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Britain needs a new economic strategy to end its stagnation and close its £8,300 living standards gap with its peers.

(174 Posts)
DaisyAnneReturns Sat 09-Dec-23 12:08:19

This is a recent report from the Resolution Foundation (4 December 2023)

My interest was sparked by a discussion on the latest Rory and Alistair chat - link below. It starts at 20.21 and there is a transcript running along side it for those who like reading with their watching and listening.

I am going to start reading the report but must write more cards first and hold this as a reward smile Hope some find it interesting.

www.resolutionfoundation.org/press-releases/britain-needs-a-new-economic-strategy-to-end-its-stagnation-and-close-its-8300-living-standards-gap-with-its-peers/

www.youtube.com/watch?v=ADM6vpF4_7k. The Rest is Politics

MaizieD Sun 10-Dec-23 10:11:07

^Maizied Far more economists do not share your view and I am among them.'

Can you then, MOnica, address the point I made in my first post and explain why we need to run a surplus before the state can undertake any meaningful investment?

I get a bit tired of being told that I am wrong without any rational counter argument being put forward.

I am also well aware that there are a great many competing economic theories out in the big wide world and that the one which holds sway in the UK at the moment is open to a great deal of challenge.

ronib Sun 10-Dec-23 10:26:55

Monica regardless of who the shareholders are in our public utility companies, it seems more essential than ever that there are very strong laws to protect the country against poor management and service delivery. Good standards and fair pricing must somehow be maintained and legislation must act as the consumers’ safety net.

Katie59 Sun 10-Dec-23 10:43:47

The whole problem is that for decades decisions have been made for short term gain without bothering with long term effect. National assets sold and core industries closed, destroying well paid jobs because it’s cheaper in the short term to import. Virtually the whole of UK industry and utilities are now owned by foreigners and the benefit goes overseas. So many of the services we use are owned overseas, Google, Microsoft, McDonalds, Starbucks, the real money goes out of the UK.

Whitewavemark2 Sun 10-Dec-23 10:54:28

We don’t need to run a surplus before the state can undertake meaningful investment. That has been accepted practice since at least the 1930’s. That is not what is being argued about though is it?

Almost all economists recognise that.

Whitewavemark2 Sun 10-Dec-23 11:15:07

The largest (and only) budget surplus was during the last Labour government in its initial years in government, after which the government invested heavily in public services achieving the best standards in health care in the world, and an enormous amount if investment in education, including from Birth with sure start and beyond.

There was strong growth in productivity, and the U.K. had, on average, the highest growth in Europe. Labour invested in technology, skills and higher education.

growstuff Sun 10-Dec-23 11:18:22

Actually Bank of England economists wouldn't disagree with much of what Maizie says. They know perfectly well that spending precedes taxation and I've never read that any serious economist disputes that. Taxation is used for a number of purposes, but one of those purposes is not to build up a surplus to fund big capital projects, as a household would do.

The disagreements are between those who claim that increasing money supply is inflationary (it is, if uncontrolled) and those who believe that money supply boosts productivity and lowers unemployment (it does) - the trick is to find a balance.

The Bank of England has a target for 2% inflation. Interestingly, there is now talk about increasing the target to 3%, which reduces pressure to raise interest rates.

I read the RF paper (I wonder how many people have). I think it makes some interesting points. It's right that the UK needs to increase investment, not only in public services, and needs long-term strategies. The country needs to come up with a strategy for housing as a priority. Far too many people have invested money into property as a real-life Monopoly game, which isn't providing affordable housing for those who need it (and increases demands for wage rises), is diverting money from investment in productivity and is increasing asset/wealth inequality. It's a recipe for disaster.

Katie59 Sun 10-Dec-23 11:20:54

Whitewavemark2

We don’t need to run a surplus before the state can undertake meaningful investment. That has been accepted practice since at least the 1930’s. That is not what is being argued about though is it?

Almost all economists recognise that.

We don’t need to have a surplus, but to improve public services we need to grow the economy faster than inflation.

MaizieD Sun 10-Dec-23 11:33:02

Whitewavemark2

We don’t need to run a surplus before the state can undertake meaningful investment. That has been accepted practice since at least the 1930’s. That is not what is being argued about though is it?

Almost all economists recognise that.

We're arguing about it because that is the proposal from the Resolution Foundation that will stymie all their 'solutions'.

