Brexit and the waning days of the United Kingdom

[Tamas]

UK fighting inflation: forcing over-50s back to full-time work:

New UK chancellor aims to reverse inactivity in labour market, especially among over-50s

Kwasi Kwarteng will tighten benefit rules for part-time workers, requiring them to work longer hours or take steps to increase their earnings.

The new rule will require benefit claimants working up to 15 hours a week to take new steps to increase their earnings or face having their benefits reduced. The current threshold is nine hours, though it was increased this summer to 12 hours, which will come into force next week.

The further increase, expected to be implemented from January 2023, will affect only a small additional number of those on universal credit, about 120,000 people out of about 5.5 million claiming the benefit.

But the move is intended to signal a new offensive by the Treasury to fill job vacancies, with many industries facing chronic shortages.

[Syt]

Guardian describes her economic policies as "trickle down", i.e. giving breaks predominantly to corporations and upper wealth strata with the hopes it will stimulate growth. Is that an accurate portrayal?

[Tamas]

Guardian describes her economic policies as "trickle down", i.e. giving breaks predominantly to corporations and upper wealth strata with the hopes it will stimulate growth. Is that an accurate portrayal?

She and her government treat it as a given that lower taxes automatically result in economic growth and have not wasted any time explaining why that applies to our current specific situation. This is almost certainly because they haven't thought it through past the desire to be seen as Thacherite purists.

I have not seen anything from Kwarteng yet that went past addressing concerns of an investment banker, which he was. Namely the two planned policies I have heard from him were removing the cap on executive bonuses, and trying to address the upward wage pressures by forcing people on benefits back to the workforce.

[Syt]

So if they intend to significantly lower taxes - do they intend to go further into depth? Or do they expect that economic growth will increase the tax income so that it will be a zero sum game? Or do they plan to cut government spending (and if so: which areas)?

[Sheilbh]

UK fighting inflation: forcing over-50s back to full-time work:

I suspect that's just an example of a government that's "willing to be unpopular" doing something a little populist.

But the over-50s is part of the inflation picture here. There are labour shortages that are having an impact on prices. The ONS breakdown of people leaving the workforce since covid is that there's about a million fewer workers - over half of that is estimated to be over-50s taking early retirement. For context that's over double the impact of EU workers leaving the workforce beccause of Brexit.

I suspect it might unwind pretty quickly though because people who left the workforce in 2020 are now facing inflation which will change their income calculation, particularly as there's likely to be a recession. Of course the risk is that they try to get back when we're in a recession. Right now we basically have full employment and there are more vacancies than people looking for work - but I think that could change very rapidly and I think they might be a bit exposed.

Guardian describes her economic policies as "trickle down", i.e. giving breaks predominantly to corporations and upper wealth strata with the hopes it will stimulate growth. Is that an accurate portrayal?

Maybe.

In part it's just classic hypocrisy in politics. She's cancelling Rishi Sunak's rise to National Insurance. At the time Sunak announced that the Guardian etc highlighted that NI is a tax on work, so it disproportionately affects the young. The structure is weird and a bit regressive so it has an impact on low paid workers. All of that is true - and for what it's worth I still agree with that and think it's a bad tax to raise.

Now Truss has said she's going to cancel it. The Guardian etc are highlighting that the people who will benefit most from that are high earners because they pay most tax. That's also true. But on balance I think the argument against raising the tax because it's unfair is stronger than the argument that cancelling it is also unfair. It's a bit of a Schrodinger's tax from Guardian coverage

Truss was challenged on the distributional impact and said she didn't really care. Her line has been that she wants growth because everyone benefits from that and she cares more about that than distribution. Of course most of these changes are from what Sunak announced - and that implies that Sunak was not interested in trickle down economics and did care about distribution, which is not how I remember the Guardian's coverage of his budget.

