Migration and Public Services

It’s not often that Chris Dillow misses a key point in what is otherwise a typically sharp and incisive assessment of the ongoing bleating about migration placing ‘pressure’ on public services but, for once, there is something that can be added to his analysis that bears mentioning as, perhaps, an addendum to this point:

2. Who prepared this report?:

The eight regional co-ordination groups which prepared the report included local authority members, police, health and education officials.

Isn’t there a clue here? Bleating about how they are under pressure is a standard trick rent-seeking bureaucrats use (pdf) to squeeze more money out of government to increase their budgets and self-importance. Did you ever hear a bureaucrat say: “Actually, we’re coping fine. You should cut spending on us”? Even if migrants posed no problem at all for public services, you’d expect state officials to say otherwise.

To back up Chris’s point about bureaucrats, the actual origins of the ‘migrant pressure’ trope are to be found in comments (and a letter to then Home Secretary, John Reid) by Sir Sandy Bruce-Lockhart, the head of the Local Government Association, made over the course of the summer of 2006;

Government statistics underestimate the true number of immigrants, leading to under-funding and a burden on services, says the Local Government Association.

The inclusion of eight eastern European nations into the European Union has led to a surge in immigrants, it says.

LGA chairman Sir Sandy Bruce-Lockhart said government figures were no longer adequate for calculating an area’s financial needs.

As a result, the government was refusing to fund services, he said.

“It is totally unacceptable that the government has no proper information on [migrant] numbers,” he told BBC Radio 4’s Today programme.

“[The government] has not got information and therefore it is refusing to fund the services, although it has been advised by the Office of National Statistics that that would be a sensible thing.”

The significance of the timing of the LGA’s intervention is likely to be evident only to those who understand the vagaries of fiscal decision-making in government, but June/July is traditionally the period during which the interdepartmental horse-trading towards the Chancellor’s Autumn Statement, during which departmental funding allocations for the following year (or three years) are announced kicks off in earnest. This is true for central government, and equally true for local government, which sets its budgets and council tax rates according to the level of central government revenue support grant allocated to councils, the announcement of which is also generally made in the Autumn statement.

And this is the key to understanding both what the LGA were (and still are) up to – which is getting in their bid for extra money in nice and early and as publicly as possible by attempting to use the threat of of higher Council Tax rates and cuts in jobs and services as leverage and also why there are some temporary and intermittent pressures on local services in some area.

The nub of the problem is that 75% of local government funding actually comes from central government by way of either revenue support grants or from business rates, which are collected centrally and then redistributed back to councils, less a portion which is redirected by government into revenue support grants as a means of redistributing funds from wealthier areas to poorer areas.

The why of this redistribution is fairly straightforward to understand when it comes to local government funding – poorer areas are subject to a ‘double-whammy’ when it comes to their finances as they tend to generate lower revenues in taxes than more prosperous areas while incurring a higher level expenditure on poverty and low income-related social welfare services as the demand/need for such services is proportionately higher.

However this redistribution mechanism is also inefficient and slow to respond to rapid changes in population and population demographics. Much of the tax raised locally, in business rates, goes first to central government, before being apportioned back to councils based on a set of formulae which take into account things like population and related demographics, deprivation and economic activity, numbers and types of benefit claimants and whole host of other things derived from data collated by the National Statistical Office, all of which imposes a significant time lag on the redistribution of funding from central back to local level, not to mention that the extent to which the funding that is given actually reflects local needs/demand is heavily contingent on local conditions not having altered too much between the time the statistics are compiled and the time that funding allocation is made.

And, quite obviously, population migration, whether from abroad or internally, can throw these calculations right out of kilter and by some consideration distance in areas, in particular, where there may be a substantial amount of seasonal work requiring an additional, but transient, labour force – which is why some of the areas most affected by the inefficiency of this system tend to rural areas where there is a significant demand for seasonal agricultural labour.

As the evidence on the net impact of migrant labour has clearly show, economic migrants are net contributors to the UK economy, putting in more in taxes, etc, than they take out in terms of accessing services, In short, the money to pay for the services necessary to meet addition demand arising out of migration is there, the real problem is actually getting it to where its needed at the right time and not six to twelve months later when the influx of migrants turns up on the official statistics but may, in reality, have already moved on to another area, following the work.

This kind of time-lag in resource allocations is not confined simply to the effects of migration – any significant shift in demographics or even behaviour, in a local population can give rise to the same issues. For example, if we take the issue of patterns of drug use and abuse and specifically look at one illegal drug, heroin, then what we know is that the drug trade, being illegal and free from taxation and regulation, is about as pure a form of market capitalism as one can find anywhere on the planet and that, at a local level, the market for a particular drug is extremely price sensitive to the extent that one can very accurate predict trends in availability, drug-related acquisitive crime and the demand for drug rehabilitation services simply by watching the street price.

If the price of heroin rises then supply is limited and you get fewer users – although those priced out of the market may switch to alternative drugs – less acquisitive crime overall – althoug, again, this effect may be countered by a increase in crime amongst existing addicts in order to meet the rising cost of their addiction – and therefore a lower level of demand for heroin specific rehabilitation services.

On the other hand, a sudden fall in price means a glut in the market, more users, more crime and more need for rehab services.

