Longer lie-ins across Britain and more savings booty for the boomers Top of the Charts 10 November 2023 Torsten Bell Afternoon all, First, the good news. This morning’s GDP data for Q3 2023 was better than economists expected. The less good news? Better than expected means… the economy flatlined/stagnated/stalled – or whatever you want to call 0 per cent growth. That shouldn’t be surprising given surveys of firms and consumers have been telling us gloom is setting in, and the Bank of England’s been whacking up rates to make sure it does. Stepping back, one quarter of stagnation isn’t the problem. Our slow growth norm over the last 15 years is – that’s what makes us a stagnation nation. How we end stagnation is the topic of the Final Report of the Economy 2030 Inquiry – come along to the launch on 4th December. The book is going to the printers on Tuesday, so I definitely won’t be having a fun weekend, but hopefully you will. To help we bring news that you’re all snoozing more, and a COTW to make those of you who’ve saved away over the years feel very smug indeed. Have a good one. Torsten Chief Executive Resolution Foundation Debt dangers. When the facts change we’re meant to change our mind. Olivier Blanchard has. The ex-IMF Chief Economist has been the main proponent in recent years of the idea that we could all chillax on public debt. We covered his 2019 Presidential Address to the American Economic Association at the time, and that morphed into a book (Fiscal Policy Under Low Interest Rates) that emerged in… 2023, just in time for interest rates to very much not be low. So now we get a new blog, basically saying that if interest rates stay where markets currently expect then you can forget the cosy ‘debt isn’t a big problem’ message. He’s right. We have to now plan on a world where interest rates and growth are roughly the same, rather than rates being non-existent, which means tighter fiscal policy is required to prevent debt rising. Being a finance minister has got a lot harder… Cuts coming. That brings me to… spending cuts. They’re taking place for most public services right now (thanks to high inflation) with more pencilled in for after the election for many departments (see our Autumn Statement preview). Personally, these look totally undeliverable given the state of those services, but the more troubling debt dynamics mean the trade-offs here are hard – taxes are already up over 4 per cent of GDP. Reinforcing the risks of getting this wrong is research warning that big spending cuts drive a turn towards the political extremes. Looking across eight European countries over 35 years it finds a 1 per cent decrease in regional public spending increases the vote share of extremist parties by 3 per cent – via their vote increasing and turnout overall falling. There are tough decisions ahead, but the consequences of getting them wrong are very high. Governing, despite appearances this week, brings with it big responsibilities. Cornish cynics. Policy world is all very pro-devolution these days. Especially talking about it. Doing it is harder. Firstly, that’s because at some point we’ll have to get to the actually important but hardest bit – fiscal devolution (see a new paper from the Centre for Cities on what that might involve). But national government isn’t the only block – sometimes the locals just don’t want it. A blog from Reform examines the Cornish case, where residents have said thanks but no thanks, rejecting a devolution deal because it would have meant accepting a directly elected mayor (even though that meant not getting a £360 million mayoral investment fund). Why have they thrown the baby mayor out with the bathwater millions? The blog talks about residents’ concerns that a single individual would be incapable of representing the diverse/conflicting interests of different parts of Cornwall. Politicians can never be local enough…But there is something quite telling: all of the people quoted as being opposed to a mayor are… other local politicians. I’m sure there are challenges with a mayoral model in rural areas, but the fact that not all existing politicians want change isn’t it. Weighing wealth. We are always reminding you that wealth matters. But it can be difficult to think through how we interpret wealth data. A short(ish) new paper adds value using (ridiculously good) Norwegian administrative data to create a new measure dubbed “lifetime resources” (LR), that brings together wealth held in 1994 with all income (and capital gains/inheritances) since. This is a useful way of thinking about total potential consumption over long time periods and is generally more equal than wealth (unsurprisingly given income is less unequal than wealth). If you look at one thing make it figure 4. The authors use this chart to say it’s a big deal that that most LR comes from labour income (except for the top 1 per cent), but my interpretation would be different: the fact that a majority of LR comes from labour income is obvious, but the real big deal is that capital gains make a huge difference to lifetime resources for the middle and top of the income distribution (mainly via housing for middle and massive gains on financial assets for the very top). More generally the paper does a good job of showing the very top are living on a different (capital income/gains funded) planet from the rest of us. Boring Britain. Are you getting boring? Collectively we are, alleges the latest ONS Time Use survey that finds we’re socialising less and sleeping more. Specifically, we are spending 38 minutes less on average a day on entertainment, socialising, and other free time activities compared to in October 2020. Meanwhile, we are sleeping or resting 16 minutes a day more on average. Christmas season is coming up people. Sort yourselves out. Chart of the week Anyone re-mortgaging is painfully aware of what higher interest rates means, but there are also big winners – those with savings. This week’s Chart of the Week (from our Intergenerational Audit out on Monday) shows this is a big deal, with savings income rising from just £5bn in 2021-22 to £60bn next year. Happy days for the cash rich, who’ve been traumatised by the last decade of little or no return on savings. I’m raising this ahead of the Autumn Statement in 12 days’ time because what comes with the return of decent savings income? Tax being due on it (if you’ve got over £1,000 of savings income for basic rate taxpayer, or £500 for higher rate taxpayers). Last year saw the numbers paying tax on savings almost double to 1.8 million, and that will rise much further this year. You have to have decent amounts of savings to be affected by this but, with (upper) middle Britain definitely starting to notice (and some of them ending up having to fill in tax returns), there’s a decent chance the Chancellor will give them a bung in the Autumn Statement – possibly via increasing those tax free allowances. Doubling them could cost around £500 million a year based on current Bank Rate projections – though this is a conservative estimate because as we know the super-minted prefer to disclose their wealth to the Sunday Times rich list, rather than the ONS. Who’d gain most from this tax cut? Pensioners. Two fifths of the tax saving would be enjoyed by the over 65s – nearly four times the gains for those aged 35 and under.