Sunday, 30 November 2014

No 'in-work benefits' for four years? What are 'in-work benefits' anyway?

No sooner had David Cameron finished his speech at the JCB factory about limiting the UK's attractiveness for EU migrant workers than my phone rang - it was TVN24 Biznes i Swiat wanting a comment about what this would mean to Poles headed for the UK. [Full text of Mr Cameron's speech here.]

I must confess to being amazed that EU migrants were eligible for in-work benefits - surely the whole point of tax credits was to incentivise the native British long-term unemployed to get a job. As the spectrum of benefits steadily increased over the decades since the war job-seeker's allowance, child benefits, housing benefits etc, the incentive to find low-paid employment withered away. If you are on 250 quid benefits a week, why bother to go to work for 300 quid a week - a mere £50 pounds for surrendering 40 hours of your time - it works out at £1.25 an hour.

So Tony Blair's government introduced a system of Working Tax Credits in 2002 to ease the way off benefits and into paid employment via a complex system of tapering the credits as pay rises. According to Wikipedia, seven million people in low-paid jobs are entitled to in-work benefits.

Now, Poland has been in the EU for a decade, over a million Poles have at one time or another during that decade worked in the UK, and probably over 600,000 have decided to stay permanently.

I would argue that the existence of Working Tax Credits played no part in any Pole's decision to travel to the UK in search of work. However, once they were in Britain, and working - in a factory, warehouse, hotel, farm etc, and the regular wage packets started coming in, and they got talking to the natives, they realised that Working Tax Credits made it worthwhile to bring over kith and kin - and indeed to start a family in Britain.

Mr Cameron's pledge to only allow EU migrant workers access to in-work benefits and social housing until they have been in the UK for four years will take the shine off Britain's reputation as a welfare paradise - for that tiny proportion of migrants from EU countries that see it that way.

I'm sure that across the UK, few British taxpayers will argue against Mr Cameron's proposals. If you've not paid into the system, why should you be entitled to its benefits after a mere three months?

The problem with the migration debate, UKIP and the UK's possible departure from the EU, is that leaving the EU will not solve the far deeper problem that Britain faces. From the Office of National Statistics' Migration Statistics Quarterly: "The statistically significant increase of 30,000 in immigration of non-EU citizens to 272,000 was in part driven by an increase in immigration to accompany/join others up 19,000 to 54,000."

Look at the graph below:

The rising green line of EU migrants since 2012 has been predicated by the UK's economic turnaround, the moribund state of the eurozone economies, the entry of Romania and Bulgaria into the EU, and a rising number of Poles heading to the UK to work. The vast majority of the green line is in Britain to work. Last week's survey by University College London showing the UK is £20 billion a year better off as a result of EU migration is yet another piece of research which emphatically proves that Britain's economy is in better shape being inside an open EU than out of it.

The orange line is a different story. Yes, it includes Americans, Australians, Canadians, New Zealanders etc, in the UK to work. But it also includes 54,000 relatives of non-EU migrants who are coming over from Pakistan, Bangladesh, Somalia and Ghana to join their families.

The graph below shows that EU migrants contribute far more to the UK economy than the larger number of non-EU migrants:

So 1.7 million EU migrants are working in the UK, compared to 1.2 million non-EU migrants. And yet the UK is now home to far more non-EU migrants than EU migrants, who are more likely to contribute into the economy.

I was in Birmingham on Thursday. In the centre of the city, amid the bustling throng of shoppers, there was stand in the pedestrian precinct, from which a couple of heavily-bearded mullahs preaching Islam to the people. Once again, I'd point out that leaving the EU would not make a jot of difference. These people will continue coming to Britain in their hundreds of thousands, whether the UK was to be in the EU or not. But once outside the EU, British employers would not be able to easily find willing hands to work, and the economy would slow to growth rates now associated with the eurozone.

Would British employers find those native workers easier if there was a four-year moratorium on in-work benefits for EU migrants? I very much doubt it. Only if there was a persistent increase in the gap between being on benefits and being in work, and that consisted not of tax credits, but of reduced benefits, and increased National Minimum Wage. But the latter might prove to be an even greater magnet to EU migrants than the nebulous attractions of tax credits.

In Poland, there must be more effort made by the UK government to explain just how sore an issue migration is among Britons, and why that is reflected in the growing strength of Ukip, a one-man, one-policy party. The Polish government, realising how important the UK's membership is for Poland's raison d'etre, must back Mr Cameron in Brussels in allowing him to trim back the generosity of the benefits for EU migrant workers. The prospect of letting Ukip pull the UK out of the EU because of loud criticism from the Polish government is worryingly real. Poland needs to appreciate how Britons feel about immigration, and speak accordingly.

This time last year:
(if you don't count the spoonfuls that fell on 24/25 Nov, this would be the fourth)

This time two years ago:
Another November without snow

This time three years ago:
Snow-free November

This time four years ago:
Krakowskie Przedmieście in the snow

This time five years ago:
Ul. Poloneza closed for the building of the S2


student SGH said...

a brilliant piece on economics. Would love to read more akin posts.

PS. Snow on 20/21 November? I haven't noticed any, but recorded little snow on 25 November in the morning...

Michael Dembinski said...

@ student SGH

You're too kind :-)

Yes, you're right about the snow too - that was indeed on the night of Monday 24th to Tuesday 25th November. I woke up around 1am to see the garden covered in snow - by the time I went to work several hours later, it was all but gone.

Liz said...

I particularly agree with your last paragraph. UK PR in Poland has been rather weak, and it has been left to people like yourself (and sometimes even me) to attempt to explain. Last January the media in Poland, helped by R. Sikorski, worked up a frenzy about David Cameron's comments on child benefit. A little more could have been done, I feel, to put the remarks into perspective. I was continually being challenged by indignant Poles. To date there has been no sign of gratitude from the British government for my vain efforts to defend them single-handed (particularly difficult for someone who has never voted Tory in her life!).