Your bacon sarnie is at risk…

An item on Radio 4’s Broadcasting House yesterday morning put into sharp focus the labour crisis that the UK is currently experiencing. Thousands of piglets may have to be culled because there are not enough workers to process them; vegetables are going to rot in the fields because there insufficient pickers to harvest them (one Gloucestershire farmer has been working with his local Job Centre since July but has not managed to recruit a single person); and, horrors of horrors, a toy company says it may not be able to get its Harry Potter range into Aldi in time for Christmas because of labour shortages at ports and in the haulage industry.

Thinking about this, I came up with a few radical solutions. I don’t expect them to be popular, but then I will use one of the phrases that has been so overused in the last 18 months – extraordinary times call for extraordinary solutions.

  1. Send a few ferries across to Calais to bring over all the asylum seekers waiting in the camps who are trying to get to the UK, and give them settled status. I am sure we will find that a number of them are professionally qualified such as doctors, dentists and nurses, and this could help our beleaguered NHS too.
  2. Offer long-term visas to unskilled workers from some of the poorest countries in the world, where our minimum wage would seem like untold riches.
  3. Offer these unskilled workers help with travel costs (otherwise most of them could not afford to come), and free accommodation for 6 months, until they get enough money to find their own accommodation.
  4. OK – I can see you throwing up your hands in horror. Surely I am proposing that we flood the country with immigrants who will upset the balance of our society? Where will they live? How will our infrastructure cope?

    The UK has always been a melting pot, and we have citizens who probably owe their ancestry to the Romans, the Normans, the Huguenots, and many, many others. We wouldn’t have many of our ice cream parlours and pizzas were it not for an influx of Italians. We all love our Chicken Tikka Masala, but would we have it without those who came from the Indian sub-continent?

    As far as accommodation is concerned, there are currently 3 cruise ships sitting empty at the port of Rosyth, just across the river from Edinburgh. I am sure that there must be others at ports around the UK. Could these not be pressed into service as temporary living quarters?

    Or, even more radically, there must be loads of empty properties in Belgravia and Mayfair that are only used for a few weeks of the year, for shopping trips by Russian oligarchs, or Arab billionaires. Why not commandeer these? Children were moved out of cities during the war and billeted with families they did not know. There could be a similar scheme for working adults.

    And for the infrastructure – well it’s damn well creaking already because of a shortage of labour. We need to be radical to solve the problem.

    If we don’t, then you may find bacon sarnies get prohibitively expensive, or are even unobtainable. You may not be able to have Brussel sprouts with your Christmas dinner (no hardship some of you say, but what about the potatoes and the parsnips too?). And kids across the land will be mentally scarred for life because they don’t get a Harry Potter toy in their Christmas stocking (I never got a Barbie doll when I was little, but I don’t blame that for any problems I may have).

    OK, I know it’s never going to happen – I can hear the anguished cries of Tory politicians and Daily Express readers as I write. But just exactly what are we going to do?

    * Lin Macmillan joined the Liberals eons ago. She stood in local elections in Aberdeen and was Parliamentary Candidate for North Aberdeen in 1979. She is a former member of the Scottish Lib Dem Policy Committee, and a past Convener of the Scottish Liberal Club.

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47 Comments

  • August 2016 …The National Pig Association has thanked the public who voted Brexit for the positive turn the UK pig industry has took since the referendum….In an update on their website, the organisation explained that “Happy days are here again… thank you Brexit voters!”…..

    The “Happy days are here againI’ reminded me of the ‘Porridge’ episode when Mackay leaves and the inmates rejoice. However, Mackay’s replacement, Mr. Wainwright, is far worse than what they had before..

  • Brad Barrows 4th Oct '21 - 3:44pm

    I’m afraid I disagree with the thrust of this article. The reason why we have shortages of certain types of workers is often because rates of pay and working conditions are not sufficiently attractive. We may be attracted to the idea of unlimited supplies of foreign labour that may be willing to work for minimum wage or less, as it means that consumers get things cheaper than they would otherwise cost, but this can not be the preferred answer to the problem – making pay and working conditions more attractive seems a better solution.

  • Andrew Tampion 4th Oct '21 - 4:44pm

    Brad Barrows is right the solution must be a combination of making these jobs attractive to British citizens and using technology to increase productivity and make jobs easier and therefore more attractive. The suggestion that we should bring in unskilled workers to do these jobs when we already have millions of people looking for work is the sort of muddled thinking that led, in part, to the Brexit vote. Also the implication that the unskilled workers from abroad can be brought in to do the nasty jobs so that our children don’t have to could be seen as racism.

