Robert Peston

How will Boris build his ‘high-wage, high-skill’ Britain?

How will Boris build his 'high-wage, high-skill' Britain?
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There are a few problems with Boris Johnson's big idea, namely that the sharp fall in the supply of unskilled and semi-skilled workers in the UK – triggered by Brexit, reinforced by Covid – will automatically lead businesses to invest, such that the UK's long history of low productivity and low incomes will end on his watch.

His vision, the philosophical heart of his speech to Tory conference this morning, is of a gleaming new 'high wage, high skill, high productivity economy' and that 'we are not going back to the same old broken model with low wages, low growth, low skills and low productivity, all of it enabled and assisted by uncontrolled immigration'.

It is important to note his stress on controlling immigration. This is obviously politics he likes, because so much of his case for taking the UK out of the EU was about regaining the power to decide who comes to live and work in the UK. But he is also persuaded it is good economics; that as if by magic, the UK will become significantly less economically dependent on low-skilled employment.

This is Johnson as Thatcher, as he made explicit to me yesterday when saying 'there is no alternative'.

Whereas her obsession was empowering the private sector, and replacing state ownership and intervention with the rule of the markets, his is with changing the relative price of labour and capital (though I don't expect him to use this language), such that it becomes more rational and commercial for businesses to substitute kit and machinery for cheap low-skilled people.

Who can recoil at Johnson's UK where all the tedious menial jobs are carried out by robots and artificial intelligence, and everyone does jobs that robots can't do – writing the computer programmes, fixing wonky robots or doing the few tasks that AI can't take over (stand up comedy, and psychotherapy, for example)? So what could go wrong?

Well the first thing to note is that the UK's lamentable history of low productivity massively predates the great waves of immigration from lower wage eastern Europe that began two decades ago. Cheap labour from abroad is by no means the whole story of relatively low wages and living standards. So ending cheap labour cannot be in and of itself the path to a Britain of fulfilling well paid employment.

Second, there are certain jobs – waiting on tables, looking after frail people in care homes, collecting the bins, among others – where fancy kit and new technology can only do so much.

Third, it will take years for UK businesses to re-tool to the necessary extent, and for the government's admittedly ambitious training programmes to have a significant impact on the skills of the indigenous workforce.

In the meantime, and as I also pointed out to the PM, the relatively sudden collapse in the supply of eastern Europeans to drive fuel trucks, minicabs and delivery vans, pick mushrooms, make cappuccinos, serve in restaurants, plaster walls and lay bricks is forcing up the wages of low skilled and semi-skilled people. Which is great for them. Who could begrudge it?

But they are doing the same jobs they've always done for more money, though with no corresponding increase in their output, and their productivity is falling.

To repeat and emphasise this point, right now pulling the drawbridge up on unskilled migrants is achieving precisely the opposite of what Johnson wants: it is reducing productivity. These pay rises will have one of two consequences: they will reduce the profits of employers, and even conceivably make some of those businesses unviable, or they will be passed on in the form of high prices to consumers.

In other words, these pay rises are largely inflationary – which is unhelpful when the post-Covid recovery of the global economy is in and of itself leading to surges in the price of gas, oil and food.

The point is that inflationary conditions that are reinforced by wage rises that are not accompanied by any increase in the economy's productive capacity will inevitably lead the Bank of England to raise interest rates.

And for what its worth, the working assumption in the Treasury is that interest rates will rise next year, which will simultaneously increase the cost for the government of servicing its Covid-magnified debts, and push up mortgage rates.

None of which would be ideal when the living standards of millions are being squeezed by the surge in the cost of the basics we all need, and when the pressure for more spending on public services will only intensify.

Or to put it another way, Johnson has a compelling ambition to make the UK more Swedish or German in its efficiency and rewards for citizens – hooray for that. But he lacks a sufficiently detailed plan to take us there, other than to assume businesses will invest all that's required.

He also seems blithely unbothered by the potential for strife and hardship that may flow for months and even years from the labour shortages that he wants and encouraged.

Written byRobert Peston

Robert Peston is Political Editor of ITV News and host of the weekly political discussion show Peston. His articles originally appeared on his ITV News blog.

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