Taking back control?
Eight years since the referendum and immigration is still moving in the opposite direction to voters' values
Towering columns
In The Times, Matthew Syed lays out major visions for reform of the British state - including exploring what it would look like to tax land instead of income…
Imagine a world without income tax. Or corporation tax. This is doable if we shift our tax system to one based on land values. A recent paper proposed that a tax levied on the rental value of land instead of earned assets would increase growth by 15 per cent by turbocharging the incentive to work and start a businesses. Almost all economists have been in favour of such a tax, from Adam Smith and Milton Friedman to Joseph Stiglitz and Martin Wolf. They know that a tax on unproductive land is efficient, since land can’t be squirrelled away in tax havens. The alternative, a wealth tax, would penalise productive capital and lead to offshoring on a grand scale.
The other advantage of a land tax is that it would finally end the Ponzi scheme at the heart of the British economy whereby low productivity is mitigated by mass immigration and funny money (quantitative easing), thereby inflating the value of land, leading to more aggressive rent-seeking and conferring ever larger gains on the 25,000 people who own half of the land in England and have done nothing to merit this bonanza (between 1995 and 2017 Britain’s net worth more than tripled, largely because of land values). This starves the Treasury of funds, adding momentum for more immigration, driving up land values more. This system is strangling us.
Such a tax can be introduced in stages to protect the “asset-rich, cash-poor elderly” and important farmland and would leave the vast majority better off in the short term and almost everyone in the long. It’s a game-changer. Why hasn’t it happened? Partly because of the vested interests of large landowners like the Grosvenor family, who were given copious acreage by William the Conqueror, and whose ground rents are still distorting the London property market almost a thousand years later. Wake up, Labour. This has got to stop.
In the Financial Times, Gillian Tett seeks to distinguish good industrial policy from bad, following an IMF report showing such strategies are on the rise.
But anyone pondering that striking number in the IMF report should remember a crucial point that ought to be obvious but is often overlooked: “industrial policy” can mean many different things. As Cherif and Hasanov told a seminar at Cambridge’s Bennett Institute this week, there is an important difference between policies that try to create growth by shielding domestic companies from foreign competition and those which help those companies compete more effectively on the world stage.
The former “import substitution” strategy was pursued by many developing countries in recent years, including India. It is also the variant favoured by Trump and the one being considered by some European politicians, for instance in the case of Chinese solar panels. But it is this latter approach that has given industrial policy a bad name. On the basis of copious data, Cherif and Hasanov argue that import substitution models undermine growth in the long term since they create excessively coddled, inefficient industries.
By contrast, the second variant of industrial policy aims instead to make industries more competitive externally in an export-oriented model, while worrying less about imports. This approach is what drove the east Asian miracle, and is what creates sustained growth, the data suggests. The difference in approach is embodied by the contrasting fortunes of Malaysian automaker Proton car and South Korea’s Hyundai. The former was developed amid import substitution policies, and never soared; the latter flourished on the back of an export-oriented strategy.
At The Critic, Ben Cobley despairs at the decline of national cohesion and identity underway in the UK.
In my book [The Tribe: The Liberal-Left and the System of Diversity] I focused primarily on the working class, which has borne the brunt of modernity’s rupturing tendencies repeatedly over the years and has been most exposed to recent hyper-mass migration. The process of ceding physical and existential space, and feeling the defeat from doing so, is necessarily most pronounced for those without much in the way of financial and political resources.
But in truth I knew the phenomenon had a much wider relevance. I felt it in myself. And I knew a lot of other people of a similar background were feeling it too. We felt like we were losing. The environment around us was changing rapidly, becoming less responsive to us and our concerns: sometimes indifferent and absent, sometimes actively hostile and threatening. Five years on and this feeling is stronger, more palpable and self-conscious.
Nowadays, the loosely English “us” that I feel myself part of isn’t really allowed to be an “us” any more, except in a negative way linked to racism and colonialism. And in line with this narrative, the qualities of English or British culture seem to be disappearing. Indeed some activists even claim that there are no such qualities, and never were any. We literally don’t exist, they say enthusiastically.
In The Telegraph, former Immigration minister Robert Jenrick calls for major restrictions on legal migration.
We now have a collection of universities more interested in the immigration rather than the education business. To shut this backdoor to the UK, we should scrap the graduate visa route, which enables students to stay on after their studies regardless of the type of job they find. Instead, graduates should have six months to find a job that meets the salary thresholds every other migrant in the labour market is subject to.
