Economic Trade-offs for the next government

[Nimrod103]

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

I would find IMF predictions more convincing if they had a good track record of accuracy.
But they don't:

https://order-order.com/2023/01/31/all- ... forecasts/

NB for those who don't like opening Guido Fawkes articles, this one contains a graph of actual data, and therefore is indisbutable.

[Urbandreamer]

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.

I disagree. It's not lack of tax cuts, but the fact that you can't trust the government not to impose new high taxes. Speaking as an investor who woke up one morning to find that the government has decided to slap a 25% additional tax upon the profits of the companies that I had invested in, because they DON'T produce gas, the UK government can go hang.

No I won't be making further investments to help meet net zero.
No I don't trust the government.
No I wouldn't trust any "tax cuts", given that they can't really be financed.

Incentivizing growth? How about allowing investors to benefit from the growth that they have engendered?

Are you HONESTLY arguing that "windfall tax" is going to be reversed? Do renewable energy companies get the vote now?

The phrase "tax cuts" in this sense should be read "election bribe". At the end of the day, THAT is why our government is upset with the IMF. Arguably by publicly talking UK finances, the IMF is interfering in the election. The economics of the situation shouldn't be shown to the voters, only the personal tax cuts, and you can be sure that any tax cuts will be aimed at voters, not the economy.

Not that I have a high opinion of the IMF either.

[Oggy]

I disagree. It's not lack of tax cuts, but the fact that you can't trust the government not to impose new high taxes. Speaking as an investor who woke up one morning to find that the government has decided to slap a 25% additional tax upon the profits of the companies that I had invested in, because they DON'T produce gas, the UK government can go hang.

No I won't be making further investments to help meet net zero.
No I don't trust the government.
No I wouldn't trust any "tax cuts", given that they can't really be financed.

Incentivizing growth? How about allowing investors to benefit from the growth that they have engendered?

Are you HONESTLY arguing that "windfall tax" is going to be reversed? Do renewable energy companies get the vote now?

The phrase "tax cuts" in this sense should be read "election bribe". At the end of the day, THAT is why our government is upset with the IMF. Arguably by publicly talking UK finances, the IMF is interfering in the election. The economics of the situation shouldn't be shown to the voters, only the personal tax cuts, and you can be sure that any tax cuts will be aimed at voters, not the economy.

Not that I have a high opinion of the IMF either.

Taxes are just too high to attract investors. You mention windfall tax for instance and I can tell you first hand that a major reason why the major oil companies fail to invest in UK waters is precisely that tax. They can simply drill elsewhere and make far more profit. I'd agree that in this context it probably is an election bribe, but in the wider context, taxes must be cut for the benefit of the economy.

[Nimrod103]

.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.

I disagree. It's not lack of tax cuts, but the fact that you can't trust the government not to impose new high taxes. Speaking as an investor who woke up one morning to find that the government has decided to slap a 25% additional tax upon the profits of the companies that I had invested in, because they DON'T produce gas, the UK government can go hang.

No I won't be making further investments to help meet net zero.
No I don't trust the government.
No I wouldn't trust any "tax cuts", given that they can't really be financed.

Incentivizing growth? How about allowing investors to benefit from the growth that they have engendered?

Are you HONESTLY arguing that "windfall tax" is going to be reversed? Do renewable energy companies get the vote now?

The phrase "tax cuts" in this sense should be read "election bribe". At the end of the day, THAT is why our government is upset with the IMF. Arguably by publicly talking UK finances, the IMF is interfering in the election. The economics of the situation shouldn't be shown to the voters, only the personal tax cuts, and you can be sure that any tax cuts will be aimed at voters, not the economy.

Not that I have a high opinion of the IMF either.

Never forget the first rule of taxation - You can only tax people who have money (I just made that up).
And the second rule - You can only tax people with money if they don't/can't emigrate.

[Oggy]

Never forget the first rule of taxation - You can only tax people who have money (I just made that up).
And the second rule - You can only tax people with money if they don't/can't emigrate.

Third rule - you cannot tax your way to prosperity

[TUK020]

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 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?

Thank you for bringing data to the discussion

[Charlottesquare]

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?

