The autumn statement will be on Wednesday. The economy faces three problems: inflation is still above the 2% target, economic growth is too low and forecast by the Bank of England to be zero next year, and unemployment is rising. Inflation was 4.6% in October, and unemployment rose by 159,000 in September to 1.464 million, an increase of 0.5% to 4.3%.
It was announced in September that borrowing was £11.3 billion less than forecast in March. Some are forecasting that the Chancellor of the Exchequer will have £15bn ‘headroom’ instead of his forecast of £6.5bn.
The most important task for the Chancellor is to get some economic growth for next year without stimulating inflation and stopping the Bank of England increasing the bank rate.
His first task is to address inflation and the cost-of-living crisis. He needs to keep making cost-of-living payments. Last year Jeremy Hunt announced those on benefits would receive £900 extra in cost-of-living payments, but it seems likely that the final £299 payment will be made after March 2024. To ensure that people on benefits receive £600 next tax year there needs to be a second payment of £301 in autumn next year. The other cost-of-living payments to disabled people and pensioners should be continued for 2024.
Universal Credit is due to increase by 6.7% to £5.70 a week for a single person, and £7.09 for a couple. The £20 a week temporary increase to Universal Credit should be restored on top of these increases and these amounts be applied to the legacy benefits. The new rates would be £110.79 a week for a single person, and £132.90 for a couple.
To stop the forecast 5% increase from 1st January to energy prices, the Chancellor should lower the energy price guarantee (currently £3000) to the current energy price cap of £1834 and set a higher one for the rest of 2024 of £1870, as well as providing the same price guarantees for non-domestic customers. He should bring in a price cap for petrol of £1.54 per litre for unleaded and £1.60 for diesel until the end of the financial year, then £1.57 and £1.62 for the rest of 2024, by varying the duty on petrol.
As well as these measures to help people he should reduce the 20% VAT rate by 2.5% from 1st January until at least April 2025, which should reduce inflation by 1.5% because not everything is subject to VAT. This should mean that by the end of 2024 inflation should be below 2%. But this would cost £19.6 billion and so some other taxes would need to be increased. Such as introducing a new income tax rate of 2% for those earning over £38,000pa and increasing the higher and additional rates by 2%,which raises about £8.7bn; increasing corporation tax by 2% raising another £4.2bn; and increasing the capital gains tax rates by 4% to raise another £3 to £6 billion. That only leaves between £3.7 billion and £700 million not covered. This is a very small stimulus £3.7 billion is about 0.142% of the economy.
To help those on below average wages and to mitigate the 2% increase for those earning over £38,000 the Chancellor should increase the personal allowance by £230, which would cost about £1.5bn.
Turning to other measures to stimulate the economy, he should allocate regional support according to the number unemployed in each region, of £76 million for the north-east, £1.98bn for the north-west, £1.58bn for the West Midlands, £1.62bn for the east, £1.32bn for the East Midlands, £1.26bn for London and £1.48bn for Scotland, totally £10bn.
Michael Gove’s Levelling-up Department handed back £1.9bn – including £255m meant to fund new affordable housing in 2022-23 – because it struggled to find projects to spend it on. Therefore Jeremy Hunt should allocate this £1.9bn for councils to apply for, to assist them in getting loans to build more council homes.
To help people into employment he should allocate £3 billion to fund employment training schemes and job guarantee schemes to assist the unemployed and those with health issues who wish to return to work.
To reduce the NHS waiting lists, and enable these people to return to work, the Chancellor should allocate £8bn extra to the NHS for 2024-25. The NHS requested £1bn to pay for the cost of the industrial actions this year, so he should give it to them plus another £800 million to spend before the start of the next tax year.
The GDP was about £2,605bn in June 2023. So excluding the costs of the energy price guarantee and petrol price caps these measures would only stimulate the economy by less than 1.3% next year.
* Michael Berwick-Gooding is a Liberal Democrat member in Basingstoke and has held various party positions at local, regional and English Party level. He posts comments as Michael BG.
Follow @LibDemVoice on Twitter
Like us on Facebook
Subscribe to our feed
Sign-up for our daily email digest
Lib Dem campaign staff gather to counter the threat of Edmania
Latest general election voting intention opinion polls
Being bold: Lib Dems election strategy
A big West End Christmas Fortnight Saturday! #dundeewestend
Whither the Welsh Liberal Democrats
Hello Yellow Brick Road
Peter Martin
cim
Nonconformistradical
Michael Kilpatrick
Roger Lake
72 Comments
>” economic growth is too low”
And has been low for decades, hidden by the economic activity caused by mass immigration.
Moving to a low carbon society and economy will mean negative traditional GDP growth, as for example: we destroy the ICE supply chain with the much simpler and smaller EV supply chain, more people work from home rather than (wastefully) commute reducing fuel consumption,train travel and need for large offices.
In this context GDP is a very poor measure of economic growth, with lockdown giving an indication of the order as GDP ‘economic activity” was down but manufacturing productivity stayed high.
The problem is GDP includes stuff a business would regard as wasteful activities. Perhaps what we need to do is move economics away from traditional textbook definitions to definitions that actually reflect and measure real world economic activity going forward.
Reducing VAT etc. will have little real effect, preventing utilities, mobile providers etc. from doing inflation plus x price increases, just because that’s what’s they’ve always done, will actually achieve more.
>” Inflation was 4.6% in October”
By the Bank of Englands own admission, 80% of inflation is beyond their influence, so the inflation rate the BoE can influence is currently around .92% …
The idea of having a cap on petrol and diesel prices, financed by reducing excise duty if necessary, surely works against our climate goals. Higher prices at the pumps helps make public transport relatively more attractive and encourages motorist to drive less. Are these objectives not Liberal Democrat priorities?
As an aside, I would welcome directing available money towards helping the lowest paid by raising the personal allowance.
If only he would listen, Michael! But as we know, the benefits level remains far too low, while the Chancellor apparently thinks about how he can help the rich a bit more. It was good at least to see our party asking in an amendment to the King’s Speech why there was nothing said about the standard of living. Reported in The Times on November 9, ‘British workers are on course to miss out on £17,000 from lost growth in real pay by the end of this year, economists are forecasting.’ The prediction is apparently reinforcing a report by the National Institute of Economic and Social Research that estimated ‘the real incomes of the UK’s poorest will take until the end of 2026 to recover to their pre-pandemic levels’. But we don’t need to compare predictions – that we are worse off is obvious to most of us ordinary people.
