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Scooped by
Graham Watson
onto Macroeconomics: UK economy, IB Economics September 21, 8:18 AM
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If Reeves swipes some of the huge gains amassed from property and pensions, the lucky generation cannot argue – but will
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The chancellor should reach for the language of solidarity and social justice that this government tends to recoil from
Graham Watson's insight:
This Guardian editorial looks at Rachel Reeves' Budget and the choices that she faces. It highlights the state of the public finances, the fact that tax rises are seemingly inevitable, but that the difficulty is going to be spinning them in such a way that makes the narrative more positive.
She advocates for a return to core Labour values, and focusing on social justice, child poverty and reducing inequality on the basis that voters don't always mind paying more tax if they can see a coherent case for doing so.
In my experience, I'm not entirely convinced that this is the case.
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Exclusive: Temporary deal to shield UK exporters from levy’s impact is now viewed by both sides as likely
Graham Watson's insight:
Evidence of closer UK/EU co-operation, with a deal close to being struck to exclude UK steel producers from the EU's new carbon border adjustment mechanism (CBAM). It will provide the sector with very welcome relief and would help boost growth and give the UK and the EU to align their schemes.
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Ken Murphy says he does not want more costs to be added onto business, and calls for a "pro-growth" Budget.
Graham Watson's insight:
The CEO of the UK's largest grocer, Tesco, has suggested that the Chancellor should not look to increase business taxes further in the Budget. He argues that the double whammy of higher employers National Insurance contributions, which cost Tesco £235m over the past year and the £90m cost of the Extended Producer Responsibility (ERP) programme, mean that retailers cannot afford further tax increases.
However, whilst stating this, Mr. Murphy also announced that the UK's largest supermarket upgraded its profit forecast for the year, and its combined profit for the last two years was £4.5 billion, so I think he might want to keep things in perspective.
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Exclusive: Officials exploring options to change rule that affected 1.7 million children in Great Britain last year
Graham Watson's insight:
More Budget gossip - a mere seven weeks before it's due - with speculation mounting that Labour is going to find a way to scrap the two-child benefit cap because it's seen as the best way to tackle rising child poverty. Simultaneously, it seems as though there are also going to be attempts to reduce economic inactivity and get people back into active labour force participation.
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The chancellor linked tough decisions "in coming months" to global headwinds and OBR productivity reassessment.
Graham Watson's insight:
Faisal Islam on the Chancellor's address to Conference, highlighting the inevitability of either tax rises, spending cuts or both. It seems as though there are some hard choices ahead.
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The government wants to keep the backing it won before the election, our business editor Simon Jack writes.
Graham Watson's insight:
This Simon Jack article looks at whether the government can regain the confidence of business, noting that business confidence measures have diverged and there's a sense that people are waiting for things to happen.
However, I'd flip this on its head. Should business really be operating on this short a timeframe? And why aren't they taking a longer term view, perhaps considering how austerity hollowed out public services and noting the lack of investment in the previous decade?
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Housing secretary is set to announce initiative modelled on Clement Attlee’s postwar ‘housing boom’
Graham Watson's insight:
It seems as though Labour think that the solution to the housing shortage is a new wave of 12 New Towns with a focus on ensuring that 40% of them are affordable houses. The proposal seems to suggest that this will provide 300,000 new homes.
But will it? There's a labour shortage in the construction sector, and although there are obviously positive demand-side and supply-side effects - and an opportunity to work through the multiplier effect - does a lack of spare capacity make achieving this target less likely? And then there's the NIMBYs...
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The BBC understands the prime minister will now not announce plans for a rail link between Manchester and Liverpool at the Labour Party conference.
Graham Watson's insight:
Well, I never...when George Osborne first announced the Northern Powerhouse I was unequivocal about the fact that it was almost entirely rhetorical. And here we are nearly 15 years later. It's largely rhetorical.
It seems as though a potential rail link between Manchester and Liverpool is more expensive than first thought and is still being 'road tested'. Who would have thought it?
