Philippe Legrain

Are banks a vested interest?

Oliver Kamm at The Times, a man I respect a lot, argues in his blog that banks are not a "vested interest".

But unless I have misunderstood him, I think he is being too charitable to the banks.

He argues that "the banks are not some unaccountable lobby seeking to superimpose itself on the public interest: they are an economic sector seeking to maximise profitability within the regulatory framework".

It's worse than that. Banks are unaccountable, since they are not allowed to fail - and capitalism without risk of failure corrupts absolutely.

They do seek to superimpose themselves on the public interest: even now, the notion that what's good for the City is good for Britain is pervasive among many senior officials.

Nor is the regulatory framework a given: it is shaped by banks' lobbying and the revolving doors of finance and politics: boardroom positions for politicians and government advisory roles for bankers - including the astonishing appointment of "Win" (or should that be "Lose"?) Bischoff, the former chairman of failed Citigroup, to co-chair the writing of a report on the future of UK international financial services.

Like Oliver, I am a supporter of open, competitive markets. That's why I find it so worrying that we have allowed a complex oligopoly that earns vast monopoly profits in the good times and passes on the losses in bad to amass such huge economic - and political - power, as I argue in my new book, Aftershock: Reshaping the World Economy After the Crisis, which is out on 6 May.

Banks are a vested interest - and a dangerous one at that. 

A good election to lose?

For anyone of a progressive bent, the prospect of the Tories returning to power is profoundly depressing. However sick of Gordon Brown people might be, David Cameron is hardly an appealing alternative. So at one level it is cheering to see the Conservatives' poll lead melt away with the winter snow. While a narrow Tory victory remains likely, according to political betting markets, it is not in the bag. But while keeping the Tories out would be heartening in the short term, Gordon Brown's re-election would most likely be disastrous for Labour in the longer term.

Some election victories are a poisoned chalice. With hindsight, it was fortunate for Labour and catastrophic for the Conservatives that John Major won in 1992. Sterling's ejection from the ERM shredded the Tories' reputation for economic competence, and five years of in-fighting, blunders and scandal consigned the Conservatives to the political wilderness after 1997. It seemed for a while as if the party might never win office again. The Tories would surely have bounced back more quickly if they had lost in 1992. Conversely, a Labour victory in 1992 could have been fatal. Had the pound plunged within months of Labour taking office, the party's chances of re-election would have been remote. The Labour government would have marked a brief progressive interregnum between long periods of Conservative dominance.

While we do not have the benefit of hindsight, 2010 feels a lot like 1992. Most people are fed up with the government but unconvinced by the opposition. The ruling party has become too comfortable with power and often seems bereft of purpose. The prime minister is at best uninspiring, more often dismal. Most importantly, the economic outlook is unpromising – and there is a growing chance that a run on the pound will wreak havoc with the recovery and the government's plans. Even if catastrophe is avoided, running Britain in an age of austerity will be a thankless task, especially for politicians who believe in active government.

Tax hikes, spending cuts, curbing public-sector pay, cutting public-sector jobs – does Labour really have the stomach for it? Do Labour politicians want to spend the next five years undoing a lot of what they have achieved over the past 13? Do they honestly think voters will look kindly on them next time around if their sales pitch is that their cuts were "kinder" and more reluctant than the hypothetical cuts voters might have suffered under a Tory government? Even if the economy stages a phoenix-like recovery, will voters thank Labour for it? If Labour scrapes through in 2010, there is a good chance it would face a 1997-style electoral oblivion in 2015.

All the more so since five more years of Gordon Brown would test the patience of even the most diehard Labour supporters. Whatever his qualities might be, he is singularly ill-suited to being prime minister. His style rankles. His decision-making (or indecision) is erratic. He is tainted by all the mistakes of the past 13 years – not least cheering on the financial bubble that has now gone spectacularly bust. And since Labour has not had the guts to get rid of him over the past three miserable years, it seems highly unlikely that the party would find the courage to do so after he had won an electoral mandate. Besides, whoever the leader might be, voters would doubtless be gasping for change after four terms – 18 years – of Labour government.

To put it another way, if the choice for Labour is between either an unrewarding extra term in office followed by several terms on the margins or a narrow defeat, a period of renewal and a good chance of returning to government within five years, surely the latter is preferable? Surely only those whose political lifespan is nearing its end, those who depend on Gordon Brown for their advancement, and those who cling to the trappings of office would prefer the former?

The possibility of a hung parliament does not fundamentally alter this calculation. Since the Liberal Democrats have all but ruled out a coalition, a minority government (and most likely a second election) would prolong the uncertainty – increasing the risk of a sterling crisis – but would not change the underlying choice between Tory now or Tory later.

Of course, there are ifs, buts and maybes. One objection is that a Tory victory might result in such severe harm to Britain – for instance, a sequence of events that resulted in Britain leaving the EU – that it must be avoided at all costs. A more immediate danger is that if George Osborne slashed spending, the economy would tank again. That is a big worry. But even a re-elected Labour government might be forced to bring forward budget cuts if markets panic. And in political terms, the likelihood of Tory economic mismanagement strengthens the argument that losing the election would benefit Labour longer term.

Another risk is that Labour might tear itself apart in opposition, rendering itself unelectable, allowing the Tories to win again by default in 2015 unless the Liberal Democrats could capitalise on the situation – a rerun of 1983. That said, Labour might also tear itself apart if it was re-elected, as John Major's Tories did.

Others will argue that Labour could succeed where Margaret Thatcher failed and go on and on and on. A Labour victory might cause the Conservative party to implode (extremely unlikely) or result in electoral reform that entrenched a progressive majority. That possibility is certainly appealing, not least to Lib Dems and Greens. But with or without a change in the voting system, it seems highly unlikely that Labour would stagger on into an unprecedented fifth term after five more years of austerity under Gordon Brown, still less that the Lib Dems would want to prop them up in office.

The prospect of a Europhobic, economically confused, anti-immigrant, privilege-defending Tory government led by a lightweight PR man is soul-destroying. But as disheartening as it now seems, this is an election that Labour might be better off losing.

A run on the pound?

Amid all the euro-phobes' schadenfreude about the euro-zone's travails, it is remarkable that the pound is plunging - not just against the US dollar, but also against the much-maligned euro. 

If markets get panicky about the UK government's deficits, we may regret our not-so-splendid isolation from the euro-zone. 

Are immigrants stealing 'British' jobs?

In response to a "life-swap" television programme made by Today presenter Evan Davis that will be shown on BBC 1 tonight, I debated how immigrant workers are affecting the UK with Frank Field MP on BBC Radio 4's flagship news programme, Today. Listen to it here

Is Britain full?

The Times asked a number of people, including me, whether Britain is full. 

The country's supposed overpopulation is now the argument of choice for opponents of immigration, many of whose real objection to having more foreigners around is cultural. 

After all, Manhattan, Paris and Kensington & Chelsea are the most densely populated areas of the US, France and the UK respectively, yet they are hardly hellholes.

Read the full article here:

http://women.timesonline.co.uk/tol/life_and_style/women/the_way_we_live/article7028212.ece

Analysis: Who's Afraid of the BNP?

Listen to Kenan Malik's excellent Analysis programme on Radio 4 tonight

The law of the jungle

British troops are dying in Afghanistan because the government deems the Taliban such a terrible threat.

Yet those who flee the Taliban and the war are denied asylum in this country.

This is an outrage.

With the closure of the Jungle, a makeshift refugee camp in Calais, children as young as 3 are among the desperate people left to fend for themselves.

Scoundrels such as Andrew Green of MigrationWatch suggest they are gathered in Calais because Britain is seen as a 'soft touch'.

He also claims Britain is full up and cannot accommodate any more people.

Those were the arguments used by the Daily Mail to justify keeping out German Jews fleeing the Nazis in the 1930s.

If the government has any shred of humanity, it will give the young victims of the Taliban asylum in Britain.

Iconoclasts: Why we should abolish immigration controls

On September 16 I appeared on BBC Radio 4's Iconoclasts programme to make the case for abolishing immigration controls.

Listen here: Download Radio4-part1 Download Radio4-part2

EU migration to the UK is working

By Tim Finch of IPPR. Excellent. Read it here.

Immigrants? Not us - we're British

There is an interesting article in The Times about Brits who had been living in Spain returning home because of the economic crisis.

Tellingly, though, they are referred to as "expats" throughout.

It seems that British people abroad aren't migrants, or worse still immigrants.

That's a term we reserve for nasty foreigners.

