So the rich get richer ….and fuel inflation!

CvD66, The ONS attributed the current high inflation to the spending by 1.2m high earners

Interesting. Reading GN thoughts - high earners spend little and park money off-shore, not spend it into the economy.

Germanshepherdsmum

Of course I understand the process. What I queried was your statement that ‘most’ of the wage increase ends up with the government. The narrative to the diagram shows that ‘most’ does not end up back with the government. Rather less than half. Of course it may in many years’ time - or it may not. Yes, I’m nitpicking on the word ‘most’ but that was my whole point.

The narrative to the diagram does not show that "most" does not end up with the government - quite the opposite:

"Furthermore, most of the money will have been taxed away by the end of the year and spending will have all but stopped."

But it does return to the Treasury! That's how money works, unless people stick it under their mattress. I don't understand your argument GSM.

We must agree to disagree. The argument that we should support unquantified public sector pay rises because most of the money returns to the government via taxation seems rather weak.

Germanshepherdsmum

I have no evidence to support that Maizie. Nor that it might take only a year or two. I don’t consider that the amount of time it might take for ‘most’ of a wage increase to return to the government is immaterial at all.

Of course it's immaterial. There will always be money returning to the Treasury after an interval. The interval could be months or years, it really doesn't matter what it is as it will be happening all the time as millions of people spend their wages or savings.

Why does the thought of a time lag bother you so much?

GrannyGravy13

Articles like this just fan the flames of class wars

I am all for NHS staff and teachers getting a pay rise of the same rate as inflation.

Not so keen on Doctors with their 30% demands, I assume they think it is a starting point for negotiations.

Spending on holidays, eating out and luxuries are going to be up as they were non existent during the lockdowns and many people saved money by working from home, not going out etc.

Indeed.

Why the desire to inflame people over differences in peoples incomes?

I have no evidence to support that Maizie. Nor that it might take only a year or two. I don’t consider that the amount of time it might take for ‘most’ of a wage increase to return to the government is immaterial at all.

The amount of time it takes for the spend to return to the government is immaterial. Even if it takes a year or two, or more, the current tax take will always include money spent by the government in previous years, so, unless an inordinate amount is 'lost' to 'savings' in any one year, the amount taken back should be fairly even.

I'm not sure why you think that quibbling over the word 'most' clinches your argument. I didn't say that most returned to the government 'immediately'. You would have had a reason to quibble if I had said that.

Are you still not accepting that most of state spending on wages will return to the treasury?

Of course I understand the process. What I queried was your statement that ‘most’ of the wage increase ends up with the government. The narrative to the diagram shows that ‘most’ does not end up back with the government. Rather less than half. Of course it may in many years’ time - or it may not. Yes, I’m nitpicking on the word ‘most’ but that was my whole point.

Still waiting to be told how ‘most’ of their money ends up back with the government. Yes, it may circulate in the economy but that’s not the same thing is it?

Do you need it laying out for you, step by step? I thought anyone with an ability to think logically would be able to work it out.

1) Person buys an item which may not be subject to VAT, but..
2) where do they spend the money?
3) Into a business, either in a physical shop, or on line
4) The profit the business makes from the sale pays their staff , who are taxed on their pay (and sets off a whole new spending chain as the staff spend their wages). Business owner pays themselves, leading to more to spend into the economy, and their income is taxed. Their business' net profit is taxed.
5) Business buys more stock to replace what it sells, setting off another spending chain from the business/ businesses they buy their stock from.

Do you get it now?

Of course, on the way some money is saved, which makes it inaccessible immediately to the taxman, but it will be accessible as soon as savings are spent. And we do have to account. too. for those who place their 'savings' in tax havens... but I suspect that the amount of tax tied up in savings is only a small proportion of the money circulating in the economy.

It's set out in this article in a Sankey diagram

gimms.org.uk/2022/11/26/spending-chains-sankey-diagrams/

The Tories think public sector wages should be held down but pay no attention whatever to any need for wage and salary restraint in the private sector or a prices and incomes policy. Business as usual.

I’m not daft, Of course lower inflation doesn’t mean all prices are going down but some are,
As regards pensioners being cushioned - some are, many are not. They are on fixed incomes with no ability to improve their lot,. Older generations have suffered in the past and didn’t have much to cut back on. Foreign holidays, gym memberships and the like were unknown.

