Posts Tagged ‘Featured’

The Windrush Generation have been treated appallingly. EU migrants may expect an even worse deal

matthew grantThe treatment of the ‘Windrush Generation’ has been appalling. Yet, argues Matthew Grant (University of Essex), it reflects the government’s policy of creating a ‘hostile environment’ for people who lack documentation in the UK. And while the plight of Windrush immigrants has generated sympathy even from people who normally oppose immigration, there is little chance that migrants from the rest of the EU will be treated any better. Indeed, most of them will lack the ‘cultural capital’ that has driven outrage about the handling of immigrants who arrived in the 1950s and 1960s.

The explosive row about the deportation and citizenship status of the ‘Windrush Generation’ has highlighted the complexities of citizenship discourse in the UK today – and the human costs of the government’s policy of creating a ‘hostile environment’ for those people it considers to be living in Britain illegally. The political and administrative failures the episode has revealed have understandably caused concern about the government’s ability to implement the changes to status that will come with Brexit. These changes to people’s rights will affect significantly more people that those tragically caught up in the current debacle – which seems to bode ill for the careful and humane handling of individual cases that should be an essential part of the Brexit process.

But the significance of this episode for Brexit and future of citizens of EU-27 states in the UK is far wider and deeper than administrative incompetence. It reveals cultural assumptions about immigration and rights that have potentially damaging consequences for EU citizens in the UK.

st pancras

St Pancras station. Photo: A J via a CC-BY-NC-SA 2.0 licence

The Windrush crisis has occurred due to two separate legal processes. The first was the attempt by successive governments in the 1960s and 1970s to limit immigration to the United Kingdom by non-white members of British colonies. In 1962, the Commonwealth Immigration Act removed the rights of British passport holders born in British imperial possessions to live and work in the UK, rights that had been previously codified and guaranteed by an Act of 1948. In 1968 and 1971 successive Acts further restricted the rights of Commonwealth citizens without family who had been born in the UK. It is these Acts, clearly aimed at preventing black and Asian immigration that have created the current situation where men and women who have lived in the UK for more than fifty years can be deemed to be in the UK illegally.

But it is a much more recent step which has caused this crisis: the government’s hard-line policy of creating a ‘hostile environment’ for illegal immigrants enshrined in the 2014 Immigration Act. This policy has been designed to make it near-impossible for people without documentation to live in the UK: to secure medical care, housing, or a driving licence. The burden of ‘proof’ required to access services that are usually accessible by right has increased dramatically. For a generation of people who entered the UK in the 1960s and 1970s, this documentation has been hard, or impossible, to provide. Revelations concerning the destruction of key documentation has only sharpened concerns that the state is unfairly using the hostile environment policy to punish people born outside the UK. As such, the ‘Windrush Generation’ has been caught between two policies: one that allowed their entry in contrasted circumstances and one which punishes them for the nature of that entry.

The outcry over the plight of these people has been heard across the UK political spectrum, including from the anti-immigration Daily Mail, which has been forthright in its condemnation of the crisis. Some of this outcry, however, relies not on the legal definition of citizenship of these people’s rights, but on cultural ideas of belonging which have long shaped notions of citizenship in the UK.[1] For Mail columnist Sarah Vine

“nationality is so much more than a piece of paper with a number on it. It’s about contributing, belonging, being a useful member of society. Many of these people have done more than their fair share of that”.

In this, they apparently stand in stark contradiction to the ‘sly’ illegal immigrants ‘who flush their passports down the toilet and lie about their age in order to claim asylum, or take advantage of our generous welfare system to line their own pockets’.

For Vine, and for many people who have who have written about citizenship in the past fifty years on left and right, belonging is associated with values of hard work, apparent social integration, and myriad aspects of culture. The Windrush episode has caused such condemnation precisely because, in the eyes of the right as well as the left, its victims are  ‘British’ in all aspects of life and behaviour. This represents a significant historical shift in how immigration from the Caribbean has been viewed. The 1962 Commonwealth Immigration Act was passed precisely because men and women were seen to ‘not belong’ in Britain at a time when Britishness as largely synonymous with Whiteness. As the  row about the BBC’s decision to broadcast a reading of Enoch Powell’s 1968 Rivers of Blood speech reminds us, the Windrush Generation’s place in the UK has often been attacked.

How we can explain this transition, and what does it mean for Brexit? There can be no doubt that discourse about citizenship and belonging has notably shifted over the past decade or so. In many ways, it has become less explicitly ‘racial’, at least in the obvious and binary way it was traditionally understood. Instead, debate has increasingly focused on ‘culture’ as a synonym of race. As Stuart Hall argued many years ago, these are simply different registers of racism.[2] But whereas black men and women of the ‘Windrush Generation’ are defended as personifying British values, the ‘illegal immigrants’ are attacked, as are British Muslims for their ‘failure’ to ‘integrate’ into a sense of Britishness ascribed by others.

This is the key lesson ahead of the Brexit transition. The toxic discussion over Brexit has highlighted that British political culture has a deep problem with freedom of movement, with both Conservatives and Labour fighting the General Election of 2017 on a platform of limiting the rights of European citizens to live and work in the UK. The rise of anti-immigration feeling in political and popular culture can be understood as part of a sharpening of the divide between those seen as belonging and those seen as not belonging. The vicious attacks on immigration from countries of the former communist bloc that accompanied EU expansion in 2004 created the impression of Bulgarian or Romanian criminals swindling British benefits. Unfortunately, this evil stereotype appeared to gain huge purchase in the referendum discussions, and is one of the most powerful symbols of the EU-27 presence in the UK today.