Give them all free drink and drugs and their duration of being a drain on the state will be greatly reduced- The Who had a point.

[scotview]

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.

Ah but, what about those pensioners paying many £K's o' poonds in tax to the treasury whilst other oldies get every credit/allowance/benefit going and pay zero tax.

Life eh?

[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.

Ah but, what about those pensioners paying many £K's o' poonds in tax to the treasury whilst other oldies get every credit/allowance/benefit going and pay zero tax.

Life eh?

The pension credit handout makes a mockery of "earning" a state pension through NICs.

[Tedx]

Me and the missus have both earned the full state pension entitlement, yet we have to keep paying in for another decade or more (assuming we keep on working for that time of course).

Bah.

[Lootman]

Me and the missus have both earned the full state pension entitlement, yet we have to keep paying in for another decade or more (assuming we keep on working for that time of course).

Bah.

I was never in that situation. But it would make me so mad.

But I fear that there is no political party that cares about such injustices.

[funduffer]

More calls to increase public investment to grow the economy….and that fiscal rules are ‘made up nonsense’!

https://www.theguardian.com/environment ... SApp_Other

Labour need to keep their £28bn pledge on green investment if UK wants to match what is happening in China, USA and the EU.

Also, the Tories have ‘turned their back on industry’…….but then we knew that.

FD

[Nimrod103]

Me and the missus have both earned the full state pension entitlement, yet we have to keep paying in for another decade or more (assuming we keep on working for that time of course).

Bah.

I was never in that situation. But it would make me so mad.

But I fear that there is no political party that cares about such injustices.

I don't know where Tedx gets this quaint but erroneous notion that the state pension is earned. It is a benefit based on a socialist redistributive model. He has reached the maximum future payout level, but is still paying into scheme. Well, somebody has to pay for all those pensions awarded to people who have not paid in enough in actuarial terms to achieve the returns they will get when they retire.

[Nimrod103]

More calls to increase public investment to grow the economy….and that fiscal rules are ‘made up nonsense’!

https://www.theguardian.com/environment ... SApp_Other

Labour need to keep their £28bn pledge on green investment if UK wants to match what is happening in China, USA and the EU.

Also, the Tories have ‘turned their back on industry’…….but then we knew that.

FD

There appears to be minimal flesh on the bones of where the £28 Bn might be spent. One quote is:

Investing in energy infrastructure, transport, innovation in new technologies such as AI, and the natural environment would boost the UK’s economy rapidly, the research found.

While another in the various linked articles includes repairing schools and fixing potholes as well. Though these cannot really be described as being 'green' issues.

The ex-Head of Siemens is quoted, so I imagine buiding more wind farms is key (at least to him), but the problems now holding them back are mainly concerning the price offered for the electricity. Wind power was supposed to be cheap, but we find that it is not, though it may be cheaper in the long run than Sizewell C. As before, what is really needed is a technological breakthrough in the commercial storage of electrical power, otherwise we will continue to need gas. And thank God we still have one coal fired power station left, otherwise the lights really would be going out.

[servodude]

Wind power was supposed to be cheap, but we find that it is not.

Got anything to back this up?
Cos it's certainly the opposite of my experience in the field and in the evidence of costs.
Or are you deluded from the sham market experience of the UK
- got anything? anything at all?

[Nimrod103]

Wind power was supposed to be cheap, but we find that it is not.

Got anything to back this up?
Cos it's certainly the opposite of my experience in the field and in the evidence of costs.
Or are you deluded from the sham market experience of the UK
- got anything? anything at all?

Yes, my electricity bills have not gone down significantly, and there is no prospect of them doing so in future.

Edit to add, there was a report:
https://www.iea.org/data-and-statistics ... -2016-2025

And quoting somebody else's comment on the report:

The fact is the IEA are misrepresenting the prices we are actually paying.
We are NOT paying $45.50/MWh for wind power. We are paying about 3-4 times that.
Even that price does not even include the billions we spend on grid balancing, and also, most crucially, it is not the price for keeping us supplied 24/365.
The last auction no-one wanted to bid at a price well above this.
We are patently not paying $45.50 for wind power in the UK.

