Author: johnredwood

See Facts4EU. Excellent graphs and analysis today showing strength of jobs since the referendum, contrary to gloomy official forecasts.

https://facts4eu.org/news/2024_jan_brexit_is_working

I am an unpaid fellow of an Oxford College and a former part time Professor at another University. I come  to the debate on students from a position of sympathy, wishing to see a strong UK independent university sector. I am pleased we host several of the world’s best universities.

I am no supporter of the model which creates a large number of places for overseas students which leads to a major expansion of students staying here after graduating taking low skill jobs and seeking to convert their degree course into a permit to live and work in the UK  thereafter. Nor do I think it a good idea to encourage a lot of older postgraduate students to  come with their families adding to the pressures on public services and housing. It is a thoroughly bad idea to let good postgraduate students from authoritarian and hostile countries get places  in cutting edge research that could be useful for weapons manufacture, electronic  surveillance, new materials, and other dangerous technologies as they will  return to their homes to apply what they have learned in ways which might harm others.

The government is taking action to restrict university action in each of these three categories. Selling courses to overseas students mainly sells to the rich from abroad as these courses are expensive. Charities and the overseas aid budget can provide money for low and no income  students from poor countries to come  to gain necessary skills and to return to apply them to help their own  country.

UK universities at their best are hosts to the best of world academic talent capable of world class research. Inviting in some overseas students to pay  high fees helps with their finances. If they invite in too many without ensuring they return home  after their course they add to housing and public service stress. Some of these universities imply there is no other way of covering costs other than a big rise in foreign students. They need to develop other ways of paying for university. Too many foreign students changes the ethos  and culture of the institution and limits places for UK students where we want a better educated and skilled workforce.

The Endowment model of leading US and  UK universities is a good one. Many ex alumni who succeed are happy to offer money during their lives and or on death to build endowment funds . These provide an excellent addition to student fees. There can be profits from spin out investments from university research. There is also plenty of scope given the many weeks each year when universities do not teach students to use their buildings and personnel to earn conference and adult training money.When I was years ago a full time academic I taught at summer schools as well,

Whitehall thinks the answer to every lobby from business over shortage of employees is to grant permission to bring in more people under a Temporary Skills shortage designation. For years we have had these temporary shortages of care workers, farmers, medics and others. We have also watched as many more categories have been added. It is high time we remedied more of the shortages ourselves. Temporary should mean temporary.

The cheap imported labour model has several major drawbacks

1. It keeps wages down, making it less likely for the lower paid jobs that UK residents will want to do them
2. It deters investment in productivity enhancing machinery and computing power, reinforcing a low productivity low wage outcome
3. It imposes large extra costs on taxpayers to meet the bills for top up benefits, subsidised housing and a range of public service provision for the new comers.
4. When it comes to public services it brings more demand as well as some labour supply to meet demand for services. You need then to invite in more health workers to take care of the other workers you have added to the population.
5. Keeping more UK residents out of work is costly for the state.

The government did show how you can cure an acute shortage in the way it tackled the shortage of drivers created by the big move to on line shopping over covid, and by the UK’s net zero model of importing more and more things to cut the UK national CO 2 output.  The government did put in  a lot more capacity to train and licence more people as  truck drivers, and allowed the market to put wages up. There was also necessary discussion of improving facilities for longer distance drivers so they can get a meal and decent rest facilities en route.

Sector by sector where currently the government is granting thousands of permits for imported labour it needs to have better defined and more urgently implemented strategies for attracting and training people already settled here. I have been urging these, and urging the DWP Secretary of State to roll out his promising plans more rapidly than the civil service is currently allowing. Get on with it.

In the year to June 2023 1.2 million people came to our country legally. This overwhelms the 30,000 illegals who made their way here. The new arrivals were rightly welcomed. Some came to take educational courses, some came to fill jobs, some came to join  family here or as dependents of those coming to work or study.

In the years ahead we will want to welcome more students to fill courses, some people with skills we need for jobs we find difficult to fill. We want more investors, entrepreneurs,  business builders. We do not want to prevent families reuniting where there is good cause.

We also need to recognise that the huge numbers are no longer fair on either those who come or who  are in  the settled communities that receive them with a welcome. We want people coming to enjoy a good lifestyle. They need decent homes, school places for their children, NHS doctors and hospitals capable of seeing them  promptly when  need arises. They need roads to drive on and utility supplies for their energy and water. All of these things are under stress and much stretched as we are not keeping up with providing the extra capacity in all these areas  that 700,000 extra people a year need.

It is true that last year 500,000 left the country which is why I wrote 700,000 not 1.2 million. Some people just net that off, but in practice for some purposes you need to look at the gross number. People leaving may sell or vacate homes that are are in different parts of the country or in a different price bracket to the new comers’ needs and pockets. People leaving may be older  requiring  fewer school places than younger migrants arriving. There may be concentrations of new arrivals particularly in big cities and in places with plenty of jobs.

We also need to be fair to taxpayers. The low wage model, inviting in people to fill low paid jobs may be cheap for the employer but it is very dear for the taxpayer. A low wage worker will need a subsidised home, benefit top up of wages, a wide range of free public services, and extra capital for the additional utility supplies and  transport they need. I have set out before how it probably costs around £250,000 per low paid migrant in public sector capital set up costs and early years public service and benefit costs. This is in line with the EU estimate of 250,000 euros a migrant in 2016.

In future pieces I will explore the government’s plans to reduce legal migration by 300,000 a year. This could be expanded and speeded to the benefit of  many. We need a higher wage higher skilled economy.