Any positive resolution to the ‘Windrush Generation’ crisis will be as much a result of the outcry that such obviously ‘British’ people have been so ill-treated as of the purely legal rights and wrongs of the case. The ill-treatment that EU citizens have already been subjected to has not been treated in the same way by the media and the public, and neither will the ill-treatment that appears almost certain to come. EU citizens will not have arguments about ‘Britishness’ on their side. Some may have high-profile, or socially ‘useful’ jobs, and friends and colleagues able to publicise their plight, and be able to make utilitarian arguments about their contribution to British life. Others will not, and in the current climate, I fear these voiceless people will be all too easily pushed around by an incompetent, antagonistic state.

This post represents the views of the author and not those of the Brexit blog, nor the LSE.

Matthew Grant is Reader in History at the University of Essex.

References

[1] Matthew Grant, ‘Historicizing Citizenship in Post-War Britain’, Historical Journal, 59:4 (2016), pp.1187-1206.

[2] Stuart Hall, ‘Conclusion: the Multi-Cultural Question’, in Barnor Hesse (ed.), Un/settled Multiculturalisms: Diasporas, Entanglements, ‘Transruptions’ (Zed Books, 2000), pp.209-41.

Have attitudes toward a second Brexit referendum reached a ‘turning point’?

On 15 April, a campaign to hold a referendum on the final terms of the Brexit deal was launched in the UK. But do the public want another vote? And have attitudes toward holding a second referendum really changed in recent months, as some pro-EU campaigners suggest? John Curtice (Strathclyde University) says that there is little reason to think support for a second referendum has reached a turning point, though those arguing for a second referendum may have made some progress in the court of public opinion.

Credit: Welsh photographs (CC BY-NC-ND 2.0)

There has recently been increased talk about the possibility of holding another referendum on Britain’s membership of the EU once the Brexit negotiations have come to some kind of conclusion. A few weeks ago, two former Prime Ministers, Tony Blair and Sir John Major, voiced their support for the idea. More recently, much of the speculation was sparked by a poll conducted by YouGov for the pro-EU campaign, Best for Britain.

This was reported by the (also pro-EU) web-based newspaper, The Independent, as showing that ‘support is growing for a fresh referendum on the final Brexit deal’, while Eloise Todd, the Chief Executive of Best for Britain, was quoted as saying, ‘This poll is a turning-point moment’. Meanwhile, on 15 April, a campaign in favour of holding a second referendum, called ‘‘The People’s Vote’’, was launched at a rally in London addressed by a number of well-known critics of Brexit.

But is there any reason to believe that there has been a decisive shift in public attitudes towards holding a referendum on the terms of the Brexit deal? When I last wrote about this subject at the end of January it was suggested that there was little consistent evidence that attitudes had changed. Is there any reason now to revise that judgement? Let us start by looking a little more closely at the poll undertaken by Best for Britain. The report of this poll in The Independent focused on the responses to a question that read:

Once the negotiations between Britain and the European Union over a Brexit deal have been completed, do you think the public should or should not have a final say on whether Britain accepts the deal or remains in the EU after all?

While 36% replied that there ‘should not’ be such a ballot, rather more, 44%, thought that there should. The remaining 19% said that they were ‘not sure’. This was the first time that this particular question had been asked in a poll. So, by definition, it cannot be regarded as capable of providing a robust basis for claiming that support for a fresh referendum has risen or fallen since some previous point in time.

But even if we were to be generous and suggest that the finding might be compared with the results of other, differently worded polls on the subject, the poll still failed to provide any basis to suggest that its finding represented some kind of ‘turning point’. For, as was noted in January, there have been a number of previous polls, most notably from ICM and Survation, that have reported a majority in favour of holding another ballot.

In December, Survation said that 50% were in favour of a second referendum and 34% against, while in a much publicised poll for The Guardian in January, 47% backed the idea while, again, 34% were opposed. In short, rather than representing a ‘turning point’ the level of support for another ballot in the Best for Britain poll was lower than in some previous polls.

Meanwhile the question that was the subject of The Independent’s coverage was, in fact, not the only one about a second referendum that was included on the Best for Britain poll. That question was asked of just a random half of the YouGov sample. The other half was asked a different question, which, curiously, was omitted from the details of the poll that was provided in Best for Britain’s press release on the poll, but which came to light when YouGov posted full details of the poll as it was required to do by the British Polling Council’s rules on transparency. This question read as follows:

Once the negotiations between Britain and the European Union over a Brexit deal have been completed, do you think there should or should not be a public vote on whether Britain accepts the deal or remains in the EU after all?

What, in truth, was really of interest in the Best for Britain poll was that it provided the best evidence we have had yet that voters’ attitudes towards a second ballot depend on how the issue is addressed. It obtained a somewhat different result. While in response to this question 39% said that there ‘should’ be a public vote, 45% replied that there ‘should not’. (Seventeen per cent said they were not sure.) In short, while one question in the poll found a plurality in favour of a second ballot, another reported that a plurality were opposed.

Giving the public ‘a final say’ sounds more attractive to some voters than does ‘a public vote’ – and (as the details of the Best for Britain poll show) especially to those who voted Leave. This finding reflects the attempt made in January to explain why Survation and ICM had produced results that were much more favourable to the idea of a second referendum than those that had been published by Opinium and YouGov – we suggested that it was because the description of a second ballot used by the former pair of companies adopted a more ‘populist’ tone that emphasised the role of voters as the final arbiters in the Brexit process.

Those campaigning for a second referendum have evidently taken this lesson on board in calling their proposed ballot, ‘The People’s Vote’. But that still leaves us with the question as to whether attitudes towards a second referendum, however described, have actually changed in recent weeks. Fortunately, last week YouGov also ran once again the question they have periodically asked about the subject during the course of the last twelve months.

