Letter: Net migration cap damages Britain

This letter appeared in the Guardian:

The government's net migration cap is hurting Britain's economic recovery and long-term fiscal health (It's not racist to be anxious over large-scale immigration, 23 December). It can take around three months for a business to apply for a visa for a prospective employee, a significant unseen cost of the cap, and international firms may prefer to base themselves in countries where they can bring in staff from abroad more easily than they can in the UK.

Entrepreneurship is being affected, too: more than a quarter of Silicon Roundabout startup founders are foreign-born, and more than half of tech startups in California's Silicon Valley are founded by immigrants. The cap on immigration is a cap on the innovative industries Britain needs to thrive.

According to the Office for Budget Responsibility, without net immigration of at least 260,000 people per annum, public debt will approach 100% of GDP by 2060 as we struggle to pay for a ballooning pensions and healthcare bill. Countless studies have shown immigrants create jobs, raise natives' real wages and even boost productivity.

Public concerns about benefits tourism are legitimate but are better addressed by reforms that restrict access to the welfare state. The migration cap does not discriminate between the small number of would-be welfare tourists and the many people who would like to work productively to create a better life for themselves and their families. The cap is hurting Britain and should be scrapped.

Sam Bowman, Research director, Adam Smith Institute,

Mark Littlewood, Director general, Institute of Economic Affairs,

Simon Walker, Director general, Institute of Directors,

Ryan Bourne, Head of economic research, Centre for Policy Studies,

Philip Salter, Director, The Entrepreneurs Network

Guy Myles in the Telegraph

Why it’s time to stop attacking business and salute the true heroes of the economy instead.

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Zombie firms coverage in The Scotsman

Banks backing zombie firms are stifling growth, says the Scotsman covering our recent Zombie Firms report.

Philip on what the Autumn Statement means for entrepreneurs in City AM

Philip Salter, Director of the Entrepreneurs Network, discusses what the Autumn Statement means for entrepreneurs in City AM.

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Adam Smith Institute Autumn Statement Reaction

Reacting to the the key points of the Autumn Statement, Sam Bowman, Research Director at the Adam Smith Institute, said:

1. Raising the pension age sooner than previously planned will be unpopular, but it is the right thing to do. With an ageing population we will experience a fiscal crisis unless we raise the pensions age and, ultimately, move to a system of private pensions savings accounts so the system is robust to any demographic shifts.
2. Borrowing has been £111bn in 2013/14, which is equivalent to £304m/day or £12.6m/hour. It’s great that the deficit is falling faster than previously (though not originally) projected, but the numbers are still staggering.
3. The economy is recovering, but compared to this point in previous recoveries, growth is still sluggish. The Bank of England’s mandate is muddled and should be replaced with a single target to stabilise aggregate demand and return nominal GDP to the level it was growing towards before the financial crisis. This would also offset the effects of government cuts, stopping the cuts from having any negative macroeconomic impact. (Ben Southwood, Head of Macro Policy, comments further below.)
4. The cap on total welfare spending seems like a PR stunt. It will be modified every year and doesn’t make much sense in any case: what happens if/when negative economic shocks that create lots of unexpected unemployment? 
5. The development budget was heralded, but the best tool for development is letting in more immigrants from poor countries, because immigrants send money home – indeed, they sent 3 times as much money to poor countries as was sent in total official aid last year. And this is good for our economy too.
6. It’s bizarre to give LIBOR fines to charities. It simply makes no sense. What's the connection between LIBOR and military charities? 
7. The pensions triple lock is about buying votes. Many pensioners don’t need more money and there is no real reason to redistribute wealth to them over other groups in society. 
8. Help to Buy and other expanded mortgage subsidies completely miss the cause of expensive housing. If more houses are built (increasing supply) then prices will fall. This will happen if we liberalise the planning system. Throwing money at the housing market will drive prices up and do little to increase supply. Rolling the Green Belt back by one mile would free up enough land to build one million new homes.
9. Corporation tax is a terrible tax and, though the government’s cuts are welcome, it should be abolished altogether. Corporation tax largely falls on workers’ wages and as such it is an invisible and regressive tax on earnings.
10. The Chancellor’s confirmation that the personal allowance will rise to £10,000 is good news, but the government should go further and peg it to the minimum wage rate to reduce the tax burden on the working poor and help to make work pay.
11. Cutting employers’ National Insurance contributions for workers under 21 is a good move and highlights the cost of employer NICs to jobs. Employer NICs are a jobs tax and the government should be aiming to abolish them altogether.
12. Ultimately, there was no mention of reform to planning, immigration or monetary policy – the three things most important to Britain’s economic prospects. The Chancellor has done a good job at balancing the books but he should look to making significant structural reforms that would really get the country booming: liberalising planning to allow hundreds of thousands of extra homes to be built; scrapping the net migration cap to allow talented immigrants to work here and fee-paying foreign students to study here; and giving the Bank of England a new mandate to target Nominal GDP to ensure a stable macroeconomic environment.

