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June 20, 2023 - 7:00am
Mortgage rates are rising ever higher. A two-year fixed rate mortgage has now risen above 6%, according to data from Moneyfacts. Rates are rising in anticipation of the Bank of England further tightening monetary policy this week. The Bank’s move is in response to inflation that is proving much more stubborn than many hoped.
This stubbornness can be seen across the board. In April, inflation in Britain was rising at an annual rate of 8.7%. Yet just across the sea in Ireland, inflation is rising at 7.2% – a full 1.5% less. Core inflation in Britain – that is, inflation with volatile components like food and energy removed – accelerated in April even as the headline number came down. All of this points to inflation sticking around.
The costs of this inflation are now becoming clear. For example, the Resolution Foundation has claimed that the average cost of a mortgage is about to go up £2,900 for 800,000 people who will have to remortgage next year. These costs accrue on top of already high energy bills. Everywhere they turn, people are finding costs rising. For example, even if a budget-conscious household decides to cancel their holiday abroad and instead go on a getaway inside Britain, they will find prices have risen 20%.
The present moment is clearly highlighting the difficult trade-offs that central banks must navigate. Past a certain point, Britain is arguably better off experiencing a recession that will bring down inflation and interest rates than it is weathering the current cost increases that households are experiencing. Yes, in a recession some people will lose their jobs and some businesses will suffer, but perhaps this is better overall than the continuing budget squeeze being experienced.
A recession would almost certainly do the economy some good. Consider the employment and growth numbers. Economists would usually expect that if unemployment is very low then economic growth should be very high. The rationale is straightforward: if there are more people working, then the economy should grow faster. Today we see record low unemployment rates and almost no economic growth.
This suggests that the economy is sick — very sick. If everyone who wants a job has one, then why is the economy not growing? The purely economic answer is that productivity has fallen off a cliff. Lots of people may be employed, but the work they are doing seems sluggish, at least according to ONS data. In the first quarter of 2023, labour productivity fell 0.6% — the weakest annual growth, excluding during the pandemic, since 2013.
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SubscribeRecession won’t fix a problem caused by excessive labour supply, high taxes, and high energy costs. Indeed, it will make some of these issues infinitely worse. Fundamentally, the country needs a change of policy direction every bit as much as it did in the 1970s but without the cushion of cheap North Sea oil. That won’t happen until the existing policies have been shown to be utterly broken, and we’re a long way from that yet.
The excess labour supply will continue unabated, recession or not because it is driven by migration from 3rd world countries and actively encouraged by a diverse set of special interests. The UK and its welfare system will always prove attractive. A ready supply of poorly qualified labour will sustain low productivity businesses, and do nothing to encourage high productivity businesses, skewing investment in the economy to low productivity industries.
High taxes are needed to support high public spending and the UK is now diverting a very large proportion of its income into the consumption of public services of questionable value. This is squeezing productive investment. Ordinarily, rising gilts and a falling tax take from a recession would correct this, but since 2008 the government and public has got used to a combination of mega deficits and mega borrowing – even money printing – to avoid the difficult business of cutting spending. Effectively, only the private sector would face recession, further increasing the relative size of the state as it did last time.
High energy costs are an obvious impediment to value added high productivity activity. Energy directly replaces labour. Energy is necessary for the most innovative processes, from material transformation to data management. If energy costs are high, labour will not be replaced and innovative processes will be done elsewhere whenever practicable. High energy costs are a policy choice as we deliberately refuse to develop lower cost generation. Recession will not change energy policy, which has become an act of belief.
Our main growth industry has been a ponzi scheme. Importing ever larger numbers of consumers to keep GDP growing to sustain the borrowing needed to fund the growth in consumption generated by the rising population. We are so attached to this – perhaps because there isn’t an alternative for us now – that serious voices are mooting even more borrowing to subsidise mortgages to keep the ponzi scheme going. It can only mean yet more money printing and yet more inflation down the road.
Inflation will slowly gnaw at living standards, reducing them to something closer to what the actual productivity of the economy can support. Perhaps that is the plan? After all, by law we are committed to reduce our food, transport, energy and goods consumption, whether we want to or not…
Excellent summary
Of course the economy is sick! As the State grows in both size and unproducitivity, it chooses to look after itself – and to Hell with those greedy nasty private sector wealth creators! Cripplingly high taxes for the public services of a Banana Republic. But they dont care. They have gold plated pensions and do not need to leave home for the office. Magic money tree can always help oil the wheels and keep the Blob/Technocracy well fed and protected. And when the oiky natives squeal? Bail em out!!! Energy mortgages rent..anything to keep them passive in their misery. This is a failed state. Failed.
Agreed
Of course the economy is sick! As the State grows in both size and unproducitivity, it chooses to look after itself – and to Hell with those greedy nasty private sector wealth creators! Cripplingly high taxes for the public services of a Banana Republic. But they dont care. They have gold plated pensions and do not need to leave home for the office. Magic money tree can always help oil the wheels and keep the Blob/Technocracy well fed and protected. And when the oiky natives squeal? Bail em out!!! Energy mortgages rent..anything to keep them passive in their misery. This is a failed state. Failed.
