The Uk economy

@fancythat

Do you know that every single ‘project like that’ contributed to growth in the economy by providing employment and purchasing materials and equipment from private sector businesses?

You may not like what has been done (and, TBH, I agree that someone has been taken for a mug somewhere along the line), but part of the responsibility of government is to enable economic activity, leading to growth. So they’ve fulfilled that bit…

The way I see it, whatever the source of our money*, it is how it is distributed that affects our lives. In order to function, society needs goods and services - essentials such as food and transport systems, and luxuries such as TVs and - I don't know - hairdressers? People need to be paid to provide these goods and services, or we can buy them in from abroad, losing money from the economy. That is relatively easy, as people are taxed on the income they earn for providing them, which is taxed again when they buy or pay for the goods and services produced by others, which have resulted in the others' own income being taxed, so it's all about circulation. Round and round it goes.

Depending on the political will of the time, some groups earn more than others, and government policies mean that some pay less tax than others, and therefore those people can take money out of the economy and keep it in the bank (or under the mattress, or in offshore accounts to avoid being taxed on the interest). The extent to which this is allowed depends on the government of the day, but there is often little to choose between the options, as political philosophy has to be balanced with the pragmatics of getting voted in.

Then we have to sell our goods and services abroad, aiming to sell more than we buy. Losing trading partners in the EU, and faced with tariffs from the US hasn't put us in a great position, but it seems that talks and diplomacy are in place to try to make the best of that.

As well as all of that, we need to look after the old, the young, the sick and the poor - often described as 'economically inactive'. If there is more money circulating than being spent on this, life is good, as there is enough surplus to pay for their welfare. If, however, more of the surplus is in people's banks and not available for circulation, life is less good for those who rely on public services as they are cut back, and if fewer people are 'active' economically than 'inactive' we are in trouble.

As we have an ageing population, and have had many years when wages have been low (so for many people there is no financial incentive to work), and many people are sick and unable to work, that is the situation in which we find ourselves now. The benefit system makes things worse, as means-tests can mean that people are better off not working than working, particularly when rents and childcare are so expensive. The end result is that we have fewer workers paying tax, and fewer gods and services produced 'in-house'. The government is trying to rectify that, by increasing wages, directing public spending to where it is needed, making a start on a housebuilding programme, and by encouraging those who can work to do so. Obviously this can't happen overnight.

*but money must come from somewhere, as if it were really just a case of countries creating their own money why would people in Malawi (to use the above example) be struggling along on £2 a day, when all their government needed to do was print some for them?

fancythat

^I’m sorry, fancythat but fretting over the waste of a few £million here and there isn’t worth the mental effort involved.
^

Oh but I think it very much is.

It is symptomatic of how far us in the Uk have come from prioritising humans.

If there was plenty of money to splash around on bat tunnels, then ok, fair enough.

But there is not.
People are turning down or off, their heating. etc etc.

£100 million here, and many simlar projects there, and guess what, not enough to pay for life's essentials for human beings.

Have you just become aware of these economic inequalities?
Were you aware of them when you supported Thatcher.
She ruined millions of lives.

MaizieD

I suspect thatvthe higher taxation in the ‘happier’ countries is a correlation rather than a cause, MOnica. I suspect that these countries have a more equable distribution of wealth and access to resources and that this is more conducive to ‘happiness’

I am sure you are right Maizie. but I also think they are better managed and run, although I do know they have their problems.

I often think the problem with this country is that we are now a small country batting above our level internationally and that too many of our politicians are more interested in performing on the international stage and how highly they rate in the international stakes, than being seen to be good domestic managers.

fancythat

^I’m sorry, fancythat but fretting over the waste of a few £million here and there isn’t worth the mental effort involved.
^

Oh but I think it very much is.

It is symptomatic of how far us in the Uk have come from prioritising humans.

If there was plenty of money to splash around on bat tunnels, then ok, fair enough.

But there is not.
People are turning down or off, their heating. etc etc.

£100 million here, and many simlar projects there, and guess what, not enough to pay for life's essentials for human beings.

Top 10 Best Performing Countries in Nature Conservation Index...

Luxembourg. (Source: Nature Conservation Index (NCI) 2024 | Image: Canva)
Estonia. (Source: Nature Conservation Index (NCI) 2024 | Image: Canva) ...
Denmark. ...
Finland ...
United Kingdom. ...
Zimbabwe. ...
Australia. ...
Switzerland. ...

Only eight countries, sorry as I cannot access the rest of the information.

As you can see Finland is ahead of the UK in nature conservation.

^and that too many of our politicians are more interested in performing on the international stage and how highly they rate in the international stakes, than being seen to be good domestic managers.

