Category Archives: Economics

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”.