Sunday, 18 March 2018

Child poverty forecasts: my bet with Christopher Snowdon


Last week, the Equality and Human Rights Commission published an analysis, by Howard Reed and me, of the impact of changes to tax and benefits on household living standards over the entire period 2010 to 2021-22.  I summarised the key results in the Guardian. We show that these changes are highly regressive: the direct impact is to reduce the net incomes of the poorest fifth of households by about a tenth, on average, while making little or no difference to the incomes of the richest fifth.

We also expect that the impact will be a large rise in child poverty; in particular, we are projecting that as a result of the changes to taxes and benefits, the proportion of children in Great Britain living in households with less than 60% of median income (after housing costs) will rise from just over 30% to about 41% in 2021-22 (Table 1 of the Executive Summary of our report. We could have used other definitions of child poverty – the numbers would be different but the results would be qualitatively similar).

This prediction – which is indeed dramatic – caught the eye of Christopher Snowdon of the Institute for Economic Affairs. Chris’s view is that we are being far too pessimistic; in particular, he notes that predictions made in the early years of the Coalition government by the IFS and others of a sharp rise in child poverty have yet to materialise, partly because of rising employment rates and partly because real wage growth, and hence median income growth, has been very slow.  He also notes, correctly, that the rise we are predicting would be historically unprecedented.

Now economists in general have come in for a lot of flak recently for getting forecasts wrong. Much of this is in my view unfair or misconceived. Nevertheless, I strongly believe that those of us who claim to be experts, and make predictions based on our expertise, should be prepared to stand by those predictions; we should put our money where our mouths are.  

So I offered Chris a bet, which he has accepted, that relative child poverty (on the definition we model) will rise above 37%. This takes into account (in crude terms) the fact that our forecast has a fairly large margin of error: I don’t expect it to be precisely right.  In particular, as Chris rightly highlights below, all sorts of other things will happen to the economy, real wages, rents, etc.  Our model is not a macroeconomic one, and is not designed to forecast those variables, which will impact the results. 

In order to be meaningful, the bet has to be large enough for us to care who wins (ie, it can’t just be a token amount), so it’s for £1,000.  This isn’t the first time I’ve done this: my previous bet with Andrew Lilico (also for £1,000) was on the level of inflation in 2015:  he thought inflation would rise sharply; I disagreed.  I won (unfortunately, Andrew says he’s not allowed to make any further bets with me, although I keep on offering, since Andrew’s predictions on the Brexit process frequently venture into the realms of fantasy).

However, the bet with Andrew was rather easier to define, since we were simply making competing predictions of inflation (“unconditional forecast”).  But the forecast Howard and I are making is conditional; it’s explicitly based on the government implementing the changes to taxes and benefits that have been legislated for or are clearly stated to be government policy.  If those changes aren’t implemented, the forecast isn’t valid any more, and we shouldn’t be held to it.

This raises a slight difficulty in making the bet  - of course there will be further changes in one direction or another, but will they be large enough to mean that we should be no longer held to the forecast and hence the bet should be invalidated?  How big a U-turn – for example on the four-year freeze to most working age benefits, which has a very large impact in our projections – would be required?  In order to deal with this, we’ve appointed an independent arbiter – Chris Giles of the Financial Times, who will if necessary rule on this question in due course.

The final result won’t be in until March 2023 (when the Households Below Average Income statistics for 2021-22) are published. But the first indications will come on Thursday, when the statistics for 2016-17 – the first year of the benefit freeze – are published. 

Christopher Snowdon adds:

I am not betting against Jonathan because his child poverty forecast is the worst prediction ever made, only that it is the latest. I am getting tired of them. We have had eight years of gloomy predictions about rising poverty and spiralling inequality from the ‘independent’ (from whom?) Institute of Fiscal Studies and the relentlessly Eeyorish Resolution Foundation. These predictions invariably receive more media coverage than the real figures do when they are eventually published.

By the time Office for National Statistics’ data exposes these predictions as being wildly off base, people have moved on. No one seems to notice, no one takes the blame and new predictions from the same organisations are given the same credulous reception. As a result, millions of people - perhaps the majority - genuinely believe that the poor have got poorer, inequality has risen, and every measure of poverty has gone up in the age of ‘austerity’.