The health and social care visa has similarly ballooned beyond imagination. Despite this, the number of vacancies within the health sector remains high. The policy has been a complete failure. We should impose an immediate cap on health and care visas at roughly 30,000 and recruit from the domestic workforce by raising the minimum hourly wage in the care sector by 20-40p and by expanding the NHS workforce plan, training British doctors and nurses. While the Treasury will bear an initial cost, the long-term savings to the taxpayer will be significant as pressure on our capital stock is relieved.
Elsewhere, the Government should automatically index salary thresholds in line with inflation to end the in-built liberal bias. The opaque Immigration Salary List, which allows industries to rely upon a steady stream of cheap labour and avoid investing in technology, should be scrapped. And we desperately need a period of glasnost where the Government is transparent about the immigration data it holds on crime, the benefits bill and tax receipts.
On his Substack, Tory MP Neil O’Brien analyses the long-term trends driving the increase in disability-related benefit claims.
Prevalence inflation is probably not the whole story though. I do think there is a mental health problem brewing up among younger people. The main cause of really severe mental health problems among adults is some sort of adverse experience, often in childhood. When I worked with the street homeless, an astronomical proportion had been in care, or had abusive or junkie parents. Drugs and drink then compound these problems.
But these factors have been around for decades. And I don’t think there is now any debate left that something has changed in the last decade, and there is a teenage mental health crisis across the developed world. As well as overinterpretation, there are multiple other factors at play, from increased family breakdown to increased drug use - as shown in this excellent piece by Post Liberal Pete.
But in contrast to Pete, I am persuaded that the simultaneous nature of the increase in mental health problems and self-harm all across the developed world do suggest that Jonathan Haidt, Jean Twenge and others are right about the combination of a) smartphones / social media and b) more coddling in childhood. I don’t think the other explanations work. As Haidt says, we are being too protective of our kids in the real world and not enough online. The problems kids face as a result of this are not as great as the problems faced by people who were abused in childhood, but they are much greater in number: much greater in number: creating a shallower but mile-wide river of misery.
At Project Syndicate, Yuen Yuen Ang describes the costs involved in China’s national development project, including the impact on its working class.
China’s old development model focused wholly on GDP, and thus paid scant regard to the quality of growth. In this context, the abundance of access money enriched a handful of capitalists who paid for privileges and rewarded the politicians who served their interests. But, of course, this system also incentivized officials to pursue perverse, unsustainable modes of growth that maximized benefits for themselves and their cronies at the expense of social welfare. From the 2000s onward, local governments sold off land and over-invested in real estate, because that was the most expedient way to fill public coffers and line their own pockets.
Meanwhile, the same officials had little incentives to provide low-cost housing for the massive rural migrant population toiling in factories and on construction sites. As a result, millions of working-class families who needed homes could not afford them, while the rich snapped up empty mansions. In their heyday, China’s politically backed real-estate developers accumulated growing swaths of land and cheap loans, while regulators turned a blind eye to, or even enabled, risky business practices such as selling homes before building them. Scores of politicians were caught up in this 20-year dash for fast profits. For example, a former justice minister, Tang Yijun, is under investigation for his ties to Evergrande, the real-estate behemoth that filed for bankruptcy last year.
The developers’ exclusive access to easy credit was cut off in 2020, when the central government announced “three red lines” (restrictions on borrowing) to curb excessive debt in the real-estate sector. That is when the house of cards began to collapse. One of the first to fall was Evergrande, whose founder, Hui Ka Yan, was once the richest man in Asia. Many families who tapped all their savings to buy Evergrande-built apartments are now homeless, and suppliers are going unpaid, triggering a spiral of debt, job losses, and weak consumption.
President Xi Jinping inherited the country’s Gilded Age from his predecessors. While previous Chinese leaders’ defining challenge was to reduce poverty through growth, Xi has to deal with the backlash against crony capitalism and speculative bubbles. Using a command-and-control approach, he wants to end China’s capitalist excesses and turbocharge its transition to clean, high-quality development centered on technological innovation. Unlike US progressive leaders a century ago, he rejects political activism as a solution to imbalanced growth. It remains to be seen if he can pull off his brand of “Red Progressivism.” If US history is any guide, it takes years of painful adjustments to get the economy back on its feet after a bubble bursts.
Wonky thinking
The Centre for Policy Studies published Taking Back Control by Robert Jenrick, Neil O’Brien and Karl Williams, laying out a plan to implement voters’ repeatedly stated preferences by reducing immigration to the tens of thousands.
Recent levels of migration have been unprecedented, and the effects have been unevenly felt.
• Migration dramatically accelerated after 1997. In the 25 years up to Tony Blair’s election (1973-1997), cumulative net migration was 68,000. In the subsequent 25 years (1998-2022), it was at least 5.89 million – almost 100 times the previous 25 years.
