Macroeconomics: UK economy, IB Economics

Not much in the way of economic theory, more an outline of how economic policymaking might change under a Labour government. Notice the use of 'might'. I'm sure, like all governments - OK, perhaps not all - they have the best of intentions, but the reality might work out somewhat differently. 

Gordon Brown's of the view that something's got to give, and that there needs to be a radical rethink to break out of the cycle of low growth. He suggests that the Treasury needs to assume a war footing, co-ordinating growth via a National Economic Council.

He sees persistently low productivity as the root of many of the growth problems, exacerbated by austerity rather than fiscal stimulus as in the US. 

Yet more speculation: National Insurance to be cut by 2p - a pre-election sweetener/bribe - and justified on the grounds of incentivising work, but to be offset against spending cuts in the next Parliament, effectively trying to restrict the ability of an incoming Labour government to alter government spending plans. 

In the best interests of the country, or an act of partisan politics tantamount to economic vandalism? You decide. 

To those of us with long memories, the best policies are credible, transparent and accountable - and claims like this aren't either of the first two and scarcely any more of the latter, given that I suspect that the terms of both ministers will be mercifully brief. 

But, as economists I hope you appreciate the importance of perfect information and are prepared to call out people for being disingenuous when you see it. Or liars, if you will. 

And here are the implications of improved public finances, greater wiggle room for the Chancellor in his next Budget, given that most people now expect the economy to undershoot government borrowing forecasts. In short, he's got money to play with - and for a Conservative government, that's likely to mean pre-election tax cuts. 

According to the article, another freezing of fuel duty and potentially 1p off the basic rate of income tax look most likely to be the measures adopted. 

Phillip Inman on the implications of today's economic growth figures, with a glass half-empty look at what this means for the Chancellor.

He argues that the third-month data shows a contraction of the economy, and that there's still a chance of a technical recession. As a result, he believes that the Chancellor will be keen to see a loosening of monetary policy in the near term.

An overarching view of the forthcoming Autumn Statement, without much in the way of theory but an interesting look at the nature of policymaking.

To adopt a similar type of thinking to Alistair Campbell, when the Chancellor " says tax cuts are 'impossible'" what he actual means is that they are possible. Making the statement is effectively creating the policy space for any tax cuts to be made out to be an even bigger give away than they actually are, in the hope of generating an even greater fiscal stimulus, and enhancing the Chancellor and government's reputation. 

At the moment, the whispers are the there may be some tax cuts for businesses, with the perpetual question of business rates no doubt in the frame, and the equally perpetual Inheritance Tax debate. Let's hope that the government isn't serious about giving a tax cut to the wealthiest 4% of the population, for the sake of generating positive headlines in the Daily Mail, whose readers, every single one of them, are unlikely to be affected by the tax in the first place. 

It seems as thought the Treasury are at loggerheads with the IMF over the latter's economic forecast for the UK economy. The IMF are of the view that the UK will have the highest inflation and lowest growth in the G7 next year, something that the Treasury disagrees with, although the IMF forecast seems to be aligned with Bank of England forecasts that have interest rates staying higher than other G7 nations for longer, remaining above 4%, even in 2028.

Another outing for the concept of fiscal drag, with the Resolution Foundation quantifying the effects of freezing income tax thresholds, noting that as a result, by 2028 the Treasury can expect to collect £40bn from income tax alone, when without these changes it would only have been £30bn. 

It's one of the largest increases in 'stealth taxes' in the recent past, to the extent that it's even calling the use of the term itself into question.  

Fiscal policy at its finest - we need to cut the welfare budget, to encourage those on benefits to look for work, to fund tax cuts, to encourage entrepreneurship.

In short, the classic "giving money to the poor makes them lazy, giving money to the rich makes them work harder" sketch. I'm not sure that this assumption stands up in the 21st century. 

The Labour Party are proposing an interesting change in the policymaking environment, by legislating to make it compulsory for the Office for Budgetary Responsibility to oversee economic policymaking, and publish its own forecasts and analysis alongside the Treasury version.

It's designed both to draw attention to the anniversary of the Truss-Kwarteng budget farce, and tie in with a commitment to announcing major policy measures in November, and reduce the amount of times that a government can implement discretionary policy over the course of a year. Labour are keen to seize the mantle as the party of fiscal responsibility which appears to have been lost during one of the Downing Street COVID parties. 

