I have just posted this long, but I think fairly important, thread to Twitter:
Some people might have noticed that I disagreed the Bank of England's decision to increase interest rates yesterday. It was completely irresponsible, but what happens now? Let me offer some opinion on that and a comprehensive plan to get us through this mess. A thread…..
I have already discussed what the Bank of England (BoE) got wrong, here, in case you're not familiar with it. I predict a disaster in that thread, but how big a disaster?
The BoE is already saying inflation is going to reach 13%. They say unemployment will double, which means there are going to be a lot of corporate bankruptcies. And they say there will be a recession. They also say they're very sorry for the pain this will impose.
But let's move beyond the guff and their crocodile tears. What will actually happen? It will certainly be nothing like the BoE are suggesting, because they have a very limited imagination.
The reality is that this situation will change very rapidly precisely because the number of people unable to pay their bills is going to escalate very rapidly. It is already thought that nearly 6 million people are struggling with bills. Many more will soon.
The impact of this will become apparent quite quickly. People can't borrow much more. Their savings are already depleted or gone. The pawn shops will be overflowing soon. The consequence is clear. Debts are simply not going to be paid this autumn.
People know how to play this game. They pay part of a bill. They rotate who they pay. They let the debts rise slowly across all the people they owe. So it will take time before the scale of this crisis becomes apparent, but as this autumn progresses the reality will become clear.
That will be especially true as Christmas approaches. Faced with the choice between impossible bills to pay or buying their children Christmas presents, the kids are going to win. So in October or November the debt crisis is going to get much worse.
When it does energy companies, water companies, councils, landlords, banks and other lenders and telecoms companies will all be hit hard by rising unpaid debts. The question is, how will they react?
The answer is that quite soon none of them are going to be able to react as we might normally expect. Water companies can't cut off supply. The rest could try to recover their money, but very rapidly it is going to become apparent that they can try, but it will be hopeless.
For example, landlords who evict will discover that the only available new tenant was in default with their last landlord. Banks who try to recover properties from those not paying mortgages will rapidly appreciate that they will be flooding the market with unsaleable properties.
At that point the banks will realise that recovering their debts, including those owing by defaulting landlords, will deliver a full-scale banking crisis that might make 2008 look like a picnic in comparison as the threat of a collapse in the property market looms.
Meanwhile, for energy companies, the problem will be leaving people in the cold without the means to cook. And telecoms companies who cut off services will cut people off from all access to help. Neither is a good look these days.
Each of these companies could try to act in their own self interests, but if they do they will find they will make it impossible for other businesses to then be paid. Attempts at uncoordinated debt recovery by them this autumn will look like a circular firing squad, quite soon.
By Christmas then, if not before, all these companies are going to be in trouble with people unable to pay them, and will have almost nothing they will be able to do about it without pushing people into impossible poverty. Ethically, they're going to be in a hard place.
What will they do in the face of maybe 20% or more of their customers being able to pay their bills, as is likely? My prediction is that they are going to yell, and scream and shout. They will demand government support. I have no doubt about that.
But before addressing what support they might get let me note that they will not be the only people yelling, screaming and shouting by then. Some f those unable to pay will be doing so as well. I am not alone in thinking so. Martin Lewis expects this. So does Jo Maugham.
The biggest civil unrest in decades is likely this autumn. Not all angry people are not going to sit quietly at home, fretting in silence when they realise what is happening to them is being done deliberately. They are going to take to the streets.
I also very strongly suspect that non-payment will be organised. Campaigns on this issue are already beginning. These could be politically motivated. Some from left and right will try to use them for that purpose. But I think they will be real grass root campaigns.
I expect the Tories to try ugly responses to such campaigns, but I cannot see a lot of sympathy for the government from the police and even the armed forces when they too will be struggling with their bills. The government will not be able to hold out against this many people.
Let me add a third dimension to this which has to also be in the mix if all the crises we are going to face are to be understood.
Once the summer holidays are over people will be cutting their spending as fast as they can because of the crisis they know they are facing. The consequence will be for the leisure sector, hospitality and retail, all of whom are going to see their sales fall.
The recession we're going to face is not going to be created by people not paying their bills. It will instead be created by the collapse in retail and leisure-related businesses that will fail by the thousands as this year and 2023 go on.
There will be bad news for those made redundant in those sectors: there will be no new jobs to find. No one invests in new employees in a recession if they can avoid it. We are going to face seriously rising unemployment.
I cannot stress this next point enough: the evidence is very clear that unemployment is much worse for an economy than inflation. It destroys livelihoods, hope and wellbeing to a much greater extent that inflation, which just hits savings.
