Once you’ve stopped cheering the ousting of Liz Truss, you’re probably looking forward to a bit of stability – but it’s an illusion – only austerity awaits. Except this time, expect that it’s not just services that are cut but your house price & pensions too.
I’m a believer that the demographic, technological and industrial changes in society make more of a difference than political choices. By that I mean that regardless of who is in power or what decisions they make, the path in some ways is set by bigger (and harder to change) factors.
Take North Sea oil and Gas for example. It turned Britain into an oil exporter when prices were ruinous for other countries. The money raised from oil cushioned the Thatcher government, leading some to postulate that the “animal spirits” beloved by nostalgic Tories were in fact carboniferous creatures instead of City Barrow Boys.
It also helped her break Scargill and the miners – the writing was on the wall for coal for sometime, but Thatcher haliographers prefer to think that she (and not north sea gas) broke the unions.
But we ignore the facts if we can’t see them. (Some) Tories today want to get fracking either in your backyard or even theirs! Even though it won’t either be practical or even if it was, bring rates back to where they were a few years ago, let alone halt the natural decline in production.
Future wealth (& tax revenues) from hydrocarbons are not an option. It’s an inconvenient fact that is lost on the SNP.
And the strike action we have now; where our hero key workers are just asking for salaries that keep up with inflation, is still seen through 40 year old lenses – despite the experiment not working
In the next decade, an estimated 8 million people will join the “still alive subsidy” called the UK State Pension. What sort of incentive is it to pay people to not die? It’s hard to fathom.
Sarcasm aside, this demographic time bomb is coming down the tracks and it doesn’t matter who is in charge, red, blue or yellow, it’s going to hit us and longevity is still increasing in this cohort – so the number of octogenarians, nonagenarians and centenarians will increase too.
If only we could have an new influx of young, useful and hardworking people from abroad – or at least made the ones we had feel more welcome.
Of those 8 million, there will be those without assets, who’ll live in poverty. But there will be many who own their own homes, have a final salary pension to rely on, savings, investments, maybe the odd buy to let. They also have inheritances to look forward to that don’t come to younger people – the average age to receive an inheritance is 47.
(Also richer people tend to live longer, meaning larger inheritances come to older people – just when they need it least in life).
Cuts, Cuts and More Cuts!
The government of 2010 came to power promising austerity. I’d argue that it was less about an ideological “small state” mentality and more a need to balance the books (that never balanced).
Sacred cows like the NHS and the state pension were kept (more or less) to service the elderly, while services for young people cut to the bone. Local authorities had budgets slashed and local services suffered. Even the £86,000 care cap – designed to cap spending for the elderly favours the rich who can spend as much as they like. Many oldiewonks won’t have £86,000, so it’s all taken but the wealthy have their assets protected. Does it make much sense to cap spending at £86,000 or give everyone £86,000 to spend and then they are on their own after that?
Or why should I pay for my kids care costs out of my own pocket but asset rich pensioners don’t have to pay for their care (above the cap)?
You can understand why those who were left behind and forgotten wanted to believe in something, something that gave them hope, comfort, control – even if that thing was Brexit which brought nothing and cost lots.
The desired effect of QE was that asset prices were pushed up and interest rates kept down. This was manna from heaven for anyone holding assets (and debt). House prices rose, mortgage payments fell, if you were lucky, you were very lucky.
On the flip side, for most people real wages didn’t increase, benefits didn’t plug the gap and the cost of housing (to buy and to rent) increased to eat more and more of people’s incomes.
Borrowing money to make up for the gap is a great idea (except now that interest rates are rising.
What About the Young?
With the introduction of university fees and removal of grants, you can now leave university with debt that you’ll never repay. And as you repay it, it is just another tax that you have to pay.
Marginal earnings for someone on basic rate tax and paying back the student loan they are hit by 20% Income Tax, 12% National Insurance, 9% Student Loan = 41% tax rate.