I don't have a problem with their identification and analysis of the problems and the need for strategic investment. It's just that they won't be able to accomplish their objectives if they straitjacket themselves by depending on surpluses.

Government can only achieve a surplus by increasing tax or reducing spending. Or achieving, the very unlikely in the UK's case, exporting more than they import, so gaining excess revenue from foreign trade.

MaizieD Sun 10-Dec-23 11:34:28

Almost all economists recognise that.

Well, according to DAR and MOnica almost all economists don't recognise that...

MaizieD Sun 10-Dec-23 11:35:46

Thanks for your corroboration, growstuff

Katie59 Sun 10-Dec-23 11:47:49

MaizieD

Thanks for your corroboration, growstuff

Put simply, as a nation we need to work harder, invest more and borrow less.

ronib Sun 10-Dec-23 12:17:11

Katie59 don’t agree. Some families with young children are working very hard and still can’t afford the ridiculous price of housing and childcare. Not only that hasn’t the gulf between the super rich and us lesser mortals become even wider? There’s institutional inequality built in to the UK way of life and I am not sure why it should continue along this trajectory!

growstuff Sun 10-Dec-23 12:17:30

Katie59

Whitewavemark2

We don’t need to run a surplus before the state can undertake meaningful investment. That has been accepted practice since at least the 1930’s. That is not what is being argued about though is it?

Almost all economists recognise that.

We don’t need to have a surplus, but to improve public services we need to grow the economy faster than inflation.

It's not just about improving public services, but increasing investment in productive industries.

High inflation is not good because it leaves people at the back of the race, running as fast as they can but never being able to catch up with the pack.

Various studies have shown that low productivity disadvantages exactly the same people. The ones at the top make damned sure they hang on to what they've got and high interest rates boost their assets even more.

I'm not sure why the government needs to wait for low inflation before it can invest. Higher investment in the right industries/services increases employment and wages, which increase the government's tax income if targeted properly. Provided that money is continuing to flow round the economy, the government can increase taxation at the right time and take the money out of circulation. Meanwhile, more people have incomes which allow them to spend and keep the money supply moving, which isn't inflationary providing there is no shortage of goods.

growstuff Sun 10-Dec-23 12:20:56

ronib

Katie59 don’t agree. Some families with young children are working very hard and still can’t afford the ridiculous price of housing and childcare. Not only that hasn’t the gulf between the super rich and us lesser mortals become even wider? There’s institutional inequality built in to the UK way of life and I am not sure why it should continue along this trajectory!

I don't agree either. We need to work smarter rather than harder - and that means being more productive and having industries which make a profit or provide value.

Housing and childcare are ridiculously expensive. I actually don't know how young people manage without "helpful" families behind them.

ronib Sun 10-Dec-23 12:26:48

Growstuff I was almost in tears when my son told me that childcare for last month was £3200 as it had been a 5 week month.
Also factor in that the price of flats around here has taken a hit and there’s a potential loss of at least £35k over the price bought 5 years ago.
And that family houses with gardens are unaffordable!

HousePlantQueen Sun 10-Dec-23 12:56:17

At the risk of being accused of taking a simplistic view of what needs to be done, and I am sure that most of us agree that we cannot continue in this downward spiral:

We need a mass house building programme. Social and private.
We need massive investments in green energy projects from insulation to wind farms.

Both of these will;

-employ hundreds and thousands of skilled people, all of whom will then spend and put money into the economy.
-reduce the carbon footprint, reduce energy bills for people.
-a secure home enable families to put down roots the way we all did, to be invested in where they live.

M0nica Sun 10-Dec-23 14:51:22

A (then) nationalised industry - British Gas - managed to convert the whole gas network, which was extensive, but patchy, over to natural gas in the 1960s.

It was under the leadership of a giant of a man, size and intellect - calles Sir Dennis Rooke. He even saw off Mrs Thatcher and kept the gas industry as one when it was privatised, although it was later broken up (after he had gone).

We could have a similar programme for insulating properties. Standards could be drawn up, systems developed for non-standard houses. British Gas converted appliances up to 100 years old - and almost any gas applience ever produced. It should be possible to do this with insulation and older properties, for example.

Obviously the cost could be phenomenal, but for most circumstances the government should pay up front, launch investment bonds with a reasonable interest and recoup the money by putting an interest free charge for the cost the land registry record and the money could be repaid when the house next came on the market - rather like we financed a recent extension with a Retirement Interest only Mortgage - only in this case without the interest.

