The Brexit betrayal is now complete

UK border
UK border

How’s Brexit working out? There have been some marginal positives, but in terms of the economy, it’s been mainly downside, and on the issues that really matter to voters – particularly immigration and a better functioning health service with more money behind it – Brexit has so far manifestly failed to deliver.

A recent European Movement commissioned Business Impact Report found that 94pc of businesses surveyed have experienced negative effects from Brexit, while the National Institute of Economic and Social Research reckons that leaving the EU has already cost the UK economy 2.5pc of GDP.

Dave Ramsden, deputy Governor of the Bank of England, seemed to concur, saying last week that Brexit had “chilled” levels of business investment in the UK.

As chief economist to the Treasury, Sir Dave co-authored much of the economic analysis that lay behind the Government’s “Project Fear” campaign in the run-up to the EU referendum, so you might expect him to gleefully claim vindication. Even so, it’s hard to argue with the numbers, which are abysmal.

Yet the much bigger disappointment for many Leave voters is on migration. Without the promise to take back control of Britain’s borders, Leave could not, and would not, have won.

With net migration surging to record levels over the past two years, there is a growing sense not just of frustration with the body politic, but of abject betrayal.

Once more the politicians have promised something they have been unable to deliver, and this time we cannot hide behind the excuse of distant European elites.

Not that this is a specifically British problem. To a greater or lesser extent, nearly all “high income” economies are suffering from the same failure to control both legal and illegal migration.

In Europe, it’s already reshaping the political landscape, laying waste to the traditional centre ground as it goes. The same thing could yet happen here.

Britain’s Labour Party may be well ahead of the Conservatives in the polls at present. But even with the UK’s first past the post electoral system, which hugely favours the two biggest parties, Labour will surely, in time, wither just as comprehensively as the centre-Left has done on the continent if it fails to address these concerns.

The standard defence of relatively free movement across borders has long been that, despite the pressures imposed on infrastructure and social cohesion, the addition of new skills and younger blood that immigration provides is bound to be economically beneficial in the long run.

This may once have been true. France’s loss was England’s gain when highly skilled Huguenots fled across the channel from the late seventeenth century onwards to escape religious persecution. More recently, the same was true of Ugandan Asians fleeing Idi Amin.

Yet in an age of mass migration from almost everywhere, positive stories like these are much harder to come by. If truth be told, much migration has become more of an economic cost than a benefit.

Economies grow in two ways – either through population growth or productivity gain. It is only the latter form of growth that advances living standards.

If population growth through migration leads naturally to productivity gain, then there would still be an economic case to be made for it, but sadly this no longer seems to be true. To the contrary, very high levels of net immigration over the past twenty years have gone hand in hand with a marked fall off in productivity gain.

Britain’s poor productivity record has many different causes, admittedly, but if the old orthodoxy on the benefits of migration were correct, you would expect to see at least some positives in terms of innovation, work ethic and entrepreneurialism.

Worse still, changes in the mix of immigration, in part brought about by Brexit, has further magnified the economic negatives.

One of the great ironies of today’s record levels of migration is that they seem to have done little or nothing to ease Britain’s acute labour shortages. It is partly to address these shortages that so many work visas are being handed out, particularly in social care, the health service and hospitality. But to little avail.

The latest Office for National Statistics data show net migration of around 750,000 last year, compared to roughly 220,000 in 2019, yet vacancies are still close to record levels.

Today’s vast increase in the number of migrants is moreover entirely driven by non-EU nationals. The upsurge comes from humanitarian visas, international students, and dependents.

For 25 years prior to Brexit, Britain enjoyed some of the smartest immigration you could hope for – trained and educated in Europe but paying taxes in the UK.

The latest wave is overwhelmingly from the sub-continent, Africa and the Middle East. This is not to denigrate their qualities, but much of it is unlikely to have the same tax paying heft as what went before, never mind the greater challenges of integration.

But don’t take it from me; it’s what, in effect, the Office for Budget Responsibility (OBR) said last week in its “Economic and Fiscal Outlook”.

It’s also what the credit rating agency, S & P Global, says in its latest assessment of the UK economy. “Net immigration has remained high even though fewer EU workers are now part of the U.K. labour market”, S & P wrote.

“Yet the skill set of the non-EU immigrants is different and their participation in the labour market is lower. Many are students or refugees. Consequently, immigration does not necessarily help fill the gaps in industries where the workforce is lacking”.

The OBR similarly finds that “those that arrive as students, dependents, or for other reasons tend to have below average labour participation rates”.

As a result of this change in mix, the OBR expects that the surge in migrant numbers will add less than a half to the nation’s labour force as would normally be expected from such an influx.

In attempting to address manifest shortcomings in the post-Brexit migration regime, the politicians face some awkward trade-offs. Do they abandon hopes of a comprehensive free trade agreement with India, where more work visas are part of the price demanded?

What becomes of many of our universities, an increasingly important export earner, if denied the lifeblood of overseas student fees? And who’s going to look after the elderly, or staff our hospitals, if we cut the inflow of foreign workers?

Are we willing to pay significantly more for these services as a way of persuading more Brits to fill the gap? This would only imply higher taxes still, with progressively squeezed labour supply, and permanently higher interest rates.

In its programme of measures to make work pay, the Government has some of the right ideas, but if the package works at all, it’ll take a long time to have a meaningful impact.

Immigration is perhaps the biggest political issue of our time. Brexit was supposed to provide answers. So far it’s made matters worse, not better.

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