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!
Showing posts with label pensions. Show all posts
Showing posts with label pensions. Show all posts
Monday, 30 October 2017
Saturday, 13 October 2012
The Ultimate Betrayal: The UK Government and Inflation
In his speech at the Mansion House [City of London] on October 11, 2012, Lord Turner, head of the Financial Services Authority and a leading candidate to be Governor of the Bank of England, revealed one of the darkest economic secrets that the infamous coalition government is fomenting. With the consent of the Treasury [Chancellor: the Right Honourable George Osborne PC MP] the Bank of England has created hundreds of millions of pounds in 'quantitative easing' [QE]. This notional credit has been used to buy bills and bonds that had previously been issued by the UK government, mostly from the holdings of 'reserve assets' that must be maintained by financial institutions. Much of the new spending-power has been used by the firms that sold the bonds to the Bank to buy new issues of government bonds, to enable them to retain their required 'reserve ratio' of relatively secure assets. Notionally this activity has not increased the 'money supply':because in principle the Bank of England has issued spending power that is matched by an increased stock of government debt that it holds as 'assets'.
Turner's innovative [implied] suggestion was that the Bank could 'write off' some of the assets that it has bought. This would mean that the selected bonds would simply cease to exist; they would vanish from the Bank's asset register, and be removed from the total of the government's debt. The coalition government claims that the present national debt is a smaller percentage of the national income than it was when they took office in June 2010: notwithstanding the fact that the number of pounds that the government has borrowed has continued to increase rapidly. Cameron's government has continued to borrow more money each year to spend on benefits, and to maintain health service spending and to spend hundreds of billions of pounds on its plan to double-up the most efficient railway in the country: from London to Birmingham. Meanwhile some important spending has been reduced: the national defences have been despoiled, the effectiveness of the police has been reduced, and the construction of coastal and riverside flood defences has been deferred.
Over the last couple of years the government has ordered the commercial banks to reduce the ratio of the money that they lend to the assets that they hold. Their recognisable 'assets' were being reduced anyway as the credit crunch unfolded and they had to write down the value of many assets and to write some off. The government - partially in response to European Union diktats - has raised the ratio of assets that the banks must hold to what they can lend: so they can lend a lower proportion of a diminishing resource. The reduction in the total that banks can lend requires the banks to refuse to extend some 'old' loans that come up for review, as well as refusing to make new loans to businesses. Hence one of the main sources of funding for economic growth has been reduced almost to vanishing point: and the economy has effectively ceased to grow while government spending has continued to grow.
By tinkering with taxes Chancellor Osborne has increased the government's income as a percentage of national economic turnover, but that means that less spending-power [in real terms] can be extracted as taxation from a diminishing national income. The gap between the tax-take and the government's spending is filled by borrowing.
The banks' liquidity has been maintained by the Bank of England's QE: buying government debt certificates from them. Already the Bank has bought up almost one-third of the whole vast pile of debt certificates that the coalition and former governments have issued: and Turner's speech contained hints that some [or eventually all] of the government debt that is held in the asset register at the Bank of England could be written-off. This would mean that the national debt would be reduced by some 30%; and when that was done, interest payments on that debt would cease. The government's 'books' and the predictions for their future spending needs would suddenly become much more favourable; to the extent that it might be possible for the austerity to be relaxed.
But this would be disastrous for pensioners. In interpreting legal requirements on pensions administration the Actuaries have used their own archaic methodology to insist that pensions trustees should sell shares [that can rise with the success of companies] and to put an increasing proportion of the funds that they hold into government bonds. So when the real return on government bonds is reduced by the great coming write-off, the purchasing power of pensions and annuities will hugely be reduced. The millions of people who have accepted reduced current purchasing-power throughout their working lives, while they saved in their pension funds to buy security in their old age, will inexorably be impoverished by the inflation. There will be a great show of handwringing on all sides of the political charade, but nothing can be done by a government of any party or by any coalition of established parties to protect the pensioners from the coming catastrophe. The calamity will almost certainly materialise. Impoverished pensioners will vote against whatever government 'betrays' them, only to find that no other gang of politicians has any idea of how to 'save' the situation. The powers-that-be have allowed this to happen through decades of purblind public policy: decent working people will pay the price of this incompetence, when they come to the most vulnerable phase of their adult lives.
Turner's innovative [implied] suggestion was that the Bank could 'write off' some of the assets that it has bought. This would mean that the selected bonds would simply cease to exist; they would vanish from the Bank's asset register, and be removed from the total of the government's debt. The coalition government claims that the present national debt is a smaller percentage of the national income than it was when they took office in June 2010: notwithstanding the fact that the number of pounds that the government has borrowed has continued to increase rapidly. Cameron's government has continued to borrow more money each year to spend on benefits, and to maintain health service spending and to spend hundreds of billions of pounds on its plan to double-up the most efficient railway in the country: from London to Birmingham. Meanwhile some important spending has been reduced: the national defences have been despoiled, the effectiveness of the police has been reduced, and the construction of coastal and riverside flood defences has been deferred.
