- They’re inconsistent and arbitrary. If you’re a waiter, factory worker, nurse, construction worker, taxi driver, bus driver, security guard, journalist or even a retail worker at a small shop you can and often do work at any time on Sundays. The places that have to close at 6pm are ‘big’ shops. Bizarrely, ‘big’ is defined as being 281 square metres or bigger. That doesn’t make much sense and any argument that retail workers are ‘protected’ by Sunday trading laws would also imply that all those other workers are being exploited.
- Life isn’t nine-to-five, Monday-to-Friday, any more. Not that it ever was, really. Sunday trading laws inconvenience people who haven’t had time to buy their groceries during the rest of the week, and force them to rely on expensive local shops instead of cheaper supermarkets with more choice. For example, I like to do my shopping at my local Lidl. If I spend Sunday afternoon in the park with my friends instead of doing my shopping, and I need to buy something for that evening’s dinner, I have to pay twice the price for a smaller range of inferior products at the Tesco Express down the road instead. That’s annoying. If I had a family to feed, it would be expensive.
- The high street – and probably even small shops – will be better off. When Sunday trading laws were suspended during the Olympics, sales outside of London increased by 6.2%. They only increased by 2.8% inside London, probably because people were warned off the crowds. That’s good for smaller retailers too – no self-respecting retailer wants to exist just because her competitors are banned from trading, and more people out shopping means more customers to go round for everyone. They don’t seem to have suffered during the Olympics suspension. If you’re worried about online retailers destroying the high street, this is one way to level the playing field.
- Workers will have more hours available. It’s easy to talk about ‘protecting’ workers by stopping them from working on Sundays. But what about the ones that want to work then? Employers often end up having to pay workers more to work on Sundays – if you don’t think Sundays are sacred and want to earn a little more cash, the end of Sunday trading restrictions is good news for you. (Back when I was a teenage McDonald’s crew member, Sunday hours were a godsend.)
- Lots of people actually like shopping. It’s very common to enjoy trips to the high street or the shopping centre with some friends. If you are interested in food, big grocery stores like Waitrose, Asda and Whole Foods can be interesting places to explore. Browsing clothes shops and buying new things can be really fun. I’ve seen lots of people sneer at this on Twitter, and no doubt it’s terribly gauche, but government shouldn’t be in the business of forcing snobs’ tastes on the rest of us. Some of us actually like consumerism.
- Working tax credits are a good idea in principle. Low pay is a big problem, and shifting the welfare system away from being a safety net towards topping up the incomes of low-skilled people who are in work is probably the right approach.
- It doesn’t make sense to both tax people and pay them benefits. Cutting income tax and, especially, raising the National Insurance threshold on low-income workers is less complicated than making them apply for tax credits, and probably would incentivise work by getting rid of the tax credit withdrawal ‘tax’, without removing their incentive to join the work force (as ditching tax credits alone might do).
- That isn’t what’s happening here, though. These cuts are meant to reduce the deficit, so they won’t be offset entirely by tax cuts. That might disincentivise work (reducing people’s incentive to enter the work force) and will clearly make some poor people worse off.
- Lowering the child tax credits threshold and increasing the withdrawal rate would be one of the least harmful ways to cut tax credits, because these are not tied to work and because they are paid to couples earning up to £41,000/year, which is quite high.
- Housing benefit and pensions would probably be better things to cut. The £26bn housing benefit bill could be reduced significantly by reforming planning to allow more houses to be built. Abolishing the pensions triple-lock and increasing pensions in line with inflation only would produce major year-on-year savings – this year, the £92 billion pensions budget would be essentially frozen.
- Deregulations that cut the cost of living would offset some of these cuts. Housing and, for people with children, childcare are the biggest costs for people on low incomes, and payments for childcare in particular are built in to the tax credits system. The UK has some of the harshest regulations in Europe on both of these things, driving up costs. If the government made it easier for the private sector to build more houses and relaxed regulations about staff:child ratios in crèches for children, the cost of living for poor people would fall significantly.
US presidential hopeful Jeb Bush says that, with the right policy reforms, the US can achieve 4% annual growth. As economic historian (and Adam Smith Institute Fellow) Anton Howes has pointed out, historically it’s very hard to sustain growth above 2% except when you’re catching up, either after a recession or as a poor country converging on rich ones.
For the US, 4% growth would mean catching up to the pre-2008 trend for a few years, and then reverting to normal. Glenn Hubbard and Kevin Warsh, two economists who are likely to advise Bush on economic issues during the campaign, suggest that investment-focused tax cuts and pro-competition deregulations might help the US to recover back to the pre-2008 trend. Well, maybe.
One thing they did not mention was liberalising planning (or urban zoning, in American English). But that could deliver a big boost to GDP. An NBER working paper by Chang-Tai Hsieh and Enrico Moretti released earlier this year argued that:
…worker productivity is increasingly different across cities. We calculate that this increased wage dispersion lowered aggregate U.S. GDP by 13.5%. Most of the loss was likely caused by increased constraints to housing supply in high productivity cities like New York, San Francisco and San Jose. Lowering regulatory constraints in these cities to the level of the median city would expand their work force and increase U.S. GDP by 9.5%.
