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Society, Politics & Law

Ukiponomics – the unexpected paradise?

Updated Wednesday, 7th May 2014

With the European elections looming, Alan Shipman takes a timely look at the viability of UKIP's economic strategy.

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Nigel Farage chides Eve that she cannot have an apple as she isn't a resident Creative commons image Icon Catherine Pain under Creative-Commons license Nigel Farage has always been well-informed about the economy. That may be why he abandoned commodity trading well before the financial market meltdown of 2008, moving to a party whose stock has risen as the bankers’ falls. It’s also made economic policy one of the most distinctive aspects of UKIP’s programme for the elections of 2014 and 2015. That programme accurately reflects what a modern western country must do if it wants goods and services to flow freely across borders, while limiting the scope for people to follow them.

Unlike other nationalist leaders, who tend to argue that immigration makes the country worse-off, Farage does not dispute the widely-found evidence that it boosts national output and income and strengthens public finances.

He argues against it on two main grounds. First, that the benefits of immigration-driven GDP growth may be denied to the settled population because new arrivals displace them from the labour market and send home some of the income – a charge that does find some support from recent studies, when the growth slows down.

Second, that uncontrolled migration can damage culture and community relations, for whose defence a drop in GDP is an acceptable price.

UKIP actively supports free trade with Britain’s “European neighbours” – which economists have identified as raising output and incomes overall, but adversely affecting the employment and income of some vulnerable groups, especially those working in unskilled occupations. The party does not object to Romanians and Bulgarians forcing British workers onto lower pay or out of work, so long as they compete from a distance rather than booking a one-way ticket to Victoria Coach Station.

Fast-tracking full employment

These courageous stances mean that UKIP has set itself a harder economic policy-making task than most other parties. It must find ways to keep the economy growing (vital for keeping up payments on national debt and avoiding loss of sovereignty to the creditors) without the flow of immigrant labour that has for many years picked its fruit, staffed its hospitals and kept its City trading-desks buzzing. UKIP will still accept immigrants, but only those who demonstrate they can “financially support themselves and their dependents for 5 years”, to the extent of using private hospitals for all but emergency care, renting or buying houses privately and sending any children to private schools.

Even then, they will receive only “time-limited work permits” – possibly not the best of incentives for the high-skilled and high-net-worth immigrants to whom the door is still open. Even tourists will be turned away if they cannot show the necessary proof of health insurance.

The consequent gap in UK labour supply might be partly filled by the million or more British citizens currently living elsewhere in the EU, whose right to remain would be called into question if UK membership were cancelled. But many of these reluctant returners would be people in retirement, or forced to leave their businesses behind, and not well placed to do the heavy lifting once left to Poles or Portuguese.

UKIP admirably recognises that this gap would have to be quickly filled by better mobilising the present indigenous workforce. The UK currently has over a million people of working age who are classified as “not in employment, education or training”. The 800,000 jobs that UKIP identifies as currently advertised to EU workers outside the UK would go a long way towards re-employing those with the relevant skills. Any exodus of existing EU migrants, while it might cause the closure of some small businesses, would almost certainly create extra vacancies for local workers to fill. Chief executives’ loss would be a pay and status gain for some of the worst-off, so long as they meet the residence qualification.

A unique fiscal model

This seemingly fast track from Independence to full employment allows UKIP to promise a tough line against those who still claim they cannot get work in the newly self-governing country. It will “enrol unemployed welfare claimants onto community schemes or retraining workfare programmes”. Retraining may well be necessary, to close the skills gap that prevented candidates from securing jobs when there was overseas competition. But it will be easier to deliver once the bar has been raised against non-UK students, who currently take up over 400,000 university places.

Some extra government spending is likely to be needed for retraining local workers, and helping private and public employers keep going without them. Again, UKIP has set itself the toughest of challenges, by speaking out both against rising taxes and rising government debt. The only way to reduce government debt is to run a budget surplus, something the UK has achieved in a handful of years at the peak of major booms. Reining-in the present budget deficit – 6.6% of GDP in the last financial year requires higher tax revenue and/or lower public spending, as well as faster economic growth.

Higher revenue normally means higher tax rates. But UKIP is clear that it will be a tax-reducing party, with explicit commitments to abolish inheritance tax, “all green taxes” and “tax on the minimum wage”, and to keep council tax “as low as possible.” So will it cap the growth of government debt through stronger restraint on public spending? Annual savings on EU contributions (£20bn), foreign aid (up to £8bn) and HS2 (£21bn for the first phase to 2026) would be substantial, as would be the immediate saving from denying immigrants any public services  or benefit entitlements for their first five years. But the overall reduction is clouded by additional spending commitments including increased policing, full enforcement of jail sentences (which would expand the prison population), evening opening of GP surgeries and creation of new grammar schools – and by sacrifice of the growth that could arise from axed infrastructure projects, if these could be built without immigrant labour.

The figures will add up provided UKIP’s audacious going-it-alone sparks two even more startling national transformations. The first is to a German-style high-wage, high-productivity workplace culture as employers cease to rely on cheap imported labour, and invest heavily to get more out of a UK labour-force whose steady shrinkage in the absence of immigration greatly strengthens its hand in pay bargaining. The second is to an American-style enterprise culture in which tax reductions actually boost public revenue, because of the jump in new business activity. It’s a unity of opposites that no other European economy has managed. Presenting it as a viable third option will be the key to UKIP’s success.

This blog post is part of Society Matters. The blog seeks to inform, stimulate and challenge our understanding of this changing world and of our humbling role within it. Find out more about the blog and the team.
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Please note: The opinions expressed in Society Matters posts are those of the individual authors, and do not represent the views of The Open University.





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