This latest reading showed that 38% felt that there should be a second referendum to accept or reject the terms of the Brexit deal, while 45% were opposed. The seven-point lead for ‘should not’ was almost exactly in line with the results of the three previous readings this year, all of which recorded either a six- or seven-point opposition lead. There is, in short, no sign here of any recent change in the balance of opinion on holding a second referendum.

That said, there is one reason for a measure of optimism in the pro-second referendum camp. Taken collectively, the four readings that YouGov have published this year have all showed somewhat lower levels of opposition to the idea than before. In the company’s four previous readings, taken between September and December last year, there was on average as much as a 12-point lead for ‘should not’, almost twice the lead recorded in this year’s four readings.

It would be good to see some updated evidence from other polling companies on this issue, but those arguing for a second referendum may have made some progress in the court of public opinion, even if there is no sign, as yet at least, that attitudes have reached a ‘turning point’.

This article originally appeared at WhatUKThinksEU and UK in a Changing Europe. It gives the views of the author, not the position of LSE Brexit or the London School of Economics.

Sir John Curtice is Professor of Politics at Strathclyde University and a Senior Fellow at The UK in a Changing Europe.

How will Brexit affect the social security rights and protections of EU migrants in the UK?

Linda Hantrais focuses on two ways in which social security provisions may be affected by Brexit: the social security rights of EU migrants to the UK, where EU institutions have come to play an important coordinating role; and, the social protection rights of British officials working for EU institutions, where benefits and employers’ contributions are paid from the EU administrative budget to which the UK contributes.

EU social policy has always been the poor relation to EU economic policy. Justifiably so, if we recall that, in 1957 the six founder member states established a European Economic Community where just six of the 248 articles in the original Treaty of Rome were devoted to ‘Social Provisions’. The stated aim was to favour the harmonisation of social systems in ‘an upward direction’ and to achieve ‘the approximation of legislative and administrative provisions’ between members. In the social field, which covered essentially employment and working conditions, one of the areas identified for ‘close collaboration’ was social security (article 118). A further six articles under Social Provisions laid down the arrangements for the European Social Fund.

Fast forward to an EU with 28 member states. If a narrow definition of social policy is applied focusing on social security systems, the implications of Brexit for EU and UK social policy have so far attracted relatively little attention in the negotiations for two main reasons. Firstly, social policy has always been a contentious area, the more so as enlargement brought ever greater diversity of systems. Secondly, and primarily due to the failure to reach agreement at EU level, social security has remained one of the few areas where unanimous voting by the European Council is still required before any changes can be imposed on national social systems. No EU member state is prepared to sacrifice sovereignty over its social protection system. Subsidiarity and national sovereignty rule supreme. Or do they?

How will Brexit affect the social security rights of intra-EU migrants?

In the EEC Treaty, four articles were devoted to ensuring both that mobile ‘Workers’ would not be discriminated against, and that their right to benefits accumulated during their working lives would be protected. Employment in public administration was explicitly excluded. The free movement of persons is an area of shared competence within the European Union, which means that, despite the unanimity rule for social security, the UK does not have competence to act other than in accordance with EU legislation.

The obligations imposed on the member states in which migrants reside are set out in EU primary law (treaties) and in secondary legislation (regulations and directives). Some of the earliest regulations were designed to ensure freedom of movement and to protect mobile workers by giving the EU the power to ‘coordinate’ the social security systems of member states through cooperation and mutual recognition of one another’s systems. By constraining the scope for members to decide qualifying conditions for social security benefits, the regulations sought to remove obstacles to free movement of citizens from or to, or residing in another member state.

By the time the UK joined the EU in 1973, almost all mobile workers and their families were covered by social security schemes in their country of origin or their host country. Subsequent treaty changes meant that the body of relevant coordinating legislation has been progressively extended. By 2016, not only workers and their families were covered under the same terms as the host community, but also the self-employed, the economically inactive and unemployed, for the whole panoply of benefits and services including social care.

The UK has stated that it will repeal the Free Movement Directive, which incorporates EU law ‘on the right of citizens of the Union and their family members to move and reside freely within the territory of the Member States’. Post-Brexit, the social security rights of EU27 migrants to the UK will continue to be determined by their residential status in the UK, and it is this status which will no longer be decided by EU law. National sovereignty over the substance of social security provisions will thus remain intact.

Featured image credit: Pixabay (Public Domain).

How will Brexit affect the social protection of EU staff?

Technically, the EU does not have a fully fledged social protection system of its own, even for its employees, but nor are they directly covered by national social security schemes. As frequently pointed out in the literature: ‘There are no EU laws granting individual entitlements against Brussels, no direct taxes or contributions, no real funding of a “social budget” for such entitlements, and no significant Brussels welfare bureaucracy.’

Largely modelled on the (French) continental system, a number of standardised deductions are made each month from the salaries of EU staff irrespective of their country of origin, covering sickness, accidents, pensions and a solidarity levy, totalling 12.6% of salary. Employees do not contribute to family allowances, although they benefit from provisions for household dependants (spouse/partner), dependent children, and education. Unemployment insurance applies only to temporary and contract staff. Income tax is levied progressively at a rate of between 8% and 45% of the taxable portion of salary, a tax abatement is granted for dependent children, and additional allowances cover expatriation.

While employees pay one-third of total insurance contributions, employers pay the other two-thirds, or the entirety in the case of family allowances. But who are the employers? Salaries and benefits are paid from the EU administrative budget, to which all member states contribute. Funds are managed by a ‘joint committee’ with equal representation of employers and employees. Member states’ contributions to the funds are not calculated according to the costs for their own eligible nationals, but as part of their share of total staffing costs, making this an area of indirect ‘shared competence’.

