Two Brexit Scapegoats Suggest a Government Adrift
Given its overstretched resources, a parliamentary minority and the mind-boggling complexities of Brexit, it makes sense for Prime Minister Theresa May to adopt a simple litmus test for all government action: Every new government measure must aim to mitigate the damage that Britain's departure from Europe will do to investment, confidence and opportunity. Instead, the government is rounding up the Brexit scapegoats.
This week's leaked Home Office draft plan for reducing low-skilled immigration fails the test by a mile. If it becomes policy, the Home Office plan would reduce the number of migrant workers (when Britain needs the labor) and further alienate Britain's EU negotiation partners (when Britain needs their cooperation). Brexit is already having a chilling effect on EU job-seekers, who provide a net benefit to the U.K. economy. It's hard to think of a better example of an own goal, apart from Brexit itself.
Its aim is clear: to be able to say the government has delivered on the Brexit promise of border control and reduced migration. There is time to amend this draft before it is presented formally, though there is no indication the government has any intention of doing so. May didn't disown in the plan on Wednesday, after it was published in the Guardian newspaper. Instead, she told Parliament that low-skilled immigration was depressing wages.
That claim is misleading. A review of studies on the impact of immigration on low-wage workers by the Migration Observatory found the effects are relatively small: Each 1 percent increase in the share of migrants to working-age population leads to a 0.6 percent decline in the wages of the lowest-paid 5 percent of workers, with higher-paid workers experiencing an increase in wages.
A study that looked at the period between 1992 and 2014 found the average wage reduction for the unskilled and semi-skilled service sector was under 0.2 percent. Other studies have concluded that immigration has no significant impact on the overall employment outcomes of U.K.-born workers (existing immigrants are more likely to be displaced than are native-born workers).
The danger is greater than just counterproductive immigration policy. This sort of populist box-ticking is becoming a habit.
A long-awaited plan to curb executive pay, released last week, is another example. It was heavily diluted in response to lobbying from companies and feedback from some within May's own cabinet. And yet, even the revamped policy signals a preoccupation with form over substance and an over-eagerness to give Brexit voters their pound of flesh.
The prime minister has long argued that overpaid and out-of-touch corporate bosses are giving capitalism a bad name, and are partly responsible for the Brexit vote. She's not wrong on the optics; business support for remaining in the U.K. backfired badly and some high-profile cases of misbehavior by prominent corporate figures only reinforced stereotypes. If Brexit voters wanted migration controlled, they also wanted fat-cat bosses held accountable, and the government would like to oblige.
She's not even wrong that there are problems in Britain's corporate governance culture. But her reforms do little to address the root causes, as Mathew Lawrence sets out here in a London School of Economics blog.
Greater boardroom independence, media pressure and public scrutiny may already be working to restrain executive pay, as a PwC study recently showed. A requirement to publish the wage gap between the CEO and the average worker, however, is of dubious benefit. As many have pointed out, the wage gap between the CEO of Goldman Sachs and the average well-remunerated employee at the firm is much narrower than that between the CEO of a retailer whose employees are largely on the shop floor earning a minimum age. There are ways in which that information can be contextualized, but mostly the headline numbers are likely to be seized upon by politicians, and those in the media, who want to claim that fat-cats dominate the boardroom.
It may seem unfair to complain about a policy that was diluted almost to death. But that's just it. The government seems bent on appeasing misplaced Brexiter fears and focuses on the wrong things -- in this case, it's getting CEO pay down rather than on helping to move stagnating wages up. If there is resentment of corporate bosses, it has more to do with tax loopholes and evasion and the fact that half of all U.K. households haven't seen their incomes improve in over a decade. And Brexit further dampens wage expectations.
The next weeks and months will see a flurry of initiatives, white papers and new policies from the U.K. government -- all intended, it seems, to show that the government isn't paralyzed by Brexit and is addressing voter concerns. But doing something isn't always helpful. Focusing on measures that force tax compliance, unlock productivity and improve opportunity for workers would be a wiser use of limited government resources. If May can do that -- and the government has done so on a smaller scale with new policies to improve innovation in transport or expand physician training -- she won't have to find scapegoats. And Brexit voters will have something tangible to thank her for.
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