Category Archives: Britain

Britain, Government, Immigration, Politics, Society

Labour’s immigration plan: language not fit for purpose

BRITAIN

IMMIGRATION policy is an important plank of any government, and the one led by Sir Keir Starmer is no exception. Laws are required to establish the terms under which migration to the UK is allowed, and to deal with the range of complexities surrounding irregular arrivals. But the decision to publish an immigration white paper (which allows for consultation) a week after Reform UK made significant gains in local elections, where Nigel Farage is riding high in national polls, is hard to defend. Rather than defusing public concerns, the PM risks playing into the hard right’s hands – and directly undermining the community cohesion he says he wants to protect.

Some of the proposed measures are reasonable. Others are not. Visa rules are complicated and ministers have identified real concerns about the way the system works. But the timing and language, particularly Sir Keir’s references to an “island of strangers” and forces “pulling our country apart”, were dreadful choices. The danger is that such rhetoric ends up reinforcing divisions and xenophobia.

Labour’s target is the opposition’s record. Starmer was right to assert that the policies of the Conservatives were a cynical disgrace. Legal migration rose from 224,000 in 2019 to a staggering level of 906,000 in 2023. Voters who were entitled to think they had opted for reduced inward migration, both in the Brexit referendum and by electing a prime minister, Boris Johnson, who vowed to “take back control” of borders, instead got a free-market experiment. While the Tories ramped up their inhumane Rwanda scheme as a distraction, employers intensified overseas recruitment as skill thresholds were lowered.

In manufacturing, transport, and engineering, the subsequent increase in foreign employees is correlated with a decline in the UK workforce and apprenticeships. The failure of this laissez-faire approach to the economy has not been limited to jobs. Living standards have stagnated, with lower rates of growth than in the eurozone and US. The Labour government is right that employers should invest in people here, as well as scouting in other countries for highly skilled workers. If it is well run, the new Labour Market Evidence Group could play a positive role in a more industrially activist government. It is good to signal a looser approach to refugees working, and reasonable to expect migrant workers’ dependants to learn English. Councils should support this.

However, the white paper, in both tone and substance, is distinctly illiberal. It uses the language of “fairness”, “integration”, and “public confidence”. And yet, its core proposals represent a consolidation of executive power, a curtailment of individual rights, and a weakening of judicial independence. These are not reforms – they are regressions.

The pledge to deport more foreign criminals speaks volumes of tabloid politics. Granting counter-terrorism-style powers to the Border Force risks stoking, not easing, fear. Cancelling social care visas on the grounds of “abuse” threatens a sector already on the brink. Raising income thresholds for those with dependants penalises lower-paid workers. And while student visas are in need of review, the real issue is the crisis in underfunding of higher education – not the students themselves.

Starmer’s anger about the Tories’ track record is justified. It harms democracy, and has helped opportunists like Nigel Farage, when parties tell voters one thing while doing another. But past mistakes do not justify present ones. Migrants have been and will remain a vital part of the UK’s labour force and student bodies. Positives that require to be reinforced loud and clear.

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Banking, Britain, Economic, Financial Markets, Government, Politics, Society

Financial deregulation of the City: too risky by far

BRITAIN

THE UK Government has launched a consultation about whether it is time to lighten the rules governing alternative asset managers, including private equity and hedge funds, in the belief that doing so will boost growth.

That is radical because, in its desire to ensure the City of London remains attractive post-Brexit, the government seems to have forgotten one of the major lessons of the 2008 financial crisis: when regulation is lax, risks accumulate. And there is little evidence to support this idea, but every reason to think it could exacerbate systemic risks.

The proposal is consistent with the Treasury’s belief that expanding the financial sector will deliver economic prosperity. It has suggested that post-crisis regulations went “too far”. Those regulations included an EU directive targeting alternative investment funds. Before 2008, these funds operated mostly in the dark. There was no means of systematically tracking the leverage they were using, nor the dangers this might pose.

Under the EU rules, leveraged funds managing Euros100m or more in assets had to comply with strict reporting requirements and hold enough capital to absorb losses. The Chancellor is now considering lifting that threshold to £5bn, which would exempt many funds from the full list of EU rules. It will fall to the Financial Conduct Authority to decide which rules to apply. This is troubling.

The FCA has been instructed to encourage financial “risk-taking”, and the regulator has boasted about slashing “red tape”. Taken together, this sounds like a recipe for recklessness. Though the marketplace for private equity and hedge funds was too small to cause a crisis back in 2008, it has since tripled in size. Many private equity funds have started borrowing from shadow banks, which aren’t subject to the same regulations or capital requirements as normal banks. Others have begun taking on even more debt than usual. The Bank of England raised the alarm about these risky practices in 2023, and has suggested that mainstream banks may be unwittingly exposed to the industry. Hence, these are reasons for more financial oversight and discipline, not less.

