Economic Trade-offs for the next government

[Lootman]

Or maybe we just need a government willing to get out of the way and stop meddling, tinkering and interfering?

Or maybe we don't need politicians of any kind at all and just let businesses get on with it?

Governments do not create wealth. Individuals and businesses do, where they are allowed the freedom to do so.

Governments instead limit, constrain and confiscate wealth through interference, regulations and taxes.

I thought that since Reagan and Thatcher, everyone knew that. But perhaps not, although even Starmer's Labour seems to understand that only economic growth can create opportunities for more public services.

All I ever ask of politicians is that they leave me alone.

[Oggy]

Governments do not create wealth. Individuals and businesses do, where they are allowed the freedom to do so.

Governments instead limit, constrain and confiscate wealth through interference, regulations and taxes.

I thought that since Reagan and Thatcher, everyone knew that. But perhaps not, although even Starmer's Labour seems to understand that only economic growth can create opportunities for more public services.

All I ever ask of politicians is that they leave me alone

Quite so. The problem is we also have a democracy where the majority of the electorate not only want some form of government "control" but seemingly even more of it. As long as that remains the case, then there is little chance of wealth creation. Thus if the country is not able to generate wealth, then it will go nowhere but down the pan. I would admit we probably need some sort of "government", but it should be the absolute minimum required, doing what is necessary rather than stuff that is politically expedient. A very light touch for sure, but I am not sure the people are up for it.

[Lootman]

Governments do not create wealth. Individuals and businesses do, where they are allowed the freedom to do so.

Governments instead limit, constrain and confiscate wealth through interference, regulations and taxes.

I thought that since Reagan and Thatcher, everyone knew that. But perhaps not, although even Starmer's Labour seems to understand that only economic growth can create opportunities for more public services.

All I ever ask of politicians is that they leave me alone

Quite so. The problem is we also have a democracy where the majority of the electorate not only want some form of government "control" but seemingly even more of it. As long as that remains the case, then there is little chance of wealth creation. Thus if the country is not able to generate wealth, then it will go nowhere but down the pan. I would admit we probably need some sort of "government", but it should be the absolute minimum required, doing what is necessary rather than stuff that is politically expedient. A very light touch for sure, but I am not sure the people are up for it.

Yes, the electorate have been bribed (with their own money) and brainwashed into believing that the government is like a generous uncle who will pay for your education, healthcare, housing, food, power and so on. A job becomes an optional lifestyle choice, along with the benefits lifestyle.

The blame goes all the way back to Atlee and, despite the valiant efforts of Thatcher to undo that toxic legacy, we are still stuck with the mindset of a nanny welfare state and an entitlement culture.

[Oggy]

Yes, the electorate have been bribed (with their own money) and brainwashed into believing that the government is like a generous uncle who will pay for your education, healthcare, housing, food, power and so on. A job becomes an optional lifestyle choice, along with the benefits lifestyle.

The blame goes all the way back to Atlee and, despite the valiant efforts of Thatcher to undo that toxic legacy, we are still stuck with the mindset of a nanny welfare state and an entitlement culture

Agreed. Folk will naturally take the easy way out if it is offered to them - especially if it offered to them with other people's money. Trouble is, that money ran out decades ago and such historical largesse has been unsustainable for years - hence the huge - also unsustainable - national debt. There is no such thing as a free lunch. A massive change in thinking is required if the UK has any chance of getting off the Titanic.

[scrumpyjack]

Governments do not create wealth. Individuals and businesses do, where they are allowed the freedom to do so.

Governments instead limit, constrain and confiscate wealth through interference, regulations and taxes.

I thought that since Reagan and Thatcher, everyone knew that. But perhaps not, although even Starmer's Labour seems to understand that only economic growth can create opportunities for more public services.

All I ever ask of politicians is that they leave me alone

Quite so. The problem is we also have a democracy where the majority of the electorate not only want some form of government "control" but seemingly even more of it. As long as that remains the case, then there is little chance of wealth creation. Thus if the country is not able to generate wealth, then it will go nowhere but down the pan. I would admit we probably need some sort of "government", but it should be the absolute minimum required, doing what is necessary rather than stuff that is politically expedient. A very light touch for sure, but I am not sure the people are up for it.