For a pensioner enjoying the same marginal earnings it’s just 20% Income Tax = 20% tax rate
Make that dividends and it’s just 8.75%.
Lies, Damn Lies and Quantitative Easing
It comes as no surprise that just having a good job, working hard and doing as you’re told doesn’t work – inequality is getting worse and that’s not a good thing (says the bastion of socialism the IFS).
And that your average pensioner family has an income not far off a working family – with lower outgoings (the cost of work) and lower tax burden. It doesn’t seem right does it?
Future for the Housing Market?
Certainly, kicking the debt can down the road allowed older tax payers avoid paying for their kids. It does have the slight problem of making life unaffordable for millions of young people. It’s no wonder people are choosing to have kids later (or not at all) – (childcare costs for the Master and Little Lady are around the £75k mark and we’ve still got a year or nursery to pay for).
It also means people can’t afford to save for a deposit to buy a property. Thanks to rents ratcheting up and higher taxes on the young, for millions property ownership will not happen. And government steps to help just made things worse.
The effects of the broken housing market are already being seen when “key workers” can’t afford to live in the communities they serve and finding enough people in vital sectors like social care (whilst paying them the absolute bare legal minimum) becomes a problem in providing those services.
More of the Same?
If the government policy is to go back to basics and cut spending and increase taxes (on the young and productive in society of course) then we end up with not stability but structural weakness in the economy and society. Liz Truss could be commended for trying to come up with an alternative (an alternative that everyone hated) but returning to austerity is just boiling a frog.
My view is that the big issues of the day are not left vs right, London vs the regions, or native vs immigrant. It’s old versus young.
We need a major change in how society is run and how the government works. More austerity will just have the same impact. The corporations who syphon off money from m you and me and our communities and stash it offshore should be stopped from doing so. We need to pay people who do the jobs we don’t want to do properly and treat them with dignity and respect.
We need to care about everyone, not just homeowners (and their heating bills or mortgages) and we need to equalise the tax burden – tax assets and not labour.
Because the truth is that it can’t go on. Boomers will need all of the things that they haven’t paid for, from all of the people they’ve impoverished.
No wonder young people have bad mental health. There’s nothing but doom on the horizon and it’s hard to feel safe when you can’t pay your bills, your accommodation is extortionate and not yours and your job is insecure and doesn’t treat you with respect.
Seldom do we think that we are the problem but at some point we need to. The government policies over the last 12 years have on the whole helped me but made life for most much worse. The isolationist in my that says that I need to look after myself (because no one else will) now can’t stand idly by. My path to Financial Independence was built on a distrust for anyone looking out for me and a belief that the young would be sacrificed to preserve the boomers – I’ve not been proven wrong but I’ve also learnt to take advantage of a bad situation. (“I’m alright Jack” you could say)
My gut tells me that mistakes are made during the boom times and the best decisions are made during the bad times. We’ve been riding the crest of a wave for sometime now, but fuelled by what? ZIRP, Panglossian growth stocks and magic beans. Now, with interest rates on the rise it might give the government the chance to put the house in order. If it decimates house prices – who really suffer?
We may crave stability and believe that Rishi is the one to give it to us but don’t be deceived – we need out of the demographic/economic tailspin – I’ve got my parachute strapped on while the government is telling you to fasten your seatbelts and adopt the brace position.
Universal Basic Income and getting rid of bullshit jobs and demeaning jobs (I’m looking at you fast food delivery drivers and those who order) drive through junk and the South American cardboard box industry. But the trends say otherwise unfortunately.
There’s no coherent popular alternative to the nihilism of the Tories. We desperately need something that offers a 21st century alternative to the failed policies of austerity and Brexit.
I’ll leave you with this quote from Benjamin Franklin “Those who desire to give up freedom in order to gain security will not have, nor do they deserve, either one. Any society that would give up a little liberty to gain a little security will deserve neither and lose both. He who sacrifices freedom for security deserves neither.”