Kenan Malik on the UK government's multicultural policies

Rather than appealing to Muslims as British citizens, with a variety of views and beliefs, politicians of all hues prefer to see them as people whose primary loyalty is to their faith and who can be engaged only by other Muslims. Should we be surprised then if, as a consequence, many Muslims come to see themselves as semi-detached Britons? Last week the government published Contest 2, its new anti-terrorism strategy. But it has still not understood the extent to which its own multicultural policies have helped fan the flames of Islamic radicalism.

Citizenship has no meaning if different classes of citizens are treated differently, whether through multicultural policies or through racism.

Read the full article in the Sunday Times.

Foreigners aren't grabbing "British" jobs

As the recession bites, unemployment soars, and protests against foreign workers proliferate, the publication of Office for National Statistics figures (pdf) showing that the number of foreign-born people in work rose last year would appear to confirm what opponents of immigration have been saying all along: foreigners are taking "British" jobs. But the picture is far more complex than that.

Note, for starters, that critics would single out immigrants whatever the statistics showed. When immigrants are in work, they are taking our jobs; when they are out of work, they are a burden on the welfare state. Immigrants can't win: they are damned if they do and damned if they don't.

Second, opponents of immigration (and others, including myself) have previously pointed out – correctly – that ONS migration figures were deeply flawed. In particular, they did not accurately count the number of migrants from central and eastern Europe, who as EU citizens can come and go freely. If many of the Poles taking up jobs in Britain were not counted in the boom times, they are unlikely to be counted if they have since lost their jobs or left now we are in a bust. Foreign-born workers may thus not be faring as well as the ONS figures suggest.

Third, the category that the ONS has highlighted – foreign-born people – includes British citizens born abroad and immigrants who arrived as children and are only now entering employment after finishing school or university. In fact, 40% of the UK's foreign-born workers are now British citizens. On what grounds would the wildcat strikers and opponents of immigration object to their employment?

The other category that the ONS provides figures for – non-UK nationals – includes people who have been in this country for decades but have never taken up British citizenship. Again, what would be wrong if more of them were now working? What we would really like to know is whether the number of recent migrants in work is rising, but unfortunately those figures are not available. We would also need more research into what is driving the employment trends, which again we don't have.

Digging a little deeper in the ONS statistics that we do have, one finds that the 175,000 rise in the number of non-UK nationals in work (which is subject to a margin of error of plus or minus 111,000) comes from an unexpected source. Employment among east Europeans has not risen, it has increased (subject to big margins of error) among Indians (up 24,000), citizens of the 14 other countries that were EU members before 2004 (up 25,000), South Africans (up 27,000), and Pakistanis and Bangladeshis (up 31,000). At the same time, figures released to parliament last month show that the number of work permits granted to Indians last year rose by 24,000 to 50,000, while those granted to South Africans rose by 2,000 to 4,900 and those to Pakistanis by 1,700 to 3,300 (a mere 725 were granted to Bangladeshis). Together, this suggests that nearly all of the rise in the number of South Africans and Pakistanis in work last year is due to people who were already in Britain finding jobs, not new arrivals. Since the employment rate among Pakistanis, particularly Pakistani women, has historically been low, it is surely a good thing that more of them are now working.

The bigger point, which bears repeating again, is that there is not a fixed number of jobs to go around, so that making divisive statements about one group of people taking jobs off another is not only invidious, it is also inaccurate. Everyone who works creates jobs for others when they spend their wages as well as in complementary lines of work. Women who work are not taking jobs off men; black employees are not depriving white people of work; people from outside London who work in the capital are not nabbing jobs off those who were born there; and foreigners are not grabbing British jobs. The debate we should really be having is how to create more jobs. Investing more in our rickety infrastructure would be a good place to start.

Foreigners aren't grabbing "British" jobs

As the recession bites, unemployment soars, and protests against foreign workers proliferate, the publication of Office for National Statistics figures (pdf) showing that the number of foreign-born people in work rose last year would appear to confirm what opponents of immigration have been saying all along: foreigners are taking "British" jobs. But the picture is far more complex than that.

Note, for starters, that critics would single out immigrants whatever the statistics showed. When immigrants are in work, they are taking our jobs; when they are out of work, they are a burden on the welfare state. Immigrants can't win: they are damned if they do and damned if they don't.

Second, opponents of immigration (and others, including myself) have previously pointed out – correctly – that ONS migration figures were deeply flawed. In particular, they did not accurately count the number of migrants from central and eastern Europe, who as EU citizens can come and go freely. If many of the Poles taking up jobs in Britain were not counted in the boom times, they are unlikely to be counted if they have since lost their jobs or left now we are in a bust. Foreign-born workers may thus not be faring as well as the ONS figures suggest.

Third, the category that the ONS has highlighted – foreign-born people – includes British citizens born abroad and immigrants who arrived as children and are only now entering employment after finishing school or university. In fact, 40% of the UK's foreign-born workers are now British citizens. On what grounds would the wildcat strikers and opponents of immigration object to their employment?

The other category that the ONS provides figures for – non-UK nationals – includes people who have been in this country for decades but have never taken up British citizenship. Again, what would be wrong if more of them were now working? What we would really like to know is whether the number of recent migrants in work is rising, but unfortunately those figures are not available. We would also need more research into what is driving the employment trends, which again we don't have.

Digging a little deeper in the ONS statistics that we do have, one finds that the 175,000 rise in the number of non-UK nationals in work (which is subject to a margin of error of plus or minus 111,000) comes from an unexpected source. Employment has not risen among east Europeans, it has increased (subject to big margins of error) among Indians (up 24,000), citizens of the 14 other countries that were EU members before 2004 (up 25,000), South Africans (up 27,000), and Pakistanis and Bangladeshis (up 31,000). At the same time, figures released to parliament last month show that the number of work permits granted to Indians last year rose by 24,000 to 50,000, while those granted to South Africans rose by 2,000 to 4,900 and those to Pakistanis by 1,700 to 3,300 (a mere 725 were granted to Bangladeshis). Together, this suggests that nearly all of the rise in the number of South Africans and Pakistanis in work last year is due to people who were already in Britain finding jobs, not new arrivals. Since the employment rate among Pakistanis, particularly Pakistani women, has historically been low, it is surely a good thing that more of them are now working.

The bigger point, which bears repeating again, is that there is not a fixed number of jobs to go around, so that making divisive statements about one group of people taking jobs off another is not only invidious, it is also inaccurate. Everyone who works creates jobs for others when they spend their wages as well as in complementary lines of work. Women who work are not taking jobs off men; black employees are not depriving white people of work; people from outside London who work in the capital are not nabbing jobs off those who were born there; and foreigners are not grabbing British jobs. The debate we should really be having is how to create more jobs. Investing more in our rickety infrastructure would be a good place to start.

The Independent reviews updated paperback of Immigrants

With the X-word currently dominating the headlines, there could be no better time for this intelligent, wholly persuasive defensive of immigration. Scourging the xenophobia that sprouts at times of economic downturn, Legrain insists that clamping down on immigration is "morally wrong, economically stupid and politically unsustainable".

He points out that immigrants, who usually only wish to work abroad temporarily, make their host nation "more interesting and culturally rich". Legrain might have added that they bring a wonderful variety of culinary riches. As JK Galbraith said of immigration, "What is the perversity in the human soul that causes people to resist so obvious a good?"

Link here. Thank you.

Overturn the barricades

The economy is shrinking, unemployment is soaring, insecurity is rife - no wonder people are angry. As wildcat strikes against foreign workers spread across Britain, people who fear for their own jobs may feel sympathetic. But however understandable the strikers' emotions may be, they have got it all wrong.

Foreign workers are not responsible for the mess we're in; the financial crisis is. Blame bankers (British and foreign), finger blase regulators and blinkered politicians, spread responsibility among everyone who piled on debt and gambled on house prices - but don't scapegoat Italian oil workers.

Nor would kicking out foreign workers create more jobs for British people. The notion that there is a fixed number of jobs to go around is a nonsense. Workers (foreign or otherwise) not only take jobs, they also create them. Gordon Brown should have known better than to legitimise the old National Front canard of "British jobs for British workers" in his 2007 conference speech. He should eat his words.

Fewer foreigners around would mean even less spending in the shops, and so cost British people their jobs. Chucking foreign employees out would cause further dislocation to businesses already struggling with shrivelled credit and collapsing demand. It would play havoc with public services, depriving patients of doctors and nurses, the elderly of carers, and children of teachers. It would plunge the economy into an even bigger hole - and we'd end up with fewer jobs for British people, not more.