^

I think you are right. I tend to forget this.
It is only when a Leader says "we will be the best in such or such" or "the top country in the world for.." or "a world leader in..", I think uh oh. That is not what most people are most interested in. But Leaders manage to expose themselves by saying such things.

petra

fancythat

^I’m sorry, fancythat but fretting over the waste of a few £million here and there isn’t worth the mental effort involved.
^

Oh but I think it very much is.

It is symptomatic of how far us in the Uk have come from prioritising humans.

If there was plenty of money to splash around on bat tunnels, then ok, fair enough.

But there is not.
People are turning down or off, their heating. etc etc.

£100 million here, and many simlar projects there, and guess what, not enough to pay for life's essentials for human beings.

Have you just become aware of these economic inequalities?
Were you aware of them when you supported Thatcher.
She ruined millions of lives.

I will agree to differ on that.

“Have you just become aware of these economic inequalities?
Were you aware of them when you supported Thatcher.
She ruined millions of lives.”

It wasn’t just Thatcher, Blair did nothing to reverse Thatchers damage, then promoted deregulation which was a great free for all, “ loads of money” we even had a surplus for a couple of years. Then the bubble burst and we still havn’t recovered, I’ve a great disdain for polititians who don’t look further than the next election.

David49 they cannot afford to look any further, they may well be voted out of office after the next election.

There is that.
Plus, so many things change nowadays, in the space of 5 years.

In an organisation I volunteer with, we used to do 1 year, 5 year and 10 year plans.
It is not done any longer!
The 10 year ones didnt last past 6 months.
The 5 year ones looked rather silly even after 2 years.

Having said all that, I do think with things like energy health, and maybe defence, a 10 year plan at least, is still needed.

Fancythat, a good plan could be to set up a four year research and investigation plan, the outcomes of which will be acted upon after that if the government is still in power, or passed on to the next government if the electorate so chooses.

fancythat

Is it in current bad shape?

Or is it just newspaper headlines?

Yes the economy is in bad shape. No it's not just headlines.

M0nica

David49 they cannot afford to look any further, they may well be voted out of office after the next election.

Reeves to her credit is certainly looking further ahead, but in the budget she did not go far enough, not enough tax changes were made, the NI increase will probably do as much damage as it does good to the economy most of the rest were idealogical.

Doodledog asks

*but money must come from somewhere, as if it were really just a case of countries creating their own money why would people in Malawi (to use the above example) be struggling along on £2 a day, when all their government needed to do was print some for them?

Malawi definitely has its own currency. Unless it was given to them or created by someone or thing outside Malawi the only way it could have been acquired is by the government creating it at some period during its history. From what I can see it is a poor developing country which will have to buy a great deal of the goods and services it needs because it can't provide them themselves. This means that they have to have foreign currency with which to buy them. 'Printing' their own currency for this would be no use because it wouldn't be accepted in payment.
It also has foreign loans for development which will need to be serviced and repayments made in the currency of the country which made the loan. I didn't go far enough into details of its economy to discover if any loans were interest free, some might be but I somehow doubt that they all are.
It will also have very little demand for its currency (to pay for its exports) so it won't be traded much on the foreign exchanges and won't be valued particularly highly. Repayment of foreign debt helps to keep the country poor.

So, apart from for use, within their own domestic markets, there isn't much that the government could buy with it should they 'print' more. It would be inflationary.

There must be a point at which a country could be well enough developed to be able to expand its money supply, but I don't think there is a formula for achieving this. That's the thing about money, it can't be straitjacketed by 'economic rules' because its usage and effects depend on the people using it, whose actions can't be predicted.

And at the very base, money is almost an abstract rather than a concrete phenomenon, based on trust and a common understanding.

This is the Bank of England's take on it

Money is a social institution that provides a solution to the problem of a lack of trust.(5) It is useful in exchange because it is a special kind of IOU: in particular, money in the modern economy is an IOU that everyone in the economy trusts. Because everyone trusts in money, they are happy to accept it in exchange for goods and services — it can become universally acceptable as the medium of exchange.

Basically, it's a bit like believing in fairies in a pantomime. We all believe in it so it exists and has utility and value for us.

www.bankofengland.co.uk/quarterly-bulletin/2014/q1/money-in-the-modern-economy-an-introduction

This is quite an old video which explains how governments create money for the economy and shows why taxation can't be funding spending.

It's US made, but can be applied to any country with a secure sovereign currency.

It's a bit clunky, but I think it's the best of the few videos around which explain the concept and use of fiat money.

www.youtube.com/watch?v=bHQCjFebIf8

I think Reeves might get moved from her position sooner or later

And , finally. For MOnica with reference to earlier posts about 'happiness'.

