Home » Posts tagged 'UK Economy'
Tag Archives: UK Economy
Like many Western nations, the UK economy remained resilient through the worst of COVID when many workers were ill or otherwise sequestered in their homes, unable to work due to various lockdowns. The lockdowns seemed a wise precaution for the times — even though Britons disliked being forced to stay in their homes for weeks or months.
But just as COVID has relaxed it’s hold on our lives, it suddenly occurs that Western economies begin to underperform…
Some days you just can’t win.
New UK Prime Minister Liz Truss and New Chancellor Kwasi Kwarteng Ordered Tax Cuts for Wealthy Britons
Which, if you know British politics, is standard operating procedure for Conservative-led governments. No matter the economic ailment, it seems that the de rigueur prescription is tax cuts for the rich.
On balance, that prescription boasts a decent success rate. Over the past 122-years, various UK governments have imposed tax cuts to stimulate the economy and it’s worked more than not. However, there’ve been times when it hasn’t worked, and this is one of those times.
“Always worth a try?”
I guess. But when tax rates for the wealthy are already low, further tax cuts don’t impress the wealthy, nor increase government tax revenue, nor stimulate the UK economy.
And this is the problem… politicians don’t understand economics well (nor do they understand military matters, but that’s a story for another day) but by taking some sage advice to heart, new Prime Minister Liz Truss could still salvage an economic win out of a (forgivable) misstep early in her premiership.
It’s early days, and no doubt, they’re feeling the pressure to act. The PM and Chancellor tried to improve the economy and their first attempt failed.
No worries, there’s a window of time to get it right. But not too much time, or any remedy they apply will arrive too late to have a meaningful effect. And that could cost the Conservatives at the next election.
Their Second Attempt to Help the Economy: Printing More Money and Government Buy-back of UK Bonds
Better. But not perfect.
Which necessitates a larger government deficit, morphing into more government debt. Just what the UK economy doesn’t need is a larger deficit and even more debt. Neither helps the market, nor the government’s credit rating, nor the UK’s long-term economic picture.
It’s too soon to see if this plan will work. But it works in other countries, and it should work in the UK, with the caveat that the privilege isn’t abused by future Chancellors as a sort of ‘silver bullet’ that will solve every economic problem. It’s not a magic bullet.
Printing money and buying back bonds will have a small, but positive influence on the overall economy. Likely, both the PM and the Chancellor now realize that it should’ve been the first step in a 6-step programme to address problems and provide solutions to the UK’s present economic challenges.
Five More Ways to Lift the UK Economy and Prevent (or limit) a UK Recession
ONE: Working people pay more tax than unemployed people. It’s a fact. Ask any economist.
Therefore, the government should spend serious stimulus money (even though it’s borrowed money) on ‘shovel-ready’ infrastructure projects. But it shouldn’t spend on projects that can’t begin construction within the next 8-months, because that’s too far in the future to fix what’s broken now. ‘Shovel-ready’ means ready to begin digging within weeks. Not years.
TWO: Companies that export goods or services, bring ‘new’ money into the economy, thereby stimulating the overall UK economy.
The domestic economy in the UK is pretty sophisticated so there’s little room for improvement — but there’s plenty of room for improvement in regards to exports. The UK’s track record on facilitating an export-driven economy is dismal when measured against such exporting superstars as Germany and Japan. To correct this, the UK government must provide a tax advantage to companies or individuals that export goods or services. I politely suggest an 8% tax break on exported items. Five per cent won’t incentivize companies enough to make exporting a priority, and ten per cent would make it difficult for the government to recover the lost tax revenue over a number of years, no matter the increase in exports over the short-term. This 8% tax advantage could be raised or lowered annually, thereby providing the government with yet another lever with which to control (adjust) the UK economy as necessary. Priceless!
THREE: Citizens earning less than £25,000. per year contribute little to overall UK government revenue, so there’s little loss for the government to forego taxing them.
However, changing the income tax threshold so that workers who earn under £25,000. per year don’t pay any income tax whatsoever, can make a huge difference in the lives of those workers! It’s the difference between a presently unemployed person being able to afford to take the train to a job every day, or not. It’s the difference between a presently unemployed tradesperson being able to insure his work van, or not. It’s the difference between a presently unemployed worker being able to afford daycare for her children so she can apply for a job, or not. It’s the difference between a presently unemployed person moving to another city for a job, or not. In so many ways, this change represents a small change in government tax policy and revenue — which results in a large change in the employment situation for presently unemployed workers. The UK workforce needs to be firing on all eight cylinders, not the present five-out-of-eight cylinders.