Over the last couple of years the government has ordered the commercial banks to reduce the ratio of the money that they lend to the assets that they hold. Their recognisable 'assets' were being reduced anyway as the credit crunch unfolded and they had to write down the value of many assets and to write some off. The government - partially in response to European Union diktats - has raised the ratio of assets that the banks must hold to what they can lend: so they can lend a lower proportion of a diminishing resource. The reduction in the total that banks can lend requires the banks to refuse to extend some 'old' loans that come up for review, as well as refusing to make new loans to businesses. Hence one of the main sources of funding for economic growth has been reduced almost to vanishing point: and the economy has effectively ceased to grow while government spending has continued to grow.
By tinkering with taxes Chancellor Osborne has increased the government's income as a percentage of national economic turnover, but that means that less spending-power [in real terms] can be extracted as taxation from a diminishing national income. The gap between the tax-take and the government's spending is filled by borrowing.
The banks' liquidity has been maintained by the Bank of England's QE: buying government debt certificates from them. Already the Bank has bought up almost one-third of the whole vast pile of debt certificates that the coalition and former governments have issued: and Turner's speech contained hints that some [or eventually all] of the government debt that is held in the asset register at the Bank of England could be written-off. This would mean that the national debt would be reduced by some 30%; and when that was done, interest payments on that debt would cease. The government's 'books' and the predictions for their future spending needs would suddenly become much more favourable; to the extent that it might be possible for the austerity to be relaxed.
But this would be disastrous for pensioners. In interpreting legal requirements on pensions administration the Actuaries have used their own archaic methodology to insist that pensions trustees should sell shares [that can rise with the success of companies] and to put an increasing proportion of the funds that they hold into government bonds. So when the real return on government bonds is reduced by the great coming write-off, the purchasing power of pensions and annuities will hugely be reduced. The millions of people who have accepted reduced current purchasing-power throughout their working lives, while they saved in their pension funds to buy security in their old age, will inexorably be impoverished by the inflation. There will be a great show of handwringing on all sides of the political charade, but nothing can be done by a government of any party or by any coalition of established parties to protect the pensioners from the coming catastrophe. The calamity will almost certainly materialise. Impoverished pensioners will vote against whatever government 'betrays' them, only to find that no other gang of politicians has any idea of how to 'save' the situation. The powers-that-be have allowed this to happen through decades of purblind public policy: decent working people will pay the price of this incompetence, when they come to the most vulnerable phase of their adult lives.
Friday, 28 September 2012
What is Spain Up To?
Spain has already inflicted huge economic sanctions on its citizens: 25% unemployment [at least], reduced pensions and increased age of retirement, underfunded schools and hospitals, bankrupt local authorities, tens of thousands of incomplete and unsold dwellings, increased taxes ... and the catalogue could go on and on. While the banks have borrowed from EU institutions and from foreign banks even in recent days, the markets are betting against the Spanish state being able to submit formally to the conditions that would be applied to a formal 'bailout' by the European Union, the European Central Bank and the International Monetary Fund. Since it is generally understood that the conditions on any formal baliout would be very harsh, why should the Spanish government not have done what the Greeks did: take the bailout as soon as possible, and blame the Germans [and the rest of the EU] for the harsh treayment meted out to the population?
Simplistically, Prime Minister Rajoy is asserted to be over-endowed with Spanish pride; which makes him exceedingly reluctant to submit to mere north Europeans. More realistically, he has hoped to be able to avoid a bailout altogether. Meanwhile, his government has demonstrated that the Spanish state is sufficiently robust to be able to enforce very hard economic policies. Most importantly he has emphasised and demonstrated the huge difference between the Spanish situation, and the popular response to it, and that of Greece. Spain has presented strong evidence against the domino theory.
Greece will some day fairly soon be forced to withdraw from the euro; but that need not precipitate a gaderene rush by specluators to force Portugal, Sapin or Italy also to fail to manage their economy withon the eurozone.
Whenever Spain now applies for a bailout, on conditions that it will partially be able to dictate, that will not be a signal for the progressive withdrawal of all the weaker southern states from the euro. Spain has not just bought time for itself to get agreed terms; it has ensured that the gulf between Greece and the rest has become consolidated. Yes, there are demonstrations verging on the riotous in Spain; dismay affects most of the population some of the time, and some of the population all of the time; but there is not yet the degree of hopelessness and despair that now characterises the vast majority of Greeks.