A good way to boost productivity would be to introduce the old Liberal Party policy of partnership at work.
If people felt they had a stake in the company and would benefit from its success they would be a lot more motivated in their jobs.
The Tories aren’t going to go down this route but the Liberal Democrats should.
Rather than economic growth- just getting bigger, we need to be thinking in terms of economic development, just as Vince Cable indicated recently with a considered industrial strategy to improve living conditions for all.
Sorry about the mistake in the seventh paragraph “of 2%” should be “of 22% an increase of 2%”.
Roland,
Indeed, the Bank of England has little it can do to reduce inflation. What it has done is reduce economic growth to zero next year.
I wish you had not written ICE and EV, but had written internal combustion engines and electric vehicle. Next year we will not have moved from the ICE supply chain to the smaller EV supply chain. Until a new generally accepted measurement of economic activity arrives we need to continue to use GDP.
Mary Fulton,
The problem with the government increasing the duty on petrol is that it increases inflation and it effects those who are living at the limit of their income and so have to make cuts elsewhere to afford the more expensive petrol. Instead of making petrol more expensive public transport should be made cheaper. To encourage people to buy electric cars the price of them needs to be subsidized. Our environmental policies are more liberal now with a move away from the stick towards the carrot.
My proposed increase to the personal allowance only makes everyone £46 a year better off, which is not much. But if the personal allowance was increased by 6.36% this would cost £5.2 billion and would mean everyone earning above £13,370 would be £160 a year better off. If this was done then the 2 pence increase in rate would only affect people earning over £46,000.
This article is about addressing the economic situation and not about other matters which could be covered, such as reducing inequality more and other things which can be financed by new or reforming or increasing taxes.
Katharine,
Jeremy Hunt will not be taking my advice. Indeed, most people are worse off under this government.
David Warren,
Indeed, having workers owning part of the company where they work would make workers feel that they had more of a stake in their company because they would. And it is a good old Liberal Party policy, but not something which would stimulate the economy.
Christopher Haigh,
We passed an industrial strategy at our recent conference in Bournemouth to unlock investment, support manufacturing and SMEs and create ‘Catapult’ centres. My proposals build on this by allocating £10bn to 7 of the 12 regions and nations of the UK for investment, which I see as assisting businesses to setup or expand in those regions or nations. I would like to see banks investing in businesses much more and some of this might need the government to get involved.
@Michael BG – “ Until a new generally accepted measurement of economic activity arrives we need to continue to use GDP.”
Don’t expect economists to volunteer, they are too busy repeating the mantras from their (now ancient) economics O-level textbooks…
We need to use every opportunity to tell them their kit of economic measures aren’t fit for the world we are now living in. For example, as GDP is currently defined, a society based wholly on travelling between A and B, drinking fancy coffee could have a massive GDP, but no way of actually paying for the import of fuel and coffee beans…
The small increment in the personal allowance (i.e. raising the threshold at which both income tax and national insurance kicks in) is too insignificant to help anyone, in fact it would be highly insulting. What is required is an increase significantly above the September rate of inflation (8.7%), in line with the proposed increase in state pensions and (hopefully) welfare benefits; this would proportionally help those on the lowest incomes and would in particular assist the estimated 2.2 million who have become liable to pay income tax and N.I. due solely to their income increases in recent years. While this would admittedly be expensive, it would be much more productive than any reduction in the percentage rate of income tax, a retrogressive step which would again see the benefit going primarily to those on higher incomes.
Of course, bringing in a proper system of Universal Basic Income to replace much of the confusing mix of welfare benefits, state pensions and assorted grants would improve matters much better, but this is clearly a long way off.
There’s nothing wrong with GDP as a concept per se. It and its limitations do need to be understood in its correct context. It is essentially a total of all the financial transactions both real and deemed in the economy.
One surprise might be the imputed rent that homeowners are deemed pay themselves on their own property. I’m not sure how far this concept is applied. If we own a car, for example, does that mean we have an imputed rental income on it?
@Michael B G Partnership at work would boost productivity therefore helping the economy.
Peter Martin, chasing the illusion of economic growth the measurement of GDP is just a completely out of date concept in the modern era of climate change, population migration and catastrophic warring.
@Peter – I agree however, as you clearly describe, GDP = “ total of all the financial transactions” which is totally different to economic growth (which is also different to economic development as noted by Christopher).
In the 90’s with the increasing use of computers to speed up financial transactions, as expected by some, we saw an increase in GDP, because financial transactions speeded up and so monies could more quickly flow around the economy. In business this would be labelled a margin improvement. Brown spotted this and put a transaction tax on financial transactions, ensuring the government benefited from this efficiency gain.
So by focusing on GDP we’ve become obsessed with illusory growth rather than real growth; it is notable that no economist has raised their hand to say the use of GDP = economic growth is incorrect…
So what should we be measuring the growth of? National wealth?
@Roland: I think you’ll find economists are perfectly well aware of the limitations of GDP, and unless you’re trained economist yourself, I’d hesitate to start lecturing them about their expertise. GDP is in fact a good measure of economic activity, which usually correlates well with material standard of living – the problem is that it doesn’t measure the extent to which that economic activity enhances people’s lives or what quality of life people have. That is more subjective and harder to measure – although arguably it would be good to put more effort into attempting to measure that.
@Michael Some interesting ideas, but I’m somewhat baffled by your assertion that “This article is about addressing the economic situation and not about other matters which could be covered, such as reducing inequality“, since a lot of what you’re proposing is primarily redistributive and so hard to interpret as anything other than an attempt to reduce inequality.
Our economic situation is that the UK sadly does not have the infrastructure and is not producing the wealth necessary to give people the standard of living and lifestyle that we would like people to have, and I’d expect something focused on our economic situation to primarily contain proposals to address that. I’d also point out that increasing corporation tax will hit many small businesses and is likely to add to inflation: You can’t just treat businesses like a free cash cow and not expect that to impact the economy! And I agree with @Mary Fulton that we should not be trying to make motoring cheaper when we so badly need to encourage people to drive less and walk/cycle/use public transport more.
@Simon R. You write that ‘the UK is not producing the wealth necessary to give people the standard of living and lifestyle that we would like people to have.’ I suggest that there is wealth enough being generated, but it tends to flow into the coffers of individuals and companies already well off instead of being more fairly shared. For example, to give large bonuses to Chief Executives of water companies such as United Utilities which have been allowing massive amounts of sewage to flow into our rivers.