I do not doubt inflation hurts, but unemployment goes to the very core of a person. It is much worse. And many are going to suffer it unless something is done.
My summary of all this? We're where Rishi Sunak was when he gave his first ever budget in which he mentioned his first Covid measures. Except he was hopelessly unprepared for what was to come when he spoke in early March 2020. As badly prepared as either he or Liz Truss are now.
What is needed then is a real plan to deal with this. I stress, I am not saying I have all the answers now, because I have not. But I have some.
The first thing that the government is going to have to do is ensure that all people enjoy Universal Basic Services. A home with water, electricity, gas and broadband is a basic need of life. The government has to guarantee that people will have them through this crisis.
So, bans on evictions for non-payment of rent should be introduced. The same should be true for mortgages: repossessions for non-payment will be necessary. There should be no ifs and no buts: this is essential.
And just as it is illegal to cut off the supply of water to a household, so too should it be illegal to cut off the supply of electricity, gas and broadband, even if bills are paid late.
The chance that we should have social crises arising because the Governor of the Bank of England has decided that the debt crisis in this country should be suffered by those least able to afford it should be averted: people must be allowed to live.
There is, though, the risk of moral hazard in this. That risk is that everyone might decide not to pay, whether they can or not. That cannot happen, so whilst Universal Basic Services must exist, those wanting to use them must be required to prove their need to use this service.
The idea should be open to all though, although those on benefits should not need to give further data on income based on the fact that they incomes will already be known. For everyone else, this data will be required, as will details of outgoings be needed for everyone involved.
Once this data is established (and this must be done as simply as possible) then an agreed maximum payment per month must be fixed, and be fairly and appropriately split between all those due to be paid.
The government could and should administer that payment scheme. So, the person in the scheme should make one payment to the government and the government should then pay those they owe for them. In effect, this is a creditor's voluntary insolvency arrangement on a massive scale.
Importantly, this scheme has to be mandatory. In other words, anyone owed money by those in this scheme will have no choice but accept the payment that they as all that will ever be paid. It will not be an option for them.
And just to be clear, the amounts not paid will have to be written off: there will be be accumulating debt left behind which landlords and others might then use to evict tenants once this crisis is over. The payments made will cancel the full liabilities owing.
What about the companies owed money? They will say this is grossly unfair. But, let's be honest, nothing about what is happening here is fair. War is not fair. The actions of the Bank of England are not fair. The UN Secretary General says that the energy companies are screwing us.
And let's give a mention to the banks, who are going to profit massively from the additional interest payments due to them as a result of the increase on the interest rate on the funds they have technically deposited with the BoE as a result of the operation of QE.
To put that extra bank profit in context: they cannot make less than £14 billion extra profit next year as a result of the gains handed to them directly by the BoE. That's not fair. So let's not shed too many tears for them.
But, some companies will still complain and want support. And I think if they can make a case for it - on a case by case basis for companies of this size - they should get it. But the price should be that they hand over a share of their business for all the support they get.
There should be no handouts, grants or loans. If these businesses are under-capitalised to manage the losses which all large companies should be robust enough to withstand then they must pay the price for wanting the additional capital that they will demand from the government.
The price of that additional capital should be a part sale of their company to the state - and at a distressed price. Alternatively, these bastions of capitalism should go off to the financial markets to raise the money they need.
I make an exception for small landlords. The would be those with a few properties, at most. In their case I see reasons why the government may need to provide more help in the event of them receiving lower rental payments whilst having higher borrowing costs.
However, again, these landlords would have gone into property to profit, and must know loss is a risk as a result. So, they could be supported, but only at the price of handing over part of the value of their portfolio to the government, secured by a mortgage on their properties.
I see a reason for not pushing landlords out of businesses right now because that could only cause chaos. I see no reason for generosity to landlords either.
A final thought. What about those retail and leisure businesses that will suffer? They will need support in the form of loans and government stakes in their businesses. Ye, we are back to the Covid era, but this time this has to be done properly with cases considered on their merits.
In 2020 Sunak just handed out money. I have no desire to see that again. So, instead, there has to be a proper loan scheme and the option of taking significant stakes in larger businesses has to be considered as an alternative instead. There must be no 'something for nothing'.
Do all this and the economy and, most importantly, the people in it might survive the next couple of years. That's why this plan is worth considering.
There will, of course, be a cost though. Actually, there will be a number. First, the BoE has to stop rate rises, and then reverse them.
It also has to stop any plans it has to reverse QE which it has said it will begin doing in September. That would be calamitous right now.
Instead, the BoE has to presume that it might be on call to do more QE, but this time to create funds for investment in an economy that will be in desperate need of funding to restore well-being and to create jobs.