New figures are published on Thursday but, as of 2015/16, the rate of child poverty is slightly lower than it was before the 2008 crash. This is true in absolute terms, in relative terms and regardless of whether you measure it before or after housing costs. It also happens to be a fact that the incomes of the bottom quintile have risen more than those of richer groups, and income inequality is lower than it was ten years ago. None of this had made the front pages.

The thousand pound question is will it be different this time? It is true that when measured in relative terms, child poverty has risen since hitting a low in 2012/13 and I am less comfortable betting on relative poverty than on incomes or ‘absolute’ poverty (the latter is actually a relative measure that uses 2010/11 as the benchmark). I am generally optimistic about people’s incomes, but with relative poverty it is not clear what optimism implies. Relative poverty tends to fall when the economy is doing badly and rise when it is doing well.

If I thought that the economy was going to be stellar in the next few years while benefits are frozen, I would not take the bet. But I suspect that GDP and wages will, at best, trundle gradually upwards. I don’t share the IFS’s belief that average wages will not return to pre-crash levels until 2022, but it will take at least a year or two.

It is, I think, probable that the next five years will see at least two of the following three: an unspectacular rise in median earnings, fairly low inflation, and rising incomes for those in the bottom deciles who are employed. The government also intends to raise the minimum wage so that it equates to 60 per cent of median earnings, meaning that nobody on the minimum wage full-time will be in relative poverty, and the income tax threshold is due to rise further. This all works in my favour, but it is not the main reason I accepted the bet.

The main reasons are threefold. Firstly, Jonathan was prepared to wager, which is more than can be said for those who make obesity predictions. More academics and pundits should put skin in the game. Incidentally, if any of the people who believe the NHS is going to be privatised want to put money on it, you know where to find me.

Secondly, while I accept that freezing benefits is likely to lead to a rise in relative poverty, the rate being predicted is extremely high. In the last 25 years, it has always been between 27 and 34 per cent. 41.3 per cent by 2021/22 would be one hell of a jump and even the lower rate of 37 per cent that is the basis of our bet would, as Jonathan says above, be unprecedented. That doesn’t make it impossible, but an extraordinary outcome requires extraordinary policies. I’m not convinced that May’s benefit reforms fit the bill.

Thirdly, every previous forecast I can recall has been wrong - and wrong in the same direction. They have all overestimated the rate of future poverty, inequality and, in the case of Danny Blanchflower, unemployment. It would be Sod’s Law if a prediction finally came true when I have money against it, but I don’t think the earlier predictions were wrong because of a run of bad luck. I think they suffered from the same systemic flaw. Leaving aside the possibility that they they are deliberately biased upwards to draw public attention to policies of which the authors disapprove, they tend to be based on what people’s income would be if they did not respond to economic incentives. But people change their behaviour to maximise financial returns. One reason why incomes have risen so much in the bottom fifth since the crash is that people have moved into the labour market - or, if already in the labour market, have worked more hours. We now have the lowest unemployment rate in forty years, but it could go lower.

I haven’t read Jonathan’s report and I claim no expertise. I am just some chump who distrusts gloomy economic forecasts. Do bear that in mind if I win the bet. But I have to say that this is probably all academic. The most likely outcome of this bet is that it is invalidated by a change in policy. The Tories have developed a peculiar habit of shouting loudly about big, unpopular spending cuts and then whispering quietly when they deliver the inevitable U-turn, thereby ensuring the worst possible publicity for the least possible benefit to the public finances. I expect these reforms to be watered down or ended prematurely for political reasons, so we will probably never know if Jonathan’s model was right.

Wednesday, 27 December 2017

Marking myself to market: my forecasts for 2017, evaluated


Every year the Financial Times asks, just before Christmas, 100-odd UK economists for their predictions for the year to come.  And in recent years, in the spirit of Brad Delong’s call for economists to “mark their beliefs to market”, I’ve looked back at what I said last year.  So here are my responses from December 2016 (the whole FT survey is here) with some ex post self-assessment.  

