International students who stay and work in the UK for a decade after graduation contribute £3.2bn in extra tax revenues, research has revealed.

The first major report into the boost overseas students give the economy found non-UK graduates do not take jobs from local residents, because they largely obtain work in highly qualified areas such as economics or science, or in sectors that suffer acute shortages, such as teaching and nursing.

The study by the Higher Education Policy Institute (Hepi) and the consultancy London Economics found that in the 10 years after graduation, the EU and overseas students who remain from a single year’s cohort will pay an estimated £3.2bn in income tax, VAT, national insurance and other revenues to the exchequer.

Visa extension to boost numbers of overseas students in UK after Brexit Read more

But it estimates a further £150m in revenue is lost each year because of the government’s restrictions on post-graduation employment, adding up to £1bn in foregone taxes since the limits were introduced in 2012.

“Universities firmly believe the government’s biggest mistake in higher education has been to discourage international students from coming here. A hostile environment has been in place for nearly a decade,” said Nick Hillman, the director of Hepi.

“It is a testament to the strengths of our higher education sector that the number of international students has not fallen but it is an absolute tragedy that we have been unable to keep up with the pace of growth in other countries.”

The research used graduate employment data to extrapolate earnings based on the courses and degree types that non-UK students studied, adjusted for the proportion of international graduates who remained in the UK.

The study comes only a few days after the government announced it would lift some of the restrictions on international graduates, lengthening the period they can remain looking for work from four to six months after the end of their course, and up to one year for those earning doctorates.

The relaxation was part of a strategy to increase overseas student numbers post-Brexit. But Gordon Marsden, Labour’s shadow higher and further education minister, said the government’s hostile attitude could damage universities.

“With their continuing restrictions on post-study work rights and their new decision to introduce a minimum salary threshold of £30,000 in the immigration bill, the government is putting at risk our universities’ competitiveness against rivals across the world,” Marsden said.

Universities and employers’ groups urged the government to consider lifting the restrictions.

Hollie Chandler, a senior policy analyst at the Russell Group of research universities, said: “The UK needs to improve its visa policy and ensure a welcoming environment. A two-year post-study work offer would enhance the UK’s appeal as a top study destination and help the UK retain talented graduates who benefit our society and economy.

“As well as improving the offer for non-EU students, we urgently need reassurances for EU students coming to the UK after Brexit. The government should ensure the EU settlement scheme will apply to all EU citizens arriving before the end of 2020, even in the event of no deal, as originally promised.”

Matthew Percival, the Confederation of British Industry’s head of employment policy, praised the Hepi report for filling a gap in knowledge about the benefits overseas students contribute to the UK. “For universities to reach their potential, the government must ensure that international students have reasonable time to find a skilled job after completing their studies,” Percival said.

