The Future of Britain

More documents

Recommendations

Info

ECONOMICS the economy recovers.” Such criticism is not unexpected from the leader of the opposition, especially when Cameron’s plan appears to be working: in May 2014 CPI inflation fell to 1.5% - its lowest level in five years. In the same month it was announced there were two million more private sector jobs than in 2010 and the EEF reported that UK manufacturers are more confident about growth than at any time since 2007. These figures suggest that Britain is finally on the right track to recovery. But could Miliband actually be pointing out an unnoticed flaw in the Conservative policy? Will the whole of Britain really benefit from their plan? It must be remembered that the facts given above are generalisations about the whole UK, which run the risk of leaving some groups with a lack of representation. The Resolution Foundation’s report on Living Standards supports Miliband’s concerns. If Cameron’s plan is creating jobs and encouraging investment, then surely incomes should be higher than in the 2007-2010 period, the very pitfall of the crisis? Not only have they not improved for low-to-middle income earners, but they have made a significant decrease of £1400 per person from 2009 to 2013. Given that real national income actually increased in this period, it is clear that those two million extra private sector jobs, which the Prime Minister boasted about, mainly benefitted the wealthier Brits. Decreases in income still have no significance until we consider how prices have changed. Unfortunately, the stats reveal no silver lining. During this decrease in incomes of £1400 for working class people, CPI inflation rose as high as 3.7% and never dropped below 1.3%. Additionally, from April 2010 to April 2014 fuel prices have collectively gone up an average of 11.9%. Surges in energy costs disproportionately hurt the working class - as energy bills take up a higher percentage of their income than richer citizens. Moreover, The Resolution Foundation’s report revealed something even more worrying: goods and services mainly bought by the poor have inflated more than products which the rich spend money on. So not only have living costs risen for the whole of society, but they have gone up more for those who can afford them least. How does a low income earner deal with a decrease in salary and more expensive bills at the same time? Surely the government will intervene and relieve some of the damages? This hope is optimistic at best. Government debt was roughly £1.3 trillion as of 2014 and Cameron has stated that his plan is to reduce that in the coming years. The BBC predicts us to have no budget deficit by 2018 due to the forthcoming cuts. There can be no doubting that a Tory government who wants to give people as much incentive to work as possible is going to have little remorse in shredding the Job Seeker’s Allowance. With UKIP winning the European Election and an underlying concern among their supporters that immigrants are off the system rather than adding to it, this policy may even win the Conservative party votes. All we can be sure of is that, unless Cameron’s long-term economic recovery starts paying its dividends to the poor of Britain, Miliband’s fears of a deep cost of living crisis seem frighteningly realistic. ƒ The sinfulness of ‘sin taxes’ Oliver Northover Smith Textbook economic theory tells us that the market has a tendency to fail and that explains government action to combat it. Without doubt, some behaviours so rife in our society could really do with being cut back. Smoking, Alcoholism, Gambling – all are direct causes of serious strife and social upheaval. On the face of it, the government has had, traditionally, a very small policy toolkit. The failure of outright bans, as seen by illegal gambling in the US or the failure of the Prohibition, has led most governments to the consensus that indirect taxation is the best solution to the problem. However, as with all government actions, there was a serious cost which overshadows the benefits in terms of reduced consumption of dangerous goods. A shocking statistic which truly shows the shocking extent to which these taxes are a scourge is this: for low-income smokers, according to the Institute of Economic Affairs, a staggering 20% of one’s disposable income goes straight to the Exchequer in the form of sin taxes on tobacco. Moreover, as The Economist has pointed out, tobacco is an inferior good. Not only are low income earners poor, but they are much, much more likely to smoke than their richer, better educated counterparts. This is a crime for all to see, and a serious tool for deception. The effect is that for these people, the government smiles and gives with one hand in the form of benefits payments, while silently stealing back that money through hidden indirect taxation. Moreover, it’s not just the true ‘sins’ that are taxed at such a heavy rate. Any of this group that own a car also contribute to this figure, with astronomical taxes on petrol. James Delingpole, a climatechange sceptic, points to such taxes as serious constraints on growth and points it out as a specifically regressive tax. The disingenuous nature of taking to give back places an enormous weight on people – most of whom pay little to no income tax – means they are indirectly feeling the squeeze. The Labour party, bolstered by the spin-doctor that led Barack Obama into office in 2008, will place the majority of their emphasis on the ‘cost of living crisis’ that the party