Basically, making it easier for people to move around makes it easier to put people into the jobs where they’re most productive, and constraints on housing supplies make it much harder for people to move around.
Deregulating planning, then, could massively boost US GDP – even bringing constraints in the most productive cities down to the average level would increase it by nearly 10 percent. Spread over a few years, and combined with the standard 2% we’d expect from the US economy normally, that’s about one Presidential term’s worth of 4% growth.
This is really just a moot point – the President doesn’t have much say over local zoning laws. But who knows? This might be one time where the Presidential bully pulpit comes in handy.
Mostly, this is instructive for those of us in other cities where supply constraints make it difficult for people to move in. How much richer Britain might be if it was a little easier to build houses in the places people want to live – and work.
1. This law makes it harder for governments to run deficits when the economy is healthy. This is a sound approach to the public finances whatever you think the government should do during recessions. Both the Clinton and Blair governments ran surpluses for part of their time in power and they are usually praised for doing so. It’s hard to think of a good argument against that. Keynes said in 1937 that, “The boom, not the slump, is the right time for austerity”.
2. The law will not prevent deficit spending during recessions. The point is to make deficit spending the exception, not the rule. That also means that deficit spending is much easier if we think we need it – it’s easier to go from 0% to -5% than from -5% to -10%. According to Keynesian theory it is the change in spending that matters, not the level. Advocates of fiscal stimulus should love this rule – it makes their policies much easier to implement in busts.
3. Yes, the law can be repealed by an Act of Parliament. So can any other law, that doesn’t mean that they’re irrelevant. There is inertia in politics and a government that is seen to repeal this kind of law will need a good reason for doing so. Making the public more aware of what’s going on with government spending makes politicians more accountable.
4. Even if our models of economics told us that it was better for the government to have as much flexibility over spending as possible, our models of politics tell us that constitution-like rules are a good way of stopping abuses. This is about political economy as well as economics.
5. An honest Keynesian argument would be that the public is too ignorant and will oppose necessary deficit spending, so it’s better to keep them in the dark. In this case the argument is simply that monetary policy is clearly and demonstrably just as or more effective than fiscal policy during recessions and depressions (indeed fiscal policy probably only ‘works’ through the monetary policy channel). The US cut fiscal spending by $85bn/year in 2013 (the “Sequester”) which people like Paul Krugman warned would cost 700,000 jobs. Because monetary policy was accommodative under QE3, offsetting those cuts, this did not happen.
A new report by economists at Cambridge University’s Centre for Business Research purports to show that the post-1979 liberal reforms introduced by the Thatcher government did not boost the British economy.
In a sense, that’s true. As the report shows, trend GDP growth and productivity were slower in the thirty years after 1980 than the thirty years before that. I hadn’t realised that this was new information, but OK.
The problem with the report is that it mostly looks at the UK in isolation. What it doesn’t mention is that this slowdown in trend growth was a global phenomenon. The real question should be how the UK did relative to the rest of the developed world.
Taking the US as a benchmark – the ‘technology frontier’ – the best any major economy can hope to do, basically – I’ve compared GDP per capita, adjusted for purchasing power parity, of France, Germany, Italy and the UK (German numbers include East Germany after 1991, so I’d more or less ignore them after that point). The UK is purple:
And here’s those countries’ relative performance, indexed to where they were in 1980. What we see is the UK’s position basically not changing until 1980, with (West) Germany, France and Italy all converging on the US up to that point, then stagnating or declining slightly afterwards:
In this relative picture, the UK’s economic performance looks a lot better post-1980. There is a clear inflection point in the early 1980s where the UK begins to converge on the US, with GDP per capita as a percentage of the US’s rising sixteen percentage points from 66% to 82% in 2010. In 1950 the UK GDP per capita was 69% that of the US’s. The highest it was during the pre-Thatcher period was 73%, in 1961.
France, on the other hand, falls ten percentage points from 86% in 1980 to 76% today. Germany doesn’t do much until the end of the 1980s, when political events render the data basically useless. Italy’s decline tracks France’s closely. In every case the UK improves relatively, and of course with the US at 100 the UK is improving relative to them, too.
This is probably mostly to do with labour force participation rates, not productivity. That might mask the true welfare situation: I might be much better off retiring early, but that would make me appear poorer and reduce GDP. But it still points to a large change that seems to have happened in 1980 that the report’s authors virtually ignore.
I say “virtually” because they do, actually, show this comparison in their report, it’s just hard to find. In a report with over thirty charts, all but one start during the postwar period. The only chart that doesn’t is this one – which, weirdly, starts in 1880. I cannot understand why, but it does make the UK’s relative recovery much more difficult to spot.
It is quite interesting that the Thatcher reforms don’t seem to have boosted trend productivity by very much. As Pseudoerasmus notes, there doesn’t seem to be anything the UK can do to reach US levels of GDP per capita, and the Thatcher reforms only really brought Britain up to European levels of wealth. It looks as if boosting trend growth, not just playing catch-up, is really, really hard.