Mr Brightside: The Recession That Never Was

 

“She works hard for the money 

So hard for it, honey” 

 

Before we get onto the main event I thought we would start with football, and last week’s appointment of Thomas Tuchel, as German, as manager of the England team

 
 

Let’s first deal with the songs; will he sing the national anthem? Frankly, I couldn’t care less. Then we have the supporters favourites, “two world wars and one world cup”, which he might wish to counter with “four world cups”! and, then, how could we forget “ten German bombers”. He might just tut and think, “they’re English, what else can you expect”.  

Tuchel is a winner, he won the Champions League with Chelsea, and has managed top teams elsewhere. 

Of the pundits, Danny Mills doesn’t like the fact that he wears a hoodie and cap on the touchline. Gary Neville doesn’t believe he fits the “criteria of St George’s Park”. Scott Minto is disappointed that he’s not Eddie Howe. Dean Ashton is “a little bit underwhelmed”.  

In summary, aside from his dress, he’s not English! 

Much is made of the fact we invented the game. We were self-professed “best in the world” until Hungary duffed us up 3-6 at Wembley. We conveniently didn’t enter the World Cup until 1950 when, after losing to USA, we fell at the first hurdle. 
 

‘just another example of small-minded little Englanders rooted in the past’

 
We comfort ourself that the Premiership is the best league in the world. If so, it is due to obscene amounts of money and overseas talent. Liverpool haven’t had an English manager since 2011, Manchester City since 2007, Manchester United and Arsenal since 1986.  

This just another example of small-minded little Englanders rooted in the past. 

Moving on, in 2018, I penned a piece for another website entitled “Hunting for income in the recession that supposedly never happened”.  

A part of that article looked at how the few had benefited from economic policy, especially quantitative easing (“QE”), post the GFC. As part of this I highlighted the art world: pre-2008 the record was US$78.1m set in 1990 for van Gogh “Portrait of Dr. Gachet”, the current record is US$450m set in 2017 for da Vinci’s “Salvator Mundi”. N.B these are the actual prices paid not inflation adjusted.  

Source: https://en.wikipedia.org/wiki/List_of_most_expensive_paintings 

I summarised that article by asking; 10-years from a catastrophe has the world recovered? Well, yes and no. Yes, central banks saved the banking system, stock markets have recovered, unemployment is “low” by many past measures, as is inflation. No, because we have had a steady recession that we haven’t noticed, evidenced by the lack of wage growth for the majority of the population. 

Over the years this column has often talked about inequality, which although it began to increase from 1980, really took off post-2008, which proved the old saying that “wealth begets wealth”. 
 

‘we have had a steady recession that we haven’t noticed, evidenced by the lack of wage growth for the majority of the population’

 
As I wrote in “Left Behind, Inequality, and Why it Matters”, inequality is invisible whereas poverty can be seen by anyone with their blinker off. Perhaps we should talk about an unfair society? 

In a developed country, society should be fair. There should be a distribution of income, wealth, opportunity and risk, that isn’t predicated on where and to whom you were born. This fairness would have a knock-on effect to the quality of people’ lives.  

40-yrs of supply-side economic theory has undermined the principles of fairness, as a result the ties that bind society into a functioning whole are unravelling.  

The level of unfair distribution reached its apotheosis post the GFC with the introduction of QE, which  resulted in the injection of £895bn in cash into the banking system between 2009 and 2021. As I summarised above, this did keep the banking system afloat after the financial crisis, however it also inflated a massive asset bubble, especially in house prices. This went beyond inequality, it was simply unfair. Homeowners in London and the SE benefitted disproportionately because their homes were more highly priced, the middle-aged and elderly fared better than the young who have yet to buy, along with ethnic minorities who own very little. 
 

‘the ties that bind society into a functioning whole are unravelling’

 
Looking more forensically, a recent report by the Fairness Foundation found that C. 50% of British wealth is in property, so unsurprisingly the wealth gap between the top and bottom 10% grew from £7.5tn to £11tn between 2011 and 2019 as house prices increased. The north of England, home to 30% of the population but only 20% of wealth, fell even further behind. 

The report also found that; “A typical person from a Bangladeshi, black Caribbean or black African background has no significant wealth, in contrast to the typical white Briton who has a household net worth of £140,000.” That gap has widened over the past 15 years too, as has the average division of £100,000 between men and women – even wider in older age groups. Gifts and rewards from inheritance are now C. £100bn a year, and are projected to double by 2040. 

One of Thatcher’s prime legacy issues is the distortion the housing market makes on the overall economy.  

It is much easier for banks to allocate their finite capital to the housing market which provide fundamental support for already overstretched valuations, rather than risk their capital financing SME’s. This misallocation of capital prices the young out of the property market, and  restricts people moving to London and the SE for work.  
 

‘whereas once wealth creation was based on work and starting a successful  business, now it is easier to simply speculate by buying and selling property’

 
Burgeoning property prices also distorts people’s values; whereas once wealth creation was based on work and starting a successful  business, now it is easier to simply speculate by buying and selling property, E.G., buy-to-let investors. Basically, the principles of capitalism no longer apply, rentiers represent low productivity capitalism. 

The system that has evolved is self-supporting, rentiers are able to buy influence, their wealth provides them the capacity to lobby and generate knowledge and ideas that favour them over the rest of society. 

This incestuous system has allowed the Tories, with their intimate relationship with class privilege, social connections and wealth, to dominate UK politics. The Tories may have been defeated, but their networks remain. 