@ Rik Winfield. I agree with your comment, Rik, except for the last paragraph. Universal Basic Income is unfortunately too often confused with the policy of Guaranteed Basic Income, which our party decided to support at the York Spring Conference, and which is absolutely possible, being based on increases in Universal Credit. As Michael BG explained in an article printed here on October 6, entitled ‘Ending deep poverty by April 2029’, its objectives could be achieved within this decade, and we will try and persuade the next government to bring it in.
The Joseph Rowntree Foundation have produced a good pre-budget report focused on the cost of living crisis and highlighting the impact of inflation in eroding the purchasing power of wages and benefits Autumn statement 2023: Addressing an evolving crisis.
Rif Winfield,
Inflation was 6.7% in September not 8.7%. Indeed, increasing the allowance and threshold are better than reducing the rate, because everyone earning about the new level receives the same. As I have pointed out an increase of 6.36% to the personal allowance would cost £5.2 billion. Increasing the National Insurance threshold to the same level would cost about £4.5 billion. Would you do this in addition to my expenditure suggestions? If so it would cost another £8.2 billion. It would stimulate demand across the whole of the UK while my targeted support stimulates demand in the seven regions with the highest levels of unemployment. Of course it could be funded by restoring an investment income surcharge at the rate of 7.5% which according to Richard Murphy would raise about £9 billion.
For the poorest in society I have proposed increasing benefits. The Low Pay Commission has recommended an increase of 9.8% to the National Living Wage and higher increases to these under 21. For someone paying National Insurance and Income Tax this works out as an increase of 6.66%. With my small increase to personal allowances this is increased to 9.27%.
A proper system of UBI is very expensive if it is going to replace the current welfare benefits, which is why our policy is a Guaranteed Basic Income. I can’t see any point in replacing pensions with a UBI but relating the amount of pension to a person’s NI payment years could be abolished.
Christopher Haigh,
Until AI do most of the jobs in the economy and most people receive their income from the state GDP will be important to increase because when it isn’t increasing unemployment is. It is not a choice between GDP and green policies to save the planet.
Simon R,
I do accept that increasing Universal Credit and the legacy benefits by £20 a week above inflation does reduce inequality, but I see it as giving back to those on benefits what the Conservatives took away.
Corporation Tax is paid on profits and so I do not consider it inflationary.
The government has announced that the spending on HS2 would be used for infrastructure, so I am not sure how much more can be allocated to infrastructure. The primary focus of my proposals was to stimulate the economy in the areas with the worse rates of unemployment, provide training and work experience to the unemployed to make them more employable and to return some of those waiting for a NHS operation to the labour market. I am proposing doing this while reducing inflation and not providing any inflationary pressures in the economy. Richard Murphy pointed out that income from profits is taxed less than income from earnings. Increasing corporation tax by 2% is not going to end this difference.
Joe Bourke,
The link you provided does not work.
The JRF have some things they would like to see such as:
• committing to uprate working-age benefits for inflation in full,
• increasing support for private renters through increases to Local Housing Allowance,
• increasing the value of Support for Mortgage Interest’,
• better protecting spending on public services in real terms,
• pushing the increase in the National Living Wage as far as possible.
And then,
Increase Universal Credit so that it covers life’s essentials,
Reform the housing market,
Reform employment services towards supporting people back into the right type of work,
Provide parents with the childcare that allows them to work if they want to.
@Joe Rourke
JRF link didn’t work for me
https://www.jrf.org.uk/report/autumn-statement-2023-addressing-evolving-crisis
without a full-stop being included on the end did work.
@Michael BG – ” GDP will be important to increase because when it isn’t increasing unemployment is.”
That’s probably the wrong way of looking it: when there are more people unemployed, the amount of money flowing around (ie. Financial transactions) falls, so GDP falls.
A big part of the annual increase inGDP has been due to the massive level of immigration, which all things being equal contribute 0.5~1 percentage points of the circa 2 percent increase seen. Globally GDP has increased directly in line with population growth.
>” It is not a choice between GDP and green policies to save the planet.”
Agree, unless we address climate change etc. GDP is going to crash (through the floor) in the next couple of decades; if the forecasters are right.
It’s interesting to see all these economic arguments about the strengths and failings with GDP, but no mention of Gross National Product nor National Income whatsoever, both of which add some extra information to he debate.
However, worst of all no-one at all mentions the key words, “per capita”.
As a people centric party, this omission really is rather worrying.
Roland,
“That’s probably the wrong way of looking it
It is the way I have always looked at GDP. The most important part of the economy is the number of people who are unemployed. I remember when it was news that we had over one million unemployed. I still hope one day we will have a government who will support people into work so there are fewer than one million people unemployed in the UK and very few have been unemployed for more than a year (the figure for September was just over 296,000).
@Michael
You aren’t alone in thinking that way, and much of the discourse over the decades encourages that way of thinking. However, a little reflection will show you, as you’ve already demonstrated in your reply, GDP changes are a downstream effect of employment/unemployment levels. However, that is because in our society the unemployed have less economic power (aside: not sure how a universal income would play out as it increases the economic power of the unemployed).
Looking ahead, over the next few decades we have a very simple choice transform and downsize our society and economy into something more sustainable, or nature will do it for us.
The transformation will by its nature downsize or even eliminate “old” businesses and jobs, replacing them with what currently looks like smaller businesses (but more highly technology leveraged) and fewer jobs. This naturally will significantly negatively impact GDP.
So I suggest for the coming decade or so, we need policies that play down GDP (as currently worshipped) and focus on tomorrow. I would liken it to a business (eg. Car manufacturer) shutting down a production line for a few years whilst it is rebuilt to produce a new range of vehicles. Naturally, as we are addicted to the idea of perpetual growth, this sounds very scary…
David Evans,
I hadn’t seen your comment when I posted my previous comment. According to the World Bank UK GDP per capita was $50,438 in 2007, $47,448 in 2014 and $45,850 in 2022 (https://www.macrotrends.net/countries/GBR/united-kingdom/gdp-per-capita). The humane way to increase this is by increasing GDP.
Roland,
I can’t imagine even the Green Party having policies to achieve your aims. It should be possible to grow the economy and reduce the amount of carbon we produce. I thought you agreed with me in your post – 2.34pm 22nd Nov. According to Investopedia it can be done with “’intensive’ economic growth” (https://www.investopedia.com/articles/investing/120515/infinite-economic-growth-finite-planet-possible.asp).