Agreed
Very good comment. I always found UK policies to be a slightly schizophrenic / mid-Atlantic mix of welfare state and hard core capitalism. No skills and no job we look after you, if you are rich you can milk your assets with minimum tax burden. The worst thing is to be highly skilled and productive then we take 45-50% of your income directly and another 20-25% through other tax (VAT, Council tax, fuel, alcohol, stamp duties…). Hence we see skilled people leaving, or taking early retirement, while unskilled are desperate to come in. Somehow we are confused why is productivity falling. It is obvious and logical consequence of our policies. We keep reaching for a short term solutions, hit the middle class, to survive until next election, but if you keep doing it over couple of decades you find yourself in a deep hole, as we are now.
Exactly, and now the music has stopped and there are no chairs.
Exactly, and now the music has stopped and there are no chairs.
GDP per capita reveals the truth of what you say. Inflation is always preferable to the alternatuves but it grinds (ti get back to 45% debt:gdp (gordon brown levels) we can have 3 years of 20% real inflation or – more likely – 10 years of 6% with bumps in the road. Financal repression will be the result, with Statism driving hypothicated credit. A twist on the 1940s. Of course by 1970s this left us invested in concorde, British Coal and British Leyland. What could possibly go wrong?
Alot of nonsense here, but the Group-think nonsense so understandable.
If last year British companies can take £96bn in dividends and £56bn in share buy backs, boosting CEO pay which runs well above inflation, the issue is profit-push inflation and fundamental self-justifying ‘greed’ locked into our system. Finding others to blame classic distraction strategy and pretty shameful.
Now were that money, removed from Companies and given to already largely rich people, invested in new technologies, infrastructure and training etc, we might kickstart British productivity and reduce the need for as much migration. But deeply bedded vested interests act repeatedly against this whilst chucking out the ‘bone’ of someone else to blame.
The logical error people like you can’t seem to escape is that you think that if you remove the profit incentive from companies, entreprenuers and investers, they will keep on doing what they did before. They don’t; they move the business overseas, shut it down or cut produdution. Obviously they are not going to bother investing just so the government can pinch even more of their earnings.
Anyone with any knowledge of government attempts to pick business winners and make prudent and wise investment, knows that it a tale of abject failure. Our government can’t even provide basic services or complete an infrastructure project without its budget spiralling and finishing years after the due date. You want to give these incompetents hundreds of billions to fritter away?
Businesses know best how to invest their profits but government failure to control mass immigration and 12 years of ultra loose monetary policy has created perverse incentives for chronic short-termism.
The availability of cheap money and cheap foreign has allowed otherwise unsustainable businesses to continue to trade, wasting resourses on goods and services with insufficient demand.
Cheap labour disincentives investment in new technology. A company that could invest in a new machinery that would increase worker productivity substantially will instead just employ more cheap labour for short term gains. Instead of training British workers the business saves money by importing them ready trained from abroad.
Government itself has over 10,000,000, or a third of the workforce working for the state, It is hardly any wonder that the private sector finds it difficult to get workers.
The asset bubbles need to be burst, the zombie businesses closed, the cheap money and cheap foreign labour tap turned off, the state substantially reduced and the 5 million langushing on benefits made to work.
No I didn’t say we remove profit and the incentives that it helps drive. It’s a crucial ‘motor’. Instead we rebalance it so it better drives medium and longer term investment and doesn’t allow such a role for short term greed.. Why do so many companies pay the dividends to such a degree, incl the Buy Backs, rather than re-invest in the Business – because they can. That can be tweaked.
The importation of cheap labour wouldn’t happen to same degree if we invested in different ways to raise productivity. This is about how we’ve set up the way incentives work.
I think our difference is you’ll burn the house down and hope it rebuilds itself better, whereas the I see the damage and danger from that arising requiring we adjust our current model to drive better medium term investment.
Slightly separate – the biggest benefits are state pensions, triple locked, and ‘in work’ benefits to keep people out of poverty and essentially a subsidy to employers. The proportion of benefits for people not working are dwarfed by these two elements. But your argument underpins my point about distraction strategy – let’s blame someone else rather than see the greed and manipulation that’s on-going.
“The importation of cheap labour wouldn’t happen to same degree if we invested in different ways to raise productivity. This is about how we’ve set up the way incentives work”.
It was New Labour that facilitated this, a fact that you regularly choose to ignore.
Groan. This is getting a bit boring AR. Have you anything to say about the opportunities to change things the last 13yrs?
I mean a previous Govt allowed kids to sweep chimneys, but a subsequent Govt changed the law. It is what being in power is about, taking control and all that.
“Groan”. Listen to yourself you’re posting the same fallacious nonsense as John Murray. You like to project yourself as an independent, objective commentator when you are anything but.
Here’s a prediction JW, Labour will do absolutely… nothing to change it.
Since you enjoy whataboutery so much, what are your thoughts about the Thatcher government selling off coucil houses. A great decision in retrospect?
Do better.
“Groan”. Listen to yourself you’re posting the same fallacious nonsense as John Murray. You like to project yourself as an independent, objective commentator when you are anything but.
Here’s a prediction JW, Labour will do absolutely… nothing to change it.
Since you enjoy whataboutery so much, what are your thoughts about the Thatcher government selling off coucil houses. A great decision in retrospect?
Do better.
Groan. This is getting a bit boring AR. Have you anything to say about the opportunities to change things the last 13yrs?