In terms of social security rights, the impact of Brexit should be negligible for British EU employees (or ex-employees in the case of pensions), at least during the transition period of a negotiated settlement since these rights are subject to EU (not national) staff regulations. For ‘permanent’ British staff who remain in Brussels after Brexit, the situation is less straightforward, except if they have dual nationality of another member state, or are eligible to acquire Belgian citizenship, which are options under consideration.

Post-Brexit, the UK government, qua British tax payers, has agreed to continue to contribute to the EU’s administrative budget for an as yet undefined period. The UK’s contribution to the EU budget will help to guarantee that sufficient funds are available to pay the pensions of former EU staff, and the Court of Justice of the European Union will continue to have jurisdiction in any disputes that should arise involving British nationals, thereby constraining its sovereignty in this area of social security.

How will Brexit affect EU social policymaking?

The UK has not been alone in wanting to limit the powers of the EU in the social policy field by obtaining opt-outs and by embracing soft law alternatives. Other member states have been sympathetic to the UK’s concerns, for example as expressed in the proposals that David Cameron took to the European Council meeting in February 2016. The heads of EU governments were ready to agree to restrict rights to social protection for mobile workers and their families across member states in specific circumstances. They gave a favourable hearing to the UK’s proposal to operate an ‘emergency brake’, with the aim of limiting access to non-contributory in-work benefits for new EU migrants to countries experiencing an inflow of workers of ‘exceptional magnitude’.

Without waiting for Theresa May to trigger Article 50, and with the prospect of the UK being effectively removed from the decision-making process, in March 2017 Jean-Claude Juncker produced a White Paper on the Future of Europe, outlining his intention to promote a more pro-active approach to EU social policy. In the European Pillar of Social Rights, Juncker set out his strategy for achieving ‘upward convergence’ between EU Member States with ‘social protection as a productive factor’. Reviving the concept of a multi-speed, à la carte, core-periphery or variable geography Europe, Juncker proposed several degrees of social regulation, prompting the Danes, a former UK ally in the social policy field, to ask whether, due to the loss of the UK’s soft power influence ‘Brexit also made the case for closer Nordic cooperation within the EU’.

This post represents the views of the authors, and not those of the Brexit blog, nor the LSE.  The above draws on the author’s published work in Social Policy and Society, and it was originally published on the BPP

Linda Hantrais is Emeritus Professor of European Social Policy at Loughborough University.

 

The Powers of the House of Lords in Brexit are substantial but unlikely to be used to full effect

The Prime Minister suffered a big defeat in the House of Lords yesterday as peers endorsed requiring ministers to consider customs union membership post-Brexit. While this shows that the powers of the House of Lords in the Brexit process are substantial, they are unlikely to be used to full effect, explains Richard Reid (Oxford).

Yesterday (Wednesday) the House of Lords moved to the Report stage on the European Union (Withdrawal) Bill. Public interest has begun to focus on the potential amendments for which divisions may be called, and the possibility of government defeats. This contribution will not seek to add to the commentary on the likely success of such amendments but rather seeks to outline the power of the Lords in the Brexit process.

As the European Union (Withdrawal) Bill has not been designated by the Speaker of the House of Commons as a ‘Money bill’, the House of Lords retains substantial powers of delay. Through the Parliament Acts 1911 and 1949 the House of Lords has the power to delay the Withdrawal Bill for up to one year, after which time the Bill can be presented for Royal Assent without the approval of the House of Lords. Some difficulties have been raised about the potential use of the Parliament Acts in this case, as the bill would need to be reintroduced in a second session for the provisions to apply. Therefore, to pass the Withdrawal Bill and bypass the House of Lords the government would need to shorten the session, as it has currently been extended to two years ruling out the use of the Parliament Acts in time to meet the government’s withdrawal timetable.

However, it is not these formal powers which are of most interest to those seeking to understand the power of the House of Lords in the Brexit process. The real power of the Lords, as it is unlikely to push this bill to the Parliament Acts, is in its ability to draw attention to the substantial weaknesses in the Withdrawal Bill. Amendments moved by such respected figures as Lord Judge, Lord Pannick, and Lord Kerr of Kinlochard, are building pressure on the government in areas where is it most vulnerable. In addition, amendments with cross-chamber support further press the need for compromise. The marshalled list provides the amendments to be moved at Report.

Chamber of the House of Lords, Author UK ParliamentCreative Commons Attribution 3.0 Unported.

The House of Lords is unlikely to force passage of the Withdrawal Bill through use of the Parliament Acts. Rather the House of Lords has, is, and will bring significant pressure on the government through amendments moved this week. Whilst most peers remain conscious of the limitations of their authority, this will not preclude the House of Lords exercising its powers of scrutiny and revision.

The article gives the views of the author, and not the position of LSE Brexit, nor of the London School of Economics.

Dr Richard Reid is Associate Member, Gwilym Gibbon Centre for Public Policy, Nuffield College, University of Oxford and Europa Visiting Fellow, European Studies Centre, Ausątralian National University.

Understanding policy over- and underreactions in times of crisis

Not all crises are met with proportionate policies: there can sometimes be a lack of balance between the costs of a policy and the benefits that are derived from it. Moshe Maor sets out a conceptual toolbox to help understand these responses. He argues that disporportionate responses are not necessarily the result of error, but can be intentionally designed and, under certain circumstances, be successful in achieving policy goals.