Also we are in the tow of the US so we had a big debate on news channels yesterday about why the PM is pursuing "trickle down economics" when the President did a tweet condemning that idea

The big tax cuts they campaigned on were basically cancelling or unwinding tax rises that Sunak had announced as Chancellor. So getting rid of the National Insurance rise, the 6% increase in corporation tax (although headline rate is very misleading on this) and a 5% increase in the bank levy. There may be other tax cuts but I think it's largely undoing what Sunak announced in his last budget.

The other stuff that's been talked about is really tinkering at the edges like the banker's bonus change. The big things are that her and Kwarteng are less interested in saying there's a short to medium term route to eliminating the deficit/reducing debt which is a signal.

And huge spending on the energy package which is enormous - it's the biggest package announced in Europe so far. It's uncosted because it's a price cap so basically depends on where the price is (and at the minute we're not far from the wholesale price being close to the cap). It covers households and business, but estimates are that it'll cost about 6-7% of GDP over the next two years. I still think whether or not we end up with rationing basically depends on whether we have a mild or cold winter.

[Tamas]

So if they intend to significantly lower taxes - do they intend to go further into depth? Or do they expect that economic growth will increase the tax income so that it will be a zero sum game? Or do they plan to cut government spending (and if so: which areas)?

You are going into more depth on this than the government is willing (and perhaps able) to do, so can't really help you there.

[Syt]

Fair

[Tamas]

Basically, and what Sheilbh's more detailed summary also shows, the government's plan with the economy is as follows:

1. Lower taxes and maybe de-regulate
2. ???
3. Profit

[Josquius]

Basically, and what Sheilbh's more detailed summary also shows, the government's plan with the economy is as follows:

1. Lower taxes and maybe de-regulate
2. ???
3. Profit

1. Lower taxes and de-regulate.
2. Make a mint personally.
3. Maybe the country gets richer? Hopefully? I mean it might. If not meh. We're rich.

[The Minsky Moment]

Basically, and what Sheilbh's more detailed summary also shows, the government's plan with the economy is as follows:

1. Lower taxes and maybe de-regulate
2. ???
3. Profit

Seems more like:

1. Cancel tax hikes and dress like Margaret Thatcher to win leadership election
2.  ???
3.  ???
4.  Cross dress like Churchill to win next general election ??

[Sheilbh]

Basically, and what Sheilbh's more detailed summary also shows, the government's plan with the economy is as follows:

1. Lower taxes and maybe de-regulate
2. ???
3. Profit

Yes. There is a risk it might work.

I think there's lots of flaws with Truss and I think she is likely to lose the next election.

But the thing that I find interesting is that she's basically paused all the legislation the government was working on and pulled a lot of it. Raab's Human Rights Act changes are gone, Dorries' Online Safety Bill is gone - based on what I've heard and read it's unlikely Channel 4 will be privatised and Johnson's energy and data bills are going to be re-worked pretty extensively becaue they're not "pro-growth" enough.

On the one hand I think that speaks to the incoherence of Johnson's government - what is the strategy or agenda that ties all those things together and justifies spending political capital on them? It was just a grab-bag. It seems likely from everything that's come out that all legislation Truss is going to try and pass in the next two years will be either tied to "growth" or to the NHS (Coffey made some sensible proposals today).

It might not work either politically or in practice. It's still relying on a very bad communicator to explain it to the public. But it does look to me more like a coherent agenda/strategy than any government has had since the 2017 election. In part this is possibly an advantage of having a loyal, relatively aligned cabinet and (it's a very low bar) a more focused PM than Johnson - getting this stuff through the Commons will show the dangers of that strategy.

My suspicion is Truss will basically re-iterate this whole fracking debate where they are taking a lot of political heat (including from Tory MPs) to lift the national moratorium on fracking - but actual fracking will still need "local consent" and, I assume, planning permission so is unlikely to ever happen anywhere. It's going to cause a lot of controversy and then not actually happen. Based on early stuff that's come out it feels like she'll spend a lot of capital on things that are unpopular because that's her line to signal seriousness about growth - but those things are unlikely to be effective. She won't, unfortunately, do stuff that is unpopular but would actually help growth (all the supply side restrictions on development, infrastructure etc).

