A couple promote the Piccola Venezia Italian restaurant by rowing their gondola through flood waters on February 12, 2014 in Datchet. Photograph: Getty Images.
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Borrowing is the best way to pay for flood protection

As flood defences provide protection for many years to come, it is wholly appropriate to pay for them gradually with long-term borrowing.

Economics is not called the dismal science for nothing. As we watch the shocking images of filthy water pouring into homes and distressed residents leaving in rubber dinghies, economists are already debating what this means for the next GDP figures. This highlights the shortcomings of GDP as a measure of economic progress, but looking at the wider economic impacts can help us deal with the challenges posed by the floods.

Let us start with GDP and the surprising fact that natural disasters can be good for GDP, at least in months that follow. In the case of the floods, there will need to be a lot of extra spending by households, businesses, insurance companies and the government to clean-up and restore damaged property and infrastructure. Some things will work in the other direction, for instance if a lot of people are unable to work due to the floods, but it will be no big surprise if GDP is pushed up for a while.

But as ever in economics, there is no free lunch and someone will have to pick up the tab. If households are not fully insured, it will be them. If they have cover, it will be the insurance companies and, in turn, the owners of these companies, which may include our pension funds. The government will also need to stump up for the cost of repairing public infrastructure. For some households and the government it may mean taking on more debt, while for others it may mean running down savings. In economic terms, the cost of making good the damage caused by the floods will be to lower the UK’s net wealth.

As the crisis is still unfolding, we don’t yet know how big a dent it will make in UK wealth. Some reports have suggested that it may cost insurers up to £1bn but there will also be uninsured losses for some households and substantial damage to public infrastructure. Of course, none of these losses take any account of the human cost of having one’s home flooded.

If climate change leads to more winters like this one, we are going to experience more frequent hits to the country’s wealth. Taking a longer perspective, we need to play our part in decarbonising the world economy to try to keep climate change within reasonable limits. More immediately, we need to prepare for the problems that even moderate levels of climate change may bring, such as increased winter rainfall. 

While the Environment Agency has a long term investment strategy to protect us against flooding and coastal erosion, not enough is being spent to prevent increasing numbers of households being at risk of serious flooding. The Committee on Climate Change estimate that we should have spent over £0.5bn more on flood defences between 2011-15 and that this under-spending could lead to avoidable flood damages of around £3bn in the coming years.

Naturally, there is a need for a rigorous economic appraisal to ensure that each flood defence scheme makes sense, but we should not set the bar too high. These schemes are now expected to show an incredibly high average of £8 of damage avoided for every £1 spent by the government. Compare this with HS2, where most estimates suggest benefits of around £2 for every £1 spent. 

The sums of money that we need to spend on flood defences are not even that large in comparison with overall government spending. For instance, if we were to spend an extra £250m a year over the next five years to make up for the past shortfall and return spending to the Environment Agency’s plan, this would raise annual government spending by less than 0.04 per cent. While this could be covered by lower spending elsewhere or higher taxation, we could also simply accept slightly more government borrowing. Given the small sums involved, it need not derail plans to balance the budget in the next parliament.

Indeed, as flood defences provide protection for many years to come, it seems wholly appropriate to pay for them gradually with long-term borrowing by issuing 30 or even 50 year gilts, especially when the cost of financing is so low. This would mean that the burden would not only fall on the current generation of taxpayers, but would be spread across the current and future beneficiaries of the flood defences.  

The shocking flooding across large parts of our country must focus minds on the urgent need to improve our defences. The economic and human costs of flooding are real and cannot be masked by any short-term rise in GDP. We need to be prepared to make sensible investments to protect the country’s wealth from its increasingly dismal winter weather.

Julian Morgan is chief economist of Green Alliance

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Today's immigration figures show why the net migration target should be scrapped

We should measure different types of migration separately and set targets that reflect their true impact.

Today’s net migration figures show, once again, that the government has raised expectations of tackling migration and failed to deliver. This is a recipe for disaster. Today’s numbers run far in excess of 300,000 – three times over what was pledged. These figures don’t yet reflect the fallout from Brexit. But they do show the government needs to change from business as usual.

It has been the current strategy, after all, that led the British public to reject the European Union regardless of the economic risks. And in the process, it is leading the government to do things which err on the side of madness. Like kicking out international students with degrees in IT, engineering or as soon as they finish their degrees. Or doubling the threshold for investor visas, and in the process bringing down the number of people willing to come to Britain to set up business and create jobs by 82 per cent. Moreover, it has hampered the UK’s ability to step up during last year’s refugee crisis - last year Britain received 60 asylum applications per 1,000 people in contrast to Sweden’s 1,667, Germany’s 587 and an EU average of 260.

The EU referendum should mark the end for business as usual. The aim should be to transition to a system whose success is gauged not on the crude basis of whether overall migration comes down, irrespective of the repercussions, but on the basis of whether those who are coming are helping Britain achieve its strategic objectives. So if there is evidence that certain forms of migration are impacting on the wages of the low paid then it is perfectly legitimate for government to put in place controls. Conversely, where flows help build prosperity, then seeing greater numbers should surely be an option.

Approaching immigration policy in this way would go with the grain of public opinion. The evidence clearly tells us that the public holds diverse views on different types of migration. Very few people are concerned about investors coming from abroad to set up companies, create jobs and growth. Few are worried about students paying to study at British universities. On the other hand, low-skilled migration causes concerns of under-cutting among the low paid and pressure on public services in parts of the country that are already struggling.

The first step in a new approach to managing migration has to be to abolish the net migration target. Rather than looking at migration in the aggregate, the aim should be to measure different types of migration separately and set targets that reflect their true impact. In the first instance, this could be as simple as separating low and high skilled migration but in the long term it could involve looking at all different forms of migration. A more ambitious strategy would be to separate the different types of migration - not just those coming to work but also those arriving as refugees, to study or be reunited with their families.

Dividing different flows would not only create space for an immigration policy which was strategic. It would also enable a better national conversation, one which could take full account of the complex trade-offs involved in immigration policy: How do we attract talent to the UK without also letting conditions for British workers suffer? Should the right to a family life override concerns about poor integration? How do we avoiding choking off employers who struggle to recruit nationally? Ultimately, are we prepared to pay those costs?

Immigration is a tough issue for politicians. It involves huge trade-offs. But the net migration target obscures this fact. Separating out different types of immigration allows the government to sell the benefits of welcoming students, the highly skilled and those who wish to invest without having to tell those concerned about low skilled immigration that they are wrong.

Getting rid of the net migration target is politically possible but only if it is done alongside new and better targets for different areas of inward migration – particularly the low-skilled. If it is, then not only does it allow for better targeted policy that will help appease those most vocally against immigration, it also allows for a better national conversation. Now is the time for a new, honest and better approach to how we reduce immigration.

Phoebe Griffith is Associate Director for Migration, Integration and Communities at IPPR