New Economist

Weekend reading/viewing: Explaining the rise of child labour in Victorian Britain

In Victorian Britain child labour was cheap and plentiful. Few today know much about the era; but they should.

Next week Jane Humphries, a Professor of Economic History at Oxford University, is due to give a seminar at the Paris School of Economics about her work on the topic. She published a book on Childhood and Child Labour in the British Industrial Revolution in 2010, and her excellent 2010 Tawney lecture summarises that larger work. The lecture is forthcoming in the Economic History Review (PDF).

Quantitative and qualitative analysis of a large number of autobiographies by working men who lived through the industrial revolution has demonstrated that there was an upsurge in child labour in the late eighteenth and early nineteenth centuries with children’s work entrenched in traditional sectors as well as spreading in newly mechanized factories and workshops.

I have interpreted this rise in terms of the appearance of a new equilibrium in the early industrial economy with more and younger children at work. The new equilibrium, in turn, was related to a number of co-incidental developments including: an increase in the relative productivity of children as a result of mechanization, new divisions of labour, and changes in the organization of work; the dynamics of competitive dependence linking labour market and families; high dependency ratios within families; stumbling male wages and pockets of poverty; family instability; and breadwinner frailty.

Better yet, you can view the original lecture either below or here (65 minutes, flash file).

 

A very interesting slice of economic history. But the most engaging account of her work can be found in her 2011 BBC documentary, The Children Who Built Victorian Britain. The BBC website has 8 animated videos from the programme, with harrowing testimonies from children of the era. Well worth viewing.

N.B. Teachers and lecturers might also be interested in the excellent compilation of video clips on child labour at BBC's Learning Zone: 34 in all.

UK recession roundup: the magnificent seven

A lot of interesting newspaper articles and blog posts on the Q1 UK GDP results have been published since my post earlier today. Here are links to seven of the best, along with an excerpt from each:

1. NYT columnist and uber econoblogger Paul Krugman (@NYTimeskrugman) lambasts the UK Government's austerity plans: Cameron’s Remarkable Achievement

Now Britain is officially in double-dip recession, and has achieved the remarkable feat of doing worse this time around than it did in the 1930s. Britain is also unique in having chosen the Big Wrong freely, facing neither pressure from bond markets nor conditions imposed by Berlin and Frankfurt.

Now, the defense I hear from Cameron apologists is that the austerity mostly hasn’t even hit yet. But that’s really not much of a defense. Remember, the austerity was supposed to work by inspiring confidence; where’s the confidence? Basically, the expansionary aspect should already have kicked in; it’s all contraction from here.

Needless to say, Cameron and Osborne insist that they will not change course, which means that Britain will continue on a death spiral of self-defeating austerity.

2. NIESR director Jonathan Portes (@jdportes on Twitter) manages to quote both Keynes and Popper in his blog post, also critical of the government: On GDP figures today, credibility, and Popperian falsifiability..

Is there a credible alternative? Of course there is. You don't have to be Keynes to think so. And you don't have to take my word for it. Ask the IMF. Or Martin Wolf at the FT. Or Ian Mulheirn at the Social Market Foundation. Or John Van Reenen at the LSE. As I said over a year ago, the real hit to credibility comes from sticking to unsustainable policies in the face of the facts.

George Osborne says that we are all "at the outer fringes of the international debate." That's clearly false as far as serious economists go. But if he's right in terms of UK government policy, the main losers won't be us: it will be the unemployed, especially the young.

3. BBC economics editor Stephanie Flanders (@BBCStephanie) provides a good account of the numbers, including the impact of the Q1 construction decline, in her post: No recovery for UK: No let up for ONS

Are the official numbers wrong? An impressive number of independent experts, with access to a lot less information than the ONS, are today convinced that they are.  ...I don't know which is more striking, the doubts about the ONS numbers - or the supreme confidence of their critics.

4. Guardian economics editor Larry Elliott (@BusinessDesk) believes the double-dip recession affords George Osborne no escape from this reality

The coalition's fear is that the government would be punished by the markets if it went soft on austerity – and there is no obvious magic bullet for Osborne to fire. Since the recession began, the Treasury has borrowed £500bn, the pound has depreciated by 20%, interest rates have been pegged at 0.5% for more than three years, and the Bank of England has plonked £325bn of newly created money into the banking system. The result has been the weakest recovery of the past 100 years.