The whole situation is classically tragic, but redemption for Greece is vastly different - and much more painful to achieve - than is the possibility to turn the Spanish economy round within the eurozone.
Simplistically, Prime Minister Rajoy is asserted to be over-endowed with Spanish pride; which makes him exceedingly reluctant to submit to mere north Europeans. More realistically, he has hoped to be able to avoid a bailout altogether. Meanwhile, his government has demonstrated that the Spanish state is sufficiently robust to be able to enforce very hard economic policies. Most importantly he has emphasised and demonstrated the huge difference between the Spanish situation, and the popular response to it, and that of Greece. Spain has presented strong evidence against the domino theory.
Greece will some day fairly soon be forced to withdraw from the euro; but that need not precipitate a gaderene rush by specluators to force Portugal, Sapin or Italy also to fail to manage their economy withon the eurozone.
Whenever Spain now applies for a bailout, on conditions that it will partially be able to dictate, that will not be a signal for the progressive withdrawal of all the weaker southern states from the euro. Spain has not just bought time for itself to get agreed terms; it has ensured that the gulf between Greece and the rest has become consolidated. Yes, there are demonstrations verging on the riotous in Spain; dismay affects most of the population some of the time, and some of the population all of the time; but there is not yet the degree of hopelessness and despair that now characterises the vast majority of Greeks.
The whole situation is classically tragic, but redemption for Greece is vastly different - and much more painful to achieve - than is the possibility to turn the Spanish economy round within the eurozone.
Sunday, 23 September 2012
'Fair' taxation
In the United States, Britain and France - in particular - there is a debate about 'fair' taxation which is on the verge of reaching crisis proportions. In all three countries, there is deep concern about the need for economic growth to lead the economy out of recession. Growth comes from investment. A minority of the population directly contribute to investment by putting their savings and some of their income into shares and bonds that provide funds for commerce and industry; and a diminishing proportion of the population make indirect investments in shares and bonds through collective savings funds such as voluntary pensions schemes and insurance reserves. The inept extension of taxation of pension funds by Gordon Brown in the UK [combined with the disastrous ineptitude of the actuaries] has devastated the value of pensions, and thus has destroyed public confidence in the merit of saving through such funds, which have a much lower take-up than in previous decades. A compulsory state scheme will not correct this situation: it will merely produce pension 'pots' that are so small that they will have no impact on the growing disaster of pensioner poverty.
Investment by richer individuals has always been essential for economic growth to occur in any free society. In centrally planned authoritarian states, much of investment is wasted because a small cohort of bureaucrats cannot have the sensitivity to economic possibilities, and to adverse trends in productivity and the desirableness of products, that a wide range of personal investors can achieve. The optimisation of investment is only achieved by personal decision. There is now a hugely powerful intellectually-led movement to increase taxation of the rich - and thus to reduce the quantum and the selectivity of investment - on the idiotic ground that higher and higher taxation of the relatively 'rich' is intrinsically 'fair' and therefore appropriate. Some advocates of such taxation regard widening and intensifying the ruinous taxation as the most important cause in politics. The Obama Democrats in the USA and the Liberal Democrats in Britain and the Socialists who have quickly become querulous with their new president in France are all devotees of the doctrine that the investable funds should be grabbed from the relatively 'rich' and disbursed as immediate spending-power to the relatively 'poor'. This is an intensification of the ruinous policies that have helped to bring their economies into a condition of low growth and high 'welfare' spending. As long as this nonsense is prevalent, real economic capability will be destroyed and the potential of the economies to give their people real welfare will continue to decline.
There is also a socially divisive component to this issue. Class conflict is being promoted, with the classes defined in terms of tax-bands applied to incomes or to assets. People who do not declare earnings large enough to be required to pay tax on them are to be more explicitly defined as 'disadvantaged' or 'deprived' and [according the British Liberal Democrats] 'the rich' who earn more that £50,000 a year are to be taxed to transfer money to the 'deprived'; and then their assets will be valued and subjected to a further levy. If that levy is met from income their income will doubly have been diminished: their consumption and their potential to invest will be reduced - both inflicting direct damage on the economy; and if the levy is met by asset sales, leading to a mass sell-of of a range of assets [both material and financial assets] their prices will fall with further detriment to the economy. To this idiocy the same politicians are adding the notion that young people should be able to enter the housing markets by having the deposits on their houses secured by their parents' and grandparents' 'pension pots'. The funds that people hold in their pension funds are vastly reduced by the crass policies of the past two decades; and now they are being challenged to risk the loss of those funds altogether - and to face old-age poverty - if they take up the new scheme. If they decline to do so, there will be serious discord in families: if they do comply, they will be constrained in how much pension they can draw by the contractual form of the guarantee; and if there is another house-price slump they may loose their pension assets when the property is repossessed. Even if the housing market holds up, it is obscure as to how many years the guarantee [and therefore the restriction on the pension fund] will be maintained. None of this looks like constructive social engineering: it would be crude exploitation of the relatively-thrifty, leading to massive destruction of accumulated wealth.