Policy scholars who are trying to explain the policies pursued by the U.S. Federal Reserve, the Bank of England, and the European Central Bank during the 2007-2008 financial crisis are confronted by an elephant in the room. The elephant is labelled disproportionate policy by design. At the outset, disproportionate policy response is typically understood to be a lack of ‘fit’ or balance between the costs of a public policy and the benefits that are derived from this policy, or between a policy’s ends and means. It is comprised of two core concepts: policy over- and underreaction. Overreactions impose costs without producing offsetting benefits, and underreactions provide net utility (i.e., the difference between benefits and costs) which is smaller than a counterfactual net utility. Most studies subscribe to the conventional understanding which views disproportionate policy response as a policy mistake or error.

In a recent conceptual turn which challenges the efficient goal attainment assumption, I have presented a radical idea: that under certain circumstances, disproportionate policy response may be intentionally designed, meticulously debated, implemented as planned and, at times, successful in achieving policy goals. Underlying this idea is a strategic perspective of policy over- and underreaction which views decision-makers as boundedly rational individuals who, in some contexts, may produce substantially rational outcomes, as Nobel Laureate Herbert Simon has argued. This may be the case, for example, when decisions involve high stakes, and when decision-makers are motivated to make the right choice.

I have distinguished between disproportionate policy response by error (bounded rationality) and disproportionate response by choice. I have furthermore advanced a distinction of such choices between two disproportionate policy options: namely, rhetoric and doctrine. The repertoire of disproportionate policy options includes those which are disproportionate by definition (that is, there is a lack of ‘fit’ between expected policy costs and benefits); they are perceived by policymakers to be disproportionate; or are grounded in the language of disproportionality, for example, as a form of drama.

Policy overreaction doctrine refers to a coherent set of policy principles which presents an ‘all or nothing’ policy commitment in the pursuit of a policy goal, no matter what the costs are. The idea is for policymakers to use the state’s power in a given policy area to cognitively and emotionally overwhelm the relevant target populations in pursuit of policy goals. A policy overreaction doctrine communicates to the target populations and the general public that, on this particular policy issue, effectiveness takes precedence over policy costs. A classic example is the successful decision made during the 2007-2008 financial crisis by the U.S. Federal Reserve, the Bank of England, and the European Central Bank to follow Bagehot’s (1873) doctrine that, in a crisis, the central bank should lend freely, at a high rate, and on good collateral.

During a crisis involving panic and public fears, assets value is difficult to ascertain for use as collateral; hence the overreaction which is built into this doctrine. Indeed, within a month of Lehman’s bankruptcy, Congress passed the Troubled Asset Relief Program, which allocated $700 billion to address the banking crisis. Once the banking sector and the economy had stabilised, calibration of the disproportionate policy response took place. Ultimately, the Dodd-Frank Wall Street Reform and Consumer Protection Act reduced the amount available to address the crisis to $475 billion.

Policy overreaction rhetoric, a subset of policy overreaction doctrine, refers to arguments that policymakers employ to reach and persuade the target populations of their ‘all or nothing’ commitment to achieve their policy goal, no matter what the costs are. This type of ‘crafted talk’ may be used by policymakers to shape the ‘policy mood’. It may also be used to communicate an implicit message that policy effectiveness takes precedence over costs. A classic example is Mario Draghi’s (2012) statement that “[w]ithin our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough,” as well as his reassertion of this commitment in order to shield the Eurozone from the 2013 surge in U.S. Treasury yield. The successful choice here has been to formulate a broad, qualitative, and not well-specified statement which, at the same time, is overwhelming, unconditional and easily understandable by market participants and the public.

Policy underreaction doctrine refers to a coherent set of policy principles which presents a conditional commitment for achieving a policy goal based primarily on policy cost considerations. At the heart of a policy underreaction doctrine lie principles for the use of limited resources and restricted government force in order to achieve a policy goal. A policy underreaction doctrine communicates to target populations the implementation of a gradualist approach to the use of government power that leaves much room for compromise. A classic example is the UK government no-regret doctrine in its approach to climate change adaptation, which focuses on increasing the nation’s resilience to a range of possible futures. In the area of flood preparedness, for example, adaptation measures are not designed to perform optimally in any scenario of climate change because they are not tailor-made to address future climate variability and extremes. Indeed, policy underreaction has been evident as practices adopted have failed to deliver when projected climate change predictions regarding winter floods have materialized.

Policy underreaction rhetoric, a subset of policy underreaction doctrine, refers to arguments employed by policymakers to reach and persuade the target populations of the former’s conditional commitment to respond to a policy problem based primarily on policy cost considerations. Examples of such rhetorical positions include a wish to wait until more information regarding the policy problem emerges; a desire for a limited policy outcome in a particular policy domain; an emphasis that policy will not disadvantage certain actors and/or arrangements; or a goal of enacting policy measures that provide net social benefits under all future risk projections in response to a given policy problem. These arguments communicate to the target populations and the general public that, regarding the particular policy issue, policy costs take precedence over policy effectiveness.

Together, these terms represent a repertoire of disproportionate policy responses. The usefulness of each of the terms lies in their convenience as shorthand for the set of broadly similar disproportionate policy options that often dominate the real and manufactured crisis management agenda in various policy domains in many countries. Each of the disproportionate policy options may take a different shape and form depending on whether it is designed before or during a crisis. The more time there is before an impending crisis, the more work can be undertaken in the design of disproportionate policy options.

How do we confidently detect design? To prove conclusively that disproportionate responses have been chosen by design, rather than being a product of error, scholars should aim at demonstrating that (i) policy options are perceived by policymakers to be disproportionate; (ii) policy instruments are calibrated in a way that is highly likely to produce disproportionate response; and (iii) that the decision to design such options is carefully thought out, developed and debated. The aim is therefore to gain firsthand knowledge and eyewitness accounts.

_________

Note: the above draws on the author’s published work in Policy & Politics.

About the Author

Moshe Maor is Professor of Political Science and Wolfson Family Chair Professor in Public Administration at the Hebrew University of Jerusalem. His full academic profile can be found here.