I mean a previous Govt allowed kids to sweep chimneys, but a subsequent Govt changed the law. It is what being in power is about, taking control and all that.
“The importation of cheap labour wouldn’t happen to same degree if we invested in different ways to raise productivity. This is about how we’ve set up the way incentives work”.
It was New Labour that facilitated this, a fact that you regularly choose to ignore.
No I didn’t say we remove profit and the incentives that it helps drive. It’s a crucial ‘motor’. Instead we rebalance it so it better drives medium and longer term investment and doesn’t allow such a role for short term greed.. Why do so many companies pay the dividends to such a degree, incl the Buy Backs, rather than re-invest in the Business – because they can. That can be tweaked.
The importation of cheap labour wouldn’t happen to same degree if we invested in different ways to raise productivity. This is about how we’ve set up the way incentives work.
I think our difference is you’ll burn the house down and hope it rebuilds itself better, whereas the I see the damage and danger from that arising requiring we adjust our current model to drive better medium term investment.
Slightly separate – the biggest benefits are state pensions, triple locked, and ‘in work’ benefits to keep people out of poverty and essentially a subsidy to employers. The proportion of benefits for people not working are dwarfed by these two elements. But your argument underpins my point about distraction strategy – let’s blame someone else rather than see the greed and manipulation that’s on-going.
The collective dividends and share buy backs of all the enormous global companies listed in the UK is less than the cost of running just the NHS. Even if you confiscated it all, it wouldn’t be enough. You’ve made my case: the public sector has vastly outgrown the capacity of the private sector to support it. We are consuming far more than we produce, and more state spending will simply worsen that imbalance.
Nobody suggesting confiscating at all. Just better incentives for Business to invest it’s own returns in itself. I think fact you use the ‘confiscate’ shows you’ve not grasped the point, albeit wasn’t the most complicated I thought.
As regards proportion of GDP spent on social spending, we’re mid-pack at best amongst Developed countries.
Let’s go back though to Benefits – so we cease all the in-work benefits, unlock triple locked pensions and remove Housing benefits (i.e the big 3). And let’s assume NHS broke up and private insurance introduced. Interested in how much you’ve thought this through. What happens?
The only countries that spend more as a %age of GDP than the UK are European or 3rd world. Europe’s economies are circling the drain: no global leading companies have been produced for a generation, completely eclipsed in technology by the USA and Asia, rising trade deficits with the rest of the world, a rapidly declining share of global trade, slow or no growth, rising structural deficits, and all this despite spending next to nothing on their own defence because they hope the USA will defend them. The UK’s malaise is repeated across Europe because give or take some minor differences the UK and Europe are all still 1970s social democratic economies wedded to the most generous welfare states in the world.
Correlation or causation?
Interesting though that the US spends a much, much higher proportion of GDP on Healthcare, and in fact just Medicare and Medicaid cost as much per capita as the entire NHS in UK. And of course they still have high costs on employers and, although appreciate this may be less concern for yourself, c40m with no cover.
I suspect the reasons US has a more vibrant, successful private sector much more to do with how investment incentives work there. But I entirely understand why some will want to avoid that blame ‘welfare’ instead. Massive vested interest in doing that.
Correlation or causation?
Interesting though that the US spends a much, much higher proportion of GDP on Healthcare, and in fact just Medicare and Medicaid cost as much per capita as the entire NHS in UK. And of course they still have high costs on employers and, although appreciate this may be less concern for yourself, c40m with no cover.
I suspect the reasons US has a more vibrant, successful private sector much more to do with how investment incentives work there. But I entirely understand why some will want to avoid that blame ‘welfare’ instead. Massive vested interest in doing that.
The only countries that spend more as a %age of GDP than the UK are European or 3rd world. Europe’s economies are circling the drain: no global leading companies have been produced for a generation, completely eclipsed in technology by the USA and Asia, rising trade deficits with the rest of the world, a rapidly declining share of global trade, slow or no growth, rising structural deficits, and all this despite spending next to nothing on their own defence because they hope the USA will defend them. The UK’s malaise is repeated across Europe because give or take some minor differences the UK and Europe are all still 1970s social democratic economies wedded to the most generous welfare states in the world.
Nobody suggesting confiscating at all. Just better incentives for Business to invest it’s own returns in itself. I think fact you use the ‘confiscate’ shows you’ve not grasped the point, albeit wasn’t the most complicated I thought.
As regards proportion of GDP spent on social spending, we’re mid-pack at best amongst Developed countries.
Let’s go back though to Benefits – so we cease all the in-work benefits, unlock triple locked pensions and remove Housing benefits (i.e the big 3). And let’s assume NHS broke up and private insurance introduced. Interested in how much you’ve thought this through. What happens?
The logical error people like you can’t seem to escape is that you think that if you remove the profit incentive from companies, entreprenuers and investers, they will keep on doing what they did before. They don’t; they move the business overseas, shut it down or cut produdution. Obviously they are not going to bother investing just so the government can pinch even more of their earnings.
Anyone with any knowledge of government attempts to pick business winners and make prudent and wise investment, knows that it a tale of abject failure. Our government can’t even provide basic services or complete an infrastructure project without its budget spiralling and finishing years after the due date. You want to give these incompetents hundreds of billions to fritter away?
Businesses know best how to invest their profits but government failure to control mass immigration and 12 years of ultra loose monetary policy has created perverse incentives for chronic short-termism.