Debate about the nature of the triple lock continues apace - the Guardian suggests that the government is toying with the idea of stripping out, one-off public sector bonuses from the rate of increase of average earnings, on the grounds that it's such an unusual occurrence.

This could save the government £1bn, and head of criticism that pensions are rising faster than the earnings of many workers. That said, as another opinion piece argues, it would be brave government to do this in the run-up to an election. 

It seems as though the government are having to think about offering more help for people struggling to pay their mortgages, although it's unclear whether or not the Treasury seems to be in favour of the idea. 

Again, it shows the complexity of policymaking: such a move might in itself stoke inflation. 

This article appeared yesterday and I think it's worth 'scooping' because it highlights a seemingly genuine attempt to rationalise the tax system, in line with Smith's canons of taxation. 

It has always struck me as odd that there are two taxes paid by workers - National Insurance and income tax - surely from an administrative point of view it makes sense to unify them and presumably it would lower the opportunity cost of collection. 

The Guardian's take on the Budget; a middle way, the classic compromise - a solution that satisfies no-one. 

This article looks at one of the factors that limits what the Chancellor is going to be able to do in tomorrow's Budget, the existence of the UK's fiscal rules. 

Do you know what they are? They relate to reducing government debt as a percentage of GDP, the budget deficit not exceeding 3% of GDP and welfare caps on certain benefits. 

The article also looks at the role of the Office for Budgetary Responsibility and the concept of fiscal headroom too. Useful preparatory reading in advance of the Budget. 

For all the economic news in the past week, this might arguably be the most staggering. During a session of the economic affairs committee of the House of Lords, the Head of the non-partisan Office for Budgetary Responsibility, Richard Hughes, has criticised the government for providing a lack of information about its public spending plans. As a result, Hughes noted the "questionable assumptions" behind the OBR forecasts that went beyond "a work of fiction".

Has it come to this? Is policymaking under the current government simply disregarding the orthodoxy that  forecasts are only as good as the information that's used to produce them, and willing to ignore any data that it doesn't like. It seems that way. 

Apart from the inappropriate comparison between the late Nigel Lawson - a very clever, and witty man - and the current Chancellor - a man who lags behind on both measures - is the claim that we're on the brink of a boom, and should be looking to cut taxes a valid one? 

I leave it to you. I have a view. But if you say something often enough, even as Chancellor, that doesn't mean it's true. 

Evidence of the ability of large firms to engage in widespread tax avoidance, with UHY Hacker Young estimating that large companies underpaid £5.6bn in tax last year, a 14% rise on the previous year. I always point this out that this costs HM Treasury far more than benefit fraud. 

A quick heads-up for the Autumn Statement in a fortnight's time that's going to outline the government's economic programme for the year ahead.

This will take place on 22 November and tackle such issues as ongoing inflation, the state of the public finances, and presumably try to find room for favourable pre-election giveaways. So watch this space!

The annual business leaders complaint about the current system of corporate taxation, argues that business rates and other taxes make UK manufacturers uncompetitive, discourage investment and need an overhaul.

They're probably right; however, it's been something that's been said for the entirety of the period I've been studying and teaching this subject. 

This article is an exceptionally good, if slightly queasy way to be introduced to the concept of fiscal drag that has seen the government raise tax revenues by simply freezing personal allowances, and dragging more people into higher tax brackets. That said the motion of the graphics might not be to everyone's taste.

The Chancellor has again suggested that the current state of public finances, notably the level of public debt mean that tax cuts are 'virtually impossible'. 

I take that to mean "unlikely to happen until immediately preceding the General Election". 

The Resolution Foundation note that recent inflation figures mean that the Treasury is going to be £11.4bn better off than expected, largely as a result of VAT receipts,  and that this should be spent on public services. 

Of course, others fully expect the Chancellor, for all his talk of prudence, balancing the budget and so on, to find a way of offering some pre-election tax cuts. Well, I never.

An interesting article about the nature of policymaking in the Treasury, with Fran Boait arguing that a peculiar mix of economic orthodoxies - in favour of privatisation and yet also committed to "arbitrary fiscal rules" - ensure that the UK under-commits to public investment, to the extent that with have the lowest level of public sector investment in G7.