I posted this thread on Twitter this morning:
Six days after Kwarteng gave the worst budget in living memory, where are we? A summary thread…
The pound has crashed, and yesterday made little difference to that.
The UK's final salary pension funds nearly failed yesterday. It has cost £65 billion to bail them out, much of that going to people who are better off, overall.
The Bank of England is saying it has not recommenced quantitative easing, but it most certainly looks like it.
Official interest rates are set to rise to 6% if market expectation is followed, meaning mortgage rates of 7.5%. I suspect half of all those with mortgages will not be able to pay anything like that. Rents are going to skyrocket as well. A housing crisis is likely.
Inflation is most definitely not under control because of the fall in the value of the pound. We just do not know by how much it is worse, as yet.
Rising interest costs on top of massively increased energy costs and a collapse in consumer demand are going to hit hundreds of thousands of businesses very hard. Maybe that many will fail, and with that unemployment is going to increase, a lot.
The government is saying that despite inflation government services are going to get no new money, meaning that massive austerity is going to be imposed on public services. Many will fail. The NHS already is in some places.
Pensioners and those on benefits are not going to get the inflation-linked rises that were expected next April, even though their financial positions are profoundly perilous.
The world now thinks that we are an economic basket case.
London financial markets will probably never recover from this mess.
Because of Brexit out exports were already destroyed because of the impossibility for many of selling outside the UK due to the admin involved. A cheap pound is not going to change that. But our import costs will increase, significantly.
There is no good news in here.
What to do? Numerous things. First, be rid of not just Truss and Kwarteng, but the party that put them there. This is vital.
Second, because we cannot afford a general election as yet, having already had months without a government this year, a cross-party coalition will need to stabilise the country. I sincerely hope this can be achieved.
Third, we will then need an election and a new government with real vision and courage next year.
That government would have to commit to serve the people of this country and not financial markets.
It has to make employment and not inflation its priority because unemployment is much more devastating than inflation.
It will have to commit to higher public spending - knowing that much of this will pay for itself by delivering tax paid, improved productivity and positive multiplier effects as state employees spend their wages.
It has to commit to use quantitative easing to pay for this in the first instance - not much less than £200 billion will do, and maybe more. So far it has never been inflationary.
There will be a need for higher taxes on the well-off. Wealth will need to be taxed considerably more. This is not for revenue: it is time to reorder British society so that it is no longer structured to serve an elite, but everyone.
There will have to be a willingness to take essential services into public ownership for the long term. Banks may well be part of that.
The Bank of England will have to be instructed to reduce interest rates as fast as is possible to save the domestic economy from ruin: again, if inflation is the consequence, so be it. We cannot afford the devastation of mortgage failures.
There may need to be tariffs on some imported goods to protect struggling UK businesses.
Investment in the green economy will have to be advanced rapidly - for its own sake and as an import substitute and then to create an export market.
And politics will need to be rid of the pernicious influence of dirty money. Cards will have to be face up on the table to partake in future (my own accounts and finding sources are on public record).
The financial markets will need a quiet revolution: the use of savings for speculation has to end if state subsidy for pensions and other savings is to be enjoyed.
People might be shocked by yesterday's £65 billion intervention for pension funds, but they get that amount every year, with it all flowing into the City and not pension returns. That has to end unless the money is used for the public good.
And we need to rethink what is valuable. The idea that markets are good and the state is bad is nonsense. We have to create an economy where there is a genuine partnership.
Nothing short of a revolution can save us right now, and there are risks. But given we cannot survive as we are we have no choice but change. And as was the case in the industrial revolution, we might just turn out to be the first to do so.
Truss and Kwarteng have proved that yesterday was a very long time ago. We're not going back there. We should not want to. But it will need big vision and courage to go forward. I hope some politician has it.
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“If something is unsustainable it tends to stop”.
Our position IS unsustainable so it will stop; we don’t know when or how but it will. I have to believe this to get out of bed each morning.
On the narrow issue of QE, pension solvency etc. I offer a few thoughts.
1) QE, as executed by the BoE in 2020/21, sowed the seeds of pension fund problems. I argued at the time that pushing long term gilt yields down to 0.5% was going to cause problems for pension funds and that, rather than buying a prescribed amount of gilts at whatever the prevailing price, they should target yields. Pushing yields down to 0.5% (from, say, 2%) had no positive impact on the economy, only problems for pension funds. If they had “created a corridor” for gilt yields (adjustable by the MPC just as short rates are) it would have been far better. I think you captured this idea with your “Green Gilts idea that would offer small savers a fair rate… I would just have preferred to see it rolled out to everyone.
2) This attachment to “volume not price” has led to further problems relating to QT (selling gilts) and the current intervention. Rather than announcing an amount for sale under QT (or, indeed, a specific amount to be bought in the current intervention) all that was required was a “backstop” bid and offer to guide the market.
