≡ Menu

Reflections on the investing and personal finance consequences of the 2019 Tory win

A graph showing how young people voted more for Labour, older more for Conservatives.

Fair warning: Feel free to skip this LONG post. I have tried to focus on the investing ramifications of the general election. However I do make statements that will strike some as political, if not excessive. That is the nature of politics currently, which I really would love to fade from this website.

Today I’ll explore what stance investors should take post-election, given where we are and where we seem to be going.

I won’t be rehashing (much) how I believe the country should have voted in the Referendum or in last week’s election, though inevitably I’ll reference both.

Remain is lost. The Tories have won a big majority.

If you applaud this outcome then I’m not going to change your mind. And if you’re a Remainer who has watched the rise of Leave, Boris Johnson, and what it represents with dread, it’s still time to take stock and be prepared.

Hard Labour risk off the table

It’s already clear from the data that Brexit was the biggest of several swing factors that won it for Johnson.

However from the market’s perspective, taking a Jeremy Corbyn Labour win off the board is by far the bigger win.

That’s true from the perspective of the individual personal finances, too, for anyone with chunky assets and/or a good-to-high income.

Catastrophic defeat for Labour and Corbyn means no outright nationalisation issues, no State-forced dilution of shareholder assets via 10% share giveaways, far less regulatory threat, probably a stronger pound, probably stronger gilts (and thus cheaper government borrowing), and no windfall or wealth taxes or outright Tobin-style taxes on financial transactions, or anything similar that Corbyn and McDonnell might have come up with.

UK shares warrant higher multiples

All of that is very good for UK markets. Britain looks set to remain an Anglo-Saxon style capitalist country. Shareholders will enjoy strong property rights, and other ongoing regulatory and legal protections.

The immediate beneficiaries are obviously those companies that were directly in Corbyn’s sights – utilities, travel firms, and telecoms for instance.

But all UK shares should be marked higher on this risk going away, to whatever extent a potential Labour win had previously weighed them down. A multinational that earns only 5% of its revenue in the UK and was thus fairly immune to the UK economy, say, still faced outright threats from some Corbyn proposals. That risk is now gone.

With that said, the bounciest companies in the immediate post-election rally were UK domestics, such as housebuilders and UK banks.

This is also logical, but only so far.

On the one hand it makes sense if you feel that Corbyn’s domestic agenda threatened such company’s profits as well as potentially hitting their assets directly through, say, mandatory share distributions.

Higher unionism and government regulation loomed larger under Corbyn, for example.

Many will feel too that UK economic activity will be stronger under a Tory government than under Corbyn’s version of Labour. I’d say that’s true, leaving aside thorny longer-term issues about generational inequality or wealth distribution.

Remember though that any State stimulus-driven boom that happens under the Tories would have been equally enjoyed under Labour.

Moreover the Conservatives come with far higher Hard Brexit risks baked-in. That to my mind remains a big danger to the UK economy. (See below).

On balance I’m minded to continue to hold slightly more UK assets than before the likely result of the election had become clear, but fewer than if Hard/no-deal Brexit was finally ruled out.

Remember a UK home is a UK investment and an asset. If you’re a homeowner with an average-sized investment portfolio, you’re already very exposed to the UK economy. Even more so if you have a job here.

Tax shelters, personal allowances, and pensions – as you were

There is little reason to believe the UK’s very generous tax sheltering regime is going away under this Tory government.

ISA allowances, higher-rate relief for pensions, and the ability to put large amounts of money into those pensions will almost certainly all remain intact, if not improve.

Capital gains tax allowance shouldn’t change, either.

In the election run-up the Tories talked about revisiting the annual allowance taper. This problem is most acute from a societal perspective in the NHS. However it would be more coherent for a Conservative government to ‘fix’ this problem universally. So if anything, the potential of pensions as wealth-amassing vehicles could get even better.