Let's be clear: if British workers are being discriminated against in Lindsey or elsewhere, that is unacceptable. It would be a breach of both British and EU law. But there is no evidence of that. What the strikers appear to want is that foreign workers be discriminated against - and that too is unacceptable.

The free movement of labour is not only economically beneficial and morally right, it is a legal requirement of EU membership. If Britain were to discriminate against other European workers, what is to stop other EU countries discriminating against British ones? Some 2 million Brits are thought to work in another EU country - do we want to put their jobs at risk too?

During the boom years when the pound was overvalued, Britain attracted workers from around the EU. But with the UK economy now predicted to be hardest hit by the global recession, Brits may feel tempted to seek work on the continent. That's what happened when unemployment reached 3 million in the 1980s, as workers similar to the brickies who featured in Auf Wiedersehen, Pet sought work in Germany and elsewhere.

Pundits and politicians are forever intoning that we must not fall prey to protectionism. Barricading ourselves off from outsiders leads not to salvation, but to economic depression and political extremism. That's one reason why the EU, with its single market, impartial regulations and common political institutions, is so important. Reverting to a policy of each to his own, beggar-thy-neighbour, and devil take the hindmost, would cause the EU to unravel.

That would delight Europhobic Tories, Ukip, the BNP, MigrationWatch and a host of rancid fellow-travellers. But the trade union and wider Labour movement should have no truck with it. Solidarity does not stop at the water's edge. The EU is a champion of workers' rights. And if the flaws of financial globalisation are to be fixed - and climate change curbed - it will be in partnership with Europe, not against it.

Now of all times Derek Simpson, Jon Cruddas and others on the left should not be making common cause with what Peter Mandelson has rightly called "the politics of xenophobia".

Overturn the barricades

Free movement of labour makes economic and moral sense. Without it the EU would unravel
Read my article in today's Guardian

Why Britain still needs immigrants in a recession

Speaking on Five Live Breakfast News this morning, with Andrew Green of MigrationWatch. Listen here

Kaletsky endorses directing Northern Rock to lend

Britain's banks aren't lending, which is strangling the economy. The package of measures to support lending to smaller businesses which the government announced yesterday will do some good. But it is not enough.

As I have argued previously, the government should direct nationalised Northern Rock to step into the breach. Anatole Kaletsky endorses this position in today's Times:

the quickest and least costly emergency response would be to reverse the policy of running down Northern Rock and Bradford & Bingley. Both these banks are now fully owned by the Government and could be turned into rapidly growing state-guaranteed lenders.

The plans to run down their lending were right in the circumstances in which they were nationalised last year, when other private banks were functioning more or less normally. But things have completely changed and it now makes sense to reverse their policy of credit contraction. Northern Rock is ideally positioned to re-expand the supply of mortgages to first-time buyers, while Bradford & Bingley could revive the flow of finance to commercial and social housing. The Government could also be much less shy about exerting its majority control over the Royal Bank of Scotland and its 40 per cent stake in Lloyds-HBOS, by far the biggest commercial and mortgage lender in the country.

Immigration round-up

In Britain, the government is today publishing its long-awaited citizenship, immigration and borders bill. It proposes that prospective citizens should have to "earn" British citizenship after going through a probationary period. I have written a critique of the earned-citizenship proposals here.

I debated whether Britain still needs immigration in a recession of Radio Five Live this morning, with Andrew Green of MigrationWatch. The audio clip will be posted once it is available on the BBC website.

In France, immigration minister Brice Hortefeux has been replaced by Eric Besson, an ex-Socialist who quit Segolene Royal's presidential campaign last year to support Nicolas Sarkozy.

Nanny doesn't know best

Simon Jenkins on Britain's illiberal and senseless drugs policy:

Leaving ecstasy in class A on the grounds that "there is no such thing as a safe dose" is public stupidity. On this basis there is no safe alcoholic drink or cigarette. There is no safe tree, no safe ladder and, according to Smith, no safe mobile phone. Do we ban trees, ladders and mobiles? Lurking behind them all is an accident waiting to happen, a terrorist incident, a loss of state control. Smith's nostrum may be music to the health and safety industry, but not to common sense.

You can't trust Big Brother

The British government wants to create a database that would keep track of everyone's calls, emails, texts and internet use.

Sir Ken Macdonald, the former director of public prosecutions, who has firsthand experience of working with intelligence and law enforcement agencies, told the Guardian:

The tendency of the state to seek ever more powers of surveillance over its citizens may be driven by protective zeal. But the notion of total security is a paranoid fantasy which would destroy everything that makes living worthwhile. We must avoid surrendering our freedom as autonomous human beings to such an ugly future. We should make judgments that are compatible with our status as free people.

Maintaining the capacity to intercept suspicious communications was critical in an increasingly complex world, he said.

It is a process which can save lives and bring criminals to justice. But no other country is considering such a drastic step. This database would be an unimaginable hell-house of personal private information... It would be a complete readout of every citizen's life in the most intimate and demeaning detail. No government of any colour is to be trusted with such a roadmap to our souls.

The government's proposals must be resisted at all costs.

MigrationWatch is twisting the truth

Are immigrants taking our jobs? It is an explosive issue, especially with Britain sinking into recession and unemployment rising. So opponents of immigration will doubtless seize on a new report by the independent thinktank MigrationWatch UK, which claims that those dastardly foreigners who have the cheek to look after your granny or pick English strawberries are stealing jobs from British people. Yet the claims of Sir Andrew Green's thinktank are flatly contradicted by figures from the Office for National Statistics (ONS).

MigrationWatch claims that nearly all the jobs created in the UK since 2001 have gone to immigrants. But figures from the labour force survey (xls), show that employment among British-born people actually rose by 378,000 between the second quarter of 2001 and the second quarter of 2008, the dates arbitrarily chosen by MigrationWatch. If one excludes the recent fall in employment due to the financial crisis and instead compares the last three months of 2000 with the last three months of 2007, the number of UK-born people with jobs has risen by just over half a million (520,000).

MigrationWatch also claims that employment among UK-born people has fallen by 230,000 since the second quarter of 2004, when Britain opened its labour market to the Poles and other eastern Europeans joining the EU. But this too is contradicted by ONS figures. These show that the number of British-born people in jobs actually rose by 43,000 between the second quarter of 2004 and the same period of 2008. Excluding the impact of the financial crisis, employment rose by 175,000 between the second quarter of 2004 and the last three months of 2007.

MigrationWatch says that "there has been no progress at all in getting British-born unemployed workers into work" since 2001, and blames immigrants for this. But ONS figures suggest otherwise. They show that the employment rate among British-born people – the proportion of UK-born people of working age in employment – rose sharply in Labour's first term, from 73.5% in the second quarter of 1997 to 76% in the third quarter of 2000. Since then it has remained roughly steady: it was 75.6% in the second quarter of 2004 when Britain opened up to east European workers and 76% in the last quarter of 2007. In other words, the employment rate stopped improving well before eastern European migrants started arriving in large numbers, and has not worsened since.

The bigger point is this. As even MigrationWatch is forced to concede, there is not a fixed number of jobs in the economy. Immigrants don't just take jobs, they also create them, as they spend their wages and fill roles in complementary lines of work. If Britain threw out its Polish workers there wouldn't suddenly be more jobs for British people – just as throwing women out of work wouldn't provide more jobs for men.

Whichever way you look at it, immigrants are not taking British people's jobs. On the contrary, they are helping to provide vital public services and keep small businesses going. Not for the first time, MigrationWatch's xenophobic prejudice is causing it to twist the truth. Andrew Green should be ashamed of himself.

Migrationwatch are wrong: immigrants aren't taking "British jobs"

Are immigrants taking our jobs? It is an explosive issue, especially with Britain sinking into recession and unemployment rising. So opponents of immigration will doubtless seize on a new report by Migrationwatch which claims that those dastardly foreigners who have the cheek to look after our granny or pick English strawberries are stealing jobs from British people. Yet Migrationwatch’s claims are flatly contradicted by figures from the Office of National Statistics.

Migrationwatch claims that nearly all the jobs created in the UK since 2001 have gone to immigrants. But figures from the Labour Force Survey show that employment among British-born people actually rose by 378,000 between the second quarter of 2001 and the second quarter of 2008, the dates arbitrarily chosen by Migrationwatch. If one excludes the recent fall in employment due to the financial crisis and instead compares the last three months of 2000 with the last three months of 2007, the number of UK-born people with jobs has risen by just over half a million (520,000).