The availability of cheap money and cheap foreign has allowed otherwise unsustainable businesses to continue to trade, wasting resourses on goods and services with insufficient demand.
Cheap labour disincentives investment in new technology. A company that could invest in a new machinery that would increase worker productivity substantially will instead just employ more cheap labour for short term gains. Instead of training British workers the business saves money by importing them ready trained from abroad.
Government itself has over 10,000,000, or a third of the workforce working for the state, It is hardly any wonder that the private sector finds it difficult to get workers.
The asset bubbles need to be burst, the zombie businesses closed, the cheap money and cheap foreign labour tap turned off, the state substantially reduced and the 5 million langushing on benefits made to work.
The collective dividends and share buy backs of all the enormous global companies listed in the UK is less than the cost of running just the NHS. Even if you confiscated it all, it wouldn’t be enough. You’ve made my case: the public sector has vastly outgrown the capacity of the private sector to support it. We are consuming far more than we produce, and more state spending will simply worsen that imbalance.
UK -“We lost skills, inventions and real talent” would be my heading for thoughts I have put together.
It is generally true that productive sectors play a vital role in the economic growth of a nation. Production, whether it is in the form of goods or services, contributes to employment, income generation, trade, and overall economic development.
Countries that rely solely on imports without developing their own production capabilities may face challenges in achieving sustainable economic growth. By producing goods and services domestically, a country can create jobs, generate income, foster innovation, and build a foundation for economic expansion.
That being said, it’s important to note that countries can specialize in different sectors based on their comparative advantages. Some nations focus more on services, while others excel in manufacturing or natural resource extraction. The specific combination of industries and sectors can vary depending on a country’s resources, labor force, infrastructure, and other factors.
In summary, while a country can experience some economic growth through other means such as service-based industries or natural resource exports, the absence of domestic production capabilities can limit the potential for sustained and inclusive economic development.
sadly economic growth is measured in percentage based on cash revenues- services produce that same cash with much lower capital cost, overhead and maintainance, so it is a myth that services do not produce growth in the same way as manufacturing, not least now as manufacturing uses so much less manpower due to automation. Also the net margin revenue on the export of services is way higher than industry. However, it is sad that unlike France and Germany we do not have a manufacturing base as it sustains communities .
sadly economic growth is measured in percentage based on cash revenues- services produce that same cash with much lower capital cost, overhead and maintainance, so it is a myth that services do not produce growth in the same way as manufacturing, not least now as manufacturing uses so much less manpower due to automation. Also the net margin revenue on the export of services is way higher than industry. However, it is sad that unlike France and Germany we do not have a manufacturing base as it sustains communities .
Excellent summary
Very good comment. I always found UK policies to be a slightly schizophrenic / mid-Atlantic mix of welfare state and hard core capitalism. No skills and no job we look after you, if you are rich you can milk your assets with minimum tax burden. The worst thing is to be highly skilled and productive then we take 45-50% of your income directly and another 20-25% through other tax (VAT, Council tax, fuel, alcohol, stamp duties…). Hence we see skilled people leaving, or taking early retirement, while unskilled are desperate to come in. Somehow we are confused why is productivity falling. It is obvious and logical consequence of our policies. We keep reaching for a short term solutions, hit the middle class, to survive until next election, but if you keep doing it over couple of decades you find yourself in a deep hole, as we are now.
GDP per capita reveals the truth of what you say. Inflation is always preferable to the alternatuves but it grinds (ti get back to 45% debt:gdp (gordon brown levels) we can have 3 years of 20% real inflation or – more likely – 10 years of 6% with bumps in the road. Financal repression will be the result, with Statism driving hypothicated credit. A twist on the 1940s. Of course by 1970s this left us invested in concorde, British Coal and British Leyland. What could possibly go wrong?
Alot of nonsense here, but the Group-think nonsense so understandable.
If last year British companies can take £96bn in dividends and £56bn in share buy backs, boosting CEO pay which runs well above inflation, the issue is profit-push inflation and fundamental self-justifying ‘greed’ locked into our system. Finding others to blame classic distraction strategy and pretty shameful.
Now were that money, removed from Companies and given to already largely rich people, invested in new technologies, infrastructure and training etc, we might kickstart British productivity and reduce the need for as much migration. But deeply bedded vested interests act repeatedly against this whilst chucking out the ‘bone’ of someone else to blame.
UK -“We lost skills, inventions and real talent” would be my heading for thoughts I have put together.
It is generally true that productive sectors play a vital role in the economic growth of a nation. Production, whether it is in the form of goods or services, contributes to employment, income generation, trade, and overall economic development.
Countries that rely solely on imports without developing their own production capabilities may face challenges in achieving sustainable economic growth. By producing goods and services domestically, a country can create jobs, generate income, foster innovation, and build a foundation for economic expansion.
That being said, it’s important to note that countries can specialize in different sectors based on their comparative advantages. Some nations focus more on services, while others excel in manufacturing or natural resource extraction. The specific combination of industries and sectors can vary depending on a country’s resources, labor force, infrastructure, and other factors.
In summary, while a country can experience some economic growth through other means such as service-based industries or natural resource exports, the absence of domestic production capabilities can limit the potential for sustained and inclusive economic development.