3) Why didn’t they do 1 & 2 ? I think it is an aversion to “drawing a line in the sand” that sets up “targets”. I think this fear makes sense where you are not the complete master (ie. FX) but in rates you ARE the master. It is, perhaps, a legacy of 1992.
4) Exactly why were Pension funds in such trouble that BoE intervention was required? There are a few possibilities.
a) It was not a Pension Fund problem it was a banking problem…. but a pension bailout is politically more palatable than (another) bank bailout. (Am I being too cynical?)
b) Pension liabilities are VERY long and in order to match those pension funds need to buy VERY long gilts…. and these are few and very expensive. So, they buy shorter maturity gilts and lever up to create the same interest rate sensitivity as a position in very long gilts. All ok in theory… except that these leveraged positions are financed in the repo market and as gilt prices fall there is a margin call…. which if unmet requires liquidation of the position. When this sort of issue emerges in your financial system it needs a solution by 3pm THAT DAY.
c) CMS swap. Without getting too technical, Pension funds hedge their risk using this derivative product and these would be subject to margin calls.
5) All this also speaks to the slippery nature of pension fund liabilities. Regulation is designed to ensure that there are enough assets in the fund to meet what it will have to pay out. That is a good thing…. if only we really knew what the payout will be! Again, it is all about the issue of can you really save today for old age tomorrow.
Thanks Clive
I wish I had time to do more on this today but the media and day job are preventing that
Juggling time is a big issue at the moment
I completely understand there are priorities. I share all the outrage that you and others on this blog do…. and to add to those expressions of rage probably does not add much.
However, while it is fresh in my mind it seemed worth setting out some thoughts on things where I have some knowledge.
Having spoken to a few people still actually trading this stuff I would add….
The real disfunction occurred in the Index Linked market with real yields reaching at 2.5% (the largest single day move ever and to a level where I would load the boat with my savings…. but too difficult for an individual). When the bank actually intervened they were unable to buy anything like the size they said they would. It does suggest that the BoE is really only trying to preserve an orderly market and that there is no hidden QE agenda here.
[The liquidation came from funds that run leveraged positions in gilts (conventional and index linked) that are used to manage liabilities of pension funds in an efficient way. The problem is that this liability has negative convexity which means that down moves lead to further selling. It required the BoE to stop the spiral…. which they did]
So will it stop there?
If so it was a remarkably small intervention that was required. Why?
Remarkably small intervention required because;
(1) I/L gilts only have a single large investor base – pension funds. When they all move together there are no real buyers on the other side. Market makers have much more limited risk appetite due to capital requirements on positions so when they see them coming the market steps away and we go into freefall. The amounts actually transacted in this free fall were tiny. So, when the BoE stepped in the buying only had to be tiny.
LDI funds (which drove the selling) are trying to hedge a risk that has “negative convexity” (or short optionality) by dynamically hedging as the market moves. It means they have to sell into falling markets and buy in rising markets and this creates instability that does run the risk of happening again.
If you had bought long dated I/L gilts yesterday morning you would have doubled your money!! Not bad for an asset class that is supposed to be dull and boring and low risk!
Thanks
Here’s an explanation of LDI and yesterday’s BoE intervention that I think most readers of this blog will understand:
https://principlesandinterest.wordpress.com/2022/09/28/liability-driven-investment-ldi-quick-explainer/
Richard and Mr Parry,
This is interesting. My first instinct was to wonder if the problem was index-linked gilts. My second (but only prompted by something I picked up on news reports/interviews), was the pension-derivatives issue. I had not realised they were so closely intertwined: curiouser and curiouser. This just brings me back to:
a) why the BofE or Treasury put so much effort specifically into something so open ended as index-linked Gilts?:
£371Bn (nominal)
£556Bn (nominal + inflation uplift)
Inflation adjusted circa 23% of total debt, including QE; circa 33% excluding QE (on consolidation).
[Data from DMO (https://www.dmo.gov.uk/data/pdfdatareport?reportCode=D1D), as at 28th September, 2022. The rough proportions are my own calculations].
b) why the Pension funds are so closely intertwined both with index-linked and derivatives?
John,
this issues go back over 30 years. Politicians and the public were anxious to ensure that schemes would be able to pay the pensions that they had promised. Regulators took the approach that the expected pension payment cashflows could be modelled, the cashflows would have a Present Value (PV) and that the assets in the scheme should be compared against the PV of the liabilities to deliver a single surplus/deficit number. The idea being that it would show up schemes where employers were not funding thins properly… and it does this quite well.
However, under FRS 17 (introduced in the late 90s), companies had to report this change in surplus and deficit as part of their regular earnings reports. For many, the swings in surpluses and deficits dwarfed earnings in the underlying business (British Airways is the classic example). Companies did not like this earnings volatility so they tried to switch their pension fund into assets that would mirror the liabilities.
It turns out that the best portfolio is largely a combination of long term index linked and conventional bonds. If you invest in these you will find that the asset and liability values will rise/fall (roughly) together and your shareholders will not get any nasty earnings surprises.