1. Economic prospects

How much, if at all, do you expect UK economic growth to slow in 2017? Please explain your answer.

I would expect it to slow somewhat in the first half of the year. What happens in the second half depends very much on developments with the Brexit negotiations (as well as events in the US and elsewhere in Europe). We could see reasonable if not spectacular growth, but downside risks are large

Assessment: Accurate. Growth did slow significantly in the first half of the year, but there was no recession.

2. Brexit

Compared to what you thought 12 months ago about the UK's long-term economic prospects outside the EU, are you now more optimistic or more pessimistic than you were?
   

Please explain your answer.

The strong consensus amongst economists is that Brexit will make the UK significantly worse off in the medium to long term - not disastrously so, but significantly. This is backed up by a considerable body of theoretical and empirical evidence. Of course, this evidence is based on historical data, and past is not necessarily prologue; there is a high degree of uncertainty. But the probability must be that Brexit will make us worse off. It is also important to note that while economic developments since the referendum have certainly not borne out the pessimistic forecasts of some institutions, that really tells us almost nothing about long-term impacts - short-term forecasts are made using very different methodologies to those used to estimate long-term impacts, and (paradoxically) are much less reliable.

Assessment: not much new evidence on this.  It still seems a reasonable assessment to me.

3. Inflation

Inflation has started to increase in recent months. To what extent do you expect inflation to rise in 2017?

If the exchange rate stays where it is to about 3%. However, if it falls a lot farther inflation could rise more (or conversely)

Assessment: Accurate. It is currently at 3.1%, which is likely to be the peak.

4. Monetary policy

In December, the Monetary Policy Committee said the next interest rate move could as easily be up as down. Will there be a shift in this monetary policy stance by the end of 2017? Please explain your answer.

It is difficult at the moment to see the next move being down, even if the economy worsens. Barring negative shocks (which are quite possible) I'd expect the next move to be up.

Assessment: Accurate.  The Bank of England raised interest rates in November.

5. Immigration

Immigration is likely to be central to the Brexit negotiations in 2017. How much do you think immigration will change and what effect do you think this will have on the UK economy?

My recent research suggested that EU migration to the UK could fall by well over half over the period from now to 2020, resulting in net EU migration falling by more than 100,000. Both the state of the economy and the existence of free movement of workers are significant determinants of migration flows. In particular, free movement with the UK results in an increase of almost 500% - that is, by a factor of six. It follows any significant restrictions on free movement will reduce those flows. I also used the existing empirical research on the impact of migration on productivity, growth and wages to estimate the broader economic impacts of such a reduction. Over the period to 2020, the resulting reduction in GDP would be about 0.7 to 1.3%, with a GDP per capita reduction of 0.3 to 0.8%. By contrast, the increase in low-skilled wages resulting from reduced migration is expected to be relatively modest.

Assessment: Accurate up to now. As I predicted, migration, especially from the EU, has already fallen substantially, even before any changes to free movement or immigration policy, and this is likely to be part of the reason growth has weakened. 

6. Fiscal policy

Philip Hammond is expecting government borrowing to fall in 2017. His new fiscal rules provide headroom for more borrowing than currently forecast. To what extent will he need to use it and why?

The OBR's fiscal forecasts look relatively pessimistic; however the economic ones may be too optimistic. Moreover, current spending plans for health and social care (and perhaps education) look unrealistic. The NHS is clearly significantly underfunded (it is basic economics that a richer, older society should, from the point of view of overall welfare or wellbeing, spend a greater proportion of GDP on health over time - the reverse has been the case over the past few years.) It is not clear that such spending increases should be financed by borrowing, but the government is unfortunately committed to a set of tax cuts that have little economic rationale and will mostly benefit the relatively better off. Some discretionary increase therefore seems likely.

Assessment: Accurate.  It has become abundantly clear (if it wasn’t already) that the NHS is underfunded, and, as I suspected, the government does not have the political will to raise taxes. There has therefore been some discretionary fiscal loosening, although current plans still look unrealistic and the current government is still intent on changes to the tax and benefit system that will redistribute from the poor to the better off.

