British Home Secretary Suella Braverman recently expressed her unease about “open borders” with India, casting a shadow over the two countries’ talks for a free trade agreement (FTA). Some experts say the UK has more jobs than job-seekers and skilled immigrants could fix its productivity crisis. OK, yes and no. The abundance of jobs has its roots in the quantitative easing (QE) program, launched by the Bank of England in 2008 after the global financial crisis, which never really reversed. But things may change soon. In the meantime, reports suggest that an FTA, if it happens soon, would be doomed to other thorny issues, including migration and tariffs.
Why is the UK raising the issue of “open borders”?
In an interview last week, Braverman of Indian origin talked about the problem of overcrowding of Indians in Britain. “Indian expatriates are the largest group of people who spend the most time,” he said, adding, “We also entered into an agreement with the Indian government last year to encourage and facilitate better cooperation in this regard. Not necessarily a great job.” Referring to the Migration and Mobility Partnership between the two countries last year. The Indian High Commission, however, said that it has acted on all cases referred to it by UK authorities.
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Indians in the UK are given more sponsored skilled worker visas than other nationalities, with IT and healthcare accounting for the lion’s share. Also, every year thousands of Indian students enroll to study in the UK. According to a report by PTI, there were 100,000 Indians in British colleges and universities in 2020. The Migration and Mobility Scheme allows 3,000 Indians between the ages of 18 and 30 to work in the UK for two years.
Can immigrants help revive the UK economy?
Some experts say the UK needs to import skilled professionals from India and bridge the supply deficit to drive down prices and increase productivity. Britain’s historically low unemployment rate – 3.5% in August, the lowest since 1974 – is highlighted to support this proposal. However, the reality is more complex. First, once the British central bank reverses its quantitative easing (QE) programme, which has been in place for more than a decade now, the job market is likely to cool as well. Second, employment growth in the UK – and some other OECD countries as well – is driven by low productivity and low-wage jobs, says the 2019 OECD report. Former British Prime Minister Boris Johnson acknowledged as much in 2021. Therefore, opportunities for skilled professionals may be relatively more limited.
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How BoE Supports Growth, Creates Jobs
The 2008 crisis marked the start of perhaps the worst recession ever in Britain, and its economy did not recover as expected. The Bank of England reduced interest rates and launched a stimulating quantitative easing (QE) program in early 2009, buying government bonds and mortgage-backed securities to boost systemic liquidity. BoE remained with QE for over a decade till December 2021; In fact, unlike in the US, the program was never actually reversed. In fact, after the onset of the COVID pandemic, there was another round of QE by the BoE with the US Federal Reserve.
QE initially supported a growth revival, and inflation remained low. Jobs appear to have been created in abundance in this decade, and the unemployment rate in the UK has remained well below historical standards. Unemployment started declining from 2012 onwards. The economic crisis would undoubtedly have been much deeper without Qi. As the BoE shrinks its balance sheet to fight inflation, some bounce in the job market is likely to subside.
QE didn’t really drive growth because of structural weaknesses in the UK economy. Low productivity has plagued the UK over the past decade, leading some experts to argue that the inclusion of skilled migrants could spur economic growth, reduce wages and curb inflation. It can do so to an extent, but once the UK economy is freed from easy liquidity, the jobs market is likely to shrink as well.
What are the other thorny issues around FTAs?
The migration row has left behind other barriers for FTAs, including tariffs and data localization. While the UK is negotiating a steep cut in customs duty on imported vehicles, the Indian auto industry has pushed back. India will negotiate for greater access to its merchandise industry, including textiles. Meanwhile, some reports in the British media suggesting that India’s data localization rules prohibit foreign companies from moving data out of India are also a hindrance. This could then be a tapered FTA that gets included in a few weeks’ time, if at all.
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