LDI funds are an attempt to improve the “roughly”…… and here it gets tricky.
First, embedded in the liabilities is negative convexity (akin to a short option position). Hedging this is a dynamic process that requires selling as the market falls and buying as it rises. In normal times this is OK; in volatile times this gets expensive; in the most volatile few days ever it becomes an existential issue.
Second, the whole show has become about hedging the “accounting risk” not the “true risk”. Ever more sophisticated efforts to match the asset side with the “liabilities” fails to recognise that the regulator’s estimate of the liabilities is just a number from a model and in fact we do not, and cannot know what the liability will actually be.
It turns out that in any ALM study the greater the certainty about the liability the greater proportion of bonds you want in the portfolio so this effort to reduce the “accounting risk” has switched pension assets away from equities or other potentially useful investments and has created risk where the accountants say there is none. Very few pension trustees are prepared to swim against this tide.
Ultimately, all this feeds back into one of Richard’s themes – the impossibility to financialise the inter-generational pension contract.
Clive (if i may),
Thank you for the beautifully summarised points, cogently made; you have provided an invaluable ‘at a glance reference’. I appreciated a little of this, but wish to focus on this comment:
“LDI funds are an attempt to improve the ‘roughly’…… and here it gets tricky.
First, embedded in the liabilities is negative convexity (akin to a short option position). Hedging this is a dynamic process that requires selling as the market falls and buying as it rises. In normal times this is OK; in volatile times this gets expensive; in the most volatile few days ever it becomes an existential issue.”
These issues always returns to the time value of money, but whether it is 1720, 1929, 2008 or even 2022 there is little excuse for finance specialists not following financial or “true” risk over “accounting” risk (if accounting risk has deviated from true financial risk alarm bells should, in any case, be ringing Luca Pacioli did not document the Venetian system in 1494, on the basis it didn’t actually work).
If you are a profit centred, hard nosed Hedge Fund take whatever risk you like, but Pension Funds not focusing on real financial risk (taking any unquantifiable risk for granted – as not being a risk?). What are the regulators doing. All this after 2008? After we had been told we had fixed this kind of thing (turning financial risks that are existential into insurance, when they are uninsurable)? And the whole Pension Sector faces an existantial threat, within hours. How did we find oursleves there? You are not setting my mind at rest!
John, I am afraid I can’t put your mind at rest… and it shouldn’t be because there ARE big risks.
No doubt this topic will explored further on the blog.
But, for now, I must head out to clear my ditch before it gets too wet!
A follow up to the discussion of Liability Driven Investment (LDI) in UK Pensions.
There is an interesting discussion on Bloomberg today , here , ‘Hardly a Surprise: Pension Funds Stoked the UK Rout’ (behind a paywall). (https://www.bloomberg.com/opinion/articles/2022-09-30/hardly-a-surprise-pension-funds-stoked-the-uk-rout?srnd=opinion&sref=r4AzvICB&utm_source=twitter&utm_campaign=socialflow-organic&utm_content=view&cmpid%3D=socialflow-twitter-view&utm_medium=social&leadSource=uverify%20wall).
As Bloomberg (Allison Schrager) points out, the UK Pension Sector owns 28% of UK Debt. In addition there are pecularities in the regulations and special conditions applying to Pensions appraoch to UK Debt that leads Bloomberg to describe the market as “funky”, and later “weird”.
What seems to me obvious is that if you are the Government, and you know a single sector (especially one carrying the future prospects of a large part of the population in its hands), you have an obligation to understand the nature of its investment, the yield curve that influences it; and the imact of your decisions on their risk. Whatever their obligation to look after themselves, it is not in your Government interest, suddenly to throw their risk profile into an existential crisis.
You really would think the government might know what they are doing. It seems, staggeringly; they don’t.
Nobody is off the hook here. After 2008, I really shouldn’t be reading this: “Pension funds did not go with straight LDI (if they did, they’d be fine today), they did leveraged LDI; they bought bonds and interest-rate derivatives. With the extra leverage, the funds could have 30% of their portfolios in fixed income and the rest in growth assets (like stocks, real estate and private equity) and claim to be fully hedged …. The sales pitch was that you could still get growth without taking any risk. What could go wrong? But there was risk.”
This is déjà vu, all over again. Again.
The answer?
Clean out commercial pension managers who do this for profit
And don’t succeed even then
Public trustees are required
This has been a fascinating explanation of an esoteric and relatively small segment of the UK economy, but one with far-reaching implications for the overall economy, Government, the investment industry and pension-holders. Much of this weeks’ carnage might have been avoided it Truss/Kwarteng hadn’t sacked Tom Scholar, Permanent Secretary at the Treasury. He was probably the only sane person in the room and the only person who could have alerted T&K about the damage they were creating.