sees taking place in the country. The real driver of poverty is the overburden of taxes. For the very poor, who are overwhelmingly more likely to consume ‘sin’ products, these are the taxes that hit hardest. More generally, we need a bonfire for taxes in the UK. But in a political system in which social justice and equality are taglines trumped out by party leaders, we need to recognise that real impoverishment does not come from direct taxes or a lack of welfare benefits. The horrific effects of regressive taxation deprive poor families of £1,286 per year on these taxes. This is in addition to the £1,165 they pay in VAT. All this despite massively lower rates of car ownership or alcohol consumption among the poor. This is the sign of a regressive taxes if ever they existed – for some poor families (those with a car, who smoke and drink heavily) spend an eye-watering 37% of their income on sin taxes. This is compared to just 15% for the top quintile. We are putting an unnecessary burden on those who cannot afford it. It’s time to take a hatchet to regressive taxation. We need to stop being aggressively regressive. ƒ Is this economic recovery too driven by the South? Samuel Lewis The UK’s post-recession recovery is now in full swing. In the first three months of 2014, the economy expanded at its fastest annual rate since 2007, with estimates now suggesting that it has finally surpassed its pre-recession peak. The recovery has even been blamed for the current backlog at the Passport Office, which has seen more applications for new or renewed passports between March and May than at any other stage in the past twelve years. Recent figures also indicate that the economy is diversifying, which will help to ease fears that a sudden end to what some believe is a house price bubble could ruin the entire recovery. Whilst consumer spending is still one of the main contributors to economic growth in the UK, business investment is picking up rapidly. This has now increased for five consecutive quarters (the longest run since 1998), at a rate of 8.7% on an annual basis. In addition, manufacturing levels have risen by 4.4% in the year to April 2014. With business optimism close to a fifteen-year high, these areas are likely to continue improving, along with other areas such as exports, once the Eurozone recovery takes hold. As a result, barring a dramatic short-term crash in house prices, the recovery looks set to continue at a relatively sustainable level. However, in the North of the country, the argument that the recovery is well under way seems extremely questionable. A major driver of the economy has been house price growth. In the year to March 2014, house prices in London rose by a huge seventten percent. The corresponding figures for the North- West of England, Scotland and Northern Ireland were 3.1%, 0.8% and 0.3% respectively. These figures show an alarming differential between the states of the economy across the UK. Not only does it make it even harder for people to move from the North of the UK to the South, but as some of these figures are lower than inflation rates, home-owners in certain regions are actually becoming poorer in real terms. Becoming poorer is certainly not something generally associated with an economic recovery. The disparity of house-price growth in the UK means that consumer spending levels have hardly changed in large swathes of the country. In Scotland, 26 27
ECONOMICS levels were negative in the year to March. It must be noted that the biggest improvement in the whole of the UK was in the North-East (1.9%), although this is partially due to the fact that the region started in a much worse position than areas such as the South-East which still saw consumer spending growth of 1.7%. This point demonstrates that the economic recovery is being driven by the South and very slowly feeding through to the North. The Southern-dominated recovery has at least fed through to the manufacturing sector which is predominantly based in the North of England. This should be good news for firms as bigger revenues will result in more money available for investment that can allow greater production levels in the near-future Is London creating false hope for the rest of the UK? or increased productivity, which is currently a major drag on the recovery. Workers will also benefit: wages will increase gradually and unemployment will fall. This is especially good news in the North-East of England, where unemployment levels were still in double figures at the beginning of the year. The problem is that the growth of manufacturing is almost entirely down to increased demand within the UK, especially in the South. With virtually no extra demand from abroad manufacturing simply cannot continue to rise at such a rate for more than a few years. This means that the recovery is currently highly dependent on the South and will soon become dependent on the North. A sudden recovery in the North is, therefore, necessary but unlikely. The need for recovery outside of the South is, therefore, clear. Whilst it seems fairly clear that the economy as a whole is improving, it is not possible to have sustainable growth without improvements elsewhere. We have little say on the recovery outside of our borders. Therefore, we need the North to recover soon so that the country does not end up both unable to recover and even more divided in terms of wealth and the general standard of living. ƒ End help-tobuy and start building Felix Clarke At the start of June, the European Commission released