Theresa May, unlike her predecessor, could deliver on it. But if she does, Britain will be poorerby / May 22, 2017 / Leave a comment
For the past four decades, UK prime ministers, of both parties, have put the economy first. That is, they have thought their primary job, and the most important factor determining their political success, was to deliver steady growth and rising wages. And they have taken the view that the best way to achieve that was to pursue broadly “liberal” policies. It’s difficult to imagine two politicians more different than Gordon Brown and Margaret Thatcher—but they shared a hero in Adam Smith.
Theresa May has changed that. The Conservative Party manifesto is without doubt the most statist and interventionist produced by a governing party in living memory. As Nick Macpherson, the recently retired Permanent Secretary of the Treasury, put it:
“[I am] struck by the protectionist tone to the so-called industrial strategy in the Tory manifesto… I see the misguided hand of Joseph Chamberlain… Clarke, Brown, Darling and Osborne had many differences but when it came to trade they were Gladstonean.”
And nowhere is that illiberalism—in every possible sense—more obvious than when it comes to immigration. David Cameron’s pledge to cut net migration to the “tens of thousands” was a characteristically lazy political gimmick, devoid of either rationale or analysis. The only ways to hit a quantitative target for a sharp reduction in net migration are (unhappy) accident, that is to say a severe recession, the introduction of a degree of central planning into the UK economy and labour market that would run completely contrary to the long-standing direction of policy, or ending free movement through Brexit. Or some combination of all three.
For seven years none of these things happened, and the target was comprehensively missed. And senior Ministers—none of whom, the former Chancellor George Osborne informs us, thinks the target makes any economic sense at all—have been desperately trying to signal to business that this will continue. That is, as from 2010 to 2017, the target will not be the overriding driver of policy, so the damage will be minimised. In this, they have been implicitly supported by some opposition politicians—who would rather attack the government at a later date for breaking this promise than attack them for making it now—and by some Remainers who want to argue that Brexit will not deliver the promised reductions in immigration.
But I am not so optimistic. Unlike Cameron, the current prime minister takes the target seriously. And unlike him, she will have—post-Brexit—the levers she needs to deliver. The manifesto contains several commitments that will, even before Brexit, make it even harder for non-EU migrants to move to the UK, such as a doubling of the “skills charge.” Business people and groups, from well-known figures like James Dyson to the Bangladesh Caterers Association, who were gullible enough to believe Boris Johnson and Priti Patel when they claimed that Brexit would enable a more liberal approach to non-EU migration, are now confronted with the stark fact that the same politicians are running on a platform promising the precise opposite.
But it is Brexit, and the end of free movement, that poses the largest threat to the UK’s labour market. Before anything changes legally, the UK will become a less attractive destination, for both economic and psychological reasons. Post Brexit, if we extend the current arrangements for non-EU nationals to Europeans, it would exclude at least three quarters of them. Contrary to the claims of the anti-immigration lobby, led by Migration Watch, these are not just or even mainly low-skilled or low-paid workers, but people in a huge range of occupations from nurses to electricians to butchers. And even if we attempt to attract such workers post-Brexit, through special visas or new schemes, the flexibility and security of free movement will be replaced by the expensive and inefficient dead hand of Home Office bureaucracy. The end of free movement will be enforced not by “taking back control” of our borders, but rather by new bureaucratic obligations on employers.
So how much damage will all this do? As has been widely publicised, while the Conservatives have refused to fully cost this (or any other) policy, the independent Office for Budget Responsibility has done so. Back in November, it costed a forecast reduction of net migration from 265,000 to 185,000 at about £6bn a year by 2021; it follows a further reduction to 100,000 would have a similar cost. While their calculations are—as they admit—crude, they matter since, by law, they enter into the official Budget arithmetic. So if the OBR believes the government means it this time, then the government will have to “find” an extra £6bn, from taxes, spending or borrowing.
But the narrow fiscal cost is less important (although easier to calculate) than the wider economic implications. My recent research suggests that, via the indirect effects on growth and productivity, Brexit-induced reductions in immigration could reduce UK GDP per capita by several percentage points between now and 2030. While these numbers are highly uncertain, the evidence that arbitrary cuts to migration will make us less prosperous—quite significantly so—is strong. This time the Conservatives may actually mean what they say. If so, the UK will be poorer as a result.