7. Donald Trump

How do you think Donald Trump's presidency will affect the UK economy in 2017?

This is exceptionally uncertain, for obvious reasons. However, it does look likely that US interest rates may now begin to rise steadily. This will put some downward pressure on the pound and upward pressure on UK long-term rates, which may well be unwelcome.

Assessment: Mixed at best.  Interest rates have risen, but not steadily, and sterling has risen against the dollar rather than fallen over the year. Not particularly insightful (though I did say that it was highly uncertain).

Overall assessment: Broadly accurate. I got most things broadly right: growth, inflation, interest rates, fiscal policy, and – reassuringly, given that this was based on my research rather than just educated guessing – immigration.  Indeed, it’s notable that while lots of economists got individual things wrong, overall and on average we were pretty accurate, especially on the UK’s headline growth performance. I don’t think any of us said anything terribly useful about Trump, however, certainly not me.

Finally, since Patrick Minford, of Economists for Brexit, recently claimed, falsely, that I’d predicted a recession after the Brexit vote, it’s worth noting what he said last year: 
The Cardiff/Liverpool forecasting group does not expect a slowdown but rather that growth will continue in the 2-3% corridor of 2016.   The reasons are that a) the Brexit long run effect should be positive due to the opening up of free trade globally and the return of regulation to the UK from the EU, while we expect migration control to be exerted on unskilled labour where taxpayer costs are high, leaving skilled labour lin its current liberal regime. b) ‘uncertainty’ is mild, since it spans a range from a status quo ‘soft’ Brexit to a ‘clean’ Brexit with effects as in a)- uncertainty therefore about the upside.

More (even more embarrassing) detail here, via Chris Giles. 

The FT Economists survey for 2018 will be published early in the New Year.




Friday, 22 September 2017

Citizens' rights: will Theresa May keep her promise?

Did Theresa May just commit the UK to keeping a key Vote Leave promise? No, not the £350 million – we may be getting back full control over our own laws, but not the laws of arithmetic. I mean this one, signed by three current members of the Cabinet, Boris Johnson, Priti Patel, and Michael Gove:
There will be no change for EU citizens already lawfully resident in the UK. These EU citizens will automatically be granted indefinite leave to remain in the UK and will be treated no less favourably than they are at present
In fact, when the UK belatedly produced its counterproposals on the rights of UK citizens in the EU and EU citizens here, they were considerably less generous than the offer made by the EU27, and in particular they explicitly removed a number of important rights.  Perhaps most obviously, the UK proposes that EU citizens in the UK will no longer have the same rights to be joined by family members, but instead will be subject to the considerably more restrictive rules applied to UK nationals:
Future family members of those EU citizens who arrived before the specified date – for example a future spouse – who come to the UK after we leave the EU, will be subject to the same rules that apply to non-EU nationals joining British citizens
Now, some might argue that this is “fair”, because it brings to an end a position where EU nationals in the UK (and indeed UK nationals elsewhere in the EU) have, in some respects, more rights than Britons here. On the other hand, EU nationals who moved here exercising their free movement rights did so on the basis that they had these rights, which the UK signed up to in various Directives. 

Moreover – and this is my view – if anyone is really worried about the “unfairness” to British citizens, then that unfairness could be ended tomorrow by the UK government, which could simply give us the same rights EU citizens have. The fact that most of those who make this argument are unprepared to contemplate this solution carries more than a whiff of hypocrisy.  Nor are these the only rights EU nationals will lose, as Dr Mike Ward explains.

Some commentators – in particular, Migration Watch and Daniel Hannan – continue to attempt to mislead the public about this: for example, Daniel Hannan recently claimed that “EU citizens will have all the same rights as now”, while Migration Watch argue that when they said that “EU citizens will keep their existing rights” they didn’t mean all their existing rights.  But no one senior in government has made such an obviously false claim; indeed, David Davis explicitly recognised that EU nationals would lose some of their current rights, saying “we agonised” over the issue.

