The NIESR blog is a forum for Institute research staff to provide an informed, independent view on current economic issues and recent NIESR research. The views expressed here are those of the authors, and are not necessarily those of the Institute.
With all eyes on the current Brexit mess, we have been devoting less attention to the economic and social divisions that led to the Referendum in the first place. While some academics have described this as ‘the revenge of places that don’t matter’, it is a rather unfortunate situation, as disparities are likely to be exacerbated by Brexit.
Maths skills are not only of significance in the labour market, they are important for all of us in our everyday lives. Yet around a third of young people do not obtain a standard pass in GCSE maths (provisional figures from the Department of Education show 65 per cent of pupils achieved grades 9-4 in 2018). While improving maths skills is a focus for all phases of the education system, recent years have seen growing recognition of the role primary school maths education can play.
The Immigration White Paper is finally with us, like the awkward last minute Christmas present from a distant relative rewrapped several times to make it look more appealing. The Paper is supposed to address public concerns and give businesses and services clarity about how they will be able to recruit for the skills they need. But what’s beneath the not-too-pristine wrapping and is it what we need or indeed even what we say we want?
Earnings growth continues to surprise to the upside. According to new ONS statistics published earlier this week, UK average weekly earnings (AWE) expanded by 3.3 per cent (excl. bonus) and 3.4 per cent (incl. bonus) in the three months to October compared to the year before.
Building on the official data, we think that earnings growth still has room to pick up further. Our econometric models suggest that UK earnings will continue to accelerate going into the New Year.
As Theresa May faces a show-down in Parliament and tours the UK in a ‘charm offensive’, she is expected to turn to immigration to gain support for her deal. The Immigration White Paper may finally be published next week to assist this refocus. But the latest migration statistics indicate serious challenges are ahead.
Those of us with long memories will have seen elements of previous political and economic crises in the last week’s events. There was a whiff of the resignation of Mrs Thatcher in November 1990, the end of Sterling’s membership of the European Exchange Rate Mechanism in September 1992 and not a little of the financial crisis, which was triggered in August 2007. And yet while the former events bookended a recession and the latter led to one, so far our political crisis has not led to an extreme economic downturn. I think this is because the most likely outcome for an end game in the exit process is some form of agreement that leaves near frictionless trade in place with the EU for some years to come. Such an outcome, despite the political opinions of it, will limit the transitional costs of an exit from the EU.
UK labour productivity is significantly lower than that of many other similarly advanced economies and has been so for decades, with negative implications for UK living standards. To make matters worse, during the last ten years labour productivity growth has stalled in most industrialised countries, and particularly in the UK. This has led to a renewed policy focus on productivity growth, as evidenced by successive government productivity plans and efforts to re-invigorate industrial strategy.
Brexit is adding pressure to the already stretched health and social care workforce in the UK. One of the reasons is that the UK is seen as a less attractive place for current and prospective EU migrants. This is not just a perception. A new report by NIESR prepared for the Cavendish Coalition, shows that the Brexit Referendum has triggered an immediate reaction from EU healthcare professionals in terms of working in the UK: There are more leavers, and less joiners.
Today NIESR publishes new research for the Cavendish Coalition on the implications of Brexit for the health and social care sector. Our conclusions are stark: Brexit is likely to lead to a substantial shortfall in nurses and doctors which needs to be urgently addressed by new immigration policy.
Today, the Bank of England published minutes of the meeting of the Monetary Policy Committee that came to an end yesterday. At the meeting, the MPC decided to keep interest rates unchanged. The minutes also record the discussions that took place at the MPC about the Bank’s appropriate monetary stance. At NIESR, we have started quantifying the information content of MPC minutes and construct an index of the monetary stance.
In an article for the National Institute Economic Review published today I reviewed the main trends in the UK labour market over the last 50 years. Ten important facts emerge:
In mid-October, the Italian M5S-Lega coalition government submitted its 2019 draft budgetary plan to the European Commission, which subsequently rejected it on 23 October in what is called in Brussels’ jargon an opinion. The rejection of the Italian draft budget by the Commission, on the grounds that it would increase the budget deficit too much, was unprecedented.
Next Monday (29th October), the Chancellor of the Exchequer will present his budget to the House of Commons. He is expected to present spending plans for the coming five years, based on the Office for Budgetary Responsibility (OBR)’s forecasts for GDP growth. As with any projection, these forecasts are inherently uncertain, particularly as a result of substantial lags from preliminary measures of economic activity to the final estimate. For instance, since 1993, there has been only one occasion when GDP figures were not revised a quarter after the first release. Considerable uncertainty also exists as to the exact state and prospects for the UK economy.
What factors drive people’s negative views of immigration? Some have argued that anti-immigrant sentiments are driven by cultural concerns about the impact on our national identity and our traditional ‘way of life’ which is perceived to be threatened by the influx of foreigners with different cultural values and customs. Others focus on how attitudes are driven by economic concerns such as the perceived negative impact on jobs, wages and public services.
The MAC report out today concludes that a new managed migration system will have ‘winners and losers’ and the size of the benefits are likely to be modest’. Its key recommendation is that:
There should be a ‘less restrictive’ system for higher-skilled workers than for lower-skilled workers in a system where there is no preference for EEA over non-EEA workers’
The greatest challenge facing UK economic policy, far larger than Brexit, is zero productivity growth since the start of the Great Recession in 2008. The OECD recently projected that the UK’s GDP per capita will be 3% lower by 2030 than it would have been if the UK remained in the EU. This compares with a loss of about 21% in GDP per hour that has already been incurred as a result of stagnating productivity since 2007. This lost decade is even more surprising given that before the crisis the UK’s productivity growth rate was one of the highest amongst the advanced economies. Hence this is commonly referred to as the productivity puzzle. (For more on UK productivity and the puzzle see the Special Issue of the National Institute Economic Review for August 2017)
It is over forty years since Tony Crosland set up the Housing Finance Review in order to simplify housing policy and make it more coherent. A reasonable view of the current situation is that his initiative and many since have all failed in that objective.
With housing nothing seems to change. This is what I wrote in 1999:
“Concerns [about rising house prices] focus on the short term symptoms but it is really a long term problem. The constraints policy applies to the most basic attribute of housing – space – remain the same…When … the National Playing Fields Association complains that – despite government assurances to stop the sale of school playing fields for development - another 80 went last year, it is the flip side of the same coin (see here for a more recent example).The amount of land made available for development is decided in physical units and is intentionally highly constrained by the planning system. But market forces allocate the land that is made available. So developers bid up its price. In turn this creates an incentive for cash strapped councils to sell off any land they own. Since people regard space not only as desirable but – like health care, eating out or short breaks – something they want to buy more of as they get richer, the price of space inevitably goes up.”
The Government admits “the UK housing market is broken”. No other major economy has experienced such a large rise since 1970 in house prices compared to income. The symptoms include the rise in the number of family units without their own home, dramatic falls in the rates of owner-occupation, particularly for younger households and the rise in the Housing Benefit bill.
The UK government published a White Paper on 12th July outlining its preferences for a future relationship with the EU. In this blog we compare the proposals outlined in the White Paper against other EU free trade agreements (FTA) and also estimate the impact on the UK relative to our central forecast, published in August 2018, that assumes a soft Brexit.
Our results suggest that the UK is looking for a trading relationship that is similar in scope to the arrangement between the EU and Switzerland. If that is indeed the case, we believe that the EU will insist that the UK make concessions on the freedom of movement of people and also ask for a budgetary contribution to EU programmes related to the single market.
We estimate that the economy will suffer an annual loss of around £500 per head over time if the White Paper proposals are broadly agreed.