 

All articles posted on this blog give the views of the author(s), and not the position of LSE British Politics and Policy, nor of the London School of Economics and Political Science. Featured image: part of facade of the Bank of England on Threadneedle Street, by George Rex (CC BY-SA 2.0). 

LSE Continental Breakfast 7: the business consequences of a breakdown in exit negotiations

The seventh Continental Breakfast seminar at the LSE, held under Chatham House rules, focused on the potential implications that a breakdown of the Brexit negotiations would have for UK businesses. The overall message was that the consequences of such a breakdown – a “no deal” outcome – would be severe. Angelos Angelou (LSE) reports on the discussion.

A “no deal” outcome would be an economic disaster for most UK businesses. This is primarily because almost 90% of total British exports would be affected by tariffs, costing a total of £40bn. The imposition of tariffs would also have spillover effects for other sectors, like the food and drink industry, which the CBI estimated would suffer 20% in extra costs. Meanwhile, UK businesses would be exposed to increased exchange rate risks (the effect of unexpected exchange rate variations on a firm’s value).

In the aftermath of the vote, the pound dropped more than 10% against the US dollar and continued to decline until it reached its lowest level against the dollar for 30 years, at $1.30 to £1. In the event of no deal, uncertainty over the economic relationship between the UK and the EU might lead the pound to a new low. This would entail losses for multinational firms based in the UK, since they are more exposed to exchange rate volatility, as well as risks for UK firms with international operations. While a further fall in the pound might offset some of the new tariffs they will be facing, their production costs might also rise given the higher import cost of raw materials and the falling value of British wages to foreign workers.

canary wharf

The site of the future Crossrail station at Canary Wharf, London. Photo: Nick Moulds via a CC-BY-NC-SA 2.0 licence

Moreover, in the event of no deal, British consumers would see their purchasing power eroded due to import tariffs. The imposition of non-tariff barriers (like “rules of origin” regulations), as well as tariff-related costs, would end up costing three times more than previously. Non-tariff barriers would make British businesses less competitive, since they would deprive them of the ability to conduct prompt and low-cost transactions with the rest of the EU. All in all, UK per capita income could fall by 6.3%-9.5%.

For businesses in the Republic of Ireland and Northern Ireland, the impact would be even more acute. They have hitherto operated on the assumption that cross-border transactions can be conducted promptly and with minimal cost inside the European Single Market, without a hard border. The dynamics of the peace agreement may change since the economic interdependence of the two sides would decline. This has led some to argue for the closest possible alignment between UK and EU standards.

The status of EU workers in British firms would also be uncertain. The rights of EU citizens employed in Britain are not guaranteed if the EU and the UK fail to reach a final deal. Skilled labour could leave as a result. EU migrants are generally younger and more educated compared to UK employees and tend to raise capital productivity via knowledge spillovers and higher human capital stock.

Financial services

Under ‘no deal’, all financial service providers will lose their passporting rights (the ability of a firm that has been licensed by one EU member state to provide cross-border services to other EU member-states without getting additional authorisation from the local regulators). Since they would not be in the Single Market, UK financial firms would not be allowed to conduct financial operations there. Passporting has allowed many of the world’s leading financial institutions to operate in the EU with low bureaucratic and economic costs. The UK has attracted the largest number of headquarter-based investments in the EU. Facing ‘third-country’ rules usually means partial access to the single market, while the type of access is almost unilaterally decided by the Commission and can be ended or changed at any time.

‘Third country’ status would put around 50% of the UK’s EU-related economic activity (with a total worth of £20bn), 35,000 jobs, and around £3-5bn in tax revenues under threat. The downgrade would probably leave the UK outside all EU decision-making centres, meaning it will lose any source of political or technical leverage over issues of financial governance and regulation. The EU, and especially the European Parliament, appears to be unreceptive to the idea of a bespoke deal vis-à-vis financial regulation: indeed, the relevant EU authorities (ESAs and ESMA) that are responsible for the regulation of the financial markets are powering up in order to cope with the challenges that will arise if the UK falls under the status of a third country. Moreover, a number of other European financial centres like Amsterdam, Dublin, Frankfurt, Paris and Madrid have positioned themselves as the next centres for passporting-based activities. The UK would have to follow EU preferences for financial regulation. Britain, along with other EU countries with substantial international presence and stronger capital markets (like the Netherlands) has been advocating for a style of EU governance that is supportive of enhanced market access, liberalisation and open market substitutes instead of intervention. France, Spain and Italy, on the other hand, usually favour a more interventionist approach and are supportive of further regulation.

Legal limbo

A number of international deals signed by the EU on behalf of the UK will stop covering British firms. Replacing these deals, especially in the field of finance, would require much time and effort, with a characteristic example being the EU-US international agreement on derivatives contracts. Given that the UK derivative market is the biggest one in Europe, no deal will have immediate and substantial economic implications.

Investment and growth

Investment uncertainty has adverse implications for an economy’s productivity. The uncertainty that followed the referendum result and the current uncertainty about the state of the negotiations are potentially delaying investment and therefore also the recovery in UK productivity. Current investment dynamics appear to support this hypothesis. While GDP has risen in the UK over the past few months, the positive state of the global economy would have justified an even bigger increase. At the second quarter of 2016 it was estimated that UK GDP rose faster than expected, amounting to 0.6, with services and production driving this trend. On the other hand, construction has contracted, while consumer confidence and, subsequently, consumer spending also fell by 0.3% in 2017. (Before the referendum, consumer spending was driving GDP growth.)

Given the uncertainty, most UK businesses have started making contingency plans. Around 60% of British companies already have such plans in place, of which 10% have already taken some practical steps (e.g. moving people who may be affected by no deal). Another 25% of these companies are expected to take similar steps in the near future.