That is, until today, when in response to a question from an Italian journalist, the Prime Minister did just that (video – at about 1.13):
Q.  As you said, 600,000 Italians now live in the UK.  You said that you want them to remain.  What is going to change for them – I guess something is going to change?
A. (the Prime Minister).  We set out that for those EU citizens currently living in the UK who have made the UK their home, including those 600, 000 Italians who are in the UK, we want them to be able to stay and to have the same rights as they have at the moment.
That is unequivocal.  The same rights they have now.  Now, of course, the Prime Minister’s statement is technically untrue – the UK has set out no such thing.

But that’s not really the point, because what matters is not what we’ve said so far, but what we do next – and in particular, what David Davis and Ollie Robbins, our lead representatives, say at the negotiations next week.  Monsieur Barnier has already signalled very clearly in his response to the speech that he expects them to make good on the Prime Minister’s promise. 

So do they say that the Prime Minister didn’t really mean it, or didn’t understand what she was saying, and that the UK’s position remains unchanged – we have no intention of giving EU citizens “the same rights as they have at the moment”?  In that case, why on earth should anyone in the rest of the EU27 take anything she, or the UK government says, seriously? Such a course would be deeply damaging to the Prime Minister’s credibility (especially in Italy, where her comments have been widely, and accurately, reported).  Or do they, belatedly, do the right thing, and change the UK’s approach -  a course of action which would generate a huge amount of goodwill?  Three million EU citizens here and a million Britons elsewhere in the EU are waiting to hear. 

Wednesday, 5 April 2017

The contradictions of Fraser Nelson

Fraser Nelson is upset with this passage, from my blog about statistics yesterday:
A similar, but even more toxic, disjunction from reality is seen in those who claim that poverty is not about money. For example, Fraser Nelson frequently claims that the Labour government saw poverty solely through the lens of numbers, and that the Brown strategy of attacking child poverty by redistributing money to the poor via tax credits was simply manipulating numbers on a spreadsheet. 
Fraser says:
You quote me saying “poverty is not about money”. I’ve never said that. My point: it’s not JUST about money. Please correct.
Fraser can read and isn’t stupid, so he knows perfectly well I didn’t “quote” him directly saying “poverty is not about money”; rather, I attributed that view to him (among others). And I linked to his Telegraph article, in which he says this:
At the heart of the Child Poverty Act lies an agenda which has arguably done more damage to Britain’s social fabric than any idea in modern history. It is based on the Eurostat definition of poverty: an income 40 per cent below the national average....instead of fighting poverty, the Labour government spent billions manipulating a spreadsheet – to catastrophic effect.
Tax credits boosted the incomes of low income families and reduced poverty as measured by low income.  It is therefore, as a matter of simple logic, impossible for Fraser to admit that, as he did yesterday, that “low income is the most important measure of poverty”, and at the same time stand by his earlier view that billions were spent on tax credits “instead of fighting poverty”. 
    
If Fraser’s point was that at least some of the money spent on tax credits could have been spent more efficiently on addressing poverty in other ways – that is, that what Labour did was not necessarily the best way of fighting poverty - then he could have said that. But he didn’t. Instead, he claimed that money spent on tax credits made absolutely no difference to poverty – and indeed, in some undefined sense, had a “catastrophic” impact.  And just in case anyone thinks I’m quoting him selectively, nowhere in his entire article is there anything remotely consistent with his admission yesterday that low income is indeed the most important measure of poverty..

Now it may be that the obvious contradiction between Fraser’s article and what he said yesterday means he’s changed his mind. In that case he should say so. Or maybe he never really meant what he wrote, but went over the top in his hyperbole, Again, he should say so. What he shouldn’t do is try to pretend he never made an argument he – rightly – describes as “repugnant”. 

Finally, Fraser decided to invoke the Independent Press Standards Organisation, resulting in this exchange:




He has declined to take me up on it. The offer remains open. 

Monday, 3 April 2017

Spreadsheets are people too: statistics and reality

One of the occupational hazards of taking data and statistics seriously – and using social media to do so – is frequent accusations that my focus on hard numbers means that I have my head in the clouds, or buried in a computer, and am therefore somehow detached from “reality”.  I’ve lost count of the number of times a Twitter link to a chart, research paper or ONS data release, making a point about what the evidence shows, is greeted by some version of “why don’t you stop looking at spreadsheets and get out into the real world?

