Thursday, 24 May 2012

The Immigration Minister thinks a fall in UK exports is a policy success

GDP figures today were revised down to -0.3%. As I've said before, small quarterly movements of this sort are largely irrelevant to the broader picture.  What was initially a reasonably strong, albeit patchy, recovery stalled in the autumn of 2010; since then there has been essentially no growth at all.  The government can and should act now.

Amid the gloom, recent statistics have contained one piece of relatively good news; exports are doing well, especially to countries outside the EU. In particular, we continue to run a large surplus on trade in services. What sort of services do we export: financial services and insurance, business services, the creative industries - and education.  The Department for Business estimate that in 2008-09 the value of education and training exports was about £15 billion. This looks to be about the same at the time as our exports of food and drink, and maybe half of our exports of cars, which are now rising sharply.   

Crucially, it is essential to note that the vast majority of education exports never (physically) leave the country; as the BIS figures show, they come from the spending of foreign students in this country, both on tuition fees directly and on consuming goods and services.  Exports aren't all things we ship abroad; they occur when a foreign resident spends money on something produced here. When a Spanish student sips a coffee in Starbucks, we're exporting to  Spain; it's real money, generating growth and employment here and improving our balance of payments.  

So what are the future export prospects for this industry?  They should be excellent; if the UK has a comparative advantage in anything it ought to be education, given that we speak English, we have the only university sector in the world that compares to the US, and London's position as a global hub. So you'd think the government would welcome this, and do all it could to facilitate it. After all, export-led growth is exactly what we need; both in the short  term as we try to generate a sustainable recovery, and over the medium term as we try to rebalance the economy.

Of course, you'd be wrong. Today's immigration statistics showed a 21 percent fall, year on year, in student visas issued, thanks at least in part to new government restrictions.  Quarter on quarter, the fall was much larger, although for obvious reasons there are large seasonal fluctuations. That didn't stop Damien Green, the Minister for Immigration, saying:  

"Our tough new rules are now making a real difference with a record 62% drop in student visas in the first quarter of 2012"
Now it's absolutely clear that there has been some abuse of the student visa system, and the government has a perfect right, indeed an obligation, to take action to reduce that. But there is nothing at all to suggest that the level of abuse is on that scale.  Moreover, it is quite clear from the Minister's comments that the government's current priority is not to reduce abuse, but to reduce numbers - that is, to reduce exports and hence UK economic growth and output.  A year ago, this IPPR analysis argued: 
"The government cannot have its cake and eat it: it will simply not be possible to reach the reduced net migration target and retain the benefits that students bring to the institutions they attend and the wider economy... It is counter-productive for proposals which are driven in large part by the government’s other policy objectives, and which could cause real economic harm to the UK, to be presented purely as a response to this concern about abuse."
Unfortunately, this is precisely what has happened.  Back in August, the Chancellor argued:

"this crisis provides an opportunity to make some difficult trade-offs in favour of growth that might get parked in the "too difficult" box in calmer times."

Exactly. The government can continue to pursue economically counterproductive policies designed to reduce net migration of which its policies on student visas is one, although by no means the only one. Or George Osborne can put his policies where his mouth is, make a "difficult trade-off in favour of growth", and overrrule his Minister for Immigration.  

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