Money for Mayors, rationing renters’ support and angry rich men

Hope you’re all feeling suitably levelled-up after yesterday’s jamboree of “Westminster will decide how to transform the economic prospects of your area, via a small heritage/leisure scheme”. The Government’s provided a map so you can see whether you’re getting a token bung long term strategic investment. I’d encourage anyone hoping centralisation at least meant quality control to check out the blurb for the £20 million allocation to Oakham and Melton, where locals must be very worried by the claim that their “natural entrepreneurial talents” are about to be harnessed by “a Demand Responsive Transport scheme”. God knows what that involves but it doesn’t sound fun.

Our reads this week have been through a far more rigorous selection process, with the winners ranging from estimates of post-Brexit migration changes to new research taking a long view of rising rents.

Have a great weekend, whether you’re being levelled up, down or straight out ignored.

Torsten
Chief Executive
Resolution Foundation

Investigating immigration. Migration was quite a big deal in Brexit debates, but two years on from the end of free movement what has been the impact? The level of net migration certainly hasn’t fallen but a new report from John Springford and Jonathan Portes argues that if you focus just on workers, the end of freedom of movement has meant around 330,000 fewer of them in Britain (460,000 fewer Europeans, 130,000 more from elsewhere). That’s roughly one per cent of the labour force reduction focused in low paying parts of the economy. Now be careful concluding this means a lack of migration drove recent economy wide labour shortages – remember migrants bring demand as well as supply into an economy, and there’s headlines about labour shortages in many European countries too. It will have contributed to hiring challenges in lower paying sectors particularly reliant on EU workers. But that’s not a bug with the new migration regime, it’s a design feature.

Analysing automation. What happens when you have fewer lower earning migrants is the next question, where a new Danish paper offers some – partial – insights. The paper shows that firms were less likely to invest in robots to support production in areas where more migrant labour is available: a one percentage point rise in the share of non-Western immigrants decreases the probability of robots being used by seven per cent. The authors argue this is because where firms can pay migrants lower wages, they do that rather than buy machines to automate tasks. Note this is specifically about lower earning/skilled migration, NOT lower migration overall. Does this mean the UK is about to see a robot invasion? I’d certainly expect more automation under the new migration regime. But note this paper is only looking at one part of how firms respond. For some currently migrant reliant sectors with hard to automate service or agricultural work, few migrants doesn’t mean shiny robots. It means shrinking instead.

Housing help. It’s the housing costs that people pay each month, not house prices, that matter most to us at Resolution. Once you take that perspective you spend a lot of time looking at surging housing costs in the 1980s and early 90s – in 1979, both private and social renters spent about 10 per cent of their incomes on rent, vs. 30 and 25 per cent respectively now. Why did that happen is the focus of a great new report (blog summary) by the Tony Blair Institute for JRF. It’s not because underlying rents are ever rising, but because we’ve stripped back the three big policies that shelter tenants from those market rates: rent controls went decades back, social housing has become more heavily rationed, and the rising Housing Benefit bill (which has been left to take the strain) has been cut, and is out of fashion with both anti-landlord lefties and anti-spending Thatcherites. The paper is basically about resurrecting the case for the goal of protecting lower income households from market housing costs – including via Housing Benefit. This is a) right and b) not what anyone wants to hear.

Stroppy savers. Who does Treasury support for saving benefit? That’s the focus of our new report, showing ISAs are useless for poorer savers (they’re unlikely to owe any tax on their savings anyway), but work really well if you’re investing hundreds of thousands in stocks/bonds entirely tax free. Unsurprisingly lots of men with hundreds of thousands of pounds in ISAs got in touch, arguing that any limit on such tax relief would cost them a bit destroy Britain. Shockingly, they had less to say about boosting poorer households’ savings. Sam Bowman has a blog version on the more thoughtful end that’s worth pondering. The basic argument starts from a point of agreement: we under-tax primary residences, hugely benefitting richer households. Sam takes that fact and argues that we therefore can’t limit tax free savings/investments in ISAs at all (also benefiting the top), because otherwise even more will get ploughed into buying homes, pushing up house prices. This overstates the extent to which primary residences are perfect substitutes for wider investments – after all there’s no regular cash return from a more expensive home. But the argument’s bigger problem is its logic that our housing tax problem means we should have NO taxation of returns on savings/investments at all. I can see why some people want that – just not workers facing higher taxes on their earnings instead… Sam rightly says we need to raise our savings to help address our firms woeful investment levels, but overdoes the danger of a very high limit on ISA saving. When the annual ISA allowance was hiked from £15,240 to £20,000 in 2017-18 what discernible difference did it make to savings? Diddly squat.

Chart of the Week

It wasn’t just angry rich men getting in touch this week, our viral Chart of the Week – via RF labour market economist Louise Murphy – showed that workers in the education and health industries have both lower levels of weekly pay, and have seen weaker pay growth over the past year, than the UK average. This got us thinking about how different jobs’ relative pay has shifted over time. Expect detailed future research on this, but for now you’ll have to make do with a ‘Top of the Jobs’ chart, which ranks 81 occupations by average pay in 2008 and 2022. First, well done to those involved in the manufacture and extraction of petroleum products – the best paying jobs in Britain today and back then. Domestic work was – and is – the lowest paid occupation in Britain, with residential and non-residential care near the bottom too. We’ll be examining the pay and conditions of care workers next Thursday.

And now for the movers and shakers. The biggest climbers are… bankers! (up from 26th to 5th). I suspect their lowly ranking in 2008 may have been a blip, can’t think why…. Construction workers have also been climbing up the rankings, let’s see how falling house prices affect their ascent to the top. Going in the other direction are air transport workers, falling from the heady heights of the 11th best paid job to the distinctly mid-range 45th (pandemics aren’t good for flying). So anyone contemplating a career switch should remember that more housebuilding and fewer flights aren’t just what we need as a society – they might be your route to future prosperity too.