Cost of Living

I enjoyed this rather quirky piece from The Guardian in which Simon Jenkins sets out his explanation as to why the Chancellor, George Osborne, seems to have won hands down the argument about how to pull the UK economy out of recession.

According to Jenkins while talking tough, George Osborne has continued to curry favour with key groups such as drivers by abolishing the rule tax escalator at a cost of £22 billion over 5 years.

But of course the Labour Party would probably have done just the same even though the last Labour Government introduced the policy in the first place - the point being that there are still big giveaways to key interests groups in these austere times.

For example, people with mortgages continue to benefit enormously from the artificially low interest rates that the UK has enjoyed since 2008 and while Labour bangs on about the cost of living crisis - nowhere is the much lower costs of paying a mortgage factored into this equation. 

How Janus-faced George Osborne defied stereotype and triumphed


For a chancellor four years into office after presiding over the worst slump since the war, his popularity is remarkable


By Simon Jenkins - The Guardian

'If Osborne is happy to cut ­revenue in the hope of stimulating growth – Keynes rather than Laffer – the sky is the limit.' Photograph: Matthew Horwood/Getty Images

The Osborne star continues to rise, even as his Tory party slumps. In the latest Guardian/ICM poll, the Conservatives dropped three points against Labour, yet George Osborne as manager of the economy is ahead of Labour's team by two to one. For a chancellor four years into office after presiding over the worst slump since the war, this is remarkable.

How can it be? Osborne was supposedly the great Satan of the recessionary economy. To many Guardian readers, his perceived austerity, his love of bankers and his cruelty to underdogs have made him the new Thatcher in Tory demonology. Besides, chancellors are supposed to run behind their parties, especially when times are tough, not ahead of them.

Ever since Tony Blair it has become near impossible to construct a plausible narrative for the British economy, such is the consensus on such topics as taxation, centralisation of government and the public/private split. It is nowadays a matter of visceral tribalism and tedious cliches. Osborne's "hard-working families" are pitted against Ed Balls's "cost of living crisis". Labour's "squeezed middle" is pitted against the coalition's "government for the rich". Hard-hearted cuts fight against "a fairer way". There is no give in this. British politics in the run-up to an election is Jets and Sharks, cowboys and Indians.

The key to Osborne's success has lain in defying his stereotype. He has held his position as Colbert to David Cameron's Louis XIV through double-dip recession and into recovery, thereby able to claim vindication for his policies. Given the nature of this cycle, any chancellor able to stay that long can seem to have "rescued" Britain from whatever horrors afflicted it.

More crucial has been Osborne's assiduously crafted Janus face, stern austerity towards the outside world and a wholly different approach towards the public finances. As should be repeated over and again, Osborne has been no iron chancellor. He is firmly in the mould of Gordon Brown and Alistair Darling – high spending, high borrowing and a sucker for every trendy aircraft carrier, railway or wind turbine going.

On coming to office, Osborne did indeed cut the "planned rate of increase" in public spending, as Darling had pledged to do. In 2009 total spending was £634bn. By next year it will be £732bn, higher even in real terms. The only big item truly butchered has been local government, and the coalition cares not a fig for that. Osborne has missed all his budget balancing targets and is way off course on borrowing, which still hovers around £100bn. He would be savaging Balls if the latter had been in office. Compared with Greeks or Spaniards, Britons do not know the meaning of austerity.

On Monday, Osborne issued a revelatory document. It purported to show the success of his 2010 freeze on the fuel tax escalator, a device to raise the tax on petrol each year by inflation plus 1p per litre. The aim was to avoid the political unpopularity of raising it in each budget. Osborne reversed this objective and courted popularity by abolishing the escalator altogether. The cost over five years has been a staggering £22bn. He likewise began to reduce corporation tax from 28% to 21%. From an austere chancellor such giveaways to drivers and corporations were reckless.

Osborne now tries to rebut the charge by claiming his Treasury witches have stirred eye of newt and toe of frog – "behavioural economics and detailed modelling" – in the pot to prove the giveaways so boosted private spending that they earned enough in VAT and income tax to make up half the lost revenue. That gets back £11bn. This would give the economy a boost of up to 0.5% of GDP. These figures do not add up. They suggest that cutting petrol duty was indeed a big giveaway.

