The put-it-off economy


The UK economy is now firmly in 'put it off' mode. A profit warning from Dixons and Thomas Cook's reports of lower bookings are strong signs that consumers are putting off their purchase of things they can wait for, like gadgets and getaways. Up to now, they've been living on hope, but now the reality of harder times is making consumers putt off what spending they can. They are waiting until things look better.

That's bad news for ministers, who of course want us all to go out and spend money, in the hope that it will revive business and get us growing again. But it now the Bank of England's quantitative easing – the tech-age term for printing money – is over, cash isn't so plentiful. And what cash people have is being whittled away by inflation and low interest rates.

Our politicians, though, have added to the "put off" mentality. The Budget tax hike on North Sea oil companies has led Norwegian company Statoil to put off the development of two new oil and gas fields worth up to £10bn. Valliant Petrolium has cancelled a £93m project. And Centrica says it is reviewing its project. Meanwhile, high-fliers are jetting off to low-tax Switzerland, rather than see the UK government take over half their earnings with its 50p tax. Even more are thinking about it, according to a recent YouGov poll. And among those who have stayed, many are simply keeping money in their businesses for now; aiming to take it out again when the 50p tax goes.

Decades ago, industries and consumers were tax captives. There were fewer luxuries, and the vast bulk of each family's budget was swallowed up by essentials. There was little spending that consumers could put off. Likewise, businesses were rooted in big, immobile factories and machines. Today we have a people economy, and people are mobile. Even physical production is more easily outsourced abroad, thanks to modern communications.

Governments, therefore, are facing new limits on their power to tax. We can simply put off spending, put off drawing income, or move production abroad, until the taxes come down again. And people know that those taxes must inevitably come down, precisely because of these so-called dynamic effects – precisely because of our ability to put things off.