FOUR: The UK should harmonize it’s Corporate Tax Rates and policies with Canada, which has an attractive and simplified corporate tax structure.
And it works. Throughout the entire subprime market crisis and subsequent recession, Canada’s economy was the strongest of all G7 economies and Canadians only knew about the recession playing out in the United States and Europe by watching American news channels. The reason Canada sailed through the recession is precisely because of their low-ish and simplified corporate tax rate structure. Many Western companies moved to Canada in the 2008 to 2011 timeframe in order to take advantage of those low corporate tax rates — and in so doing — saved their companies from insolvency. Some returned to the United States following the economic recovery, while some remained in Canada. You can’t buy advertising like that! Recessions occur approximately every 25-years in the Western world, and the next one is almost upon us. Now is the time to make the UK’s corporate tax rate as favourable as Canada’s, and reap the benefits thereof. Doing it after the looming recession hits, means that the UK must wait for the next recession 25-years hence, in order to reap the benefits and bragging rights of lower and simpler corporate tax rates.
FIVE: The UK government should finance 10 Solar Panels on every UK rooftop (via loan guarantees to banks) to add capacity to the national grid, to provide significant energy cost savings to energy users, and to allow for increased energy exports to the continent.
Almost every UK rooftop could host 10 solar panels and thereby add plenty of electricity to the grid during the daylight hours — which, happily, is when the grid faces it’s peak demand. Because rooftops are everywhere in the country, it won’t matter if some northern panels are covered with snow, or if London happens to be covered with a layer of fog — because the rest of the country will still receive sunlight and contribute huge amounts of electricity to the grid. Ten panels per rooftop means that homeowners can (automatically) sell their surplus electricity to the grid via a net-metering connection. Whether private homes, farms with several outbuildings, schools, retail businesses or industrial buildings, placing 10 solar panels on each rooftop in the country could save energy consumers astonishing amounts of money annually, and add significant capacity and stability to the national grid, and allow MANY GIGAWATT HOURS worth of surplus energy to be exported to the continent.
So there’s the low-hanging fruit. There ARE WAYS to improve the UK economy, not by giving tax breaks to the wealthy — who, it turns out, don’t want them because they’ve all the tax breaks they need — but by strengthening the parts of the UK economy that are presently weak, and could be made robust via simple changes to existing policy.
I’m proud of the new Prime Minister and her Chancellor, because, facing a looming crisis, they decided to actually DO SOMETHING! as opposed to just hiding until the storm passes.
Full marks on that, Liz and Kwasi! It’s easy to see that you both care about the country and about how its citizens and businesses are faring.
If you continue to be responsive to the peoples’ needs, I’m confident they’ll respond favourably to you, and your poll numbers will prove that statement true as time rolls forward.
Wishing you every success as you craft policy appropriate to the times in which we live and seek to pass it in the UK House of Commons in a timely manner for best effect.
Written by John Brian Shannon
Well, it appears that Coronavirus returned with a vengeance this week, just as I predicted.
The reasons for it’s return are both simple and complicated, and those reasons are; ONE: In the early days of the COVID-19 pandemic Western governments sat around waiting for someone to tell them what to do, and when someone didn’t, they sat some more, allowing the Novel Coronavirus to spread to thousands of people, who then infected many more thousands of people.
Mind you, once medical professionals told Western governments that Coronavirus represented an existential threat to their countries, they moved quickly to direct citizens towards healthier choices such as ‘social distancing’ and the wearing of PPE’s whenever they left their homes and only essential service workers were permitted to travel to and from work. Both modalities were surprisingly effective in reducing further airborne transmission of the disease.
TWO: A good example of the complete lack of personal responsibility shown by some is represented in the photo below, taken only days ago when the COVID-19 alert threshold was lowered (slightly) and thousands of people (who obviously AREN’T healthcare professionals) mobbed the beaches, disregarding the recently relaxed Coronavirus social distancing rules.
Consequently, the huge sacrifice made by millions of Britons staying home under lockdown for two months may be in vain!
And many may now catch the disease and perhaps die because a number of Britons lacked the personal discipline to adhere to the (recently relaxed) Coronavirus social distancing requirements!
