The UK tax revenues from international graduates – March 2019

Practice area: Economics of Education | Education and Labour Markets | Higher education | Labour market economics
Published: 21 March, 2019
Keywords: impact assessment quantitative analysis

London Economics were commissioned by the Higher Education Policy Institute (HEPI) and Kaplan International Pathways to undertake a detailed analysis of taxation receipts accrued by the United Kingdom Exchequer associated with international graduates in the UK labour market post graduation. The analysis focuses on the expected income tax, National Insurance and VAT contributions generated by the 235,325 international students commencing their studies in the UK in 2016/17, taking account of the likelihood of these students entering and remaining in the UK labour market in the first 10 years post graduation.

There are sizeable economic contributions made by those international graduates entering and remaining in the UK labour market post-graduation. The analysis illustrates that:

  • The total post-graduation contribution to the UK Exchequer made by international students in the 2016/17 cohort is estimated to be £3,173 million in present value terms.
  • This is made up of £1,043 million in income tax, £716 million in employee National Insurance contributions, £822 million in employer National Insurance contributions and £592 million in VAT contributions.
  • The largest component was contributed by first degree holders (£1,119 million) and Master’s graduates (£1,591 million), with a further £300 million contributed by PhD graduates and £163 million contributed by international students obtaining other undergraduate qualifications.
  • By domicile, EU-domiciled graduates in the cohort are expected to generate £1,181 million for the UK Exchequer (£108,000 on average per graduate), with non-EU-domiciled graduates generating £1,992 million (£104,000 on average per graduate).

The analysis also illustrates that:

  • There are acute skills shortages in many sectors of the UK economy (in both the public and private sectors). Rather than displacing domestic graduates from these opportunities, international graduates play a key role in filling the vacancies available and reducing these labour market gaps.
  • The adverse taxation impact suffered by HM Treasury following the restriction of post-study work rights for non-EU-domiciled students announced in 2011 was estimated to be £150 million per cohort. Given the policy has been in operation for 5 years, the total negative economic impact on HM Treasury in terms of foregone taxation receipts is in the region of £750 million.