The government could, of course, run deficits to pay for that new investment that it must deliver over the next coupled of years to make sure that people stay at work in the UK and our plans to become more energy efficient are delivered. It could simply run an overdraft at the BoE to do this.
Alternatively, it could provide savers with a safe place for their funds by offering new savings products at competitive interest rates to fund the Green New Deal we need. Or it could use QE as a backstop.
But what we do not want is the BoE undermining these possibilities with the type of reckless policy it has been pursuing to date. So it will have to be brought under control. An emergency demands it.
The emergency will demand something else. This is that there be higher taxes on the wealthiest and highest earners, because the impact of all of this will pass them by and they may well even gain from the crisis we are in.
It is vital that in the process of providing support for the most vulnerable in society, as will be necessary over the next few years, we do not increase the divisions in our society by increasing inequality.
As a result those best able to pay - including banks and energy companies and those on high earnings and with high wealth - should be expected to pay more tax. That is what happens in crises. It is an indication of pulling together. However the details are for another time.
What I have outlined here is a plan for survival that is required in the face of enormous and even unprecedented stress in our society. It could work. The principles are clear. The risks from providing state support are minimised. No one is allowed to profit.
Could we do this? Yes, we could. Should we do it? I think we will have no choice but do so. When should we do it? The plan is required now. That's where the problem is: no one is talking about anything like this. And that is why we might be in big trouble.
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Richard,
There is it seems some sort of organised non payment campaign brewing
https://www.theguardian.com/money/2022/jun/24/campaign-calls-1m-uk-consumers-stop-paying-energy-bills
My suggestion is that while it will take time to organise we need a Population Register.
If you are on that you then get the right to buy a certain amount of ‘services’ energy, water, telecoms, public transport etc at a fixed price.
In the short term however I suggest that all households should be able to get a certain amount of electricity at a reduced price and as happened in the 1970’s perhaps there could be an issue of ‘Petrol Coupons’ – my father had some which would again allow you to buy a small amount of fuel at a reduced rate.
Thinking about it of course surely as part of the UK’s National Security arrangements there SHOULD be, and if not why not some sort of contingency plan to roll out rationing and/or maintain the supply of essential services such as food and energy.
Why cant Government look at this now?
That is a fascinating proposal, Richard. There may be issues with those trying to apply for basic services but who struggle with beauracracy, but that can be sorted out with a little goodwill.
You don’t mention that other basic need – food. Presumably the plan would be that enough money is left with families to pay for that, but some kind of price control may be needed?
I assumed that food would be allowed for in the calculation of what could be paid, allowing for family size, etc
I strongly support your call for action to assist those who are suffering because of the UK
Government’s mismanagement of the economy. Recent charts you have published have
shown us how giving preferential treatment to the few (The One Percent – TOPS – and the
10%) prejudices the welfare of the other 90% – US! The onus should be on our elected
representatives to protect the vulnerable, regardless of the cost.
Recently, I have proposed that elected members of the Welsh Parliament and councils
should be required to adopt the following or a similar pledge on assuming office – the BasiX
Strategy…
I pledge to defend and support the rights of all people of Cymru to
1. Food – no one hungry
2. Shelter – no one sleeping rough
3. Income – adequate wages, pensions and benefits
4. Health and Care – free access to NHS and related services
5. Education – lifelong education for all
And I will act to encourage the Parliament/Council to prioritise these basic items in considering all budget expenditure.
But while elections are some time away, actions are needed now.
I support the concept of Universal Basic Services but suggest that they could be delivered with much less bureaucracy by means of step tariffs. As you say, “A home with water, electricity, gas and broadband is a basic need of life”. Let’s imagine that every home is granted a lifeline supply of each of these – say, set at 80% of current consumption for a low-income household, charged at a minimal rate (which could be varied in cases of extreme hardship). Above that, marginal unit costs increase in steps as consumption increases. The outcome would be decreased costs for low-income groups and increased costs for higher income groups. The incentive would always be there for everyone to reduce consumption (to achieve a lower unit rate), which is also desirable for other reasons.
For Cymru, I also propose an internal supplementary currency. But that is another story.
Tiered pricing makes sense. We do it for income tax, why not other things?
Just today I came across Fuel Poverty Action who are campaigning for tiered energy tariffs, with the lowest usage band being free (the Energy For All campaign). They say in the FAQs “Energy For All would be funded by higher prices for people using more energy than they need, windfall taxes, and an end to fossil fuel subsidies.”
