Category: Politics and economics

Stopping in-work benefits for EU workers

It’s been widely reported (for example, in the Times, the Mail and the Sun) that Theresa May has plans to restrict in-work benefits to EU workers, putting them on the same footing as non-EU claimants.  I’ve been puzzling about what this means.  The only benefits specifically mentioned in the reported briefings are Tax Credits, which in any case are supposed to be being replaced by Universal Credit.  In most cases non-EU migrants are entitled to benefits as long as they meet the various tests – residence, presence or habitual residence,  depending on which benefit we’re talking about.  So, for example, to be entitled to Child Tax Credit, Working Tax Credit or Child Benefit a non-EEA migrant is expected to have lived in the UK for three months.  Refugees and family members don’t have the three month test; but both EU and UK citizens returning from abroad, who are not working, are subject to the  test.  If Ms May was saying only that there’s to be a three-month residence requirement for everyone, she wouldn’t need to wait for Brexit; it would be compatible with EU law now.

The main restriction that actively affects non-EU migrants is something quite different:  the restriction of the terms of entry on their visa, where they undertake not to be dependent on public funds and are threatened with deportation if they do.    Treating EU migrants in the same way could only happen after Brexit.  It would mean that the issue is not mainly about benefit law at all, but about the way that Britain deals with foreign citizens.  It’s only workable if we have a straightforward way of identifying who is, and who is not, a migrant, and a clear record of the terms of entry.  That could affect millions of people.

The welfare cap is due to be breached

The ‘welfare cap’ was another wizard wheeze from the government that George Osborne hoped would embarrass opponents in the future.  The idea was to limit total spending on some benefits to a set figure, so that if the cap was exceeded, the government would then have to explain why.  There has just been a debate on the welfare cap, and (despite a particularly well-informed contribution from Ian Blackford of the SNP) it has said nothing much.  The motion approved in the House was this:

“this House agrees that the breach of the Welfare Cap in 2019-20 and 2020-21, due to higher forecast inflation and spend on disability benefits, is justified and that no further debate will be required in relation to this specific breach”.

There are good reasons, however, why expenditure on benefits should on occasions go up.  The main one is that many benefits are designed to go up when people’s incomes go down.  It’s also intriguing to note that the government is now expecting to spend more on disability benefits, when it initially claimed that PIP was going to save money (and fined Northern Ireland on that basis).

There is, of course, a simple way to make sure that the cap is not breached, and that would be to increase the level of anticipated expenditure to a more realistic figure.  But it’s far from clear that the global figure is telling us very much about what governments are doing.  Most benefits aren’t really ‘spent’ – they’re transfer payments, moving money from one person to another – and precious little work has been done to see if the global extent of transfers really has much impact on the broader economy.   It’s much more important what effects the benefits have on people’s lives.  In evidence to the Treasury committee yesterday , Chancellor Philip Hammond was refreshingly candid about the fact that he’d cut the living standards of people on low pay, and said directly that it was something the government had intended.

“We were elected on a manifesto that included the commitment to reduce welfare spend, particularly the spending of welfare on in-work benefits … self-evidently, the preponderance of people receiving in-work benefits will be in the lower income deciles. … At the heart of this is the decision to reduce spending on working-age welfare.” (16.21-22)

The Casey Review

I’ve just been reading the Casey Review, published on the 5th of this month.  It’s supposed to consider “opportunity and integration in our most isolated and deprived communities”.  It seems to be doing something quite different, because the main focus is not about that at all.  The primary focus is the relationship of minority ethnic groups (plus the rather odd addition of sexuality, which is a very different kind of issue) to the ‘British’ mainstream.  Deprivation and disadvantage don’t get much of a mention before chapter 6.

There’s a discontinuity, too, between the issues that the report is discussing and the measures which are proposed to respond to them.  One of the key proposals is to “Build local communities’ resilience”.  The issues being considered – for example, asylum seekers or illegal immigration – aren’t, by virtue of the numbers discussed,  necessarily capable of being linked to specific localities.    A second proposal is to ensure that people adopt “British” values, but that’s done without asking how those values related to issues of identity.  Integration is a matter of relationships, and relationships have at least two sides.

Amendment 882: preserving the fundamental rights of European citizens

The petition I submitted to the European Parliament in July has not yet been approved  for public view, but an interesting proposal has been made by a Luxembourg MEP, Charles Goerens.  The Constitutional Affairs committee is considering  the EU’s institutional arrangements, and Goerens has proposed the following amendment to their report:

Motion for a resolution, Paragraph 37a (new)

37a Advocates to insert in the Treaties a European associate citizenship for those who feel and wish to be part of the European project but are nationals of a former Member State; offers these associate citizens the rights of freedom of movement and to reside on its territory as well as being represented in the Parliament through a vote in the European elections on the European lists.

