Category Archives: Britain and Europe

On Free Movement and Brexit

The arguments for Brexit – and important to “leave” voters – can be seen as a “three legged stool”, economic benefits, sovereignty gains and the curtailment of EU migration.

The first leg has been shown to be illusory given the projections this week by the government and other bodies that we shall be worse off under Brexit than remaining in the EU, regardless of the plan chosen. Since the Government’s plan is the one on the table, we can note that the loss in annual GDP after 15 years is around 3.9% or £100 billion, an amount which dwarfs the UK’s net contribution of £10 billion or so. Note that the “benefits” of all potential trade deals with the US etc. which are allowed for in the projections, amount to only 0.2% of GDP. This is even assuming the UK is willing to accept US farming standards, and inroads by US healthcare firms into the NHS that would be the likely “price” of such a deal with the US.

Hence, it must be argued that the £90-100 billion is “the price worth paying” for the other benefits of sovereignty and migration reduction. I have argued elsewhere that the sovereignty benefits are contestable, and the UK would be better off to “lead not leave” (see http://www.ephilipdavis.com/home/2018/11/19/on-sovereignty-and-brexit/ ). What about free movement? It’s highly relevant to discuss this in a week when net EU migration has fallen to 70,000, the lowest since 2012.

The discussion of free movement rarely notes that it is a two way street and leaving the EU implies a diminution of the rights and freedoms of all UK citizens. Up till Brexit, everyone in the UK can live, love, work, start a family, start a business, own property, and contribute to society anywhere in the EU in the same way that someone could move from Kent to Cumbria in the knowledge that their citizenship and status would remain inviolable. And 1.3 million or so people are currently taking advantage of this.

A Brexit which takes away those rights and freedoms will block young people from the opportunities the older generation had to study, work and live in the rest of the EU, whether they took them or not. It also ends the dream of many working people of a retirement in Spain. We should consider carefully why this freedom is to be cast aside.

There are strong positive arguments favouring freedom of movement in terms of immigration, too. This is especially the case given our own population is ageing, with more and more retired people relative to workers. Partly as a consequence, we suffer a shortage of labour and the sectors most dependent on migrants are crucial, notably the NHS and elderly care that help the UK cope directly with population ageing. Immigration boosts economic growth, which helps us cope with ageing. Furthermore, immigrants who are typically young taxpayers help share the burden of paying pensions to old people, and also repaying the public debt. Meanwhile, the proportion of EU migrants claiming benefits is lower than other groups in the population.

This is not the way immigration is typically presented, where it is often argued that immigrants “take jobs” from UK workers. I contend they do not. They focus on the areas where UK workers lack skills or simply are unwilling to perform the relevant tasks. Think on the one hand of NHS doctors and nurses from the EU. And scientists who are key to advances in medical and scientific research in the UK. And on the other hand consider the fruit pickers without whom crops will rot on the ground, and those poorly-paid carers for the elderly without whom retirement homes will shut and elderly will lack care in their homes. The construction, food processing and hospitality sectors are also highly dependent on EU migrants. The promised immigration policy focused on highly skilled and highly paid workers might let some scientists and doctors in, but what about the other needs, especially nurses and care workers?

More generally, the idea that immigrants take jobs from natives is simply wrong. It’s what economists call the “lump of labour fallacy” that there are a fixed number of jobs that means one person’s gain is another’s loss. In fact immigrants bring new demand into the economy that creates extra jobs for young people – and some set up their own companies that employ many. And as noted, at the current level of 4.4% unemployment, there is clearly a shortage of labour even before Brexit. Furthermore, studies have shown that the effect on wages of EU migration is very minor.

The housing crisis is not due to immigrants either. Successive governments, of all political persuasions, have failed to build enough houses. Demand has outstripped supply and house prices have soared, far out-pacing wages, leaving the young as “generation rent”. Indeed, the demand for houses is related to the number of people (and so by extension – immigration) much less than most people realise. By far the most important determinant is real incomes. As people get richer they try to buy bigger and better houses and if we do not build them, the real price of all houses goes up. There is even evidence that immigrants demand less housing than long-term residents, given their incomes. And if ending free movement harms the construction sector, that will itself hinder resolution of the housing shortage.

As regards local congestion in the health and education systems that immigration may occasion, part of the £90-100 billion can easily create extra infrastructure – not to mention EU structural funds. Worth also remembering the EU allows an “emergency brake” on too-rapid migration, a point barely mentioned in debate.

It’s worth noting that the salience of free movement has been declining since the Referendum. Immigration was often named as Britain’s ‘most important issue’ between 2001 and mid-2016, but since the EU Referendum people have been more likely to name Europe/the EU and the NHS as their primary concerns. Immigration’s salience has fallen from 48% in June 2016 to 21% in December 2017. Comparing attitudes before and after the referendum from within the same groups of individuals suggests that both Leavers and Remainers have softened in their attitudes towards immigration, according to the Migration Observatory of Oxford University. Culturally, the UK has been a successful melting pot for many years and what was disturbing very rapidly becomes accepted. The Prime Minister appears in this sense to be “behind the times” in considering immigration so crucial, this may rather relate to her own background in the Home Office.