There are ideas knocking about. ...[but] Osborne has no Plan B and shows no sign of wanting one. He has made reduction of the budget deficit the judge and jury of Britain's performance, talking tough in the hope that the financial markets will spare Britain the harsh treatment they have meted out to the weaker members of the euro. Until now they have, but slow growth has meant progress in getting the deficit down has been much slower than the chancellor planned, and the credit rating agencies are getting jittery. Two of them have put the UK's prized AAA rating on negative watch.

A second recession hard on the heels of the first gives the (accurate) impression that the economy is a disaster area and makes a downgrade more likely.

5. Investment Chronicle writer and prolific econoblogger Chris Dillow (@CJFDillow) explains why there is such scepticism about the GDP estimate: What recession?

Today’s figures conflict with at least five other findings:

- Purchasing managers surveys found a “marked expansion” in construction activity, and the strongest growth in services activity since Q2 2010.

- Official figures show that retail sales volumes rose 0.8 per cent in the quarter. Would consumers really have gone on such a spending spree of the economy was shrinking?

-The ONS reported last week that in the three months ending February, total hours worked rose by 1.4 per cent. This can only be reconciled with falling GDP either if hours fell sharply in March or if productivity has slumped.

- The NIESR estimates that GDP grew by 0.1 per cent in Q1.

- The latest British Chambers of Commerce survey found a “welcome improvement” in the economy.

6. Telegraph assistant editor Jeremy Warner (@jeremywarnerUK) argues that the Chancellor must ignore this double-dip recession

Personally, I wouldn't try to deny that fiscal consolidation is damaging growth; the more important question is whether the Government has any choice in the matter. In my view it does not. We'll never know what would have happened to interest rates had Labour won the last election and pursued a different policy, but the evidence of sharply rising spreads around the political negotiations that led up to the formation of the Coalition is that like the eurozone periphery, they might well have run out of control.

For a highly indebted economy such as the UK's, with an overgrown banking sector, this was not a risk any sensible government could have afforded to run. The banking sector, not to mention many households and businesses, would have been tipped over the edge by any significant rise in short and long term interest rates.

Stagnation in the UK economy is not the result of government policy as such, but is part of the adjustment process to the financial crisis. The idea that you should counter a crisis caused by too much debt by taking on more of it runs counter to common sense.

7. Finally, housing writer/blogger Jules Birch (@jules_birch) argues that housebuilding "will deliver the quickest boost to the economy and generate the most jobs": If you’re in a hole, start digging

Judging from his speech at the Home Builders Federation (HBF) this week Grant Shapps seems to think that all he has to do is sit back and wait for all his initiatives, from FirstBuy to NewBuy, from cutting red tape to boosting self-build, from the New Homes Bonus to extending the right to buy, to pay off. ...Yet for all the rhetoric and all the new wheezes, housebuilding remains stuck at around half the level needed to meet demand and nowhere near his ‘gold standard’ of building more homes than Labour.

Relying on big housebuilders that care more about rebuilding their balance sheets than building homes will not work. A serious programme of investment in building new homes and refurbishing empty ones could be channeled through smaller firms, housing associations and local authorities and combined with reform of the housebuilding industry. That would start to generate the jobs and deliver the boost for the economy we need at the same time as tackling the housing shortage. Borrow to invest, change the borrowing rules or try something new like quantitative easing for housing. We are in a hole. It’s time to start digging.

UK’s double dip recession: your questions answered

This morning the Office for National Statistics published preliminary estimates of an -0.2% fall in March quarter 2012 GDP. This follows a -0.3% contraction in Q4, so pulling the UK into a ‘double dip’ recession (the first since the 1970s). Below are some frequently asked questions, and my response.

Was the fall a surprise?

Most forecasters were expecting very modest growth in Q1, with the median estimate (according to Bloomberg) for a +0.1% increase. These forecasts were in line with most leading indicators and partial indicators, which pointed to sub-trend growth last quarter.

Though disappointed, however, I doubt many commentators (including myself) were that surprised. Preliminary GDP numbers are notoriously volatile, and there are several variables which can unexpectedly throw the result (more about that later).

Why did growth fall in Q1?

The services sector, which accounts for more than three-quarters of output, is not in recession - it rose a modest 0.1% in Q1 (a lot lower than business surveys and retail sales suggested). Industrial production fell by -0.4%, but that alone would not have been enough to produce a negative number. What dragged it lower was a -3% fall in construction output, which detracted 0.2 percentage points from the headline number. Without that fall, GDP would have been flat last quarter.

Should we believe these estimates?

