No, the Spring Budget wasn't a Raw Deal for Pensioners

Believe it or not, there are people in the British press who are genuinely arguing that this week’s Spring Budget “stuck two fingers up” to pensioners because the Chancellor decided to focus his efforts on tax cuts for working-age people, instead of throwing yet another bone to retirees. 

From the Mirror to the Telegraph the headlines were the same - pensioners are the big losers of this budget, pummelled by stealth tax rises and neglected by the Chancellor. Let’s not mince words - this couldn’t be further from the truth. However, it’s useful to examine exactly how this false narrative came to be, why it isn’t true, and what it can tell us about the broader direction of travel in Britain today. 

As I wrote in CityAM on Wednesday, this Budget represents a cautious step in the right direction against a challenging economic backdrop. In particular, we should celebrate the 2% cut to National Insurance which, combined with the 2% cut announced in the Autumn, will mean that NI has fallen to a third, from 12% to 8%. We should also welcome reforms to how Child Benefit eligibility is calculated, investments in public sector productivity, and the removal of stamp duty on shares.

Of course, it wasn’t all perfect. Our very own Maxwell Marlow has highlighted elsewhere the damaging effects of frozen income tax thresholds, and the Chancellor’s failure to deliver any substantive fiscal measures on housing. All in all though, this was a Budget characterised by modest measures designed to get more people into work, while improving the efficiency of the public sector and rewarding working-age people for their graft. 

So who’s to blame for spreading the idea that the Chancellor has suddenly turned against the ever-reliable grey vote? This harmful misconception is, in no small part, the result of research from the Resolution Foundation and the Institute for Fiscal Studies. Both have pushed the idea that pensioners are the big losers of this budget, with the Resolution Foundation suggesting that households headed by someone aged 66+ “will see losses of £770 on average”, mostly due to the fiscal drag caused by frozen income tax thresholds.

However, they can’t seem to see the wood for the trees. This Budget maintained and extended a host of costly benefits for older people, which more than make up for any apparent losses. 

As the Chancellor himself has rightly pointed out, those over State Pension age already benefit from not having to pay National Insurance at all. By default, their tax burden will already be 8% lower (12% lower prior to cuts over the past two fiscal events) than their working-age counterparts.

There’s also spending on public services like the NHS, disproportionately used by older people. Alongside £2.5 billion in additional NHS funding, the Chancellor has invested £3.4 billion in the process of NHS digitalisation, which will enable up to 200,000 extra operations a year. It is pensioners who will see the greatest benefit from this investment.

Then, of course, there is the public sector hydra known as the Pension Triple Lock. Since the Triple Lock was introduced in 2011/12, the cost of the state pension is estimated to have grown by a staggering £78 billion - that’s about the same amount as the UK’s entire corporation tax revenue in 2022/23. Across this Parliament alone, the state pension has risen by 31%.

In April, the state pension will again increase by 8.5% (more than double the current rate of inflation), representing a £900 income boost for pensioners. It’s worth reminding ourselves that the state pension is not means-tested, despite the fact that one in four British pensioners lives in a household with a combined wealth of more than a million pounds. Let me repeat that - depending on your definition, one in four British pensioners is a millionaire. They will all receive an additional £900 per annum from April. 

From taxation to pensions to public services, this was a budget which works squarely in the interests of pensioners. To suggest that a 2% tax cut for working-age people means neglecting retirees is risible; with the cohort of people aged 22-29 now earning less than it did in 2002, it’s right that support is targeted to those earlier in their careers. 

So why, despite all of this, are so many commentators eager to tell us that pensioners have been stiffed by the Treasury?

As is so often the case in politics, the fault lies with the politicians. Over successive Parliaments, politicians of all parties have propagated the view that the benefits enjoyed in later life are directly related to taxes paid throughout one’s career. We’ve all heard that slippery little phrase before - “I paid into the system all my life, and now I expect to get back out”. 