  • David Evans 4th Oct '21 - 5:28pm

    Or selfishness, mollycoddling or even just plain laziness.

  • john oundle 4th Oct '21 - 5:49pm

    Agree with Brad Barrows on rates of pay,conditions & until recently an unlimited supply of cheap labour continually driving wages down & unskilled labour rates being paid for skilled jobs. Little wonder our productivity rates are so low.

    No mention at all in this article about the current one million + unemployed or the further one million + people that came off furlough last week.

  • Agree with all the contributors here citing the terms and conditions for these jobs as a factor for people not taking them on.

    Isn’t it a rather startling omission that the main website for the Lib Dems didn’t automatically include an opposing article making those points? I’m afraid the boat has left the harbour. The LIb Dems have been left at the inn drowning their sorrows.

    The mindset it not right for social justice or as the term is now `levelling up`. Not that I’d trust Boris Johnson to run a bath!

  • Peter Watson 4th Oct '21 - 6:36pm

    I share the concerns of the previous posters.
    I would hope it is not the intention of the author, but this article gives the impression of being a call to bring unskilled migrants to the UK (possibly not even with their families) in order to live in accommodation and work for pay that we would not want for ourselves just so that we don’t have to pay more for a bacon sandwich.
    The article is really not helping me understand the Lib Dem vision, but the below-the-line comments are reassuring at least.

  • William Francis 4th Oct '21 - 6:40pm

    Not sure entirely inclined to agree with some of the views expressed in the comments here given how the political right has spent over a decade blaming immigration (and demonizing immigrants as people) for low pay, low productivity, and unemployment.

    What sort of Liberal would readily admit, Priti Patel, Nigel Farage, Ian Duncan Smith, and their ilk are in the right?

    Indeed we have been hardly the only EU member state of northern Europe to have free movement of people, yet productivity and real wage growth are higher in France, Germany, and the low countries compared to the UK.

    Immigration didn’t create a weakly regulated labour market, shareholder focused corporate governance or undermined collective bargaining. Why do we blame them for that?

  • john oundle 4th Oct '21 - 6:53pm

    ‘I would hope it is not the intention of the author, but this article gives the impression of being a call to bring unskilled migrants to the UK’

    It does seem as if the author wants more unskilled migrants in the UK to ensure the downward pressure on wages continues. Add to that the fact that governments have in reality been subsidising employers to pay low wages via the benefit system

  • William Francis 4th Oct '21 - 7:12pm

    @John Oundle

    Real wages have been rebounding since 2014 (though we haven’t surpassed 2007 levels just yet), add to this the minimum wage rises have kept wages of the poorest workers rising.

    The ballooning cost of housing and insecure work (e.g zero-hours contracts) has a far greater impact on the standard of living of the lowest waged workers compared to immigrant workers.

  • john oundle 5th Oct '21 - 12:39am

    William Francis

    ‘Indeed we have been hardly the only EU member state of northern Europe to have free movement of people, yet productivity and real wage growth are higher in France, Germany, and the low countries compared to the UK.’

    UK together with Ireland were the only two EU countries that didn’t operate the 7 year transition period,add to that English being the second language taught in most schools plus a very generous benefits system, you have very strong pull factors.
    It’s basic demand & supply.

  • Peter Martin 5th Oct '21 - 3:30am

    “Indeed we have been hardly the only EU member state of northern Europe to have free movement of people, yet productivity and real wage growth are higher in France, Germany, and the low countries compared to the UK.”

    Do you have a reference for this? Even if it’s true for Germany and the Netherlands it’s unlikely to be the same in France. They have some social problems there too. You might have heard of the “yellow vest” movement.

    Germany and the Netherlands largely solve their own unemployment problem by exporting it to others. Their currency is artifically lower in value than it would be if they still had a freely floating DM or Guilder. Not everyone can export their way out of trouble. It simply isn’t arithmetically possible.

    Of course immigration doesn’t have to cause wages to be suppressed generally. John Oundle isn’t quite correct in saying its “basic supply and demand”. If that were the case we’d all be poorer than we used to be because the population has risen since the end of WW2 and partly because of the levels of immigration that have offset a falling birth rate.