Recession won’t fix a problem caused by excessive labour supply, high taxes, and high energy costs. Indeed, it will make some of these issues infinitely worse. Fundamentally, the country needs a change of policy direction every bit as much as it did in the 1970s but without the cushion of cheap North Sea oil. That won’t happen until the existing policies have been shown to be utterly broken, and we’re a long way from that yet.
The excess labour supply will continue unabated, recession or not because it is driven by migration from 3rd world countries and actively encouraged by a diverse set of special interests. The UK and its welfare system will always prove attractive. A ready supply of poorly qualified labour will sustain low productivity businesses, and do nothing to encourage high productivity businesses, skewing investment in the economy to low productivity industries.
High taxes are needed to support high public spending and the UK is now diverting a very large proportion of its income into the consumption of public services of questionable value. This is squeezing productive investment. Ordinarily, rising gilts and a falling tax take from a recession would correct this, but since 2008 the government and public has got used to a combination of mega deficits and mega borrowing – even money printing – to avoid the difficult business of cutting spending. Effectively, only the private sector would face recession, further increasing the relative size of the state as it did last time.
High energy costs are an obvious impediment to value added high productivity activity. Energy directly replaces labour. Energy is necessary for the most innovative processes, from material transformation to data management. If energy costs are high, labour will not be replaced and innovative processes will be done elsewhere whenever practicable. High energy costs are a policy choice as we deliberately refuse to develop lower cost generation. Recession will not change energy policy, which has become an act of belief.
Our main growth industry has been a ponzi scheme. Importing ever larger numbers of consumers to keep GDP growing to sustain the borrowing needed to fund the growth in consumption generated by the rising population. We are so attached to this – perhaps because there isn’t an alternative for us now – that serious voices are mooting even more borrowing to subsidise mortgages to keep the ponzi scheme going. It can only mean yet more money printing and yet more inflation down the road.
Inflation will slowly gnaw at living standards, reducing them to something closer to what the actual productivity of the economy can support. Perhaps that is the plan? After all, by law we are committed to reduce our food, transport, energy and goods consumption, whether we want to or not…
All part of Operation Destroy the Middle Class. Seize their wealth and take their houses.
Seconded.
Seconded.
All part of Operation Destroy the Middle Class. Seize their wealth and take their houses.
I was talking about this in the Spectator comments yesterday in Kate Andrews’ latest article about mortgage rates likely being the new crisis. The number of people who think that you can just cut back on a few expenses and all will be well in a potential era of 1980’s interest rates and 21st century house prices (less avocados on toast and cancel Netflix crowd) is still quite staggeringly high. Even when you explain to them that house prices have gone up nearly tenfold in the last 40 years while salaries have just about tripled, they still put their fingers in their ears and go “la la la la, I can’t hear you!” For context, if salaries kept up with house prices, the average salary would be around £85,000 at the moment.
Not sure what’s going to happen, but it won’t be pretty.
Indeed, the COVID ‘Dividend’ marches on, and there will be much “weeping and wailing and gnashing of teeth”* before it ever ends.
(* Adapted from the New Testament.)
Indeed, the COVID ‘Dividend’ marches on, and there will be much “weeping and wailing and gnashing of teeth”* before it ever ends.
(* Adapted from the New Testament.)
I was talking about this in the Spectator comments yesterday in Kate Andrews’ latest article about mortgage rates likely being the new crisis. The number of people who think that you can just cut back on a few expenses and all will be well in a potential era of 1980’s interest rates and 21st century house prices (less avocados on toast and cancel Netflix crowd) is still quite staggeringly high. Even when you explain to them that house prices have gone up nearly tenfold in the last 40 years while salaries have just about tripled, they still put their fingers in their ears and go “la la la la, I can’t hear you!” For context, if salaries kept up with house prices, the average salary would be around £85,000 at the moment.
Not sure what’s going to happen, but it won’t be pretty.
Any recession can only work in combination with reduced out of work benefits – with the proceeds earmarked for keeping corporation tax lower
.
Had Liz Truss announced this in her financial statement, she may well still be PM
.
Don’t hold your breath on anyone else committing to it.
Any recession can only work in combination with reduced out of work benefits – with the proceeds earmarked for keeping corporation tax lower
.
Had Liz Truss announced this in her financial statement, she may well still be PM
.
Don’t hold your breath on anyone else committing to it.
Recession?
At least the dental industry would have a field day, as the gnashing of teeth coming from the MSM (and BBC news in particular) would set its viewers teeth on edge.
“Some shall be pardon’d, and some punishèd”
(*R&J. WS.)
“Some shall be pardon’d, and some punishèd”
(*R&J. WS.)
Recession?
At least the dental industry would have a field day, as the gnashing of teeth coming from the MSM (and BBC news in particular) would set its viewers teeth on edge.
The problem with the term recession is that it is too macro, not unlike the term ” property prices” : Goverment spend can boost certain industrial output, so distorting GNP/GDP statistics, as Spain found a few years back after a massive state building project obfuscated a neo crash that came soon after.
Not only does revenue from formerly termed ” invisibles” viz. service industry revenues, just as real as industrial, tend to get under/ mis calculated, as we are no longer iron/steel/coal/ industrial/ manufacturing ( sadly!) when the numbers were ” macro and micro” now we can have one sector booming, and another in revenue dropping ” recession”. so the ” 3 month drop” macro is grossly outdated and prone to incumbent government manipulation.