Recent governments have allowed too many so called independent bodies to continue, to increase their fees, charges and budgets and often do a poor  job. When they let us down Ministers get the blame, as the Environment Agency has on sewage discharges, the Rail regulators and public sector bodies have on train services, the North Sea Transition Authority has on energy self sufficiency and cost, The Post Office has on treatment of its sub postmasters, HS2 has over building a railway to time and budget, the Highways Agency has over keeping the main roads open and free flowing and the Border controllers have over illegal migration to name a few.

The public want controlled migration, good roads, affordable railways, well run Post Offices , more of our own oil and gas for our needs and clean water. They do not want Ministers who say it was not us, and responsible bodies who suddenly claim it was nothing to do with them. Ministers tell me with these bodies they are warned off intervening and told they have independent powers. In  practice they are creatures of the state. Ministers need to get them reporting to them  in an agreed and sensible way. Ministers should act as the non executive chairman or the responsible  shareholder, They can delegate their authority but they need to know the up to date position, supervise the annual report and the budgets, and ask good questions if there are complaints. They need to be ready to praise or blame, reward or fire the top management related to their conduct and performance.

In some cases we would be better off without these bodies. Take the work back into the department and supervise it directly.

^The large fall in public sector productivity since 2019, assessed at 7.5% by the ONS to last year, is a major cost to taxpayers and a major drag on economic performance.

The immediate task for the Chief Secretary to the Treasury and the Cabinet Office Minister for the civil service must be to arrest the big increase in management and administration. The more managers and senior staff they recruit or promote, the worse the productivity becomes.  The easiest thing to do it to impose a ban on all new external recruitment into the civil service and the public administration, unless a special case is made out and approved by a Minister.

Natural run off occurs at around 6-7% a year as people retire, find other jobs elsewhere or change their work life balance. As a post is vacated one of the many managers needs to decide if the post can be eliminated, or amalgamated with another. If not then a new appointment is made from within the civil service or public body, and some other post removed.

Ministers and top management would also have to make clear that to raise productivity the work done by these extra people either has to be abolished by better process or carried out more effectively. They must not contract more work out to the private sector. They should review their use of private contracts on a  regular basis, asking each time the contract comes up for review if this is the best way to do the work or if now they know how to do it more of it could be done in house to raise productivity. There is a tendency to  have a bigger overhead of managers who then buy in more work from outside to keep their own headcounts down a bit. There has been a big grade inflation as the civil service has expanded, implying more buy in of the work from  outside .

We may need more doctors, nurses, teachers, police and other front line personnel. There are plans underway to do so. Some of this requires extra back up staff so they can do their jobs well. That should be allowed where it  is needed for growth of output. If we need more doctors and nurses to put through more treatments, or more teachers for more pupils then that will not depress productivity to have sensible support staff numbers.

What is strange is the fall in productivity and the big increase in clerical staff has taken place against a background of large expenditures on new computer systems and big breakthroughs  with artificial intelligence, faster and better data processing., more remote working and conference calls to cut down travel time , better software for everything from booking systems to accounts. So why hasn’t this led to a big productivity gains in the public services that have a high administrative content?

John Redwood (Wokingham) (Con):

I, too, thank the Minister and the Government for their fantastic legislation and great track record, of which we can be truly proud. Is it not the case that this Bill would not have been possible when we were EU members, and that we have put right that wrong? I urge the EU to catch up.

Mark Spencer (Minister for Food, Farming and Fisheries):

As ever, my right hon. Friend is absolutely right.

Fifty years ago when a Labour government came into office early  in 1974 they spent more in the public sector, borrowed more, fuelled a subsidy and wage inflation in the nationalised industries and lost control of the nation’s fjnances.  They had to go cap in hand to the IMF to get a bail out to defend the pound. The IMF made them start a programme of spending cuts. After a disastrous economic performance with high inflation, collapse in  growth and many industrial closures they lost the 1979 election.

Labour had got in following the unfortunate short Heath government of 1970-4. The Heath government presided over an inflation followed by a recession along with the US and Europe. They blamed it mainly on the decision of the OPEC Middle Eastern oil producing countries to form an aggressive cartel, cut output and force the oil price up massively . This was certainly very damaging and affected many advanced countries. The UK version was made worse by a miners strike.  It was also the case during these events that the UK government put up its spending and greatly increased its interference in the economy with a prices , wages and nationalised subsidy programme. It  allowed the Bank of England to expand the money supply by adopting a new monetary policy called Competition and credit control. Large amounts of lending were generated which led to a property bubble.

I mention this not because our current position is the same, though we can learn from the impact of an external energy shock and from bad Central banking in both 1970-3 and 2020-3. I mention it because the period of damaging Labour government led to the publication of the work by Eltis and Bacon, two Oxford economists, pointing out the  UK had too few producers. The UK then had a worse productivity problem across the whole economy than we do now. Their analysis  showed how the massive overextension of the public sector to 60% of GDP was unsustainable. It led to tax rates that were far too high, which deterred new investment in the private sector and encouraged the brain drain as successful and talented people went elsewhere to avoid the penal levels of income tax Labour imposed. The marginal rate was 83% on earned income and 98% on savings income, effective confiscation. The poor productivity in the public sector was compounded by low productivity in the private sector. Contrary to common belief at the time a lot of business did have modern machinery like the US and Germany, but did not get the  same output per person from it.

The Eltis and Bacon main perceptions that too much public spending led to a squeeze on the private sector were correct. When looking at today’s problems there are some  similarities. It is however important to recognise  the fact that the public sector does produce valuable output which is captured in modern GDP figures by assessing the number of pupils taught and the number of NHS treatments undertaken. I will be looking again in future articles at the fast productivity decline in the public sector 2019-23, a new feature, as well as the related lack of good control over public spending growth rates.

Please find below the link to my Interview with the Institute for Art and Ideas on inflation.

You can find my contribution which begins at 05:38.

Economic fact and economic fantasy (iai.tv)