If Osborne is happy thus to cut revenue in the hope of stimulating growth – Keynes rather than Laffer – the sky is the limit. He clearly takes the same view of alcohol taxes, which he eased at the last budget. Was this to boost the economy as drinkers would spend the difference elsewhere?

And what of the second biggest industry in Britain, tourism? Osborne levies VAT on every holiday at home, yet not on foreign travel. This is a direct subsidy to spending abroad and explains why no travel agent ever advertises a British holiday in their window. The chancellor is directly subsidising a loss to the balance of payments.

He does likewise with his green super-tax on energy users and super-spends on subsidised energy investment, largely imported or generated by foreign firms and equipment. Another area of his tax largesse is house-building. But the bulk of the housing market, especially for first-time buyers, has nothing to do with his favourite mortgage-aided green-field estates. It is the renovation and conversion of existing urban properties. Yet he relieves new building of all VAT and imposes a discriminatory 20% on all renovation and urban renewal. This is a straight tax on the most efficient form of new housing.

All these cases show Osborne not as a demon cutter but as a normal political being among chancellors. The crazy vagaries of British tax policy have nothing to do with some underlying economic reality, let alone with Laffer curves. They are a ragbag of past giveaways and incentives, the detritus of lobbying pressure over years, if not decades, defended as crucial to the fate and finances of the chancellor's party. The energy companies, the house-builders, the drinks industry, the airlines, all troop through party conferences and down Whitehall corridors. They give the best parties and sing the best tunes – or in the case of airlines, offer the best upgrades. They are the hidden rulers of Britain, and we still have the cheek to accuse foreign governments of corruption.

When Osborne was depicted as a crazed axeman who ate little children for breakfast and smashed the economy, it suited his foes to associate him with austerity. Now the British economy is growing faster than any in Europe and earnings may this week overtake inflation. So Osborne is popular. Do his enemies really want austerity to get the credit? It surely makes more sense to tell the truth. It was not austerity that pulled the British economy out of recession but good old-fashioned borrowing and spending.

Cost of Living (4 December 2013)


In recent weeks the Labour Party has shifted the focus of its political attacks on the Coalition Government. 

No longer does Ed Miliband argue that the economy is stalling or flatlining - instead he says that the benefits of the economic recovery that appears to be slowly gathering pace are not being passed on to hard working families - and that the UK is experiencing a cost of living crisis. 

Now clearly this is not true for everyone and while there may be people who struggle to pay their bills and/or put enough food on the table - lots of others are actually much better off because of the artificially low interest rates the country has been experiencing since 2008.

For example, anyone with a large mortgage may be thousands of pounds a year better off - even if they are in a job where the pay has increased very little, if at all, over the past few years.

So it stands to reason that the people facing a big hit to their standard of living has to be someone without a mortgage - someone who pays rent - because their housing costs will have gone up rather than down since the UK economy went from boom to bust. 

All of which means that all this talk of a general cost of living crisis is untrue - and that a much fairer policy would be one which targeted help on citizens paying rent because they have not been fortunate enough to have been handed a big financial windfall - courtesy of nothing more than a sudden and fortuitous collapse in interest rates.


Free Money (8 January 2013)

I heard someone on the radio yesterday complaining that he would be losing out to the tune of £240 per month - as a result of the government's planned changes to child benefit payments. 

Now my heart almost bled as I listened to the chap claim (convincingly) that as a result of the unexpected drop in his income - that he might not be able to keep up his monthly mortgage payments.

Next my glass eye almost shed a tear as the poor man explained the terrible burden of having his company car taxed and treated - as an expensive benefit in kind.

'What kind of world do we live in?', I thought to myself - before quickly coming to my senses and dismissing his ridiculous claims as so much baloney and hot air.

Because as I've said before on the blog site anyone who has been paying a mortgage in recent years has very little to complain about - compared to lots of other fellow citizens at least.

For example workers in low paid jobs, people who rent instead of owning a property (via a mortgage) - or folks on a fixed income, such as pensioners.

The reason being, of course, that most people in these groups have little - if anything - to show for the artifically low interest rates which have greatly benefited UK mortgage payers in recent years - as can be seen from the previous posts below.

So my advice is simple - don't shed any tears for people losing out on child benefits because they earn more than £50,000 or £60,000 a year - because they don't need or deserve a hand-out of free money from the state.

Something For Nothing (17 July 2012)

I listened to a chap on the BBC the other day explaining how the artifically low interest rates - have been saving him £700 a month (net) on his mortgage for the past three years or so.