    But he’s right to include the demand aspect. If supply rises then demand has to also rise otherwise prices and wages will fall. This can only happen sustainably if Govt uses its fiscal capacity to expand the economy. If Growth is stagnant because Govt doesn’t want to do that, or we have booms and slumps because of excessive levels of private debt, problems will arise. Many workers, the less enlightened, won’t blame those austerity based policies but they will blame immigrants.

    We’ve seen this happen right across the EU. The growth of the political right who seek to capitalise on these sentiments has been far more pronounced in the EU than in the UK.

  • Chris Moore 5th Oct '21 - 6:39am

    Surely the article is satirical!! And should not be taken so literally!

    In any case commandeering the empty mansions of oligarchs should be party policy, with exclusions for those who give the party a minimum 8 figure bacon sarnie.

  • William Francis 5th Oct '21 - 8:39am

    @John Oundle

    In what universe has the UK had a very generous benefits system? The Daily Mail’s and Daily Telegraph’s?

    As for the transition period, that expired by the early 2010s so the effects of that have been irrelevant for explaining real wage growth since.

  • Chris Platts 5th Oct '21 - 9:08am

    I do not have a problem with people coming to live in the UK especially if they are coming from places where they have been abused and mistreated.What needs to happen here is that they need to be treated decently,paid a proper wage that would be paid to native of these shores for the same job. Migration should not be seen as an excuse to exploit people.

  • William Francis 5th Oct ’21 – 8:39am:
    In what universe has the UK had a very generous benefits system?

    The availability of Working Tax Credit and Child Benefit has been widely cited as a major pull-factor for inward migration…

    ‘Labour will curb tax credits for EU migrants, says Rachel Reeves’ [November 2014]:
    https://www.theguardian.com/politics/2014/nov/18/labour-clamp-down-in-work-tax-credits-eu-migrants

    “It is far too easy for employers in Britain to undercut wages and working conditions by recruiting temporary workers from elsewhere in Europe on very low pay and with no job security, knowing that the benefit system will top up their income. There are 252,000 working households from the EU now receiving tax credits, including 12% of all single, childless people receiving working tax credit.

    “Our country’s social security system was never intended to subsidise and perpetuate low-paid and insecure work. […]

    Nick Clegg, the Liberal Democrat leader, has also vowed to act on what he regards as an anomaly. He has suggested EU claimants should only receive the level of benefit paid by their own country.

  • Nigel Jones 5th Oct '21 - 10:30am

    Are we simply floundering here without hard information about the real situation regarding immigrants and free movement ? Some seem to have been taken in by exaggerated claims of the right wing media, which has been dominant for so long in the UK. On Newsnight last week, the president of the National Farmers Union, said a previous speaker was completely wrong to claim low wages and poor working conditions and immigrants from the EU had made the problem worse. She said in pig farming, people were paid well over the minimum wage and conditions were good. I have also seen information that lorry drivers are not badly paid and some are extremely well paid, way above what teachers get, for example.

  • Lin Macmillan 5th Oct '21 - 10:48am

    Thank you very much to all those who have taken the trouble to comment, although I think some of you have taken me a little too seriously!

    However I never suggested that we should be paying such invited immigrants slave wages. On the contrary it would be vital to pay them at least the minimum wage, provide them with decent housing, and give them opportunities for education and training to assist them in advancing within our society. We have far too many people employed as modern day slaves in this country already, and too many people are prepared to turn a blind eye to this.

    Interestingly, Rishi Sunak said in his speech to the Tory Party Conference yesterday that “pragmatic controlled immigration might be part of the short-term solution”. I don’t like to find myself agreeing in any way with the Tories, and I would prefer a long-term solution, but perhaps baby steps are needed in the first instance.

    And I would hate my ideas to be in any way responsible for driving down wages in the UK. We have to learn to pay the real price for the things we need and want.

  • @William Francis “In what universe has the UK had a very generous benefits system? ” Compared to almost the entire rest of the World, we do. There are perhaps a small number of countries (mostly in Scandinavia and North-Western Europe) that have more generous benefits than us – and of course, those are the countries that people campaigning for better social welfare always use to compare the UK with. But to anyone living almost anywhere else – including almost all of Africa, America, most of Asia, and I would suspect a good part of Southern/Eastern Europe, the UK benefits system must look like heaven!

  • John Marriott 5th Oct '21 - 11:39am

    So my Sunday morning bacon sarnie (made even more delicious with the addition of a fried egg) is at risk? I guess this is what ‘cakeism’ is really all about!