Of course, in most cases, this simply isn’t true. The money that we pay in tax during our working lives does not sit in a hypothecated pot, to be drawn on in times of crisis. In fact, the money that many pensioners receive far outstrips their tax contributions - the average person born in 1956 will receive about £291,000 more in state benefits than they paid in across their lifetime. 

Not only did favourable economic conditions in the 1980s and 1990s allow older people to build up assets which younger people can now scarcely dream of, but the state now gives them additional support on the questionable basis that they “paid in” to the system throughout their working lives. 

Alas, common sense ceases to matter when the ballot box looms. Older people vote in far greater numbers than their younger counterparts, with 81% of older people expected to vote at the next election, compared to just half of those in their twenties. Governments must now contend with this ‘grey vote’. There is a resultant expectation that all major fiscal events must involve a confession of faith in the Baby Boomer orthodoxy, and a vindication of that faith through ever-greater public spending. 

It would be far more sensible to recognise this expenditure for what it is - state assistance for old people. What else can we call money provided by the state with no expectation of returns, drawn from general taxation on working-age people?

If pensioners want to hold onto their state benefits - and yes, these are benefits -, they should celebrate the tentative steps taken in this Budget to incentivise work, reinjecting a modicum of dynamism into our sluggish economy. Covering the cost of these benefits will only be possible with a growing economy, particularly as the fiscal burden grows larger every year due to our ageing population. 

More people working more productively means more revenue for the Treasury, and a greater likelihood that older people will continue to enjoy these favourable conditions. If our economy continues to languish in its current sorry state, beset by low growth and high taxes, it won’t be long before the bill simply becomes too large to bear. 

Whitehall Waste

Every Chancellor, like every Cabinet Office minister, dreams of cutting waste and reducing bureaucracy. It is surprising how few of them succeed at it. That is because you need to know how to do it, and few ministers do.

Michael Heseltine MP did a reasonable job in the Thatcher and Major administration. Pretty soon the number of officials rose again. Francis Maude MP had a go for Cameron, but in that decade, officialdom grew by a quarter (conveniently put down to the problems of Covid and Brexit). Sir Jacob Rees-Mogg MP, Boris Johnson’s efficiency minister, thought axing 90,000 civil service jobs — about a fifth of the total — was quite reasonable, but time, Boris and he all moved on before anything happened. 

The result is that we still have over half a million civil servants in government departments, and even more public servants running museums, infrastructure and all the rest. It’s a nice earner, too: the proportion of civil servants in the ‘Senior’ grade has doubled in ten years. Whitehall has become a dense jungle of ministerial and non-ministerial departments, executive agencies, regulators, quangos, you name it, many of them with duplicated or overlapping functions. Ministers do not even know exactly how many civil servants there are. No wonder people complain about red tape.

The only significant reform since the civil service was created in 1854 came under the Thatcher era. Her adviser, Sir Robin Ibbs, proposed to reduce Whitehall to just a few hundred elite civil servants who would make policy. But senior civil servants are rarely good managers, so those policies, ran the plan, would then be delivered by separate ‘executive agencies’ — or even outsourced to the private sector. A bit of that happened, though Whitehall remained very far from the ‘few hundred’ target. And as soon as Thatcher had gone, the mandarins started to rebuild their empires once again.

Thatcher also culled a number of quangos, having learnt from an Adam Smith Institute report, Quango, Quango, Quango, that there were no fewer than 3,068 of them. But they again soon sprang back, until David Cameron cut a fifth of them. A waste-cutting minister might ask why we have quangos at all. (I’ve always advocated sending them home on full pay, waiting six months and seeing if we are actually missing any.) The quangos that execute policy should be turned into agencies. The advisory ones should be abolished: ministers can get advice whenever they like without maintaining permanent talking shops at public expense.

We need to return to the Ibbs strategy, and at the same time cut all the duplication that goes on. A streamlined civil service would mean the Cabinet Office, which is supposed to run the whole show, could lose 90% of its staffing, according to management consultant Tim Ambler in his 2023 Adam Smith Institute book Shrinking Whitehall. The rag-bag Department for Digital, Culture, Media and Sport could also lose 90% by turning its functions into charities or industry bodies, and cutting all the overlaps. Big reductions would come from similar rationalisations at Education, the Treasury, Transport and others. 

