Since the Budget in the middle of this week, the media have been vociferous about the desperate prospects for British lining standards in the coming decade, all emphasising the predictions [based on recent past records] of low economic growth which is primarily ascribed to low productivity.
I have several times in this blog - as in my book - emphasised that low productivity follows from the low productiveness of the British economy: which is the direct consequence of underinvestment linked to the leeching of wealth from industry and commerce.
Share prices are high because the payout from businesses to their shareholders and bondholders is high. The payout comes in three forms: dividends on shares, interest on bonds and share buybacks whereby the company uses some of its income to buy some of the shares from the shareholders [which it then cancels, so that there is notionally more capacity of the company to pay even higher dividend per share on the reduced number of shares]. The consequence of this massive flow of payments to the owners of companies is that the companies retain very little income for investment. The long-term consequence of this dearth of investment is that the products will become out-of-fashion, probably on the same timescale as the factories, shops and other installations owned by the company become decrepit due to lack of investment in their maintenance. Future income for shareholders will be shrunk: but by then the shareholders who have enjoyed the high dividends and the share buybacks will have sold their shares in the failing company.
While this process is going on the executive directors can be paid massive salaries to keep the show on the road. As the company is not progressing to the next stage of technology in either products or the plant with which they are made, the workforce needs to be maintained in high numbers [relative to the number of people who would be employed in up-to-date plant] so a large workforce is retained on low wages. There is no mystery here.
There are, of course, many companies that have not succumbed to this depressing slide into decay, which contribute positively to the expansion of national productive capacity and higher-paid employment; but they are no sufficiently prominent in the economy to be dominant.
There is a huge cultural issue here, which can be tackled by education and by adjustment to the tax system. But so long as our pathetic politicians and misled by the Econocracy, that process cannot begin.
Showing posts with label Budget. Show all posts
Showing posts with label Budget. Show all posts
Saturday, 25 November 2017
Thursday, 23 November 2017
The Budgetary Pantomine
The media have given a generous response to the Chancellor's Budget, emphasising that the grim assessment of the prospects for the British economy supplied by the 'Office for Budget Responsibility' gave the Treasury team very little leeway to take any risks.
The torrent of publicity and public pressure that must have made the Chancellor's life quite unpleasant ever since he accepted the job came to a peak in the days before the Budget was announced; and many 'leaks' and hints and briefings had already made it clear what the principal elements in the speech would have to be. If no more money had been allocated to the National Health Service the fuss would have been intolerable for the whole government: though exactly how much more is being given than had previously been announced is obscured by the possibility of double counting. The relative regression of the British educational system, compared especially to those in emergent countries, has been shaming for many years; so small steps to tackle the issue are the least that could be done.
As founder of a housebuilding firm, Mr Hammond can be assumed to have a direct and personal grasp of the issues about housing which had to be addressed. While still fiscally cautious, the measures announced to increase construction and to begin to restore the dream of a 'property-owning democracy'.
The intrinsic theme of the Budget, as had long been foretold, was the desperate state of the British economy: most especially the deplorable level of productivity and the yawning north-south divide. In the past year, plans to electrify the main line to Sheffield and a transpennine route have been axed, thus the lie is given to the words about redressing regional inequity. Still the government is pressing on with HS2 and Hinckley Point, which will do no good for anybody but will take up both engineering capacity and money.
Nothing will be done about productivity until radical change is introduced to the economy at large. That will be my theme for the next few days, when I will be based in Derbyshire and thus can probably have a better perspective on things.
The torrent of publicity and public pressure that must have made the Chancellor's life quite unpleasant ever since he accepted the job came to a peak in the days before the Budget was announced; and many 'leaks' and hints and briefings had already made it clear what the principal elements in the speech would have to be. If no more money had been allocated to the National Health Service the fuss would have been intolerable for the whole government: though exactly how much more is being given than had previously been announced is obscured by the possibility of double counting. The relative regression of the British educational system, compared especially to those in emergent countries, has been shaming for many years; so small steps to tackle the issue are the least that could be done.
As founder of a housebuilding firm, Mr Hammond can be assumed to have a direct and personal grasp of the issues about housing which had to be addressed. While still fiscally cautious, the measures announced to increase construction and to begin to restore the dream of a 'property-owning democracy'.
The intrinsic theme of the Budget, as had long been foretold, was the desperate state of the British economy: most especially the deplorable level of productivity and the yawning north-south divide. In the past year, plans to electrify the main line to Sheffield and a transpennine route have been axed, thus the lie is given to the words about redressing regional inequity. Still the government is pressing on with HS2 and Hinckley Point, which will do no good for anybody but will take up both engineering capacity and money.