My petition, provisionally numbered 0922/2016,  had stated

As citizens of the European Union, the status of British nationals is protected by the Charter of Fundamental Rights. Citizenship is the right to have rights. If European citizenship is truly fundamental, not just a conditional privilege, no European citizen should have it withdrawn without consent or treated as if it never existed. When the UK ceases to be a Member State, the Parliament, as the guardian of Fundamental Rights, should ensure that European citizens of British nationality who wish to preserve their fundamental rights are able to retain their citizenship.

Goerens’ amendment, though it does not refer to the EU’s obligations under the Charter, is a substantive response to that.    As the amendment is framed, however, it asks for Treaty change, and it does so in relation to a document which seeks nothing less than a fundamental review of the Lisbon Treaty.  This is likely to be a slow and difficult process, if it happens at all.  In so far as the Charter of Fundamental Rights is already part of the constitution of the EU, Treaty change should not be necessary.  The EU should do what it has already undertaken to do.

There’s nothing new about the gig economy

An article in the Economist holds up the case against Uber as an example of how new ways of working pose a challenge for policy-makers. It claims that “Over the past 150 years, regular employment has been the norm.” It may seem so to those too young to remember daily labour in the docks or casual hiring in agriculture, but it’s not true. There has always been ‘sub-employment’ and precarious employment.  In the 1970s we called it ‘the lump’, and bemoaned the failure of successive governments to deal with the obvious problems.  Casual employment in particular is a long-standing feature of conventional economies – see, for example, Beveridge’s Unemployment: a problem of industry (1909). The National Insurance Unemployment Benefit made provision until the 1980s for odd days of work – workers had to declare if they earned more than a very small amount on any single day, and show that they were not employed to the ‘full extent normal’. There is nothing new about the ‘gig economy’. What’s changed has been the removal of the support systems that were designed to deal with it.

Belgium vetoes CETA; it’s about something more than meat

Many people in Europe, and some in the UK, will breathe a sigh of relief that the proposed Canada-Europe Comprehensive and Trade Agreement  (CETA) has effectively been vetoed by Belgium.  The BBC has reported the veto, in an irresponsible and lazy caricature, as being about meat:  “Walloon MPs say Ceta favours Canadian firms and they want more safeguards for Belgian farmers.”  Recent demonstrations in Poland admittedly made a big deal of the effect on meat,  but the objections which were discussed in Wallonia run much deeper.  Their concerns have have been reported as relating to the protection of investments, workers’ rights, public services and tendering for public contracts.   CETA (known as AECG in French) was intended to “end restrictions on access to public contracts” and “open-up the services market”.  There are particular concerns about health care. Public services would have been required to compete with commercial funds and liable to be sued by individual firms and forced to pay compensation if governments resist on the basis of public health.  The agreement comes with the principle of a ‘valve’, or lobster pot, as other trade agreements: once something has been marketised, it can never be decommodified again. These are the same terms that have caused such concern about TTIP, the US’s proposals for transatlantic trade, and there have been protests in several European countries against the proposals.  Some of the same objections have been voiced in Canada.

The Belgian decision is being extrapolated to the prospect for the UK’s negotiation of future trade agreements with the EU.  The cases are not equivalent, in three ways.  First, the Article 50 process is not subject to veto by a single country, but to qualified majority voting.  Second, the UK currently meets the demands of the acquis communautaire, as no country in NAFTA does.  The UK can comply directly and fully with European regulations, because it already does so.

Third, Canada is a member of NAFTA, the North American Free Trade Agreement.  The terms of CETA would have effectively have fused the European Single Market with the terms of NAFTA by removing all barriers to American trade and services, which could then flow freely through Canada to Europe.  The UK is not a member of NAFTA, and does not trade without restriction in American, Canadian and Mexican goods and services.  If it did, or in its desperation to find trade partners it agreed terms with NAFTA that are as bad as those proposed for CETA or TTIP, then any agreement with between the UK and the EU would permit goods and services to flow on the same terms from NAFTA as from the UK.  This would have to be subject to the same reservations as those applied to Canada.

Further note, 30th October.  Belgium’s objection has been withdrawn and the agreement is being signed.   Governments within the EU do have the capacity to make reservations about goods and services imported from third countries, but for all practical purposes the agreement amounts to a customs union with NAFTA.
Public services are not much mentioned.  The key reservations are in Annex II: there are derogations for pharmacy (p 1298), health services (pp 1305-08) which in most cases must be provided by people physically in the country) and some social services (p 1308), though the United Kingdom has beyond that permitted some exceptions for residential care (pp 1450-52). 