So if you are looking to cut waste in government, start at the top.

Sigh. Can we at least try to get the basics right?

As The Guardian reports:

The chancellor announced in his budget on Wednesday that businesses would no longer have to pay VAT if they had a turnover of less than £90,000, an increase from the previous threshold of £85,000.

That is, of course, 100% wrong, 180 degrees from the correct direction. A business of whatever size has to pay VAT on items that carry VAT. The VAT limit is upon businesses which do not need to charge, or collect, VAT.

This is, we would submit, a fairly important distinction.

In more detail. Some items in the economy have VAT charged upon their purchase. A business - of whatever size - which purchases these items then pays the VAT on the purchase of those items. Fully chocolate covered biscuits - those essentials for a meeting of the important HR people - have VAT charged upon them. The small business - under the £85k or £90k limit - and the large will pay that VAT on the chocco biccies. The not chocolate covered biscuits - that meagre type more suited to meetings of less important than HR people like main board directors - do not carry VAT. Therefore the small and large business does not pay VAT on the less than fully chocco biscuits.

The distinction on the payment of VAT on chocco or non-chocco biscuits is not the size of the business doing the paying, it’s the chocco or non-chocco.

However, if the business selling the biscuits has a turnover of less than this new £90k then it does not - cannot - charge VAT on the sales price of the chocco biccies, however important the HR people are. And obviously doesn’t upon the non-chocco either.

The VAT limit is about who gets to, has to, charge VAT, not who has to pay it.

It’s possible that it’s the Chancellor who has got this wrong, it’s obviously true that a major national newspaper has. Neither of which fills us with much confidence about the level of economic understanding in this country.

But it does aid in explaining why so many seem to have so little grasp of the subject. If The Guardian, the major newspaper on the left, gets something so basic wrong then is it any great surprise that its readership is all at sea on the subject?

An excellent argument against Pigou Taxes

We are prepared to agree that good economics is often not consistent with good politics. We would insist that, in such cases of a clash, it’s the politics that is wrong but there we are. The prime example is that the only economically rational approach to trade is unilateral free trade - we’ll buy what we want, whenever, you can do what the heck you like - but politics just so rarely does work out that way. Perhaps the UK 1846 to the late 1860s and Hong Kong all the time it was getting rich.

But we’ve now a new example. The vape tax. This is an idea of crushing stupidity. Taxing that substitute which leads to less smoking. That smoking that we’ve been trying to wipe out by ever higher taxes upon smoking. But, you know, politics.

But this gives us the why Pigou Taxes might not be all that great. As shown here.

OK, great, so smoking is Bad, M’Kay? So we’ll impose that Pigou Tax which will price people out of doing it. Great economics! But the problem then becomes that politics becomes hooked itself on those revenues from that Pigou Tax. We’ve changed who is addicted to what but not the addiction problem. So, as smoking does actually decline - the reason we imposed the Pigou Tax - politics is looking for its now mainline fix of the cash to micturate up against the wall.

At which point we get the tax on the substitute - recall, the tax was imposed in order to get people to substitute - imposed. Because there’s nothing as crazed and angry as a politician deprived of a revenue stream to micturate up that wall. Cold turkey simply is not to be thought of, no way.

As Dizzy points out this might not be quite logically sound, this tax upon vaping. But there we are. And just think, there are people who disagree with our idea that perhaps politics isn’t the best way to run a place or economy. Not all of whom are politicians mainlining on other peoples’ cash.

The cure for low prices is low prices

Much grumbling here:

A major Currys investor has hit out at the “absurdity” of valuations on the London Stock Exchange as two more companies prepare to quit.

JO Hambro Capital, a top 10 Currys shareholder, criticised the dismal valuations the London stock market attaches to businesses, saying Currys should be worth far more than what investors have valued it at.