This has been a fascinating explanation of an esoteric segment of the UK economy, but one with far-reaching implications for the overall economy, for Government, for the investment industry and for pension-holders. Much of this weeks’ carnage might have been avoided it Truss/Kwarteng hadn’t sacked Tom Scholar, Permanent Secretary at the Treasury. He was probably the only sane person in the room and the only person who could have alerted T&K about the damage they were creating.
Thanks, Clive. Methinks you are perhaps not being cynical enough if that is possible? Truss is, so far, not for turning, while KamiKwasi Kwarteng has said nothing worth noting (h/t John Crace).
“CMS swap. Without getting too technical, Pension funds hedge their risk using this derivative product and these would be subject to margin calls.”
I bow to superior knowledge of this arcane pension market. My question is very simple; why are pension funds (of all people), presumable invested in Gilts as “safe assets”, dealing in derivatives of this kind? I can understand the principle of Pension Funds hedging (for risk), obviously; but it seems (prima facie), they had not thought through the implications of the hedge they were protecting, for the the risk they were (unconsciously?) taking by hedging?
I would have thought 2007/8 might have taught something about the potentially lethal nature of some swaps; at least for the pension sector! I do sometimes feel we are operating in the same world as Exchange Alley, circa 1720 (they understood then more about hedging than historians often allow, but with the same terrible results). More important, in what state is the regulation of this activity in the Pension sector?
On local radio Liz Truss (BBC Nottingham?), in defence of the Kwarteng car-crash budget, is actually saying – after twelve years of Conservative austerity, a financial market crash, and mortgage lenders discussing 7% interest rates – that her policies and measures are required because Britain has concentrated far too much on “redistribution”; Johnson, May, Cameron and presumably Thatcher too – we are supposedly to believe -were focused principally on economic redistribution. I suspect she thinks Thatcher, presumably was actually a closet socialist.
The current problems of Britain has nothing to do with the Conservative Government. It is an international problem. The fact that Sterling has suddenly fallen against the major currencies (i.e., has been single out immediately after the non-Budget Budget), and even the mainstream international economic-financial-banking consensus, including the IMF has decided her Government is a disaster, simply doesn’t count. This is arrogance and ignorance on a breathtaking scale. This just can’t go in. The Conservative MPs who have not lost the plot are going to have to step in – now. They will not be forgiven for hiding in plain sight.
This really beggars belief. This is extreme, on any measure.
Agreed
Amazingly Nick Ferrari got very obviously angry wth minister Chris Philps on LBC this morning because he was so frustrated with the BS
Just had the chance to listen to Nick Ferrari and Chris Philp.
I think ‘Nick Ferrari got very angry is rather more than an understatement. I thought his first comment ‘PITIFUL’ started very well!
Here’s the interview (at 2h:30m ish)
https://www.bbc.co.uk/sounds/play/p0cyhwfy
Sarah was repeatedly asking her why the budget was fair, she just answered with robotic IEA pamphlet twaddle. There’s apparently a lot of evidence that tax cuts for rich people help growth in the economy too, though she didn’t specify where this evidence can be found.
The inanity and insanity of the government (or Truss and Kwarteng, which is to say the same thing) has left us all appalled. But it is necessary to look at the manifesto – Britannia Unchained – written back in 2012 to see what further they want to happen. BU basically says, amongst a range of totally erroneous statements and correlations, that British workers are not productive because they do not work hard enough or for long enough and cheaply enough, and that has to be – in their view – reversed. That the rich are successful because they are rich and should be supported is merely incidental to that, of course. The Chretien Canadian govt is cited approvingly and as proof and at length by them for slashing the civil service, cutting back all (absolutely all) public services, reducing benefits and eligibility to them, and mass privatisations. This is without question what Truss and Kwarteng see as next (if the financial disaster does not sink them first) – and that means (and it is clear in BU also) attacking the trades unions with legislation and brute force, plus very large lay-offs in the civil service and public sector. Fortunately the unions are geared up for facing this and many are doing well already in winning cost of living gains for their members. Granted the BU plan for deficit reduction is already sinking without trace, and the early steps of the plan are so far beyond Barking as to be practically in the North Sea, but that doesn’t mean Truss won’t simply press blindly on.. Distraction and the support of the Mail and Express is about all she seems to have left now.
The elephant in the room here regarding UK productivity is buyback, which we allow and money others don’t. When UK workers are expected to compete against those with better equipment, software and training because instead of investing directors have used profit to buy company shares thus boosting their own bonuses, well… it’s not surprising the Britons come of badly by comparison. All undreamed of in the Britannia Unhinged philosophy, of course.
Whilst I agree with what you have wrote and understand the need for collaboration between the parties to work in the national interest, I just can’t see enough of them willing to do it. I think there are too many who will put their ideology and their desire to stay as an MP for as long as possible before what is best for the country. I hope I am proved wrong in that view.