  • William Francis 5th Oct '21 - 12:22pm

    @ Peter Martin

    A general google search of EU nations real wage growth or productivity would provide you the information. But here’s data for 2007-2015 https://www.statista.com/chart/amp/5364/uk-greece-come-bottom-for-wage-growth/

    France’s yellow vest movement is more of a product of its longstanding protest culture and lower tolerance for social ills than a mirror of British social problems. Indeed, a cursory glance at OECD data shows France has less poverty and income inequality, more social mobility and greater recent real wage growth than the UK (and to an extent Germany).

    German and Dutch export surpluses have more to do with the quality of the goods (due to the high productivity of their workers, a product of a robust education system and good infrastructure) they produce rather than a artificially low euro. Currency valuation plays second order effects on the export of rich world goods. A weaker sterling 90s compared to the 80s didn’t do much to reduce the BOP deficit. Nor did it in 2010s.

    Export oriented growth has its draw backs though. It is often achieved via the suppression of domestic demand and results in large amounts of foreign currency reserves leading to the rising wealth inequality we have seen in China and to a lesser extent Germany during the 1990s and early 2000s (see the FT’s review of Trade Wars are Class Wars).

    Nor was right wing anti-immigration populism an inevitability as you make it out to be. Right wing populism (which opposition to immigration has tended to be built on) has historically been the product of status anxiety and fear of loss from those of modest (or considerable) privilege rather than revolt against low standards of living like communism or revolutionary socialism. The social bases of poujadism and most fascism movements were mainly from a lower middle classes of shopkeepers and white collar workers. Something else has to be at play.

  • I am in the fortunate position of disagreeing with all thatI have read here.
    The important point to me is that economics does not have any simple rules, or any rules at all. Well any rules at all except those invented by people with power in real time.
    It is also true that correlation is not the same as causation.
    What stands out a mile though is that the present government has failed spectacularly to have successful contingency planning at any time in the last few years. This does not mean that the contingency planning has not been done.
    An example is the covid situation. We know that the eventuality was top of the U.K. risk register in view of previous similar outbreaks in other countries. We know that the government did not act on this util forced to do so.
    Why did this happen? I believe that it because of having an elected dictatorship as a method of government. We fail consistently to use each other’s insights by working towards a situation where we value everyone’s opinion, and work towards an evidence based approach to decision making.
    And mentioning evidence, where does this idea that the rest of Europe has worse conditions in things like employment pay come from. The figures I have been able to find show that we are at best somewhere in the middle.

  • @ Nigel Jones

    “I have also seen information that lorry drivers are not badly paid and some are extremely well paid, way above what teachers get, for example.”

    And if you knew any lorry drivers you’d know just why this is the case. I don’t think many teachers would like to spend days away from their families, driving up to 15 hours a day – note that a day is different to a 24 hour period – for up to 60 hours a week, kipping in the cab, urinating in a bottle, washing in some of the grottiest facilities that you’ll have the misfortune to come across, and eating in overpriced service stations. Not to mention having to deal with some of the idiots currently found on our roads while remaining in control of a 44 tonner. And I haven’t begun to touch on the security issues yet – that’s where it can get really unpleasant.

    Nope, they earn every penny.

  • Chris Platts 5th Oct '21 - 2:49pm

    I agree with Lin that we have to pay the real,price for what we want and need rather continuing to suppress wages . People should be paid the proper amount where ever they come from.The reality is that there is a need for people to do the work,yes natives to work should be a priority,but when there is short fall of local people then migrants are going to be required. There is a large number of people willing to come here to work,so pay them a decent wage and treat them with respect and not demonise them and treat them as second class citizens. We only have one planet and we should be able to live where we want to without discrimination.

  • I disagree with most of the pevious posts..Traditionally sectors with strong union representation had decent wages and pay rises; those without strong unions (agriculture, hospitality, care, etc.) had the protection of various wage councils; the Thtcher/Major governments weakened and, in 1993, abalished that protection..When Labour introduced the minimum wage in 1997 it was denounced by ‘Big Business and EVERY Tory MP voted against it..
    Wages are driven by the price we are willing to pay for what we produce.. The very people calling for higher wages in those traditional low skilled sectors (agriculture, hospitality, basic care, transport, etc.) are those who are the first to complain when the products of these same sectors rise in price..
    On the specific of HGV drivers, it costs between £3000-4000 to obtain a license; who on a minimum wage has that amount to invest in training..Raod haulage companies are reluctant to pay because, once qualified, the driver has no obligation to stay with that company..Where was the government when a shortage that could bring the country to halt was complaining of increasing shortages 5 years ago?
    As far as horticultural work goes; it’s hard and seasonal and supermarkets reflect the reluctance of customers to pay a ‘sustainable’ price for produce.. Regarding the ‘selfishness, mollycoddling or even just plain laziness’ remark; that was written by someone who has never been working in a freezing winter pre-dawn, cutting sprouts for the Christmas market, with hands unable to feel and when the only way you realise you’ve cut yourself is when yo see the blood……Before you ask; I have! .