Nothing will be done about productivity until radical change is introduced to the economy at large. That will be my theme for the next few days, when I will be based in Derbyshire and thus can probably have a better perspective on things.
Monday, 30 October 2017
Budget Lobbies
A British Government Budget is due to be presented to the Commons next month, therefore the lobbying has begun. Besides the usual sectoral claims from welfare interests and business, a whole range of Brexit-related fears and expectations are being pressed for the Chancellor to take note of.
The situation is bedevilled by the Brexit situation - which no-one, inside or outside government has any grip on - and further complicated by the fact that the Chancellor's 'responsible' stance [largely what the business community have demanded: to keep as far in to the European Economic Area as possible, after formal withdrawal from the EU] is under vicious and sustained attack by the headbanging Brexiteers.
Behind all this, lie crucial social and economic facts. There is no doubt that the National Health Service, the schools, the police and the armed forces are grossly underfunded. This is not simply an issue of how many billions of pounds are spent on those services: nobody can deny that aggregate allocations by the government are increasing [though some services, like the police and prisons, are struggling with the effect of previous real-terms cuts]. The essential point is that what the government has allocated is much less that is needed to meet the expectations of the changing population.
Osbornian austerity has been in force for seven years, during which the economy has stagnated. Real terms economic growth, especially in material output from factories and farms, has in most sectors declined. There is now a major milk shortage in western Europe, including the UK, because the supermarkets drove down the price of raw milk so far that hundreds of farmers went out of the business [at huge personal loss, with the slaughter of thousands of specially-bred animals]. More conspicuously, manufacturing output has declined, and productivity in most sectors of industry is at best the same as it was in 2005. Since the population is larger than it was in 2005, including more school-age children and over-seventies, the needs of education, health and welfare are growing: and the state's spending on educational and social services has not kept pace. Meanwhile, the capabilities of the health service improve and extend life have greatly advanced: if only those improving resources and facilities can be afforded, with people trained and available to provide them.
The state should be spending massively more than it is. The Chancellor and his team know this all too well; but they are steeped in the Osbornian dogma that extra spending can only come from extra taxation or extra government borrowing. Extra taxation will reduce the money that people and firms can spend on their items of choice, so 'demand' will decline; so the private sector of the economy will decline in total turnover. Extra borrowing will give the government and taxpayers higher interest bills to pay in the future: so it is an imposition on future generations that would be inexcusable to impose it. So the Treasury team is stuck with the existing austerity mantra.
This is not the whole picture, however. It is unfortunate that the deeply untrustworthy John McDonnell has been the cheerleader for an alternative proposition that really should be implemented.
In the medium term, the only way of paying for increased and improved public services is by getting more tax from the whole economic system because it is growing. A really growing economy can both pay more wages to employed people and yield more taxes for pensions, benefits, hospital, schools, police and the other essentials.
This policy option does require the government to borrow massively more money: earmarked for investment programmes of improved infrastructure [roads, railways, hospitals and housing] that provide economic returns by providing a healthier and happier and less-stressed workforce.But the government should foster much more borrowing and spending for investment in industry, agriculture and offshore activities both around the British isles and around all the UK's overseas territories [which have been wasting assets since they ceased to be needed as coaling stations and watering points for historic commercial shipping]. It is clear that robotics, 3-D printing, artificial intelligence etc are major components of the future pattern of industry; and that Britain is still a major contributor of new ideas. These are both in microprocessors and in new and improved materials that can stand the more extreme demands of the new era. The government should foster at least a dozen of the technologically fruitful universities as hubs around which other universities, research associations and individual firms can gather their work on new things. There will always be depressives who say that you cannot guarantee which ideas will be successful and which not; so you should do nothing. That is not how the great achievements of the past were made. Bold ventures must take bold chances, and expect some failures: while experienced managers can spot cases where the money is running away faster that output is developing. And the state should provide a lot of money [from borrowing] to float the whole thing.
Companies have built up the biggest reserves ever, and have paid large dividends while not investing in new plant or higher productivity in their existing plant, and they have bought-back shares; or they have bought other companies [usually proving the old adage that the sum of the returns from two merged companies is rarely more than half of the combined return before the merger]. They should be taxed on what they hold in reserve, taxed more on what the declare for dividends, and given massive tax relief on genuine material investments. It is all so simple, so obvious!
New and improved plant is the only way to enhance productivity. Enhanced productivity is the only way to get substantive economic growth. Economic growth is the only way to get more taxation painlessly out of an economy. Taxation is the only way for governments to get the money they need to spend. Simple!