Yes, inevitably there are more who benefit from state largesse than there are well off geese plucked to pay for it. So change can probably only come when things get so catastrophically bad that enough people accept the need for a strong dose of less state and more market forces and elect a government that does what is needed. It was that scenario that got Maggie into power and she was lucky to have the Falklands war, getting another term in office due to a surge in patriotism, and so staying in office long enough for the benefits of nanny's medicine to come through.

Sadly I don't think we are near history repeating itself - yet!

[Hallucigenia]

I refuse to believe that the lack of investment by UK industry is due to government indecision, though it doesn't help. I would blame very high corperate taxation, and taxation in general.

Argument from personal disbelief is no argument, it's just theology. Why not ask 8000 CEOs what they think? [in July 2019]
[*]More than half, 54%, of businesses said Brexit was one of their top three sources of uncertainty.
[*]Anticipation of Brexit is estimated to have gradually reduced investment by about 11% over the three years since the June 2016 vote.
[*]Reduced UK productivity by between 2% and 5% since the referendum.

I don't want to make this about Brexit, it's just a specific cause of uncertainty that has been studied more than most. But just generally it's hard to look at HMG and see any kind of stability in the last 10 years or so, and that's seldom good for outcomes.

Policy stability is perhaps the number 1 requirement - a major cause of the lack of investment has been industry not knowing what government is doing from one week to the next.

Policy stability is a great idea. Starting from when? Interest rates have been near zero for 15 years because they were needed to counter a massive financial heart attack, for which the BoE and the government of the time must share the blame (along with those from other countries). Interest rates have subsequently risen to over 5%, and are unlikely to fall by much in the future. And as for taxation, that has risen to unprecedented post war levels, and under Labour will only go higher.

Jürgen Klopp became manager of Liverpool on 8 October 2015 and since then has won every trophy at least once. But in that time we have had 9 education secretaries, 8 foreign secretaries, 7 Home Secretaries (one twice), 7 Chancellors, 7 health secretaries, 5 PMs, 5 defence secretaries and 5 transport secretaries to mention but a few. That doesn't look like a trophy-winning approach, how can you have any kind of consistency in policy making when you have so many cooks stirring the broth? These are big, complex departments, it takes a year just to understand what's going on - and then they get moved on.

In today's Telegraph:
https://www.telegraph.co.uk/business/20 ... s-economy/

The same shift in mindset is required to address the nation’s wider savings deficit. The numbers here are stark. As a proportion of national income, Britain has one of the lowest savings rates – the part of disposable income that is available to acquire financial and non-financial assets – in the OECD at just 1.7pc. This compares with 6.1pc for the European Union, and 9.1pc for Germany. Like Aesop’s grasshopper, we prefer to live high on the hog and trust in the future to take care of itself.

It's complicated as despite a low savings rate, the average Brit has accumulated much more financial assets than the average German
https://www.ft.com/content/ba96c8ea-b34 ... 002965bce8
our apparent recklessness has an unexpected upside. Brits are better investors. They take risks, they are in some ways better diversified, and they are more appreciative of the need to invest. By contrast, Germans keep far too much in cash, and when they do invest it is usually in high-cost, poor-value products. German incomes are among the highest in Europe, but median net household wealth is actually slightly below that of Greece, according to European Central Bank figures. In some respects, it should not be a surprise that Germans just pile up cash for rainy days. There is much less need for them to save for the three big financial events that Brits must plan for: getting a degree, getting a house and getting a pension.

But the principal problem is that we are not saving enough, so there is not enough for investment.

But again you're making assertions without evidence. If the problem was the UK was not saving enough and political chaos had no effect, then FDI would not be affected. But it has been declining since 2016 - and that's ignoring the withdrawals like Honda :

Too many in the UK are unproductive, receive benefits which are too high, and don't do anything useful. As a result our taxes are too high, and there are a lot of productive people who are saying to themselves - why bother?