However, I also believe that a lack of infrastructure investment in the North of England - over many years - is one of the reasons where there's such regional inequality and that's something that needs proper tackling.
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International body warns British rate will be higher than that in US, despite effects of Trump tariffs
Graham Watson's insight:
I'm currently teaching a lesson on inflation - the pupils are reading an article - so what are the chances of this appearing. The G7 is of the view that UK inflation is going to be the highest of the member states in 2025. This will be seen as a bad thing - however, looking at recent data, 6 G7 members (all bar Japan) see inflation move in lockstep with one another, largely because of the impact of external factors.
So whilst this news isn't ideal, it's hardly catastrophic.
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The lowdown on what happens next and whether the move is likely to boost the UK economy
Graham Watson's insight:
Airport expansion at Gatwick has been approved. This Guardian article looks at what swung the case in its favour and the wider implications of this, both for the expansion of Heathrow and the macroeconomy.
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There has been strong opposition against the airport wanting to use its northern runway.
Graham Watson's insight:
The Transport Secretary has approved the second runway at Gatwick, meaning that airport expansion is back on the agenda again, much to the delight of supporters, and dismay of environmentalists.
Is this indicative of the 'inevitable' trade-off between economic growth and environmental concerns? Or is such a trade-off increasingly fallacious?
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If Reeves swipes some of the huge gains amassed from property and pensions, the lucky generation cannot argue – but will
Graham Watson's insight:
Phillip Inman is spot on here: whilst the Chancellor faces some hard choices in the 2025 Budget, it seems likely that the Chancellor is going to tax some of the income earned by pensioners. It is likely to be the case that this is widely criticised, but as the article points out, the notion that baby boomer pensioners are wealthy as a result of their own prudence is largely a fiction.
As I regularly say, they've benefitted from a number of circumstances - not least in the housing market - that have made them better off than other generations, and the current tax system also discriminates in their favour - with pensioners getting subsidised to the tune of £50bn per year. So maybe they should be paying more in tax...
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Increase of 0.5% in August helped by back-to-school shopping, while food stores also given lift
Graham Watson's insight:
A slight uptick in retail sales in August, against a general depressing backdrop. The government, and retailers, might conclude that "little fish are sweet".
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Labour colleagues advise chancellor against string of small money-raising measures, as OBR presents forecast
Graham Watson's insight:
It looks like the Budget is, as ever, going to be a series of compromises, with the main concern being whether the government's manifesto pledges are going to hamstring its ability to formulate policy.
The commitment not to increase income tax, National Insurance or VAT - which make up 75% of tax revenue - means that there's a concern that any tax increase are going to be bitty and not coherent. However, breaking the manifesto pledges would come at high political cost.
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Chancellor has ways to cover UK deficit without breaching spirit of Labour manifesto, Morgan Stanley claims
Graham Watson's insight:
The Chief Economist of Morgan Stanley reckons that the Chancellor could find around £45bn in taxes without breaking her manifesto pledges. It seems as though freezing tax thresholds, a gambling tax, taxing the banking sector and reform of pension taxation could all raise this sort of revenue and wouldn't be as damaging to growth as some other taxes.
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Editorial: Extra services for poorer families are welcome, but real progress requires the raising of incomes
Graham Watson's insight:
Today's Guardian editorial on the abolition of the two-child benefit cap notes that it's a start as far as tackling child poverty is concerned, but that the government needs to go further in raising the incomes of the poorest families and providing better quality public services too.
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Survey of bosses shows energy prices also a concern, as Bank policymakers warn inflation may take longer to drop
Graham Watson's insight:
The latest survey of business confidence by the Institute of Directors suggests that it is at a record low level, driven by higher labour costs and persistently high energy prices.
It seems this uncertainty is also a part of MPC discussions, with MPC members unsure as to the persistence of inflation, and you should know that greater uncertainty implies lower levels of economic growth.