  • john oundle 5th Oct '21 - 4:03pm

    William Francis

    ‘In what universe has the UK had a very generous benefits system?’

    Can you advise which European country has a more generous benefits system?

    My wife (a French national) is amazed at what can be claimed here with virtually no time limit compared with France.
    Germany unemployment benefits paid for 12 months or 24 months maximum for older workers Cyprus pays unemployment benefit for a maximum of 6 months etc.

  • Oh yeah. One more thing. Anybody who thinks that we should just import people to fill gaps in our social infrastructure while continuing to pay wages that a British worker wouldn’t work for, and expecting them to work in conditions that a British worker wouldn’t tolerate has got a serious deficit in their ethics department.

    One could even go so far as to say it is racist.

  • Lin’s article raises fundamental questions about our society. A rigid class system with ceilings on ambition for the working classes seems morally wrong, but few choose to do boring repetitive work if they don’t have to, so that system worked, by creating limited horizons for the poor. The influx from the EU masked the consequence of trying to dismantle class barriers and giving equal opportunity to all, but now we have pigs being shot by vets because there aren’t enough butchers. I think I’ve heard that vets are in short supply too. The Tory answer is pay them more, but the problem is here and now, and recruiting and training people takes time.
    In the longer term, using willing labour from poorer countries like those in Eastern Europe is no longer an option, and nor should it be. In the case of doctors and nurses we import labour from countries with poor health provision, but are out-bid by us when it comes to salaries. What is the Liberal Democrat answer ? Undoing Brexit isn’t it.

  • Peter Martin 6th Oct '21 - 8:18am

    @ William Francis,

    Thank you for the TUC link showing how badly British workers were doing during a period when the Lib Dems were in government and supporting austerity based economic policies! I would have preferred some explanation of how the figures were calculated. Was it based on US dollars? The pound fell quite sharply during this period so that could have skewed the results. If everywhere else was doing so much better with better wages etc why was the UK still the preferred destination for many?

    You’re right that exports have to be of a certain quality to be able to be sold. If a country is exporting more, then there is more money coming in for everyone to spend and therefore more on imports too. So more exports doesn’t necessarily mean an export surplus. It just means that the level of international trade is higher which is as it should be.

    To run a sustainable export surplus you have to do something about your currency. Take a look around the world at the large net exporters. They all manipulate their currency downwards in one way or another. One method is to use a so-called Sovereign Wealth Fund. It’s just a way of exporting capital to keep the currency value lower than it would otherwise be.

  • John Marriott 6th Oct '21 - 8:20am

    I’ve got news for all those Brits, who reckon that Brexit will still be a cakewalk. Yesterday, it was reported that just 27 EU fuel tanker drivers had taken up our ‘generous’ offer of a temporary visa to come and work in the U.K. That’s another 223 to find then. Some people really are living in a bygone age, when Britannia really did rule the waves – and a good bit of the world too! That myth expired after Suez in 1956, if not even earlier. How about after WW1?

    But we’ve done Brexit, haven’t we? That train has left the station so we are all now passengers and what appears already to be a bumpy ride. What was that about “blood, tears, toil and sweat”? Wake up to the new reality, folks. The rest of the world really does NOT owe us a living. We had the best deal going with the EU with opt outs galore before we voted to leave and even then had a chance of a bit of cakeism. Thanks to the inability of the combined opposition parties to get their act together in the Autumn of 2019 and to allow themselves to be suckered into holding a General Election, which could have been avoided, we blew a deal we could have been negotiated in good faith and would have offered the blueprint of a modus vivendi between ourselves and our neighbours across the Channel and the North Sea. I guess a few chickens are coming home to roost – but possibly not enough turkeys in time for Christmas!

