It’s not the end of the world of the world as we know it Top of the Charts 5 November 2021 Torsten Bell Afternoon all, Last week the Chancellor announced a lot more policy (largely spending) wise than was expected, but this week the Bank of England (rightly on balance) defied expectations in the other direction by doing less. What’s going on? There is a common thread of sorts between the two expectation-defying moves: talk is cheap. The Bank are in a difficult situation with fast-rising inflation that they can’t do very much about (they don’t control global gas prices), and somewhat foolishly tried to square the circle by sounding tough. The Chancellor meanwhile tells Conservatives he’s a low tax kind of guy, and the country that he’s a deficit hawk, but knows that his own – and the Government’s – popularity rests on the idea that George Osborne isn’t in the Treasury. In a nutshell? The Chancellor always errs on the side of spending more IF he’s the one making the announcement. TOTCs is of course free, but never cheap… enjoy this week’s bargain basement reads covering all the good things in life, from tax audits to therapy and worrying about the end of the world… Have a great weekend. Torsten Chief Executive Resolution Foundation Useless offsets. COP26 means climate change is up in lights. Policies to tackle climate change are also increasingly being discussed/analysed like normal policies – which is a very important part of moving us from arguing about targets to actually hitting them. Carbon offsets – where firms meet requirements to reduce emissions by paying for carbon reduction projects elsewhere rather than cutting their own emissions – have become popular. But they aren’t remotely effective, finds new work examining 472 wind farm projects in India supported by the world’s biggest carbon offset program. Why not? Because loads (at least 52 per cent) would have taken place anyway with less attractive wind farms (in terms of their location’s windiness and proximity to electricity infrastructure), built in the same year and state as subsidised ones. So it’s climate scepticism out, offset scepticism in. Pointless pessimism. On the subject of actually making progress on tackling climate change, rather than just getting depressed about it, read this thoughtful new article from Hannah Ritchie (one of the leading lights behind the wonderful Our World in Data). Over half of young people think humanity is doomed – largely because they are often told it is, and talk of natural disasters ignores the reality that we see fewer deaths from them than in the past. Hannah’s argument is a simple one: climate change is a huge problem to be tackled, but telling our children the world will end imminently is neither good for their mental health nor for motivating people to take action that will actually make a big difference to the planet’s future. Amazing audits. Unless you’re an accountant you’re unlikely to get excited about audits (even if you are one it’s a tough ask). But great research (free version) should renew all of our enthusiasm for auditing tax returns, which are more effective at raising the tax take than you’d think looking just at the errors/tax evasion they directly uncover (the revenue raised is actually more than twice that directly collected by the audit). That’s because their impact lasts for five to eight years after a tax audit with higher tax. The reason? Those directly found to have misreported how much tax was due do less misreporting in future, which maybe isn’t surprising as they’ve just given the tax authorities lots of information about their income sources. Taxes are going up, but so should tax audits. Dense density. A really interesting report from our friends at Centre for Cities explores what lies behind the fact that 67 per cent of European cities’ residents can reach their city centre by public transport within half an hour vs only 40 per cent in Britain’s big cities outside London. Most of this debate focuses on the lack of tram/tube systems in British cities but that’s really not the whole story, the paper argues. Yes, some cities (Leeds) have poor public transport networks but others (Birmingham/Newcastle) are on a par with their continental peers. The gap is explained by the fact that British cities are just much less dense – with our fetish for low-rise housing meaning far fewer people can access the public transport networks that bring city centre jobs in easy reach. This reduces opportunities for individuals and the productivity of our cities for everyone. Universal therapy. Aaron Beck, the pioneer of cognitive behavioural therapy (CBT) passed away aged 100 this week. Timely new work provides a fitting tribute, showing CBT can bring widespread benefits. While those opposed to taking mental health seriously claim therapy is what happens when rich people in rich countries have nothing else to worry about, the paper shows that CBT brings benefits in poorer countries too. The study provided therapy to randomly selected people in rural Ghana, and finds those receiving CBT demonstrated meaningful increases in happiness, cognitive skills, and economic outcomes. Surprisingly the benefits materialised regardless of a person’s original mental health status – which the authors put down to therapy improving social and cognitive skills that help us deal with challenges as they emerge. Maybe therapy isn’t just for Hampstead. Chart of the Week It’s been a bumper week for making enemies, and not just in Westminster. The Bank was at it yesterday – upsetting traders and journos by not voting for the rate rise that many of them expected. Chart of the Week delves instead into the substance of why this decision is so finely balanced. To start, rising inflation is a genuine concern – and not just because it’s part of the Bank’s remit to keep it under control. It is likely to cause pay packets and household incomes to shrink in 2022 – the last thing we need given we’re already on track for the weakest parliament for income growth since records began. The Bank’s dilemma is they face an inflation rise they’ve got little control over (neither the wind or Gazprom are very interested in British interest rates), taking place exactly as a strong recovery begins to slow. On the former, COTW shows the inflation spike so far has been driven by a big rise in prices in the early summer not sustained ongoing price rises (the red area has fallen back). But the Bank of England’s job is so difficult because while this makes it look like the temporary inflation pain is passing, there’s another round to come: the lifting of the energy price cap in October will soon send short-term price changes soaring again. Overall higher inflation should still be temporary because these are bumpy rather than sustained inflationary pressures – but that’s cold comfort for stretched households being clobbered by them.