‘Real’ evidence is hard to come by

I’ve just been complimented on Twitter for offering ‘real’ evidence.  While it’s pleasing to be flattered,  I ought to add two cautionary notes about my last blog.  The first is that I started the entry by expressing reservations about the direction of causation.  It’s a problem that bedevils most statistical analysis – showing an association between two factors often looks plausible, but it’s not possible to say confidently whether there is a direct relationship, if the connection is best explained  through another factor, or there’s some further aspect of the figures I’ve been using that produces an artefact.  (The figures I had to hand, as it happens, were mainly for larger countries.  I don’t know whether that matters.)

The second reservation is the curse of comparative data – the graph is based on a handful of observations, where each national government counts for one uniform policy unit (e.g. the USA, Switzerland, Denmark), regardless of differences in size, variations in structure and rules, and so forth.  Belgium has at least six governments and I don’t know how to count Switzerland.   The numbers, Castles argues in Comparative Public Policy, allow us at best to run “a preliminary sorting process, informing us about combinations of variables which fit together to produce possible accounts”.

I suspect that the main determinant of labour market participation is the structure of the economy,  and while I’m not sure it has anything to do with benefits, there are hidden elements of conditionality in most systems which the crude figures won’t reflect.  That’s also why I finished up by saying, ‘if there’s an association…”

Lower unemployment benefits imply less labour market participation, not more

A blog from Tim Worstall at the Adam Smith Institute claims bizarrely that the way to cut unemployment is to cut unemployment benefits.  That’s like blaming hospitals for broken legs – though I suppose that if there weren’t as many hospitals we’d not get to count the broken legs quite so thoroughly.

I threw together this graph fairly rapidly from OECD figures I had to hand: the axis on the left shows replacement ratios (how much unemployment benefits replace of salary during the first 60 months, assuming housing costs are allowed for), the bottom axis shows labour market participation, the points on the graph are all major OECD countries.  If there is a relationship, it’s in the opposite direction to the claim made by the Adam Smith Institute.  I’m sceptical, however, that there is a direct relationship.  There is no good theoretical reason to suppose that unemployment benefits trump economic and social conditions in determining labour market participation.


Italy proposes a European Unemployment Benefit Scheme

The Italian Government has proposed the introduction of a European Unemployment Benefit Scheme, applicable to all the members of the Eurozone.  The benefit would provide 40% of previous salary for 6-8 months.  The purpose of the benefit scheme would be to provide solidarity when countries experience a surge of unemployment; the amount of benefit payable in a country would be limited to 200% of its contribution to the scheme.

I suspect the scheme is a non-starter.  The Italians have shrewdly put the proposal in a way which is not subject to treaty change or isolated vetoes, but it will be hard to get this past the presumption of subsidiarity.  Some of current arrangements within the Eurozone are based on independent and non-governmental arrangements – the Ghent system, based on trades unions, is used in Denmark, Sweden and Finland  (see this link by Clasen and Viebrock), and  the French scheme, Unédic, is administered by a ‘convention’ of employers and trades unions.   The Italian scheme is noteworthy, however, in three ways.  It shows that there is still continued interest in promoting the idea of a Social Europe.  It  reinforces the view that there is now a two-speed Europe, the Eurozone and the rest.  And it shows how very far the UK is out of step with the rest of the European Union, both in the objectives and in the level of benefit offered.


How to deliver ‘helicopter money’

There is some discussion about using ‘helicopter money‘ to revitalise spending in depressed economies.  A letter today to the Guardian by 35 economists argues:

A fiscal stimulus financed by central bank money creation could be used to fund essential investment in infrastructure projects – boosting the incomes of businesses and households, and increasing the public sector’s productive assets in the process. Alternatively, the money could be used to fund either a tax cut or direct cash transfers to households, resulting in an immediate increase of household disposable incomes.

There is a way to get cash usefully to certain people, a little less randomly than the image of the helicopter dropping money suggests.  The benefits system has three main routes that might be used to distribute one off payments:

  • The Christmas bonus (forget the name, it’s usually paid in early December anyway) goes to recipients of 18 benefits, including pensions, disability benefits and ESA.
  • Cold Weather payments are special payments made to claimants of pension credit, ESA, JSA.  The cold weather is irrelevant here – the DWP computers aren’t regulated by a thermometer: what matters is the capacity to make one off payments.
  • The Winter Fuel Payment (again, forget the name – it’s not about fuel, or cold weather) mainly goes to those above pension age – there are exceptions but those are defeasible.

There may also be scope to supplement Child Benefit with one-off payments, though that is less clear.

Any of these would be much more beneficial than a tax cut.  The problem with tax cuts, apart from the work they create, is that they go to better off people.  People on lower incomes tend to spend more proportionately on essentials (food, energy and housing), so at least the first use of the money will be in the domestic economy.  It may also do a little  for poverty, and that is no bad thing.