The biggest group of unproductive people are pensioners, tying up housing and consuming vast amounts of healthcare without producing things that can help the UK pay her way in the world. So what do you suggest - a cull of everyone over 75, or merely send them somewhere like Rwanda, where they can eke out an existence at a much lower cost to the pension-payer's purse?

[Hallucigenia]

That graph is disposable income. Is it not true that disposable income is so low because our housing costs are so staggeringly high?

The FT seem to be basing their graphs on the OECD definition of net disposable income, which includes taxes *but not housing*, unless housing costs affect the way they normalise household size somehow, it's not clear.

It contains a number of standardised indicators based on the central concept of “equivalised household disposable income”, i.e. the total income received by the households less the current taxes and transfers they pay, adjusted for household size with an equivalence scale.

At least in 30% of the country. Immigration and govt subsidy both serve to make this worse, not better.

That's the point - problems come from trying to squeeze economic activity into 30% of the country, forcing up average house prices. Just take the Zeneca example and imagine if you reversed it - 3000 households leaving Cambridge for Macclesfield. Just looking at Rightmove, they have 137 3-bed houses in Cambridge, the median is £550k, cheapest is £375k. Median of the 90 in Macclesfield is £280k, cheapest is £160k with a couple under £200k. So housing costs are halved in Macc versus Cambridge. Obviously 3000 households moving will have an effect on the local market - but not enough to bring Macc house prices up to those in Cambridge.

[Tedx]

The biggest group of unproductive people are pensioners, tying up housing and consuming vast amounts of healthcare without producing things that can help the UK pay her way in the world. So what do you suggest - a cull of everyone over 75, or merely send them somewhere like Rwanda, where they can eke out an existence at a much lower cost to the pension-payer's purse?

We used to be able to ship them off to Spain, France and Portugal.

[Hallucigenia]

Unfortunately, AIUI the Nimbys don't want a new reservoir built where it is presently most needed, on the upper Thames near Abingdon.

Have the water companies stopped leakages ? I didn't think they had.

https://www.theguardian.com/environment/2022/aug/19/water-firms-england-wales-litres-leaky-pipes-ofwat

The industry and its financial regulator, Ofwat, say the water companies lost an average of 2,923.8m litres of water a day in 2021-22, equating to 1.06tn litres over the year, although Ofwat said the figures remained provisional until it has completed validation checks.

The figure amounts to the equivalent of 426,875 Olympic swimming pools or more than three and a half Lake Windermeres.

Under pressure from Ofwat they may have reduced leakage slightly in the last few years but the amount of leakage is still gigantic.

You may think UK leakage is gigantic, but it's relatively low by European standards and about 40% of leakage in the US (and leakage in England/Wales is about 2/3 that in Scotland or NI). It's a lazy attack that denies the progress that's been made.


Part of it is that most of the best sites for reservoirs have already been taken, but Thames Water have been trying to build Abingdon since 1996, and have ended up doing things like building a £250m desalination plant at Beckton instead. Plus spending over £4bn on the Thames Tideway "supersewer" - it's not like they haven't been investing in their network.

[Hallucigenia]

The UK must have the most potential of all the developed countries in the world - even if only to get us up to a reasonable standard.

We are the low hanging fruit of developed nations.

What is the basis for these assertions - or is this just more British exceptionalism?

[Tedx]

The UK must have the most potential of all the developed countries in the world - even if only to get us up to a reasonable standard.

We are the low hanging fruit of developed nations.

What is the basis for these assertions - or is this just more British exceptionalism?

Not at all. I'm saying that we are the furthest behind and therefore have the most potential

[Nimrod103]

I refuse to believe that the lack of investment by UK industry is due to government indecision, though it doesn't help. I would blame very high corperate taxation, and taxation in general.

Argument from personal disbelief is no argument, it's just theology. Why not ask 8000 CEOs what they think? [in July 2019]
[*]More than half, 54%, of businesses said Brexit was one of their top three sources of uncertainty.
[*]Anticipation of Brexit is estimated to have gradually reduced investment by about 11% over the three years since the June 2016 vote.
[*]Reduced UK productivity by between 2% and 5% since the referendum.