I can see inheritance taxes being simplified, too. The main residence nil-rate band is confusing. Illogically to my mind, most people hate inheritance tax (IHT) even if they don’t pay it. But anyway, the number who do pay has been rising. Perhaps Johnson will use his majority to scrap the current system and instead aim for the £1m IHT-free threshold the Tories mooted a few years ago.

Personal tax allowances should rise a little, but I wouldn’t hold your breath for big income tax cuts. Not given the likely scale of State spending. Possibly the additional rate band could be scrapped as a simplification measure. That would make some sense.

Bottom line is if you have assets and you’re an average-to-high earner, you’re alright Jack.

Wealth preservation should be straightforward (ignoring currency fluctuations!)

What if you’re just starting out?

If you don’t have assets or a decent income, you need to try to fix that if you can. Pronto.

State spending increases will be directed towards infrastructure and investment, rather than welfare payments or even in-work benefits. I see little respite for the bottom rungs hit by austerity over the past ten years. So get off those rungs if you can.

Talented individuals of any age and class should do better financially in a looser and probably more vibrant Tory-run economy than under a Corbyn Statist equivalent. But the aggregate wins will continue to be skewed towards the haves, rather than the have-nots – continuing what we’ve seen post-Gordon Brown.

Run this forward ten to 15 years, and there’s a case for Monevator readers making even more self-provision.

For instance I don’t believe Johnson intends to dismantle the NHS – I’d argue there’s even more of a consensus around it being a public good than in the 1980s – but I could see nips and tucks. If you are concerned about NHS waiting lists today, I don’t see the situation improving. It might be worth thinking about private healthcare, or at least self-insurance in the form of a far higher-than-otherwise emergency fund.

Ditto education, vocational training, your kids’ university courses, and similar state provisions. I’m not hysterically claiming state support for such is going away tomorrow. However there’s no reason to think it’ll be improved much, beyond some catch-up anti-austerity spending.

What about housing? Well, if you’re young, you’re not already a home owner, and you’re not likely to be a high-earner, you’re probably screwed re: housing. At least in the more prosperous areas of the country where most of the best jobs tend to be.

The Conservatives say they’ll build more homes, but I don’t expect them to build in their core voters’ prosperous backyards. Also, it won’t be social housing, it will be new homes for the next generation of young professionals. So anything the Conservatives do to deliver their million home pledge will likely be done through relaxing planning or further boosting incentives and support for builders and buyers. We can probably also expect some sort of new Help to Buy type scheme eventually.

This means house prices will go up – assuming no hard Brexit.

Again great for those of us who own a home already, not so much if you don’t.

Honestly, if you’re a 20-something Remainer – especially if you’re in a non-high-paying field (say teaching, nursing, general admin) – then it might be worth moving somewhere like Lisbon or Valencia or maybe non-mega-city Canada or Australia and building a new life there. It could be a big quality of life arbitrage.

Brexit isn’t done yet

Okay, let’s dial up the controversy a tad. I’m still trying to look at this from a practical perspective, but clearly it will reflect my views.

We are going to leave the European Union. However I believe this becoming a certainty with Johnson’s elevation didn’t have much to do with the immediate rise in the pound or the relief rally in UK assets, despite the spin. I think that’s nearly all about Labour being out of the picture.

With that said, the size of the Conservative majority is important. We now have a government that can get through its legislative agenda without fear of internal revolt or external coalitions.

For investors, the multi-dimensional problem of Brexit politics has become easier. It’s now ‘only’ about what the Conservative party and the EU each want and will accept. Other hitherto important players (opposition MPs, soft Brexit Tories, Remainers at large) have at a stroke become irrelevant to the calculus.

This should make it easier to assess the trajectory of Brexit than before – but note that easier does not mean easy!

For instance, just last week I was opining in the Monevator comments that Johnson’s ego would encourage him to sidestep a very hard or no-deal Brexit, if he wants a strong economy for the next five years.

Even if you’re a Leaver who believes in national economic benefits from Brexit – superior trade deals, reduced regulation improving competitiveness – such alleged benefits won’t be front-loaded. (I am setting aside any ‘pent-up demand’ business or foreign investment we might see over the next few months, which would have happened with-knobs-on if we’d instead had the certainty of Remain.)