Now that's a fair old amount of money - in anyone's language - £8,400 in a single year or £25,200 over three years.

Or to put it another way - much more than the average salary in the UK - especially when you consider this is money in the chap's hand - net of tax and national insurance.

I've been banging on about this for a long time of course - as regular readers will know from previous posts on the blog site.

Yet so far at least - I've not heard a single politician remark on how unfair it is that so many people benefit so greatly - for doing absolutely nothing in return.


£20 Billion Windfall (5 January 2012)

I read something the other day - a claim by an organisation know as the Family and Parenting Institute (FPI) - of which I know very little.

Presumably it does what it says on the tin - seeks to speak up for families with children - because the FPI claims that average income of households with children will drop between 2011 and 2016.

By 4.2% would you believe or around £1,250 a year - depending on the exact income of the household in question.

But I say - so what - what does that have to do with the price of mince?

Because unless you factor in other things - such as how much some households have benefited from our artificially low mortgage rates - then the FPI's claim is completely meaningless.

I know some folks - some with others without children - who are saving hundreds of pounds every month necause of low interest rates - worth many thosuands of pounds a year.

So spare me all this special pleading from special interest groups - as ever they are concerned with their own narrow agenda - and have no time for the big picture.

And the big picture means big savings - not for everyone - but for those paying mortage interest when rates dropped like a stone - and the bigger the mortage the bigger some people's windfall.

Here's what I had to say on the issue in 2011 - no doubt the £20 billion figure now needs to be revised - in an upwards direction.

'All in this together' (September 15th 2011)

When people start urging us to take the view that 'we are all in this together' - it's time to stop and think.

Who's 'we'? - will do for a start.

The fact is that not everyone in the UK has been doing badly in these hard economic times - in fact people who are in a secure job and who have been paying a mortgage off - are doing very nicely thank you very much!

Compared to lots of other people anyway.

And just to demonstrate this point here's something I wrote back in March 2011 - arguing for a 'windfall tax' on the £20 billion that mortgage payers have saved in recent years - as a resul tof artificially low interest rates.

Now the people who are not part of this £20 billion windfall are - typically - the less well off and those on fixed incomes who rely on their savings - which produce little or no interest these days - to help pay the bills.

So why don't we hear any of this at the TUC conference - where delegates are good at telling everyone else what to do - but seldom come up with practical ideas for resolving problems.

A special windfall tax would recoup just some of the £20 billion that mortage payers have gained - simply through sheer luck - and it would seem to embrace the 'were all in this together approach'.

Which the present government and the trade unions both espouse - when it suits their own argument of course.

I imagine most union leaders are paying mortgages - because most live in private housing - and most will have benefited hugely out of the artifically low interest rates - we have witnessed in recent times.

Ironically the one union leader who would escape a special 'windfall tax' on mortgages - would be Bob Crow - who has been living in subsidised social housing in London for years.

But a windfall tax on mortgages would be redistribute income between the 'haves' and 'have nots'.

A windfall tax would be progressive because it would tax 'unearned income' - and would be likely to affect the majority of delegates this year's TUC.

In other words - a real life demonstration of solidarity - that we really are 'all in this together'.


Windfall Tax On Mortgages (March 4th 2011)

I read a remarkable statistic the other day - which made me stop and think.

The Financial Services Authority (FSA) has apparently calculated that the UK's artifically low interest rates in recent years - have meant an unexpected windfall of £20 billion to the nation's mortgage payers.

Yet another example of the old saying - 'It's an ill wind that blows nobody any good'.

In this case £20 billion to the good - and the bigger the mortgage - the bigger the killing people have made - without any effort or risk.

While those who can't afford or no longer need a mortgage (e.g. low paid workers and pensioners) - have lost out big time, comparatively speaking.

So I have a suggestion for the government and our policy makers.

Bring in a special windfall tax on mortgages which claws back some of this £20 billion - and use the money to reintroduce the 10p tax rate to help the low paid.

Low paid workers will spend the money - because they don't have a lot to start with - and that will help to boost the economy.

Readers will remember that the 10p tax rate was abolished by the 'man with a moral compass' - Gordon Brown - in one of his worst decisions as Prime Minister.

But here's a chance to right a great wrong - help the lower paid - boost our flagging economy - and with money that has simply fallen into people's laps by sheer luck - nothing else.

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