Let’s hope it turns out that by sheer dumb luck only small numbers of Britons will subsequently catch the disease and suffer or even die on account of the irresponsible actions of those beach going Britons.
Why the UK Needs a Guaranteed Basic Income for the Coronavirus Economy
Due to initially slow response by Western governments (but see the effective response to COVID-19 mounted by South Korea here) and due to the lack of discipline shown by some Britons, it looks like Coronavirus is here to stay for the next two years. At least.
Not only that, but there WILL BE another COVID variant arising this year or next that may prove deadlier than the present Coronavirus pathogen. It’s typical of respiratory viruses that they mutate and those mutations often become more effective at terminating the lives they infect. ‘Nature of the beast’ as they say in virology labs around the world.
So, the economy can’t continue to be locked down and survive Coronavirus indefinitely. It needs real money to be earned, spent, taxed, and reinvested in the whole economy every day of the year.
Consequently, when large numbers of people aren’t working during the COVID-19 lockdown, money stops flowing and businesses begin to die. And that’s terrible for the economy. And it’s even more terrible for individuals who live from paycheque to paycheque as their cash and ‘fridge contents dwindle for as long as the crisis continues.
That’s why it’s no surprise that many headed to the beach over the past few days to gain respite from the living hell they experienced over the past weeks.
See how things are so connected? Demographers see it everyday.
To stabilize the economy and to prevent irreparable harm to persons during this and future Coronavirus lockdowns, the UK needs to institute a Guaranteed Basic Income
Handing huge amounts of taxpayer money to corporations isn’t the answer, as 50% will always and automatically be skimmed-off to add to annual profits and be thence distributed to shareholders — many of whom AREN’T UK citizens, don’t pay taxes in the UK, and may never live in the UK. Which isn’t any kind of pathway forward for the UK economy. So forget that plan.
Putting real money in the hands of Britons is the way forward, especially during times of lockdown, high unemployment, war, or natural disaster. By simply paying adults a minimum income, they can afford to eat, keep the lights on, and keep hope alive for their families for the duration of any crisis or emergency.
Many such facilities already exist in the UK, including all social welfare and Universal Credit spending, food banks, homeless shelters, substance abuse organizations, local charities, domestic NGO’s and foreign NGO’s operating in the UK during the pandemic.
What a GBI means to the UK economy is that all social welfare and charity gets rolled into one payments system — thereby eliminating the many parallel and overlapping programmes that were designed with the best of intentions to, (1) mitigate the effects of poverty on Britons, and (2) alleviate the sudden and unexpected poverty caused by local crises or national emergency.
It means keeping people alive until the crisis has passed (yes, it’s that dire in many cases) so that Britons can then pick up and carry on with their lives after the crisis and once again contribute to the wider economy.
Who Should Get It?
Every adult UK citizen (including senior citizens) who live in the bottom economic quintile and (a) thereby earn less than the annual official national poverty line (about £20,000/yr in the UK) or (b) any adult UK citizen temporarily affected by local crises such as flooding, or national crises such as pandemic, war, or other emergency situations that cause them real hardship; e.g. no money to buy food or find shelter, should automatically be eligible to receive GBI payments.
Non-citizens shouldn’t be eligible for a UK GBI, but should be able to (easily) access enough funds from the UK government to safely transport them back to their country of origin, allowing them to return to their home country until the crisis is over. E.g. A one-time payment of £1250.
How to Pay GBI to Citizens
The best way to pay a Guaranteed Basic Income to UK citizens is, of course, the easiest way. And that is via a reverse income tax, which simply means the UK government issues a monthly credit to individuals via their personal HM Revenue and Customs account to top-up their income to £1250/mo. for as long as they earn less than the official annual poverty line amount in the UK.
As HMRC knows exactly how much you earn due to your most recent income tax form, it’s a simple matter for them to credit your HMRC account to top you up to £1250 for that month and transfer it to your bank account via online banking. Some people may choose to allow HMRC to do this automatically, while others may wish to manually log in to their HMRC account to choose the date they want their GBI deposited into their bank account.
Some may wish to have their GBI payment deposited to their PayPal account. That should be OK too.
UK GBI: Reducing Government Overhead Costs, Supporting Low Income Britons, and Supporting Britons Hit by Natural Disasters/Pandemic, Etc.