I was reading Thomas Pikety's 'Capital in the 21st Century' last night, the section on the structure of inequality. He looks at income data and how it is distributed among a country's earners. (The book was published in 2012 so the figures may be a bit out of date.)

In Sweden, the top 10% of earners receive 20% of the total wages; the bottom 50% receive about 35% of the total wages.

In countries like France, Germany and the UK the top 10% receives 25 - 30% of total wages.

In the US the top group gets 35% The bottom US 50% gets 25%.

He says that Sweden's is the most equable distribution of wages of the countries he had data for.

Which probably does account for its position on the 'happiness' scale

Louella12

I think Reeves might get moved from her position sooner or later

No. That was Tory tactic to be constantly swapping around ministerial posts and no one had a clue what they were doing.

What we need is stability now and I certainly hope she stays where she is.

I hope someone more competent replaces her before long.

“Money is a social institution that provides a solution to the problem of a lack of trust.(5) It is useful in exchange because it is a special kind of IOU: in particular, money in the modern economy is an IOU that everyone in the economy trusts. Because everyone trusts in money, they are happy to accept it in exchange for goods and services — it can become universally acceptable as the medium of exchange.”

We have the luxury of a more or less secure currency, even if it has halved in value in the last 50 yrs.

Malawi and many many other sovereign countries do not.
The value of the Kwatcha in Malawi halved last year, there are now 2000 KW to £1, any commercial deals are done in US$
It doesnt make much difference to 90% of the population they don’t miss what they havn’t got. The money runs out regularly and police, teachers and nurses don’t get paid, that’s normal.

So you have the situation that the business community deals in Dollars and locals use Kwatcha, it doesn’t matter much to them they grow the food, they live in shacks or mud huts, a bike is the usual transport. The government has no control because it has no resources to sell.

Much of what we import is priced in dollars, we have been reduced to selling off our assets, the family silver went decades ago, many of our businesses are owned by foreigners. We can borrow more we can afford to pay the interest but it doesn’t solve the problem, we are paying ourselves too much.

Thanks for the link, Maisie. I’ll check it out tomorrow.

We don’t have to borrow anything, David. We have a secure and trusted currency with which we could purchase any resources we need. Will Hutton in the Observer today suggests that we initiate a round of that pretend borrowing called Quantitative Easing. That’s the first sensible suggestion I’ve heard from a mainstream commentator.

As it is, the BoE is not only keeping interest rates high and fuelling inflation but it is also selling off the ‘bonds’ from previous rounds of QE and making the financial situation even worse.
Neither the chancellor nor the governor of the BoE have any intention of improving the economy…

Quantative easing was one of the causes of the mess we are in now, doing it again will only accelerate inflation

M0nica

Quantative easing was one of the causes of the mess we are in now, doing it again will only accelerate inflation

No it wasn’t. The first bout, post the GFC caused asset inflation, mostly bonds, equities and property, but that only affected the wealthy. The rest, post the Brexit vote to prop up sterling, and the pandemic money, had no effect at all on inflation. It was supply shocks following the invasion of Ukraine that drove inflation and the Bank of England raising interest rates when it should have known that higher interest rates would do nothing in the case of inflation driven by supply shortage.

And I’m sure you must know that QE was pure money creation by the BoE on the instructions of the government.

MaizieD

We don’t have to borrow anything, David. We have a secure and trusted currency with which we could purchase any resources we need. Will Hutton in the Observer today suggests that we initiate a round of that pretend borrowing called Quantitative Easing. That’s the first sensible suggestion I’ve heard from a mainstream commentator.

As it is, the BoE is not only keeping interest rates high and fuelling inflation but it is also selling off the ‘bonds’ from previous rounds of QE and making the financial situation even worse.
Neither the chancellor nor the governor of the BoE have any intention of improving the economy…

We have a currency that is sensitive to confidence, trusted to the extent that we still have assets to back the borrowing. Currently the value of sterling is under threat, those who lend us money are only gong to do so at high interest rate, QE is accounted for as borrowing, the BoE already owns 1/3 of debt.
It saves interest payments and it’s justified in times of emergency like Covid not to fund day to day costs.

The UK could increase taxation or reduce expenditure and reduce borrowing but no we choose to fund our lifestyle by borrowing at high interest rates, that does not get much sympathy from investors. Today it’s been announced that we are to spend £17billion on AI to improve efficiency, enabling us to fix pot holes quicker.

As we have no AI industry at all, expecting anything to change soon is not realistic,is Starmer clutching a straws.?.