Medieval mayors, price hikes for pensioners and fighting over fiscal holes

Top of the Charts

Afternoon all,

You know who the best car passengers are? The ones that suggest you might be going a bit too fast, AFTER the mini-Budget you’ve gone straight over the roundabout, through the front window of the local Sainsburys and come to a rest having knocked all the mortgage food products off the shelves.

Of course not everything is going too fast. For example, the UK economy. We learnt today it shrank in the third quarter and remains below its pre-pandemic levels. On both counts we’re the only country in the G7 to achieve these feats (although Japan hasn’t published Q3 data yet). The Bank of England say this is the start of a recession, and if they’re right we’ve had the shortest break between downturns since the 1970s (the pandemic one feels like yesterday). That’s my excuse for feeling quite so fatigued anyway.

Reads-wise we’re roaming from medieval devolution to fiscal fights this week – and have a sneak preview of our Intergenerational Audit (out on Monday) for you. Enjoy your pre-Autumn Statement weekend.

Chief Executive
Resolution Foundation

Mighty merchants.The idea that cities should have more powers devolved to them to boost prosperity is an idea all the rage in England… Norman England that is. Economic history buffs will enjoy a new paper taking us back to medieval times, highlighting the role of merchant towns (that paid the Crown higher taxes in exchange for more tax collection/law enforcement autonomy). These tended to be commercially important towns, where the authors argue the need for more specialised local governance was greatest (England having a total mess of different devolution for different places based on economic geography has a long history…). The paper notes that once created, these more autonomous towns shaped national institutions too – by going on to be represented in their own right in Parliament and opposing too much Crown control. Indeed, they provided a lot of troops for the parliamentary side of the Civil War… which might explain why not everyone in Westminster loves the idea of more devolution.

Stemming STEM. The patriarchy died a while back when it comes to university attendance (58 per cent of UK graduates are female). But not when it comes to studying STEM (in some subjects only a fifth of students are women). Why? A recent blog uses an unusual approach to gain an insight into what is stemming the tide of women into STEM, arguing that students’ socially conditioned perceptions of their own abilities in these subjects matters. In Danish schools some students are randomly assigned into exam formats that involve direct verbal feedback on their maths abilities from an external qualified individual. Doesn’t sound like a big deal, but it does have a big impact: it reduces the gender gap in terms of the chance of graduating with a STEM degree by a fifth (among the highest performing students the gap halves) by changing students’ self-perception of their maths abilities. Changing people’s self-perception of their maths abilities makes a real difference. The authors use this evidence to conclude that female role models in STEM matter. It also reinforces a wider life lesson: getting a second opinion is almost always a good idea.

Conserving Conservatism. The Conservative party these days does a lot more changing than conserving – in terms of its leaders and the country’s place in the world. But with a new PM what should a Conservative approach to economic strategy be? That’s the small question interestingly engaged with in a new report by ex-Phil Hammond spad Tim Pitt. The simple version of the argument is “let’s be a bit less libertarian loony and instead combine the fiscal prudence and one nation strands of conservatism to engage with 21st Century realities”. Policy wise that means accepting taxes are going up because of demographic/health cost trends, and asking the rich to pay some of them (think higher council tax bands etc). Obviously right, and obviously not right-wing enough for some.

Fiscal fights. The context for Tim’s essay above is a Tory PM going fiscally incontinent, under attack from the left for being too loose with the public finances. Which isn’t normal. Nature is now healing with Jeremy Hunt talking very Osborne and parts of the left returning to worrying about fiscal tightening. This . This comes in two broad arguments. First, a cyclical one: don’t make the recession any deeper by doing big cuts/tax rises right now – Duncan Weldon’s short blog is a good example. It’s right, but avoids the actually difficult question i.e. won’t they be needed later (yes says Giles Wilkes in a more agonised blog). The second version is more absolute, arguing, or being happy to be interpreted as saying at least, that there is no fiscal problem. This note from the Progressive Economy Forum rightly shows how fiscal forecasts are uncertain, and that which fiscal rule you set affects how much fiscal consolidation is required. The BBC used this to argue that maybe there is no fiscal hole or that the choice of fiscal rule is creating it rather than a smaller economy/unfunded tax cuts doing so. Which is odd. The better conclusion is that economic policy making amidst such uncertainty is hard, and there are choices to be made about the scale/nature/timing of fiscal tightening to come.

Interested in interest? Interest rates that is. If you are it’s time to apply to be the next independent member of the Bank of England’s Monetary Policy Committee. The pros: you get paid almost £160,000 for three days a week. Which is nice. The cons: enjoy getting a share of the blame for the recession that’s just started and a good chunk of the population’s rising mortgage bills.

Chart of the Week

The Autumn Statement is going to dominate next week – we’ll have our normal overnight analysis (come along to the event discussing it on Friday morning). But there’s other economic news, including labour market and inflation stats. Inflation is expected to rise slightly, but while it’s high for everyone our experience of it varies. We’ve discussed before how the central role of rising food/energy prices means poorer households currently face a higher inflation rate than richer ones. But COTW – from our upcoming Intergenerational Audit – shows the same applies to older individuals too, because they also spend a lot of their income on such essentials. Rising energy bills have created a particularly sharp inflation spike for pensioners. In the cold winter months, a person aged 80 and over could face inflation rates of around 15 per cent – almost 50 per cent higher than younger age groups. This is just one example of what the audit shows in a number of areas: the cost of living crisis will affect different cohorts in quite different ways.