Ben Southwood, Head of Macro Policy at the Institute, said:

"It's understandable, now that the economy looks finally to be recovering, that the chancellor has moved his focus away from monetary policy, but it's also worrying.

"Economies can absorb financial crises but they cannot absorb inconsistent monetary policy and massive drops in demand. We need George Osborne to change the Bank of England's remit, requiring it to stabilise demand according to strict rules.

"A rule-based monetary policy will stop the economy from overheating into unsustainable booms, and dive-bombing into harsh recessions."

The Adam Smith Institute is an independent classical liberal think tank based in Westminster. For further comment from one of its analysts or its Director Eamonn Butler, please phone 02072224995, or email Sam Bowman at [email protected] or Ben Southwood at [email protected].

Minimum pricing in the Journal of the Law Society of Scotland

The Journal reports on the criticisms of the Sheffield model used to justify minimum alcohol pricing made by an Adam Smith Institute report.

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CMRE: Introduce school vouchers and liberalise free school creation to improve UK education

As Britain faces dire PISA education rankings, the government should liberalise the free schools application process and give parents a voucher for a place in any approved school, state or private, says a new research report from the think-tanks the Adam Smith Institute and the Centre for Market Reform of Education. (School Vouchers for England: Harnessing choice and competition for greater quality and equality in education – http://www.adamsmith.org/sites/default/files/research/files/Voucher%20paper%20web.pdf. Executive summary: http://cmre.org.uk/uploads/publications/Voucher%20exec%20summary.pdf)

The move would abolish the restrictions that prevent poorer parents from accessing England’s best schools. Proximity-based admissions should be scrapped, being replaced by lotteries and subsidised transport in cases of oversubscribed schools.

At a time when many areas will face a 20% shortfall in places by 2015, urgent and cost-efficient action is required, the report says. Parents may be left without schools to choose from unless the government accelerates the development of new free schools.

The government therefore must simplify the school creation process, says the report, cutting through red tape and introducing a voucher system so that parents can signify where and how they require schools to be built.

Gabriel Heller Sahlgren, co-author of the report and Director of Research for the Centre for Market Reform of Education, said:

“Parents are currently restricted to choosing schools they can afford or the schools they can afford to buy a house near. Giving parents a voucher, redeemable to all state schools and participating private schools, would usher in a new era of social mobility and reverse the decline in the quality of English education.

“A voucher programme would expand the number of schools that parents could choose. Parents could choose participating private schools, which would be incentivised by the prospect of a more steady income. The resulting increased competition between schools to attract pupils would cause significant improvement in education.

“Good schools in sparsely populated areas would be incentivised to expand by receiving more pupils and money. Similarly, bad schools would be incentivised to improve by the threat of losing pupils, and therefore funding. A voucher programme would avoid the need to build more costly free schools, as well as the huge costs and regulations surrounding which have hampered the government’s education reforms."

A copy of the paper is downloadable here: http://www.adamsmith.org/sites/default/files/research/files/Voucher%20paper%20web.pdf. An executive summary of the paper is downloadable here: http://cmre.org.uk/uploads/publications/Voucher%20exec%20summary.pdf.

Please contact Alexander Blackburn to arrange an interview with the paper’s authors by calling 020 7799 8903 or 07400 902 290, or emailing [email protected].

The mission of the CMRE is to explore the potential for more diverse, competitive and entrepreneurial provision in the education sector, and the feasibility of market-led solutions to public policy issues.

The CMRE is a registered non-profit company limited by guarantee and independent of all political parties. The Adam Smith Institute is an independent classical liberal think tank.