The electronics retailer is subject to a possible bidding war between suitors Elliott Advisors and China’s JD.Com. Currys recently rejected a 67p per share bid from Elliott, which valued the business at about £756m.

Hambro’s veteran fund managers, James Lowen and Clive Beagles, said an “acceptable offer” for the tech retailer would be closer to 100p per share, which would value the company at close to £1bn.

Someone with something to sell complaining about the low price a potential buyer is willing to offer.

Ho Hum.

As ever, prices in markets are information. We may not like the information on offer but that is the information the real world is supplying us with.

Fortunately, the system itself contains the cure to what apparently ails it:

The gloom over the London market intensified on Tuesday after one of its oldest constituents was also snapped up by an American buyer for £1bn. Spirent Communications, which has been listed since 1955, agreed to an all-cash takeover by US rival Viavi Group.

The British tech company works with companies like Amazon and Meta, testing their equipment. Shares surged 58pc to 172 pence, just below the takeover price.

It marks the fourth foreign bid for a London listed company in the last few weeks, following the Currys offers and bids for Wincanton and Direct Line.

The cure for low prices is low prices. Potential buyers note low prices, buy, and this pushes up prices.

The rest of us need do nothing other than observe. Or, the particularly brave might note the claims of low prices and get in there before the others do. But in terms of the system, rather than our individual reactions to it, nothing need be done. For markets do contain their own stabilisers, high prices are the cure for high prices - encouraging greater supply - and low prices cure low prices, encouraging demand.

We’re done, sorted.

Spending less on climate to do better - sounds good to us

Greenpeace - and The Guardian, reporting on the claim - is outraged that Britain isn’t spending lots and lots of money on the sorts of things that interest Greenpeace (and The Guardian).

The UK spends less on low-carbon energy policy than any other major European economy, analysis has shown, despite evidence that such spending could lower household bills and increase economic growth more than the tax cuts the government has planned.

Spending on low-carbon measures for the three years from April 2020 to the end of April 2023 was about $33.3bn (£26.2bn) in total for the UK, the lowest out of the top five European economies, according to an analysis by Greenpeace of data from the International Energy Agency.

Italy topped the table for western European economies, having spent $111bn in the period. Germany spent $92.7bn, France $64.5bn and Spain about $51.3bn.

The data includes spending on electricity networks, energy efficiency, innovation on fuels and technology, low-carbon and efficient transport and low-carbon electricity.

Tsk, eh?

One obvious point to make is that they’re not, in fact, measuring what Britain spends. Their source database is:

Clean energy investment support includes all government spending that directly underpins increasing levels of clean energy investment.

Imagine that a place noted - as is so often claimed - that renewables are cheaper than any other form of energy generation. So, and therefore, that place simply let people be to install that cheapest form of generation, with no subsidy. Given that renewables are that cheapest form - they are, aren’t they? - then that place would have soaring renewables installation, falling emissions and also, by the standards of this database, be spending absolutely nothing, not a single bean, on doing so.

This measure is therefore a measure of the percentage of the tax take that Greenpeace (and The Guardian) get to influence rather than one of how well climate change is being addressed.

But that’s just to read the footnotes, the more important issue is OK, so, spending. To what effect?

EU emissions seem to have fallen by 4% or so over the past three years. UK emissions:

In 2022, net territorial greenhouse gas emissions in the UK were estimated to be 406.2 million tonnes carbon dioxide equivalent (MtCO2e), a decrease of 3.5% from the 2021 figure of 421.1 million tonnes, and 9.3% lower when compared to 2019, the most recent pre-pandemic year.

Now true, those aren’t exactly the same time periods. Nor even the same measurement basis - territorial or consumption. Anyone who wants to rebase either or both of those numbers to gain an entire and wholly correct comparison is entirely welcome to do so - even to tell us of their results.

It is not, to be very mild indeed, obvious that the UK is doing worse in the Great Decarbonisation Game than places spending very much more tax money upon said Great Game. But Greenpeace (and The Guardian) are measuring success by how much tax money is spent, not by the results thereof, or that more important point, overall results.