• Excluding flows of British citizens, net migration from 1964 to 1997 averaged 55,000 a year, whereas since 1997, it has averaged 316,000 per year – well over five times the average rate in the previous period.
• The new system which came fully into effect in January 2021 introduced controls for those coming from the EU, but significantly loosened controls for those coming from the rest of the world, causing immigration to dramatically increase overall. In the previous decade, about twice as many people came from the EU as the rest of the world. But in 2021 and 2022, under the new system, 290,000 people came from the EU and 1.64 million from the rest of the world.
• Between 2001 and 2021, the share of people in England and Wales born outside the UK increased from 9% to 17%. This is higher than the USA (14%), despite the perception of America as a ‘melting pot’. In 2022 the Office for National Statistics (ONS) predicted the UK population would hit 70 million in 2036. It now predicts this will happen a decade earlier, in 2026.
• Even if net migration settles at the long-run rate of 315,000 projected by the ONS, that is still like adding another large city to the UK every year.
• While in many shire and coastal constituencies, less than 5% of the population have arrived over the last 20 years, the figure in many London constituencies is more than 30%, and the same is true for places like Birmingham, Leicester and Manchester…
Rather than a debate on whether migration is ‘good’ or ‘bad’, we should maximise the benefits through a more selective approach.
• Employment rates, earnings and the fiscal impact of different migrant groups vary massively. Our goal should be to make migration more beneficial by making it more selective. Keeping high-wage, high-skill migration but reducing migration that leads to people not working or working on low wages.
• This report sets out immediate steps we could take on each of the main migration routes, along with big picture reforms to the immigration system and migration policymaking. The majority of our three dozen recommendations can be implemented without the need for primary legislation, in the remainder of this parliament. We need to improve the policymaking process
• Forecasting has been poor and there has been little accountability for this. When the health & care visa route was designed, the Department of Health and Social Care (DHSC) estimated that around 6,000 people a year would make use of it. Last year, the number was 24 times higher – over 146,000, plus another 203,000 dependants.
• Unlike other European countries, we lack sophisticated analysis of the lifetime fiscal impact of different groups of migrants, making sensible decision-making hard. Government has much of the data it needs but has yet to join it up and carry out a proper analysis.
We need to address the problems with specific visa routes.
• The skilled worker visa system is too open to abuse. We should accept the MAC’s recommendation to retire the Shortage Occupation List (SOL) altogether, rather than just creating a new, opaque Immigration Salary List (ISL).
• Student visas should be for those who want to study, rather than those seeking a back door into the UK employment market, and in particular the gig economy. We should phase out the Graduate visa, as we did with its predecessor during the Coalition government. There should be an overall cap on student numbers. And foreign students who want to stay in the UK should have to find graduate-level jobs that meet the salary threshold within a six-month period at the end of their studies.
• When the health & care visa route was designed, DHSC estimated that around 6,000 people a year would make use of it. Last year the number was more than 146,000, plus 203,000 adult and child dependants. It is also being abused on an industrial scale, via fake companies, a troubling increase in modern slavery and large numbers of people getting care visas but not working in care. We should instead seek to train more UK workers, offering higher wages as necessary.
• Britain should be open to high-skilled, high-earning medical staff. But our increasing dependence on medical migration sets us apart from our peers: half of junior doctors and 28% of nurses are now non-UK nationals, a massive increase over the last decade. There is no reason a country like the UK cannot train the vast majority of its own medical personnel. We must accelerate the reforms planned under the 2023 NHS Long Term Workforce Plan, and end the tight capping of places at medical schools.
• For family migration, we should end the loophole that allows people to bypass the salary threshold by pooling savings across families and communities. We should also require firm evidence that couples have cohabited for at least a year as a prerequisite for a partner visa, and reintroduce interviews and routine enforcement checks to prevent abuse.
Book of the week
We recommend The Money Machine: How the City Works by Philip Coggan. The financial journalist offers a concise account of how the UK’s financial sector operates.
In the past thirty years, the City has changed beyond recognition. It has always been an important part of the UK economy and a key source of overseas earnings, particularly in areas such as banking and insurance.
The City, or at least its financial markets, has always been powerful. Many blame the “bankers’ ramp” for forcing out the Labour government in 1931, and subsequent Labour governments ran into problems over sterling in 1948, 1967 and 1976. But now the financial markets’ influence seems all-pervasive. Governments round the world find themselves constrained in their economic policies for fear of offending the markets. James Carville, one of President Clinton’s key advisers, remarked that he would like to be reincarnated as the bond market so he could “intimidate everybody”. When the financial system wobbles as it did in 2007 and 2008, the whole economy is threatened.