Investment by richer individuals has always been essential for economic growth to occur in any free society. In centrally planned authoritarian states, much of investment is wasted because a small cohort of bureaucrats cannot have the sensitivity to economic possibilities, and to adverse trends in productivity and the desirableness of products, that a wide range of personal investors can achieve. The optimisation of investment is only achieved by personal decision. There is now a hugely powerful intellectually-led movement to increase taxation of the rich - and thus to reduce the quantum and the selectivity of investment - on the idiotic ground that higher and higher taxation of the relatively 'rich' is intrinsically 'fair' and therefore appropriate. Some advocates of such taxation regard widening and intensifying the ruinous taxation as the most important cause in politics. The Obama Democrats in the USA and the Liberal Democrats in Britain and the Socialists who have quickly become querulous with their new president in France are all devotees of the doctrine that the investable funds should be grabbed from the relatively 'rich' and disbursed as immediate spending-power to the relatively 'poor'. This is an intensification of the ruinous policies that have helped to bring their economies into a condition of low growth and high 'welfare' spending. As long as this nonsense is prevalent, real economic capability will be destroyed and the potential of the economies to give their people real welfare will continue to decline.
There is also a socially divisive component to this issue. Class conflict is being promoted, with the classes defined in terms of tax-bands applied to incomes or to assets. People who do not declare earnings large enough to be required to pay tax on them are to be more explicitly defined as 'disadvantaged' or 'deprived' and [according the British Liberal Democrats] 'the rich' who earn more that £50,000 a year are to be taxed to transfer money to the 'deprived'; and then their assets will be valued and subjected to a further levy. If that levy is met from income their income will doubly have been diminished: their consumption and their potential to invest will be reduced - both inflicting direct damage on the economy; and if the levy is met by asset sales, leading to a mass sell-of of a range of assets [both material and financial assets] their prices will fall with further detriment to the economy. To this idiocy the same politicians are adding the notion that young people should be able to enter the housing markets by having the deposits on their houses secured by their parents' and grandparents' 'pension pots'. The funds that people hold in their pension funds are vastly reduced by the crass policies of the past two decades; and now they are being challenged to risk the loss of those funds altogether - and to face old-age poverty - if they take up the new scheme. If they decline to do so, there will be serious discord in families: if they do comply, they will be constrained in how much pension they can draw by the contractual form of the guarantee; and if there is another house-price slump they may loose their pension assets when the property is repossessed. Even if the housing market holds up, it is obscure as to how many years the guarantee [and therefore the restriction on the pension fund] will be maintained. None of this looks like constructive social engineering: it would be crude exploitation of the relatively-thrifty, leading to massive destruction of accumulated wealth.
Thursday, 29 December 2011
Old and Useful?
Britain has passed half a century dismantling industry, and pensioning-off the people who understand it. I spent almost half of that time in Sheffield, mostly when it was still a city that provided jobs for more than 75,000 highly skillied artizans and several thousand of the world's leading metalurgical, ceramic and glass scientists. To see that accumulation of expertise dissipated was as big a tragedy as it was possible to experience in any economy. The world continues to need those skills: demands are growing for expertise in using old and new materials for ever more challenging applications in millions of structures and machines that are required to operate in space, in deep mines, under the oceans, in radioactivity and within the human body. A profoundly ill-advised view that 'smokestack industry' was a thing of the past prevailed, most notably in the nineteen-eighties. The twerps who adopted that view assumed that Lancashire mills which operated on the unsustainable [and always incredible] business model of importing raw cotton for processing and re-export were on a par with innovative firms that developed new forms of special steels or carbon fibre: the whole range of industries was considered dispensable. That delusion cost the country dear as the immaterial business of casino banking took pride of place in the limited perspective of the government, taking precedence over the solid virtues of the world's leading insurance market and the world's most effective system of commercial law. The City of London is important because it is of huge value to the real economy, especially for the things that it did well in 1700 and 1800 and 1900 and even in 2000: though by then sleight-of-hand betting had taken the top fashion spot and was by far the most lucrative area of 'finance' which attracted very clever people who made bonuses on the turnover that they could conjure into being; literally without the use of any material commodity other than computers and electricity.