Craig
Wish I had your confidence that our parliamentarians – and in particular the ERG head bangers – might accept a temporary coalition and then a general election. Hope you are right, and that it happens.
This Downing (Tufton) Street mob seem stupid enough to double down on its disasterous destructive course – the only thing they have left themselves is massive cuts in already crumbling NHS (100,000 vacancies, 6m waiting list ) and other public services.
This surely must provoke some kind of revolution – ‘Enough is Enough’ .
It’s a weird phenomenon – a bit like an illness – “markets’ will do everything”, by people who dont seem to understand modern markets – monopolisation , why and how companies invest, etc etc.
CBI head Tony Danker? – seems to have succumbed – sounds almost bonkers.
Climate and ecology are missing from your otherwise excellent post. ‘Hurricane Ian’ has devastated Cuba and is now doing its worst in Florida. Four years of failed rains in Kenya, Somalia and Ethiopia have left the region facing catastrophe this year (https://www.theguardian.com/world/2022/aug/20/drought-in-horn-of-africa-places-22m-people-at-risk-of-starvation-says-un).
Carbon dioxide emissions need to be cut most urgently by (formerly?) rich nations. At the same time, most of us (not all, it seems) want poor people to have basic food, shelter and warmth. these could be encouraged at least, by abolishing standing charges for gas, electricity and water and then applying a low price-per-unit for basic needs followed by escalating prices per unit for more extravagant use. The Tories like markets because when prices are high, there is an incentive to use less. Perhaps the energy and water supply companies need to be nationalised.
Flying and private motoring need to be curtailed – somehow. And – if, as a nation, we really care about our children’s future, why is it legal for there to be any kind of fossil-fuel-powered racing?
Government campaigns and the story lines of ‘soaps’ could help create support for services and future-focused policies.
Professor Kevin Anderson of Manchester’s Tyndall Centre for Climate Change Research says (https://youtu.be/97e-6-tlZy8) “There is no non-radical alternative. Either we have to deal with 3-5 degree of warming this century, which means chaotic radical change. Or we reduce emissions so rapidly, that this also means radical change, but only for 10-30% of the population.” — “Equity is locked into the #ParisAgreement. And it means that the wealthy parts of the world have about 6-9 years at current emissions left until we blow our budget for 2°C. That requires zero carbon by 2035.” “If we’re going to places further away, then we should think about how we are going to get there slowly. It’s gonna be challenging but we will structure our lives so we travel less often but we maybe go for longer. Profound change for a small elite.” “There is no way the aviation industry can grow sustainably, even if we had zero carbon planes. Is it appropriate to use scarce resources like renewable energy and biofuels to allow the wealthy to carry on with their lifestyles, when we could heat houses instead?”
“At the end of the day we are in a #rationing issue. We are not going to solve the #ClimateCrisis until we recognise, we have to stay within a certain amount of CO₂. We have a carbon budget and it’s like a salary for life. Everything else is fluff and nonsense.“
Thanks. This is a welcome dose of reality many people refuse to confront. Kevin Anderson is one of the most clear and reasonable speakers on climate change. We need to accept that we can’t go on living like we do in England, we will have to change our lifestyles in line with the levels of energy consumption that 80% of the population of Earth are currently used to. We are not so special. It’s time for us to join everyone else or everyone else will suffer the consequences having enjoyed none of the perks.
Ofgem had a brief open consultation (end Jul, beginning Aug) regarding the issue of potential abolition of standing charges; within a week of it ending had decided on no change.
“People might be shocked by yesterday’s £65 billion intervention for pension funds, but they get that amount every year, with it all flowing into the City and not pension returns.
”
I don’t fully understand this bit “they get that amount every year, with it all flowing into the City”
I think it would be helpful for comprehension of the non-technical reader if you could expand on or explain that assertion.
Thanks!
Pension tax subsidies exceed £60 billion a year now (new data out this week, stated net of tax paid on pensions which is an illicit offset
There is no indication that increases pension returns
So it must be taken by the City
Amen to every syllable of your thread, Richard.
BUT – where is the evidence that Starmer, who has to be the main mover to get where we need to be, will see the necessity – indeed the political and moral duty – of reaching out across Labour’s now over-hyped heads to work with other parties (with or without a capital P)? His insultingly delivered anti-Scotish blast, cheered to a standing ovation by Labour’s conference delegates, hardly suggests the man for this moment – still less the Party. And, even leaving Scotland all too familiarly aside, the signs are that he is intent on ducking entirely his party’s welcome and, this time, Trade Union supported backing for PR and the end of FPTP. Putting this helpfully on the table to demonstrate good faith with other Parties could so easily have been a vital building block in creating the common cause administration which, as you rightly argue, is now desperately needed.
I fear that we, the unfortunate passengers on the good ship Brexitania, are in for still worse self-inflicted damage, perhaps, even very probably, of iceberg proportions before the depths of this Tory chasm are plumbed.
