Thursday, 31 October 2013

On yer bike

The result of the 2015 election in the UK will probably depend on two things; the effect of economic recovery on living standards and the success David Cameron has in renegotiating our terms of membership within the European Union.  In short, if the recovery delivers improvements in living standards the coalition will probably be re-elected and if the European negotiation is successful the Tories might expect to form a majority government.  I have argued for a long while that Labour’s crisis in living standards is erroneous; as the marginal nature of disposable income means that we will see a substantial recovery in take home pay over the next 18 months.  The European issue is more vexed.  Mr Cameron has two options on Europe, a Harold Wilson like renegotiation (nothing changes at all) or a Margaret Thatcher like renegotiation, which achieved some changes but within the broadly unchanged  framework.

Here come the Bulgarian's
In the first scenario Cameron would have no choice but to recommend a British Exit of the EU (Brexit) at the 2017 referendum otherwise he will alienate his core vote and gift wrap the UKIP a massive share of the vote, so handing Labour victory.  The complicating factor is that if the Tories were to go into the next election on a Brexit ticket they would almost certainly lose the election, as the party is split pretty evenly between those pro Euro and those who are not.  Whilst the Right is generally against Europe it is inconceivable that a Conservative party (the party of commerce and business) could win a electoral mandate on the basis of a Brexit.   Accordingly, if Cameron and his party are to remain involved in the European project he will need to secure a significant prize from our European partners.
There are three main components of the European Union:  The political framework, the legal framework and the single market.  The first two will be off limits although he could take a pot shot at the European Court, so he will be focusing on the Single Market.
The European single market was the reason the UK joined the EU (remember the Common Market and EEC) so this is still the feature that resonates with the public and potential Tory voters.  The mainstream UK view of the single market has been that economic liberalisation should bring benefits for all – this utopian single market has four components - Goods, Services, Capital and Labour.
The Tory party approves of the single market for Goods and Services, although they would like to further improve our access to European markets for Services.  However, the Tories have a bit of a problem with the single markets for Capital and Labour.  Having stood on the side lines of the EuroZone project we have already waved goodbye to the advantages and disadvantages of a single currency, most will think this is a good thing.  At the same time we have been up to our necks in the single market for Labour with mass migrations from Poland, The Czech Republic and other eastern European states, this migration was the main engine of our stellar growth in the “noughties”, but has also been the cause of much soul searching on the loss British identity.  A recent survey by YouGov charted the full dimensions of Britain’s hostility to European immigration. Today fifty-five per cent of voters say the right to move anywhere in the EU is a bad thing that should be curtailed – apparently we would even be prepared to give up our retirement homes on the Costa del Sol in exchange for fewer Romania’s and Bulgarian’s.

The reality for Cameron is that he is asking for a basket of changes that Liberalise the markets for Goods and Services whilst insisting on protection in the markets for Capital and Labour.  This dystopian approach will confuse potential allies and harden attitudes of our opponents.   Sadly the UK will suffer from this sporadic approach, squandering a great opportunity to change the EU for the better.  Annoyingly we would certainly have German support for this endeavour if there was more coherency.  If Britain, Spain, Poland, the Netherlands and other economically liberal countries proposed forming an advance guard for market liberalisation (as the French and other illiberal members have done with the implementation of financial transaction Tax), we might put open markets at the centre of the EU and create some much needed growth.  To do this Cameron must find a way to support a liberalised approach to all markets including the labour market.  To do this he needs to sell the benefits of migration.

There is a strong argument to say that single market for labour is broken, this is chiefly because there are wide variations in welfare allowances across the EU.  Some countries have a very generous approach whilst others do not.  To have a single market for labour the EU must set common minimum standards of welfare allowances for migrants in their first few years of residency.  These European standards must be the same for all nations and should cover:

1. Access to free Health – if in work and allowable after 12 months of tax contribution (private insurance to cover the initial 12 months
2. Housing allowance - if in work and allowable after 36 months of tax contribution
3. Unemployment benefit – after earning 36 months of taxable income
4. Disability allowance - if in work and allowable after 60 months of tax contribution
5. Retired migrants should have to pay taxes locally and prove that they have private health insurance

Any migrant economically inactive (not paying tax) should also be required to return home or leave after 6 months of inactivity (not paying tax).  This liberalisation of the labour market would encourage hard working migrants to take the risk but force those looking for a “free lunch” to remain at home.

Interestingly, the Tory party have historically been proponents of the free movement of labour.   It was the Thatchers main flag waver Norman Tebbit, who once eulogised on the idea of getting on one’s bike to find work.  If David Cameron can conjure up spirit of Norman Tebbit, and apply it in a European setting he might even win the next election out right.
Tebbit takes a bow

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