Not particularly. Preliminary GDP estimates in the UK are based on less than half the data that go into the final national account estimates. The rest are extrapolated or imputed. They are frequently subject to large downward (or more commonly, upward) revisions. In a year or two’s time we could well discover there was no ‘double dip’ recession after all.

Former MPC member Andrew Sentance gave a powerful example in a March 30 blog:

In the early 1990s, the recession appeared to continue through 1992 and into early 1993. At the time, it was believed to be the longest recession that the UK had experienced since the Second World War. The most recent data show the decline in GDP coming to an end in late 1991, exactly when Norman Lamont declared he could see the “green shoots of recovery”. He was right, though ridiculed at the time.

Most economic commentators are likely to react with a degree of scepticism to today’s numbers, for three reasons. First, past GDP estimates have experienced major revisions. Second, there are serious quality concerns about some of the inputs, especially construction. Third, and most important, because these estimates are at odds with most of the other main indicators of economic activity. The numbers simply don’t gel.

So we shouldn’t be too worried?

Yes we should. There is a real risk that the headline contraction, reinforced by ‘doom and gloom’ stories the media will pump out over coming days, will weaken already soft consumer confidence and spending, discourage British business from hiring or spending, and deter foreign investment. If Britons talk themselves into a funk we could see what (to me at least) looks like a temporary soft patch into a more serious and protracted downturn. It’s all about Keynes ‘animal spirits’, as Akerlof and Shiller and others have noted.

How will the Government respond?

Calls for the Chancellor, George Osborne, to abandon (or at least modify) his fiscal austerity plans will grow. However ministers are terrified at the prospect of losing their AAA rating, and there are few signs of a ‘Plan B’ in the works. Indeed on Monday the Treasury chief secretary said he had asked Government department’s to identify another £16bn of cuts.

With the Office for Budgetary Responsibility set to downgrade its growth forecasts, larger spending cuts will be required simply to maintain the Government’s debt-to-GDP targets. So should the government cut even more, maintain its existing spending plans, or rethink its approach?

We can expect a protracted debate in the UK about whether the pace of spending cuts is too high, and hence self-defeating. It is a view forcefully made by Jonathan Portes, and even the IMF in their January 2012 World Economic Outlook Update (PDF):

Overdoing fiscal adjustment in the short term to counter cyclical revenue losses will further undercut activity, diminish popular support for adjustment, and undermine market confidence.

'Lone dove Danny' quits the MPC

Controversial Monetary Policy Commitee member and Dartmouth professor Danny Blanchflower is leaving the Bank of England, according to The Times: Man who wanted early rate cuts David Blanchflower steps down from MPC

Professor Blanchflower, who has voted to cut interest rates every month since October last year, said that he would not seek reappointment when his three-year term ends on May 31.

Once can hardly blame him. Despite being one of the first to call the economic slowdown, global recession, downside risks to inflation and upside risks to unempoyment, he has routinely been derided by City economists and market commentators - and ignored by his fellow MPC members.

His doveish voting record often put him at loggerheads with members of the committee, who refused to cut rates earlier over fears about rising inflation. Professor Blanchflower, who travelled to rate meetings from his home in the United States, maintained that the sharp economic downturn in America could be replicated here and advocated taking evasive action by cutting rates.

'Lone dove' Danny has been proven right. The rest of the MPC stubbornly refused to acknowledge the growing downside risks to UK inflation from the global credit crunch and economic downturn.

A key lesson from this is the importance to bring a global (or US0 perspective to monetary policy. In a globalised world, what happens in the United States economy and financial markets clearly has major implicatiosn for the UK. While in theory British-based MPc members ought to be aware of these developments and factor them into their thinking, danny's example shows that they don't.

It is clearly time to globalise the Monetary Policy Commitee and move away from a parochial 'little England' approach. Let's see if Treasury have learned the lesson, and appoint another US-based member as Danny's replacement.