I fear that you are right, Richard. I had to switch the interviews with Truss off this morning. In summary, she is not listening and is utterly convinced that she is right! It beggars belief. How far removed from reality, how tin-eared, how utterly incompetent and inept can she be?
However, unless we actually adopt some form of proportional representation that enables – or, maybe more accurately, forces – government to adopt policies that are balanced in the public interest I can’t see it happening as there are currently powerful vested interests that support what Truss is doing…basically fuelling an increasing wealth gap.
Whilst their economic ineptitude is the subject of the moment, recent other statements such as Kwarteng’s view that people on part-time hours need to work more hours and to make sure they do, they will effectively make it more and more difficult for them to claim benefits. Here’s a real-life version of what can be done – disguised a bit for confidentiality reasons – to improve wealth distribution, increase productivity, increase tax revenues, increase employment and, dare I say it, achieve growth: staff generally on minimum wage with many working shorter hours to claim benefits; very low staff morale with high absenteeism; business losing money and revenues decreasing. Solution: engage with the staff; increase salaries (so that they didn’t have to rely on benefits) and engage with clients with the outcome that revenues more than doubled in a year, high EBITDA achieved, increased staff numbers and increased client base and market share. In a more general sense, we need – as you suggest – an economic model and policy based on being more distributive (of the wealth) and regenerative (taking care of the planet and the societies within it).
My fear – based on Truss’ comments this morning – is that the Tories have trashed and are determined to further damage the economy in the cause of out-of-control economic neoliberalism and Truss’ oft-stated view that (disproportionate) success should come to the successful (whether deserved or not, e.g., oil company windfall profits, banker bonuses, etc., that have been regularly commented on). Having already negatively impacted the energy and water sectors via privatisation, they now appear set on killing off NHS dentistry, NHS in general, care, etc., to move them into the private sector.
As a final observation. I seemed to remember you being referenced in Kate Raworth’s 2017 book Doughnut Economics so I scanned through it last night to see if my recollection was correct. It was. Keep up the good fight and hopefully the message will get out and economic and political sanity may return and prevail…although, as you suggest, at the moment it feels that nothing short of revolution can sort out the unholy mess created by Truss and the Tories.
Richard, an excellent outline and detail of what’s needed now to enable us to survive let alone thrive. But who’s reading and listening to this?
A lot of journalists
And 17,000 readers yesterday
And hundreds of thousands on Twitter
Feeling concerned today, much of what Richard highlights affects my situation- the reliance on a Final salary pension, a state pension and carers allowance to see us through.
The feeling of vulnerability is something `I shield my elderly disabled mum from, but for me the worry is constant. The only reason we survive is because I was lucky to sign up to a two year energy deal last October which at the time seemed expensive but now seems like gold dust. Without that we would have had to sell up the 30 year family home.
Another year of deflating state pension (no triple lock last year because of pandemic) and goodness knows what will come this year.
The extra cost of living payments this year will be saved for the huge energy price increase we will receive next year, but by then those funds will have been depleted due to 10% inflation versus 1% interest savings accounts.
And then the relentless messaging from Labour this week is ‘we are the party of working people’ – a slogan from the 2015 Ed Miliband years but dropped during the Corbyn era now rearing its ugly head again.
If you’re a carer, an OAP, unemployed, disabled or a child, then that message is clear, Labour is not for you.
This is desperate, just now I have zero hope for the future.
I am really sorry
I hope there is something good in life
Nicholas: if you haven’t already done so make sure you apply for Pension Credit Guarantee Credit, Attendance Allowance and Council Tax Support.
Richard: still waiting for the working showing that £239k is the average UK mortgage, and that people with mortgages are long term worse off during periods of negative real interest rates
You are a troll with multiple identities and now a gender swap
I answered your question with data
Gosh – if the pensioners don’t get their promised triple lock uplift the Daily Mail readers are going to be foaming at the mouth! Who will they blame ? Probably the “traitor” Tory MP’s who betrayed Johnson !
Visited a pensioner friend today, who reads the Mail.
A full page article by the editorial comment column , telling us the IMF -once useful- is reduced to “political posturing”. By which, I take to mean they criticised the govt. The author was a Mr Lesh, someone at the Institute of Economic Affairs, which was rightly accused by Richard yesterday of undisclosed funding.
Another long article saying how ‘the left’ hate aspiration by Asian or Black people’.
A slightly shorter one telling “Starmer is planning a wealth tax”.
Sir Kenneth Branagh was awful as Boris but I didn’t read it.
It is no wonder that so many live in an alternative universe. Part of the revolution must be a way of making the press more responsible. How I am not sure.
They must be majority owned by public interest trusts
Truss has been doing a series of minin interviews on different local radio stations. Her line was that they had to do something to stop people facing £6,000 fuel bills. Not one interviewer pointed out that was announced 2 weeks ago and the £ only crashed after Kwarteng’s mini budget. None mentioned that the average householder’s bills are going to increase a great deal more than £6,000. Can you imagine if the Labour party had been in power and a similar catastrophe had happened?