  • Peter Martin 6th Oct '21 - 9:35am

    @ John,

    It’s understandable that pro EU types, even the ones who were not quite so pro EU and saw the need for lots of opt outs from what everyone else in the EU was trying to do, are gleefully lapping up the stories of labour shortages. It’s a pity for them that the GFC occurred while we were still in the EU. They’d have had lots of fun if we’d left a couple of years previously.

    I’ve always said that the Govt can spend without limit and we saw this during the Pandemic. They haven’t largely borrowed the money from anyone but themselves in the shape of the bank (The BoE) they own. This doesn’t mean they always should because they’ll likely create an inflation problem.

    This is what we are seeing now. It’s the money the government spent into the economy starting to be spent and respent which is creating an over buoyant economy with strong upward pressure on wages and staff shortages in sectors that are slow to respond to the new reality.

    I would say Rishi Sunak is well aware of this, but will explain it in more neoliberal terms. ie Having to repay debt and restore the nation’s finances etc.

    Stand by for spending cuts and tax rises.

  • Peter Martin,

    the government cannot spend without limit, it can only command idle resources available to it. GDP measured by spending in the economy fell by 9.9% initially during the pandemic and has yet to recover to pre-pandemic levels. The government borrowing undertaken has provided a floor to offset a debt deflation that would have collapsed most businesses and employment in the country creating a mass depression.
    The government spending is supported by borrowing via bond issuance. The concurrent quantitative easing program is an asset swap that swaps gilts for short-term borrowing from banks in the form of reserves and aids in lowering longer-term interest rates.
    The government via the BofE ban rate has a high degree of control on short-term interest rates but longer term rates are set in bond auctions that are dependent on economic conditions including expected inflation and International rates particularly US interest rates.
    The Covid borrowing is a necessary response to an economic crisis. That does not mean it will not have to be refinanced as prevailing rates of interest when the bonds fall due for repayment in the future. It will have to be continually rolled over for many decades to come at whatever rates auctions determine.
    The majority of continuing public spending is financed by taxes with a relatively small proportion of overall state spending financed by borrowing. As demographic changes continue to force above inflation increases in health and pension spending public finances will come under increasing pressure. That is the economic reality that future governments will need to address without the trade surpluses that have kept Japan afloat over the past three decades.

  • Peter Martin 6th Oct ’21 – 9:35am…………It’s understandable that pro EU types, even the ones who were not quite so pro EU and saw the need for lots of opt outs from what everyone else in the EU was trying to do, are gleefully lapping up the stories of labour shortages………..

    I don’t know anyone who is “gleefully lapping up the stories of labour shortages”. as we are all in the same ‘Titanic’ lifeboat (apart from those from ‘steerage class’ who are about to drown). What is really annoying are those among my fellow ‘survivors’ who still think heading full speed for the iceberg was a good thing..

    Today Boris Johnson will explain how all we (not him) have to do is suffer a few more years on ‘hard tack’ waiting for the promised land of Brexitania to appear on the horizon..

  • John Marriott 6th Oct '21 - 5:53pm

    @Peter Martin
    I am only a “pro EU type” because I quite frankly thought I knew, as I have written before, on which side my bread was buttered. I am in no way gloating, although, as you ought to realise by now, just as I believed in cakeism, I also enjoy pulling a few people’s legs. I don’t buy and have never bought the “Alle Menschen werden Brüder” stuff (surely no translation is required. Countries are basically in the EU for what they can get out of it and some get more than others.

    Given the lack of cohesive opposition to Johnson and his crew of third rate bumblers, there really isn’t much that can be done. Our PM came to Manchester this morning with plenty of chutzpah but precious few policies and that’s how the punters appear to like it. No worries, mate, just blame the EU. You just could NOT make this up.

    PS Welcome back, Mr Bourke. You’ve been rather quite lately. I know at least one LDV regular, who has missed you (besides me, of course).

  • Peter Martin 7th Oct '21 - 6:42am

    @ Joe,

    I’m not sure what point you are trying to make. You say Government can’t spend what they like. I say they can but they shouldn’t. Is this a huge difference?

    On the point of an export surplus, I’d just make the point that someone has to pay for them. If Japan has more foreign currency coming in than it wants to spend, what is it going to do with the extra? Japanese exporters want Yen to pay their workers, suppliers and other bills. They don’t want dollars per se. So the Japanese govt has to provide them. And where is it going to get them from other than the Japanese tax payer.

    If the UK went from running, say, a £100 bn deficit in trade to a £100 bn surplus the Govt would have to raise £200 bn in extra taxes. It’s easy to show this from the sectoral balances.