The shape of a deal

For the UK business community, the ideal deal would grant barrier-free access to the Single Market. However, the most realistic aspiration is for the UK to be in a customs union with the EU. A customs union deal would not have to cover all economic sectors (in the EU-Turkey deal, agricultural products are excepted), it would not require the UK to pay any fees to the EU and, most importantly, it would not require the UK government to accept freedom of movement. On the other hand, Britain would have to align its trade policy with the EU’s, without any say in it.

The conditions to reach a positive deal are already in place, since the EU now has a more centralised system of financial regulation – a trend that will be intensified with Brexit. Hence it would be simpler for the UK to conclude a single comprehensive deal with all EU member-states. One mechanism to ensure the compatibility of the two industries is through the establishment of British subsidiary companies in continental Europe, which would allow for a system of managed divergence. This would entail extra costs, because British companies would still need to comply with the corporate and market governance regulations of the respective country and its capital requirements. Of course, such a development would also have negative implications for the European financial market, since it will lead to increased fragmentation and higher refinancing costs for local EU banks.

An alternative would be a system of equivalence, which the EU has granted to certain third countries. It offers the possibility for non-EU firms to access the EU market provided that the regulatory regime of their country of origin is equivalent to the EU regime. This would imply that the UK would still need to follow EU regulations while having no influence over them. Furthermore, the regime of equivalence would only partially cover the field of financial services – for example, it will not apply to the field of asset management, lending and deposit-taking. It is also important to note that the process of granting equivalence to a third country is highly politicised. The European Commission can decide and revoke the regime of equivalence unilaterally whenever it sees fit.

Another solution would be for Britain to remain in the European Economic Area (EEA) UK-based firms would still be able to use passporting, since they would still have unrestrained access to the Single Market. But it would be necessary for the EEA and the EU to agree on the powers of the European Supervisory Authorities. At the same time the UK would not be a member of the customs union – meaning that its businesses would be subject to burdensome rules of origins regulations – and would not have any voting rights in the EU institutions. Moreover, the UK would still need to follow EU rules. Such an option is politically less feasible since it would require the four freedoms – of movement of goods, services, labour and capital – to remain in place.

For some politicians, no deal or a breakdown of talks still looks like an appealing option. Some Leavers would prefer it to a failure to control freedom of movement. EU politicians would like to avoid giving the UK access to the single financial market, including passporting, without getting any substantial concessions. Determined to avoid this, the UK business and financial community has formulated a careful campaign of public advocacy for their desired deal. This strategy is in stark contrast to their pre-referendum tactic, where a number of enterprises and business corporations joined the Remain campaign and produced evidence-based justifications on why the UK should stay in the EU. Since that strategy was ineffective, the business and financial community chose a subtler approach in order to avoid alienating public opinion.

Any final deal should strike a fine balance between access to the European market and border control. In that sense it is bound to be an agreement unlike any other that we have seen. Drawing conclusions from the agreements between the EU and Norway and the EU and Canada therefore has limited analytical value. Businesses in the UK need a more secure environment, and guarantees that the transition phase will be managed properly and that a final deal will be reached.

This post represents an account of a discussion held at the LSE, and not the views of the Brexit blog, nor the London School of Economics.

Angelos Angelou is a PhD candidate in the European Institute, working on EU-IMF cooperation. He is drawing case studies from the Eurozone bailouts and examines the main drivers of cooperation and discord between the IMF, the European Commission and the ECB during times of crisis.

The Commonwealth advantage: trading with the bloc offers buoyant economic prospects

One of Brexit’s potential advantages is the UK’s freedom to negotiate its own trade deals instead of being dependent on the EU. Of course, trade will continue with the EU after Brexit, probably little changed, and there is little doubt that the EU will continue to be a major trading partner after Brexit. But it is widely expected that the share of UK exports going to the EU will continue to decline, reflecting the maturity of the EU markets and the continuing decline of the EU’s share of global output. New deals are likely to be with countries as diverse as the US and Japan – and, of course, individual Commonwealth countries. Australia and Canada, for example, have already expressed interest in a free trade agreement. In this post, Ruth Lea, CBE (Arbuthnot Banking Group), explains why trading with the Commonwealth offers buoyant economic prospects. 

Image by Kgbo, (Wiki), licenced under CC BY-SA 4.0.

The current biennial Commonwealth Heads of Government Meeting (CHOGM), being held in London on 16-20 April, seems a suitable time to analyse the economic importance of Commonwealth countries and consider their potential as future growth markets for UK exports.

Commonwealth countries are rarely considered together as an economic entity. Yet they account for over 17% of world GDP in Purchasing Power Parity (PPP) terms (chart 1a) and contain 2.4 billion of the world’s 7½ billion people. Moreover, many Commonwealth countries have favourable demographics compared with several major European countries, where working populations are expected to age and shrink. Today’s 53-member Commonwealth spans the five continents and contains developed, emerging and developing economies. It also comprises some of the world’s largest economies and many of the smallest. In its diversity, it captures the character of the 21stcentury globalised economy as no other economic grouping can. The Commonwealth’s membership includes two of the world’s largest ten economies (the UK and India), two members of the G7 (Canada and the UK) and five members of the G20 (the UK, India, Canada, Australia and South Africa).

