Clegg’s new tone on the economy

The coalition needs to work on a climb down.

It’s not every day you open the paper to read about a cabinet minister – one who isn’t the Chancellor - holding forth about the ‘instruction’ that has been given to the Treasury on a key aspect of economic policy. Nor we should we suppose that Nick Clegg elected to give the interview to the FT only to use this line due to a slip of the tongue.  It tells us something.

The specifics are about whether the Treasury should use its ‘balance sheet’ to enable a ‘massive’ increase in infrastructure spending (on housing and transport).  The timing reflects the wider context. The last few weeks have been unkind for the Coalition’s favoured economic narrative. The return of recession has been the key event but hardly the only one. The election of President Hollande, the continued euro-zone crisis, President Obama regularly appearing on our TV screens talking about jobs and growth, a Labour reshuffle that was seen to help unify different shades of economic opinion, and now the IMF saying (once again) that further action may be required, including fiscal stimulus, if the economy doesn’t pick up – all these have unsettled the Coalition.   

As a result the economic and political mood has, for now at least, tilted away from the Coalition on the economy. Pundits who were once scathing about any deviation from the coalition’s economic strategy are now straining to see nuance and be open minded.  Of course, we should never underestimate the fickleness of the commentariat – sentiment could easily shift back again – but the Coalition won’t be relaxed about how this is currently playing out.

One reason for their concern is that they feel very dug in. The stringency and tone of the economic argument made since 2010 on fiscal consolidation didn’t leave rhetorical space for a graceful transition to a different tack if the economy didn’t recover as hoped. That was a very deliberate choice. And given the enormous levels of uncertainly about our economic prospects it was always a foolhardy one.  

Which brings us back to Nick Clegg’s remarks. They are a sign of the resulting strain. Based on the FT report it’s not exactly obvious what the instructions given to the Treasury are, though the point is clearly designed to signal that infrastructure investment will be increased as part of a new emphasis on growth, and that the state can facilitate this without further increasing borrowing (let’s leave to one side the reality that capital investment is actually being slashed). Nor is it immediately obvious why the government thinks that borrowing at rock-bottom interest rates will lead to economic Armageddon yet piling new risks on the state balance sheet is a shiny new idea fit for our times.

Whatever the substance, the way this new tone on the economy has materialised also raises questions.  To date, the rules of exchange for the Coalition have been clear: the parties can differentiate on all manner of issues but when it comes to overall macroeconomic and fiscal policy they have to be seamless. It’s the glue that binds. True, Clegg emphasised that the new edict for the Treasury was agreed by Cameron, so it would be wrong to overstate this, but any perception of disagreement between the coalition parties on core economic strategy would be poison for them.  

Economically, it is to be hoped that there will be a shift in strategy – whatever label they choose to put on it – and others have set out compelling ideas for the form this could take.  Politically, the coalition urgently needs to work out exactly how it wants to evolve its economic narrative in the light of shifting events and then stick firmly to this script. And it might be a good idea if the Chancellor led the way.
 

Photograph: Getty Images

Gavin Kelly is a former adviser to Downing Street and the Treasury. He tweets @GavinJKelly1.

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Staying in the EU would make it easier to tackle concerns about immigration, not less

Brexit is not only unlikely to deliver the control people want, it may actually undermine people’s faith in the system even further.

As Theresa May prepares to set out her latest plan for Brexit in Florence on Friday, those on all sides of the debate will wait to see if there are answers to fundamental questions about Britain’s future outside of the EU. Principle among those is how the UK immigration system will work. How can we respond to Leave voters’ concerns, while at the same time ensuring our economy isn’t badly damaged?

We must challenge the basic premise of the Vote Leave campaign: that dealing with public’s concern about immigration means we have to leave the EU and Single Market.

In fact the opposite is true. Our study into the options available to the UK shows that we are more likely to be able to restore faith in the system by staying within Europe and reforming free movement, than by leaving.

First, there are ways to exercise greater control over EU migration without needing to change the rules. It is not true that the current system of free movement is "unconditional", as recently claimed in a leaked Home Office paper. In fact, there is already considerable scope under existing EU rules to limit free movement.

