The economics of the “small boats” problem

Pretend solutions such as ‘stopping the gangs’ aren’t the answer

By IEA Editorial & Research Fellow Professor Len Shackleton

Migration, as the last couple of weeks have reminded us, is a heck of a problem for politicians. It’s a bit of a challenge for economists too.

The classical liberal view is that unfettered migration is a good thing, both on grounds of libertarian principle and practical benefits. Phillipe Legrain and Ilya Somin have made a strong defence of this in IEA publications. The political Left tends to share this view, albeit on rather different grounds.

Many mainstream economists would go along with this, at least up to a point. When people move from countries where their marginal product is low (as a result, perhaps, of a dearth of capital and infrastructure) to where it is higher, they gain and world output increases. It’s just the same as migration within a country. If an underemployed or unemployed graduate in Sunderland moves to a better job in Milton Keynes or Croydon, he or she is better off and so is the country.

There are however qualifications to this argument. Many migrants may not work at skilled jobs, but instead may become a net claimant on welfare benefits, either because they don’t work or take low-skilled jobs supplemented by universal credit and housing benefit. Milton Friedman is often associated with the view that you can have open borders or a welfare state, but not both simultaneously. He didn’t quite say this, but you get the drift.

Another argument against completely free migration relates to the adjustment costs; while the demand from a big influx of migrants can almost instantaneously be met by suppliers of food, clothing and mobile phones, a corresponding increase in housing, schools and hospitals takes a long time and in the interim there are shortages and overcrowding which impact the native population as well as migrants.

We could – and will – argue about these broader issues indefinitely. But there is one type of migration which virtually everybody is opposed to – irregular migration by small boats. This behaviour is illegal, though rarely prosecuted. It presents considerable security issues, as many migrants are undocumented. It gives them an unfair advantage over law-abiding would-be immigrants. There are huge costs to the taxpayer, with one (admittedly tenuous) estimate suggesting that each boat migrant costs us £400,000 over their lifetime. And using unsuitable dinghies is a highly dangerous way of crossing the Channel. What is particularly awful is the large number of children and minors on these flimsy death traps. According to the Home Office approximately a fifth of all boat migrants are 17 or under. So there are very strong arguments for stopping the boats.

99% of all boat migrants claimed asylum in the year to March 2024 – which they have to do in order to avoid prosecution for illegal entry to the UK. The last government’s plan was to copy the Australians in diverting boat arrivals to another territory – in our case Rwanda – where their asylum applications would be considered. As we know, human rights claims – usually made through publicly-funded lawyers – and muddle-headed protestors prevented this. The new government quickly scrapped the Rwanda plan.

The Labour Party, like the Conservatives before them, claims to want to stop the small boats. But is their alternative plan – ‘to stop the gangs’ – likely to succeed?

I fear it will not. The previous government did not neglect the idea of pursuing the gangs, but had little success. It is difficult to see that, even with the expensive new Border Security Command, that Sir Keir Starmer’s government will do much better.

The reasons why they won’t have to do with the economics of the problem. The ‘supply’ of small boats is not the monopoly of a Bond-style ‘Mr Big’, stroking a cat while he dictates where boats should be launched. It is probably the prerogative of a number of small gangs. The costs of entry to this market are low – flimsy dinghies can be had cheaply – but the returns are very high. Estimates of what it costs to get a place on a boat vary – I have seen figures from £500 to £5000 – and the numbers packed on board have been rising. They averaged 50 per boat in the year to March 2024.

Given the extraordinarily high profits of this dreadful trade, breaking one or two gangs would have little impact. We will see headlines and the government will claim success, but they will be wrong to do so. Removing some of the bad guys will mean that would-be migrants will for a while have difficulties finding boats, and the price charged by the remaining bad guys will rise. This will increase the returns to the suppliers of boats, and a new bunch of bad guys will enter the market. Back to Square One.

Why do I say this? Because it’s exactly analogous to the ‘War on Drugs’ which has preoccupied governments for decades. As with the boats, entry costs to the drugs trade are low, the costs of cannabis or opium production are minimal, and the returns very high. You can argue that having ever-tougher penalties for the criminals involved would have an impact, but this seems doubtful.

The War on Drugs has failed because trying to restrict supply is a Sisyphean task if you don’t also reduce demand. In most developed countries, governments no longer treat possession and personal use of drugs as much more than a misdemeanour. If possession of cocaine at a Hampstead dinner party carried a mandatory twenty-year sentence, demand would dry up. But our politicians would never contemplate such a draconian policy.

By analogy, reducing the demand for small boats by imprisoning migrants and denying them access to benefits will never be contemplated by our politicians. Instead they will continue to be provided with free accommodation, healthcare and spending money, while waiting for 75% of their asylum claims to be accepted and secure in the knowledge that they’ll almost certainly not be deported even if their claims fail. So the small boats will continue.

Of course, the boats might stop if you offered an alternative. The Left argues for a policy which essentially consists of nodding all applicants through, which would vastly expand the numbers of migrants coming to the UK and would be very unlikely to be politically acceptable.

Another possible alternative, spelt out by Gary Becker in an IEA publication some years ago, would be to charge migrants for entry. Instead of the gangs getting money from migrants, the government would do so. This would simply extend the principle which already allows rich investors to come into the UK. It would allow for screening applicants for criminality or terrorist intentions and the fee (or perhaps a lien on future earnings?) would offset some of the external costs associated with migration. But this again seems unlikely to fly with the electorate.

It’s a gloomy prospect, and I have no conclusive proposal. But I do know that pretend solutions such as ‘stopping the gangs’ aren’t the answer.

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Len Shackleton is an Editorial and Research Fellow at the IEA and Professor of Economics at the University of Buckingham.