Lower Inflation doesn’t mean prices are going down, it means they are still going up just not as fast. Many pensioners are cushioned from the rise in interest rates as they are more likely to own their homes outright and have savings - it’s the young adults and families who are suffering most. We shouldn’t put one generation against another.

Don’t be so insulting. Where have I said I would be happy to see all public sector workers on the breadline?

I have said nothing about what ‘the poor’ will buy. I mentioned some things people are likely to buy, and the taxes those things attract. Still waiting to be told how ‘most’ of their money ends up back with the government. Yes, it may circulate in the economy but that’s not the same thing is it?

Germanshepherdsmum

Yes, I have read Wealth of Nations thanks, when studying economic history.
Still struggling with your assertion that most of the money paid to public sector workers will find its way back to the government. They will pay income tax, probably lowest rate, they will buy food (no VAT), children’s clothes perhaps (ditto) and heating (5% VAT). So far this isn’t adding up to ‘most’.

Apart from your lofty notions of what the 'poor' will buy, you are forgetting that the money they spend doesn't just disappear when they've spent it. Try thinking a bit harder about how it circulates in the economy.

Also, despite what you would clearly be happy with, not all public sector workers are on the bread line.

In the year to May. Increased fuel prices (production and delivery) and increased prices of raw materials (war in Ukraine is one factor there).

Who are these ‘wealthy’ who can still afford luxuries? I consider a holiday a luxury, especially a foreign one, as would many, but there’s plenty of evidence of retired people taking them, right here on GN. Are they all wealthy?

The poor presumably don’t have mortgages. Only those who are not on a fixed rate mortgage face increases - and nobody ever promised the rest that interest rates wouldn’t rise. Fuel costs are going down and have been for a while, and people use far less of it at this time of year.

In fact the Sunday Times reported yesterday that ‘farm gate’ inflation is now down to 2%.

Food and non-alcoholic beverages have increased 19.1% in the year to May 2023.

Food represents a much higher proportion of spending for the poorest, whilst the wealthy hardly notice as long as they are still able to afford the luxuries they are used to and still have money in the bank.

Hence the TUC quite rightly supports demands to increase the pay of, not just the lowest paid, but also middle earners who face huge extra mortgage costs, in addition to big rises in food and fuel.

www.ons.gov.uk/economy/inflationandpriceindices/bulletins/consumerpriceinflation/may2023

Yes, I have read Wealth of Nations thanks, when studying economic history.
Still struggling with your assertion that most of the money paid to public sector workers will find its way back to the government. They will pay income tax, probably lowest rate, they will buy food (no VAT), children’s clothes perhaps (ditto) and heating (5% VAT). So far this isn’t adding up to ‘most’.

Yes, the extra money will be spent but I would query whether ‘most’ of the extra money will return to the government via taxation. Some, yes.

It's inevitable that most of the extra money given to the lower paid will return via taxation because they spend most of it. The only extra which wouldn't return very quickly would be the small amount that they might manage to save.

And those poor private sector buggers wouldn’t have jobs were it not for those who employ them.

Bit of mutual dependence there, don't you think GSM?

Adam Smith, supposed 'Father of Capitalism'

No society can surely be happy and flourishing of which the far greater part of its members are poor and miserable. It is but equity, besides, that they who feed, clothe and lodge the whole body of the people, should have such a share of the produce of their own labour as to be themselves tolerably well fed, clothed and lodged

Wealth of Nations.

I was growstuff, before I got higher up the ladder and became an employer of not-so-poor buggers.

Aveline

As a pensioner with a 10.1% rise in state and occupational pensions I feel very lucky and also that I daren't grudge others far lower percentage rises.
The furlough scheme was fantastic. What would we have done without it? We all loved Rishi then.

Shame he forgot about (or ignored) about three and a half million self-employed, who relied on their income to live.

Germanshepherdsmum

Airport security is within the public sector - large wage increase has fed into the increased cost of package holidays.

Yes, the extra money will be spent but I would query whether ‘most’ of the extra money will return to the government via taxation. Some, yes.

And those poor private sector buggers wouldn’t have jobs were it not for those who employ them.

You were once one of those poor private sector buggers.

As a pensioner with a 10.1% rise in state and occupational pensions I feel very lucky and also that I daren't grudge others far lower percentage rises.
The furlough scheme was fantastic. What would we have done without it? We all loved Rishi then.

Quite right GG. So quickly forgotten - whilst the resulting state of the national debt is pointed at with much glee.

Articles like this are intended to fan the flames of class wars GG.