I have already this morning noted reasons why Labour might well be facing a recession whenever it comes into office.
Here is another one. Investment advisers Hargreaves Lansdown sent me some polling they have had done by Opinium this month that shows:
- One in four people (26%) say rising prices have forced them to eat into savings – and one in 20 (5%) say it has forced them to empty their accounts.
- Higher-rate taxpayers are much more likely to have spent some at 38% and slightly more likely to have spent it all (7%).
- However, this is partly because they're less likely to say they didn't have any savings when prices started rising (4% compared to 15% overall).
- One in seven (15%) have stopped paying in, and one in ten (10%) said they needed to pay more in – because the cost of the emergencies they needed to cover got more expensive too.
The stats are approximations, of course, and subject to the usual sampling errors. They are also likely to indicate trends. That trend is apparent. Savings that exist or existed are being depleted. When they have gone, and they will go in a great many cases, the real impact of the downturn will become much more significant - and harsh.
What is Labour going to do then?
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You would have them annex people’s savings!!!!!
The “Pensions Armageddon” is certainly gathering steam, Mr. Murphy. From gov.uk.
“Between 1 April and 30 June 2023, £4 billion of taxable payments was withdrawn from pensions flexibly by 567,000 individuals across 1.3 million payments. The average taxable withdrawal per person was £7,100 in this period. There was a 17% increase in the value of payments withdrawn in this quarter comparted to the same quarter in 2022, and a 15% increase in the number of individuals withdrawing”
I have had clients do this, unfortunately, some to pay off their kids mortgage, one or two because they have no other source of ready cash, with the next stop likely to be destitution.
It’s very worrying.
Agreed
“There was a 17% increase in the value of payments withdrawn in this quarter compared to the same quarter in 2022”
Now that inflation is significant it would be helpful if data like this was computed in real terms – e.g. “After inflation, there was a 7% increase in the real value of payments withdrawn in this quarter compared to the same quarter in 2022”
A question Richard….if people are using their savings and putting money back into circulation by spending which inevitably attracts taxation to a greater or lesser extent does that mean that the deficit and national debt reduces?
It mwans tax revenue and GDP rise, temporarily
And then the money runs out
That is the problem I was highlighting
Labour will go to the market and ask to be told what to do.
That’s about it.
They’ll run about like the clueless reactionary, neoliberal headless chickens they are, and almost certainly take every wrong decision it’s possible to take as a result.
That’s what happens with weathervane politicians that lack the ballast of real conviction and guiding vision of signpost politicians.
This is so true.
There so little experience or knowledge on the shadow Treasury team (or among their advisers) that they believe the self serving bullshit that the City dishes up.
Worse, I and others like me (and you would be surprised how many left leaning bankers there are) could help…. but are ignored.
Lots of people are ignored…..
Doesnt look as though higher rate tax payers are a model of financial prudence.
But the bottom line is that with the share of income that goes to wages dropping then its what you would expect, we just are not paying ourselves enough, and thats before the cost of living crisis hit
“Labour might well be facing a recession whenever it comes into office…….What is Labour going to do then?”
When Tory2 won in 1997, the economy was doing OK. This gave Broon space & in any case he used off-balance sheet stuff like PFI to finance hopsitals etc. So 11 years of economic Okness.
As noted, the UK is tanking, Tory2 is playing by the Tory1 playbook – whilst people expect a B.Liar/1997 style economic result if/when Tory2 get elected.
So 1997-style expectations on one side and Tory2 narrative that does not match those expectations on the other.
Tory2 are facing Aristotle’s “Law of non-contradiction” (possibly the doxastic or semantic version). In the case of the former: “Must one believe the consequences of one’s beliefs? Can one knowingly believe an outright contradiction? (In case of Tory2 & given current narrative – No 1st Q & Yes to 2nd)
If the recent election results are an indicator of national election results – looks like a Tory2 gov – which will most definitely not meet voter expectations – leading to large-scale “buyer regret”. If Tory2 win by a great deal, this carries with it the implication of lots of new MPs. Not all will be willing to toe the Tory2 politburo line. One thing for sure, most politicos are mostly in the political game for themselves – not to help UK serfs. Tory2 gov will lead to much more unrest – whch will suit an authoritarian Kid Starver.
You’re in favour of less tax relief on savings and higher taxes on income from those savings. Not likely to encourage people to save more is it?
“What is Labour going to do then?”
Hopefully not listen to you.
Please explain to me the macroeconimic reaon for saving. Then I might listen.
The most obvious justification for savings is at the level of the individual of course. But I take it that while money remains in savings it has a similar macro-economic impact to taking money out of the spending pool by any other method, e.g. tax. And I assume there might also be a macro-economic benefit in the way individuals’ recourse to savings can smooth the impact of economic shocks (e.g. jump in energy prices).
However that smoothing effect will only really work for temporary shocks, such that the savings withdrawn to help the individual cope will then be returned when circumstances improve (e.g. energy prices declining again, or incomes increasing to compensate for the rise) and the “cushion” remains for future shocks. As you say if there is long-term net withdrawal of savings, when a recession comes it will hit harder and affect more people.
Labour really should be thinking about this, while the pathway to recession has been created by long term Conservative policies it is looking increasingly likely they will be in power when it hits. For me (but probably not them) the obvious answer is to stimulate the economy by taking spending decisions that also represent investment in the country’s future; however there would obviously be a significant lag before that has a positive impact and they will have to find something to do in the interim. Or not, and they will come to “own” the recession as much as the Conservatives.
I am not opposed to savings: resilience really does matter.
What I want is that there be a connection between savings and investment that long ago disappeared. Then we reconnect the macro and micro.
“Please explain to me the macroeconimic reaon for saving. Then I might listen.”