While 'the City' only ever accounted for around the same proportion of the turnover of the economy as the construction sector, it was much more highly rated by bedazzled politicians: most notably Gordon Brown and his acolyte - who was duly promoted to be 'City minister' - Ed Balls. Having thrown off the image, and most of the substance, of being a trade-union dominated organisation the 'new' Labour Party embraced the adventurism of those who were later to be reviled as 'casino bankers'; while it still depended on finance from the unions. Tony Blair escaped criminal investigation into the means that had been used by his agents to obtain donations from people who were coincidentally ennobled, but when he had gone from office and his peculiar means of funding dried up almost completely the unions conspicuously remailed Labour's major funders. But these latter-day unions were very different from the unions that had ineffectively opposed de-industrialisation and the destruction of their own members' jobs in the 'eighties. Between 1985 and 2005 trade unionism ceased to be a significant force in the private sector even while the former nationalised industries passed into the private sector.
The new area of strength for 'organised labour' was in the expanding public sector, where [unlike most firms owned by shareholders] government departments and state agencies provided accommodation for union officers and allowed staff time off work for union activities. The coalition government has decided - probably correctly - that the future economy will not be able to bear the cost of the pension payments that had been provided for in state employees' contracts; so those entitlements are being reduced and the unions are planning to defend their members' contractual rights. This campaign by the unions attracts minimal sympathy, and virtually no support, from the mass of the population who are experiencing declining living standards while they learn that part of the increased cost of living is raised taxation from which [among many other things] civil service pensions are funded.
When trade unionism was based in industrial plant pretty simple arguments could be advanced about the division of the income that the operation generated. Political Economy taught that there were three factors of production: land, labour and capital. For industrial production, for wholesale and retail trade, and for catering and entertaining establishments, land was bought or rented by the providers of capital for the business and the cost of land was accounted as part of the fixed cost of the firm [which varied with the location, so that operators of shops on Oxford Street in London paid vastly higher rents per square metre than did the owners of wareouses on the fringes of Pennine mill towns]. Once the site was paid for the construction and adaptation of the buildings on it were components of the capital stock that the owner had to provide, along with the machinery inside and around the premises, the materials to be worked on, the fuel to power the operation and the services [such as water supply and lighting] without which it could not operate. The vast contribution that capital made to any business i the real economy was visible and could be recognised. But that investment was useless unless people possessed of the necessary skills, experience and strength made themselves available to work there. By an iterative process of debate, dispute and discussion -sometimes involving strikes, lock-outs, mass sackings, reinstatements, arbitration and intervention by the courts - mutually tolerable rates of pay to employees and rates of return to capital were settled. Workers realised that capital equipment and investment were necessary, even if the plant was owned by a socialist system, and they conceeded that any capital stock must be maintained by constant refreshment. Capitalism - as a system of economic organisation - recognised that a willing workforce was best to manage and so employers were in broad terms willing to agree with unions on fair terms and conditions of employment in that place at that time. The skilled gained relative to the unskilled, the fit relative to the less fit. The physically weak who were not able to compensate by developing intellectual skills were ill cared for by the system, as were the mentally less able. There was much unintended cruelty in the operation of the system, but there was also an opportunity for the majority to find a level of remuneration that they deemed acceptable.
In the present postindustrial era pay [for the employed] is the outcome of various forms of negotiation and 'comparison' of one category job description with another. It is widely accepted that jobs in the public sector are generally better paid that those that can be said to be broadly their equivalent in the private sector: and all sources agree that pensions expectations for public sector employees are better at almost all salary levels [except the most highly paid categories of business executives] than in the private sector. There are a few tens of thousands of people in Britain, a few hundreds of thousands in the European Union, perhaps a couple of million in the world, whose transcendant skills, talents and experience enable them to command whatever remuneration they demand. There are many others who are almost as well talented as the topmost elite, who are able to demand superior pay for their work. There are others who have created inventions or works of art that become so popular that the creators are massively enriched by the proceeds from their willing users: and yet others who have seized the ownership of capital and access to natural resources by political manipulation [or even criminal activity that no state can prosecute] that legitimate commerce and industry need to buy from, to the enrichment of the owners. Much 'unfairness' is evident in the contemporary distribution of incomes and of wealth, especially in instances where executives fail to deliver the expected results for their employers and still walk away with huge remuneration. The widespread awareness of indefensible income differentials has created a sour mood through almost all of society, to a degree that it can poison progress in economic development.
The point to which this argument is trending is that if Britain is to adopt the one big Strategy that is readily accessible to the economy, it must recruit the people who can manage the greatest leap forward in marine technology in human history and it must take the risk of paying them whatever is necessary to engage them in the task.