@Michael BG – Yes, it should, but first you have to transform the economy.
I agreed there was no choice – climate change etc is the o ly that really matters: Do you want circa 35m in the UK post 2050 or sub 5m?
@Michael BG – that article talks about Real GDP not Nominal GDP which is what everyone generally refers to. But there definition of Real GDP seems to differ from others I’ve seen.
Hi Michael BG, thanks for the reply, and the figures you quote are sound, but you seem to be missing the real point. In terms of GDP, the UK can be portrayed as around the 6th richest country in the world. In terms of GDP per capita our people are about the 20th richest (ignoring the inequitable distribution of GDP).
Once you look at these matters in more detail, you notice the top three are tax havens Luxembourg, Ireland and Switzerland) and if you extend it to minor countries which brings in even more tax havens we don’t even come in the top 30.
And this is key to the problem. All the tax havens are to significant extent tax avoidance/tax evasion mechanisms for mega rich individuals and corporations.
Now I understand the Leaky Bucket theory of wealth redistribution, where the holes in the bucket are an inevitable consequence of trying to make it a bit better quickly, rather than try to get it perfect never, but the holes in the bucket are being made ever larger and dealing with tax havens is key.
But for most of the time when we talk about poverty and the cost of living crisis, we never mention it.
@ Joe Bourke. Thank you very much, Joe, for giving us the link to the Joseph Rowntree Autumn Statement. Their figures on the rise of destitution, and on the lack of essential items of the poorest 40% families (7.3m people), together with their showing that prices have risen almost 50% faster than most working-age benefits between April ’21 and September of this year, starkly illustrate the continuing rise of poverty in our country. It is essential that our party now declares our intention to fight poverty and proclaims the policies we have which would begin to solve it.
@ Katharine You rightly say, “It is essential that our party now declares our intention to fight poverty and proclaims the policies we have which would begin to solve it”.
As you probably remember, Katharine, way back in 2019, I travelled down to London from Scotland in order to hand over a personal copy of the Alston Report (by the UN Rapporteur on poverty in the UK) to Sir Edward Davey at a Social Liberal Forum meeting.
I urged Sir Edward to publicly respond to the report. Now I may have missed something, but I have yet to come across anything from him about the Report. Maybe you could gently remind him if you come across see him at any future Conference.
Increasing GDP with “intensive” economic growth. This just looks like unsubstantiated oprimism. Once you have approached the maximum efficiencies of the energy technologies concerned: Carnot efficiency for fossil fuels and the physical limits for solar and wind, where is this going to come from? All the financial things are proxy for claims one energy, which there is less available for conversion into things we might want.
We’ve had almost no growth since 2008 in the UK, following the oil price peaking around then.
Roland,
The UK population is about 67.8 million. I would not expect the population to decline in the next 30 years and especially not to levels not seen here since the nineteenth century. I don’t want to see millions of people unemployed while the economy is transformed in the way you think is necessary.
David Evans,
What caught my eye is that the USA’s GDP per capita is $76,399. I note Germany’s is $48,432, France’s $40,964 and Japan’s $33,815. It is not possible for the UK to sort out the issue of tax havens, but I assume it could more about those based in British overseas territories.
Katharine and David Raw,
While we want our party to now declare our intention to fight poverty and proclaims the policies we have which would begin to solve it, it will be difficult to make this happen.
Jenny Barnes,
I don’t see why economic growth cannot come from the more efficient use of our resources. That we can have sustainable economic growth. We need to increase this and reduce unsustainable economic growth. In the future we will have space-based solar power.
Jeremy Hunt has allocated an extra £2.5 billion to fund their “support” for the unemployed and those not well enough to work to be spent over the next five years. I proposed £3 billion to fund employment training schemes and job guarantee schemes to assist the unemployed and those with health issues who wish to return to work for the next financial year.
Jeremy Hunt is cutting National Insurance by 2 pence costing £8.7 billion. He has said:
• someone on £38,900 will receive an annual gain of over £520;
• someone on £44,300 will receive an annual gain of over £630;
• someone on £63,000 will receive over £750.
He didn’t point out that someone earning £20,900 (just over the increased National Living Wage) would gain £166.60.
Increasing the personal allowance and NI threshold to £13,410 would cost £8.53 billion and everyone earning between £13,410 and £100,000 would gain £268.80.
Jeremy Hunt boasted that the 6.7% increase to Universal Credit will mean a household on Universal Credit gaining £470 on average.
However he forgot to mention that they will be £302 worse off if the third cost-of-living payment arrives after 6th April. A single person 25 or over will only gain £296.52 and so will be £5.48 worse off if they receive the £299 cost-of-living payment after 6th April.
According to the Autumn Statement book next year there will be a financial stimulus of £11.375 billion (a third of what I proposed). (Making the capital allowance permanent doesn’t cost nearly £11 billion until 2027-28.)
@Michael BG
“It is not possible for the UK to sort out the issue of tax havens,”
Why not? Please explain.
“but I assume it could more about those based in British overseas territories.”
OK- what are your assumptions based on?
@Michael BG – I suggest you take a careful look at the forecasts, with the crunch point being circa 2040. and consider the ramifications, if the forecasts become reality. The outcome really depends on the actions we take: no preparation and we’ll be fully exposed to the perfect storm…
I think you misunderstand my point, change is going to happen and will happen rapidly, history tells us this type of change isn’t going to be kind. So my stance is the signs are there that we will be downsizing and large numbers will loss their current jobs, we can either be in denial – which would seem to be where your thinking currently is, or embrace this reality and plan accordingly – for example those solar panels etc. will need skilled people, in numbers we don’t currently have, to install… Obviously, the LibDem difference is in the way these people are treated and brought back into contributing members to our society.
It seems that the cost-of-living payments this year have cost £8.7 billion and next year will cost only £2.5 billion (https://commonslibrary.parliament.uk/research-briefings/cbp-9616/). This is a cut to government spending, which reduces the value of the financial stimulus to only £5.175 billion. To be fair the value of my proposals should be reduced by the £7 billion of the value of the difference between increasing the personal allowance and NI threshold in line with inflation and my proposed increase to compare with £5.175 billion. Nevertheless, once both financial stimuli are reduce my proposal is five times the value of Jeremy Hunt’s.