I don't want to make this about Brexit, it's just a specific cause of uncertainty that has been studied more than most. But just generally it's hard to look at HMG and see any kind of stability in the last 10 years or so, and that's seldom good for outcomes.

I can well believe that if you asked 8000 CEOs if they could attract more investment if taxation was lower and returns to shareholders higher, they would agree completely.

Policy stability is a great idea. Starting from when? Interest rates have been near zero for 15 years because they were needed to counter a massive financial heart attack, for which the BoE and the government of the time must share the blame (along with those from other countries). Interest rates have subsequently risen to over 5%, and are unlikely to fall by much in the future. And as for taxation, that has risen to unprecedented post war levels, and under Labour will only go higher.

Jürgen Klopp became manager of Liverpool on 8 October 2015 and since then has won every trophy at least once. But in that time we have had 9 education secretaries, 8 foreign secretaries, 7 Home Secretaries (one twice), 7 Chancellors, 7 health secretaries, 5 PMs, 5 defence secretaries and 5 transport secretaries to mention but a few. That doesn't look like a trophy-winning approach, how can you have any kind of consistency in policy making when you have so many cooks stirring the broth? These are big, complex departments, it takes a year just to understand what's going on - and then they get moved on.

But the same party has been in power throughout that period - are you arguing that a change of party this year would be a bad idea?
Although individual ministers have been changed out continually, their general pro business and low tax philosophy has continued throughout, though of course, Covid and wars have prevented some of those policies being implimented. The Civil Service has also remained a constant feature throughout, and they largely run the show. In fact one of the criticisms levelled over recent years and which appears to be justified is that the Treasury refuses to change its basic economic approach to the UK economy which it has followed since WW2. It has been blamed for being fundamentally anti-growth for a long time.

In today's Telegraph:
https://www.telegraph.co.uk/business/20 ... s-economy/

The same shift in mindset is required to address the nation’s wider savings deficit. The numbers here are stark. As a proportion of national income, Britain has one of the lowest savings rates – the part of disposable income that is available to acquire financial and non-financial assets – in the OECD at just 1.7pc. This compares with 6.1pc for the European Union, and 9.1pc for Germany. Like Aesop’s grasshopper, we prefer to live high on the hog and trust in the future to take care of itself.

It's complicated as despite a low savings rate, the average Brit has accumulated much more financial assets than the average German
https://www.ft.com/content/ba96c8ea-b34 ... 002965bce8
our apparent recklessness has an unexpected upside. Brits are better investors. They take risks, they are in some ways better diversified, and they are more appreciative of the need to invest. By contrast, Germans keep far too much in cash, and when they do invest it is usually in high-cost, poor-value products. German incomes are among the highest in Europe, but median net household wealth is actually slightly below that of Greece, according to European Central Bank figures. In some respects, it should not be a surprise that Germans just pile up cash for rainy days. There is much less need for them to save for the three big financial events that Brits must plan for: getting a degree, getting a house and getting a pension.

Surely the UK approach of being more keen on risk is good? What it does imply (at least to me) is that Brits are more keen to invest outside the UK because they see the prospect of better investment returns. Whereas the Germans prefer to invest domestically, and their lack of pension savings and reliance on the state pension system only emphasises that. So why don't Brits invest deomestically - well maybe they think the returns aren't good enough?

But the principal problem is that we are not saving enough, so there is not enough for investment.

But again you're making assertions without evidence. If the problem was the UK was not saving enough and political chaos had no effect, then FDI would not be affected. But it has been declining since 2016 - and that's ignoring the withdrawals like Honda :

Has FDI been suffering?
https://www.ey.com/en_uk/news/2023/06/f ... ct-numbers
19 Jun 2023 London, GB
Foreign Direct Investment: UK remains second in Europe despite a fall in project numbers, new EY report reveals


I was upset by Honda's departure (because they made IMHO the most reliable car on the road), but they were only a small operation, and AIUI they are not much committed to electric cars, and the UK Govt has made clear that there is no future for ICE in the UK.