My last blog set out trhe bare bones of the Strategy. Britain has the opportunity uniquely to exploit - in a sustainable manner, for the indefinite future - the massive surface area of the earth's oceans that are currently recognised internationally as the coastal waters surrounding the imperial lagacy of oceanic territories. To vindicate this Strategy The UK needs first the naval and military forces that can enforce the assertion of sovereignty, over the long term. Then it would be absolutely essential to build the industries and develop the technologies on which the Strategy absolutely depends for economic viability. It is inescapably necessary to recall scientists, engineers and artizans who were dumped unceremoneously from their careers up to four decades ago. To attract people from their retirement, or from the alternative careers into which they have settled, or to bring many back from the foreign states that benefit from the skills that Britain spurned, will require payments up-front from the hard-pressed national budget; of salaries and potential bonuses that are enough for the purpose. Some patriotically minded individuals might chose to return some of their remuneration to the state; but that option should be left to them, it cannot be assumed that people who have been rejected will suddely embrace the political class who will be bidding for their skills.
Unless the nation can be motivated to recognise and to support the proposed Strategy, the concept does not have a hope of taking off. A first step in demonstrating that it can be implemented is to show that Britain's Got Talent: not just in ephemeral popular entertainment but in all the areas that must be drawn in to the greatest and most grimly serious venture in the nation's history. The young have been denied most of the skills and all of the experience that existed on the shop floor and in the works laboratories in Sheffield, Birmingham, Glasgow and hundreds of other urban centres throughout the United Kingdom. One motivation for Scottish Nationalism is a reasonable desire to cut free from the corpse of a failed state: and the best motive for Scots to remain in the United Kingdom would be the probability of benefit from participating in the Strategy.
I have been privileged for several years to support a charity called Age Exchange that [among other things] brings elderly people into contact with the young, including many who have no extended family and therefore no familiar folk traditions or reference-points outside their immediate experience, to let them begin to understand what life was like within living memory in the places they now inhabit and thus open up some perspective. Something similar needs to be done on a national scale to enable depressed young adults to believe that the capable and experienced people exist who can help them to develop themselves as contributors to a technical wonderland that can be the envy of the world: while it brings them a world class standard of living.
This is all feasible technically and organisationally. The political will to bring it into effect is much more problematic.
While 'the City' only ever accounted for around the same proportion of the turnover of the economy as the construction sector, it was much more highly rated by bedazzled politicians: most notably Gordon Brown and his acolyte - who was duly promoted to be 'City minister' - Ed Balls. Having thrown off the image, and most of the substance, of being a trade-union dominated organisation the 'new' Labour Party embraced the adventurism of those who were later to be reviled as 'casino bankers'; while it still depended on finance from the unions. Tony Blair escaped criminal investigation into the means that had been used by his agents to obtain donations from people who were coincidentally ennobled, but when he had gone from office and his peculiar means of funding dried up almost completely the unions conspicuously remailed Labour's major funders. But these latter-day unions were very different from the unions that had ineffectively opposed de-industrialisation and the destruction of their own members' jobs in the 'eighties. Between 1985 and 2005 trade unionism ceased to be a significant force in the private sector even while the former nationalised industries passed into the private sector.
The new area of strength for 'organised labour' was in the expanding public sector, where [unlike most firms owned by shareholders] government departments and state agencies provided accommodation for union officers and allowed staff time off work for union activities. The coalition government has decided - probably correctly - that the future economy will not be able to bear the cost of the pension payments that had been provided for in state employees' contracts; so those entitlements are being reduced and the unions are planning to defend their members' contractual rights. This campaign by the unions attracts minimal sympathy, and virtually no support, from the mass of the population who are experiencing declining living standards while they learn that part of the increased cost of living is raised taxation from which [among many other things] civil service pensions are funded.
When trade unionism was based in industrial plant pretty simple arguments could be advanced about the division of the income that the operation generated. Political Economy taught that there were three factors of production: land, labour and capital. For industrial production, for wholesale and retail trade, and for catering and entertaining establishments, land was bought or rented by the providers of capital for the business and the cost of land was accounted as part of the fixed cost of the firm [which varied with the location, so that operators of shops on Oxford Street in London paid vastly higher rents per square metre than did the owners of wareouses on the fringes of Pennine mill towns]. Once the site was paid for the construction and adaptation of the buildings on it were components of the capital stock that the owner had to provide, along with the machinery inside and around the premises, the materials to be worked on, the fuel to power the operation and the services [such as water supply and lighting] without which it could not operate. The vast contribution that capital made to any business i the real economy was visible and could be recognised. But that investment was useless unless people possessed of the necessary skills, experience and strength made themselves available to work there. By an iterative process of debate, dispute and discussion -sometimes involving strikes, lock-outs, mass sackings, reinstatements, arbitration and intervention by the courts - mutually tolerable rates of pay to employees and rates of return to capital were settled. Workers realised that capital equipment and investment were necessary, even if the plant was owned by a socialist system, and they conceeded that any capital stock must be maintained by constant refreshment. Capitalism - as a system of economic organisation - recognised that a willing workforce was best to manage and so employers were in broad terms willing to agree with unions on fair terms and conditions of employment in that place at that time. The skilled gained relative to the unskilled, the fit relative to the less fit. The physically weak who were not able to compensate by developing intellectual skills were ill cared for by the system, as were the mentally less able. There was much unintended cruelty in the operation of the system, but there was also an opportunity for the majority to find a level of remuneration that they deemed acceptable.