Nonconformistradical,
David Evans mentioned three tax havens – Luxembourg, Ireland and Switzerland. Others are British Virgin Islands, Cayman Islands, Bermuda, Hong Kong, Jersey, Singapore, and the United Arab Emirates.
The UK can’t do anything about the tax regimes in foreign countries. I assume that British overseas territories are dependent on the UK and don’t have full independence or sovereignty and therefore the UK can get them to change their financial services rules and tax regime. However, it is likely I am wrong. Jersey, Guernsey and Isle of Mann are nearly independent. The British Virgin Islands, Bermuda, and the Cayman Islands have parliaments to handle their domestic affairs, so the UK is likely to only have influence.
@Katharine: I suspect this issue of needing to generate more wealth to solve poverty is something we’ll be constantly disagreeing on 🙂 But to try to justify a bit:
1. You mention sharing water company executives more fairly. Well let’s try Thames Water’s boss Sarah Bentley, who was given £496K last year. If you took it off her and distributed it amongst the population in the name of fairness, we’d each get less than 1p each! Sure, she’s only one person, but how many bosses do you think there are who receive supposedly undeserved bonuses that you might therefore want to confiscate in some kind of authoritarian way? There’s not nearly enough money there to make a noticeable difference in everyone’s lives.
2. In a free market, prices inevitably sort themselves out to match supply and demand. If prices are rising that invariably means that it just wasn’t possible to supply enough goods to meet demand at the old lower price. Of the main price increases driving the cost of living crisis, there is a broadly free market for housing and food. Energy is more complex, but capped at an amount related to wholesale prices – for which there is a broadly free market. I leave you to draw the inevitable conclusions about supply.
So I stand by that if you want to solve poverty, you need to create more wealth to improve supply of the things people need. There really is no other way!
Obviously that should be, sharing water company executives’ BONUSES more fairly. Without that extra word, the meaning of that sentence would be – umm – interesting! 🙂
Roland,
We are taking action. The target is to cut carbon dioxide emissions to 2010 levels by 2050. Both the Liberal Democrats and (currently) the Labour Party have extensive green investment policies. It is the role of government to ensure that there will not be huge numbers of unemployed people. (I suppose the government could lower the retirement age. 🙂)
Please can you post a link to your apocalyptic forecast for 2040 and your claim that after 2050 the UK population will be between 5 and 35 million?
Simon R,
It has been reported that this government is reducing investment. I think the Liberal Democrats have plans for investing £200 billion (£150 billion for the environment and £50 billion for regions) I think over five years. I do accept that if I had more space I should have set out plans for investment over the next five years.
With regard to company executives’ bonus, it would be fair if their bonus were the same percentage of their salary as the rest of that company’s workforce receive.
No, Simon R., we don’t need necessarily to create more wealth in this country: just to see that it is spread out more fairly. People who seem to be less deserving are top executives who haven’t been seen to conducting their affairs successfully yet accept bonuses. I understand some of the water companies’ bosses did refuse bonuses this year, but the bosses of my local company, United Utilities, were not among them.
No, of course we don’t talk of sharing the individual small amounts out, but of getting the principle of unfair bonuses accepted by their shareholders; and the principle that workers are in the modern phrase further ‘stakeholders’ in their companies who deserve a fair share is one held by Lib Dems. We also hold that it would be fairer to tax capital as well as people’s earned incomes, and call for better taxation policies to tackle poverty and raise the standard of living of the working population.
Dealing with excessive poverty without growth is practically impossible. Even in a command economy (which in itself would create a new privileged elite) it would be close to impossible to manage.
In a growing economy there would be fewer cases of unforeseen and unintended hard cases of those losing out. Without growth efforts to rebalance would reproduce the spectre of the ‘bedroom tax’ on a much greater scale. The bedroom tax was an effort to solve housing inequality, but at a time of housing shortage. I guess it could have worked in combination with a largescale programme of building new social housing, that is with growth.
Many of us will remember the Tory line of the 1970’s that we had become too fixated on the idea of solving poverty by a process of redistribution rather than creating growth in the economy.
Since 1980 GDP has increased by a factor of at least 4 but we don’t seem to be any nearer to solving the poverty issue. Had we known the economy was going to be this much larger some 40 years later it would have been hard to argue against the Tory line. We would have thought that surely this would be more than enough to fix any problems.
We would have been wrong. It turns out that redistribution does matter as much as it ever did.
@Peter: I think the problem with citing growth since 1980 is that the main thing driving people into poverty over the last 15 years has been housing costs, which are in turn driven by lack of housing. And housing stock per capita hasn’t significantly increased: According to https://www.statista.com/statistics/378391/uk-england-housing-dwelling-stock-total/, there were 21.21 million dwellings in the UK in 2001, and 24.66 million in 2020. Comparing with population gives (58.8M and 67.1M) gives 0.36 dwellings per person in 2001 and 0.37 per person in 2020. I don’t have housing stats back to 1980 but considering how low housebuilding was in the 1980s and 90s there’s no reason to believe supply increased much in that time.
So no, in terms of the current main driver of poverty, we haven’t been producing enough to give people more – which of course goes a long way to explaining why we haven’t been able to solve poverty, and is quite consistent with my saying that to solve poverty, we need to produce more.
btw – GDP 4 times what it was in 1980???? In real terms, that sounds rather implausible to me. I’m pretty sure living standards haven’t gone up that much. Have you taken inflation and population into account? Are you comparing per capita real-value GDPs?
Katharine,
It is not a choice between growing the economy and redistribution.
Martin,
I have shown in my LDV article (https://www.libdemvoice.org/ending-deep-poverty-by-april-2029-74037.html#comments) it is possible to end deep poverty funded by tax changes.
Simon R,
According to the World Bank UK GDP per capita was $10,032 in 1980 and $40,318 in 2020.
Housing is not the only driver of poverty. In a House of Commons briefing (https://researchbriefings.files.parliament.uk/documents/CBP-9498/CBP-9498.pdf ) there are some interesting tables and graphs. The table on page 16 shows that in 2021 a working aged single person would only receive 33% of the JRF Minimum Income Standard; a working age couple 31%, a single pensioners 95% and a pensioner couple 92%. The first graph on page 19 shows that the amount that Jobseekers receive has declined from a high in the 1980s by about 20% in real terms. (I didn’t know that until the early 1970s the unemployed and pensioners received the same amount.) The second one shows that Universal Credit in 2021 was only about 11% of average earnings, while in the 1970’s it was about 20%.
