Brexit, immigration and the UK economy

John Stewart argues that it is “highly significant” that the recent Brexit White Paper makes no mention of the manifesto commitment to keep immigration down to “tens of thousands” – and provides an update on Autumn Statement policies

EU referendum voters faced a simple binary choice: to remain in the EU or to leave. They were not asked about their motives for voting remain or leave, nor were they asked about the consequences they expected from their vote.

Prime minister Theresa May’s initial interpretation that “Brexit means Brexit” avoided having to translate the leave decision into a strategy for negotiating Britain’s exit from the EU. However it was no more than a delaying tactic. Eventually the Brexit vote had to be translated into decisions about factors such as membership of the single market and the free movement of people.

In Lord Ashcroft’s poll of more than 12,000 referendum voters, carried out on the day of the referendum, just under half (49%) of leave voters said the single biggest reason for wanting to leave was “the principle that decisions about the UK should be taken in the UK”. This was followed by one third who said the main reason was that leaving “offered the best chance for the UK to regain control over immigration and its own borders”.

Rightly or wrongly, the prime minister interpreted the leave vote as primarily about controlling immigration, no doubt influenced by her six years in the Home Office. Because the free movement of people is one of the cornerstones of the single market (free movement of goods and services, capital and people), the inevitable consequence of her interpretation is that the UK will have to exit the single market and the customs union, regardless of the economic consequences.

The 2010 Conservative Party manifesto proposed a target for annual net migration: “we will take steps to take net migration back to the levels of the 1990s – tens of thousands a year, not hundreds of thousands.”

The 2015 Conservative manifesto repeated this objective: “keep our ambition of delivering annual net migration in the tens of thousands, not the hundreds of thousands”.

“Tens of thousands” is often expressed as less than 100,000.

However there is a fundamental tension at the heart of this policy ambition. “Tens of thousands” is an arbitrary target, not derived from any analysis of the economic needs of the UK economy. Therefore it is quite possible that reducing net migration to below 100,000 – assuming this is ever achievable - would damage the UK economy, leaving some sectors with severe labour shortages and so reducing economic output.

This lack of concern for the economic consequences of the migration target is made all the more curious by the inclusion of students coming to the UK for more than a year in the net migration target. Leave voters motivated by concerns about migration will have been concerned about large numbers of migrants changing the character of an area, or their impact on the availability of jobs and downward pressure on wages at the lower end of the income distribution. It seems unlikely many leave voters had students in mind.

Press reports claim the chancellor, Philip Hammond, suggested that students should be excluded from the target but that this was rejected by Downing Street.

In the year ending June 2016, the latest available data, UK net migration reached 335,000, made up of 189,000 EU citizens, 196,000 non-EU citizens and minus 49,000 UK citizens. “Tens of thousands” would require massive cuts in inward migration.

Non-EU total
It is striking that the non-EU total remains high, even though the UK government has always had control over non-EU migrant numbers. This must put a question mark over our ability to control EU numbers once we leave the EU, and the likelihood of reducing net migration to anywhere near the “tens of thousands” policy target.

With this background in mind, it seems highly significant that the recent Brexit White Paper makes no mention of the manifesto commitment to “tens of thousands”, neither in the section on controlling immigration nor in the rest of the paper. Such a deliberate omission must surely signal that the target is to be quietly shelved.

Looking at migration flows, in the year ending June 2016, a record 650,000 people migrated to the UK for a year or more. Of these, a record 311,000 (48%) came to work, while 163,000 (25%) came to study, down 30,000 on a year earlier.

Many industries have significant foreign labour requirements. The CBI estimates that more than 10% of the construction industry’s workforce is drawn from outside the UK. Stephen Stone, chief executive of Crest Nicholson, recently said that for housebuilders in London this figure can be as high as 70%.

The government has not yet set out how it will control migration after the UK leaves the EU. A strong possibility is that controls on unskilled labour will be very strict, whereas skilled employees will be encouraged to come to the UK, though on a controlled basis. The White Paper talks about “skills and expertise”; “especially high-skilled immigrants”, “the brightest and the best”.