Ultimately saving (as opposed to excessive consumption) is down to the individual to decide if they wish to smooth their means to support a reasonable lifestyle when they can no longer earn. In that sense it is a micro decision but with macro consequences (such as putting less pressure on the State particularly when it comes to social services)..why are you so reluctant to allow individuals to make those decisions, particularly because smoothing consumption over a life cycle is a perfectly rational thing to do?
You didn’t answer the question
I do not dispute the micro reason for saving
I am saying when saving does not fund investment it is dead money – and that is the issue
You clearly do not understand that
“You didn’t answer the question.I do not dispute the micro reason for saving”
The point i am making is saving is a micro decision. You might not like where savers choose to put their money but that is a separate issue. That said a key to saving is choice. Choice of where to seek good returns and to match risk tolerance. Again this is a micro decision as it is down to the individual. It is a dangerous game to override this with State instruction as seems to be your preference.
And what you do not get is that there is no macro reason to give tax subsidies to saving as they are now, at all.
Feel free to save how you like. Just don’t ask anyone to subsidise your choice.
Richard,
You said
Please explain to me the macroeconomic reason for saving. Then I might listen.
My comment might be the reverse what about the reason for not building up excessive amounts of savings.
I came to this blog via Tim Morgans Surplus Energy Economics and he warned against an excessively ‘financialised’ economy which was building up claims on the real economy that it wasnt capable of meeting.
So I would suggest that excessive ‘savings’ leads to ‘Casino Capitalism as we have now in the City of London, the misallocation of resources with the resultant attempt by the owners and managers of those resources to grab political power and extract wealth from the rest of us.
Aggregate savings = Government deficit.
Conclusion –
Algebraically: the government should spend more or tax less.
Economically: the government should spend more.
Aggregate is doing a lot of work there
If nobody saves, all taxation returns to the government and the deficit is zero.
So this is an identity –
Government spending = taxation + private sector saving
See, for example – http://www.matchesinthedark.uk/spending-chains-sankey-diagrams/
“The important thing to note is that the sum of the two end points — tax and savings — exactly equals the initial government spending.
This is an example of an accounting identity: a financial relationship which is true by definition and is true whichever way you look at it.”
Yes, except you ignore the fact that the private sector can lend to the private sector.
It’s a pretty big oversight
Sorry, but it is material even within the framework of your identity
I’m not sure what lending you mean Richard but, in any case, I believe the identity holds for net saving.
But it ignores micro reality
The identity may hold in trial but within the private sector people might still lend to each other, even if totals net out.
Indeed, people may lend to each other. However the accounting identity is at the macro level, and leads to the macro conclusion that the net savings desires of the private sector can only be satisfied if the government runs a sufficient deficit.
Reducing the deficit, which neoliberals favour, will mean the private sector has less money so net savings will fall as they try to maintain their spending.
Or, as Professor Randall Wray and others have put it – net financial assets in the private sector only increase when the government deficit spends (i.e. government spending exceeds taxation). If savings are declining, then deficit spending is too low.
This is the relevant point in the context of this blog, which my original comment may not have made clear.
The link (http://www.matchesinthedark.uk/spending-chains-sankey-diagrams/) I posted shows that the essence of the macro conclusion can be derived algebraically by following the flow of taxed transactions.
I disagree with none of that
But you still cannot draw micro conclusions on saving from it
Sorry, but if you try you will massively miss the point, which is precisely the conflict between macro and micro here
My last comment, which you agreed with, is really addressing the aggregate desire to save. This lies behind the point in the OP that “Savings that exist or existed are being depleted.”. At the macro level, the population can no longer save as much they desire because more of their income is needed to meet basic consumption needs due to the cost of living, interest rates – and perhaps even due to psychological factors.
I understand what has developed in the comments is about how to best utilise savings. The point I’m making has little to do with the choices involved. However, less money becomes available for investment as savings are depleted. Riskier choices to invest might be affected even more negatively.
This will clearly be a problem for a Labour government, as their obsession with fiscal rules is likely (or certain?) to mean lower deficits than are necessary to sustain spending – or indeed to sustain investment.
Burying gold coins in a field or building a house on the land are both “saving”.
One has added to the stock of capital available for use in the future… one has not.
Now, in the real world the distinction between these two types of saving is less clear but MUST be made to prevent savings being a Ponzi scheme.
Richard (correctly)makes the point that the link between buying shares and real investment is, at best, tenuous. The challenge is to make our savings truly productive.
Because micro and macro aims are different it MUST require
Ooops….
…government intervention as it is the only organisation capable of a macro view.
So, while I think individuals should be free to invest as they wish… government should use sticks and carrots to encourage productive investment.
Indeed, with most pension savers craving certainty, gilts (or gilt like savings…. and I might write more about this) make sense with government making investments that we need that only government can.
But first we need a government!
Agreed
I think it fair to say to detractors that I find Richard to be consistent with his approaches – for example, he has highlighted how ISAs are used just to store money and increase individual wealth in a society like ours devoid of investment (I mean real investment – not acquisitions leading to asset stripping – right?).
I note that detractors keep banging on about the ‘individual’ – well not only does it betray certain attitudes but it also indicates what saving has become all about – detached from the rest of the economy and when we are being told that ‘there is no money’ for investment then Richard has every right to ask this question.
Using savings as an investment vehicle is more about ‘popular capitalism’ than any bullshit that came out of the lips of Maggie Thatcher and her acolytes.
Investments would create returns and bolster pots but the returns would also not just be financial. And they might be subject to tax, but I’m sure the tax would not be punitive.
To me, what’s not to like if you are going keep insisting that ‘there is no money’? It’s about making what money there is work harder for society – which is made up of individuals and which IS an interdependent relationship whether some of you like it or not.