BBC Stoke did get to mortgages
She was struck silent by the question
I’m assuming her advisors hadn’t given her the scripted answer to that one.
Craig
“First, be rid of not just Truss and Kwarteng, but the party that put them there. This is vital.
Second, because we cannot afford a general election as yet, having already had months without a government this year, a cross-party coalition will need to stabilise the country. I sincerely hope this can be achieved.”
Maybe I’m missing something but given the make up of the current parliament and the Tory majority of 80, this could only happen if the Tory Party were to split with more moderate Tories (are there any?) joining with Labour, SNP and the Lib Dems.
While I want to see the back of the Tories I just can’t see this happening. For a start it would mean the end of the Tory Party, 2 party politics, FPTP and the game that they have been playing for years. More likely the Tories will stab Truss in the back and bring back the prodigal son Johnson. Hell will freeze over before the Tories give up their gravy train.
Our democracy is flawed. Peaceful revolution is the most difficult to achieve. It could potentially be achieved if Starmer and the Labour leadership backed the Party wide support on PR and made it policy. Unfortunately the Labour leadership seem to want to give the old two party FPTP system alive. Change to PR and I believe the Tory Party dies a death or sits alone in a PR Parliament with only the DUP and the next Farage gravy Train Party for company. Keep FPTP and they live to fight another day with Labour simply keeping the seat of power warm for the Tories return.
Labour could lead a genuine revolution for change, but I fear they won’t. Keep FPTP and they keep the Tories alive. Change to PR and the Tory party will probably split (ERG and one nation Tories will struggle to exist together in a PR Parliament) and never rule again. The Tories only got 29% of the total vote in the last FPTP election. Introduce PR and mandatory voting and the Tories are dead as an electoral force.
I think that given the current mess the Tories might split….
Truss has many enemies
Richard, you state pensioners and benefit claimants will now not receive the inflation linked rises we were meant to in April.
Is this definite, and has it actually been announced anywhere?
I’m terrified. Am bed bound, and already destitute. I can’t cope with any more stress, or any less money.
Chris Philps, a Treasury minister, has made clear he thinks this uprating in full is very unlikely to happen
Sorry
The title ‘Treasury Minister’ and the name ‘Chris Philps’ should not be allowed to exist in the same sentence.
Chris Philps is a moron in my opinion.
Possibly things have moved on since Chris Philps made that statement? This is from the BBC this evening, at the very bottom of the article:
“He [Kwasi Kwarteng] did, however, say the prime minister was committed to reinstating the triple lock on pensions…”
https://www.bbc.co.uk/news/business-63079743
Though it does occur to me he might not mean it’s going to happen any time soon.
I have heard no decision is made now
JR my heart goes out to you and I can’t go to my bed without sending a note of support. My words may not pay any of your bills but please know many are planning to show their fury at the situation. I’m a pensioner, thankfully not unable to get out and about. Although I am alone i.e. no family or close relatives. Single households are quite expensive to run, even the cardboard shoebox I have been renting for the last 9 years. Keep an eye out, Saturday seems to be the first demonstration of this fury up and down the island of Britain. Do’t know if NI is joining us. In Scotland we are now revving the engines towards independence, but I see that’s almost paused Saturday to join in the Enough is Enough day. Hang in there. In the end there are more of us than there are of them.
Is there any evidence that Starmer’s (and Reeves’s) Green Prosperity Plan might be funded through the sort of Green QE that you have written about? It seemed to me that Starmer is still hostage to the idea that Governments have to tax someone to raise the money that they need to spend. I can’t get a handle on Labour’s economic thinking at the moment.
Right now there is no sign of that
A start to Starmer’s thinking?
https://weownit.org.uk/blog/here%E2%80%99s-why-great-british-energy-public-ownership-win-our-movement-even-if-it%E2%80%99s-not-full
Lots of links. Cat Hobbs was on the platform at the labour conference with John McDonnell. She’s not labour, but lots of people listening and taking note.
https://weownit.org.uk/blog/here%E2%80%99s-why-great-british-energy-public-ownership-win-our-movement-even-if-it%E2%80%99s-not-full
Starmer is very slow to act but at least this is a start. It includes green energy. Maybe he needs more encouragement.
I don’t have enough understanding or basic knowledge to know what removing savings from institutions that speculate as part of their operations in the pensions market might mean, but would a quick way of referencing this course of action be ‘reversing the Big Bang’?
Quantitative easing has not been inflationary since 2007 because the liquidity has been lapped up by ordinary workers like a woman dying of thirst in the Sahara. It kept many businesses and banks alive which otherwise would have died, and which arguably should have been allowed to die. The problem back then and subsequently was that lenders could not borrow ready cash in order to carry out their core business, and QE solved that problem. QE to boost salaries may give rise more readily to inflationary pressures, I suppose, but the contrary argument would be the famous Mick Lynch formulation – ‘there was inflation when wages weren’t going up, so it’s wages chasing prices, not prices chasing wages’.