Housing benefit has not kept up with rising rents. From April next year Local Housing Allowance rates will be restored to the 30th percentile. When it was introduced it was set to the 50th percentile.
We are a rich society with high expectations, at least those of us with sufficient education and means: expectations to live in freedom, to have our health and wellbeing cared for, to work as much as we wish and to have sufficient money to spend on the material goods and enjoyments of our choice.
But there is no freedom in living in poverty, if life is a struggle for a decent home and enough of what we reckon are material essentials, as well as sufficient food and drink and limited treats for the children. And as Liberal Democrats, wanting a Liberal society in our country and believing in effective communities which share goods, we surely should work to lift the persistent number of 14 million people who live in poverty here into our better, luckier circumstances. Where there is a will there is a way. I believe we must commit to finding it.
@Katharine: Your passion to eradicate poverty is admirable, and I don’t think anyone here would disagree about wanting a society without poverty – it’s just that there are different views on how to achieve that, and some of us believe that focusing exclusively on taxing to redistribute will not work (and will harm the economy as well).
@Michael BG. I agree that redistribution and growth are both important. Focusing on either one to the exclusion of the other is inadequate.
The reason I say that housing is the main poverty driver is that we don’t have enough housing, but a place to live is absolutely essential to people, and that means that, faced with a housing shortage, many people on lower incomes will choose to pay whatever they can afford to get a place to live – since with such intense competition for housing, the alternative is homelessness. That means that rents/etc. will always rise to completely absorb any additional money you give to poorer people – which is part of what’s been happening the last decade. That will only stop when you build enough houses!
Simon R., you are right to focus on the housing situation as a driver of poverty, and if I was able to focus on three slogans for our developing General Election campaign I would probably choose, Tackle Poverty, Sort the NHS, and Fix Housing. But 14 million people, about 4 million of them children, were living in poverty in Britain when the UN Rapporteur on Extreme Poverty Philip Alston found in November 2019 that our poverty rates weren’t fitting for a rich country (see David Raw’s comment on November 23, 4.10 pm), and only the Scots Nats took note and tried to do something about it. Four years later, it’s more than time for our own party to take up the baton and make tackling poverty a Manifesto commitment for us. The Labour Party aren’t doing it, but if we prioritise it with our GBI policy to aim to end deep poverty and the need for food banks within ten years, we can both show the country we are different in having this commitment and then hopefully bring Labour to the table when they are in power.
@ Simon,
I agree that a factor of four sounds a lot. I certainly don’t feel that much better off!
The reference is Google {GDP per capita UK} The graph you’ll see cites data from the world bank. $46.5k for 2021 $10k for 1980
So a factor of 4 is understating my case!
Incidentally the high price of housing adds to GDP. Which isn’t much good if you don’t own one. There’s an imputed rental included for owner ocupiers.
I think we all would like to have a society which is poverty free. However, doesn’t the present system (call it capitalism or whatever you like) require that this poverty exists as a disciplinary measure? If we don’t go to work and earn whatever money we are able to, then we won’t have an easy life.
Which is fine if we are lucky enough to be able bodied and have had a good enough education or training to be able to earn enough but if we aren’t that lucky there will be problems.
So how do we devise a system which does encourage everyone who is able to work and so produce the goods and services we all need but at the same time doesn’t have a measure of coercion which is the undesirable flip side to our current level of prosperity. A GDP per capita of $46.5k each would indicate that we are doing OK in aggregate.
Simon R,
Someone of working age living just on benefits will live in poverty because of the benefit system. Those in work are not affected by the benefit cap, but if paying rent they are affected by the low level of housing benefit because of the Local Housing Allowance rates. Having enough homes for everyone would not change any of this. The benefit system must be a genuine safety net which keeps people out of poverty. And we need to build more homes. Shelter in its 2019 report, ‘Building for our future: A vision for social housing’ stated that we need to build 3.1 million social homes over 20 years and recommended that by 2034 209,000 social homes and 140,000 private homes be built.
Peter Martin,
Liberals don’t accept the premise that people will only work if the alternative is poverty. Our party has to articulate this and have ending poverty as it long term stated aim.
@Peter I think those figures aren’t taking inflation into account – and probably not exchange rates either since they are in US$. I did some digging into World Bank open data and it looks to me like UK real-terms per capita GDP approximately doubled between 1980 and 2022, which seems more reasonable. But I’d still maintain that the housing shortage and resultant high housing costs are mostly what’s causing poverty levels to be so high, so the doubling in GDP isn’t that relevant.
You are correct that you do need incentives for people to work. Lots of essential jobs are frustrating/difficult/stressful/sometimes unpleasant – so why would you spend your day doing them if staying at home and enjoying your free time paid you roughly the same? No matter what the economic system – capitalism or anything else – the economy would collapse with almost no-one doing anything if you tried to run it on that basis. It’s completely unrealistic to pretend otherwise – which it feels like some people here seem to want to do. For that reason, there will always be a substantial degree of inequality, which simply reflects that in a free society, different people will make different life choices. Nevertheless, I’m sure it’s possible to arrange things so that almost all people have access to the essentials to live at least a basic but decent life – which is how I’d understand ‘eliminating poverty’.
@ Simon,
We agree that there does need to be an incentive to work. The economy would collapse without it. Michael BG is being quite Utopian in his assertion to the contrary.
We can argue that the imposition of a tax by Government does create unemployment. It’s easier to see this if we consider what would happen if, for example, the Brazilian government imposed a poll tax on Amazonian Indian populations. They would have to work for Government, either directly or indirectly, to get the money to pay the tax.
So consequently we can argue that if we are required to work the Government should, as a last resort, provide us with something to do as means of acquiring this money. Alternatively, if you don’t like this theory, we can say that the Govt should at least provide us with a job it it wants us to contribute to society in a meaningful way and, as a last resort, there is nothing available in the free market.
Then, once we do have the opportunity to work, the question of the minimum rates for paid labour, as well as the rates of a progressively applied income tax do need to be decided in the usual way according to the democratic process.
Simon R,
Ensuring no one in the UK lives in poverty does not remove the incentive to work. The poverty level is where people only have the essentials.
Peter Martin,
I have never said there is no need for people to have incentives for them to work. What I say is that people don’t need to have the choice between work and poverty.