The situation is bedevilled by the Brexit situation - which no-one, inside or outside government has any grip on - and further complicated by the fact that the Chancellor's 'responsible' stance [largely what the business community have demanded: to keep as far in to the European Economic Area as possible, after formal withdrawal from the EU] is under vicious and sustained attack by the headbanging Brexiteers.
Behind all this, lie crucial social and economic facts. There is no doubt that the National Health Service, the schools, the police and the armed forces are grossly underfunded. This is not simply an issue of how many billions of pounds are spent on those services: nobody can deny that aggregate allocations by the government are increasing [though some services, like the police and prisons, are struggling with the effect of previous real-terms cuts]. The essential point is that what the government has allocated is much less that is needed to meet the expectations of the changing population.
Osbornian austerity has been in force for seven years, during which the economy has stagnated. Real terms economic growth, especially in material output from factories and farms, has in most sectors declined. There is now a major milk shortage in western Europe, including the UK, because the supermarkets drove down the price of raw milk so far that hundreds of farmers went out of the business [at huge personal loss, with the slaughter of thousands of specially-bred animals]. More conspicuously, manufacturing output has declined, and productivity in most sectors of industry is at best the same as it was in 2005. Since the population is larger than it was in 2005, including more school-age children and over-seventies, the needs of education, health and welfare are growing: and the state's spending on educational and social services has not kept pace. Meanwhile, the capabilities of the health service improve and extend life have greatly advanced: if only those improving resources and facilities can be afforded, with people trained and available to provide them.
The state should be spending massively more than it is. The Chancellor and his team know this all too well; but they are steeped in the Osbornian dogma that extra spending can only come from extra taxation or extra government borrowing. Extra taxation will reduce the money that people and firms can spend on their items of choice, so 'demand' will decline; so the private sector of the economy will decline in total turnover. Extra borrowing will give the government and taxpayers higher interest bills to pay in the future: so it is an imposition on future generations that would be inexcusable to impose it. So the Treasury team is stuck with the existing austerity mantra.
This is not the whole picture, however. It is unfortunate that the deeply untrustworthy John McDonnell has been the cheerleader for an alternative proposition that really should be implemented.
In the medium term, the only way of paying for increased and improved public services is by getting more tax from the whole economic system because it is growing. A really growing economy can both pay more wages to employed people and yield more taxes for pensions, benefits, hospital, schools, police and the other essentials.
This policy option does require the government to borrow massively more money: earmarked for investment programmes of improved infrastructure [roads, railways, hospitals and housing] that provide economic returns by providing a healthier and happier and less-stressed workforce.But the government should foster much more borrowing and spending for investment in industry, agriculture and offshore activities both around the British isles and around all the UK's overseas territories [which have been wasting assets since they ceased to be needed as coaling stations and watering points for historic commercial shipping]. It is clear that robotics, 3-D printing, artificial intelligence etc are major components of the future pattern of industry; and that Britain is still a major contributor of new ideas. These are both in microprocessors and in new and improved materials that can stand the more extreme demands of the new era. The government should foster at least a dozen of the technologically fruitful universities as hubs around which other universities, research associations and individual firms can gather their work on new things. There will always be depressives who say that you cannot guarantee which ideas will be successful and which not; so you should do nothing. That is not how the great achievements of the past were made. Bold ventures must take bold chances, and expect some failures: while experienced managers can spot cases where the money is running away faster that output is developing. And the state should provide a lot of money [from borrowing] to float the whole thing.
Companies have built up the biggest reserves ever, and have paid large dividends while not investing in new plant or higher productivity in their existing plant, and they have bought-back shares; or they have bought other companies [usually proving the old adage that the sum of the returns from two merged companies is rarely more than half of the combined return before the merger]. They should be taxed on what they hold in reserve, taxed more on what the declare for dividends, and given massive tax relief on genuine material investments. It is all so simple, so obvious!
New and improved plant is the only way to enhance productivity. Enhanced productivity is the only way to get substantive economic growth. Economic growth is the only way to get more taxation painlessly out of an economy. Taxation is the only way for governments to get the money they need to spend. Simple!
Thursday, 22 March 2012
Osborne Bashes the Old and Threatens the Future
George Osborne, the British Finance Minister, yesterday performed the annual ritual of presenting a plan of spending and taxation [known as the Budget] and the Labour opposition joined in the ritual by quibbling about the data that were presented. None of the lead speakers in the discussion has ever held a job in the 'real economy' for a significant number of years, and all the performers read statements that were prepared by teams of script writers and Economists.