My main point would be that a national unity government would only happen after the Tories had been defeated in parliament and were not obstructing the work of said government. But I have heard this morning some Red Wall Conservative MPs – quite incredibly, but apparently sincerely – saying how much they support the mini-budget. These MPs would never work with a government like that. I fear there would have to be another general election, which would be the more natural and usual consequence of a confidence vote in parliament being defeated. If the pound resumes its downward drift and interest rates go up a lot very quickly, which looks likely, there could be such a defeat quite soon.
just been listening to Dylans ” like a rolling stone ”
is this Truss & the chancellors epitaph
” no direction home ”
have I really been waiting unwittingly for 50 odd years for the Tories to really fuck themselves up ?
wittingly I have indeed
BBC 5 live correspondent says the money for the buying the bonds yesterday to stabilise pension funds etc came from the ‘Bank’s reserves’ and ‘won’t appear in the accounts’…or something to that effect.
Seems to be the only occasion the question has been raised on media? But where does this leave the idea this might be QE? This money already existed? How big are the Bank’s ‘reserves’?
Richard must have dealt with this before – ……
Reserves are created by the Bank by many creation
This is exactly the language they use for QE
We need all that you suggest above but I do not know how we are going to get it.
I have to agree with the view that we are really now are a failed state.
It’s only our past prestige that is keeping us afloat and the best wishes of those in Europe and perhaps wider who miss us and still think we have a role.
But not like this. We can’t go on like this. It’s getting ridiculous – it’s like we’ve been taken over by some religious cult.
And on that subject we must remember that this is an illegitimate Government.
It was voted in by the internal party membership of the minority Tory party, through the mechanism of the internal 1922 Committee.
It has ignored even those institutions set up by it’s own party (the OBR) to offer some sort of oversight to its policies, none of which if I remember are in any Tory manifesto.
So when you talk of revolution to me, it is about the removal of these carpet baggers, who are manifesting as politicians.
And once and for all, learning our bloody lessons and removing the workings of the Tory party membership and its sodding 1922 Committee once and for all – by avulsion, if necessary.
As a French person I would argue that…
“Nothing short of a revolution can save us right now”
…Is a long way from reality. It’s difficult to understand how hyperbole helps when the issues are so important? Perhaps, it would be better to simply say we need a general election so that the population can have their say on the current government and whether they deserve to stay in power or not.
Media, social and traditional is full of extreme views but inflaming the current situation aids no person…
Did you notice the type of revolution I quite deliberately referred to?
The hyperbole is yours
Perhaps it’s a language thing. I read your blog for the economic input but get lost with the use of words like revolution, fascism, fascists etc when the U.K. is underdiscusssion. From where we look, none seem relevant to the debate at hand, but perhaps it’s lost in the translation (or maybe British SoH which is quite different)
Bon soir
Needs more than this for a revolution, but it’s a start. Only noticed it a couple of hours ago, but gone up by over 10,000 since then.
https://petition.parliament.uk/petitions/619781
You have over 190,000 followers, I think, Richard.
Well, the Tories will be sweating bricks tonight.
“Liz Truss’s Conservative party would be almost completely wiped out if an election was held today – winning a mere three seats – according to a bombshell poll.
A new poll by YouGov showed the Tories trailing behind Keir Starmer’s Labour Party by a huge 33 points.
The latest figures show Labour with a majority of the vote on 54 per cent, with the Conservatives behind with less than half that on 21 per cent.
Data analysed with the Electoral Calculus suggests if the poll was recreated in a general election, it would mean a near-total wipeout for the Conservative Party.
The model shows the party holding three seats while Labour win 565 seats out of 650 in the Commons.”
https://www.dailymail.co.uk/news/article-11264115/Tories-win-just-THREE-seats-Liz-Truss-election-held-today-Labour-storm-ahead.html
Have you considered the following?
Fossil Fuel Industry is now liable for civil claims due to decades of climate disruption denial.
Fossil Fuel industry is the basic engine of Capitalism.
Fossil Fuel industry reigns as a hegemon.
How far would they go to undermine democratic populations from ever holding them to account for damages, reparations and prevention of further harms : or being forced by regulation to pay all previously externalised costs?
Would they destroy democracy wherever they could?
Seems to me to be a comprehensive rebuttal of Tory policies over the last decades, only thing missing is any mention of punishment.
Truss could have mimicked the tax policy of Ireland by slashing corporate taxation and holding off on income tax cuts to appease the debt markets. That is what a cunning right winger would do, but she is the opposite of clever and Labour and the Social Democrats now have her back against the wall. The Left need to present a very strong manifesto now. Be bold. Print it on billboards. “The Left is here to improve the cost of living”. I used to see New Labour New Danger posters everywhere when I was younger. Communication is key now to hold onto the lead