Which is the point where we tell Greenpeace (and The Guardian) to go boil their heads. For that is the correct reaction to exhortations that we must spend more to less effect, right?

It's OK everyone, William Keegan's got the solution

Amazin’ now one else thought of this really:

The problems facing the country do evoke parallels with the immediate post-1945 situation. Moreover, they demand an Attlee-style grasp of the need for bold measures, starting with a vast investment programme founded not on the kind of fiscal rules that imply continued austerity, but on the assumption that sensible investment pays dividends if you take the long view, and are not hidebound by annual budgets and arbitrarily chosen fiscal rules.

The Attlee government knew about the need for regional policy, well described in the memoirs of Douglas Jay, a prominent member of Attlee’s cabinet. Regional policy is now known as “devolution”. Under the auspices of Harvard University and King’s College London, a new report examining the UK’s feeble growth performance argues in favour of a more equitable regional balance, with more power given to local leaders throughout the regions.

It is possible, just, to quibble slightly with this.

As we’ve noted just recently when those local leaders got access to cheap money from the Treasury they spent it on buying commercial real estate at the top of the market and are now all going bust for having done so. National government doing the investing has given us HS2.

That is, getting politics to do the investing seems to violate that “sensible” caveat.

Of course, there are things that can be done:

Lower Thames Crossing planning application becomes UK’s longest ever – at more than 350,000 pages, and costing almost £300m

If we had less idiot government - that is, less government that was idiot and also less government because it is idiot - then we could have more investment and also more productive investment. Which does sound like an excellent idea.

The bold idea we need being, therefore, that we slash government and so free up the economy and investment in it. All of which sounds, to us at least, like a much better plan.

The rent's too damn high

Let us attempt, at least, to make the argument for technocracy. There really are problems that government should be trying to solve. We all also know that politics itself is not driven by anything so mundane as facts and or logic. So, there’s a case for taking the really bright people and putting them into those technocratic offices. The ones where we all agree there’s a problem to be solved. We can then insulate them from those political winds and leave them be to, well, solve those specific problems.

We all agree that unaearned concentrations of economic power are a bad thing, monopolies can be turned to ripping off consumers and so on. So, let’s put the Rolls Royce minds into the anti-monopoly body.

OK, sounds like a plan.

The result:

Today, the FTC and Department of Justice took action to fight algorithmic collusion in the residential housing market. The agencies filed a joint legal brief explaining that price fixing through an algorithm is still price fixing. The brief highlights key aspects of competition law important for businesses in every industry: (1) you can’t use an algorithm to evade the law banning price-fixing agreements, and (2) an agreement to use shared pricing recommendations, lists, calculations, or algorithms can still be unlawful even where co-conspirators retain some pricing discretion or cheat on the agreement.

The agencies’ work in this space is especially important given rising residential housing rental prices. Rent is up nearly 20% since 2020, with the largest increases concentrated on lower- and middle-tier apartments rented by lower-income consumers. About half of renters now pay more than 30% of their income in rent and utilities, and rising shelter costs were responsible for over two-thirds of January inflation.

Well, hmm. Landlords using a computer program to work out what the rent should be doesn’t sound like collusion to us. Sounds like the gathering of market information rather. You know, bringing clarity and information to that market.

But, you know, Rolls Royce minds and all that and we’ve never been picked to be in the FTC so obviously they’re brighter than we are.

Except this has been a piece of political agitation in the US for some time now. Progressive activists have been banging the drum about it. Rents are going up and of course it cannot, possibly, be that progressive policy is wrong in any manner and therefore it must be capitalist collusion. QED.

That is, this investigation into, reminder about, algorithmic collusion is an intensely political act. The very thing we were insisting we were going to protect the technocrats from, right?

Something we can prove too. The inflation claim of 20%. OK, but how’s that compared with general ubran inflation over the same time period? Oh, it’s a couple of percentage points lower you say? Really?