    I’m not advocating the running of huge trade deficits but rather that trade everywhere should be more balanced than it is. There are advantages for everyone including those “export junkies” who are hung up on the supposed necessity of running export surpluses.

  • Peter Martin 7th Oct '21 - 9:43am

    @ Expats,

    I must confess that I have never quite understood the “rats leaving the sinking ship” line. Surely anyone with any sense would want to do that.

    If I am allowed to modify your “Titanic” analogy slightly we could have the EU as the Titanic and the impact of the 2008 GFC as the first iceberg. That didn’t quite sink it but it lead to a number of the passengers wanting to make a break for it in the lifeboats. Since then it hasn’t done any better and has managed to strike a second iceberg in the shape of the Covid 19 pandemic.

    So can Titanic-EU stay afloat? On the face of it, the big ship is doing better than it was before the Covid . However, this is mainly because they have temporarily stopped bothering about the silly rules of the SGP which greatly hampered the ability of any captain to steer it. Add in that they don’t actually have a Captain, at least one who has the authority to be called that, and we can see why the ship is in trouble.

    The big test will come when the Pandemic eases and “normal” rules resume. Will the German govt and taxpayers accept that they’ll never get their money back and that they’ll also need to put in a lot more? I doubt it, but let’s see.

  • Peter Martin,

    you say Government can spend what it likes but they shouldn’t. Is this a huge difference?
    The fact is government cannot spend what it likes. It can create money along with commercial banks, but it can’t spend it if the spare resources don’t exist without financing its spending through taxation or borrowing; or at least not without getting thrown out of office for gross incompetence.
    You also ask “If Japan has more foreign currency coming in than it wants to spend, what is it going to do with the extra?” Well, it simply invests the collective surplus in overseas assets like financial securities and real property assets, building up its net asset position and overseas income streams.
    You say “If the UK went from running, say, a £100 bn deficit in trade to a £100 bn surplus the Govt would have to raise £200 bn in extra taxes. It’s easy to show this from the sectoral balances.” It’s actually easy to show what happens with trade surpluses in the real world. Take an oil exporter like the UAE that generates large trade surpluses from its energy reserves. The UAE has no income tax, capital gains tax, general corporation tax or inheritance tax. Corporate taxes are only levied on oil companies and foreign banks in the UAE. The Abu Dhabi Investment Authority (ADIA) is among the largest sovereign wealth funds in the world that like Japan builds it net investment position and overseas income streams to finance its domestic spending.
    Large trade imbalances (surpluses or deficits) do impact on global financial stability. Generally speaking only countries with Internationally tradeable reserve currencies backed by deep financial sectors in their home markets are able to sustain significant trade deficits over long periods by drawing in capital account investment funding from around the world. However, the economic costs are seen in declining real wages in the deficit countries, as is evident with the experience of the major deficit countries like the USA and UK.

  • Peter Martin 7th Oct '21 - 2:29pm

    @ Joe,

    Look, the government can send us all a cheque for whatever amount of money it likes if it wants to. There’s nothing to stop it doing that. You’re then switching from amounts of money to levels of resources, with no explanation, which no-one is saying is without limit. Yes, resources are limited and too much spending power could cause too much inflation. This is the reason why Government shouldn’t send us all huge cheques.

    You’ve answered the question of what a large net exporter should do with its oil income. It exports its surplus foreign capital via a SWF to keep its currency at a lower level than it would otherwise be at the same time satisfying its domestic exporters demands for local currency. That has to come from somewhere. If Japan just created the currency , as it could, and rather than raising it from taxation, then domestic demand would increase and Japan would no longer be a net exporter and the “problem” would largely resolve itself. It would also work in the same way for Denmark. It too has to dampen domestic demand by increased taxation to be able to divert resources to the export sector.

    Because of the scale of the oil production and the relatively low level of population in the UAE there isn’t any real need to dampen down domestic demand by extra taxation to the same extent. But the sectoral balances would still apply to the UAE too. If the UAE didn’t export its capital and allowed the currency to freely float the population would be even richer in the short term that it is. But, obviously there is a limit to the number of top of the range Mercedes cars that anyone realistically needs.

  • William Francis 7th Oct '21 - 3:39pm

    Its frankly bizzare so many people have replied to refute my claim about the generosity of the UK’s benefit system.

