Low-heat bricks and low-growth BRICs

Top of the Charts

Morning all,

You’ve got to feel a little sorry for the government. They basically thought the battle was won, then along comes the enemy with many more major changes than we’ve seen in previous rounds of reinvention. It’s not clear how much more dangerous it is, but it certainly looks like it’ll pose a more vigorous challenge.

Anyway, that’s enough about the Labour Party frontbench post-reshuffle – there’s also the whole Omicron nightmare to wrestle with. No wonder the inhabitants of No. 10 think they deserve a Christmas party…

This week’s food for thought ranges from how the Yanks are boosting our boardroom pay to how the Russians aren’t boosting our global GDP. Chart of the Week is also a reminder to ignore everyone who claims falling home ownership is only something the middle classes/southerners are feeling.

Have a great weekend,

Torsten Bell
Chief Executive
Resolution Foundation

Internationalising inequality. The government is increasingly dabbling in warning off foreigners from buying up UK firms, or at least talking tough about doing so by promising to look at some takeovers carefully. A close observer might say it’s less than clear what the overall strategy/rationale is. But maybe it’s actually a cunning plan to reduce inequality, if the Cabinet happen to have read new research that links the rise in very top incomes in the UK (executive pay tripled this century to more than $3 million in 2014), to rising American ownership. It shows a ten percentage point rise in US ownership leads to a five percentage point pay increase for top execs. Any US think tanks interested in taking over the Resolution Foundation should get in touch asap.

BRICking it. This week marks the 20th anniversary of the invention of the term BRICs, by then chief economist of Goldman Sachs (and later Treasury minister) Jim O’Neill. The basic argument was that the BRICs countries (Brazil, Russia, India, China, and later on South Africa) would continue to outpace advanced economies growth-wise, and should therefore play a greater role in global economic governance (via the G7). This post from Adam Tooze provides a short, sharp summary of what was projected, and what actually happened. The keen can read Jim’s own retrospective (£) or go back to the original paper. The economic futurology proved true up to a point: the BRICs more than doubled their share of the economy between 2000 and 2011, and the role of the G20 during the financial crisis did recognise the increased diversity of global economic power. But China is doing the hard work here: Brazil and Russia have been mired in downturns, and their share of global GDP has basically flatlined this century.

Labour levelling. Michael Gove becoming Secretary of State for Levelling Up means attention is (finally) turning to what it actually means – the former Times leader writer unsurprisingly tends to have a clear argument about what departments he runs are doing. Some relevant reflections on what the last Labour government’s go at levelling up has to teach the latest reincarnation comes via Ravi Gurumurthy’s new article on the 2001 National Strategy for Neighbourhood Renewal (for lots more read the program’s detailed evaluation). Tony Blair’s goal was almost identical to Boris Johnson’s today (to ensure “nobody should be seriously disadvantaged by where they live”) but the approach was more narrowly focused on public services in deprived areas. Ravi is a particular fan of ‘floor targets’ that set a minimum standards for improvements in poorer areas. His focus on public services underplays that Government’s attempts to close economic inequalities (largely successful on narrowing income gaps, largely unsuccessful when it comes to productivity gaps) but it’s very relevant to today, as this week’s IFS report on education spending reminds us: since 2010 the most deprived schools have seen a 14 per cent real-terms fall in spending per pupil vs 9 per cent for the least deprived. Time to level that up.

Pensions policy. Here comes the pensions’ bit: concentrate. More of us are saving into a pension these days thanks to auto-enrolment, but we’re also bearing far more personal risk in managing those pensions. The move from defined benefit to defined contribution schemes leaves individuals directly affected by the ups and down of their pension investments, while George Osborne’s introduction of pension freedoms (= largely ending the practice of pension pots being turned into an annual income for life i.e. an annuity) means individuals also managing perhaps the biggest uncertainty we all face: how long we’ll live. The degree of longevity risk individuals now bear is mad suboptimal, so it’s great to see former Pensions Minister Steve Webb release a note on what we might do about it. He’s sensibly not talking about rolling back the clock entirely to force people to buy an annuity on retirement, but asks whether it would make sense to have a default of doing so later in life. He’s right.

Hazardous housing. Anyone needing some encouragement to support widespread insulation of our ludicrously old/draughty housing stock for net zero purposes should have a read of an updated report that measures the wider costs of poor housing in England. It argues poor housing costs the NHS £1.4bn a year, from treating people suffering from excess cold or falls down the stairs. It also argues the wider cost to society is £18.5bn per year. The argument is that the cost of fixing these problems would pay for themselves quickly: it would cost £6bn to fix the problem of excess cold, and society would save £15bn per year from this fix. Now painful experience means I’m always slightly nervous of overly ambitious invest to save promises, but the point here is we have to do it anyway to save the planet, so the fact that it’ll also make it slightly less likely the NHS will fall over is a bonus.

Chart of the Week

Anxiety about lower home ownership rates among the youth has been a feature of UK politics/policy for the past decade – which is a bit late given it’s been falling for 30 years. Included in new RF research is an emphatic takedown of the ludicrous popular culture take that falling youth home ownership is all down to millennials’ supposedly being rental-loving hippies or avocado-guzzlers.  In fact, four-in-five young renters would rather own – something that’s been the same for decades. It also shows that all regions of the UK have seen big falls in home ownership for young adults, so it’s not just a southern thing. Plus, as Chart of the Week shows, this isn’t a social change that’s just the preoccupation of the rich: the biggest falls in home ownership have taken place among those in low-skilled jobs, such as cleaners and admin workers. Home ownership rates among managers and senior officials are down 22 per cent over the past 30 years (after a significant pre-pandemic bounce back), while those in low-skilled jobs however have seen levels plummet by more than 60 per cent. The reality? It’s those least likely to own in the first place seeing the fastest ownership falls.