Too many in the UK are unproductive, receive benefits which are too high, and don't do anything useful. As a result our taxes are too high, and there are a lot of productive people who are saying to themselves - why bother?

The biggest group of unproductive people are pensioners, tying up housing and consuming vast amounts of healthcare without producing things that can help the UK pay her way in the world. So what do you suggest - a cull of everyone over 75, or merely send them somewhere like Rwanda, where they can eke out an existence at a much lower cost to the pension-payer's purse?

Do we have more pensioners pro rata compared with comparable countries? Raising the retirement age (now much higher than France for example) must have solved that issue. Many pensioners perform a lot of valuable roles in society, though I would probably agree that the state pension is inordinately generous to a lot of pensioners who have not paid anywhere near the contributions that would afford the state pension they receive if prevailing annuity rates were used instead of the present rather redistributional method.

[Lootman]

The biggest group of unproductive people are pensioners, tying up housing and consuming vast amounts of healthcare without producing things that can help the UK pay her way in the world. So what do you suggest - a cull of everyone over 75, or merely send them somewhere like Rwanda, where they can eke out an existence at a much lower cost to the pension-payer's purse?

That demographic is however quite wealthy, meaning that they are providing a lot of capital for investment, risk-taking and wealth-creation. And by your own prior admission UK individuals are richer than the ostensibly harder-working Germans, and better investors as well.

So do not dismiss the productivity of British pensioners. Guided by their greater wisdom and experience, their investments (and taxes) help fuel national wealth. I have not worked in 25 years but I still feel I am contributing.

[Nimrod103]

The biggest group of unproductive people are pensioners, tying up housing and consuming vast amounts of healthcare without producing things that can help the UK pay her way in the world. So what do you suggest - a cull of everyone over 75, or merely send them somewhere like Rwanda, where they can eke out an existence at a much lower cost to the pension-payer's purse?

That demographic is however quite wealthy, meaning that they are providing a lot of capital for investment, risk-taking and wealth-creation. And by your own prior admission UK individuals are richer than the ostensibly harder-working Germans, and better investors as well.

So do not dismiss the productivity of British pensioners. Guided by their greater wisdom and experience, their investments (and taxes) help fuel national wealth. I have not worked in 25 years but I still feel I am contributing.

Yes that is the conundrum this country finds itself in. The gist of all the posts above, and all the reports cited above in this thread, is that the UK needs much more investment both in state and private enterprises. Yet the only people who can afford to invest are the rich, the reasonably well off, and pensioners. But they are precisely the target groups for the higher taxes which Labour will have in their sights to raise the funds needed to keep their vote base happy, and pursue their green agenda. I foresee the decline of the UK continuing.

[funduffer]

Yes that is the conundrum this country finds itself in. The gist of all the posts above, and all the reports cited above in this thread, is that the UK needs much more investment both in state and private enterprises. Yet the only people who can afford to invest are the rich, the reasonably well off, and pensioners. But they are precisely the target groups for the higher taxes which Labour will have in their sights to raise the funds needed to keep their vote base happy, and pursue their green agenda. I foresee the decline of the UK continuing.

Left to their own devices, the rich / pensioners / pension funds have shown they do not invest in UK industry, preferring UK gilts, or overseas equities. So what is a government to do to attract this wealth into UK investment?

It can either tax the wealth and invest the money in infrastructure, public services, private investment incentives etc, or provide incentives for direct investment in public or private business.

Labour's green initiative would be aimed at incentivising investment in green technology through tax breaks / subsidies / private investment incentives. It would create jobs and help solve the climate crisis. Not dissimilar to Biden's IRA in the USA. The latter has been the springboard for strong growth in the uSA.

[Nimrod103]

Yes that is the conundrum this country finds itself in. The gist of all the posts above, and all the reports cited above in this thread, is that the UK needs much more investment both in state and private enterprises. Yet the only people who can afford to invest are the rich, the reasonably well off, and pensioners. But they are precisely the target groups for the higher taxes which Labour will have in their sights to raise the funds needed to keep their vote base happy, and pursue their green agenda. I foresee the decline of the UK continuing.

