Euston, we have a problem

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Afternoon all,

Euston, we’ve got a problem. Or more accurately, we’ve got a problem: Euston. The station suspiciously lies behind all the big stories this week.

By being quite so expensive to sort out, Euston’s centre stage in the HS2 debacle may see the train line dominating the (rather small) market for Brummies visiting suburban West London, rather than connecting the centres of England’s three biggest cities. Plus it was by heading to Euston on 29 September 2020 to return to Glasgow that Covid-riddled Margaret Ferrier set us on track for yesterday’s by-election – handling Labour a massive pre-conference boost. Basically it was The Sun Euston what won Rutherglen and Hamilton West for Labour.

If I was a GB News presenter conspiracy theorist I’d be asking serious questions about whose side the station is on. Are you telling me it’s a coincidence that Keir Starmer is the local MP? I don’t think so.

If you’re up in Liverpool for Labour conference come and say hello at one of our events. I’m heading up on Sunday from… Euston. If you’re not, count your blessings and enjoy this week’s reads.

Chief Executive
Resolution Foundation

Tricky trades. Whatever happened to Wordle? After a brief spell of (insufferable) ubiquity, it seems to have slipped away. Thank goodness for that – only your mum cares you got today’s word in two guesses. Anyway, who needs Wordle when the new big thing is… Tradle. For the uninitiated, the goal is to name a country based on a treemap of its exports. I’m slightly annoyed we didn’t think of this given we bang on so often about countries needing to understand what they are (and aren’t) good at. It sounds hard, but you get six guesses and after each wrong guess you’re told how close you are, kilometres wise, from the correct country. So start testing your knowledge of countries’ trade profiles, but please god don’t start sharing your triumphs.

Incentivising incapacity. Get used to active debates on disability/ill health  – the projected 40 per cent increase in disability benefits spending between 2021 and 2027 will see to that. This week you’ll have heard a lot of rhetoric about needing greater benefit conditionality/sanctions. This is odd because the current strict conditionality for benefit recipients deemed well enough to work – and specifically the fear of sanctions/benefit cuts driven by how that conditionality is currently enforced – is one reason more people push to be assessed as too ill to work. Recent OBR analysis points in that direction and new research on conditionality in Belgium comes to the same conclusion: tighter conditionality/fear of sanctions made it more likely (10 percentage points) that an individual would move from unemployment benefits to disability benefits. This isn’t an argument for no conditionality, but if ramping up our existing conditionality regime was the answer to any problems then we’d have solved them by now.

Bad belts and rubbish roads. All the aitch-ess-too chat this week is bad for our national self-esteem, so here’s some of that most healthy antidote – comforting schadenfreude. China might be able to build bargain basement high speed rail lines domestically, but Noah Smith’s latest blog gives you a canter through the mess of the emerging super power’s Belt and Road initiative. A mess for many of the countries that accepted Chinese loans to fund infrastructure projects, often delivered via Chinese contractors, that may not be tip top (from a pointless port in Sri Lanka, to a crack covered Ecuadorian dam). And a bit of a mess for China, given the political headache of what to do about these loans if borrowers get into difficulty (if you want to sell yourself as the leader of the global south then repossessing large chunks of it isn’t a good look). So get your national pride back Britain – at least Old Oak Common isn’t about to be repossessed by the CCP.

Bonkers bonds. If you’re a bond trader, I’m sorry for your losses. For the rest of you, it’s worth paying some attention to the bond prices collapse going on right now. For a quick guide listen to this FT podcast, including the always excellent Katie Martin. The trigger for the panic is US politics going mad. Again. Behind that though sits the wider uncertainty about what level interest rates will settle at (bond prices fall as yields, in this case the cost of government borrowing, rise). The idea that interest rates might be higher for longer really matters for much more than bond prices – it’s why the public finance challenge for whoever wins the next election is 1) uncertain and 2) scary – this tweet thread sets out the theory and we discussed the reality a fair bit on a great panel last night, including former Vice Chair of the Federal Reserve Board Don Kohn.

Cash consequences. Cash matters. I hope you know that, but just in case not here’s two papers spelling it out. The first study examines the impact of workshops in Kenya that help people raise, and plan to meet, their aspirations. Combining them with cash support did work, with more people investing in their future/raising their living standards. The catch? Just giving people a bunch of cash had pretty much the same effect – $ matter more than motivational workshops. For a reminder that the cash effect is relevant in higher income countries, read this rather bleak study of the impact on Alaskan families of the Alaska Permanent Fund Dividend (a universal/unconditional payment to residents). It finds that a cash transfer of $1,000 in the early months of a child’s life reduces the likelihood of them being referred to social services during their first three years by 10 per cent. Child mortality also falls.

Chart of the Week

So Conservative Party conference was all about the spiralling cost of HS2. But there are some things spiralling that the Treasury can live with – like the revenues from freezing every income tax and national insurance threshold until 2027-28. These have now grown so big that the freeze will be the biggest tax rise on incomes in at least half a century. COTW explains. March 2021 saw Rishi Sunak announce a four-year freeze to personal tax thresholds, forecast to eventually raise around £10 billion a year. Chancellors of all political stripes like this kind of stealth tax, but the scale of increase in how much it will now raise is totally unprecedented. Thanks to the freeze being extended (by two years and to the employer National Insurance thresholds) and – crucially – the highest inflation in four decades, we now project that the freeze could raise around £40 billion a year by 2027-28. That is up from a forecast £30 billion at the time of the Budget in March. Forget about all the tax cuts being floated, they’ll pale into insignificance besides this tax rise that’s very much already in train.