The IFS Green Budget: time for some prudence

The Institute for Fiscal Studies launched its IFS Green Budget 2008 at a half-day conference yesterday. A preview of the official UK Budget due mid-March, it's comprehensive and thought provoking document for anyone with an interest in the state of the UK economy or public finances. Both the full 312 page (3.9Mb) report itself and the PowerPoint presentations from yesterday's seminar are available to download online. You can also download individual chapters. The nine presentations covered:

* The economic outlook, David Miles, Morgan Stanley
* Labour's record on the public finances, Robert Chote, Carl Emmerson and Gemma Tetlow, IFS
* The public finances going forward, Robert Chote, Carl Emmerson and Gemma Tetlow, IFS
* Funding issues and debt management, David Miles and Laurence Mutkin, Morgan Stanley
* Public sector pay and pensions, Antoine Bozio and Paul Johnson, IFS
* Capital gains tax, Stuart Adam, IFS
* Taxation of foreign profits, Malcolm Gammie, Rachel Griffith and Helen Miller, IFS
* Aviation taxes, Andrew Leicester and Cormac O'Dea, IFS
* Impact of tax and benefit changes taking effect in April 2008, David Philips, IFS

The reports' authors are gloomier than Treasury officials about the outlook for tax receipts and borrowing over the next two years, given the downside risks facing the UK economy. The IFS baseline forecast scenario is not for a recession, though. They expect sub-trend growth in both 2008-09 and 2009-10, resulting in a larger budget deficit, higher public sector debt, and slower path to surplus than official forecasts. The IFS press release (PDF) puts it like this:

..we fear that tax revenues will not grow as strongly as the Treasury hopes, as the impact of the credit crunch and a weak outlook for profit growth depress Corporation Tax receipts and as weaker share and property prices reduce Stamp Duty revenues.

Under existing policies, we expect the Government to have to borrow more than £40 billion this year, next year and in 2009-10. We expect public sector net debt to hit the Government’s ceiling of 40% of national income in 2009-10 and to rise to 41.2% by 2012-13. The Government would also break its “golden rule” (to borrow only to pay for investment) over the new economic cycle, unless that cycle lasts at least a decade.

IFS Director Robert Chote argued at the conference that the government faced a "difficult call", but some action now would be "prudent". The report also reminds us that the UK’s debt remains below the OECD average,and government debt and borrowing are still both lower than when the Conservatives left office in 1997. Press coverage was predictably more critical, with most reporters focussing on the need to raise taxes. Today's FT report by Chris Giles is typical: Increase taxation by £8bn, Darling told

So precarious are the public finances that Alistair Darling should raise taxation by £8bn in the Budget even though the economy faces the risk of a brutal slowdown, says the Institute for Fiscal Studies.

A brutal slowdown? Hardly. True, Morgan Stanley's economic projections include a more pessimistic scenario in which the UK economy suffers a ‘technical recession’. But they see only a one-in-three probability of this; I would rate the chances even lower.

UPDATE:
Martin Wolf is less downbeat in his 8 February FT piece, Why a crisis is also an opportunity. He argues that "it is not that the government’s overall fiscal performance has been lamentable. It has merely been mediocre." The government must rebalance, and could benefit from depreciation: "a weaker real exchange rate is a valuable part of the economic adjustment". He concludes:

The UK economy could not continue indefinitely on its course of rising internal debt and external deficits. Equally, the government could not continue indefinitely raising the share of public spending in GDP and missing fiscal targets. These trends are now at an end. How well the necessary corrections are managed will determine how well a rebalanced economy performs in the years ahead.

Hard to disagree with that.

Britain's super rich: racing away?

The latest Institute for Fiscal Studies briefing note, Racing away? Income inequality and the evolution of high incomes, focuses on the 'super-rich'. Authors Mike Brewer, Luke Sibieta and Liam Wren-Lewis define this group of 'high income individuals' as the richest 1 in every 1,000 taxpayers (i.e. the top 0.1%) The super-rich earn £350,000 or more in taxable income a year. Nine in every ten are men, and most are lawyers, City bankers and the like. The accompanying IFS press release states:

The outlook for inequality in Britain may depend more on the outlook for the stock market than on Government tax and benefit policies, a study by IFS researchers suggests today. Even though the current Government has increased taxes on people with high incomes, this has not prevented them from them racing further away from the average level of living standards across the country. In recent years, it is only in the wake of extended falls in the stock market that the incomes of the richest have fallen.

The FT's Chris Giles comments on the role played by market forces in his piece, Very rich get richer under Labour:

Highlighting a sea-change from the early post-war years when wealth often derived from land or other inherited assets, Mr Sibieta said the 21st century super-rich received 80 per cent of their incomes from an occupation - whether salaried or self-employment - rather than investments. "We are talking about the working rich rather than the idle rich," said Mr Sibieta.

But the past decade has seen rich people's income sputter as well as soar. With so many working in finance, there is a strong link between their fortunes and those of the stock market. Real incomes of top-earners grew 6.6 per cent a year on average between 1996-97 and 2001-02.