Migrationwatch also claims that employment among UK-born people has fallen by 230,000 since the second quarter of 2004, when Britain opened its labour market to the Poles and other eastern Europeans joining the EU. But this too is contradicted by ONS figures. These show that the number of British-born people in jobs actually rose by 43,000 between the second quarter of 2004 and the same period of 2008. Excluding the impact of the financial crisis, employment rose by 175,000 between the second quarter of 2004 and the last three months of 2007.

Migrationwatch say that “there has been no progress at all in getting British-born unemployed workers into work” since 2001 and blame immigrants for this. But ONS figures suggest otherwise. They show that the employment rate among British-born people – the proportion of UK-born people of working age in employment – rose sharply in Labour’s first term, from 73.5% in the second quarter of 1997 to 76% in the third quarter of 2000. Since then it has remained roughly steady: it was 75.6% in the second quarter of 2004 when Britain opened up to east European workers and 76% in the last quarter of 2007. In other words, the employment rate stopped improving well before eastern European migrants started arriving in large numbers, and has not worsened since.

The bigger point is this. As even Migrationwatch are forced to concede, there is not a fixed number of jobs in the economy. Immigrants don’t just take jobs, they also create them, as they spend their wages and in complementary lines of work. If Britain threw out its Polish workers, there wouldn’t suddenly be more jobs for British people – just as throwing women out of work wouldn’t provide more jobs for men.

Whatever way you look at it, immigrants are not taking British people’s jobs. On the contrary, they are helping to provide vital public services and keeping small businesses going. Not for the first time, Migrationwatch’s xenophobic prejudice is causing it to twist the truth. Andrew Green should be ashamed of himself.

Boris is right!

I never thought I'd say this, but here goes: Boris Johnson is right.

Right to support an amnesty for the hundreds of thousand of illegal migrants in London and the rest of the UK. The reality is that most work hard, pay their taxes and contribute to Britain's economy and society, but they are forced to live in the shadows, bereft of rights, vulnerable to exploitation, and living in perpetual fear of deportation. Many have been here over a decade; some have British-born children growing up here. Just imagine the consequences of trying to uproot them.

The government's policy: talk tough, "crack down" on illegal immigrants, and deport those they can is a sham policy: it is economically, politically, logistically and humanely impossible for the police to round up half-a-million people and expel them from Britain. Since the government's policy is a phoney policy, it causes suffering, fragments the economy and society, and yet fails to achieve its aim.

Far better, irrespective of what you think about immigrants in generally, to face up to reality and regularise their situation. It worked for the US in 1986. It worked for Spain in 2006. It's likely to happen under an Obama presidency. And it will one day have to happen in Britain too once lily-livered short-sighted politicians finally realise that it is the only viable option. So why not do it now?

Krugman: big fiscal stimulus that boosts government spending needed

Now, the United States tried a fiscal stimulus in early 2008; both the Bush administration and congressional Democrats touted it as a plan to "jump-start" the economy. The actual results were, however, disappointing, for two reasons. First, the stimulus was too small, accounting for only about 1 percent of GDP. The next one should be much bigger, say, as much as 4 percent of GDP. Second, most of the money in the first package took the form of tax rebates, many of which were saved rather than spent. The next plan should focus on sustaining and expanding government spending—sustaining it by providing aid to state and local governments, expanding it with spending on roads, bridges, and other forms of infrastructure.

The usual objection to public spending as a form of economic stimulus is that it takes too long to get going—that by the time the boost to demand arrives, the slump is over. That doesn't seem to be a major worry now, however: it's very hard to see any quick economic recovery, unless some unexpected new bubble arises to replace the housing bubble. (A headline in the satirical newspaper The Onion captured the problem perfectly: "Recession-Plagued Nation Demands New Bubble to Invest In.") As long as public spending is pushed along with reasonable speed, it should arrive in plenty of time to help—and it has two great advantages over tax breaks. On one side, the money would actually be spent; on the other, something of value (e.g., bridges that don't fall down) would be created.

In short, Nobel laureate Paul Krugman says a fiscal stimulus needs to:
1. be big (unlike in the UK, where it amounts to only 1% of GDP)
2. prioritise government spending rather than tax breaks (unlike in the UK, where it consists mainly of a temporary VAT cut).

Darling concedes fiscal stimulus wasn't big enough

The Chancellor told the Observer that:

You'd be very foolish indeed to say, "Well, that's the job done". You know this is something that needs constant attention. We've got the Budget next year, we've got the pre-Budget report in 12 months' time, the Budget after that. I put more money into the reserve on Monday precisely because I know we're almost certainly going to be doing additional things. The people expect you to do that.

If he expects to have to deliver a further stimulus next March, he should have done it now.

No left turn

Tony Blair once said that ‘we're at our best when at our boldest'. Gordon Brown is - finally - heeding that advice. His plan to shore up Britain's banking system is our best hope of pacifying the financial panic, getting credit flowing through the economy again and avoiding a 1930s-style depression. No wonder it is being copied across the world.

The need for massive state intervention in the banking system is regrettable. But exceptional times call for exceptional measures. Britain - and the world - is suffering a full-on financial heart attack. Unless the financial arteries of the economy are unclogged soon, huge job losses, bankruptcies, repossessions and a sharp fall in living standards beckon.

The government must do whatever it takes - including, if necessary, fully nationalising Britain's banks for a while - to rescue the economy from financial oblivion. Once the immediate crisis has passed, better and tougher financial regulation should be a priority. But while the glaring failings of global finance clearly need fixing, should the rest of the economic rulebook be torn up too?

Many on the left think so. Ken Livingstone, the Guardian's Seumas Milne and others argue that the government should turn its back on market economics. Since capitalism seems to be collapsing under the weight of its internal contradictions, they believe, the government should finish it off and regulate left, right and centre. More measured voices, such as the TUC's Brendan Barber, favour a ragbag of measures such as curbs on boardroom salaries and a new industrial policy.

But the priority now is tackling the crisis and averting a depression; everything else is a dangerous diversion. If struggling businesses that have just had their overdraft cut fear that they are about to be clobbered with higher taxes and more red tape, investment and jobs will suffer. The last thing a heart attack victim needs is to have a healthy leg amputated.

The government's bank rescue plan needs to be accompanied by measures to support the economy, not shackle it. The Bank of England should continue to cut interest rates, soon. Even though inflation is well above the target rate of two per cent, it is set to fall sharply as oil prices tank. Collapsing demand means that the real threat now is deflation, not inflation.

Some argue that the Bank of England's independence should be compromised. But that would be a mistake. Even the perception of political meddling in setting interest rates would add to financial uncertainty, undermine the credibility of monetary policy and raise the cost of government borrowing. As we learnt to our cost in the 1970s and the late 1980s, letting inflation rip does not lead to a sustained improvement in unemployment and economic growth; quite the reverse.

But once the crisis has passed, the government should reform the setting of monetary policy. The Bank of England's target measure of inflation should be amended to include housing costs. Its mandate should also be broadened so that it takes more account of asset prices. This would allow the Bank to raise interest rates to prevent bubbles getting out of hand - and thus avert future busts.

Faced with the threat of a depression, the government must not be hamstrung by its fiscal rules. Rightly, the government plans to borrow huge sums to finance the rescue of the banking system. It is well placed to do so since government debt as a share of GDP is low. This need not increase the national debt in the long term: Sweden's government turned a profit on its investment when it rescued its banks in the early 1990s. The government must also be ready to boost demand with tax cuts and spending increases if the recession turns really nasty. Fiscal tightening will certainly be needed - but only once the economy is recovering.

The bigger question, though, is whether, once the immediate crisis has passed, economic policy in areas other than finance needs to be revised. Leftwing populists have been quick to bury what they describe as the era of ‘unfettered markets', but an economy where the government takes around 40 per cent of national income in tax, pays for and provides essential services such as healthcare and education, and regulates everything from employment rights to credit-card contracts, can scarcely be described as one where the state has shrivelled and markets have free rein. So the issue is not whether the financial crisis sounds the death-knell for the free market, but whether it tips the balance towards greater state intervention.

That question is in fact two: first, does the crisis in financial markets suggest that competitive markets more generally do not work as well as we previously thought?; and second, will the crisis shift public opinion towards supporting a bigger role for the state? My answer to the first question is no; and while the answer to the second question is still unclear, people do not appear to be hankering to turn the clock back to the 1970s - notwithstanding the success of the TV series Life on Mars.