For commercial and industrial buildings, interest could be charged, but chargeable against tax.

I think house building should be directed. Local Authorities should assess what type of accommodation is needed in an area - how many 1,2,3 etc bedroomed properties. leave decisions about houses/flats to the developers.

I live in an area where 4 bedroomed detached properties are bing built in hundreds, but the price of smaller properties remains high because not enough are being built. I alsonthink we should try to move back to the 1960s/70s when a third of our housing stock was in the public sector and I would see rents in the public sector based on income, not market rates.

DaisyAnneReturns Sun 10-Dec-23 15:22:10

Not one of you seems to be referencing the information sources I included.

What did you understand they saw as the problem? What do you understand they saw as our strengths? What economic strategy did they suggest would enable us to grow, using those strengths? What were your opinions of that? What changes would that require? In your opinion are they possible?

If we don't look outside GN all we get is the same, circular arguments.

SporeRB Sun 10-Dec-23 15:43:01

^MaizieD
Government can only achieve a surplus by increasing tax or reducing spending. Or achieving, the very unlikely in the UK's case, exporting more than they import, so gaining excess revenue from foreign trade.^

That is right. My country of origin – Singapore has a massive sovereign wealth fund of 1.7 trillion US dollars with no external debt. 3/4 of which is the accumulation of trade surpluses over the years. The manufacturing sector still contribute 25% to the GDP.

The government used the profit from the SWF to fund 15% of the public spending and keep the taxes low for its people. Utilities and public transport are still state owned.

So in a way, the government there is running the country like a business.

Unfortunately with Brexit, a good number of manufacturing companies have relocated to Ireland with Ireland set to launch its new SWF.

Keir Starmer wants to set up a SWF with 8 billion pounds initially but he said that the SWF will be lead by the private sector? Better late than never I suppose but I am not sure how that is going to work.

M0nica Sun 10-Dec-23 16:17:06

DAR I have read the document. It is an excellent analysis of the current situation and what needs to change.

Unfortunately it is completely lacking in any suggestions as to what policies are needed to get from our current situation to the one we need to get to.

The problems Torsten Bell lists in his anlysis are nothing new. They are the problems that everyone has talked about for years.

What we need is suggested solutions to these problems - and they are not in this document.

Oreo Sun 10-Dec-23 16:24:41

ronib

Growstuff I was almost in tears when my son told me that childcare for last month was £3200 as it had been a 5 week month.
Also factor in that the price of flats around here has taken a hit and there’s a potential loss of at least £35k over the price bought 5 years ago.
And that family houses with gardens are unaffordable!

My DD’s couldn’t work without me helping with childcare even tho I have a job to do as well.As I’m a shift worker I can juggle it for them, but how they would mange otherwise I really don’t know.

M0nica Sun 10-Dec-23 16:26:38

*SporeRB's post shows the problem of Sovereign Wealth funds. The Singapore Sovereign wealth fund is enormous, and it will governed by rules that say it must npot invest its fundsin Singapore based businesses, very little of it anyway

This means those that manage the fund need to invest enormous amounts of money in other countries - and to provide the services these funds provide for their citizens, they need to make good secure returns - which is why they will invest in assets like public utilities.

Sovereign Wealth funds are built up by mainly small countriess with huge incomes from one source - often energy.

We are reaching a stage where countries reeiving the incoming investments from thiese funds are essentially handing the management of their economies over to some of the smallest, and in many cases, most undemocratic, governments in the world.

We need some form of conbtrol of these funds, how much they can invest in any one country, limits on the proportion of any company they can own, not just as indivdual funds but as a total proportion of a company. For example No sovereign wealth country can hold more than a 10% stake in a company nor can the sum of different sovereign wealth funds in a country exceed 49%

MaizieD Sun 10-Dec-23 16:29:53

Thanks for your post, SporeRB.

That's how China manages a surplus, isn't it? Trading profit.

And Norway did it with their oil revenue profits. Sadly UK oil profits were frittered away by Thatcher on bribes to voters tax cuts...

MaizieD Sun 10-Dec-23 16:37:56

Sovereign Wealth funds are built up by mainly small countries with huge incomes from one source - often energy.

Perhaps, given the source of their profits is usually fossil fuels, these countries should be required to contribute meaningfully to countering climate change.

M0nica Sun 10-Dec-23 16:39:48

MaizieD How?