I contend that free movement, looked at broadly, is hence a major benefit to the UK and its people, viewed both as a freedom for UK citizens and a benefit to them from those entering. The remaining leg of the stool being removed, the milkmaid is sat on the floor….crying over a spilt £100 billion a year and lost freedoms?

In my view, it is time for a further referendum now that people know the full facts about Brexit. To quote David Davis; “countries which cannot change their minds cease to be democracies”.

On Sovereignty and Brexit

In the current crisis I think it’s time to review the case for sovereignty in the EU, not least given Mrs May’s comment that an option now is “no Brexit”. Time to return to sanity and shared sovereignty of membership! Note that this is a mild update of a post I wrote prior to the referendum, just to show these suggestions are not “new discoveries” but were evident all along…

Sovereignty was one of the key arguments in the EU referendum debate. “Take back control” said the leavers. Unelected bureaucrats have to be stopped from writing all our laws. We want sovereignty and democracy and these can only be achieved by Brexit. But this is a highly challengeable contention. Let me explain:

The regulations proposed by Brussels are mostly necessary for ensuring free trade within the Single Market. In the absence of harmonisation, countries typically set up non-tariff barriers to protect their own economic sectors, which due to the EU common regulation is prevented. Worth adding that the UK is well known for “gold plating” proposals from Brussels, i.e. going beyond what was envisaged in directives.

The EU is a group of sovereign states who agree to share certain powers peacefully. (The peace that the EU has generated contrasts with centuries of war that preceded 1945.) The Commission can only propose laws these have to be agreed democratically by the EU parliament (elected on proportion of votes) and the council of ministers who are our own governments – and where the UK was very rarely outvoted (2% of cases where there is qualified majority voting – and in vital areas member states have a veto). Commissioners are also to my knowledge chosen by national governments. The EU only affects 15% of our laws, as mentioned mostly to do with the Single Market.

And of course if we look at democracy and sovereignty in the UK, it’s highly imperfect. There is an army of unelected bureaucrats called the civil service, not to mention the unelected House of Lords and the hereditary Monarchy, and the fact governments are often elected on well below 50% of the votes in the first past the post system.

Meanwhile the UK has been far from a powerless bystander in EU developments, we drove the Single Market, and the inclusion of the Eastern states emerging from tyranny – and more recently effective sanctions against Iran and Russia, and the EU support for combating Ebola in West Africa. Lead not leave would seem to be the best way forward.

Leaders of the leave campaign are clearly of the opinion that EU membership is incompatible with British sovereignty. For them, being sovereign is like being pregnant—you either are or you aren’t. Yet increasingly real sovereignty is relative. A country that refuses outright to pool authority is one that has no control over cross border pollution, standards of financial regulation, consumer and trade norms to which its exporters and importers are bound, the cleanliness of its seas.

Britain is subject to some 700 international treaties involving multilateral submissions to multilateral compromises. Its membership of the UN, the WTO, NATO, the COP climate talks, the IMF, the World Bank, nuclear test ban treaties and accords on energy, water, maritime law and air traffic all require Britain to tolerate the sort of trade-offs that Eurosceptics find distasteful: influence in exchange for standardisation, laws and rules set mostly by foreigners not elected by Britons.

If sovereignty is the absence of mutual interference, the most sovereign country in the world is North Korea.

Norway and Switzerland are weak arguments for Brexit. Leaders of leave believe these countries are quite dramatically more “sovereign” than Britain. But in practice, and as we are finding out, they must subject themselves to vast numbers of EU rules over which they have no say in order to access the Single Market (as well as making sizeable contributions and accepting free movement of labour).

Consider the EU trade-off: let foreigners have some influence over your country of 64m and in return receive quite a lot of influence over a union of 743m. When Eurosceptics only mention the first half of this bargain, they imply that Britain is too weak to take advantage of the second. Which is odd, as the national strengths they otherwise celebrate give the country a tremendous ability to do so. And this is all to say nothing of the tremendous economic damage that Brexit will wreak, not least in a no-deal case.

So let us lead and not leave.

Letter to a friend considering how to vote in the Referendum

I published this letter on Facebook on 22nd June 2016, the day before the Referendum. I think it is still worth considering since the issues continue to bear weight as Brexit proceeds.

Letter to a friend in my generation (let’s say aged 50-75) considering to vote for “leave” on 23rd June.

My dear friend,

I know you care deeply about this country, and for that reason have decided to vote leave. I’d just like to offer you some considerations relating to the younger generation that might lead you to reconsider.

To put it bluntly, even abstracting from the referendum, we are giving the younger generation a rotten deal.