The Commonwealth: buoyant economic prospects

Charts 1a and 1b show the IMF’s latest forecasts to 2022 for EU28, the US, China and the Commonwealth in Purchasing Power Parities (PPPs) and at Market Exchange Rates (MERs).1-2 Chart 1a (in PPPs) shows just how profoundly the world economy has changed since 1980 and is projected to continue changing up to 2022. EU28 countries accounted for 30% of world GDP in 1980, whilst the US contributed nearly 22% and the Commonwealth contributed 15%. China’s share was just over 2%. By 2017, China had increased its share to over 18%, reflecting China’s staggering growth over the past 30 years, which exceeded the Commonwealth (over 17%), the EU28 (down to 16.5%) and the US (still over 15%). Crucially these trends are expected to continue to 2022, with China and the Commonwealth (not least of all because of India’s buoyant growth) expecting to gain share over the EU28 and the US.

Chart 1b (in MERs) shows how currency effects can affect the GDP data. For example, the strong dollar in 2000 “boosted” the US’s share (in MERs) to over 30%. Inevitably, the forecasts are dependent on forecasts of currency movements, which make them even more than usually non-robust. The decline in the EU28 share in MERs over the forecast period less pronounced than in PPPs because GDP in MERs favours developed countries. But, nevertheless, the global share had dropped from 34% in 1980 to 21½% in 2017 and is projected to slide further by 2022. The rise in the Commonwealth’s share is considerably dampened in MER terms, not least of all because the significance of India, where GDP in MER terms is significantly lower than in PPP terms. But it is still expected to more than hold its share.

Chart 1a Shares of world GDP (PPP terms), %

 

Chart 1b Shares of world GDP (MER terms), %

Source: IMF, World Economic Outlook, database, October 2017.

UK-Commonwealth trade

Given the relatively buoyant growth prospects in Commonwealth countries, UK export growth prospects to these countries should be favourable, especially if free trade agreements are successfully negotiated. There are two other general points worth noting. The first is the observation that, because of shared history and commonalities of language, law and business practice, it has been estimated that Commonwealth countries trading with one another experience business costs 10-15% lower than similar dealings with non-Commonwealth countries of comparable size and GDP. This has been called the “Commonwealth advantage”.3

The second point notes that the potential in any export market does not, of course, just reflect the size of the economy. It is also a matter of the relative incomes per capita in various export markets. Especially when it comes to consumer goods, potential consumers need to have the kind of disposable incomes that will allow them to buy the cars, televisions and other goods that have been staples of “middle class” life in the West for decades. And, on this metric, developed countries still have a very appreciable lead over emerging and developing countries. According to the IMF, income per capita was 7 times as high in Germany as in India in PPP terms in 2017, and 24 times as a high in MER terms. The corresponding figures for China were still as high as 3 times and 5 times respectively.

But, looking forward, the potential growth of the middle classes in the emerging markets, not least of all in India and China, is expected to change matters radically. A report by Ernst & Young (EY) on this issue concluded:4

  • “…by 2030, so many people will have escaped poverty that the balance of geopolitical power will have completely changed – global trade patterns will be unrecognizable too. Meanwhile, companies accustomed to serving the middle-income brackets of the old Western democracies will need to decide how they can effectively supply the new bourgeois of Africa, Asia and beyond.”
  • Specifically concerning China and India, EY said “…large populations and rapid economic growth mean China and India will become the powerhouses of middle class consumerism over the next two decades.”

Turning to the UK’s current trade with our major Commonwealth partners the main conclusion is that it is still relatively modest compared with the EU. This is not, of course, surprising given the relative size and wealth of many of the EU’s members. UK-Commonwealth trade is also modest relative to the US (especially) and, arguably, China. Clearly, there is potential for expansion.

Chart 2a shows exports grew by just over 31% to the top eight Commonwealth countries over the decade 2006-2016 compared with total export growth of 40%.5 Trade with India, Pakistan and South Africa, in particular, was disappointing. As a consequence, the share of UK exports to these eight Commonwealth destinations actually fell from 7.5% in 2006 to 7.0% in 2016. Commonwealth trade, nevertheless, outstripped the rise of just over 11% to the EU28. Exports to the US (which took over 18% of UK exports in 2016) were up over 55% and exports to China more than tripled, though from a very low base. Other buoyant non-EU markets included Switzerland, Saudi Arabia, the Residual Gulf Arabian Countries and Hong Kong. Chart 2b notes that, even if exports growth to the top eight Commonwealth countries over the past decade has been relatively subdued, at least overall trade has been in small surplus, whereas trade with the EU28 and China is heavily in deficit.

Chart 2a UK exports in goods and services, growth between 2006 & 2016 (%)

 

Chart 2b Trade (goods and services) balances, 2016 (£bn)

 

Source: ONS, UK Balance of Payments, the Pink Book, 2017 edition.

In conclusion, Commonwealth countries seem to have a bright economic future and offer expanding domestic markets that could greatly benefit UK exporters. There is, therefore, considerable potential for them to be future growth markets for UK exports.

This article gives the views of the author, and not the position of LSE Brexit, nor of the London School of Economics.

Ruth Lea CBE is Economic Adviser at the Arbuthnot Banking Group.

References

  1. GDP (PPP) data allow for the relative prices of goods and services, particularly non-tradeables, within an economy. They are, therefore, a better overall measure of the comparative real value of output than data calculated using market exchange rates (MERs).
  2. GDP data at market exchange rates (MERs) provide a better measure of a country’s international purchasing power, so relevant for international trade. Exchange rates can fluctuate wildly and currencies can, for example, be “overvalued” or “undervalued” for considerable periods of time.
  3. Sarianna Lundan and Geoffrey Jones, “The ‘Commonwealth Effect’ and the process of internationalisation”, World Economy, January 2001.
  4. EY, “Hitting the sweet spot: the growth of the middle class in emerging markets”, 2013.
  5. Exports to the top eight Commonwealth countries: Australia, Canada, India, Malaysia, New Zealand, Pakistan, Singapore and South Africa.

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