a report, calling on George Osborne, among other things, to rein in his help-to-buy scheme. As much as one resents such nosey interfering from Brussels, our Government would do well to heed the Commission’s warning. The old Conservative vision of a ‘property-owning democracy’ is a noble ideal. Allowing more people to own their own homes increases self-reliance and gives people more of a stake in society – which can only be good things. More cynically, however, such policies are real vote-winners, as Margaret Thatcher experienced after giving council tenants the ‘right-to-buy’ their council houses in the 1980s. However, in the case of help-to-buy, the benefits do not outweigh the potential costs. The government’s help-to-buy scheme, announced in March 2013, is two-fold. The first aspect is the period of interest-free loans for buyers of newbuilds. The UK has a chronic shortfall of house-building, so any stimulation here is very welcome. Stage two of helpto-buy, the ‘mortgage guarantee’, means that the government guarantees up to fifteen percent of the property value, if the buyer provides a five-percent deposit and the house is worth less than £600,000. By easing mortgage access, the scheme further pushes up house prices. Adding heat to the housing market is a particular concern because house prices are prone to bubbles. House-price inflation is often self-perpetuating, as consumers see rising prices as a call to buy, boosting demand. The housing market can soon spiral out of control in a series of destabilising boom-and-bust cycles – just what our fledgling recovery does not need. Like conventional inflation, house-price inflation leads to fiscal drag. As pointed out by the European Commission’s report, rising house prices have pushed low-income families into higher council-tax brackets. The Government assures us that house price inflation is driven by market influences, rather than help-to-buy. Indeed, only seven thousand mortgages were completed using stage two of the scheme in the first six months of the scheme. More significant than help-tobuy in boosting house prices are factors such as insufficient house-building despite a growing population, low interest rates and growing consumer confidence. Furthermore, in London, the influx of wealthy foreigners looking for luxury houses and apartments has seen prices in the capital soar far above the national average. The real, unseen damage of help-tobuy is in its encouragement of the same culture of reckless lending that in America sparked the global financial crisis of 2008, from which we have only recently emerged. Commentators warn that banks are now promoting riskier mortgages in order to compete with help-to-buy. The scheme itself only encourages buyers to get into debt. The interest-free loans expire after five years and the government’s contribution to mortgage deposits may leave consumers with unaffordable repayments. Consumers and the Government will have to accept that it is often preferable to rent. Home-ownership is often more constraining than liberating when accompanied by a huge mortgage. If the Government really wants to help people onto the property ladder, it needs to start encouraging building on a huge scale. The Government would not necessarily have to develop on the green-belt, angering the shire-Tory vote, as many commentators would have us believe. Indeed, there is space for two and a half million homes on the UK’s brownfield sites. Significant subsidies of house building would take some pressure out of the housing market, lowering prices and allowing first-time buyers on to the housing ladder without being lumbered with debt. ƒ Will we live to regret quantitative easing? Phil Haggart The Monetary Policy Committee’s recent decision to expand the money supply through large-scale asset purchases shifted the focus of monetary policy towards the quantity of money as well as the price of money. With Bank Rate close to zero, asset purchases should provide an additional stimulus to nominal spending and so help meet the inflation target of two percent. This should come about through their impact on asset prices, expectations and the availability of credit. However, there is considerable uncertainty about the strength and pace with which these effects will feed through. That will depend in part on what sellers do with the money they receive in exchange for the assets they sell to the Bank of England and the response of banks to the additional liquidity they obtain. If used successfully, quantitative easing can be used to fuel economic growth, since money funnelled into the economy should allow people to more comfortably make purchases. This can have a trickle- 28 29
Page 1 and 2: Chief editors Felix Clarke Oliver N
Page 3 and 4: 4 POLITICS What is politics? To som
Page 5 and 6: POLITICS easily understood. Such rh
Page 7 and 8: POLITICS The French Exodus: A retro
Page 9 and 10: POLITICS to say there have not been
Page 11 and 12: POLITICS last year. “I’m afraid
Page 13: ECONOMICS The case for fat taxes Ma
Page 17 and 18: HISTORY Did Friedrich Engels seriou
Page 19 and 20: HISTORY the world’s markets. Henc
Page 21 and 22: HISTORY The Spanish Empire and New
Page 23 and 24: FINANCE & MARKETS the most active u
Page 25 and 26: SOCIETY Arena. On stage was perhaps
Page 27 and 28: SOCIETY costing the equivalent to
Page 29 and 30: SOCIETY Can pro gaming be a real ca
Page 31 and 32: MEDIA & SPORT Dark days for convent

The Future of Britain

Create successful ePaper yourself

Delete template?

Save as template?