Supplementary written evidence submitted
by the National Institute of Economic and Social Research
ENERGY AND
LOW CARBON
POLICIES IN
THE BUDGET
There appears to be some risk that the set of policies
towards the energy and low carbon sectors set out in the Budget
and the Plan for Growth pull in different directions. The Plan
for Growth states that "the Government is committed to using
market-based approaches to simplify this policy landscape",
which is commendable. But the specific measures appear in some
areas both to move away from market-based mechanisms, and to make
the policy landscape more complicated:
- the impact of the "fair fuel stabiliser"
will be to increase UK oil consumption, while certainly not increasing,
and possibly reducing, domestic oil production. This will reduce
energy security and delay the transition to a low carbon economy;
- moreover, the reduction in fuel duty - and more
seriously the signal it sends both to the car industry and car
purchasers about the long term path of fuel prices - are likely
to reduce incentives to invest in low carbon/low emission vehicles.
Yet at the same time, the government is "funding £5000
incentives to reduce the up-front costs of ultra-low emission
vehicles and supporting roll-out of charging infrastructure, making
the UK a global front runner in the market for ultra-low emission
cars"; and
- the carbon price floor (to the extent it is binding)
will increase costs for electricity consumers, both businesses
and households. But at the same time, the Government is introducing
a new framework to cap the impact of levy-funded support on energy
bills.
Of course, what is set out in the Budget and the
Plan for Growth is necessarily very compressed; these are complex
issues and much will depend on the detail of implementation. But
taken together, this appears to represent some shift towards greater
government "management" of both fuel and energy prices,
with both floors and caps, explicit and implicit. Economists would
generally argue that the optimal way to move towards lower carbon
emissions would be through a "carbon price" of some
sort, achieved either through taxation or through the market-based
allocation of permits; although in practice there are good reasons
a pure system of this type is unlikely, the planned framework
appears to be quite a long way from this optimum.
The impact of the limits to skilled migration
(Tiers 1 and 2) on output
In my testimony to the Committee, I said
"The extra employment regulation that the Government
has imposed on employers wishing to employ migrant workers—the
cap on skilled migration—will, using the Government's own
methodology, reduce UK output by between £2 and 4 billion
by the end of the Parliament."
This was based on the Home Office (HO) Impact Assessment
published March 16;[9]
and on the report of the Migration Advisory Committee (MAC) on
limits on Tiers 1 and 2 published in November 2010.[10]
The HO paper shows (tables 2, 3, 5 and 6) that the
proposed limits are expected to reduce net migration by about
11,000 a year, a total reduction of a little over 50,000 over
the five year projection period; so by the end of the period there
will be 50,000 or so fewer skilled migrants (and their dependents)
in the UK as a result of the policy. It also states that Tier
1 and 2 migrants and their dependents are on average about twice
as productive as current UK residents.
The MAC report shows (Table 7.1) that the impact
of a reduction in net migration (through Tiers 1 and 2) of 10,000
on GDP will be about £560 million. Multiplying this by 5
gives about 2.8 billion.
The MAC report also reports Treasury analysis (Box
7.3) that suggests that a reduction in net migration (via Tier
1 and 2) of 50,000 would reduce GDP by about 0.2% (0.1% as the
population effect, and 0.09% as the per capital GDP effect). The
current OBR forecast for nominal GDP in 2015-16 is £1915
billion. So the impact would be about 3.7 billion or so (2015
prices).
So my statement to the Committee was based, as I
said, on applying simple arithmetic to the official Government
publications on this topic.
I would also note that all three parties quoted above—HO,
HMT, and the MAC—use essentially the same methodologies
and arrive at essentially the same conclusion; any differences
reflect marginally different assumptions and are not very material.
I would regard the analysis of all three on this topic as clear
and consistent.
I would also note that all three correctly state
that the impact in practice could be higher or lower. Lower, if
those migrants excluded have lower productivity than the average
Tier 1 or 2 migrant; higher, if, as some evidence suggests, skilled
migrants have positive (short or long run) spillover effects on
the productivity of those already resident. However, given the
lack of strong quantitative evidence, they (rightly in my view)
do not seek to quantify these further impacts in either direction.
Jonathan Portes, Director
March 2011
9 http://www.ukba.homeoffice.gov.uk/sitecontent/documents/policyandlaw/ia/migration-perm-limit-pbs/ia-pbs-t1-t2.pdf?view=Binary Back
10
http://www.ukba.homeoffice.gov.uk/sitecontent/documents/aboutus/workingwithus/mac/mac-limits-t1-t2/report.pdf?view=Binary Back
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