The government taxes income and spending. If a person has no income and no savings then the government needs to provide them with an income which keeps them out of living in poverty. If a person works for the government, the government normally pays market rates. If a person is of working age and can work then the government should provide support so they can get a suitable job. The government should also provide the economic circumstances so that everyone of working age well enough to work can be employed.
@Michael: I think it does. The problem is, what you’re proposing, along with the LibDems’ wish to remove not-searching-for-work sanctions for receiving benefits, implies that someone who could perfectly well work and contribute to society but decides they’d rather do nothing is guaranteed that they will still be given a decent life/income – sufficient that they won’t be in poverty, with no questions asked. That will remove a lot of the incentive to work – and would pretty much guarantee that many more people will choose not to bother working. And remember that this is at a time when the UK already has a problem post-Covid of lots of people choosing not to work/take early requirement etc., which is great for those people, but is further hitting the UK’s output at a time when our main economic problem is lack of output!
@Peter: Yes, I think we broadly agree here. In fact, my view is that the best way to solve poverty would be twofold: For the Government to offer everyone a guaranteed job based on their abilities/wishes paying at least the minimum wage (and for goodness sake, there’s more than enough stuff that needs to be done that isn’t being done in our communities), and also take action to ensure all the essentials for life (housing, energy, etc.) are being produced in sufficient quantities that their market prices remain low, and people on the minimum wage can afford them.
Living at the poverty level does not provide a decent life style or income. That is why the incentive to work is there so a person can have a decent income and life style which provides more than just the bare essentials. Also you have assumed that the only way to contribute to society is via paid work. Anyone doing voluntary work or caring for someone for no pay is contributing to society. Do you have any figures for the number of people who have taken early retirement since 2000 to back up your claim? My understanding is that the number of economic inactive has increased because of health issues. Which is why the Liberal Democrats want to fix the NHS and reduce waiting lists so these people are well enough to return to work.
You want the government to provide everyone a guaranteed job based on their abilities/wishes paying enough for them not to live in poverty. (The National Living Wage is now above the poverty level for full time workers.) I agree that the government should provide a guaranteed job for those of working age based on peoples’ abilities and wishes or training for a role that meets their wishes.
Michael BG,
It depends how you define poverty.
Certainly any young person with a family has to earn a lot just to be able to afford mortgage repayments, rent, childcare, and the necessary other bills that need to be paid. This is just ‘getting by’ and before there is anything left over to spare on holidays etc.
Many of us will have been through a period in our lives when ‘poverty’ was only a couple of missed pay cheques away. The possibility of losing a job is quite scary.
@Michael. But as I understand it, you’re trying to make sure that everyone is above the poverty level. So the fact that, poverty level does not provide a decent life style or income seems not relevant if no-one will be at that level. (And to be clear, aiming to get everyone above the poverty level is a good thing in itself – but it’s not workable to achieve that if you don’t link it to an expectation that people will work if they are able to do so).
@ Simon R. I’m afraid I find your determined focus on the need for sanctions depressing. It fails to take account of child poverty. Children living in poverty are not responsible for what you might describe as the frailties and weaknesses of their sanction facing parents.
During the pandemic, 400,000 children were lifted out of poverty, largely thanks to the Government’s decision to temporarily increase Universal Credit by £20 a week. But with the withdrawal of the £20 increase in October 2021, followed by the onset of a major cost of living crisis, progress was pushed firmly into reverse.
By 2021/22, the number of children in poverty had almost recovered to its pre-pandemic levels, to 4.2 million (or 29% of children). How would your predilection for benefit ‘sanctions’ help these children and how would you propose to deal with the issue ?
@ David Raw,
Simon, you and I would all agree that we don’t want anyone, adults or children, to live in poverty. The way to achieve this has to be involve something different from what we’ve been doing for the last few decades. Otherwise we wouldn’t be having this discussion.
Some (most?) Lib Dems seem to be of the opinion that we shouldn’t require anything at all in return for whatever assistance might be provided.
Whatever you, Simon or I might think about this high minded principle, a short conversation with the voters should be enough to convince anyone that this is a political non-starter. Even the best of policies won’t help anyone if voters won’t vote for it.
So how to achieve our goal? I’m happy to go with the Marxist principle of “from each according to our abilities”. This is in return for “to each according to our needs”. Just what the second part means may not be totally clear. However in a society where the GDP per person is some £35k p.a, it should mean that we all should have a sufficient income to keep ourselves, our children and other dependents out of poverty.
I think the problem is how you define work.
Is a person who runs a food bank working? Is someone who sets up a refuge for battered women working? Is someone who writes and produces amateur dramatics working? Or is it only work when it’s paid employment? Look, we’re only talking about keeping people above the poverty line, not making them rich. Does it matter to society as a whole if some people don’t have paid employment but contribute to wellbeing in other ways?
Increasingly, working is going to be less plentiful in the future because more and more of what we now call work, will be done by machines or AIs. So we have to plan for people working less hours, but still being paid well and maybe, just maybe some people will not be working, but will still need enough to live on without being in poverty.
Think outside the box.
Peter Martin,
Many people in work have no savings and are only one wage packet away from living in poverty. Even if someone made unemployed was paid at the poverty level losing a job would still be ‘quite scary’.
Simon R,
Party policy is to increase benefits to the deep poverty level within the decade. I call for it to be increased after this to the poverty level, not above it, but haven’t put a timescale on it.
The Liberal Democrats are a liberal party and believe in liberty not coercion. Sanctions are coercion. Our policy is to replace sanctions ‘with an incentivised scheme that helps people into work’. The Liberal Democrat policy includes job guarantees and training schemes for the unemployed.
@Michael: Last time I checked, as LibDems we believe in tax (which is a coercion) and in enforcing the law (which is also a coercion). So it’s not true to claim that the LibDems don’t believe in coercion. Rather, we believe in maximising liberty to the fullest extent practicable. But we are not anarchists, and we do accept that a degree of coercion is necessary to allow society to function.
@David: I don’t see it in terms of particularly wanting sanctions: Rather, to me it’s about devising a system that is sustainable and going to work, and also recognising that society is a two-way thing which works by everyone helping each other. That applies to all aspects of our society, and how we ensure that everyone has a reasonable standard of living is not an exception to that principle. You can’t build a liberal society if you try to do it by the Government handing down everything from above without ever expecting people to do anything in return – for the simple reason that people doing stuff and making stuff is what creates our society and allows us to have decent lives, and if people stop doing that then society collapses and all of our liberal dreams become impossible.