Instead of today’s many overlapping and expensive government programmes, some with HUGE overhead costs, a single-payer system would put more actual money in the hands of Britons living below the official poverty line at a lower cost to taxpayers, and to more easily assist Britons during emergencies, again, at a lower cost to taxpayers.
How could it cost less when even more people are likely to receive a GBI, than presently receive Universal Credit?
By eliminating the many costly and overlapping anti-poverty programmes using the single-payer system (HMRC’s payments system) and by dramatically reducing homelessness, drug abuse, property crimes, policing costs, court costs, incarceration costs, mental health costs, and reducing NHS cost of (repeatedly) caring for homeless people or (repeatedly) caring for those injured while engaging in property crimes offences, or who (repeatedly) engage in confrontations with law enforcement, due to the nature of the poverty-stricken life they lead.
A UK GBI Improves the UK’s ‘Velocity of Money’ and Therefore, the Whole Economy!
Economists call the speed of the transfer of money from one person to another, the ‘velocity of money’ and it’s a fascinating thing to examine. But to explain it properly, a short video is required to demonstrate how relatively small amounts of money can revolutionize a village, town, city, or rural area…
Now, for a more detailed look at the velocity of money, see Doug Andrew’s excellent example on the topic of how money really works, which refers directly to the ‘velocity of money’ — also known as MV = Py to economists.
FYI – All these examples are sans tax as they’re simple examples designed to demonstrate how velocity of money works.
But in the case of government stimulus — whether government stimulus paid to corporations (a corporate subsidy, or corporate welfare) or paid to individuals as part of a GBI (a personal subsidy, or personal welfare) every dollar or pound sterling of that stimulus (subsidy) returns to the government via taxation within 11-years — and the government is only ‘out’ by the amount of interest paid on the money they injected into the economy 11-years prior. And that’s why you pay taxes…
By the way, your taxes don’t pay for the full amount that the government lends to the economy, you’re paying tax to cover the interest on the money the government lends to the economy. If it wasn’t done this way (so-called ‘Cost of Use’ of money) your taxes would be much higher.
Therefore, British taxpayers don’t pay the full cost of social welfare programmes via taxation, they only pay the interest on the amount loaned to the economy by the government over that 11-year period.
Now, here’s a secret: Since I took my economics education (U.S.A. circa 1991) that 11-year repayment statistic has decreased to 4.3-years (U.S.A. stat roughly similar to the UK statistic) because the velocity of money has increased so dramatically since then. Ask any economist.
Therefore, the huge cost of homelessness, property crimes, policing costs, court costs, incarceration costs, property and vehicle insurance costs, medical costs, etc., to the economy will always be many times more… than the cost of 4.3-years worth of interest payments on money loaned to the economy by the government to solve those problems! Which means, that after 4.3-years (or thereabouts) the British taxpayer should be in for a tax break — courtesy of the GBI and a much better velocity of money factor. All of which equals a booming economy.
Conclusion: It’s cheaper to pay citizens a GBI than it is to pay for the huge costs of poverty on individuals and on the whole economy!
I love economics. Have a great day everyone!
Fearing that the Coronavirus pandemic might affect their investments, perception became reality for investors in the world’s stock exchanges as markets see their biggest drop in recent years.
‘Money flees uncertainty’ – You’ve heard it before or read it in print
It vaporizes during civil unrest, it dissipates into thin air when politics goes awry such as when a national leader faces a coup d’é·tat, and it leaves without saying goodbye during natural disasters. In short, the thing we call “money” isn’t our friend at all, in fact, “money” (by which, I mean ‘investment’) is the most fair-weather friend we could have.
And that’s a good thing!
(I hear what you’re thinking, “Is Gordon Gekko writing this post? You know, the whole, “Greed is good,” thing and all that?) Hehehe.
No, Gordon Gekko from the movie Wall Street isn’t writing this post, I’m merely remarking upon what’s patently obvious in the global marketplace — that the de facto rule is that individual and institutional investors prefer stable and profitable companies and countries to unstable and less profitable companies and countries. Of course.
What it means on the ground is that organizations that prepare in advance for the ‘bad times’ are seen as more stable, and therefore a better long-term investment, and that’s where the money flees to during challenging economic times.
Which is why some countries have a AAA+ credit rating and others don’t. It’s why some companies have triple A credit and others don’t. It’s why some countries need IMF loans and others don’t.
Stayin’ Alive, Yeah!
