Listen to what the government is saying, and bet on the opposite happening. If not quite a golden rule, it is a handy guide, and nowhere is it more true currently than in the purported policy of levelling up. If it means shrinking the gap between those at the top of the income tree and those at the bottom, it has been an abject failure.
The pandemic has seen the fortunes of the best-paid 10 per cent rise, while the bottom decile has become poorer. Figures from HMRC show that between December 2019 and March this year, the rewards to the top 1 per cent rose by 7 per cent in real terms, while the bottom 10 per cent gained just 2 per cent.
It is striking that the better off you were at the start, the more you have gained, and vice versa.
While those in the top one per cent have prospered, the 60,000 that make up the top 0.1 per cent of the population have prospered mightily. Valuable houses have become more valuable, pay to chief executives is rising much faster than inflation, the rewards to top lawyers, accountants and hedge fund managers are measured in millions, while geriatric rockers suddenly find their old songs are worth fortunes.
If anything, these numbers understate the scale of the problem. The Institute for Fiscal Studies calculates that for the worst-off 10 per cent, inflation may reach 14 per cent, because they spend so much of their income on food and fuel. That is twice the likely rise for the richest. With costs rising and low-paid incomes squeezed, the political imperative for the government’s latest round of panic measures is obvious.
The ÂŁ10bn windfall tax on the oil companies may cover much of the ÂŁ15bn of extra spending, but it is one-off, while much of the spending will be hard to reverse. The measures are born of a combination of desperation and intellectual bankruptcy from a prime minister with no interest in economics and a chancellor too weak to resist the relentless clamour for more subsidies. There is no discernible strategy beyond getting round the next corner. The result is no growth, rising inequality and soaring inflation. It’s a cocktail such as we have not experienced since the 1970s.
If describing the problem is grim enough, finding a way out of the morass threatens to be even tougher. The Barber Boom of those years ended in soaring unemployment and did for the Heath government at the following election, as we discuss in today’s Podcast.
The combination of more borrowing at higher cost means cuts for spending departments despite tax rises. Capital Economics forecasts Bank Rate at 3 per cent with bond yields at a similar level. Those trades unions with the muscle to do so will demand inflation-matching rises, while pleas for restraint at the top from the High Pay Centre and the governor of the Bank of England are unlikely to change behaviour. Besides, if highly paid CEOs of big companies can’t face having to stand in front of their revolting shareholders once a year, they can move to private equity and earn even more.
It’s always easy to argue for more taxation on the fat cats, but they already pay most of the income tax total, while no rational administration would want to stimulate a new version of the brain drain. The only proven way to restore something nearer to balance is by growing the economy, but no government can supply growth. It can set predictable, stable conditions which encourage enterprise, ease bureaucracy and signal that it understands how everything from the sacred NHS to state education depends on businesses making two shoots grow where there was one before. It’s never too late to learn – if only the pupil wants to do so.
Saying the unsayable
Stuart Kirk got a bad rap this week. Quite right too, you might say, after saying that it didn’t matter if Florida was under water in 100 years’ time, since Amsterdam has been below sea level for centuries. This was a bad, perhaps career-ending mistake, and the usual climate doomsters piled in to hold him under water, so to speak.
Yet his message, spoiled by the exaggeration that perhaps comes from being a former journalist, is perfectly sensible. The climate change question should be: Is mitigation a more sensible and cheaper option to turning our world inside out in a (probably doomed) attempt to prevent it? This is at least a discussion worth having, since down the ages man has demonstrated an astonishing ability to deal with changing circumstances – problem solving and innovation are the hallmarks of our species.
It is (just about) possible to sustain this argument in the face of the massed battalions of the green groups, but perhaps not from HSBC’s global head of responsible investing, the role Kirk has – or had.
Consolidating waste
Where there’s muck, there’s… acrimony. There’s also the attraction of creating an effective monopoly. The proposed takeover of Suez by Veolia has not attracted much attention, but some local authorities have noticed that the proposed tie-up of these foreign-owned giants of waste would reduce competition. Now the Competition and Markets Authority have noticed too, and called the deal in for a deep dive into the rubbish bin.
Refuse collection nowadays is rather more than chucking your waste onto an ever-growing pile, or as Veolia’s new CEO Estelle Brachlianoff puts it: The merger will create “a true global champion for sustainable development.” She has been spending the company’s money advertising this vision of what she calls “ecological transformation.”
The waste business is going to need “both scale and an international perspective.” That should put paid to any outsiders trying to compete with her global champion. Veolia may become de facto the local authority’s monopoly supplier of a service which the authority may be obliged to buy. No wonder the CMA is nervous.
