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UK Economy: Signs of Hope or Doom?

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

It’s Time to Nationalize the UK Rail System

There’s no getting around it, the UK rail system is in trouble!

UK rail systems were already facing significant challenges prior to the COVID-19 crisis, let alone what is expected to become a prolonged economic recovery — perhaps with successive waves of Coronavirus to further complicate things — and with some of the country’s rail operators falling into administration possibly within days. That disaster could unfold every week until every train in the country winds up parked.

Therefore, rather than allow a complete unravelling of the UK rail system via government inaction, Parliament needs to nationalize every rail operation in Britain and during this time of light ridership — solve every rail-related problem — beginning with standardizing the customer experience to the highest possible level.

Whichever rail operator has shown itself to be the most successful railway company over the past two-years (success = a good indication how a rail operator handles the profitable times AND an unprecedented national health crisis) should have their key managers hired by the government and placed in overall charge of the (proposed) then-government-run British Rail. That way the country will have the best-of-the-best operating that newly created pan-UK entity.

Click here to see Britain’s 2019 railway rankings.


Boris Has a Lot on His Plate, but This Is Important

Brexit is ultra-important, of course. No serious person would advocate for dropping things where they are and letting the present uncertainty continue. The government’s response to COVID-19 is super-important too, that goes without saying.

But millions of Britons ride UK trains every year; To work, to sporting events, to visit family, and to check on elderly friends who have no ability to run their own errands, or for some much-needed ‘retail therapy’ or for other reasons. Which makes the British rail system the 3rd-most important issue in 2020 for UK politicians, IMHO. Whatever else goes on in Parliament are politics that will inevitably work out over time.

Fixing the country’s rail system can’t wait because whether you’re a student, an employee, or an employer, trains are essential transportation in the UK.


Switching to Government Ownership

The government should purchase all rail systems at full market value and combine them into one mega-unit and merge them with Network Rail ASAP — putting the government in the position of owning ‘everything rail’ in the country. That way, there would be no delays or pushback whenever vital changes need to be made.

Some rail operators were in such rough shape financially — even before COVID-19 wrecked the economy! — that the purchase price might be £1 (only) along with assuming the existing operator’s corporate debt.

The government would be wrong to assume they have weeks or months to ramp-up to take control of every British rail company; Expect one rail company per month to fall under administration, beginning October 2020.

After a railway is shut down it’s more difficult to begin the process of fixing deficiencies once the former employees have moved-on to other jobs and management is consulting with the banks (and law courts) on outstanding financial issues, and their regular ridership are by then car-sharing or have made other lifestyle choices like quitting their jobs. (Why do that? No train, boss!)

Therefore, whatever the government does, they must actually begin to do it — next month. There’s no luxury of time here. Other than Brexit and COVID-19, this is the country’s most pressing issue and it needs to be handled. Yesterday.


Suggestions:

  1. The UK rail system is powered by high voltage (24,000 volt) overhead lines. This was done to make the UK rail system as CO2-friendly as possible. And while that part of it works well, those locomotives are only as clean as the National Grid that provides the electricity of which only 30% is renewable energy annually — much of it produced at night when the wind is blowing but no trains are running. Therefore, electric trains are dirty trains but only because of the source power plant emissions and the high-ish electricity transmission line losses experienced when dispatching electricity over long distances. However, as many electric locomotives are now nearing time for replacement, clean-burning bio-diesel locos could replace today’s electric locos, helping to create a more reliable railway.  And bio-diesel locomotives feature 80% lower emission levels compared to old-style diesel locos and (bonus feature!) schedule disruptions due to electrical grid failures will no longer occur.
  2. With the huge resources available to government, whatever major problems have been deferred by today’s rail operators due to the inability to afford expensive maintenance or upgrades would easily be afforded by the government acting as sole owner/operator of the country’s entire railway infrastructure. Yes, some immediate infrastructure spending would be required, but as the man says, ‘You can pay me now (a little) or you can pay me later’ (a lot) yet, once the upgrades would be completed the entire UK rail infrastructure would last several decades.
  3. The profound and expensive changes needed throughout the British rail system haven’t been made, can’t be made, and won’t be made by leaving them in the hands of private companies. There isn’t enough profit at the best of times to make both Profit and Necessary Upgrades to their systems. UK rail operators can either have profit or they can make necessary upgrades — not both.
  4. No private rail operator would say it publicly because saying so would affect their bottom line and risk upsetting their shareholders, but they’ve taken the business model as far as possible — and nobody likes to admit defeat! — but they did the best they could within the constraints they operate under. They can’t say it, but it’s time for the government to take back control of the country’s railway networks, fix what’s broken, upgrade what needs upgrading, and once the whole enterprise is purring like a kitten, sell it as a (by then) successful and profitable operation via IPO. The entire upgraded and profitable enterprise could fetch £1 trillion (approximately) 10-years from now, thereby allowing the UK government to (more than) recover the cost of righting the country’s rail system. Woot-Woot!

Written by John Brian Shannon

The UK’s False Narrative on Hong Kong’s Protest Movement

by John Brian Shannon

Way back in the Colonial Era… it seemed a fine thing that a tiny cohort of middle-aged white men born in the United Kingdom could determine the fate of millions of people around the world… and the UK had plenty to offer the world at the time, bringing unheard-of mechanization to countries trying to improve the lives of their respective citizens. So it wasn’t all bad. But…

NEWSFLASH! Those days are over. The Royal Navy no longer rules the waves and the United Kingdom no longer consists of an Empire upon which the Sun never sets. And in no way should UK politicians be trying to roll the clock backward by empowering those who aren’t happy the world has changed.


Some History

In 1997, the UK government signed an agreement to return Hong Kong to China by the year 2000 — an agreement signed in good faith by both parties. And now that a small number of UK politicians, a tiny number of U.S. citizens (by the way, the U.S. was never a signatory of the treaty that returned Hong Kong to China) and several hundred thousand professional protesters from Hong Kong have decided they don’t like the deal, they think they have the right to overturn that good faith agreement.

Well, that just doesn’t cut it. So-called ‘seller’s remorse’ doesn’t present sufficient excuse to overturn a bilateral treaty signed between the UK and China. And that’s that. There’s no ambiguity in the treaty, therefore, there’s no room for debate, nor can there by any justification for failing to adhere to the terms and spirit of the treaty.

If you don’t like it that’s just too bad. Life isn’t fair and nobody ever said it was. So suck it up, people. An international treaty was signed in good faith — and both sides will keep their end of the bargain or chaos will ensue — as has been the case since time began. Check your Grade 12 history textbooks kids, because all the wars ever fought occurred because one side or the other didn’t adhere to the terms of an international treaty signed in good faith.


Thinking of Bringing Your HK Protest Movement to the UK?

Although I’m a supporter of Boris Johnson and his government, offering to host millions of Hong Kong residents in the United Kingdom wouldn’t be my first choice. It may be popular with certain American neocons specifically and China-haters around the world generally, it certainly isn’t the best thing for the average British citizen, the UK economy, future UK trade prospects in Asia, or for Britain’s reputation in the world as a country that abides by both the letter and spirit of international agreements.

Somebody should ask Nigel Farage what he thinks about the UK government offering UK citizenship to millions of Hong Kong protestors so they can simply relocate their violent protests to London. Stand well back, because you’re likely to receive a robust answer.

Not only Nigel Farage, of course. Millions of Britons might not want thousands of Hong Kong residents to suddenly appear in the UK, be granted UK citizenship, and be found protesting (perhaps violently) on behalf of HK issues every weekend in London, Brighton, Manchester or Glasgow.

Something to think about.

 

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