So dealing with shifting patterns of supply and use of heroin should be fairly straightforward, except, of course, that the government doesn’t respond to things like the street price of drugs in allocating funds for policing and drug rehabilitation services, it only responds to what it sees in local crime statistics which can be anything up to a year behind the actual local trends. And this means that by the time that police, in particular, start to get the resources they need to tackle the problems arising from, say, a sudden fall in the street price of heroin, they’re left with scope only to mount a clean-up operation of a mess that’s already been created rather than the chance to move quickly to nip the emerging problem in the bud.

So long as migrant labour remains a net contributor to the UK economy – as Chris correctly points out – the optimum solution to the problem of short-term, transient, pressures on local services arising out of migration is not simply to throw more money at local councils willy nilly and its also certainly not placing artificial and arbitrary restrictions on immigration.

Its a question of finding ways to ensure that the additional tax revenue generated by migration can be more quickly and efficiently delivered to where its actually needed to meet the additional demand for services – which is the one facet of this issue that neither national or local politicians seem to be talking about in detail, but for the odd bit of bitching about the ‘inaccuracy’ of central government statistics from the LGA. Let’s not forget, here, that any government ‘assessment’ of demand in the labour market for migrant labour is also inevitably going to be based on information from employers that will be out of date be several months by the time that its sits down to set its quotas, so if cannot accurately assess demand patterns in public services based on its existing data, what chance is there of it getting the numbers right when trying to create an artificially regulated labour market?

Oh, and lets also not forget, as well, that the government – of whichever party – only has the scope to impose limits on migration from outside the European Union, which means that, in all likelihood, such limits will have absolutely zero impact on overall levels on migration as if the government’s quota system results in a shortfall in the supply of labour, business will simply move to make up the numbers by employing more economic migrants from Europe, on which the government cannot impose limits or quotas.

In other words, the idea that either of the main parties actually has a policy that will limit or reduce the level of economic migration into the UK is a complete and utter nonsense and no more than a smoke and mirrors exercise.

  • Local income tax, baby! The Liberal Borg says; you will be assimilated.

    BTW, Sandy Bruce-Lockhart is a Tory’s Tory, and therefore was also talking his own book.

  • *Cough*

    Local Income Tax, or at least in the form envisaged by the LDs at the last GE suffers from the same basic problems as the current system in that it requires centralised redistribution mechanism to offset disparities in revenue generation and demand for social welfare between areas.

    In fact, its actually worse because not only does the statistical data on which the redistribution mechanism is based run behind but the tax system itself operates 12 months in arrears, which is the why of all the problems in the tax credits system.

  • Braxton hicks

    good post.
    One quibble though, drug markets as you say are highly price sensitive , however the links between availability and price are not straightforward as higher up the chain retailers are willing to take a temporary cut in profits (they don’t pass costs on) and at the lower level dealers response is overwhelmingly to cut purity.
    The upshot being that they can easily deal with supply side interventions.
    Heroin is at an historical low price wise but its use is declining (drug fashions do play a part.)

  • I wonder if we could negotiate some sort of EU dowry to come with people arriving from poorer parts of the EU?
    Britain has derived little direct benefit from the EU so far while nations like Spain and Eire are transformed by EU cash and the knock on prosperity from foreign investment.
    Now our cash is building roads in Poland while we wrestle with providing homes,jobs,education,etc.,for many of their young people.
    Also…where was the Ministry of Truth when we were being bounced into EU enlargement by Downing Street and the BBC?It was always going to involve mass inward migration and you knew that very well.

  • Zorro

    “If the price of heroin rises then supply is limited and you get fewer users – although those priced out of the market may switch to alternative drugs – less acquisitive crime overall – althoug, again, this effect may be countered by a increase in crime amongst existing addicts in order to meet the rising cost of their addiction – and therefore a lower level of demand for heroin specific rehabilitation services.”

    I think for all your verbage this shows a distinct lack of understanding of economics theory or drug culture. Heroin usage is fairly inelastic. When supply is limited, the price rises (the other way round to what you suggested) – this does not reduce usage substantially, it just means the users have to mug more old ladies to get the money for their fix.

    “On the other hand, a sudden fall in price means a glut in the market, more users, more crime and more need for rehab services.”

    As another comment points out, Heroin use is currently going down even though the price is currently incredibly low due to the large amount of opium being produced in Afghanistan currently.

  • Braxton hicks

    ah,I missed that one. Zorro is right about the last point.

    It’s also a valid criticism of Govt drug strategy that it trumpets drug related crime as having dropped as a measure of sucess but neglects to mention that this could be easily accounted for by the drop in drug prices.

  • *Cough*

    Elasticity in heroin usage is a function of:

    a) means of usage – there is considerably less elasticity amongst intravenous users than smokers, and

    b) availability of alternatives (access to methadone and other forms of rehab for IV users, alternative drugs for smokers)

    It is less elastic than other drugs but not entirely inelastic and the nature of the drug itself often dictates the kinds of acquisitive crimes that occur as a consequence – shoplifting being the major one, with burglary and street robbery much less common.

    Fashion is certainly a factor as is the relative availability of other drugs – the main reason that heroin use is in decline at present despite the glut of Afghani product is because there’s also a glut in the cocaine market, for which the street price has halved in some areas in recent years.

    The current usage pattern is also variable according to location, in fact the evidence seems to be that the current glut in heroin production is altering the dynamics of the market by making it a poverty drug – less overall use but more by way of intractable problems in the poorest areas.