Lengthening picket lines and the Great British Bin fire

Top of the Charts

Morning all,

Now there are lots of reasons to love working at the Resolution Foundation. Its warmth has always been high on my list – that’s always meant great colleagues until this week, when the actual quality of our heating system has moved centre stage in my appreciation. Being in the office kept me alive as well as warm because snow closed schools + Home Alone savvy kids = a booby trapped home. Why can’t they just make snowmen like the good old days?

Central banks are responding to some good news turning up on the inflation front (ie some falls) by pivoting towards slower rate rises. Unfortunately TOTC isn’t in charge of any major economic policy variables, so our pivot is that this is the last standard edition of 2022 with reads on perky topics like death taxes. Next week we’ll have the TOTC quiz (get practising) and there’s a special look ahead to what 2023 has in store coming on the 30th.

Have a great weekend.

Chief Executive
Resolution Foundation

Wary workers. It’s a big improvement that it’s strikes, rather than Covid, threatening to cancel Christmas this year. I’ve blanked last year’s Omicron nightmare out, and so it appears have the crowds (inexplicably) returning to rubbish (and dangerous) winter wonderlands. But some workers very much haven’t forgotten about Covid. That’s the message from US research which finds that the lasting effect of the pandemic goes beyond long Covid, with more than 10 per cent of workers saying they’ll continue social distancing post-pandemic. The authors show that preference is linked to lower workforce participation, and that older and lower earning workers, plus those in industries with more face-to-face contact, who are most affected. Over Covid we are not.

Inflation inequalities.Lower income (and older) households face higher inflation rates right now in the UK (because energy and food make up a bigger part of their consumption). A similar pattern is happening across EU member states finds a study, but more interestingly it shows that the gap between the inflation rates experienced by richer and poorer households is much bigger in those countries being hardest hit overall, which are generally poorer Eastern European countries. In some cases they’re seeing living cost rises more than double those in France/Germany. The paper doesn’t get into this but a key issue for claims to European solidarity is that the countries worst affected are also those with less fiscal capacity to support their households (Bruegel maintains a record of that support for the interested).

Real responsibility.The BBC have done something a bit different with this year’s Reith Lectures – with four different speakers offering their thoughts on the Four Freedoms in FDR’s famous 1941 speech (speech/religion/want/fear). If you haven’t yet you should listen to musician/author Darren McGarvey’s lecture which covered freedom from want (transcript for those preferring a read). There’s lots to agree and disagree with in there, but the big argument that “Individual sovereignty is over-stated by the right and under-emphasised by the left” has a lot going for it. Plus it includes a simply great line: “If it is, in fact, the case that we do live in a meritocracy, and that all the best people are in all the top jobs, then why, one might ask, is the country such an unmitigated bin fire?”. Fair point, well made.

Revisiting reunification. Last week we touched on the dissonance between British politics’ large rhetorical focus on levelling up and policy agendas to make it a reality. More constructively this week, check out this essay (the latest for the Economy 2030 Inquiry) on what 21st century Britain might learn from late 20th century Germany’s own levelling up battle post-reunification. I learnt a lot – including the challenges posed to larger German cities from the economic strategy focus on manufacturing. It also expresses the sheer scale of funding devoted to the national mission to close the East/West divide: Germany “spent the equivalent of a furlough scheme every year on its reunification agenda over the last three decades”. The lessons for us? Progress can be made, but it isn’t easy and no, we aren’t really trying right now.

Pondering pensions. This isn’t a perky topic, but it’s an important one: how does our tax system deal with pensions and death? Not well says a short IFS note this week which I wholeheartedly endorse. It’s central point is that we treat pension savings far more generously tax-wise if they are used to hand on cash to your kids rather than providing an income in retirement, which is the entire point. Two big tax decisions are driving this. First, you can pass on any pension saving remaining at death inheritance tax free. And second, if you die before age 75 any remaining pension funds escape income tax entirely (remember generally we exempt pension savings from income tax, which is instead charged when those savings are drawn down in retirement). We need to fix this before it ends up costing the Treasury shed loads in future (as defined contribution savings pots grow). I know this’ll be hard for the tax accountants already gearing up to make squillions from advising rich people how to play this system. But life is hard sometimes.

Chart of the Week

70s vibes are everywhere. Loads of snow, strikes and double-digit inflation dominating the news. And Argentina getting to the final of a morally dubious World Cup… This week’s chart brings some data to those vibes. First, this is no winter of discontent. The number of days lost to strike action hit 400,000 last month, the highest in a decade, and will rise further as nurses and posties join the picket lines. But that’s a far cry from losing a million days to strikes every month, and over 10 million days at points in the late 1970s. But there is a similarity in that strikes happen, then and now, when an energy price shock drives up inflation and threatens to drive down real wages. Everyone being surprised that we’re seeing the biggest strikes for a generation should look at the correlation between household bills and industrial action and put their shock aside. Workers and firms are contesting who pays what part of the cost of Britain becoming poorer, and strikes are what that looks like. Get used to them.