This is particularly the case for immigration.  The response to the overwhelming evidence that, in the UK, there is no measurable impact of immigration on employment, and only a very modest impact on the wages of the low-paid, is often an anecdote, a reference to (perceived) personal experience, or just an injunction that I should spend more time in the pub.  Here’s a recent typicalexample (amazingly and embarrassingly, from a lecturer at King’s, my own university, in a scientific discipline):
Jonathan Portes gave an accomplished performance, asserting that immigration has boosted society, and that it hasn’t depressed wages. Such thinking may be lapped up by a forum of intelligentsia, but try telling that to my landscape gardener friend, who has been severely undercut by waves of east Europeans. 
I was reminded of this by a tweet, attached to a passage in David Goodhart’s new book.  This, Daniel Bentley at Civitas argued, is a “really underappreciated point”

In recent years the falling relative pay for basic jobs, the overwhelming stress on mobility and educational stress, the hourglass labour market and the apartheid system created by a mass higher education system have all made it harder for the mainly Somewhere people doing routine jobs to feel valued and dignified in the modern economy.

Underappreciated, perhaps, because it’s wrong.  Leaving aside the truly bizarre apartheid analogy (Mr Goodhart has a habit of this sort of thing, as I've noted before) the claim that “in recent years” relative pay has fallen for basic jobs is simply false. It’s true enough that earnings inequality did widen sharply in the 1980s and early 90s.  But this isn’t exactly “recently”, and has absolutely nothing to do with the post-1997 immigration Mr Goodhart blames for much of the UK’s contemporary problems.  Indeed, over the last decade, if anything, boosted by increases in the National Minimum Wage, it has improved somewhat, as this chart shows:



Now I would argue that this point – that workers at the lower end of the earnings distribution have done particularly badly - is pretty fundamental to the entire argument Mr Goodhart is making (indeed, the importance of this paragraph to Mr Goodhart’s thesis is presumably why Mr Bentley highlighted it). So you might think that getting it wrong matters rather a lot.  But I have no doubt what Mr Goodhart’s response will be.  As with my review  of his earlier book, “The British Dream”, which listed (very much non-exhaustively) a number of his more glaring factual errors, he wouldsay that I am “sniping in the footnotes” and that I spend too much time with databases and not enough in the “real world”.

But there is a fundamental problem with the argument by those like Dr McCrae or Mr Goodhart that “spreadsheets” or “databases” are somehow divorced from reality, while the experiences of  (selected) individuals represents it.  In fact, spreadsheets – or at least the ones used by labour market economists and, indeed, quantitative social scientists more broadly, are far more closely connected to the “real world” than any individuals’ experience can hope to be.

Consider the Labour Force Survey (LFS), the primary data source for economists analysing the UK labour market. Each quarter the LFS samples 40,000 households, covering 100,000 individuals, a representative sample of (broadly) the UK resident population; lengthy interviews are conducted in person (and subsequently by phone) and cover a wide range of topics in considerable detail, from education, earnings and employment to age, marital and family status, country of birth, and disability.

So when I say that the evidence is clear that immigration doesn’t impact on the employment of UK-born residents, this analysis is formulated in terms of numbers on a spreadsheet or data points in a regression. But behind those numbers are what tens of thousands of real people have told professional interviewers, and in a way which means that the results are in turn representative of lived experience of the UK population as a whole.  

So the statement that, say, the bottom decile of full-time workers have recently seen their pay rise faster than average is not (just) a statement about numbers, or a claim that Mr Goodhart has failed to read the right ONS spreadsheet.  It is a statement about what has – contrary to Mr Goodhart’s claim - actually happened to the pay packets of several million people.  It is the spreadsheet, not what my nephew looking for a job, your cab driver, or Dr McCrae’s landscape gardener friend say that best reflect the real world.