It is these networks that sustain their belief in supply-side economics, despite all the damage done to the credibility of their version of free-market capitalism by the GFC, the privatised utilities and the stagnation of most Britons’ living standards. Robert Jenrick spoke at the conference about extending Thatcher’s “great reforms”, while his leadership rival Kemi Badenoch said Britain was “overburdening business” with “too much government”, even after 40-yrs of near constant deregulation. 
 

‘As part of their total self-belief there is a complete inability to accept their policy failures’

 
As part of their total self-belief there is a complete inability to accept their policy failures. Whilst Badenoch accepts that there was an “economic slowdown” under her party, she exempts Brexit and the trade friction it has caused preferring to blame the slowdown on the “rise of the bureaucratic class”, otherwise known as regulators and diversity-promoting HR departments. Conveniently,  

If we are to become a fair and equal society then taxation needs to be representative of that. 

The last Tory government on its deathbed bequeathed Labour a poison chalice; unaffordable tax cuts and scheduled unrealistic spending cuts for the coming years. 

A fair and equal tax regime should focus less on income and more on asset wealth.  

The easiest wins for a chancellor are VAT, corporation tax, income tax, and national insurance contributions (NICs), all of which Labour has pledged to leave alone. There is the possible loophole of increasing the employer’s portion of NICs which Labour says would not impact their pledge not to raise taxes for “working people”. 

The Tories, of course, are pedalling their own narrative that Labour will put the “burden” on “hardworking people” and that money needed for essential services can be found with “efficiency savings”, which allows scope for their beloved tax cuts. 
 

‘people can either have the NHS they want or the one they are willing to pay for’

 
The NHS is a case in point; as I have written before people can either have the NHS they want or the one they are willing to pay for. Whilst lower taxes do provide some economic incentives by allowing people to keep more of the rewards of their labour, people also want services that work. A well-resourced, well-managed public sector and social safety net can boost productivity and collective economic performance, an argument that went out-of-fashion with Thatcherism. 

No matter how much you shrink the state the demand for it never goes away, especially during time of crisis, such as Covid. Tory austerity degraded public services to such an extent that public money was used for crisis management instead of investment. The result was stealthy tax rises that didn’t produce satisfactory public service. 

On the plus side their does appear to be some enlightened people, as a report by the centre-left IPPR thinktank, said that millionaire entrepreneurs would welcome an increase in the rate levied on capital gains to match the higher rate of income tax. If implemented this could raise £14bn with, the report suggests, no impact on investment in Britain. 

The report recommended equalising CGT rates with income tax rates – representing the reinstatement of the system introduced by the Conservative chancellor Nigel Lawson in the 1988 budget. This would entail a rate of 20% for basic rate income tax payers, 40% for the higher rate, and 45% for the additional rate. 

Pranesh Narayanan, research fellow at IPPR, said; “We have spoken to multiple millionaires in the last few weeks who have made it clear that equalising capital gains tax with income tax would make absolutely no difference to their investment or entrepreneurial pursuits.” 

Mark Campbell, the millionaire co-founder of Higgidy pies, said higher rates of CGT would not “scare away real investors” in Britain. He continued, saying; “The UK needs a fairer tax system to invest in its future, and those of us who’ve benefited the most should contribute more so that we have a healthy society and economy for future entrepreneurs to operate within.” 
 

‘Fairness Foundation argued, that the threat to our collective wellbeing means it (inequality) should join climate change and terrorism on the government’s national risk register

 
Graham Hobson, the millionaire co-founder of Photobox, a photo printing website, said: “The idea that raising capital gains tax would discourage entrepreneurship is simply a myth. Entrepreneurs are driven by passion, problem-solving, and creating value – not by low taxes.” 

We might be overall a wealthy country, but we are riven with unfairness and inequality;  the gap between our richest and poorest 10% which, with the exception of the US, is the highest in the developed world. This distortion affects all parts of everyday living;  health, housing, education, productivity, enterprise, the media and even our democracy. 

Last week the Fairness Foundation argued, that the threat to our collective wellbeing means it should join climate change and terrorism on the government’s national risk register. 
 

“Cash Rules Everything Around Me
C.R.E.A.M., get the money
Dollar, dollar bill y’all” 

 

‘Once again we focus on inequality. without wishing to sound like a broken record when someone says that inequality should join climate change and terrorism on the government’s national risk register, we need to sit up and take note.

The issues run deep and after 44-yrs of similar economic policy, and considering that the Tories were in-government for 70% of the time, you have to say that they might be the problem not the solution.

Even today, after a historic electoral defeat, they still peddle the same shtick, small state, and low taxes. Too few of the electorate can remember anything else, as a result we are in a race to the bottom.

Despite the Tories supposed values of hard work equals rewards, we have seen the opposite. Money has gone to money, all too often through birth, and misguided economic policy. If we were once a nation of shopkeepers now we are a nation of property speculators.  

As we are seeing in Europe, a disillusioned electorate manipulated by far-right politicians, still fall for today’s version of the “stab in the back theory”. Their message is simple; the problems immigration, what’s the question.

Labour, with such an overwhelming majority, have 5-yrs to begin a transformation. The electorate has given them the mandate, the question is can they grasp it.

Lyrically, we start with Donna Summer’s “She Works Hard for the Money”. A song that tells the story of a working-class woman who dedicates herself to her job and strives to make a living. The song not only captures the spirit of hard work, but also talks about the challenges and sacrifices that come with it. Of course, now she likely wouldn’t make a living and would be one of the unequal ones.

We finish with C.R.E.A.M by the Wu Tang Clan’. Enjoy! Philip

 

@coldwarsteve
 

 

Philip Gilbert is a city-based corporate financier, and former investment banker.

Philip is a great believer in meritocracy, and in the belief that if you want something enough you can make it happen. These beliefs were formed in his formative years, of the late 1970s and 80s

 

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