    Frankly between the flat rate benefits (as opposed to previous income based ones in the Nordics, Germany, France and the low countries) benefit freeze, recent UC cuts, bedroom tax, benefit cap, two child cap, and our high rates of poverty (especially child poverty) compared to continental Europe, I would have assumed it obvious that we had a benefit system that was not generous compared to other developed countries.

  • William Francis 7th Oct '21 - 3:45pm

    @Joe

    Why would trade deficits lead to falling wages?

    The UK’s trade deficit didn’t stop real wages increasing by over 40% between 1988-2008.

    In contrast Germany’s trade surplus in the 1990s and early 2000s was partially built on wage restraint.

  • Peter Martin,

    the government can send us all ration books or food stamps instead of money but that does not produce any more food than sending out transfer cheques produces more goods and services in the economy. There may be some increased domestic demand at the margins arising from a higher propensity to consume among low income consumers, but that is about it.
    Ultimately, it is long-tern investments in skills and productivity or scarce natural resources that determine standards of living, not money creation or fiscal stimulus,
    Counties like Japan and Denmark export because they have excess industrial capacity over and above that required to satisfy domestic demand and import oil and other commodities that they cannot source locally.

  • Lorenzo Cherin 7th Oct '21 - 4:00pm

    William Francis

    Few are able to refute it, most should of course agree with your views, this country treats those at the lowest rung awfully!

  • Peter Martin 7th Oct '21 - 4:30pm

    Joe,

    The Australian Labour Govt sent out $A1000 cheques to all income tax payers after the 2008 GFC when the opposition Liberal party were dead against it and preaching austerity. I would say the Govt was right to do that. The Australian economy carried on quite well despite the shock of the crash. Nevertheless I would agree it was an extreme measure to be used sparingly.

    We all export to be able to afford such things as oil but if only the net exporters could buy oil as a consequence half the world would go without!

    You’re ignoring, as usual, that Denmark and Japan manipulate their currencies downwards and tax more to suppress domestic demand.

  • Peter Martin 7th Oct ’21 – 9:43am…@ Expats, I must confess that I have never quite understood the “rats leaving the sinking ship” line. Surely anyone with any sense would want to do that.
    If I am allowed to modify your “Titanic” analogy slightly we could have the EU as the Titanic and the impact of the 2008 GFC as the first iceberg……………….

    The idea of ‘rats’ is a reference to those who run away rather than try and fix a problem..
    As far as your second paragraph goes..Using your financial experience please explain to me why, if the GFC was the EU’s ‘Titanic’, the Euro increasesd by a third in value against Sterling and where, apart from minor fluctuations, it has remained?
    Perhaps I’m being rather naive in believing that a nation’s financial ‘reliability’ is linked to the international standing of it’s currency.

  • Peter Martin 7th Oct '21 - 4:44pm

    “Perhaps I’m being rather naive in believing that a nation’s financial ‘reliability’ is linked to the international standing of it’s currency.”

    Yep. You are. The pound was overvalued prior to the GFC which is why it wouldn’t have made any sense at all to join the euro. A floating currency should be allowed to float and adjust to changing conditions.

    We ‘rats’ tried to lead by example and stand against the one size fits all mentality of the euro but not many were keen to follow. There’s only so much you can do when everyone else was dead set on currency union as a precondition for political union.

  • Peter Martin,

    Japan’s tax as a % of GDP is below that of the UK and the OECD average https://www.oecd.org/tax/tax-policy/tax-database/. Denmark has a fixed exchange rate policy as it pegs its currency to the Euro as a member of the European Exchange Rate Mechanism i.e. the ECB manages its monetary policy. It operates the Nordic model of a high level of public service provision requiring a higher proportion of tax financing than comparable OECD countries. This is the key reason why it consistently tops charts of the most progressive country in the world with the highest quality of life https://www.copcap.com/news/denmark-is-the-worlds-best-country-to-live-in

  • Peter Martin 7th Oct '21 - 10:27pm

    @ Joe,

    I don’t doubt you’re right that Japan is below the UK and OECD average in terms of the size of its public sector. This doesn’t change anything, though. Japanese demand still has to be suppressed by a combination of higher taxes than need be and a lower than need be exchange rate to enable resources to be diverted for the export market.

    I’m sure Denmark ticks the right boxes for many. It doesn’t spend much on its military, including on nuclear weapons, for starters. This doesn’t change the fact that the Danish government also does the same thing. Taxes are higher than they need be and the exchange rate is lower than it need be to suppress domestic demand and so enable the country to run an export surplus.

    There’s really no need for it.

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