If the FCA loosens the rules, fund managers will be less constrained in their dealings. They lobbied to have the EU directive watered down in 2010, and the UK was one of the few countries to oppose the rules. Then, as now, the government wanted to protect the City, believing it to be a goose that lays golden eggs. This antipathy towards financial regulation was a prelude to the “Singapore on Thames” worldview promoted by Brexiters. Hedge fund and private equity managers donated heavily to their cause: a study of Electoral Commission data by the academics Théo Bourgeron and Marlène Benquet revealed some £7.4m was donated to the leave campaign, as opposed to just £1.25m for remain.

The Treasury seems to be of the belief that unless the City gets what it wants, Britain may lose its fund managers to countries such as Luxembourg. There are many reasons to be wary of liberalising finance. One is that it will hinder, rather than help, economic growth. Research suggests that once the sector exceeds a certain size, it starts to become a drag on growth and productivity. A study from the University of Sheffield found that the UK lost out on roughly three years of average GDP growth between 1995 and 2015 thanks to its bloated financial sector. Watering down regulations might be helpful for fund managers who like to take huge risks, but it is hard to see who else would benefit.

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Britain, China, Economic, Europe, European Union, Government, Politics, Society, United States

UK-China relations: The Brexit dilemma

BRITAIN-CHINA

Intro: Trump’s trade wars have exasperated the Eurosceptic model, which is more outdated than ever

WHEN the transatlantic alliance was more functional than now, there was never a united view of China. Beijing has always been perceived as a commercial rival and potential security threat, and a common wariness has existed. For hawks in Washington, however, the idea of an alternative superpower closing in on economic and technological parity feels existential. More dovish Europeans have been openly compromising and readier to leaven caution with engagement.

Britain has veered between the two poles. In 2015, David Cameron promised a “golden era” of open trade with China. In 2020, under pressure from the US, Boris Johnson banned Huawei, a Chinese telecoms company, from UK 5G infrastructure.

In opposition, Conservative politicians have become increasingly hawkish against Beijing. Keir Starmer’s Labour government has tilted back towards cooperation. Several Labour ministers have visited China, including the chancellor. Other ministers, including the business secretary, will go there later this year, to revive a trade commission that has been dormant since 2018. Despite being manifestly frustrated with the Chinese owners of British Steel during the recent dash to keep Scunthorpe’s blast furnaces operating, the UK government has retreated from intimations of deliberate sabotage.

At some point, a reckoning has to be made. The pursuit of economic growth and investment will inevitably come into conflict with a national security interest in keeping China at arm’s length. The question is where to draw the line. The official line is that judgment is deferred pending a Whitehall “audit” of relations with Beijing. That is due in June.

A UK government decision is also imminent on China’s status under the foreign influence registration scheme – a system for keeping tabs on international organisations and companies exercising political influence in Britain. China is not expected to be named in the “enhanced tier” of risky states, alongside Russia and Iran, but some Chinese institutions might have that designation.

Calibrating these judgments – choosing when to prioritise security over commerce – is much harder with Donald Trump in the White House. What used to be a difference of emphasis between the US and Europe looks like an irreparable fracture in the west.

Trump has started a ferocious trade war with Beijing without a convincing strategic rationale. His officials have told Europeans they will have to choose a side when it comes to vital communications technology. Yet, what we see is a US president who has become routinely aggressive in his rhetoric towards the EU, dismissive of NATO, and reliably emollient towards Putin’s Russia.

From that pattern it is clear in Brussels and other continental capitals that Washington is no longer a reliable ally and the trajectory must be “strategic autonomy” for Europe. That is changing the calculus of risk and potential benefit from a more pragmatic China policy. The authoritarian character of Xi Jinping’s regime hasn’t changed, but it presents itself as a more predictable force in international affairs while US democracy declines in harsh and sporadic spasms.

Such changes illuminate a crisis of international orientation for Britain that has been building since Brexit. Economic detachment from Europe was promised on a model of the UK as a lone sovereign agent in an open, free-trading globalised world. That concept has aged very poorly, and it stands more of an outdated concept now than it ever has. Britain is not alone in struggling to navigate relations with China in the turbulent new geopolitical climate, but choosing loneliness and isolation in a world of rival continental blocks is making the struggle much harder.

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