There’s a petition here: https://www.fuelpovertyaction.org.uk/campaigns/energyforall-petition-everyone-has-a-right-to-the-energy-needed-for-heating-cooking-and-light/
I like the idea
Although I can see many ways the well off might try to evade it
Great to read this thanks. I fear that your last sentence is the more likely outcome, being the pessimist I am, we are in real trouble.
Basic needs being met are human rights, though the right to internet access especially in the home is yet to be made a right as far as I know. The Tories don’t do human rights, they even want to remove us from the ECHR, how terrifying.
As for the police and army, and even private police and army being deployed, should people take to the streets, will do what they are told. They will not be left short of a few bob and will be handsomely rewarded. When it comes to civil unrest, the rich and powerful can always rely on paid thugs to do their dirty work. A few might not like beating up their friends and neighbours should they protest, but they sign a contract to carry out governments’ orders.
Brexit has to be the most stupid decision ever made, and incredibly undemocratic given the horrendous lies from the British nationalists in order to secure the (non binding) referendum in 2016. To have taken things further down the rabbit hole with their no deal, is just absolutely criminal.
The world’s a mess, but the UK is in great danger of being fashioned on extremism, where human rights do not feature, and where freedom of speech is called extremism. I don’t know what else to say really, but something’s gotta give, or a dystopian future is around the corner.
It seems to me that we need legislation to control prices of gas, electricity, water and internet. If the current providers don’t like it then they can always “hand over the keys” and let government run it. Compensation to existing shareholders could be paid at the “book value” of the company’s assets in the (annual accounts).
No doubt there would be complaints/appeals/judicial reviews… but with a clear Act of Parliament it could be done.
It would then be interesting to see if the did throw the towel in or carry on. I suspect most would carry on.
That would be nice
All we have at the moment is Universal Basic Indifference.
You are so right to write this post.
This is wishful thinking.
The problems will continue as they always have. We will have warm banks, energy banks for using devices and watching tv.
Why is it a bad thing?
The human rights act permits people to have a right to privacy but at what cost?
Everyone cannot have a right to privacy financially speaking because some are desperate. You cannot have civility when there is poverty and destitution.
The laws in this country apply therefore to the few and not the many.
Everyone can see the legal system fails citizens. Not because the legal system is a failure but because it cannot provide for everyone.
Everyone can see the financial system fails citizens. Not because the financial system is a failure but because it cannot provide for everyone.
A public ownership model may work, who knows, but papering over the cracks in some deal with the disregarded may provoke.
47% of UK households will not be able to afford energy bills this winter.
That is innocent children who will pay the consequences. Who wants to live in a country whereby this is your neighbour or in the opposing town/village.
Following the lockdown to protect the vulnerable the vast majority of the 47% will think why am I paying this price for saving others when no one is out to protect us.
Time will tell what happens, I cannot see a strike or mass civil disobedience, I can see more debts, more QE, more borrowing, more obscure schemes and the list goes on. More government funding for councils, please apply here online, etc.
The questions remain, why were the tories so keen to protect their image by protecting Ukrainians?
Why implement sanctions on Russians to the cost of citizens?
What was Rishi (Mr Slick) thinking would happen to peoples bills?
What money has been funding the tories?
The truth is out there now, Britain is a myth.
It does not exist.
If the land is owned and controlled by anyone who isn’t even British or with a vetted interest then there is no nation, there is no society.
The culture wars are about distraction, triggering you to think and be British when in fact this falsehood will get you nowhere.
The people living in the UK have to face the facts that they are alone economically.
The state cannot afford to bail them out, but that doesn’t mean it won’t find a way.
People must find their own way. Even if they are up against the giants (state, corporates, etc).
Johnson will go down as the most out of touch politician in the modern era and it will haunt him what he did to.
On what do you base your assertion that the state cannot afford to bail the people living in the UK out? I can not see any reason not unless there is a crucial lack of resources that I am unaware of.
“The problems will continue as they always have. We will have warm banks, energy banks for using devices and watching tv.
Why is it a bad thing?”
What about those without the ability to get to ‘warm banks’?
To take your idea further why not build dormitories for the poor to sleep in? We could call them, I don’t know, workhouses, perhaps?
Well said
Warm banks are starting in Gateshead and many of the councils in the north east.
Last month I recall people laughing at the idea.
Gateshead council are putting a lsit online for people who can’t afford heating. They can look up the nearest place to go and get warm, whether it’s a library, community centre or foodbank. Meals will be provided.
I feel absolutely disgusted at this.
On Thursday I went to Beamish Museum, where we were told how people who didn’t have fridges because they hadn’t been invented then, had to shop for small amounts of food every day. I thought it’s getting like that again. That was just before Sunak told people that he was taking money away from areas like Gateshead and giving it to Tunbridge Wells.