I get the point of why she's saying she wants to take unpopular decisions and she doesn't mind being unpopular. I also get the point John McTernan (former adviser to Blair and Julia Gillard) that stuff like the banker's bonus is more about "aroma" than anything serious - people don't like it but Tories getting rid of the cap and Labour opposing it gives the impression of same old Labour. But I think that only works if in two years tiime there is growth and people feel it.

I think there's lots of reasons to think Truss will fail and lose. But I'm a little worried at how over-confident people on the left/Labour people online seem to be. Just look at the nonsense people were saying about energy prices - but then she's done the entirely predictable thing that she was obviously going to do with a price cap. There was no way the government was not going to do something. But lots of people online seemed to have convinced themselves (again) that the Tories are actively evil and that the left doesn't need to do anything other than wait while the Tories are bad.

[Tamas]

I don't think there's a risk it might work. You cannot go into such a turbulent and dangerous time economically with the sole policy of "right, lets do the matchbox summary of what Thatcher did in the 80s" and then hope to succeed.

[Josquius]

Its particularly painful to see the conservative talking heads going on about how its clear things aren't working and we need to try something different...
This is the way things aren't working!

[Sheilbh]

I don't think there's a risk it might work. You cannot go into such a turbulent and dangerous time economically with the sole policy of "right, lets do the matchbox summary of what Thatcher did in the 80s" and then hope to succeed.

Yeah - again I think it's dangerously complacent not to think about the possibility that it might succeed. I think there is a very real risk she's the John Major of this period of Tory rule

It's impossible to do what Thatcher did - not least because interest rates are now set by the Bank of England and not the government You can't do the British equivalent of the Volcker shock again because it's up to the MPC rather than the Chancellor. And they might not want to do it - although the MPC docs today are really interesting.

I think Minsky is right though that no-one is looking to Thatcher for a policy guide. Similarly Keir Starmer is not seeking to be inspired by Harold Wilson's policies when he does a big thing for the launch of a new biography of Wilson written by a Starmer loyalist in the Shadow Cabinet. It is more about affect and aesthetics. For Truss - difficult decisions, willing to court unpopularity but having certainty (Thatcher slamming Hayek on the dispatch box sayinig "this is what we believe"); for Starmer - a Labour leader who can win elections but isn't Tony Blair.

I think there was an ideological difference between Sunak and Truss which we're seeing in these taxes being cancelled but I think it's too literal minded to say she's going to try to copy Thatcher. It is just aesthetics - and May tried it a bit as well and I slightly wonder if, until there is another very successful female leader, that is the model you have to define yourself in relation to. Either through imitation as with May and Truss or as a deliberate counter-point - as might be the case when (if) Labour ever elect a woman leader and ever win an election again.

But there are similarities. The recurring comparison with the multi-crises facing the UK (and other Western economies) is with the 70s. Look at the news today - inflation, energy shocks, malaise, industrial action, Russia embarking on a foolhardy war, mass protests in Iran. A lot of these are obviously just me being glib - but the Thatcher, Volcker, Reagan era neo-liberal turn was a response to issues that aren't the same, but some rhyme. I think that makes sense because I've said before but I think all systems contain within what makes them successful, the seeds of what will make them collapse. That was true of post-war welfare state consensus and it's true of the neo-liberal turn too. It's just been shifted in places because of the last 45 years, for example we have inflation without a wage-price spiral bcause we're facing inflation without a significant block of union power, unlike the 70s.

My own view is that I suspect the system that will "solve" these issues is going to be one that is less globalised, more national, more statist, more planned and possibly because of all that a little less open. Given that, I'm fairly sure Truss isn't the answer

[Tamas]

One valid criticism I feel (among many, many) that Johnson won the election on a levelling up, not a Thatcherite agenda. Assuming Truss' plan is now just empty words sprouted while she'll let us drift like Johnson did, such a big policy shift should not be up to Tory members only to mandate. I know legally it's fine because of reasons, but it is just wrong.