Thirty years of Universal Credit hurt Top of the Charts 9 July 2021 Torsten Bell Morning all, I hope you’ve all calmed down from Wednesday and watching, what painful experience taught us was, an iron law of football being overcome. England, it turns out, do not always throw it away. And if Gareth Southgate manages to get a win on Sunday he’ll have overcome another iron law of the past year, that charts of exponential growth (usually of Covid cases, but also of England’s odds of winning the Euros) always end in disaster. Coincidently that’s also what the PM is now trying to pull off with this summer’s unlocking. But just to prove some things never change, the Government used the match to bury the bad news confirmation that the £20 a week uplift to Universal Credit will be removed in October. As COTW shows, if this cut goes ahead we’ll have the lowest real terms level of basic benefits for three decades. That’s thirty years of hurt which urgently needs avoiding. Have a great weekend all, whoever you’re supporting on Sunday. Torsten Chief Executive Resolution Foundation Whose crisis. It won’t be news to TOTC readers that this pandemic’s impact has been highly unequal. But the Health Foundation’s Covid-19 Impact Inquiry’s comprehensive summary of the evidence that pre-crisis inequalities contributed to the nature of the crisis’ death toll is deserving of your time. Among many other findings, it shows that under-65s in the poorest areas were almost four times more likely to die than those in the richest places. Going symmetrical. We’ve discussed the huge challenge for macroeconomic policy posed by low nominal interest rates (because they can’t be cut much in a downturn). Pre-crisis, this was prompting soul searching among central bankers: the ECB launched a big review of their monetary policy strategy and its conclusions emerged yesterday. The big idea? Moving from an inflation target of “below but close to 2 per cent” to a “symmetric 2 per cent inflation target over medium term”. I know, radical isn’t it? This is an improvement, signalling the ECB won’t tighten policy in the recovery just because inflation is approaching 2 per cent, and that an inflation overshoot after a period of low inflation is okay. But this is broadly what the ECB is now doing anyway and it ducks the underlying problem: if you want central banks to have more ability to cut interest rates in bad times you need to look at the level of the inflation target (because higher inflation would mean higher nominal rates), not its symmetry. Prime PM? Football-phobic political obsessives might look to a new survey from the University of Leeds to satisfy their need for competition. It asked academics who the most successful post-war Prime Minister has been. Atlee came top, then Thatcher and Blair, while May and Eden fared the worst. Note the pattern – the successes won elections, ranking above those who became Prime Minister after their predecessor resigned. More detailed scoring of recent PMs’ impact on the country paint a very negative picture of David Cameron. Now academics are generally Labour- leaning remainers, but before we write off their writing off of Cameron, remember – they thought Thatcher was a triumph. Unequal globe. We love economic history, and there’s 200 years of it in a working paper from Piketty that estimates global income inequality between individuals over the last 200 years. Some headlines:19th Century colonialism sees global inequality rise, and it’s basically stayed there since. Why? Because of two offsetting trends. Income inequality within countries dropped between 1910 and 1980 but increased between 1980 and 2020, whereas income inequality between countries took the opposite path: increasing between 1910 and 1980 and decreasing between 1980 and 2020 (hello China). Global inequality, like life, is complicated. Fiscal risks. We got the OBR’s third Fiscal Risks Report this week. The good news (for our attention spans and fiscal anxiety levels) is they’ve focused on just three risks. The bad news is it still comes in at 242 pages. But it’s definitely worth your time. The three risks are Covid-19, climate change and the cost of government debt. On Covid-19, the OBR are basically warning of post-pandemic spending pressures of around £10bn a year (think empty trains and the NHS backlog). The chapter on climate change is my favourite, with welcome honesty on Net Zero transition costs (increasing debt by 21 per cent – about the same as the pandemic – by 2050) combined with the big picture that not acting (or doing so too late) will cost us even more. Chart of the Week 1966 is a long time ago. We might not have won a trophy since then, but we’ve been making economic choices. This week’s chart only marginally abuses the mood for Geoff Hurst-related nostalgia with some economic history that sits behind two big decisions this week: the dumping of the Triple Lock for pensions and the £20 cut to Universal Credit. When a country’s economy grows, generally the living standards of its citizens rise too. For workers, this largely comes via rising wages (remember them?). But for those not working (the unemployed or retired), benefitting from rising prosperity relies on government decisions on benefits, which haven’t always seen support rise with growth. The UK economy has grown by roughly 140 per cent since 1966. The basic state pension grew slower than the economy from the 1980s as Thatcher ended the link with earnings. But it’s caught up more recently, including through the last decade of austerity. Meanwhile unemployment support has… been hammered, increasing by a mere 40 per cent over that period and falling more recently. That’s the context to why it’s reasonable not to hike the state pension because of statistical fluctuations in some measures of earnings, but a disgrace to cut UC by £20 a week, delivering an overnight 5 per cent cut in the incomes of six million poorer households. The PM says this is because he thinks jobs are more important, while conveniently ignoring the reality that 37 per cent of those on UC are working, and that another 20 per cent aren’t meant to be working (e.g. because of their health). Time for some economics AND history lessons.