Being prepared, means staying alive, even while your competitors are dying all around you. (Not literally dying; But that’s the kind of talk you hear on trading floors during the so-called ‘bad times’)
I say ‘bad times’ because, for prepared countries (and companies) there really are no ‘bad times’.
Prepared organizations sail right through recessions, depressions, war, civil unrest, natural disasters and more — precisely because they’re well managed and well-equipped to weather any sort of storm, whether it be political, economic, or even natural disasters that can strike without warning.
Any CFO knows that recessions occur every 25-years. They know their factory (or whatever) is located in a floodplain, or in an active earthquake zone, etc., therefore, long in advance of any of those events occurring, they create a ‘rainy day fund’ to carry the company through a catastrophic period with surprisingly little upset.
The reward for this kind of long-term thinking is that when disaster finally strikes (and it surely will, it’s just a question of when) your organization will carry-on with ‘business as usual’ even as your competitors are dying in the market. It’s called ‘building resiliency’ into your company (or country) and it’s a fine thing.
And that’s the time that your company can go ’round and snap those companies up for ten cents on the dollar. ‘Picking their bones’ as we used to say in the halcyon days of Carl Icahn, investor, corporate raider… and strangely enough… philanthropist. Cool, huh?
Anyway, ‘Fortune favours the prepared’ said Louis Pasteur, and he was right.
So it follows then, that countries that aren’t prepared for Coronavirus version 2019 (called COVID-19 now that it’s been officially named) aren’t going to sail through it unaffected.
Rather, it’s easy to see even at this early stage which countries have engaged in long-term thinking, and have long ago upgraded their medical capacities to handle pandemics such as COVID-19, and although some cases showed up on their healthcare systems they had the ability and the capacity to deal with those cases with immediacy.
And if there’s one thing that pandemic-type viruses hate, it’s timely diagnosis, speedy quarantine and effective treatment.
Consequently, those prepared economies will see little economic impact from COVID-19 or any subsequent mutation of the COVID-19 virus which is likely to be called COVID-20 if it occurs in 2020. And there’s always, always, a mutation eventually, however it’s almost impossible to predict when that mutation will occur. At that time, the treatment for COVID-19 won’t work on COVID-20 (or whatever that mutation gets named) or if it does work, it’s likely to be less than 50% effective. Just sayin’.
Again, those governments that believe in long-term thinking and have prepared in advance of the latest Coronavirus pandemic have already inoculated their economies against the worst of the problem, although they could still (secondarily) be affected by other countries whose economies may now suffer on account of not being prepared.
Therefore, it was the perception of investors who have themselves created the entire ‘Black Monday’ market devaluation by pulling their investments from the stock market. But if there are more countries that are prepared for and respond well to the Coronavirus threat, then today’s market recalibration will turn out to be nothing more than a blip on the year-end 2020 annual report.
But if it turns out that a majority of countries aren’t properly prepared to handle this Coronavirus pandemic then this market slide could last a long time and worsen as thousands more become infected.
And then what happens around November or December 2020 if a new, mutated COVID virus appears?
Just as the markets get back to normal, suddenly a newer and more virulent version of this virus begins to run through the world’s healthcare systems… will they be ready then? Let’s hope so.
More Pandemics are On the Way. So, Let’s be Ready Next Time!
One thing’s for certain. In this increasingly interconnected world, there will be more pandemics and perhaps much more deadly and with a more rapid onset than the COVID-19 virus.
In such an instance, only the countries blessed with leaders who aren’t afraid to make the big decisions (like closing their airports and even their land borders and seaports for 2-weeks to prevent millions more infections from occurring) will survive the next viral onslaught.
In the case of the COVID-19 virus (so far) it looks like the major economies have dodged a bullet, because it turns out that it isn’t the strongest virus, as it’s only able to kill the elderly and the infirm. However, future pandemics may not be as mild as this particular Coronavirus.
We need to get ready. We have so far failed this drill, but Western healthcare systems are quickly ramping-up to meet the present threat. Until governments begin to provide permanent ongoing funding to healthcare providers to help them get more efficient at capturing such viral threats, isolating those who are contagious, and effectively treating those who’ve been exposed to such contagions, we’re living on borrowed time.
Let us thank the medical professionals on the front lines diagnosing, isolating, and treating those people who’ve had exposure to the virus, and thank them for doing much in a short time, with only tepid support (at first) from Western governments. Bravo!