Left to their own devices, the rich / pensioners / pension funds have shown they do not invest in UK industry, preferring UK gilts, or overseas equities. So what is a government to do to attract this wealth into UK investment?

It can either tax the wealth and invest the money in infrastructure, public services, private investment incentives etc, or provide incentives for direct investment in public or private business.

Labour's green initiative would be aimed at incentivising investment in green technology through tax breaks / subsidies / private investment incentives. It would create jobs and help solve the climate crisis. Not dissimilar to Biden's IRA in the USA. The latter has been the springboard for strong growth in the uSA.

I'm not sure the groups (who have Labour tinged targets on their backs) prefer UK gilts. These are sold to DB pension funds who are forced to buy them to satisfy the Govt imposed requirements of solvency.

It is an interesting question whether UK investors should be incentivised (i.e. either compelled or encouraged with tax breaks financed by levying higher taxes on somebody else) to invest in the UK rather than internationally. For the sake of diversity, international investment is good, but perhaps the correct observation is why investment in the UK is not attractive enough. There have been stories in the press just in the last week about how the UK stockmarket is being shunned by UK investors and is thus undervalued.

It is all very well giving tax breaks and subsidies to green technology, as long as it is recognised that the flip side of that coin is that some other person will have higher taxes to pay for it. There was a story yesterday about higher petrol and diesel prices being imposed to raise green funds. What will that do the UK standard of living?

[Oggy]

Yes that is the conundrum this country finds itself in. The gist of all the posts above, and all the reports cited above in this thread, is that the UK needs much more investment both in state and private enterprises. Yet the only people who can afford to invest are the rich, the reasonably well off, and pensioners. But they are precisely the target groups for the higher taxes which Labour will have in their sights to raise the funds needed to keep their vote base happy, and pursue their green agenda. I foresee the decline of the UK continuing

Spot on, though not sure we need more State. The high taxes we have at present are the main factor why investors look elsewhere - other factors are a a poor work ethic, low productivity and over-regulation. Labour of course will do precisely as per the last sentence to keep the addiction of their burgeoning client State going so the ever increasing numbers of users continue to vote for them. They still haven't figured out that you cannot tax the country to prosperity, but then again I am pretty sure Labour don't want folk to prosper as that would defeat the point of a Labour party. Keep them down, keep them chippy, keep them in thrall to the drug of a client State. Don't let them go cold turkey for heaven's sake!

[Lootman]

Yes that is the conundrum this country finds itself in. The gist of all the posts above, and all the reports cited above in this thread, is that the UK needs much more investment both in state and private enterprises. Yet the only people who can afford to invest are the rich, the reasonably well off, and pensioners. But they are precisely the target groups for the higher taxes which Labour will have in their sights to raise the funds needed to keep their vote base happy, and pursue their green agenda. I foresee the decline of the UK continuing.

Left to their own devices, the rich / pensioners / pension funds have shown they do not invest in UK industry, preferring UK gilts, or overseas equities. So what is a government to do to attract this wealth into UK investment?

It can either tax the wealth and invest the money in infrastructure, public services, private investment incentives etc, or provide incentives for direct investment in public or private business.

That latter case has already been tried. PEPs originally were designed to favour UK investments. There are also VCTs and AIM shares, both of which carry tax advantages.

But even so I now only hold one direct UK investment and that situation will continue until the UK offers high returns again, and it has been decades since that was the case. Such a transition would require the government to back off and not get even more involved.

[funduffer]

It looks like the IMF just voted for option 3, or maybe 4.

IMF warns UK government against further tax cuts https://www.bbc.co.uk/news/business-68140634

IMF warns UK government against further tax cuts

FD

[Oggy]

IMF warns UK government against further tax cuts

.and what would the IMF do to incentivise growth - or even maintain the status quo for that matter? High taxes are a fundamental reason why investors do not invest in the UK. Tax needs to be cut - like Ireland has done - in order to attract investment and worthwhile quality jobs. Otherwise the UK will just stagnate and investors will go elsewhere.