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Graham Watson
onto Macroeconomics: UK economy, IB Economics June 28, 2024 3:50 AM
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HMRC data shows 26% more people over state pension age paying tax on earnings than in 2021-22
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Announcement comes after former minister Alan Milburn says Britain has neglected a generation of young people
Graham Watson's insight:
And here's a classic method of trying to reduce youth unemployment - and structural unemployment - by expanding vocational training schemes. One problem? Like housing targets, these sort of schemes have been rolled out for the best part of 50 years to little effect. Apprenticeship Levy anyone?
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Alan Milburn, who is leading review commissioned by government, says current strategy ‘going in wrong direction’
Graham Watson's insight:
Alan Milburn has been commissioned to report back to the government on youth unemployment and it seems that he's going to recommend a 'reset' of the system, with specific focus on reforming the benefit system to try to reduce the number of NEETs, and get the young back into work.
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UK consumers likely to face higher prices ‘for many months to come’ | Retail industry | The Guardian
Data shows even if Iran war ends, shop price inflation on rise, while only 16% of firms left unscathed by conflict
Graham Watson's insight:
Inflation's on the rise, and is likely to continue to rise in the months ahead as a result of the Iran conflict. The British Retail Consortium is reporting that shop price inflation is already on the rise and more than 80% of firms are facing higher costs. This is likely to translate into inflation although competition to sell TVs in the run-up to the World Cup and between supermarkets is acting as a drag on prices.
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Borrowing, the difference between spending and income from taxes, was £24.3bn last month.
Graham Watson's insight:
Government borrowing for last month was £4bn higher than expected, largely due to higher than expected spending. Total borrowing reached £24.3bn but watch this space; it's likely to rise further in the second half of the year.
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Chancellor Rachel Reeves is to reveal a £100m fare-free bus scheme designed to relieve cost-of-living pressures.
Graham Watson's insight:
The government has announced a series of measures designed to help tackle the cost of living crisis: a temporary suspension of some tariffs on food imports and a scheme to allow 5-15 year olds free bus travel in August.
Help for the poorest in society, albeit only at the margin.
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National Audit Office says potential benefits are ‘considerable but uncertain’ while risks are ‘immediate and substantial’
Graham Watson's insight:
It's not been a good week for infrastructure investment, with the National Audit Office warning that the £38bn cost of the proposed Sizewell C nuclear plant is such that the risks are front loaded, and the benefits likely to be deferred a long time into the future. Factor in the potential for cost overruns and the cost-benefit analysis would look even less favourable, although, of course, the government claim that the plant is another step towards the UK's energy security.
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Lower than expected April annual rate a lift for Rachel Reeves, who moved some renewables costs away from household bills
Graham Watson's insight:
I'm sure that there will be more to follow but the news that inflation has fallen to 2.8% has seemingly caught people off-guard, given the ongoing war in Iran. However, energy and water bills are down in comparison with last year. However, it's clearly just the calm before the storm and inflation is going to pick up later in the year and this means that any monetary policy decisions are likely to be put on hold for the foreseeable future.
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Rise in unemployment and weak pay growth underline how tough this year will be for UK households
Graham Watson's insight:
The Guardian take on today's labour market data, seeing it as symptomatic of an economy in retreat as a result of the Iran war, with rising unemployment, weakening pay growth and an emerging cost of living crisis suggesting there are tough times ahead.
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Port has upgraded offshore wind facilities and is to expand quays, ferry terminals and cruise ship services
Graham Watson's insight:
Regional multiplier effect alert! Infrastructure investment in Northern Ireland, in the form of investment in Belfast's port has the capacity to boost regional incomes.
Not so fast! Given that the article opens "The operator of Belfast harbour plans to spend £1.3bn over the next 25 years to take advantage of strong economic growth in Northern Ireland, in what would be one of the largest non-governmental investments in the region’s history", this rather implies that the investment has been induced to strong growth, implying an accelerator effect.
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Wes Streeting has suggested he wants to see the UK ‘back in the EU’ one day – but the bloc might take some convincing
Graham Watson's insight:
The nascent Wes Streeting leadership campaign has floated the idea of rejoining the European Union, but this rather pre-supposes that they are going to have us. And even if we do rejoin, the terms of our relationship have yet to be determined.
The article looks at a variety of options - Swiss or Norwegian-style halfway houses, or incremental attempts to remove trade frictions between the UK and the EU.
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Growth has been upgraded from 0.8% to 1% for 2026 in the influential body's latest forecast.
Graham Watson's insight:
Today's IMF growth forecast has upgraded the UK's economic growth prospects - suggesting that instead of the previous forecast growth of 0.8%, the UK is likely to grow by 1.0% this year.
Of course, there are significant caveats to this; continued uncertainty resulting from the situation in the Middle East and the political uncertainty in the UK could both act as a drag on growth in the rest of the year.
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British Chambers of Commerce survey shows firms ‘are dealing with rising levels of theft, fraud and cyber-attacks’
Graham Watson's insight:
A British Chambers of Commerce (BCC) survey of businesses reveals that an increasing number of them are of the view that crime is a significant impediment to growth. This includes everything from shoplifting affecting retailing to cyber attacks and fraud. Firms such as Marks & Spencer, Jaguar Land Rover and the Co-op have all fallen victim to cyber attacks, with the one of JLR estimated to have cost the economy nearly £2bn.
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A new review confirms the high-speed rail line's "original sins" include a technical design, changing political priorities and ballooning costs.
Graham Watson's insight:
The much maligned HS2 rail line is going to be the focus of much attention this week as a review highlights why it's going to cost so much and be late in opening, casting doubt on whether it's going to provide value for money or not.