Yet in the following two years, when the stock market reached its low point, they fell on average by 2.7 per cent, before picking up again alongside equities in 2004-05. That tight correlation leads the IFS to predict that, with the rapid growth of financial markets since 2004-05, the incomes of the richest will have risen quickly in the past two years.

The data show the impact of Labour's generous funding of the public services this decade. The one group outside finance, the law or property to be well represented in the top 1 per cent of incomes works in the health sector. These were "presumably doctors and senior health service managers who have enjoyed relatively big pay increases under Labour", added Mr Sibieta.

The 'super-rich' earn 31 times average incomes: around £780,000 pre-tax income a year, of which they pay on average almost £275,000 in income tax: a tax rate of 35.3%. This is double the rate paid by the average UK taxpayer, who earns around £25,000 and pays £4,400 in tax: a rate of 17.6%.

Cityphilia

Like most of us I have been reading a lot of commentary about the credit crunch lately. A more personal perspective about the City and the recent crisis is presented by John Lanchester in the latest London Review of Books. Here is a short extract from his piece, Cityphilia:

This uncritical and uninformed governmental Cityphilia received its biggest shock in decades this autumn, with the near collapse of Britain’s fifth largest mortgage lender, Northern Rock. Britain’s first genuine bank run in more than a hundred years shone a light in many places where the sun doesn’t routinely shine, and one of the first things to be brought into question was the ways banks work.

As I’ve already said, my father was a banker, and I grew up hearing about that mythical beast, the bank run. It was often spoken of but rarely seen in the wild. Bankers are said to dread a bank run, but my dad talked about them with a certain black humour. They were always a sign that somebody had fucked up, big-time. They can also be a sign that something in the financial system is fundamentally wrong.

The question hanging around in the residue of the Rock’s near implosion is which type of bank run this was – a fuck-up, or a harbinger of meltdown?

Has the City lost its cool?

It's not quite The Beano Annual, but you know that Xmas is approaching when the Economist's annual glossy hits the newstands. In a pleasant change, most of the content of The World in 2008 is available free online. Another (new?) development is that author's names are now included - still famously not the case in the weekly.

One piece that caught my eye was a short piece by Lionel Barber, editor-in-chief at the Financial Times, warning of "tougher times ahead" for the City in 2008: London loses its cool

Host of the 2012 Olympic games, financial rival to New York, magnet for football-mad billionaires: London’s reputation as cool, classy and cosmopolitan has never been higher. The capital’s dynamic growth has been driven by the City of London, the location of choice for hedge funds, private-equity firms and Wall Street exiles. Thanks to a favourable tax regime, light regulation and an open-armed welcome to foreigners, the City is the bejewelled crown of Britain’s economy.

But that crown is in danger of slipping in 2008. Even before the great credit squeeze of 2007, there were clear signs that mergers and acquisitions as well as private-equity buy-outs had peaked. The return of conservative risk management in the banks and hedge funds will be a prominent theme in the coming year. Inevitably, this will lead to staff culls, lower Christmas bonuses and the disappearance of the more exotic off-balance-sheet financing which proliferated in the era of cheap money.

In 2008 investment banks will still be digesting the more leveraged deals struck at the height of the debt-driven boom. Some of these deals may fall by the wayside; others will have to be renegotiated. As one prominent banker says: “We will still see M&A activity in London, but it will be more of the mid-size and small-cap end rather than the really big deals.”

Private equity, which has enjoyed mouth-watering returns, will have a far tougher time in 2008. Not only has competition increased; the industry’s image has taken a beating amid accusations of asset-stripping and unduly favourable tax treatment. Gordon Brown’s government may tinker further with the tax code, but not enough to drive wealthy partners and non-domiciled London residents to sunnier (or snowier) tax havens such as Monaco or Switzerland.

Rate cuts due next year as UK growth slows

Today's Bank of England Inflation Report contains a whiff of stagflation in its latest economic projections. Inflation is heading higher, at least in the short-run, while growth risks are to the downside:

In the central projection, higher energy and import prices push inflation above the target in the near term. Inflation then falls back to settle around the target in the medium term. The risks to growth are on the downside, while those to inflation are balanced.

The Bank expects tighter credit conditions and a slowing in domestic demand will slow UK growth to around 2% in 2008. While this is in line with private sector forecasts, I would not be surprised to see sub-trend growth dip towards 1.5% next year. Governor Mervyn King was ceretainly rather gloomy at today's press conference (webcast here). According to a Bloomberg report he warned that:

The central projection is for growth to slow sharply in the next year. ...There has been some tightening of credit. Residential and commercial property investment are likely to moderate, possibly quite sharply.

