Viva España: Labour’s Economic Plan, Productivity and Immigration
“Productivity isn’t everything, but in the long run, it is almost everything.”
Paul Krugman, Nobel Laureate in Economics
We’ve now had enough time to assess Labour’s economic strategy.
Labour argues that Britain’s economic struggles stem from low growth, driven by low investment, weak productivity, and stagnant wages. Businesses, deterred by high interest rates and political instability post-Brexit, have hesitated to invest. Instead, they have relied on cheap labour, particularly immigrant workers earning below the National Minimum Wage, to stay competitive.
Increasing business investment and boosting productivity are essential for both national prosperity and Labour’s chances of re-election.
How Can Someone Earn Below the Minimum Wage?
There are two primary ways this happens:
- Legal Loopholes for Immigrant Workers: The Conservative government changed the law post-Brexit, allowing employers to hire immigrant workers for less than the National Minimum Wage. This was illegal under EU regulations but has since led to a surge in low-paid immigration.
- The Gig Economy & Fake Self-Employment: Many jobs have been casualized, turning workers into bogus self-employed contractors. While Uber drivers and delivery workers are the most visible, this issue extends to freelancers and consultants across industries. They may earn above the minimum wage per hour, but unpaid downtime can drag their overall income below legal thresholds.
Labour’s Three-Part Plan to Fix the Economy
Labour’s strategy to address these issues includes:
1. Reducing the Supply of Cheap Labour
Labour aims to disincentivize reliance on low-wage workers through higher National Insurance contributions, enhanced workers’ rights, and significant public sector pay rises. Additionally, Labour intends to curtail low-paid immigration, a move that may surprise middle-class voters who depend on affordable domestic help.
This approach will likely cause a short-term rise in unemployment. However, converting gig economy workers into employees with rights will also formally recognize that many self-employed people don’t work full-time.
2. Stimulating Business Investment
Labour plans to encourage business investment by fostering political stability and advocating for lower interest rates. Beyond this, the party is injecting significant funds into infrastructure and green transformation, opening opportunities for private-sector investment alongside government spending. Deregulating house building and advancing projects like the third runway at Heathrow further create an attractive investment environment.
3. Driving Productivity Growth Through AI
Labour’s most ambitious move is positioning Britain as an AI powerhouse. The UK was the only European nation to align with the US at the recent AI summit. Labour is deliberately easing AI regulations, even at the cost of upsetting creative industries. This tech-driven strategy aims to drive long-term productivity gains.
While these policies largely seem beneficial, the impact on creative industries, a significant source of foreign income, raises concerns.
Spain’s Opposite Approach: A Booming Economy
Interestingly, Spain is pursuing a vastly different economic strategy—with remarkable success.
Spain’s socialist government actively encourages high immigration, attracting both well-paid professionals seeking a high quality of life and low-paid workers fueling the booming tourism and agricultural sectors.
Post-COVID, Spain’s tourism sector has surged so much that cities like Barcelona are struggling to cope. Despite this, Spain’s economy is growing at 3.5% per year—three times the UK’s rate. The Spanish government attributes this growth largely to immigration, a widely accepted economic principle, even if politically unpopular.
Like most wealthy nations, Spain faces a declining birth rate. Without immigration, its population—and thus its labor market—would shrink. Economic growth becomes difficult without a steady workforce influx.
The Challenges of Spain’s Growth Model
Despite Spain’s success, there are significant risks to its strategy:
- Climate Change Threats: Spain’s tourism and agriculture industries are concentrated in the south, where temperatures are rising fastest. With frequent 40°C+ heatwaves, these sectors face long-term viability concerns.
- Sustainable Growth Questions: Historically, economic growth required a growing workforce and increased raw material consumption. However, the UK has decoupled GDP growth from raw material use over the last 25 years. My generation consumes half the raw materials my father’s did, and my children will consume even less. Could we also decouple GDP growth from population growth?
A Future Without Mass Immigration?
If the UK can sustain economic growth without large-scale immigration, AI and automation will be the key.
Industries like financial services (despite past scandals) offer a model for economic expansion that doesn’t require extensive labor or material consumption. AI could also drive growth in creative industries, education, and professional services—sectors capable of increasing GDP without relying on more workers.
Labour hasn’t explicitly framed its strategy this way, but it seems clear that AI and automation are central to their vision for the economy.
The Social Fallout: A Divided Workforce
While AI and automation can drive prosperity, they also create social risks. Many jobs—such as care work—require human interaction and cannot be easily automated. Consumers often prefer craft goods and personalized services over mass production.
If immigrants aren’t filling these roles, British workers will have to.
This future presents great opportunities for highly skilled professionals—but far fewer for those without advanced education or technical skills. They will have to do the low skilled jobs that at the moment are filled by immigrants.
The declining status of manual workers in the US and UK has already fueled political unrest. AI and automation could accelerate this trend, deepening social divides and fueling authoritarian political movements.
Without significant Government intervention inequality will increase hugely.
The Political Consequences Could Be Explosive
Labour’s economic plan is bold and potentially transformative, but its impact on low-skilled workers could have unintended political consequences. As technology reshapes the workforce, ensuring economic security for all must remain a priority—otherwise, the political backlash could be severe.
Isn’t Spain uniquely privileged where immigration is concerned, in that there are a bunch of countries that are considerably poorer than Spain, but which already speak the language and are also culturally and religiously similar?
I’m not sure that is that different to the UK? We have lots of countries around the world with the same language, many of which have similarities?
The UK is in a similar position, except that the countries that are both poor and natively English-speaking are mostly much smaller in population than the UK — the main example that comes to mind for me are the Caribbean island nations.
True, but I remember people telling me that they didn’t mind immigrants as long as they were culturally similar, integrated and worked hard. And when the Polish arrived who were all of those things the same people were furious. Some people just hate foreigners but want to feel virtuous in the hatred.