EU rules state that in order to be given a right to reside, EU migrants must be able to demonstrate proof that they are either working, actively seeking work, or self-sufficient, otherwise they can be proactively removed after three months.

But unlike other continental systems, the UK has chosen not to operate a worker registration system for EU nationals and thus has no way of tracking where they are or what they’re doing. This could be changed tomorrow, if the government were so minded.

Other reforms being discussed at the highest levels within Europe would help deal with the sense that those coming to the UK drive down wages and conditions. The UK could make common cause with President Macron in France, who is pushing for reform of the so-called "Posted Workers Directive", so that companies seeking to bring in workers from abroad have to pay those workers at the same rate as local staff. It could also follow the advice of the TUC and implement domestic reforms of our labour market to prevent exploitation and undercutting.

Instead, the UK government has chosen to oppose reform of the Posted Workers Directive and made it clear that it has no interest in labour market reform.

Second, achieving more substantive change to free movement rules is not as implausible as often portrayed. Specifically, allowing member states to enact safeguards to slow the pace of change in local communities is not unrealistic. While the principle of free movement is a cornerstone of the European project, how it is applied in practice has evolved. And given that other countries, such as France, have expressed concern and called for reform, it is likely to evolve further.

The reforms to free movement negotiated by David Cameron in 2016 illustrate that the EU Commission can be realistic. Cameron’s agreement (which focused primarily on benefits) also provides an important legal and political precedent, with the Commission having agreed to introduce "safeguards" to respond to "situations of inflow of workers from other Member States of an exceptional magnitude over an extended period of time".

Similar precedents can be found within a number of other EU agreements, including the Acts of Accession of new Member States, the European Economic Area (EEA) Agreement and the Treaty on the Functioning of the European Union (TFEU). The UK should seek a strengthened version of Cameron’s "emergency brake", which could be activated in the event of "exceptional inflows" from within the EU. We are not the first to argue this.

Of course some will say that it is unrealistic to expect the UK to be able to get more than Cameron achieved in 2016. But put yourself if in the shoes of the EU. If you believe in a project and want it to succeed, moral imperative is balanced with realism and it hardly needs pointing out that the political context has radically shifted since Cameron’s negotiation.

In contrast, a "hard Brexit" will not deliver the "control of our borders" that Brexiteers have promised. As our report makes clear, the hospitality, food, manufacturing and social care sectors heavily depend on EU workers. Given current employment rates, this means huge labour shortages.

These shortages cannot be wished away with vague assertions about "rejoining the world" by the ultra free-market Brexiteers. This is about looking after our elderly and putting food on our tables. If the UK leaves in April 2019, it is likely that the government will continue to want most categories of EU migration to continue. And whatever controls are introduced post-Brexit are unlikely to be enforced at the border (doing so would cause havoc, given our continued commitment to visa-free travel).  Instead we would be likely to see an upsurge in illegal migration from within the EU, with people arriving at the border as "visitors" but then staying on to seek work. This is likely to worsen problems around integration, whereby migrants come and go in large numbers, without putting down roots.

We can do this a different way. The important issues that most drive public concern about EU migration - lack of control, undercutting, pace of change - can be dealt with either within current rules or by seeking reform within the EU.

The harsh truth is that Brexit is not only unlikely to deliver the control people want, it may actually undermine people’s faith in the system even further.

Some will say that the entire line of argument contained here is dangerous, since it risks playing into an anti-immigrant narrative, rather than emphasising migration’s benefits. This is an argument for the ivory tower, not the real world.

There is a world of difference between pandering to prejudice and acknowledging that whilst EU migration has brought economic benefits to the UK, it has also created pressures, for example, relating to population churn within local communities.

The best way to secure public consent for free movement, in particular, and immigration in general, is to be clear about where those pressures manifest and find ways of dealing with them, consistent with keeping the UK within the EU.

This is neither an attempt at triangulation nor impractical idealism. It’s about making sure we understand the consequences of one of the biggest decisions this country has ever taken, and considering a different course.

Harvey Redgrave is a senior policy fellow at the Tony Blair Institute for Global Change and director of strategy at Crest Advisory.