Record resignations and the remnants of Trussonomics

Top of the Charts

Afternoon all,

When I was a lad the fields were green, the maidens fair and when you bought a new toy Prime Minister they didn’t break the second you started playing with them they started playing with the country. I had to wait until I was eight to get my first new Prime Minister, but my kids (7 and 9) are about to be onto their fifth.

The last month has destroyed a lot of ideas that people held dear. Good riddance to some (if you believe slashing taxes is the answer to all problems in all times/places you belong in the Thatcher re-enactment society not government). But there’s some things threatened by this rolling omnishambles that are core to our national psyche and need fighting for. Britain’s reputation in the world for example.

Even worse, some are now claiming Liz Truss’ 45 days has destroyed the idea that simply being called Elizabeth guarantees long tenure of public service. Well that is a disgrace, undermining the proud record of our two great queens. And its fake news, because Liz Truss is actually a Mary. Which makes a lot of sense when you remember Queen Mary Tudor had a radical plan to take the country back to its low tax catholic roots that was doomed by the premature end to her reign.

Have a great weekend, whether you’re a Tory MP picking our new PM or a punter with precisely zero power over what comes next. At least you all get the same great TOTCs reads – because surely that’s what real equality is all about.

Have a good weekend,

Chief Executive
Resolution Foundation

Rate reining. You should read Ben Broadbent’s latest speech. The Bank of England Deputy Governor starts with a nice idiot’s guide to how and why the rising prices of our imports (i.e. energy/food) are a disaster for our real incomes – bucking the post-war trend of imports getting relatively cheaper. It then reminds everyone (well, the government) that if you loosen fiscal policy now that means higher interest rates. But most interesting is the very clear message that markets are over-estimating how high interest rates will go (read page 17/18 if nothing else). Ben notes that back in August markets expected rates to peak at 3 per cent, but are now expecting them to hit 5.25 per cent – a huge jump up that would knock 5 per cent off GDP and which he is not so subtly saying isn’t justified by recent developments (i.e. weaker sterling/Energy Price Guarantee – see chart 10). This is the central bank reining market expectations for rate hikes in.

Monitoring mortgages. As interest rates go up, house prices tend to come down. This is why you’re starting to see worries in newspapers about borrowers falling into negative equity (when their mortgage is larger than the value of their house). One worry is that negative equity will lead to higher mortgage defaults as people simply hand back the keys. But does the evidence support that? Nope is the finding of a new study, which stands out for linking mortgage payment records to bank accounts (i.e. so we can see what’s happening to peoples incomes alongside their mortgage). 70 per cent of borrowers defaulting are doing so because of stuff going wrong in life (income drops) compared to only 6 per cent being just about negative equity (the remaining 24 per cent of defaulters had both going on). This doesn’t mean we should be relaxed about negative equity – but forecast unemployment and mortgage bill rises are likely the bigger threat to mortgage defaults than falling house prices.

Democratic donors? UK politics is a cheap business compared to the US version we’re all unhealthily obsessed with. But money still talks – political parties need to fund themselves and their election campaigns somehow, and we don’t do much state funding of political parties. Research from Warwick University gives us a quick canter through developments on the political donation front over the past two decades. The headlines: donations have got bigger (up to 250 per cent since 2001); more come from individuals (i.e. vs unions or companies); and, from superdoners (i.e. those who give more than £100,000 made up 36 per cent of donations in 2017, rising to 46 per cent in 2019). The authors make rather a lot of the fact that private donors didn’t donate much to Labour during Jeremy Corbyn’s leadership, which gave a big financial advantage to the Conservatives in recent elections. This may not come as much of a shock to anyone that’s been paying attention to British politics…

Working women. Why has Bangladesh seen a rise in female employment, whilst its neighbour India has managed the opposite? I haven’t a clue, which is why I learnt lots from a recent Brookings article on the topic. It argues that culture can’t explain the different trends because both countries have cultural preferences that lean against women working AND British Indian women have much higher employment rates than their British Bangladeshi counterparts. Instead the author argues that the difference is that governments have suppressed wages in Bangladesh (to boost export competitiveness) leading to faster growth of jobs and bringing women into the labour force. India hasn’t seen the same jobs-rich growth, in part reflecting strong disincentives for firms to grow.

Zoning in. There’s not much left of the Kwarteng/Truss policy agenda – Investment Zones (lower tax/regulation areas that aim to be growth friendly) is basically it. Local areas across the country are busy putting bids in for them right now, despite most not having a clue what the actual policy is – while Whitehall is wrestling with trying to define it. Both efforts would benefit from reading Resolution collaborator Henry Overman’s triptych of blogs on the subject. The first spells out that the incentive for local areas to bid is clear, even if the national level benefits aren’t – a point which the second returns to with evidence from the French version of risks of giving firms cash for things they’d have done anyway. The third looks at who’s likely to benefit. Designing policy is harder than announcing policy. Who knew.

Chart of the Week

Cast your mind back to an ancient era of British politics – early 2019. Theresa May was PM, and Liz Truss was the Luke Skywalker of the anti-growth alliance (Chief Secretary to the Treasury). In a speech at Resolution towers (with weird jazz background music – not sure why) Truss set out her stall for the future of the Conservative Party – we need more enterprise, less state, and to blow up the vested interests. Her time in Downing Street was pure chaos, but her political philosophy has been remarkably consistent. Drawing on RF research, she highlighted a particular problem facing Britain – low levels of job mobility that were depressing productivity and holding back the careers of young people. Given she’s had a tough week I thought we should have a chart noting that to some degree she’s got what she wanted: after a pandemic dip, around a million people are now moving jobs in Britain every three months. So, in changing who does the Prime Minister’s job every five minutes, the Conservatives are in fact just following the lead set by us voters. Surely that’s what democracy is all about.