  • We are dependent on the goodwill of the younger generation to pay for our pension, through their taxes in the case of social security, and through the generation of corporate profits for a funded scheme. As you know, the population is getting older so the young are required to finance our pensions against a background of worsening demographics. That means they will pay higher contributions for their same pension just to support us. ·
  • Meanwhile, the type of pension they will receive is much less generous than what our generation was typically offered. No more final salary schemes, except in the public sector.
  • The young are burdened with future taxes to pay off the government debt which we have accumulated. We won’t pay so much since the tax regime on the elderly is very generous. We don’t pay national insurance once we retire, for instance.
  • The young also face ever-heavier costs of a university education. Those of us who went to university in the 70s had grants available, especially if our parents were poor. Not the case now, with students accumulating debts of £40,000 or more after a university education.
  • Especially in London and the South East, the young are priced out of owning residential property. We may add to this the impact of quantitative easing (QE) on asset prices which benefits the older people who hold financial assets.

So what has this got to do with the referendum you may ask? A great deal. 90% of economists agree that the Brexit would be extremely damaging to the UK economy, not least due to the damage it will inflict on the financial services sector and the car industry, as well as exporters more generally.

“Prosperity on an unimaginable scale” as promised by the “leavers” is much less likely than job losses close to a million in the short run as uncertainty hits investment, and a crippled economy in the long run due to trade barriers and loss of inward investment, with all that means for financing of public services. The idea that the EU will give a soft trade deal to the UK is not plausible since that would give an open door to further defections and that dissolution of the EU itself, contrary to the vital national interest not least of Germany. Meanwhile, we would be very weak in negotiating future trade deals with countries such as China and the US (as Switzerland has found) as opposed to through the EU, simply because we would lack bargaining power.

And who would be most hit? The young people of course. It is the entry level jobs that are most vulnerable in a major recession. We risk creating a “lost generation” of young people by our own deliberate choice, if we leave the EU. Is that a legacy you would like to pass to your grandchildren?

And what about immigration you may say? Isn’t that bad for the young since they “take jobs”? I contend it is not. First, free movement of labour is a two way street and leaving the EU would block our young people from the opportunities you and I had to study, work and live in the rest of the EU, whether we took them or not. Second, immigration benefits young people as immigrants who are typically young taxpayers help share the burden of paying pensions to you and I, and also repaying the public debt. Third, the idea that immigrants take jobs from natives is simply wrong. It’s what economists call the “lump of labour fallacy” that there are a fixed number of jobs that means one persons gain is another’s loss. In fact immigrants bring new demand into the economy that creates extra jobs for young people – and some set up their own companies that employ many.

The housing crisis is not due to immigrants either. Successive governments, of all political persuasions, have failed to build enough houses. Demand has outstripped supply and house prices have soared, far out-pacing wages, leaving the young as “generation rent”. Indeed, the demand for houses is related to the number of people (and so by extension – immigration) much less than most people realise. By far the most important determinant is real incomes. As people get richer they try to buy bigger and better houses and if we do not build them, the real price of all houses goes up. There is even evidence that immigrants demand less housing than long-term residents, given their incomes.

The UK’s fundamental economic difficulty is in my view low productivity due to inadequate education of the bulk of young people (and banks that don’t provide appropriate finance for firms). We have been admiring Germany’s system of advanced technical education in skills for those not going to university since 1870 but have been unable to emulate it. Reasons for this are clearly nothing to do with the EU, but could in my view link to the dominance of private education and a social disdain for industry that may come from the aristocracy. In Germany (and France and Switzerland) engineers – and skilled tradespeople like plumbers – are highly respected and this hugely benefits their economies, while we turn out graduates in arts – and economics – leaving many of those not going to university without skills. This problem will in my view not be resolved by a bonfire of regulations and likely reduction in public spending that “leavers” seems to advocate. Rather, it will need more public spending on education in the long run interests of the economy, generated by the growth we can achieve by remaining in the EU.

Young people know all these things. In a typical poll, 75% of 18- to 24-year-olds say they support remain, compared with 38% of 50- to 64-year-olds (and 34% of those aged 65 and over). They will have to live with the consequences for many more decades than the rest of us. But they need our votes too. Don’t their views – and their interests – deserve weight in our decisions?

Let’s remember the early 70s. That mythical time that “leavers” want to return to. Don’t you really remember what it was like? Inflation of up to 30%. Strikes crippling the economy and daily life. A runaway “Barber boom” that ended with having to call in the IMF to bail out the country. And why have we avoided this since? Yes because of Thatcher’s reforms and the independent Bank of England, but also the Single Market that Thatcher herself inspired, and which has led us to unprecedented levels of prosperity and full employment, despite the subprime crisis. Do we want to go back to the 1970s?

And finally, many people older than us in their 80s and 90s, who remember the horrors of the second world war, reflect on the last 70 years of peace on our continent, thank the EU for helping it be so. Large numbers of us “baby boomers”, so lucky to have never experienced bombing, starvation, and evacuation, risk to ignore the most important thing of all: our freedom and that of our future children to exist without armed conflict.

So there you have it. We offer the younger generation a poor deal already due to the burden of pensions, university loans and house prices. And this will be worsened immensely by Brexit, both economically and politically.
Let’s not have it said of our generation “the middle-aged want a divorce and they don’t care that it’s the children who will suffer most”.

I sincerely urge you to vote remain.

With kind regards, Philip