In the present postindustrial era pay [for the employed] is the outcome of various forms of negotiation and 'comparison' of one category job description with another. It is widely accepted that jobs in the public sector are generally better paid that those that can be said to be broadly their equivalent in the private sector: and all sources agree that pensions expectations for public sector employees are better at almost all salary levels [except the most highly paid categories of business executives] than in the private sector. There are a few tens of thousands of people in Britain, a few hundreds of thousands in the European Union, perhaps a couple of million in the world, whose transcendant skills, talents and experience enable them to command whatever remuneration they demand. There are many others who are almost as well talented as the topmost elite, who are able to demand superior pay for their work. There are others who have created inventions or works of art that become so popular that the creators are massively enriched by the proceeds from their willing users: and yet others who have seized the ownership of capital and access to natural resources by political manipulation [or even criminal activity that no state can prosecute] that legitimate commerce and industry need to buy from, to the enrichment of the owners. Much 'unfairness' is evident in the contemporary distribution of incomes and of wealth, especially in instances where executives fail to deliver the expected results for their employers and still walk away with huge remuneration. The widespread awareness of indefensible income differentials has created a sour mood through almost all of society, to a degree that it can poison progress in economic development.
The point to which this argument is trending is that if Britain is to adopt the one big Strategy that is readily accessible to the economy, it must recruit the people who can manage the greatest leap forward in marine technology in human history and it must take the risk of paying them whatever is necessary to engage them in the task.
My last blog set out trhe bare bones of the Strategy. Britain has the opportunity uniquely to exploit - in a sustainable manner, for the indefinite future - the massive surface area of the earth's oceans that are currently recognised internationally as the coastal waters surrounding the imperial lagacy of oceanic territories. To vindicate this Strategy The UK needs first the naval and military forces that can enforce the assertion of sovereignty, over the long term. Then it would be absolutely essential to build the industries and develop the technologies on which the Strategy absolutely depends for economic viability. It is inescapably necessary to recall scientists, engineers and artizans who were dumped unceremoneously from their careers up to four decades ago. To attract people from their retirement, or from the alternative careers into which they have settled, or to bring many back from the foreign states that benefit from the skills that Britain spurned, will require payments up-front from the hard-pressed national budget; of salaries and potential bonuses that are enough for the purpose. Some patriotically minded individuals might chose to return some of their remuneration to the state; but that option should be left to them, it cannot be assumed that people who have been rejected will suddely embrace the political class who will be bidding for their skills.
Unless the nation can be motivated to recognise and to support the proposed Strategy, the concept does not have a hope of taking off. A first step in demonstrating that it can be implemented is to show that Britain's Got Talent: not just in ephemeral popular entertainment but in all the areas that must be drawn in to the greatest and most grimly serious venture in the nation's history. The young have been denied most of the skills and all of the experience that existed on the shop floor and in the works laboratories in Sheffield, Birmingham, Glasgow and hundreds of other urban centres throughout the United Kingdom. One motivation for Scottish Nationalism is a reasonable desire to cut free from the corpse of a failed state: and the best motive for Scots to remain in the United Kingdom would be the probability of benefit from participating in the Strategy.
I have been privileged for several years to support a charity called Age Exchange that [among other things] brings elderly people into contact with the young, including many who have no extended family and therefore no familiar folk traditions or reference-points outside their immediate experience, to let them begin to understand what life was like within living memory in the places they now inhabit and thus open up some perspective. Something similar needs to be done on a national scale to enable depressed young adults to believe that the capable and experienced people exist who can help them to develop themselves as contributors to a technical wonderland that can be the envy of the world: while it brings them a world class standard of living.
This is all feasible technically and organisationally. The political will to bring it into effect is much more problematic.
Saturday, 8 October 2011
The Pensions Disaster Intensifies
Newspapers have today emphasised the disastrous impact of the economic situation - and of 'quantitative easing' -on people who are close to retirement and who are in funded pension schemes [both the few remaining 'final salary' schemes and the now-predominant 'money purchase' schemes]. The headline figure is that the funds that retirees in the next few months will receive at least 30% income less, as compared to to someone who retired with the same amount of credit in their pension 'pot' just three years ago, in 2008 when the credit crunch became clearly discernible.
This alarming fact follows on from a decade during which the incomes receivable by retiring pensioners declined steeply. In 1997 the income receivable in a typical annuity for each £1,000 of assets held in the fund was £77.41.