It seems that a lack of clarity and political dithering and an obsession with speed are going to be singled out as the major cause of all the expense. I'm sufficiently cynical to suggest that it would have been cheaper, and finished faster had we got the Chinese to build it for us.
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Hitting government’s target of getting 80% of workers into jobs would reduce cost of universal credit by £10bn
Graham Watson's insight:
Heather Stewart writes a companion piece highlighting the fact that if the government can reach its own target of getting 80% of the population of working age into jobs it would, according to the Joseph Rowntree Foundation, reduce the cost of Universal Credit by £10bn. That's quite a cost saving - and a good example of the opportunity cost of unemployment for the public finances.
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Rachel Reeves tells ministers to ‘buy British’ in four key industries | Rachel Reeves | The Guardian
Exclusive: Chancellor pushes for procurement of ships, steel, energy and AI to prioritise Britishness as well as cost
Graham Watson's insight:
Aha! A lesser spotted method of protectionism, with Rachel Reeves telling ministers to "buy British" in relation to ships, steel, energy and AI. However, it's fairly common, and was part of Joe Biden's Inflation Reduction Act, for example.
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Spending committee finds MoD most wasteful and also points to cancelled schemes such as Rwanda and Stonehenge
Graham Watson's insight:
The Public Accounts Committee - up there with the National Audit Office as a scrutineer of government spending is reporting that abandoning various projects cost taxpayers nearly £7bn. This is effectively waste - and obviously has an opportunity cost. And surprisingly, the Ministry of Defence was the worst culprit. Who would have thought it?
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City made outsized contribution to falling levels of deprivation between 2010 and 2025, thinktank finds
Graham Watson's insight:
The latest Centre for Cities research suggests that Manchester did the most of any city to reduce urban deprivation in the fifteen years to 2025, leading some to argue that this boosts the Labour leadership prospects of Andy Burnham and his more interventionist approach to policymaking.
The notion of "Manchesterism" as a solution to deprivation strikes me as unduly smug though: there are many factors that have played into this and public policy is only one of them. Perhaps the most valid point made in the article is that the greatest reductions in deprivation have come from parts of the country with regional autonomy and metro mayors.
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Keir Starmer describes the agreement, worth double original estimates, as a ‘huge win’ for British businesses
Graham Watson's insight:
The UK has struck another trade deal, this time with the Gulf states which is going to offer £3.7bn in benefits for British exporters, particularly the food and luxury cars sector. Services are also included in the deal.
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Centre for London report finds levy on property wealth would free up homes, fund social housing and help renters save for deposits
Graham Watson's insight:
The Centre for London argues that scrapping stamp duty and replacing Council Tax with an annual levy of property wealth would help ease the capital's housing crisis. But would it? And what are the implications for the rest of the country - would the scrapping of Stamp Duty be universal?
The argument is that the moves would encourage downsizing, but I'm not convinced - and surely the scrapping of Stamp Duty would increase house prices?
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Transport secretary Heidi Alexander blames Conservative government for ‘obscene increase in times and costs’
Graham Watson's insight:
Just dire news about HS2; the project has been so ill-managed that its initial cost is going to potentially rise to £102bn, and the first trains might not run until 2039. In short, that's £70bn more than first thought and opening 13 years late.
As a said, only half tongue in cheek: it would have been cheaper, and quicker, if we'd have paid the Chinese to do it.
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From
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The number of UK job vacancies also fell to its lowest level in five years as the initial impact of the Iran war on businesses starts to be seen.
Graham Watson's insight:
I'm not entirely convinced by the headline's suggestion that this is "unexpected" - I would have thought that the effects of the Iran war would have been entirely consistent with the prospect of higher unemployment and falling job vacancies.
However, if you compare this with recent optimistic growth figures will perhaps that's where the confusion lies.
Either way unemployment's ticked up to 5.0%, albeit at a time when there are a few issues with the quality of data collection.
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Labour leadership contender Wes Streeting calls Brexit a ‘catastrophic mistake’ while Andy Burnham sees ‘long-term case’ for rejoining EU
Graham Watson's insight:
And here's a Guardian explainer that looks at the options potential open to the UK in the event that it does want a closer rapprochement with the EU, as well as the current state of play and the prospect of a closer relationship.
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Households ‘increasingly gloomy’ about finances amid fears of interest rate rises due to higher fuel prices
Graham Watson's insight:
More data has emerged suggesting that the cost of living crisis is starting to affect consumer confidence, and consumption and saving decisions.
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Chancellor has been under pressure to extend 5p temporary cut at an estimated cost to government of £2.4bn a year
Graham Watson's insight:
It looks like the Chancellor is going to extend the 5p temporary cut, first announced in 2022 by Rishi Sunak, to fuel duty to ease the cost of living crisis associated with the Iran conflict. The opportunity cost of this is the estimated £2.4bn hit to government finances that this represents.
However, there's no sign of immediate intervention in energy markets, with the government taking a few months, at a time when energy usage is lower, to consider its options.
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Survey shows businesses ‘struggling to absorb latest economic shock’, while data says April vacancies down 7.7%
Graham Watson's insight:
The latest business data doesn't look encouraging: investment has stalled and hiring is down, in response to domestic and global uncertainty. Neither are good signs for economic growth in the months ahead.
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Contrary to certain election claims about the Labour Party being the party of higher taxes, it's worth noting this HMRC data the shows that there are now 4.4m more income tax payers in 2024-25 than there were three years earlier when the government froze personal allowances.
It's a classic example of fiscal drag, which acts as a stealth tax, with even an increased number of pensioners paying tax: the last three years have dragged an "extra 1.77 million pensioners into the income tax bracket."