In addition, a combination of lower tax rates and liberalised financial markets has widened income differentials. Many City employees earn as much in a year as normal people might hope to earn in a lifetime, helping to force the prices of properties in London beyond the reach of teachers and nurses. All this has created a lot of resentment against “greedy” bankers.
Wider share ownership, encouraged by the government through privatisation and tax breaks, has created much greater interest in financial markets, reflected in greater coverage in newspapers and on TV. And, with governments round the world quailing in the face of the cost of state pension schemes, citizens are realising that they may depend on the financial markets for their security in old age.
Why has all this happened? In part, it is because of the breakdown of the financial system that prevailed from the end of the Second World War until the early 1970s. That system, generally known as Bretton Woods, combined fixed exchange rates with strict controls on capital flows, so restricting the scope for financial market activity. Under fixed exchange rates, currency speculation was only profitable at occasional times, such as when Britain was forced to devalue sterling in 1967.
Foreign-exchange controls also made it difficult for investors to buy equities outside their home markets. That reduced the scope for share trading and ensured that the UK equity market was a protected haven, dominated by small firms operating in a climate which author Philip Augar has described as “gentlemanly capitalism”.
But the system broke down in the early 1970s…The first domino to fall was fixed exchange rates. The system had depended on the US dollar but that currency buckled in the face of the costs of the Vietnam War.
Once exchange rates began to float, two things started to happen. First, companies faced foreign-exchange risk when selling goods. For example, Mercedes’ costs were in Deutschmarks; when it sold a car in the US, it received dollars. If the dollar fell against the Deutschmark, that would be bad news. So companies looked for ways to protect themselves from these risks.
Secondly, floating exchange rates created the potential for continuous speculation. The 1970s saw the creation of the financial futures market in Chicago, which allowed traders to bet on the likely movement of exchange rates.
Both developments were opportunities for financial companies. They could make money speculating on the markets and they could make money helping companies protect themselves from foreign-exchange risk. Both opportunities were taken.
Floating exchange rates also had significant implications for governments. Think of three key elements of monetary policy: exchange rates, interest rates and capital controls. Under the Bretton Woods system, countries controlled their exchange rates and capital flows. However, if countries ran a substantial trade deficit, capital would still flow out of the country.
Take the UK, a country which habitually runs a trade deficit. When a foreign company sells goods to the UK, it received sterling in return. (Even if it asks for dollars, the UK buyer of the goods must sell sterling and buy dollars in order to make the payment. Sterling will still flow out of the country.) Eventually, those companies will become less and less willing to hold sterling at the prevailing exchange rate. The Bank of England may be willing to buy that sterling off the overseas companies but it needs foreign-exchange reserves to do so. After a while the money will run out.
To avoid this problem, governments tried to cut the trade deficit. The easiest way of doing so was to raise interest rates; this had the effect of cutting consumer demand for foreign goods. But the result was a stop-go kind of economy, in which periods of rapid expansion were suddenly cut short as governments raised interest rates to protect sterling…
Quick links
GDP grew by 0.6% last quarter, meaning it has left technical recession.
Labour leader Sir Keir Starmer said he would scrap the Rwanda asylum plan.
The Chancellor urged the Bank against a premature interest rate cut.
Shadows Chancellor Rachel Reeves said Labour needs to “rebuild trust” with Muslim communities after voters deserted the party in several council elections.
The Home Office has lost track of 21,000 asylum seekers over the last 5 years.
Immigration is now the most important issue for Tory voters.
Ford said it will reduce sales of petrol cars to hit EV targets.
HSBC and Standard Chartered have lobbied the PM not to add China to the highest level of security threat under new investment transparency rules.
European intelligence agencies warned that Russia is planning multiple acts of sabotage across the continent.
Scale AI, a multi-billion dollar tech group, has chosen the UK for its first international headquarters…
…and Wayve, a UK driverless car start-up, has attracted over $1 of funding 3 major tech companies to commercialise its product…
…and Cambridge University has adopted new policies to promote spin-outs by reducing equity requirements.
The England and Wales Cricket Board plans to sell its stake in the Hundred franchise to private investors.
Research showed those living in cosmopolitan areas have less exposure to people from different class backgrounds.
Parents with a religious faith are more likely to have more children, data revealed.
Obesity and low productivity in the UK are linked, a think tank said.
And finally…
…the French government could not find time for a meeting to discuss moving towards a 4-day week, after a 2-day bank holiday meant no-one was at work.