The hallmark of the Budget was the expressed intention that all the concessions that were made to taxpayers were compensated by equivalent increases in other taxes. An increase in state retirement pensions was offset by a reduction in tax reliefs for millions of pensioners. The Liberal Democrats' cherished policy of increasing the level of income that is exempt from income tax was offset by cuts in benefits and tax credits, and by raised taxes on fuel, cigarettes and alcohol: they were shown even more than previously to be totemistic twerps as they boasted of their 'great achievement'. The star of the day, Osborne, again showed the depth of his nervousness by exaggerating his swagger and by the reedy edge that worsens his always-sneery voice: the more cock-sure he looked, the more his voice betrayed the fact that he was well beyond his comfort zone. His minders had clearly not recognised that critics and opponents would set together proposed tax reliefs for the rich and increased taxes, diminished benefits and reduced tax reliefs for the relatively poor. The elaborate game of balancing gains and losses for each income decile that so pleases the inner circle means nothing to the electorate at large.
Osborne presented a 'tidying' of taxation that turned out [only after examining the supporting documents that were published the same day] to be the biggest tax grab in the Budget: his misjudgement in trying to introduce the new grab from pensioners as a mere administrative detail will haunt him. Alongside his support for the ruinous Health and Social Care Act and the leading role he has taken in the government's campaign to undermine the protection of the cherished countryside he has probably done enough to bring down the government at the next election. The sooner the coalition government collapses, the fresher will be the public memory of Osborne's duplicity and silliness and the more certain will be the public repudiation of both coalition parties. Labour are a shambles, and they will fail spectacularly as a government: but they are 'not this lot' and that is all that is needed to return them to power.
The British newspapers today bash the 'granny tax' but recognise that much more important news is happening outside little Britain in their features on the siege in Toulouse [France] where a confessed killer is holed-up in a flat after exacerbating racial tensions and affecting the volatile mood of Israelis. Analysts of Britain will recognise that the Budget does nothing to accelerate the reduction of the endemic deficit on state spending and nothing that will significantly foster economic growth. For the last two years Osborne's 'austerity' programme has encouraged international investors to continue supporting British government debt: yesterday's Budget brought forward the date when analysts will stress the precariousness of the government and the probability that an early election will open the gates to chaos. This tragic inevitability is made one significant step more certain by Osborne's performance yesterday.
The hallmark of the Budget was the expressed intention that all the concessions that were made to taxpayers were compensated by equivalent increases in other taxes. An increase in state retirement pensions was offset by a reduction in tax reliefs for millions of pensioners. The Liberal Democrats' cherished policy of increasing the level of income that is exempt from income tax was offset by cuts in benefits and tax credits, and by raised taxes on fuel, cigarettes and alcohol: they were shown even more than previously to be totemistic twerps as they boasted of their 'great achievement'. The star of the day, Osborne, again showed the depth of his nervousness by exaggerating his swagger and by the reedy edge that worsens his always-sneery voice: the more cock-sure he looked, the more his voice betrayed the fact that he was well beyond his comfort zone. His minders had clearly not recognised that critics and opponents would set together proposed tax reliefs for the rich and increased taxes, diminished benefits and reduced tax reliefs for the relatively poor. The elaborate game of balancing gains and losses for each income decile that so pleases the inner circle means nothing to the electorate at large.
Osborne presented a 'tidying' of taxation that turned out [only after examining the supporting documents that were published the same day] to be the biggest tax grab in the Budget: his misjudgement in trying to introduce the new grab from pensioners as a mere administrative detail will haunt him. Alongside his support for the ruinous Health and Social Care Act and the leading role he has taken in the government's campaign to undermine the protection of the cherished countryside he has probably done enough to bring down the government at the next election. The sooner the coalition government collapses, the fresher will be the public memory of Osborne's duplicity and silliness and the more certain will be the public repudiation of both coalition parties. Labour are a shambles, and they will fail spectacularly as a government: but they are 'not this lot' and that is all that is needed to return them to power.
The British newspapers today bash the 'granny tax' but recognise that much more important news is happening outside little Britain in their features on the siege in Toulouse [France] where a confessed killer is holed-up in a flat after exacerbating racial tensions and affecting the volatile mood of Israelis. Analysts of Britain will recognise that the Budget does nothing to accelerate the reduction of the endemic deficit on state spending and nothing that will significantly foster economic growth. For the last two years Osborne's 'austerity' programme has encouraged international investors to continue supporting British government debt: yesterday's Budget brought forward the date when analysts will stress the precariousness of the government and the probability that an early election will open the gates to chaos. This tragic inevitability is made one significant step more certain by Osborne's performance yesterday.
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