The problem with the term recession is that it is too macro, not unlike the term ” property prices” : Goverment spend can boost certain industrial output, so distorting GNP/GDP statistics, as Spain found a few years back after a massive state building project obfuscated a neo crash that came soon after.
Not only does revenue from formerly termed ” invisibles” viz. service industry revenues, just as real as industrial, tend to get under/ mis calculated, as we are no longer iron/steel/coal/ industrial/ manufacturing ( sadly!) when the numbers were ” macro and micro” now we can have one sector booming, and another in revenue dropping ” recession”. so the ” 3 month drop” macro is grossly outdated and prone to incumbent government manipulation.
“For example, even if a budget-conscious household decides to cancel their holiday abroad and instead go on a getaway inside Britain, they will find prices have risen 20%”.
I was unable to afford a holiday (home or abroad)between 2009 and 2020. Covid came to the rescue
“For example, even if a budget-conscious household decides to cancel their holiday abroad and instead go on a getaway inside Britain, they will find prices have risen 20%”.
I was unable to afford a holiday (home or abroad)between 2009 and 2020. Covid came to the rescue
It may happen anyway, but it won’t address some key fundamentals.
A not insignificant element of UK inflation appears increasingly to be ‘profit-push’ inflation and not the oft stated ‘wage-price’ spiral where workers are blamed. £95bn in dividends paid out last year in UK companies, and that was actually suppressed by £56bn in share ‘buy-backs’ boosting CEO pay way above inflation.
And both dividend pay-outs and ‘buy back’ decisions is money not spent on training, investment & development – thus locking in UK low productivity and Business fragility whilst a small elite of Bosses and shareholders get ever richer. It also stokes inflation further as the Rich use that additional private affluence. This fundamental is funnelling us down a cul de sac from which only the Rich can escape and what’s more they know it. We reside under a shareholder tyranny as someone put it.
Alongside this we have the clear evidence that Banks are raising interest rates whilst not passing on similar rises to savers. This is not 2008 and our Banks are solvent and much better capitalised. This is greed. Savings of course needs to be encouraged to help reduce inflation, whereas in fact the outcome is to force people to spend more now before their savings wither further fuelling inflation
We have much we can tackle if we have the will. Tories to take on the Shareholder tyranny and get the Competition and Markets Authority doing it’s job – fat chance.
What is this “shareholder tyranny” ? You’re in danger of sounding like Gordon Brown and his de facto class war against shareholders.
Shareholders are the people who put up the risk capital to start and grow businesses. Some fail. Some succeed. Dividends and increased share prices are the rewards for taking risks and offset the losses elsewhere.
Dividends also pay private sector pensions. That’s most of us (who also pay for the risk-free public sector pensions where the pension paid out per pound invested is at least 2x what we receive before any inflation protection).
If you don’t want innovation and new businesses, go ahead and punish shareholders. They’ll just invest somewhere else (in another country).
The old Socialist battle cry was: “Unearned Income”!
Thus In 1974 the top rate tax on earned income was raised to 83%. Thus with the INVESTMENT INCOME SURCHARGE this raised the top rate on investment income to an astronomical 98%!*
In other words, and to lapse into the vernacular “we ain’t seen nothing yet”!
(* Source: Wikibeast).
It’s not “unearned income” though in most cases – it’s the reinvestment of already taxed earned income. Quite why income should be taxed more than once eludes me – but then I’m not a class warrior, so I’ll never understand it.
We’re not a million miles apart again PB. I’d switch much more from income to wealth taxes.
We’re not a million miles apart again PB. I’d switch much more from income to wealth taxes.
It’s not “unearned income” though in most cases – it’s the reinvestment of already taxed earned income. Quite why income should be taxed more than once eludes me – but then I’m not a class warrior, so I’ll never understand it.
Stokes short termism, especially in Britain which doesn’t have the US investment culture. Fiduciary duty trumps all else, but the problem with that is it becomes self defeating in aggregation for an economy. The issue is not that dividends shouldn’t be earned etc, but that the system rewards short termism too much. The ‘buy-backs’ especially as driven by share price dividends for the Board members.
I’m not sure your take on US vs UK financial pressures is quite correct. US companies are under enormous pressure from Wall Street to produce consistently “up and to the right” results and have to report quarterly. UK companies only need to report annually.
Share buy backs are also a much bigger feature in the US – perhaps because US companies have more cash on their balance sheets that they cannot use – but the main reason seems to be the crazy US tax system which discourages repatriation of profits. So US tech companies have at the same time massive overseas cash balances and huge domestic debts.
The private equity fad where loan interest is tax deductible is a far bigger problem – in distorting company behaviour in unroductive ways – than dividends or share buy backs. Not sure share buy backs are that common in the UK anyway.
I seem to remember Blair and Brown’s new Labour being big fans of private equity (as well as gambling companies).
I’m also not convinced by this “short termism” narrative about the UK. I tracked down a quote yesterday – George S Patton: “when everyone is thinking the same, there’s no thinking going on”. When everyone – absolutely everyone – tells you that Britain is “short termist”, it’s time to start thinking for yourself.
