Alison McGovern: On immigration and trade – why May got it so wrong yesterday

Laura Kuennsberg of the BBC asked Theresa May the correct question yesterday. Either, she said, the prime minister has changed her mind about our current trading arrangements with Europe having greater merit than the Brexit alternative, as she had argued in the referendum, or she had just announced that she is relaxed about making our country very much poorer.

Unfortunately the latter is the case. May tried to argue that the financial indicators were better that expected. That things weren’t so bad. But that’s a pretty lame argument. Sterling has lost around 20 per cent of its value. Public finances are £60bn down and that’s before the Office for Budget Responsibility modelled the consequences of this new trade and immigration policy. To say we haven’t lost out because of Brexit is complete nonsense.

So for the record, here is why we must provide real opposition to what May announced yesterday. Here is why the PM is wrong.

The Tories are wrong about trade

To listen to Liam Fox and his band of Brexit brothers, you would think multinational companies such as Airbus, General Motors, Unilever and many others were a figment of some dreaming capitalist’s imagination. Fox and co describe an obvious incentive for European countries to participate in “trade” with us because of mutual incentive. “Of course they will want to sell us their wine!” Tories roar. “Our cars are safe!”

But this is just not how goods – especially high value-added products at which Britain specialises – are made. To take a very obvious example, Airbus in Britain makes highly technically parts for planes. They ship plane wings and sections across the border of Europe daily so they can be united with other plane parts, made into planes, and sold around the world. This is what is meant by multinational companies with global value chains. In this context it is not global competition that we need but global co-operation. We need co-operation to allow goods in the value chain quickly across the border. As little red tape as possible.

And that’s why we have the customs union. To stop red tape getting in the way of business being done.

Imagine having to explain to Tories that red tape is bad for business. Imagine that.

You might think that we could negotiate sector by sector deals on the customs union. But again, May’s hesitancy to embrace this comprehensive customs arrangement implies cumbersome negotiation. And what about new or emerging sectors. Should business focus on growth, or lobbying government to arrange market access? The answer is obvious.

Cutting immigration won’t raise wages

It sounds good doesn’t it. Control the labour supply and raise wages. Stop the Poles or the Romanian builders, or the Portuguese nurses, and employers will just be forced to raise wages. Supply and demand, that’s how economics works, right? Wrong.

Because in working out what happens in an economy, you can’t stop at the short term. You can’t just think about what the initial impact will be, you have to think about the next step. When your restrict labour, what happens? Well, demand falls, for one thing, as there are fewer people to buy goods and services. Taxes to the government fall as there are fewer people to pay them, meaning less money for public services. And of course, higher wages have to be paid for somehow, so that means higher prices, or less money in dividends for pension funds or other savers.

What’s more, cutting immigration is not even the most direct or effective way to raise wages. We can raise low wages by raising the minimum wage. Fund the social care sector properly and there is no need to stop immigration on a fool’s errand to raise low wages. We could do it tomorrow. The truth is that the best protection against low wages is the law and a union membership card. The national minimum wage, and collective bargaining are the policies that actually can raise pay. And no amount of amateur supply and demand cod-economics about immigration changes that.

No trade deal is as good as the trading arrangements we have now

The prime minister says she would rather have “no deal than a bad deal”. Well, that’s all very well as a sound bite. Right up to the point where business actually has to make this work. It is not the prime minister who will have to make goods to comply with standards about which in the future they have absolutely no influence. It is not the prime minister who will be a rule-taker rather than a rule-maker within the European market that represents nearly half all our trade. She will be long gone.

The Tories have decided that we will shred all of our current trading arrangements, and for what? Because UKIP are dictating the terms of this debate. Immigration is far from cost free. New Britons bring so much to our country, but there is a duty on all of us to understand each other and take care of each other and not exist in cultural silos. But that is not an insurmountable hurdle. It is the integration that Britain is a model of. What is deeply problematic is the strident, unreasonable, blame that UKIP and May put on those who come here to work. Immigration is not to blame for our country’s problems; it’s just a consequence of economic growth.

In the end May has approached this question from completely the wrong position. But it is not entirely her fault. When David Cameron said that the Tories could reduce immigration just as a matter of policy he crossed a line. Governments are generally bad at deciding how many people business will need. Visas and work permits, in the end, are red tape. We should never have accepted that principle that politicians alone can decide what the working population should be. That is – like employment and wages – never a simple matter of politicians calling the shots, but working within the structure of our economy to get it right for growth and prosperity. The prime minister has made the wrong choice. And we will all bear the consequences.