After Gordon Brown's notorious 'raid' on pension funds, by which the tax advantages given to people who were providing for their old age [and to the payments-in made by employers who helped them to save by contributing to each individual's pension] were removed, the rate at which funds were added to each fund-member's 'pot' declined dramatically: so by 2000 it was very much harder to save each £1,000 - which only yielded £58.00 in pension. The decline in the yield per £1,000 was largely due to the fact that pension funds had been 'advised' to shift their assets from equities [shares in real-world companies] to bonds, especially including government bonds, which over subsequent years have produced much lower income yields than did equities.
The effect of 'quantitative easing' has been to reduce still further the income that is paid out per £1,000 on bonds. So pension funds can pay only reduced cash sums on retirement: after which the providers of annuities can only produce lower pensions than they previously did for each £1,000 that is used to purchase the annuity. There is no basis on which one can expect the situation to improve: so each pensionable person who comes to retirement will feel more comprehensively 'cheated' by the system. Saving will be seen to be decreasingly beneficial: and the children and grandchildren of the embittered pensioners will have a lifelong memory of this disaster.
Hence when politicians to urge people to be prudent and to save - and invest - this will seem hypocritical and hollow. The psychological impact of such aspects of the 'financial crisis' will be profound but unfathomable.
This alarming fact follows on from a decade during which the incomes receivable by retiring pensioners declined steeply. In 1997 the income receivable in a typical annuity for each £1,000 of assets held in the fund was £77.41.
After Gordon Brown's notorious 'raid' on pension funds, by which the tax advantages given to people who were providing for their old age [and to the payments-in made by employers who helped them to save by contributing to each individual's pension] were removed, the rate at which funds were added to each fund-member's 'pot' declined dramatically: so by 2000 it was very much harder to save each £1,000 - which only yielded £58.00 in pension. The decline in the yield per £1,000 was largely due to the fact that pension funds had been 'advised' to shift their assets from equities [shares in real-world companies] to bonds, especially including government bonds, which over subsequent years have produced much lower income yields than did equities.
The effect of 'quantitative easing' has been to reduce still further the income that is paid out per £1,000 on bonds. So pension funds can pay only reduced cash sums on retirement: after which the providers of annuities can only produce lower pensions than they previously did for each £1,000 that is used to purchase the annuity. There is no basis on which one can expect the situation to improve: so each pensionable person who comes to retirement will feel more comprehensively 'cheated' by the system. Saving will be seen to be decreasingly beneficial: and the children and grandchildren of the embittered pensioners will have a lifelong memory of this disaster.
Hence when politicians to urge people to be prudent and to save - and invest - this will seem hypocritical and hollow. The psychological impact of such aspects of the 'financial crisis' will be profound but unfathomable.
Thursday, 5 November 2009
Quantitative Easing
So, to nobody's surprise, it was announced to day that the Bank of England has decided to spend another £25 billion buying 'old' government bonds, to put the cash into the hands of firms that will use it buy new bonds and maybe a few old shares.
Meanwhile the government is selling the 'new' bonds at an unprecedented rate for peacetime.
The release of at least £200 billion of 'new money' into the economy from the QE programme will inevitably cause inflation of costs and prices at some time in the next few years.
The people who should be most concerned about this 'financial engineering' are those in employment who plan to become pensioners - with company pensions or personal pensions - in the next few years. The value of their 'pension pots' has been eroded massively over the past decade, and the trend of the last few years for fund trustees to hold bonds has set fund members up for further significant losses. The consensus of commentators has decreed that it will probably never be knowable whether quantitative easing has 'worked' or not, at the macro-economic level: it is certain at the micro-economic level that it will be disastrous for members of pension funds.
It is probable that a majority of members of pension funds who are old enough voted for Thatcher in the 'eighties, and for Blair-Brown in 1997: so did they in so doing earn the misfortune that the succession of governments has brought upon them?
Meanwhile the government is selling the 'new' bonds at an unprecedented rate for peacetime.
The release of at least £200 billion of 'new money' into the economy from the QE programme will inevitably cause inflation of costs and prices at some time in the next few years.
The people who should be most concerned about this 'financial engineering' are those in employment who plan to become pensioners - with company pensions or personal pensions - in the next few years. The value of their 'pension pots' has been eroded massively over the past decade, and the trend of the last few years for fund trustees to hold bonds has set fund members up for further significant losses. The consensus of commentators has decreed that it will probably never be knowable whether quantitative easing has 'worked' or not, at the macro-economic level: it is certain at the micro-economic level that it will be disastrous for members of pension funds.
It is probable that a majority of members of pension funds who are old enough voted for Thatcher in the 'eighties, and for Blair-Brown in 1997: so did they in so doing earn the misfortune that the succession of governments has brought upon them?
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