Faulty factories and a speaking Starmer

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Afternoon all,

I’m down in Cornwall for a wedding so train strikes are rather dominating the updates on who has/hasn’t made it. It’s like a (lower than normal consequence) game of Russian roulette, but that’s preferable to being back in Westminster watching ministers manufacture outrage at the shock news that workers might not love large real wage cuts and Labour engineer a civil war over a frontbencher getting themselves sacked.
For this week’s reads we’ve got quite a bit on the labour market, lessons on public attitudes to confronting climate change and a COTW on why Tory leadership contenders should show Margaret Thatcher more respect.

To celebrate the Lionesses’ forthcoming triumph/hide from leadership election /get a rest, TOTCs is taking a few weeks off. Normal service will resume from late August, which is more than I can say for British politics. Have a great summer.

Chief Executive
Resolution Foundation

Deep disadvantage. Our main poverty measure (people living on below 60 per cent of typical income) was trending upwards pre-pandemic, but slowly and towards the levels seen before the financial crisis. How to square that with the lived experience of rising destitution (i.e. food bank/ homelessness) is the focus of a new JRF report. It shows that ‘deep poverty’ (using a 40 per cent of typical income measure) has increased substantially: up 1.8 million to 6.5 million people since the early 2000s. Families with three or more children, someone with a disability or a single parent stand out for being at risk. So the country facing terrible energy bill rises this winter might not have seen poverty rise, but it’s certainly seen it deepen.

Starmer speaks. Keir Starmer gave an interesting speech on the economy this week. You should read it. The first half is setting weak growth up as the problem facing the country – undermining social mobility/resilience/democracy as well as wages. Amen to that. It recognises the importance of both the ‘everyday economy’ and technological frontier, although is less clear on their distinct roles (providing good jobs and raising productivity respectively). Economic geography wise it’s very Michael Gove in seeing our big regional gaps as capacity constraints and rejecting the fashionable towns vs cities debate. And it’s unusually honest about the nature of our economy (with manufacturing strengths but service led). There’s not any real new policy, leaving Labour’s £28bn plans for public investment in Net Zero carrying more weight than they can bear. But all in it’s the most serious economic speech from a Labour leader in quite some time.

Faulty factories. You’ll probably remember rows about widespread breaches of labour law in Leicester garment factories – with worries about what it meant for workers pre-pandemic, and the spread of Covid during it. More recently regulators have stepped up investigations. A new Low Pay Commission (the setters of the minimum wage who care about compliance with it) report notes these investigations have driven improvements but warns against accepting at face value officials’ argument that Leicester’s issues with noncompliance are no higher than elsewhere. They highlight workers’ reluctance to report issues of underpayment given fears of losing their jobs or having their hours cut. A good reminder that we should care not just about what our employment law is, but whether it’s actually enforced.

Perceiving policies. Sweltering in 40 degrees is a grim, but effective, way of persuading climate sceptics that global warming exists. But evidence about climate change does little to build support for policies to tackle it, shows a new study drawing on surveys from 40,000+ respondents in 20+ countries (including the UK). Highly educated people are more likely to support action everywhere, but the effect of income levels and age varies across countries: young yuppies aren’t always green yuppies. Opposition, unsurprisingly, is greatest in areas that are very reliant on cars for transport. Overall though, these characteristics don’t predict people’s views well so instead of targeting specific groups the authors argue that policy makers should focus on three key factors that influence people’s support: 1) policy effectiveness 2) direct impact on them personally and 3) how “fair” the impact is, especially for those on lower incomes. Good advice for any governments out there actually trying to turn net zero targets into action.

Massive mobility? The idea that everyone is moving around the country loads these days, fraying social bonds and leading to particularly large migrations for young people from poorer areas, is commonplace. But also false. As we’ve shown, young adults in the least deprived areas are twice as likely to move away as those in the most deprived. American research focused on this issue of internal migration shows that increases in wages in an area do encourage more inward migration, but not much, Why? Because young adults generally don’t move that far from where they were born (69 per cent of young adults live in the commuting zone they were raised in and 80 per cent live within 100 miles of where they grew up). Crucially those from lower income backgrounds or ethnic minorities were least likely to have migrated significant distances – meaning that for many people “their radius of economic opportunity” is quite narrow. A good argument for focusing on both levelling up and spreading opportunity rather than panicking about too much movement around our (small) country.

Chart of the Week

Tax cut promises are all the rage in Conservative circles these days, in response to the overall tax/GDP ratio heading to its highest rate since 1950. But the focus has been on cutting the rate of direct income taxes (i.e. National Insurance or Income Tax), which is a bit odd given the amount of our income we pay in such taxes has actually been significantly falling in recent decades. Basically the leadership candidates really aren’t giving enough credit to Margaret Thatcher, who slashed tax rates for higher earners and set the path for her successors to cut them for middle and lower earners – as COTW shows. Despite recent tax rises, by 2026-27 the typical employee will contribute 19 per cent of their salary in tax vs around 30 per cent when Thatcher was in Downing Street. So my advice to Conservatives is to show Thatcher some respect (and worry less about headline personal tax rates).

Chart showing effective tax rates for employees on different levels of pay: UK