A similar, but even more toxic, disjunction from reality is seen in those who claim that poverty is not about money. For example, Fraser Nelson frequently claims that the Labour government saw poverty solely through the lense of numbers, and that the Brown strategy of attacking child poverty by redistributing money to the poor via tax credits was simply manipulating numbers on aspreadsheet:
Someone who is nudged just above this threshold, with an extra £10 a week, is deemed to be “lifted out of poverty”, although the people concerned would be astounded to hear themselves so described. If they had a family, then their children would be described as being “lifted out of poverty”. So, by precision-bombing the right people with tax credits, you could claim to have lifted hundreds of thousands of children out of poverty.,, instead of fighting poverty, the Labour government spent billions manipulating a spreadsheet – to catastrophic effect.
[UPDATE: Fraser Nelson doesn't like this description of his views. I discuss his contradictions here]

And indeed it is true that this approach was shaped and driven by numbers on spreadsheets – numbers which represented hundreds of thousands of low-income families with more money in their bank accounts to spend on food, shoes or the occasional holiday. There’s plenty of evidence that’s exactly what happened, with commensurate improvements in child welfare.  A comprehensive review by the Joseph Rowntree Foundation concluded – unsurprisingly to anyone who knows anything at all about the topic:
Children in low-income households do less well than their better-off peers on many outcomes in life, such as education or health, simply because they are poorer 
In other words, despite Mr Nelson’s rather convenient assumption, the spreadsheet-driven policy – by ensuring that low-income parents had enough money to look after their children - worked in the real world. 

None of this means that talking to people – or, more relevantly for these topics, rigorous qualitative research, which is generally not what the critics mean – is not useful and sometimes necessary to get a full picture.  But suggesting that data doesn’t represent reality as well as personal experience is simply the opposite of the truth.   If you want to know what’s actually going on in the real world, look at the data.

Saturday, 4 March 2017

EU citizens’ rights: the Brexit Committee report

The report of the Commons Committee on Exiting the EU (known to its friends as the Brexit Committee) on the rights of EU citizens resident here, and UK citizens resident in other EU countries, is a welcome contribution to a debate that has so far generated rather more heat than light.

The headlines will be for its recommendation that “the UK should now make a unilateral recommendation to safeguard the rights of EU nationals living in the UK” (in other words, that the government should accept at least the spirit of the Lords’ amendment passed last week).

This is entirely sensible; the government’s line that we need to hold back on this commitment to use as a “bargaining chip” (regardless of what you think of the morality of this approach) is flimsy at best.   For it to be a useful bargaining chip, we would need a credible threat; since there is neither the political will or the administrative capacity to deport large numbers of EU citizens, this does not exist. 

In the meantime, the government’s refusal to commit is damaging the UK, both directly and in terms of the UK’s image.  In fact, this line is dictated far more by domestic politics – in particular, the need to show that it is the government, not Parliament, that will shape our approach to Brexit – than by the Article 50 negotiation strategy.

But the report is perhaps most useful for its thorough and detailed explanation of the administrative and bureaucratic hurdles that will remain even when a solution is agreed in principle. As I wrote back in August:
The practical issues involved are formidable..There aren’t any ideal options – just less bad ones. But anybody who thinks that with the best will in the world this will be an easy issue to resolve is living in a fantasy world.

The Committee echoes this, and calls on the government, as a matter of urgency, to either reform or (preferably) replace entirely the current permanent residency application process:
The current process for consideration of permanent residency applications is not fit for purpose and, in the absence of any concrete resolution to relieve the anxiety felt by the estimated three million EU citizens resident in the UK, it is untenable to continue with the system as it stands. We recommend that the Government set out whether it intends the permanent residence system to be the basis for EU nationals to demonstrate their eligibility to reside in the UK once the UK leaves the EU. If so then it needs to set out as a matter of urgency, how it will reform the permanent residence application system. If not, then it needs to set out what an alternative system will involve and what will be expected of EU nationals to demonstrate their eligibility to reside in the UK once the UK leaves the EU.

Importantly, there is absolutely no reason for the government not to start on this now and to say so; in practical terms, it wouldn’t commit the government to doing anything it won’t have to do at some point anyway. The fact that it hasn’t reflects a combination of bureaucratic inertia and political unwillingness to accept the inevitable consequences (for Home Office resources, for employers, and for individuals). But reality has to kick in sometime.  The sooner this happens, the smoother the process will be, and the less unnecessary damage that will be inflicted.  The Committee has a large number of detailed and practical recommendations (on the need for any process to be simple, without unrealistic  administrative or technical  hurdles, and for data-sharing).  The government would do well to listen.