As I wrote in 2002 in my first book, Open World: The Truth about Globalisation: ‘Financial markets are unlike other markets. They are inherently unstable. They are prone to Manias, Panics, and Crashes ... Why? Because they involve bets on an unknown and unknowable future.' Product markets are very different: the market for cars or baked beans is not prone to destabilising speculation - and even if people did start gambling on the price of baked beans, its impact on jobs and the economy would be limited. The temporary part-nationalisation of Britain's banks does not call for increased intervention elsewhere. Royal Bank of Scotland may have come unstuck, but Tesco continues to deliver the goods.

Faced with a nasty recession partly caused by reckless lending in the US, the temptation to blame outsiders for our woes will grow. But we shouldn't throw the baby out with the bathwater. Britain benefits hugely from its openness to foreign products, ideas and people. The low prices in ASDA and Primark are only possible thanks to free trade, and commerce with China will provide many of the jobs of the future. Recent migrants from eastern Europe have filled vital jobs and revitalised the economy through their dynamism. Beggar-thy-neighbour protectionism made the Great Depression much worse; we would be crazy to repeat the same mistake.

Britain's flexible labour markets will be a key strength in the tough times ahead. They allow the economy to adapt rapidly to change, helping to redeploy workers from shrinking industries to growing ones and keeping unemployment down. Combined with measures to make work pay, help people find jobs, and equip them with the skills they need, New Labour's labour-market policies stand us in good stead. We should not be trying to protect yesterday's jobs at the expense of tomorrow's.

While tax rises will probably be needed in the medium term to pay for the costs of the crisis and an unexpectedly deep recession, support for higher taxes is hardly likely to be an election winner. Taxes must also remain low enough to support opportunity and enterprise. If working hard and starting a business is not rewarding enough, economic growth will suffer - and with it the ability to invest in public services. And unless public services continue to be reformed, with choice driving up standards and giving people what they want, voters are likely to feel their money is being wasted.

With Labour so far behind in the polls, the only chance of recovery depends on rescuing the economy from the worst crisis since the 1930s. Brown has come into his own in the past month, while the Conservatives, who are unconvincing critics of City practices, are flailing. But lurching to the left in the mistaken belief that markets no longer work and that voters are crying out for bigger government would be a huge mistake.

Green's arrest is an abuse of police power

Damian Green and I don't see eye to eye on immigration, but I find his arrest, questioning and the search of his home and office by counter-terrorism police outrageous.

According to the BBC, police suspect the Conservative immigration spokesman of “conspiring to commit misconduct in a public office” and “aiding and abetting, counselling or procuring misconduct in a public office”, basically making public information leaked from the Home Office. But as Willem Buiter rightly says:

Using the counter-terror unit to investigate an alleged offence which, even if it had been committed, would not be terrorism-related, is an abuse of power. These are the methods used commonly in police states. They have no place in the UK.

 

Buiter on how to make banks lend

(A) All domestic non-financial enterprises that currently have access to bank financing and whose loans, overdraft facilities, credit lines or whatever other financial arrangements expire during the coming year, have the right to an automatic one-year extension of the expiring arrangements on the same financial and non-financial terms as the expiring arrangements. This mandatory ‘creditor standstill’ helps existing borrowers by providing them with a breathing space. It does, however, do nothing for new enterprises or enterprises that are not currently borrowing.

(B) Aggregate lending targets for lending to the domestic non-financial business sector are set by the government for each bank (last year’s total plus five percent, say). The banks themselves can decide who to lend to and on what terms. Any shortfall of actual lending from the target is translated pound for pound into a Deficient Lending Tax. Since not meeting the target amounts to throwing money away, the banks will lend.

(C) Nationalise the banks (paying as little as possible to the existing shareholders), fire the existing management and board of directors, and have the government appoint a new executive and a new board that are serious about meeting lending targets. With 100 percent share ownership by the state, there is no risk of lawsuits about the executive or board of the  bank not meeting their fiduciary duty to the shareholders. Full state ownership would make transparent and formal what is already true in substance: but for the financial support of the government (past, current and promised/anticipated in the future), there would no longer be more than at most a handful of viable cross-border banks in the north-Atlantic region.

He concludes:

Things are critical. Unless the banks start lending in normal volumes very soon, this recession could indeed become another Great Depression. We cannot wait for the banks to find their juju. The government may have to take it to them.

Full post here

If UK banks won't lend, Northern Rock should

The reason why the government had to rescue Britain’s banks is not that their shareholders and executives deserve special favours, but because businesses and jobs depend on the availability of credit. There is no public interest in propping up banks that won’t lend.

For sure, banks should not be lending with reckless abandon as they did in the go-go years, but nor should they be slashing the overdrafts of solvent small businesses and jacking up the interest rates on them. If the banks refuse to lend, the government must step in. It is considering all sorts of interventions, but seems to be ignoring an obvious solution.

Political pressure on the banks has been largely ineffective so far. While Peter Mandelson, the business secretary, has said that “It’s completely unacceptable to the government and to business in this country for banks indefinitely to stop functioning as banks. We are in very intensive discussions with the banks, believe me”, jawboning alone is unlikely to succeed when banks’ priority is hoarding cash and reducing risk.

Alasdair Darling is also drafting a raft of measures to support business lending. These could include new requirements for banks to give businesses greater notice of changes in the terms and availability of credit. More ambitiously, the Chancellor is looking at ways to extend government guarantees to support new business lending.

But such is banks’ aversion to lend that the government also needs to consider bolder moves. It could insure all loans to businesses. It could lend directly to companies. And it could nationalise the banks altogether.

There is also another option that the government does not appear to be considering. It already owns a fully fledged bank: Northern Rock. Perversely, while it is urging the soon-to-be part-nationalised banks to lend more, it is busy shrinking the balance sheet of the only fully nationalised one.

That made some sense when the rest of the banking sector was private: the government did not wish a state-owned bank to undermine the private banks by competing unfairly them. But now that the whole banking sector enjoys an implicit government guarantee and the overriding priority is supporting lending to avert a depression, that objection no longer holds.

So if other banks will not lend, the government should inject a dollop of new capital into Northern Rock and direct it to make it more credit available on reasonable commercial terms. If other banks do not follow suit, Northern Rock may grow to become one of the biggest banks in Britain. But so what? It can be privatised again, no doubt at a hefty profit for taxpayers, when the crisis is over and the economy is growing again.

Addendum: Northern Rock is raising its mortgage rates today. Unbelievable.

Darling's stimulus should have been bigger and bolder

Extraordinary times call for extraordinary measures. Alasdair Darling’s statement was a pre-budget report only in name; in reality, it was an emergency budget crafted by Gordon Brown. It was big and bold, but it should have been bigger and bolder. Worse, the main plank of the government’s plan to support the economy – a cut in VAT to stimulate consumption – is misconceived.

On the big picture, Gordon Brown is right and David Cameron wrong: a fiscal stimulus is urgently needed to prop up the economy as demand slumps. Faced with the sharpest downturn since the 1930s, interest-rate cuts are not enough. While a further increase in government borrowing is risky, doing nothing – and risking an even longer and deeper recession – would be reckless. The forecasts for government borrowing are huge – £78 billion in this tax year, £118 billion in the next – but national debt will still peak at only 57% of GDP, comfortably below the level deemed prudent by EU rules. It is not a tragedy if public debt rises even higher in the short term. So the Conservatives’ critique is wide of the mark. The real problem with the government’s stimulus package is that it is too small and poorly targeted.

A stimulus of £20 billion between now and April 2010 is not trifling, but it amounts to only 1% of GDP. It will do little to fill the gap left by the collapse in private consumption and investment, not least since some of the stimulus will be saved. In comparison, president-elect Obama’s team are considering a fiscal boost of $500 billion, or even $700 billion, over two years – which is equivalent to 1.75%-2.5% of GDP in each year. A bigger stimulus would not only provide a bigger boost to the economy directly, it could also help restore confidence, by signalling to consumers and companies that the government is serious about supporting the economy.

The focus of the emergency budget is also misdirected. Encouraging overindebted consumers to spend more is wrong-headed. For a start it may not work: since retailers’ hefty discounts are doing little to tempt shoppers to spend, a cut in VAT of 2.5% is unlikely to either. But even if it does work, encouraging consumers to go on yet another spending spree is unwise when they need to start saving more. The government should instead have done far more to limit job losses, repossessions and bankruptcies and to invest in areas, such as infrastructure, that bring long-term benefits to society.