Unclear
Whether this will be through a purely demand-led process, with the net migration outcome reflecting the UK’s economic needs, or whether there will be a single or multiple industry- specific targets to constrain the overall total, is unclear. The White Paper wants to give businesses and communities “the opportunity to contribute their views”. Clearly construction and housebuilding need to make their case to government. The government’s objective is to “build a comprehensive picture of the needs and interests of all parts of the UK and look to develop a system that works for all”.

The White Paper also acknowledges that we must avoid a cliff edge transition to controlling migration: “There may be a phased process of implementation to prepare for the new arrangements. This would give businesses and individuals enough time to plan and prepare for the new arrangements.”



AUTUMN STATEMENT: POLICY UPDATE

November’s Autumn Statement referred to several major housing policies.

The newly-launched Housing Infrastructure Fund, part of the £23 billion National Productivity Investment Fund (NPIF), will provide £2.3 billion by 2020-21 for infrastructure targeted at unlocking 100,000 new private housing units in areas where housing need is greatest.

Crucially, only local authorities will be able to bid for funds under this scheme. Housebuilders wishing to tap into the fund will have to work in partnership with the relevant local authority.

No further details have been announced since the Autumn Statement, although work is going on behind the scenes to design the scheme.

The Autumn Statement contained two important affordable housing announcements.

A further £1.4 billion was allocated to the 2020– 21 affordable housing programme, delivering an additional 40,000 housing starts. After allowing for the first set of allocations under the initial 2020–21 programme, announced on January 5 2017, £1.3 billion remains to be allocated (excluding London).

On January 5, the Homes & Communities Agency (HCA) published an Addendum to the Prospectus for the 2020–21 programme which reopened bidding for the residual £1.3 billion, plus the non- London share of the new £1.4 billion, through a process of continuous market engagement.

The Autumn Statement confirmed that the Greater London Authority (GLA) affordable housing settlement was £3.15 billion (before London’s share of the additional £1.4 billion), to deliver more than 90,000 starts by 2020–21.

The original 2020–21 programme was almost exclusively for shared ownership. The second major affordable housing announcement in the Autumn Statement was a relaxation of this restriction to allow providers to deliver a mix of shared ownership and affordable rent.

Housebuilders had considerable reservations about the original programme’s exclusive focus on shared ownership, not least because of its overlap with Help to Buy equity loan and the ambitious 200,000 Starter Homes programme. Relaxation to allow a mix of shared ownership and affordable rent signalled an important policy shift under prime minister Theresa May’s government away from the Cameron government’s almost exclusive emphasis on home ownership.

The third major policy area covered by the Autumn Statement was the accelerated construction programme, first announced at the Conservative Party conference in October. The scheme will provide investment of up to £1.7 billion in England by 2020–21 to pilot accelerated construction on public sector land in partnership with private sector developers. The scheme, which is being administered by the HCA, is expected to deliver up to 15,000 new homes on surplus central and local government land.

In January the Department for Communities and Local Government (DCLG) provided a valuable explanation of its intentions for this programme in a prospectus inviting expressions of interest by local authorities.

The principle objective is to develop surplus public sector land “at pace”. To achieve this, DCLG wants to see non-housebuilders delivering homes under its “market diversification” objectives, while also tackling the construction skills gap, including through greater use of modern methods of construction (MMC).

Programme approach
Instead of selling public land into the market, the prospectus for local authorities outlines an example of central government’s new approach under this programme. Having identified a suitable public sector site, the public sector landowner would obtain outline planning permission and undertake basic site preparation. It would then select a development partner – “such as an SME builder or contractor” – through a competitive process. This partner would then obtain full planning permission, fund the remaining site preparation costs and the cost of constructing the homes. Upon sale of the homes, the developer and public sector landowner would share profits as agreed through the competitive process.

This approach to public sector land development would, the government argues, provide a number of advantages: speeding up construction by up to double the pace of traditional development when public sector sites are sold directly to the market; greater use of offsite methods of construction; sharing risk and reward potentially giving higher returns to the public sector landowner than would be achievable through outright disposal.

Several pilot sites under the accelerated construction programme are already being progressed: Lower Graylingwell in Chichester, HMS Daedalus in Gosport and Northstowe in Cambridgeshire.

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