Saturday, 26 April 2014

Labour's case for the union (is pretty sucky)

Woo hoo, I just got Labour’s case for the union posted thru my door. They say “We believe in an idea bigger than independence. That is the pooling and sharing of resources across the UK for the benefit of everyone in the UK” – ideas are lovely, but the reality is we have and will continue to have, without independence, a UK run disproportionatly in favour of London and South East England.

“What Scotland in the UK means for you”(you? me presumably)

“A stronger Scottish parliament with new powers over tax and welfare” – whit? Give more powers to the same shower of shite already esconsecd at Holyrood? No ta, I’d rather the structure of the Scottish polity was transformed thank you very much.

“Scottish pensions supported by tax paid by workers from across the UK” – but as net contributors to the UK exchequer we’re paying English pensions at the mo.

“ An increased minimum wage paid across the UK, not a race to the bottom on worker’s rights and pay” – Nice, but completely besides the point given the policies being discussed to make Scotland more business friendly are more to do with corporation tax than labour law.

“Scottish defence jobs supported by contracts from the UK government” – by contrast an independent Scotland could get an immediate peace dividend by right sizing its military spending into line with its actual economy. So with no change in total spending or taxes, public spending could be used to constructively create jobs by building say social housing instead of bombs.

“Our NHS, where you are treated on the basis of need not which part of the UK you come from” – Nice, but again completely beside the point given we already have NHS Scotland, which already runs according to different principles. If the argument being made here is that the NHS would be disbanded post-independence, then that’s hella dumb even by Johann Lamont standards.

“Lower mortgage and borrowing costs – we use one of the most secure and trusted currencies in the world and have the financial back-up of being part of the UK” – the currency is up for debate (though see this lovely article about it) and I’ve no idea where the lower mortgage costs spiel comes from given how closely linked the economies would be post-independence e.g. I’ll just pop to Carlisle for my mortgage thank you very much.

“Best for business – with a home market of 60 million people Scottish businesses trade twice as much with the UK than the rest of the world combined” – so we do, and? Or is the argument being made here the Rest of the UK would lock Scotland out? I don’t think so and that's not even taking EU membership into account.

So yeah, utter, utter pants based largely on bollocks scare mongering, petulance, made up tosh and the false notion that staying in the union means we’ll get to continue cadging off the Rest of the UK. Can I have some Scottish independence please!

Wednesday, 2 April 2014

Full employment vs the cost of living

As the credit crunch started to crunch, one big consolation (for those in debt to mainstream lenders only), was the decision to pull bank rate down to what, after inflation, was and have remained negative levels. For the indebted this was and remains a clear financial boon given pay growth also fell to and remains at negligible levels; I know I’ve personally saved more on my mortgage than I’ve got in pay rises these past few years. Recent chat about the squeeze in take home pay easing tends to ignore this other side of the coin (or any other side for that matter).

Except, the supposed “easing” of recent months is due to inflation slowing down (CPI was 1.7% in Feb 2014 compared to 2.8% the year before) not pay growth picking up (average weekly total pay grew 1.4% in Jan 2014 compared to 1.3% a year earlier). So the “easing” being referred to is no more than the rate of real terms decline slowing for the time being. Whoop-de-do.

That aside, low interest rates are one obvious indicator of limited demand in the economy (see chat on weak pay growth above) and yet there are still fools continuing to argue for rates to rise sooner rather than later; the why not being especially clear given rates are set in relation to a 2% CPI inflation target. Be that as it may, interest rates do appear set to rise in due course even if the why is currently beyond me given things like the historic Japanese example, the Eurozone currently appearing to be heading towards deflation, the scope for China – and associated inflation boosting global demand for stuff – to go phut, etc., but hey ho.

And rising interest rates, via higher mortgage costs, would of course adversely affect the finances of those in debt. So lots of folks are set for a lovely situation wherein pay might start incrementally rising in real terms (as unemployment continues to fall), but not by anything even remotely enough to make up for the lost real earnings of the last however many years. Moreover, even if pay growth does pick up, rising interest rates will cancel out any real terms pay gains.

Here are some illustrative numbers as to why – average pay in Britain is currently £26,500 and the average mortgage is £96,000 – so if interest rates go up  just 1% as many are forecasting they will have by 2016 (with another 0.75% on top during 2017), pay will need to go up 3.6% to make up for the £960 p.a. increase in mortgage costs. And then there’s inflation on top of that (as well as any other debts people have – though better savings rates will presumably temper this give or take no many people under 65 have anywhere near as much in savings as they do debt).

So if you were an average punter wanting to know when you’ll finally start feeling a bit less squeezed the answer is roughly sometime during/mebbe after 2017/18 if you’re fortunate enough to start getting and can sustain 4-6% per annum pay rises from now until then.

I reckon this is the context for the ConDem’s fullemployment chat. Like you say “My pay’s worth less than it was” they say “yes, but we have the highest employment rate in the Western world”, you say “that’s lovely, but I earn less now than I did 5,6, 7, 8 years ago and have to work harder to get it”, they say “Yes, but we have the highest employment rate* in the Western world (repeat ad infinitum)”.

* Goodhart’s law could well apply here in spades and even if it doesn’t its worth remembering Osborne used to use Britain’s AAA credit rating as a benchmark for his “success” up until the downgrades kicked in.