[Oggy]

Yes, my electricity bills have not gone down significantly, and there is no prospect of them doing so in future.

Correct. Wind is a scam perpetrated not only on the bill payer but also the tax-payer via subsidies - invariably the same person paying twice for their miserable unit.

https://www.ft.com/content/cb351788-377 ... cc28293e7d

Add to that the cost of keeping other power generation capability on stand-by when the wind does not blow - which costs almost as much as running them at full generating capacity.

Wind is a great idea in principle, not so in practice - certainly not in terms of benefiting the bill payer. Add to the mix a government which has no clue and it ends up being yet another fine mess.

[gryffron]

Add to that the cost of keeping other power generation capability on stand-by when the wind does not blow - which costs almost as much as running them at full generating capacity.

No, it really doesn't. That's nonsense. Gas Turbines cost almost nothing on stand-by. Even coal/steam only requires you to feed the boiler losses on standby.

Also, wind/solar is reasonably predictable on a national scale. We know which days are likely to be windy/cloudy, and when it will get dark. So not much short term stand-by is required.

I concede there's still the capital cost of building capacity for dark/still days. But their use can typically be predicted hours/days in advance. And if they're used less then their lifetime should be longer.

Gryff

[Nimrod103]

Add to that the cost of keeping other power generation capability on stand-by when the wind does not blow - which costs almost as much as running them at full generating capacity.

No, it really doesn't. That's nonsense. Gas Turbines cost almost nothing on stand-by. Even coal/steam only requires you to feed the boiler losses on standby.

Also, wind/solar is reasonably predictable on a national scale. We know which days are likely to be windy/cloudy, and when it will get dark. So not much short term stand-by is required.

I concede there's still the capital cost of building capacity for dark/still days. But their use can typically be predicted hours/days in advance. And if they're used less then their lifetime should be longer.

Gryff

Do you think gas turbines and the one remaining coal fired power station cost almost nothing when on standby? If you owned one of these assets, would you charge nothing during down time? What would you charge during uptime - compared with what you would charge if it was running all the time?

[funduffer]

Related to this thread, there is a new report on the State of the UK Economy from the economists at UK in a Changing Europe.

https://ukandeu.ac.uk/reports/the-state ... nomy-2024/

It is quite long but has some interesting trends plotted out.

From the introduction:

It’s hard to sum this all up – and, as noted above, there is no single silver bullet
for the problems we face – but some themes do emerge.

One is the need for a longer-term, joined up approach in policy areas ranging
from education to public services to artificial intelligence. The UK has long been
plagued by short-termism, and the political instability of the past few years
has considerably aggravated this already damaging tendency. Incrementalism,
whereby further complications are layered onto existing systems to the point
where they are no longer comprehensible to policymakers, let alone the public,
also imposes considerable costs, the tax and planning systems being cases in
point. Both a clearer vision of how systems should work, and a feasible plan for
how to get there over the medium to long term, are required.

Second, we need to work both with our strengths and with the grain of
technological progress. The UK is fortunate in that our most successful sectors
– high-productivity tradeable services – are likely to represent a growing share of
the global economy. But to make the most of that we need domestic policies that
enable them to grow and to be more productive – in particular housing, planning,
and transport policies that foster growth in our major cities. And we need
trade and regulatory policies that make them globally competitive. Regulatory
uncertainty and political short termism should not be allowed to undermine
the obvious strengths the UK enjoys, for instance, around higher education and
artificial intelligence.

Finally, economics is not, and should not be, separate from broader social
policy concerns. The disappointing overall economic performance of the last
fifteen years has also seen existing inequalities entrenched and in many ways
exacerbated. There is no conflict between strategies to increase growth and those
to reduce inequalities. Indeed, in areas ranging from education to tax to regional
policy, they are complementary. The UK can be both a more prosperous and a
fairer society.

None of which is to say that this will be easy. Yes, simplistic or single-source
explanations – like austerity or Brexit – are insufficient, but there is no denying
that both have worsened the problems we face and will make addressing them
harder. Yet this is not a counsel of despair. What is needed, and what this report
provides, is a clear-eyed and honest analysis of where we are, as a basis for
planning how we might get where we want to be.

Enjoy!

FD