Vince Cable attends Liberal Democrat conference. Photo:Getty Images
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David Cameron can't keep blaming it all on the Liberal Democrats

Now he doesn't have those pesky Liberal Democrats to blame, David Cameron will soon find that his migration policies are a political and legal headache. 

So was it all Vince Cable’s fault? The latest figures show that the Government has once again missed its net migration target by a mile. The figures for net migration – the difference between immigration and emigration – for 2014 are more than three times David Cameron’s original target of net migration in the ‘tens of thousands’. But, listening to Cameron’s speech today, you could be forgiven for thinking that the failure of the Coalition Government’s net migration target could be pinned squarely on Lib Dem intransigence. Now, with a majority Conservative government, Cameron argued that he could put in place the reforms needed to get net migration down, to be set out in a new Immigration bill in the Queen’s Speech.

The truth is that, without the Lib Dems, the new government will still struggle to meet the net migration target – or its ‘ambition’, as it was referred to in the Conservative manifesto. There are three sets of measures the Prime Minister wants to pursue: a crackdown on illegal immigration; a renewed effort to support British people into employment (with an echo of Gordon Brown’s ‘British jobs for British workers’); and reforms to European freedom of movement through negotiations with the rest of the EU.

But none of these efforts are likely to have a significant impact on net migration. First, the vast majority of individuals making up the inward migration figures have a legal right to stay in the UK, so addressing illegal immigration is a red herring. Second, while some of Cameron’s efforts to support training and skills policy and address the exploitation of migrant workers are sensible, there is little evidence to suggest this will have a serious impact on numbers, at least in the short term, as they will not seriously deter most businesses from hiring migrant labour.

Third, Cameron’s efforts to achieve reforms to the benefit rules for migrants through EU negotiations will be a political and legal headache, particularly his proposed changes to in-work benefits, which will most likely require treaty change. Cameron will need all 27 other member states to agree to any treaty change – and it will be especially challenging to get Eastern European countries on board.

But, even if he does achieve welfare reforms there is little to suggest this will transform the net migration figures. The data suggests that EU nationals are less likely than average to claim unemployment benefits and only very slightly more likely than average to claim in-work benefits. There is some evidence to suggest that welfare states provision is one possible ‘pull factor’ for migrants, but decisions to migrate are influenced by a range of factors – including, crucially for the UK, shared language and a flexible labour market. It seems unlikely then that significant numbers of EU nationals will choose to not migrate to the UK on the basis of a change to the benefits/tax credits system.

Apart from these individual measures, there are structural challenges involved in achieving the net migration target – the UK’s relatively strong economy, flexible labour market, and linguistic and cultural connections will continue to make it an attractive place to come to. Even without the Lib Dems in government, departments are unlikely to want to cut their nose of to spite their face by drastically reducing skilled migrant labour from outside the EU. On top of this, even if there is a dip in net migration, it’s unlikely to last for long, due to the phenomenon of the “net migration bounce”: because migrants often leave Britain after a few years, fewer migrants coming here means fewer migrants leaving too. So a drop in migration to Britain would most likely lead to a drop in emigration as well – and consequently an increase in net immigration over time.

What does this all mean for the government? Rather than focusing relentlessly on the mirage of the net migration target, we need to do more to support communities affected by large increases in inward migration. In order to address public concerns practically and responsible, much more needs to be done to address the pressures of immigration, including on schools, GP places and housing, as well as on social cohesion.

The government’s commitment to a new fund to support communities most affected by high migration is an excellent first step that IPPR has advocated. There is a danger, though, that the fund is misused. In their manifesto, the Conservatives highlighted that the new ‘Controlling Migration Fund’ would be used to ‘ease pressures on services and to pay for additional immigration enforcement’. If the government wants to get serious about tackling the impact of migration, the fund should not simply be a cover for further enforcement efforts. This – not the net migration ambition – should be the real focus for migration policy over the next Parliament.

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Let's turn RBS into a bank for the public interest

A tarnished symbol of global finance could be remade as a network of local banks. 

The Royal Bank of Scotland has now been losing money for nine consecutive years. Today’s announcement of a further £7bn yearly loss at the publicly-owned bank is just the latest evidence that RBS is essentially unsellable. The difference this time is that the Government seems finally to have accepted that fact.

Up until now, the government had been reluctant to intervene in the running of the business, instead insisting that it will be sold back to the private sector when the time is right. But these losses come just a week after the government announced that it is abandoning plans to sell Williams & Glynn – an RBS subsidiary which has over 300 branches and £22bn of customer deposits.

After a series of expensive delays and a lack of buyer interest, the government now plans to retain Williams & Glynn within the RBS group and instead attempt to boost competition in the business lending market by granting smaller "challenger banks" access to RBS’s branch infrastructure. It also plans to provide funding to encourage small businesses to switch their accounts away from RBS.

As a major public asset, RBS should be used to help achieve wider objectives. Improving how the banking sector serves small businesses should be the top priority, and it is good to see the government start to move in this direction. But to make the most of RBS, they should be going much further.

The public stake in RBS gives us a unique opportunity to create new banking institutions that will genuinely put the interests of the UK’s small businesses first. The New Economics Foundation has proposed turning RBS into a network of local banks with a public interest mandate to serve their local area, lend to small businesses and provide universal access to banking services. If the government is serious about rebalancing the economy and meeting the needs of those who feel left behind, this is the path they should take with RBS.

Small and medium sized enterprises are the lifeblood of the UK economy, and they depend on banking services to fund investment and provide a safe place to store money. For centuries a healthy relationship between businesses and banks has been a cornerstone of UK prosperity.

However, in recent decades this relationship has broken down. Small businesses have repeatedly fallen victim to exploitative practice by the big banks, including the the mis-selling of loans and instances of deliberate asset stripping. Affected business owners have not only lost their livelihoods due to the stress of their treatment at the hands of these banks, but have also experienced family break-ups and deteriorating physical and mental health. Others have been made homeless or bankrupt.

Meanwhile, many businesses struggle to get access to the finance they need to grow and expand. Small firms have always had trouble accessing finance, but in recent decades this problem has intensified as the UK banking sector has come to be dominated by a handful of large, universal, shareholder-owned banks.

Without a focus on specific geographical areas or social objectives, these banks choose to lend to the most profitable activities, and lending to local businesses tends to be less profitable than other activities such as mortgage lending and lending to other financial institutions.

The result is that since the mid-1980s the share of lending going to non-financial businesses has been falling rapidly. Today, lending to small and medium sized businesses accounts for just 4 per cent of bank lending.

Of the relatively small amount of business lending that does occur in the UK, most is heavily concentrated in London and surrounding areas. The UK’s homogenous and highly concentrated banking sector is therefore hampering economic development, starving communities of investment and making regional imbalances worse.

The government’s plans to encourage business customers to switch away from RBS to another bank will not do much to solve this problem. With the market dominated by a small number of large shareholder-owned banks who all behave in similar ways (and who have been hit by repeated scandals), businesses do not have any real choice.

If the government were to go further and turn RBS into a network of local banks, it would be a vital first step in regenerating disenfranchised communities, rebalancing the UK’s economy and staving off any economic downturn that may be on the horizon. Evidence shows that geographically limited stakeholder banks direct a much greater proportion of their capital towards lending in the real economy. By only investing in their local area, these banks help create and retain wealth regionally rather than making existing geographic imbalances worce.

Big, deep challenges require big, deep solutions. It’s time for the government to make banking work for small businesses once again.

Laurie Macfarlane is an economist at the New Economics Foundation