For sure, the measures to help small businesses are welcome. A combination of tax cuts and loan guarantees will help. But a large share of the assistance consists of merely deferring a planned rise in corporation tax; a temporary cut would have been much better.

Likewise, the £1.3 billion package to protect jobs is too small. More jobs could be saved if the government introduced a temporary cut in employers’ national insurance contributions. And while the £1.8 billion housing package is better than nothing, three months’ grace for those struggling with their mortgages will bring little relief. The government should also provide funds for housing associations or local authorities to buy up property that banks wish to repossess, allowing homeowners to remain as tenants if they wish.

Above all, the focus of the stimulus package should have been a big increase in investment in infrastructure and other public works, along the lines proposed by president-elect Obama. Instead, the government merely brought forward £3 billion in capital spending, a drop in the ocean. It should be doing much more: bringing forward and increasing spending on social housing, upping and accelerating investment in Britain’s crumbling infrastructure, especially transport, and offering bigger subsidies for energy-efficiency measures, such as loft insulation.

Longer term, the government’s growth and deficit forecasts look optimistic. It seems unlikely that the economy will start growing again as early as the second half of next year. The recovery is also likely to be slower than the government predicts, since consumers will be struggling with the burden of their excessive debts for many years. So looking forward, the taxes are likely to have to rise by more in the next parliament than the 0.5% increase in national-insurance contributions and the introduction of a new 45% tax band on incomes above £150,000 announced now.

The measures announced in the pre-budget report are unlikely to be the last word. As the crisis continues to take violent and unpredictable new turns every other week – witness the rescue of the US banking giant Citigroup over the weekend – further action will no doubt be needed soon. The government may need to inject further capital into Britain’s ailing banks – and more outright nationalisations may even be necessary. A further fiscal stimulus is also likely to be needed in next year’s budget. It’s a pity it wasn’t announced this week.

 

Debating migration, skills and the job market

at the Royal Geographical Society with Khalid Koser and Andrew Green, chaired by Jonty Bloom.

Watch it here

The Poles are going home (cont.)

Immigration to Britain from eastern Europe continues to fall.

In the third quarter of 2007, 59,000 people from the A8 countries registered to work in Britain; in the same period this year, only 38,000 did. The decline was mostly due to fewer Poles applying to work: their numbers almost halved from 41,000 to 23,000.

We shall miss them when they are gone.

Many are filling vital gaps in our public services. In the twelve months to September, 3,400 A8 nationals registered as care workers, 840 as teachers, researchers and classroom assistants, 75 as dental practitioners (including hygienists and dental nurses), and 835 as GPs, hospital doctors, nurses and medical specialists.

Read the latest Home Office Accession Monitoring Report in full here.

Spain attracts most immigrants in EU in 2007

Net immigration to the EU - immigrants less emigrants - was 1.9 million in 2007, according to Eurostat. Since the EU population is just shy of 500 million, the immigration rate was 0.38%.

Spain had the highest level of net immigration: 702,000; Italy was second, with 494,000; Britain third, with 175,000. The Netherlands experienced net emigration, with 1,600 more people leaving than arriving.

Sheap shearers welcome, midwives not

The British government's lunacy knows no bounds. Irrespective of how open to immigration you think Britain should be, the notion that the Home Office, advised by a committee of wise men and women, is capable of identifying the specific occupations where job shortages exist is ludicrous.

According to the government's new list, Britain will allow in:

• sheap shearers (but only if they hold the British Wool Marketing Board bronze medal or equivalent);
• frozen fish filleters (but only in Scotland);
• theatre nurses (but not midwives);
• veterinary surgeons (but not other veterinarians);
• chefs (but only those paid at least £8.10 an hour);
• ballet dancers (but not choreographers, or other dancers).

For the full list, click here.

It’s absurd. The government simply doesn’t have the information to second-guess the employment needs of the UK economy now, let alone in future.

Think how hard it is being the human-resources manager for a big company. It's nonsense to think that any committee, let alone the Home Office, can do that job for a complex modern economy made up of tens of thousands of businesses, each with its own ever-changing employment needs. The 1970s and the Soviet Union proved conclusively that manpower planning doesn’t work.

The government wouldn’t dream of applying such a policy between England and Scotland. Why on earth should it work between Britain and the rest of the world?

Big Brother Britain

This year’s Privacy International survey put Britain bottom of the European league for surveillance and civil intrusion. In his last column for the Sunday Times, Simon Jenkins urges us all to fight to defend freedom against government encroachment:

Never was the adage of Louis Brandeis, the US justice, more relevant: free men are naturally alert to the wiles of evil-minded rulers but “the greatest dangers to liberty lurk in insidious encroachments by men of zeal, well-meaning but without understanding”.

Now the government wants to create a giant database that would store the details of every phone call, text message, and webpage visited by everyone in Britain: Big Brother will be watching every move you make.   

[Home Secretary Jacqui] Smith parrots the totalitarian’s answer that “the innocent have nothing to fear”. But they do. They know from experience that government cannot be trusted with private information. In addition, any errors in that information are almost impossible to correct.

Read the full article here

What it takes to be British

Read it here

What it takes to be British

I've written an article for the latest JCWI Bulletin on the government's proposals that UK citizenship should be earned. Read it here

Woolas reveals Labour's new immigration strategy: pander to racism

Phil Woolas, Britain's new immigration minister, is already making his mark. He told The Times that:

This Government isn’t going to allow the population to go up to 70 million. There has to be a balance between the number of people coming in and the number of people leaving.

It would appear that Woolas has single-handedly aligned government policy with the xenophobic claptrap peddled by the Balanced Migration alliance of Frank Field and Migrationwatch, outflanking the Tories' call for an annual cap on immigration. This is not only harmful, it is unworkable.

Woolas also appears to believe in the lump of labour fallacy: that there are a fixed jobs to go round. Thus he reasons that immigrants are taking British workers' jobs:

Britain has to get working again. The easiest thing for an employer to do is to employ an immigrant. We need to help them to change that.. .We need a tougher immigration policy and we need to stop seeing it as a dilemma. It's not. It's easy. I'm going to do my best to help the British back to work.

Scapegoating immigrants for the rise in unemployment caused by the global financial crisis is despicable. Even a numbskull should realise that at at time when Poles are deserting Britain in droves, immigration is not driving unemployment up.

Of course, Woolas protests that he is not a racist. He takes refuge behind the old canard that he must pander to xenophobic prejudice in order to defuse racial tensions. The MP for Oldham East is proud that there are no BNP councillors in his constituency. His strategy for defeating them: echoing what they say. It's shameful.

 

Taking stock

The time for half-measures is over. Britain is no longer in the grips of a credit crunch or even a financial crisis; it is suffering a full-on financial heart attack. Markets have seized up. Banks will no longer lend to each other. Credit to companies and individuals is drying up. Unless credit starts flowing again soon, a nasty recession – conceivably even a depression – looms and with it, massive job losses, bankruptcies, repossessions and a sharp fall in living standards. The government needs to act – now.

But what to do? Ken Livingstone, Seumas Milne and others argue that the government should turn its back on market economics. Since capitalism seems to be collapsing under the weight of its internal contradictions, the government should finish it off. More measured voices such as the TUC's Brendan Barbour favour a ragbag of measures, such as a new industrial policy. But all of them are missing the point. Righting the huge problems in financial markets certainly requires decisive government intervention, but lashing out at generally well-functioning product and labour markets is perilously misplaced. The last thing a heart-attack victim needs is to have a healthy leg amputated. The priority now is tackling the financial crisis; everything else is a dangerous diversion.

But while the government should not try to turn the clock back to the 1970s, it does need to change course. Its ad hoc approach will no longer do. The nationalisations of Northern Rock and Bradford & Bingley, and the government-orchestrated rescue of HBOS, were justified at the time. But damage limitation is no longer enough – not least since Lloyds' rescue of HBOS seems to be dragging it down, too. Now Royal Bank of Scotland seems under threat; Barclays may be next in line. Waiting for the next bank to collapse and then picking up the pieces will not restore confidence or get credit flowing around the economy again.

Across Europe, governments are rushing to following Ireland's lead and guarantee (nearly) all deposits in the banking system. Here, the Treasury has just raised the guarantee on savers' deposits to £50,000. But while it may soon be forced to extend a broader guarantee, this will not tackle the root causes of the crisis: a lack of capital in the financial system and sheer panic.