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The chancellor says choices have been made "harder" by international events and the "long-term damage" done to the economy.
Graham Watson's insight:
I'll leave this here...it's fairly self-explanatory...
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The chancellor will commit to "the abolition of long-term youth unemployment" in her speech at Labour conference.
Graham Watson's insight:
The government is planning to reform provision for those young people who've been unemployed for 18 months, by offering them work placements to try to get them back into work. However, this is one of those intractable problems; successive governments have tried lots of different approaches, with little success.
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Rate-setter Swati Dhingra denies high inflation is a ‘particularly British problem’ and says short-term factors are to blame
Graham Watson's insight:
One member of the MPC's take on the current inflationary environment: it's temporary and rates should come down sooner rather than later.
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Exclusive: CPRE study suggests housebuilding targets can be met without encroaching on green belt land
Graham Watson's insight:
This is being presented as an exclusive: the CPRE have identified that 1.5m homes could be built on brownfield sites, meaning that housing targets could be met without encroaching on the countryside.
The problem? For many people. living on a brownfield site doesn't seem as attractive as living in semi-rural suburbia.
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The business secretary will also meet suppliers of the car maker who are at risk of closure.
Graham Watson's insight:
An interesting article that highlights the increasingly interconnected nature of supply chains, and the regional ramifications of cyber-attacks on a business.
In this instance, it's JLR that was victim of the cyber-attack but it seems as though its West Midlands plants could stay shut until next month. In doing so, though, they imperil the viability of many of its smaller suppliers. As the article notes: "JLR's UK plants employ about 30,000 people directly, with a further 100,000 working in the firm's supply chain and 60,000 who rely on the spending of these workers.
So should the government intervene to keep paying workers in some of these smaller firms, on the basis that it will prop up the regional economy, and enable production to restart more smoothly once the cyber-attack is overcome? There's a case for intervention, but equally you could argue that there's also a case for JLR intervening too - perhaps by advancing some of its payments to suppliers - because it is going to benefit from any form of intervention.
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Resolution Foundation says move could raise additional £6bn a year and ‘level the playing field’ on income tax
Graham Watson's insight:
The Resolution Foundation have thrown their pre-Budget hat into the ring, suggesting tax reform: they advocate a 2p cut in employee National Insurance contributions and adding 2p to income tax arguing that that latter applies to a wider group of taxpayers and is fairer on that basis.
The issue will be whether this is seen to break the manifesto pledge not to increase tax on working people, something that the Opposition will be keen to point out. But you could start by considering the following quotation from the article: "The previous government’s 4p cut in national insurance, costing the exchequer £20bn a year, was not matched by an increase in income tax." One wonders why the public finances are in their current state in the first place.
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The Work and Pensions Secretary tells the BBC he will press ahead with welfare system changes.
Graham Watson's insight:
Not much detail, but it's difficult to disagree with the Work and Pensions Secretary, Pat McFadden suggesting that welfare reform is required, not just because of the number of people of working age who are in receipt of welfare payments.
However, constructing a system that is fair and that maintains the incentive for people to look for work will be difficult.
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In the week the UK hosted Donald Trump for a second state visit, the country also rolled out the red carpet for US tech firms.
Graham Watson's insight:
This Faisal Islam clip speculates about the potential impact of last week's big tech investment announcement. Standard investment fare: immediate demand-side effect, via the multiplier effect, but also supply-side effects if it boosts the economy's productive capacity.
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Phillip Inman is spot on here: whilst the Chancellor faces some hard choices in the 2025 Budget, it seems likely that the Chancellor is going to tax some of the income earned by pensioners. It is likely to be the case that this is widely criticised, but as the article points out, the notion that baby boomer pensioners are wealthy as a result of their own prudence is largely a fiction.
As I regularly say, they've benefitted from a number of circumstances - not least in the housing market - that have made them better off than other generations, and the current tax system also discriminates in their favour - with pensioners getting subsidised to the tune of £50bn per year. So maybe they should be paying more in tax...