The main difference seems to be, (and everything of course a generalisation with exceptions), is appetite for risk to gain higher returns. This theme also applies to willingness to support entrepreneurs. Market share rather than profit seems to have slightly different emphasis too. As result one could contend it explains why World’s biggest 10 companies are US.
They exist in the world’s largest protected markets maybe
The biggest companies these days are the tech giants. They sell universal products/services across the world (apart sometimes from China – which really is the world’s largest protected market – and Russia which is off grid for obvious reasons right now).
The US has a better start-up culture and ecosystem than anywhere else. Absolutely true. But plenty of other countries benefit to some degree from these companies – it’s not a zero sum game.
The biggest companies these days are the tech giants. They sell universal products/services across the world (apart sometimes from China – which really is the world’s largest protected market – and Russia which is off grid for obvious reasons right now).
The US has a better start-up culture and ecosystem than anywhere else. Absolutely true. But plenty of other countries benefit to some degree from these companies – it’s not a zero sum game.
They exist in the world’s largest protected markets maybe
The main difference seems to be, (and everything of course a generalisation with exceptions), is appetite for risk to gain higher returns. This theme also applies to willingness to support entrepreneurs. Market share rather than profit seems to have slightly different emphasis too. As result one could contend it explains why World’s biggest 10 companies are US.
I’m not sure your take on US vs UK financial pressures is quite correct. US companies are under enormous pressure from Wall Street to produce consistently “up and to the right” results and have to report quarterly. UK companies only need to report annually.
Share buy backs are also a much bigger feature in the US – perhaps because US companies have more cash on their balance sheets that they cannot use – but the main reason seems to be the crazy US tax system which discourages repatriation of profits. So US tech companies have at the same time massive overseas cash balances and huge domestic debts.
The private equity fad where loan interest is tax deductible is a far bigger problem – in distorting company behaviour in unroductive ways – than dividends or share buy backs. Not sure share buy backs are that common in the UK anyway.
I seem to remember Blair and Brown’s new Labour being big fans of private equity (as well as gambling companies).
I’m also not convinced by this “short termism” narrative about the UK. I tracked down a quote yesterday – George S Patton: “when everyone is thinking the same, there’s no thinking going on”. When everyone – absolutely everyone – tells you that Britain is “short termist”, it’s time to start thinking for yourself.
The old Socialist battle cry was: “Unearned Income”!
Thus In 1974 the top rate tax on earned income was raised to 83%. Thus with the INVESTMENT INCOME SURCHARGE this raised the top rate on investment income to an astronomical 98%!*
In other words, and to lapse into the vernacular “we ain’t seen nothing yet”!
(* Source: Wikibeast).
Stokes short termism, especially in Britain which doesn’t have the US investment culture. Fiduciary duty trumps all else, but the problem with that is it becomes self defeating in aggregation for an economy. The issue is not that dividends shouldn’t be earned etc, but that the system rewards short termism too much. The ‘buy-backs’ especially as driven by share price dividends for the Board members.
its called ” the spread”…
What is this “shareholder tyranny” ? You’re in danger of sounding like Gordon Brown and his de facto class war against shareholders.
Shareholders are the people who put up the risk capital to start and grow businesses. Some fail. Some succeed. Dividends and increased share prices are the rewards for taking risks and offset the losses elsewhere.
Dividends also pay private sector pensions. That’s most of us (who also pay for the risk-free public sector pensions where the pension paid out per pound invested is at least 2x what we receive before any inflation protection).
If you don’t want innovation and new businesses, go ahead and punish shareholders. They’ll just invest somewhere else (in another country).
its called ” the spread”…
It may happen anyway, but it won’t address some key fundamentals.
A not insignificant element of UK inflation appears increasingly to be ‘profit-push’ inflation and not the oft stated ‘wage-price’ spiral where workers are blamed. £95bn in dividends paid out last year in UK companies, and that was actually suppressed by £56bn in share ‘buy-backs’ boosting CEO pay way above inflation.
And both dividend pay-outs and ‘buy back’ decisions is money not spent on training, investment & development – thus locking in UK low productivity and Business fragility whilst a small elite of Bosses and shareholders get ever richer. It also stokes inflation further as the Rich use that additional private affluence. This fundamental is funnelling us down a cul de sac from which only the Rich can escape and what’s more they know it. We reside under a shareholder tyranny as someone put it.
Alongside this we have the clear evidence that Banks are raising interest rates whilst not passing on similar rises to savers. This is not 2008 and our Banks are solvent and much better capitalised. This is greed. Savings of course needs to be encouraged to help reduce inflation, whereas in fact the outcome is to force people to spend more now before their savings wither further fuelling inflation
We have much we can tackle if we have the will. Tories to take on the Shareholder tyranny and get the Competition and Markets Authority doing it’s job – fat chance.
It is presumably futile to suggest public spending cuts as a way to start lowering interest rates and even to avoid a recession.
What do you cut first? The health service is on its knees, and the schools aren’t far behind. The costliest benefit is the pension, followed by wage top ups for those full time workers who aren’t paid enough to cover the basics (essentially the government subsidising employers). Which of these would you slash in order to bring down public spending by any degree?
A far better way, that I have eluded to before, is to create ” guaranteed in default only” quasi government bonds that do not therefore go into the Government debt figures, long dated so as to appeal to life insurance and pension funds, to fund long term infrastructure such as roads, railways, health etc. Works in France, Switzerland, Japan so why not here… The Treasury have repeatedly turned down such a plan… God knows why!