A cut in interest rates would do some good. Although inflation is well above the target rate of 2%, the Bank of England should slash rates when it meets on Thursday. As the global economy tanks, oil prices are sinking, so inflation is set to fall. Collapsing demand means that the real threat now is deflation, not inflation. But a big cut in interest rates will not be enough. If banks are unwilling to lend, monetary policy alone is virtually useless – in Keynes' words, it is like "pushing on a string". Bolder measures are needed.

The US has opted for a $700bn bailout. In theory, taking bad debts off banks' books should reassure markets that that they are not about to go bust. Banks may be willing to lend to each other again, their share prices may recover somewhat, and investors – not least Asian governments and those of oil-rich states – may be willing to pump some of their huge cash reserves into them. But the bailout route is deeply flawed. It provides the most help to the banks that made the biggest mistakes. It exposes taxpayers to huge potential losses. And it does little to recapitalise the banking sector and thus encourage it to start lending again.

There is a better way. As now seems likely to happen in some form, with the chancellor's statement on Wednesday morning, the government should buy stakes in – and in some cases, take over – stricken banks, an approach that worked well in Sweden in the early 1990s. With the government standing behind banks, the fear that they are about to go bust would vanish. An injection of taxpayers' money would strengthen banks' balance sheets, allowing them to start lending again. But it would not be money for nothing: the government could acquire preference shares, which pay a hefty interest rate and put taxpayers first in line to be repaid if a bank fails. These could be combined with warrants (basically, options to buy shares at a future date at a specified price), so as to give us all a share in the profits when banks – and the economy – recover.

John Hussman, a US analyst and investor, has suggested a novel variant of this idea. He proposes that the government provide capital in the form of a "super-bond". This would be subordinate to deposits, and so could be counted as capital. But if a bank went bust, taxpayers would be repaid before shareholders and senior bondholders, thus protecting the financial system, customers and taxpayers. The super-bond could pay a relatively high interest rate to give banks an incentive to shift to private financing when conditions improve, but interest payments could be deferred until banks were profitable so as not to drain their cash reserves now.

A government recapitalisation of the banking sector – combined with much tougher financial regulation to limit future excesses – would be good politics, as well as sound economics. With Labour so far behind in the polls, its only chance of recovery depends on rescuing the economy from the worst crisis since the 1930s. Decisive action would marginalise the Conservatives, who are unconvincing advocates for state intervention in the financial system and are, in any case, powerless to act. And since even David Cameron has been forced to concede that government injections of capital may be needed, the government has political cover to act.

Gordon Brown has shown that he can be bold when circumstances demand it. Now is such a time.

       

Shouldn't HBOS now remain independent?

Allowing Lloyds TSB to take over HBOS was an act of desperation: even though the merged entity would dominate the UK banking market, the government signalled that it would approve the merger in order to stop HBOS going under.

But now that the government has stepped in with its bank recapitalisation and funding plan, wouldn't it be better to let HBOS survive as an independent bank?

Britain's bold bank rescue plan

Tony Blair once said that the government was best when it was boldest. Gordon Brown is – finally – heeding that advice. The government’s three-pronged plan to shore up Britain’s banking system is bold and right. It is our best hope of pacifying the financial panic, getting credit flowing through the economy again and thus avoiding a 1930s-style depression.

The Bank of England’s half-point cut in interest rates is also welcome, particularly since it was co-ordinated with other central banks. It signals that the US and Europe are finally acting together to tackle the global financial crisis. But a larger cut is needed soon: at 4.5%, UK interest rates are still far too high.

The bigger challenge is to get banks lending again – to each other, to companies and to individuals. They need enough cash to conduct their day-to-day operations; secure access to medium-term funding; and extra long-term capital to provide a cushion against bad debts and allow them to lend to creditworthy borrowers.

The government’s plan addresses all three of these needs. The Bank of England will supply £200 billion in short-term funding; the government will underwrite £250 billion of medium-term finance; and it will also inject £25 billion in long-term capital initially – and perhaps up to £50 billion in total – in the form of preference shares that pay a fixed return and protect taxpayers’ investment.

Headline writers may describe the government plan as a £500 billion bailout, but that is completely misleading. The £200 billion consists of short-term secured loans; the £250 billion is a form of insurance, for which the government will be paid a premium; and the £50 billion is an investment that pays a return. This is not money for nothing. And while it is certainly true that taxpayers’ money is at risk, we will also share in the upside when the banks recover – as they are much more likely to do thanks to the government’s intervention. Most importantly, the risk of doing nothing – or of continuing to do too little, too late – is far greater. By keeping the UK banking system afloat, we are giving the economy a life raft. 

Many of the details of the government’s plan are still unclear. Ideally, the preference shares should pay a hefty interest rate to properly compensate taxpayers and give banks an incentive to seek private financing if and when they can. Taxpayers’ money should also come with strings attached, such as guarantees that banks will use the extra capital to lend to small businesses and individuals rather than pay extravagant dividends and unjustified bonuses. And, of course, the plan must be implemented speedily and efficiently.

We are by no means out of the woods yet. Global financial markets are in turmoil; other governments need to follow Britain’s bold lead soon. The UK economy has many other weaknesses: consumers are overladen with debt, often secured against housing that remains overpriced; unemployment is rising; food and energy prices remain painfully high; and the global gloom is hardly auspicious for exporters, despite the fillip of a weaker currency. What’s more, the banking package will swell the government’s already-large deficit – although borrowing to invest in banks need not increase the national debt in the long term.

But while 2009 will no doubt be unpleasant, the government’s actions should stave off economic collapse. Amid all the gloom, that is certainly good news.

Be bold, Gordon: buy up Britain's ailing banks

The time for half-measures is over. Britain is no longer in the grips of a credit crunch or even a financial crisis, it is suffering a full-on financial heart attack. Markets have seized up. Banks will no longer lend to each other. Credit to companies and individuals is drying up. Unless credit starts flowing again soon, a nasty recession – conceivably even a depression – looms, and with it massive job losses, bankruptcies, repossessions and a sharp fall in living standards. The government needs to act – now.

But what to do? Ken Livingstone, Seumas Milne and others argue that the government should turn its back on market economics. Since capitalism seems to be collapsing under the weight of its internal contradictions, the government should finish it off. More measured voices such as the TUC’s Brendan Barbour favour a ragbag of measures such as a new industrial policy. But all of them are missing the point. Righting the huge problems in financial markets certainly requires decisive government intervention, but lashing out at generally well-functioning product and labour markets is perilously misplaced. The last thing a heart-attack victim needs is to have a healthy leg amputated. The priority now is tackling the financial crisis; everything else is a dangerous diversion.

But while the government should not try to turn the clock back to the 1970s, it does need to change course. Its ad hoc approach will no longer do. The nationalisations of Northern Rock and Bradford & Bingley and the government-orchestrated rescue of HBOS were justified at the time. But damage limitation is no longer enough – not least since Lloyds’ rescue of HBOS seems to be dragging it down too. Picking up the pieces of individual banks will not restore confidence or get credit flowing around the economy again.

Across Europe, governments are rushing to following Ireland’s lead and guarantee (nearly) all deposits in the banking system. Here, the Treasury has just raised the guarantee on savers’ deposits to £50,000. But while it may soon be forced to extend a broader guarantee, this will not tackle the root causes of the crisis: a lack of capital in the financial system and sheer panic.

A cut in interest rates would do some good. Although inflation is well above the target rate of 2%, the Bank of England should slash rates when it meets on Thursday. As the global economy tanks, oil prices are sinking, so inflation is set to fall. Collapsing demand means that the real threat now is deflation, not inflation.

But a big cut in interest rates will not be enough. If banks are unwilling to lend, monetary policy alone is virtually useless – in Keynes’ words, it is like “pushing on a string”. Bolder measures are needed.

The US has opted for a $700 billion bailout. In theory, taking bad debts off banks’ books should reassure markets that that they are not about to go bust. Banks may be willing to lend to each other again, their share prices may recover somewhat, and investors – not least Asian governments and those of oil-rich states – may be willing to pump some of their huge cash reserves into them.

But the bail-out route is deeply flawed. It provides the most help to the banks that made the biggest mistakes. It exposes taxpayers to huge potential losses. And it does little to recapitalise the banking sector and thus encourage it to start lending again.

There is a better way. The government should buy stakes in – and in some cases, take over – stricken banks, an approach that worked well in Sweden in the early 1990s. With the government standing behind banks, the fear that they are about to go bust would vanish. An injection of taxpayers’ money would strengthen banks’ balance sheets, allowing them to start lending again. But it would not be money for nothing: the government could acquire preference shares, putting taxpayers first in line to be repaid if a bank fails and giving us all a share in the profits when banks – and the economy – recover.