The Bank's latest forecasts are based on market assumptions that they will cut base rates by 25bp in the first quarter of next year. Indeed, financial markets are now expecting not just one 25bp cut around February 2008, but have also priced in a second cut around May 2008, which would bring official cash rates back to 5.25%.

New Chancellor Alistair Darling will certainly have his work cut out keeping budget and revenue projections on track. But at least British home owners can look forward to lower mortgage rates next year.

More from the UK migration debate

With not just tabloids like the Daily Mail but even government Ministers emphasising the potential downsides of the UK's recent migration experience, a few commentators have sought to present more thoughtful accounts. Here are three:

David Smith of the Sunday Times wrote on 28 October that Migrants ease the inflation pressure. he does a good job summarising submissions to the House of Lords economic affairs committee investigation into the economic impact of immigration:

There are contributions from business, with the Institute of Directors saying that three-quarters of its members believe that foreign-born workers make a big positive contribution to the economy and, more controversially, that they “significantly outperform the existing workforce across a whole range of measures, including productivity, education and skills, work ethic, reliability and the amount of sick leave”.

The City of London Corporation waxes lyrical about the historic contribution of immigrants, noting that “City street names such as Lombard Street date back to the reign of King Edward I, when land was given to goldsmiths from the Lombardy region in Italy”. More recently there has been a significant City influx from the Continent and America and the corporation notes that London’s overall foreign-born population rose from 1.17m to 2.23m between 1986 and 2006.

J Sainsbury says it has used migrant labour to fill “pressing gaps in both skilled and unskilled areas” and praises the work ethic of such staff.

This kind of thing would be a red rag to the unions, it might be thought. But the Trades Union Congress, in its submission, is also strongly supportive.

“The overall economic impact of immigration is limited but positive,” it says. “Migrant workers contribute more in taxes than they receive in services, and migration probably leads to slightly higher levels of employment and wages for native workers. Migration may possibly be linked to an increase in wage inequality in this country, but the evidence is not conclusive.”

The government’s take on the economic impact of immigration is also reassuring. It believes that in the short term the impact of immigration on the public finances is positive, though the last official study was some years ago. It concluded that migrants paid £2.5 billion more in taxes than they took out in benefits and the use of public services. This net gain to the exchequer is likely to have grown, the government suggests.

The long-term impact of migrants is more difficult to assess, it accepts. An American study pointed to a large overall positive impact but any conclusion for Britain is sensitive to the number of dependants each migrant has, and whether they remain in Britain until retirement. As it is, the effect of migration will be to ameliorate the consequences of Britain’s ageing population.

The dependency ratio – the ratio of dependants to working-age people – is 61% and will rise to 74% over the next 50 years. With zero net immigration it would increase to 82%.

The arrival of migrant workers has meant employers have not had to outbid each other for scarce labour. This has helped the Bank of England by delivering lower wage rises for a given rate of economic growth than would otherwise have been the case. Interest rates have thus been lower in recent years than they might have been.

The IPPR's Danny Sriskandarajah explains in the Financial Times why limiting immigration is bad for Britain. He points out how difficult it would be to 'control' migration, and argues that work permit system is likely to prove more responsive than a points-based system.

In their rush to control immigration, both parties are also suggesting a departure from the market-based, employer-led system of allocating work permits that has served the UK economy so well over recent decades. ..the number of work permits issued each year has broadly been in keeping with economic and labour market conditions. An individual-led, points-based system, in which someone need not have a job offer in the UK, may not be sufficiently responsive.

Annual limits or sector-based quotas are likely to be even worse. Imagine a desperate would-be employer being told that the new head of mergers and acquisitions or eminent university professor or star footballer cannot take up his or her post until next year because the annual limit has already been exceeded.

Britain’s political leaders either do not realise that migration cannot be cut in the crude ways they say they want to, or they have calculated that political benefit of being tough on immigration from outside Europe is worth the undoubted economic costs this may incur.

Unfortunately, denying UK employers access to the best and brightest workers from across the world may hurt more than they expect and still not stop the inflows that worry the electorate.Indeed, without a long-overdue reality check, Britain may continue to have relatively high levels of immigration but not necessarily the right workers for the right jobs.

I am less hostile to the new points system than Danny, but agree that attempts to curb migration may well backfire.

Finally, Richard Reeves examines the impact of immigration in this week's New Statesman: Why Brits need not apply