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The UK Chancellor delivered his Autumn statement on 23rd November 2016, it focussed on investment in infrastructure, mainly to increase productivity and high value jobs, some more housing but not enough and he won't loosen the stranglehold on current budgets.
So why is it that our country can’t afford the basics anymore? Whether it’s the NHS, councils or even defence of the realm, its cut, cut, cut. But have you ever considered why we can’t afford these things now?
You see we used to be able to...
The economy is growing, around about 2% per year, but there are at two, maybe more, elephants in the room, both of which are consuming that extra GDP and more. These are the rich and their spending habits and the costs of correcting harmful things sometimes termed externalities.
Elephant number one: The very rich, who are now taking a much higher percentage of wealth than before, and whether offshored or not, they are often able to pay less tax than the basic percentages would suggest whether excess money goes into ISAs, pensions or tax deductable investments.
Although saving is laudable, if it gets excessive then there are two problems: Firstly the money from the extra growth ends up in the pockets of the few and it doesn’t recirculate into the economy as there are....
....only so many meals, new clothes and cars anyone person can meaningfully buy. The second is that the profit coming from these investments concentrates the wealth slowly but surely to a smaller percentage of the population. This is often seen as inequality of opportunity.
The second elephant (I'm not sure which is the biggest) is externalities; so many of our industries are now the cause of harmful effects like obesity, air pollution, mental illness. We all pay for this via the NHS and elsewhere to fix these outcomes, sometimes it costs us more than the wealth created from the products in the first place. For example air pollution kills approx. 40,000 per year in UK cities and hospitalises many more. The economic cost of this is enormous, running into billions of pounds and all because our society doesn’t have appropriate transport solutions to reduce car use and or manage pollution from the internal combustion engine.
Another example: Estimates of the cost of obesity (to the NHS, business and lost earnings to the people themselves) range from £6bn to £16bn and that cost is predicted to rise. Yet the food and drinks industry, the primary driver, brings in a total gross value added of £21.9bn and that figure includes the healthy foods too! So approximately half of the value added from the whole sector pays for the damage it causes. Admittedly we need to adjust for the food retail and fast food sectors but overall the figures are horrendous.
So the food and drink industry brings a huge cost of harm to its consumers which we all pay for via the NHS. Of course you can’t shut that industry down as we’d all starve but Government can introduce laws and taxes to reduce the harm, the externalities like sugar taxes, fast food restrictions on fats especially combined with sugars, hours of operation and so on.
This effect is one of the causes of low productivity. People make things for profit but then other people have to fix the harmful side effects. Its not an issue for the business but it is for our economy as a whole.
So our poor economy is suffering from two (at least) elephant sized anchors which are dragging us down and meaning the country can’t afford now what it could decades ago. So what to do about it?
That’s not so simple. The leaders of the companies which cause all these externalities are the ones who earn so much money, sucking life out of the economy with stock options and bonuses too and maybe they distort democracy by funding major political parties too.
So we continue to suffer “austerity” because the economy isn’t generating wealth in a balanced way and our current Government is just tinkering at the edges…umm I wonder why?
by Clive Stevens 30 September 2016 (updated 23 November)
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