I love Beamish
But we do not want to go back to that era
The impact on mental health, following the pandemic, will be severe.
We can expect some cases of people ‘acting out’ their stress in drink, violence towards others or self harm.
It is a tragedy in that these consequences could be avoided or mitigated with better policies.
Meanwhile Rishi Sunak is boasting about putting a stop to funding deprived urban areas.
https://news.sky.com/story/rishi-sunak-boasts-of-taking-money-from-deprived-urban-areas-for-wealthy-towns-12666046
I too cannot believe what Sunak says in that video to the extent that I can only describe him as a piece of shit.
He is no better than that basically.
And to think Libertine public choice theorists like Charles Buchanan criticised states and the Left for ingratiating themselves with the voting public by using progressive policies and here is one of his own creed doing exactly the same!
Poverty by the way in rural areas is still very bad and needs to be sorted out, but there is no sense that Sunak had that end result in mind. i wonder what the money was spent on? Hanging baskets in the town centre perhaps?
Despicable.
I think you might mean James Buchanan. Other than this I am in complete agreement.
Yes Bernard – my apologies – it is ‘James’ not Charles.
Looking at what the Tory Government has done in the recent past, it seems unlikely.
https://twitter.com/NewStatesman/status/1555476253045673987
I like @neil Andersons idea, a variation on mine and indeed to an extent yours, Richard?
Looks like the beginning of both a short and long term plan?
The difference is that broadband is too cheap to be worth metering. Gas, electricity, and in most of the country water, is too expensive to waste. So we should focus on cash, or UBI, and incentivise efficiency. Some people will pay lower rent and live in worse insulated housing, or have higher commuting costs, and that should be a valid choice
Totally unrealistic in the short term
And if you think phone and broadband costs are irrelevant, you clearly do not get it
Just out of interest, how many other countries agree with you that ‘Universal Basic Services’ are the ‘only answer to the crisis we are facing’?
Right now, probably none
But do you know how new ideas always require someone to think of something that’s not been done before?
Interesting tweet from none other than The Torygraph
https://twitter.com/i/events/1555223101146816512
David Byrne responds:
Richard, your analysis is pertinent and deeply worrying for all.
A national crisis is unfolding.
If we are hurtling towards the precipice, where are our 650 defenders? On holiday, and not returning any time soon.
Correct
Seemingly indifferent
[…] Cross-posted from Tax Research UK […]
Great that you keep pushing the message. As I have read elsewhere, the energy companies have largely already addressed the issue of disconnecting customers who cannot pay. Most poorer customers have now been transferred onto pre paid meters. In the event they have no money for energy the customer is the one actually “self disconnecting” themselves from the grid. So the energy firms will avoid the added costs of courts and bailiffs as well as the resulting bad publicity. So the prep has already been delivered. Individuals will be cut off in silence and isolation, divided and conquered.
You are right
The idea of Universal Basic Services goes back a long way – arguably it started with Beveridge and his 6 Evils. Amartya Sen describes a similar list as the basics of his definition of freedom and more recently Minouche Shafik of LSE comes up with a similar list. Health, Education, Housing, ability to earn an Income, Security and Justice, to which in todays world one might add for instance broadband, basic energy, local transport. The UK has come close to delivering it, arguably at the end of the New Labour period (we can debate housing for instance).
Whilst successive Conservative governments have done their best to undermine these services, it is possible to see how they could be restored to what is needed. New Labour had to do something similar when they took over from Thatcher’s Tory governments and the damage they did.
In contrast, UBI requires massive funding and complex changes to both both benefits and taxation. As has been said, to be affordable, you could not afford to live on it. To be at a level that you could live on it, it would be unaffordable. It should be noted that some on the neo-liberal right like it because they argue that people would then have the money to look after themselves – an argument for further shrinking the state. Another argument, put to me by a thoughtful and left of centre economist, is that apart from affordability, UBI risks being attacked with a ‘scroungers’ narrative, with people being seen to get money they do not need (the wealthy) or deserve (the lazy). Unpleasant but those attitudes are quite widely shared in the UK. And even with UBI, you’d still be left with inadequate public services.
For me UBS could be a core part of a progressive party’s vision for this country, combined with Green New Deal. They are mostly topics that feature high on the list of voters’ top concerns. why do we think the idea has not been more widely adopted?
Because they undermine debt enslavement, I am sure
Most people who say UBI is a scroungers narrative are the same ones who say universal credit is for scroungers. Except, of course, most people on UC are in work. UC allows employers to pay low wages, knowing it will be supported by UC.