@Mick: If you wanted to define work to include voluntary work, I don’t see any problem in principle with that. But I don’t think that changes the wider point about expecting people to do something to contribute.
Simon R,
Taxes are not coercion. I suppose enforcing the laws is a form of coercion. Liberalism states people should only be forced to do things so they don’t cause harm. Sanctions are coercion. Do you agree that the Liberal Democrats have policies to replace sanctions ‘with an incentivised scheme that helps people into work’? Sanctions are not part of ‘maximising liberty to the fullest extent practicable’.
We are not advocating the government ‘handing down everything’ to people. We are just advocating that no one in the UK lives in poverty, because we say that living in poverty means someone can’t be free. We are not removing the incentive to work. We are very much not saying that people should not do stuff and make stuff. We believe the government shouldn’t force people into destitution and that is what sanctions do. Sanctions are not part of a liberal society. Requiring people to do things, apart from obeying the law so they don’t cause harm, is not part of a liberal society.
@Michael: How do you reason out that tax is not a coercion? I’m pretty sure that, if I decided I’d rather keep the money I’ve earned and therefore declined to hand a chunk of it over to HMRC, I’d quickly find myself in court, being coerced to pay up!
You deny that you’re advocating the Government ‘handing down everything to people’ but surely that is exactly what it amounts to if you have the Government give people all the money it considers they need to live reasonably, without any checks and without asking people for anything at all in return. To me it seems very self-evident that doing that will disincentivise many people from working, and I have to admit to some puzzlement that you apparently do not see that. If you disincentivise people from working, you reduce the UK’s output and therefore reduce everyone’s standard of living – which then makes it much harder to eliminate poverty.
I think we both agree that no-one should have to live in poverty, but we disagree about how to achieve that: I see ending poverty as a partnership in which we provide everyone with the means to lift themselves out of poverty if they wish to. You advocate policies that appear to me to put the entire responsibility on the Government.
@ Simon R. It’s been a reasonable and good-humoured debate here, I think, Simon, having just caught up with it all. But it seems to me you are losing the argument now. Just now you write, “I see ending poverty as a partnership in which we provide everyone with the means to lift themselves out of poverty if they wish to”, ignoring the fact that many may wish but not be able to. And I think a paragraph you wrote at 9.38 yesterday seems to suggest a fixed viewpoint holding onto a pleasant fantasy.
You wrote, “You can’t build a liberal society if you try to do it by the Government handing down everything from above without ever expecting people to do anything in return, for the simple reason that people doing stuff and making stuff is what creates a society and all of us to have decent lives, and if people stop doing that then society collapses and all our liberal dreams become impossible.” Simon, please could you try to share the ‘liberal dreams’ many of the rest of us have? – of our fellow citizens indeed being all able to ‘do stuff and make stuff’, to be creative and free, because we will give them the basic subsistence all of us need, which many are sadly unable at present to get.
Simon R,
I would define coercion as forcing someone to do something against their will. Paying VAT and income tax doesn’t force me to carry out any other action against my will. However, some taxes can be coercive such as fuel, tobacco and alcohol duties which are meant to force people to buy less of these products.
You seem to have difficulty in understanding that someone living at the poverty level (the level I would like benefits to be) does not mean that they have enough money to live reasonably. You seem to believe that a person living at the poverty level would be happy living at this level of low income. I believe that most people would not be content to live on such a low income and so will have the incentive of earning a higher income to live what most people expect a reasonable life to consist of, such as being able to go out for a drink or a coffee, having a holiday and being able to pay for out-of-school activities for their children.
In an earlier comment you put the responsibility on the government to remove people from poverty by ‘offering everyone a guaranteed job based on their abilities/wishes paying at least the minimum wage (which is above the poverty level) and ‘ensure’ that ‘people on the minimum wage can afford’ ‘all the essentials for life (housing, energy, etc.)’.
@Katharine: Well, I’m clearly expressing a minority view here, but I don’t believe I’m losing the debate. And I’m sure this is a debate that we will continue to have, given how often the topic comes up on LDV. But I’m concerned that you write as if I don’t share the dream of lifting people out of poverty: Please understand that I do share that dream – and that’s precisely why I am debating this. I want to lift people out of poverty, and I fear that you and Michael are advocating a (rather utopian) GBI policy that may look good on paper but would never work in the real World, and I want to see real-World based policies that stand a chance of succeeding. Obviously you disagree with my analysis, so I guess we’ll have many more discussions 🙂
I agree with you that at present, many people are unable to lift themselves out of poverty – which is awful – and I’m not advocating that we do nothing to fix that. I’m just advocating different solutions from you/Michael.
@Michael: I do actually understand that living at the poverty level doesn’t mean, living reasonably. But I’m now confused about your intentions: Earlier you stated, “The benefit system must be a genuine safety net which keeps people out of poverty.“. Now you are stating “at the poverty level (the level I would like benefits to be)“. Well if you only pay benefits at the poverty level, then you are not going to keep anyone out of poverty! Which one are you advocating? Benefits at the poverty level or above the poverty level?
Regarding people being content: A key point here is that people are unique. Some people will only be happy with a life of luxury, and those people will always be strongly motivated to find the highest-paying job they can. Other people will be perfectly content to have a very basic standard of living, and those people will likely perceive no financial need to work if they will get a guaranteed basic income anyway. Most people will be somewhere in between those extremes. If only – say – 5% of people are disincentivised from working, that’s still a significant loss of GDP, which then drives even more people into poverty, defeating your own objectives!
Michael BG, Katharine, SimonR,
“Paying VAT and income tax doesn’t force me to carry out any other action against my will.”
Of course it does. Unless you are lucky enough to have an inheritance you’ll need to work to get the money.
Why does the government impose these taxes in the first place, when it can create, from nothing, all the ££ that it needs? The reason for taxes isn’t to collect money. It’s to force us work, either directly for the government or indirectly for others who do or provide goods and services in one way or another. We need to work to get the money to pay the taxes.
Taxes are a means for governments to provision themselves from the products of our labour.
The process also creates a value for the ££ that we need to pay in taxes so the currency can fulfil its familiar roles as a means of exchange and a store of value.
This is the system that LibDems support, unless and until Lib Dem policy is to scrap what we have totally and move to an economy (if that’s the right word for it) where no-one has to do anything at all. All work will then be totally voluntary.