Separately, the Committee also discusses the post-Brexit immigration system, without coming to any particularly firm conclusions. But it does make two important, related points. First, that “taking back control” when it comes to immigration policy/free movement doesn’t have much to do with border control per se.  The Committee quotes me:
Ending free movement immigration control is not going to be enforced at the borders at all. It simply is not. We are still going to let people in, at Stansted and Heathrow, with French passports. They just will not have the right to work here, and that right to work will be enforced at the workplace.”

This point is fundamental – it is employers (and landlords, public services, universities, etc) who will be at the sharp end of changes to free movement.  As the Committee says, “any new system will add to the regulatory burden.”  Or, as I put it:
When it comes to immigration, “taking back control” means expanding the size and role of the state.

However, one potential advantage of this point – that what we do at border controls is not necessarily determined by what we do about individuals’ right to work in the UK – is reflected in the Committee’s acceptance that there could, in principle, be a geographic component to future policy – a Scottish work permit, or a London one.  Those who say that this would require border controls at Hadrian’s Wall or the M25 simply miss the point.


There’s lots more detail on this and other issues in the report, which is certainly the best summary of this set of issues produced so far; it is well worth reading in full. 

Thursday, 23 February 2017

Immigration is falling. Be careful what you wish for..

Today’s immigration figures are the first with any meaningful data after the Brexit vote. And they show – as I predicted back in August – a fall in EU migration to the UK, particularly those coming from the countries of Central and Eastern Europe (the “EU8”) that joined the EU in 2004; in the year to September, net migration from these countries fell by about 20,000.   Meanwhile, the number of new National Insurance registrations in the year to December was flat, but again numbers from the EU8 fell.  Broadly, the figures are consistent with the fall in the number of EU nationals in the UK workforce that I highlighted last week.  Non-EU immigration also fell, particularly for students, now at the lowest level since 2002.




So what’s going on? After all, nothing has changed in law or policy terms– we are still a member of the EU, and will be for some time, and we still have freedom of movement.  But it’s not just today’s law that matters to existing and future migrants.  I also warned back in August that even if politicians behaved sensibly, dealing with the status of EU nationals already here was likely to be an intractable bureaucratic tangle. Since then, the government has done little or nothing to reassure them, nor to streamline the process. It is hardly surprising that some are already choosing to leave.

More broadly, if people cannot plan with any confidence, not just about themselves but their families, they are both less likely to come and less likely to stay. Small wonder that employers – not just farmers, but sectors ranging from the National Health Service to universities – are finding it far harder to persuade EU nationals to take up jobs in this country.  And this, once again, illustrates a vitally important point; migration is not just a matter of the UK choosing migrants; migrants have to choose us. Even if we wish to remain open to skilled migrants from elsewhere in the EU post-Brexit, they may not choose to come here (or remain here).

It is still very early days – forecasting migration flows, particularly at a time of policy change, is extremely difficult.  But we can already begin to sketch out the long-term implications. If, as my previous research predicts, net migration from the EU falls by more than half over the next five years, the economic impact on the UK will be significant; the resulting hit to GDP could be about 0.6 to 1.2%, with a GDP per capita reduction of 0.2 to 0.8%. Over the period to 2030, the resulting reduction in GDP per capita could be up to 3.4%. By contrast, the increase in low-skilled wages resulting from reduced migration is expected to be relatively modest.  


So those who – from both sides – have argued that Brexit will not lead to a substantial fall in migration, especially from the EU, are wrong.  Indeed, the government’s target of reducing migration to the “tens of thousands” is not nearly as unrealistic as many think – particularly if the labour market weakens significantly over the next year or two.  But the government – and those who support an end to free movement – should be careful what they wish for.  Perhaps it will ease very slightly pressure on the wages of some low-paid workers; but this will be far outweighed to the cost to us all in growth and tax revenues.