A government recapitalisation of the banking sector, combined with tougher financial regulation to limit future excesses, would be good politics as well as good economics. With Labour so far behind in the polls, its only chance of recovery depends on rescuing the economy from the worst crisis since the 1930s. Decisive action would marginalise the Conservatives, who are unconvincing advocates for state intervention in the financial system and are in any case powerless to act. And since even David Cameron has been forced to concede that government injections of capital may be needed, the government has political cover to act.

Gordon Brown has shown that he can be bold when circumstances demand it. Now is such a time.

Gordon Brown's reshuffle

Gordon Brown's reshuffle has certainly captured headlines. But what does it mean for the trade and immigration debates?

That Peter Mandelson jumped at the chance to leave his job as EU trade commissioner for a non-job as UK business secretary (which has been stripped of the energy and enterprise portfolios) provides further confirmation that the Doha round is dead.

Meanwhile, the appointment of Phil Woolas as immigration minister is ominous. He told the Guardian that he might ape the Tories and bring in an annual cap on migrants entering Britain.

"We must not pander to racists," he said - of course not, perish the thought - "but it is particularly important that we have a credible policy on population that can reassure people."

What do you think he means? A one-child policy? Leaving the EU? Or even tighter curbs on Africans and Asians coming to Britain?

Why turn away these people that we need so badly?

Ian Birrell has written an excellent article in the Independent on the perniciousness of Britain's new points-based immigration system. Read it here

I have written a couple of pieces for the Guardian this week about Frank Field's plan for "balanced migration" and the government's points system. Read them here and here

Statistical Powellism

With a stagnant economy and Led Zeppelin performing, Britons could be forgiven for thinking they had travelled back to the 70s. This week saw yet more throwbacks, with the proposal of Labour MP Frank Field for non-EU migrants to be thrown out after four years - sorry, for "balanced migration", and the return of manpower planning. Oh dear.

Field should know better than to team up with the Tory MP Nicholas Soames and MigrationWatch to put forward a "one in/one out" temporary-worker scheme. The plan is unfair, unworkable and harmful to the economy. Throwing out people who have been working here for four years would deprive us of people who have demonstrated their contribution to society and adapted to British life; it would also deter many talented people from coming. And since only a select few would be allowed to settle, with priority given to the rich and well-paid, Russian oligarchs and American investment bankers could doubtless stay while Asian acupuncturists and African nurses would be turfed out. This is Powellism dressed up in statistics.

The Field-Soames plan is in tune with the Conservatives' sketchy plans for an immigration quota. Fortunately, the government has rejected it. Unfortunately, its own policies are not much better. It is pressing ahead with a new points-based system, modelled on Australian lines, for vetting workers from outside the EU.

This system will allow a top tier of highly educated people to enter, while slamming the door on those with fewer skills. Among a middle tier, only those with a job offer in areas where a shortage is deemed to exist will be admitted. On Tuesday, a government-appointed committee of wise men and women delivered a provisional shortlist of shortage occupations, which the government is due to finalise in October. Doctors, secondary-school teachers and social workers are no longer welcome, nor are midwives, most nurses and, crucially, care workers.

Neil Kinnock once warned Britons not to be young, not to fall ill, and not to grow old; and the government will now be turning away people from Kenya or the Philippines who could help meet the desperate need for carers for the young, the old and the sick. With suitable British applicants vanishingly few and Polish workers increasingly going home as the plunging pound devalues their wages, pensioners will not just be struggling with fuel bills this winter, they will be shamefully short of care. The immigration minister, Liam Byrne, trumpets how "tough" the new system is, but it is toughest on the weakest and poorest.

While there are lots of things that Britain might want to import from Australia - such as its wine and cricketing success - its devilishly complicated system of micromanaging immigration is not one. Governments are no good at second-guessing the ever-changing labour needs of complex modern economies. Even if the government could somehow ascertain whether Britain needs more IT staff or welders right now - its advisory committee says not - it certainly can't predict what the economy will need a year from now. Only a year ago estate agents were in hot demand; now bailiffs are.

The new points system is like an 11-plus for foreigners. It prejudges how people will contribute to society and denies opportunity to those who don't make the grade. It would have turned away most of the people on the Windrush, the father of Olympic hero Kelly Holmes, and - had he been born abroad - a young Richard Branson. A Labour government should know better.

Think again, Frank

Labour MP Frank Field's new proposal for "balanced migration" is many things, but it certainly isn't balanced. A "one-in/one-out" immigration policy is unfair, unnecessary and unworkable – and would deal yet another blow to Britain's faltering economy.

Field frets that Britain's "open door" policy will lead to a large increase in the settled UK population, which he believes is not unsustainable. He proposes instead what amounts to a temporary-worker scheme, policed by employers. Foreigners could work here for up to four years, but would then be sent packing. Businesses that failed to produce evidence that their foreign workers had left the country would be denied future work visas. There would be a strict quota – perhaps 20,000, including dependants – on the number of non-EU workers able to gain permanent residency, selected on the basis of their skills as reflected in their salary.

Field's proposal, cobbled together with Tory MP Nicholas Soames and the swivel-eyed xenophobes at MigrationWatch, is utterly misconceived. For a start, Britain does not have an "open-door" immigration policy: while people from within the EU can come and work here freely, those from outside the EU, which the Field-Soames proposal would target, cannot. The door is already slammed shut for all but the most highly skilled non-Europeans.

Second, as I have written previously, it is a fallacy that Britain's population is destined to rise inexorably. The recent increase in immigration is largely temporary, and is already reversing itself: as the pound plummets and the economy teeters on the brink of recession, Britain is far less attractive to foreign workers. But, in any case, since when are other people such a bad thing? If having more people around is so terrible, why isn't Frank Field suggesting that densely populated cities such as London, Birmingham and Glasgow prevent people from the rest of the country from settling there?

Even if one accepts that stabilising the population is desirable, Field's proposal would not necessarily do so. Preventing most temporary non-EU workers from settling permanently would not limit entry from the EU, or keep out asylum-seekers, clandestine migrants, visa overstayers, and those entering on family reunification visas; nor, indeed, would it prevent Britons from having more babies and living longer. Indeed, if large numbers of Britons stopped emigrating, stabilising the population would require expelling existing migrants.

While the suggestion that employers should be able to hire the foreign employees they need has some merit, forcing most of those still here after four years to leave does not. After all, if their employers would rather they remained, these migrants are clearly contributing to the economy and society as a whole. Throwing them out would deprive Britain not only of the skills with which they arrived, but also of those they have acquired while living and working here. As an Arsenal fan, I don't want Kolo Touré chucked out, and I'm sure Portsmouth fans would be loath to see Kanu go, too.

What's more, making it much harder for skilled workers to stay on is Britain is hardly conducive to attracting them in the first place. Talented people increasingly have a choice about where to work; and with Australia, Canada and other countries wooing them assiduously, making them feel unwelcome here is tantamount to shooting our hobbling economy in the foot.

Common sense also suggests, and international experience in the US and elsewhere confirms, that businesses are hardly equipped to enforce immigration policy. At the same time, if workers would only allowed to stay in the country on their employers' say so, they would be far more vulnerable to exploitation.

But perhaps the worst thing about the proposal is that the select few who would be allowed to settle in Britain would be the rich and the highly educated. Most likely, they would be American investment bankers and Russian billionaires rather than Asian acupuncturists or African nurses. That is hardly fair or progressive. Frank Field should think again.

Commuter flight

New Home Office figures provide more evidence that the recent wave of migration to Britain really is temporary: the Poles (and others) are looking elsewhere for work as the pound plunges and the UK economy sours.

So much for fears of being swamped.

SImon Jenkins on Anglican intolerance

The visible loathing of some Anglicans for gays and women – expressed in terms that would have them prosecuted in any other walk of life – is indefensible. The British make much noise opposing the intolerant practices of Muslims and other imported religions. They seem deaf to the intolerance of members of their home-grown church. That the conservatives have constant recourse to biblical texts has no more to do with the case than if Islamic scholars appealed to the Koran against the Crown Prosecution Service. The law of the land is the law of the land.

Quite. Read the article here.

Open Britain

To mark Refugee Week, openDemocracy are publishing a special series on immigration. Read my article on why, since governments conspire to deny people the right to cross borders freely, pretending to be a refugee - or trying to enter Britain through other irregular means - is hardly terrible.