What do you cut first? The health service is on its knees, and the schools aren’t far behind. The costliest benefit is the pension, followed by wage top ups for those full time workers who aren’t paid enough to cover the basics (essentially the government subsidising employers). Which of these would you slash in order to bring down public spending by any degree?
A far better way, that I have eluded to before, is to create ” guaranteed in default only” quasi government bonds that do not therefore go into the Government debt figures, long dated so as to appeal to life insurance and pension funds, to fund long term infrastructure such as roads, railways, health etc. Works in France, Switzerland, Japan so why not here… The Treasury have repeatedly turned down such a plan… God knows why!
It is presumably futile to suggest public spending cuts as a way to start lowering interest rates and even to avoid a recession.
The UK has created this problem by poor commercial management. It has imported 10m people to add to the population all of whom cost around £15k per annum in public service costs (Police, Hospitals, Schools etc) but virtually none of whom pay that much tax.
The ones in work may put gross GDP up but that doesnt anything like cover their costs their families costs either.
Hence borrowings go up. Time to sack the Treasury people who only look at gross GDP.
The UK has created this problem by poor commercial management. It has imported 10m people to add to the population all of whom cost around £15k per annum in public service costs (Police, Hospitals, Schools etc) but virtually none of whom pay that much tax.
The ones in work may put gross GDP up but that doesnt anything like cover their costs their families costs either.
Hence borrowings go up. Time to sack the Treasury people who only look at gross GDP.
Sky said today (on Ian King Live) that fixed-rate mortgages can be obtained for less than 6% and why is food inflation worked out on the large British supermarkets (also Iceland) rather than Lidl or other discount shops – poundstretcher, etc. Even before this increase in groceries, a Lidl basket was at least £20 less than Tesco. If there is a Lidl shop here in our small community then they are all over..
Sky said today (on Ian King Live) that fixed-rate mortgages can be obtained for less than 6% and why is food inflation worked out on the large British supermarkets (also Iceland) rather than Lidl or other discount shops – poundstretcher, etc. Even before this increase in groceries, a Lidl basket was at least £20 less than Tesco. If there is a Lidl shop here in our small community then they are all over..
Take the Interest Rate to 10%.
Simplify Benefits System into 1 Payment.
Eliminate the Current Tax Code.
Replace Tax Code with a Flat Tax of 15% starting at
15,000 Pounds.
Corporation Tax of 15% on Profits.
Simplify NHS Administration. Eliminate NHS Targets,
Increase NHS Money by 30%
Cut Defence Spending by 50%
Eliminate Nuclear Deterrent.
All Armed forces are to be combined into a HOME DEFENCE FORCE.
All Overseas Military Committments to End.
My one caveat to your programme is that a 10% interest rate would hurt most the small businesses and individuals who were forced to pay over the odds for assets inflated by privileged players who were able to borrow at zero or even negative effective margins. These latter will not suffer, but later will pick up distressed assets at bargain prices.
A way needs to be found to place the pain of unwinding the QE where it belongs.
My one caveat to your programme is that a 10% interest rate would hurt most the small businesses and individuals who were forced to pay over the odds for assets inflated by privileged players who were able to borrow at zero or even negative effective margins. These latter will not suffer, but later will pick up distressed assets at bargain prices.
A way needs to be found to place the pain of unwinding the QE where it belongs.
Take the Interest Rate to 10%.
Simplify Benefits System into 1 Payment.
Eliminate the Current Tax Code.
Replace Tax Code with a Flat Tax of 15% starting at
15,000 Pounds.
Corporation Tax of 15% on Profits.
Simplify NHS Administration. Eliminate NHS Targets,
Increase NHS Money by 30%
Cut Defence Spending by 50%
Eliminate Nuclear Deterrent.
All Armed forces are to be combined into a HOME DEFENCE FORCE.
All Overseas Military Committments to End.
i’m amazed that anyone can think that a recession is a good thing.
Inflation was largely caused by offensive levels of money-printing by the BoE, plus supply chain issues and sanctions against Russia.
Supply chain issues, at least, are sorting themselves out now and inflation is likely to come down (maybe temporarily) anyway.
Putting us into recession is, in my opinion, a stupid and actually wicked move against ordinary working people – particularly against small businesses which have been struggling in the last few years anyway thanks to appalling Government policies during ‘the covid years’.
i have spoken against interest rate rises for a few months and will continue so to do. I think the BoE and the Government are irresponsible and short-sighted in their ‘handling’ of the current economic crisis…a crisis that was created by them through the appallingly ill-thought-out lockdowns.
The manipulators of interest rates and money supply have created a “heads our cronies win, tails the people lose” system.
Decades of easy money for the cronies pushed up asset prices hugely, while modest retail price rises (due to off-shoring much production) masked the true inflation.
Now that retail inflation is catching up, it is not the crony beneficiaries of the easy money who will be asked to give up their tangible unearned gains, but the ordinary people will lose their jobs, savings, and maybe their homes.
It is hard to see how to force a fair distribution of the medicine – those operating the levers of power will always favour their cronies. The best we can do is disable those levers of power so this “heads the cronies win, tails we people lose” see-saw can’t happen again: total separation of government from money, and no special privileges for banks.