And it is quite possible that the size of this effect will never be known.

This research was made possible thanks to the support of Oak Foundation. Special thanks go to CJ McKinney for detailed comments on a draft of this briefing note.