Real rents have fallen but the FTC is having an investigation as a result of political whining. So, doesn’t that just kill the idea that we’ve a technocracy doing technocratic stuff rather than bowing to the winds of politics. Which gives us our lesson. That technocracy isn’t even possible, it will always be subject to those political winds. So if it’s not a system that is even possible let’s not try to do it then, right?

A Brit ISA - a truly stupid idea

Adam Smith’s Wealth of Nations came out 248 years ago. Which should be, we think, long enough for people, even those who rule us, to grasp the ideas therein. Apparently not, a quarter of a millennium is not enough time.

There is a suggestion floating around that ISAs should be limited to purchases of British investments. This is a truly stupid idea. Sam Bowman, lately of here, points out that US stock market returns have been 10x UK ones over the past decade.

But to that two and a half century old wisdom, Adam Smith himself:

But the annual revenue of every society is always precisely equal to the exchangeable value of the whole annual produce of its industry, or rather is precisely the same thing with that exchangeable value. As every individual, therefore, endeavours as much as he can both to employ his capital in the support of domestic industry, and so to direct that industry that its produce may be of the greatest value; every individual necessarily labours to render the annual revenue of the society as great as he can. He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good. It is an affectation, indeed, not very common among merchants, and very few words need be employed in dissuading them from it.

What is the species of domestic industry which his capital can employ, and of which the produce is likely to be of the greatest value, every individual, it is evident, can, in his local situation, judge much better than any statesman or lawgiver can do for him. The statesman who should attempt to direct private people in what manner they ought to employ their capitals would not only load himself with a most unnecessary attention, but assume an authority which could safely be trusted, not only to no single person, but to no council or senate whatever, and which would nowhere be so dangerous as in the hands of a man who had folly and presumption enough to fancy himself fit to exercise it.

All of economics is either footnotes to Smith or wrong. This Brit ISA idea is therefore wrong,

Clearly, it’s a folly and a presumption.

We can also add that footnote. It is possible to go with that invisible hand and agree that domestic employment of said capital benefits the domestic economy - at cost to the returns to the capital being employed. That’s what that home bias against the higher profits of the foreign trade means. If you were some sort of nationalist and socialist you might therefore think that government should force domestic capital to be invested domestically.

But that fails at the fence of it not being “British” capital which is being invested. Nor is it the government’s capital that is being invested. It is the capital of individual Britons being invested and the decision upon the investment is righteously for those individual Britons. What do property rights mean if you cannot decide upon the disposal of your property?

The nett effect of a Brit ISA would be to make individual Britons poorer as well as being a folly and a presumption. Or, as we’ve said, a truly stupid idea.

We do just so love this Meta argument

Facebook and Instagram’s parent company, Meta, has set itself on a collision course with the Albanese government after announcing it will stop paying Australian publishers for news, and plans to shut down its news tab in Australia and the United States.

Meta informed publishers on Friday that it would not enter new deals when the current contracts expire this year.

The news tab – a dedicated tab for news in the bookmarks section of Facebook – will also shut down in April, after a similar shut down in the UK, Germany and France last year.

The answer from Australian politics is that they will do such things etc.

As we’ve pointed out before there’s a certain tension in the arguments used here.

One claim is that Facebook (and Google and so on) steal the news content from the producers of it, thereby taking the crusts out of the mouths of journalists. Well, OK, possibly.

Another claim is that Facebook and Google (and so on) must carry news because that’s a significant source of traffic to the news sites themselves, from which they make ad revenue with which to provide crusts for journalists. Well, OK, possibly.

But there’s clearly that tension with trying to insist upon both at the same time. That Facebook steals the news content and therefore must pay for it but also that it’s entirely vital that Facebook must run the news as it’s essential to the incomes of the news sites.

We might even call that cakeism.

But that is what this insistence is. That Facebook must run the news, that Facebook must pay for running the news, because the follow on income to the news sites of Facebook running the news is vital.

We do tend to think that there would be more logical clarity here in politics if the news sites were not such a significant influence upon who gets elected to those political positions where such decisions are taken. But perhaps that’s just us being cynics.