So avoiding a no-deal Brexit remains short-term important, from an economic perspective, even you’d think for Johnson. But already it’s been cast back into doubt.

Johnson is apparently looking to impose a new ‘cliff edge’ at the end of the current transition period. While this will give the UK some negotiating leverage, it does the same for the EU, who can now test the UK’s tolerance to go through with a no-deal Brexit by dragging their feet.

The result is the stakes have been raised again.

Brexit uncertainty is certain to continue for at least the next year. You can see this in the pound, which has already slipped back to where it was before the election!

And this is not to even go into future Union-related issues concerning Scotland or Northern Ireland.

Most observers, including me, still believe it’s likeliest we’ll have an extended transition period and a long debate about a trade deal, which could go on for many years. This is economically perhaps the best outcome from here (leaving aside a soft ‘Brexit in name only’) but it will still be an indefinite economic friction, which will continue to see the UK economy trading below where it would otherwise.

Judging by the past few years, the electorate won’t care politically, but they will remain a bit more hesitant, and this will continue to dampen consumer spending, house prices, and so on.

The question will be how much the enthusiasm for Johnson and his new Tory government and also Remain being off the agenda – and the spending the Tories are likely to unleash to reverse their own austerity – can be translated into what we used to call a ‘feel good factor’ that will rev up animal spirits to counter that ongoing Brexit drag.

Active versus passive responses to ongoing Brexit gyrations

Personally as an active investor I’ll be nimble in the face of these Brexit shifts. The past week or so was great for me – I was up about 5% in a week as I’d tilted heavily towards the result I didn’t want but seemed inevitable – but even as the rally roared I started dialing back that tilt, selling some UK property assets to buy international earner Diageo, for example.

There is a cost to this. Not just trading costs, but also the opportunity cost of continually trimming winners, adding to losers, hedging against increased or decreased political risk and so on.

I have done fine in 2018 but I have lagged my benchmarks. I see this as the price I have paid for avoiding a No Deal calamity, if we’d seen it, while retaining the opportunity to benefit from other outcomes.

Passive investors are well-advised to stay clear of all this. Just owning global trackers and some bonds and letting Brexit shout itself out in the corner has been a boon since the EU Referendum.

True, you will be thwacked if we do see a deal reached and the pound truly rally. Your overwhelmingly overseas holdings will fall in value.

But remember two things:

First, they were previously juiced up by the collapse in the pound after the Referendum.

Second, it’s anyway extremely difficult to trade the existential politics of Brexit to post a net gain that’s worth your time.

It’s easy to look in a paper and say “I saw that coming!” But you probably didn’t, and even if you did you often won’t get the market reaction right. And even if you did see that, are you sure you know where you’d be all told if you’d steered clear of trading altogether?

For example the UK domestic shares that have rallied so much in the past few weeks were in the dumpster just a couple of months before that. That plunge was what set the stage for their recent sharp recovery.

What does Johnson’s government stand for?

Okay, from here it’s big picture navel-gazing – possibly the most important questions, but also the muddiest answers.

Like most of the developed world, Britain is going through convulsions.

As best I can tell it is being driven by technological change, the advent and polarization of social media, globalization, the financial crisis and its uncertain, austerity-dominated aftermath, a backlash against the overreach of identity politics, and decades of self-selecting regrouping around people who think like us and our particular friends – aided by moving (or not) to a few big cities, marrying our peers, and the waning of all sorts of mixed social spaces, from churches to old-style ‘you get all sorts in there’ local pubs.

However unlike most of the rest of the world, the UK hasn’t been the calm one carrying on, as we might have expected.

Instead it’s embraced Brexit – overturning its long-established political and trading relationships, and voluntary casting overboard various rights enjoyed by its citizens, in exchange for less ‘foreign’ oversight of those citizens.

And it’s now delivered a general election that’s smashed our preconceptions of class and the political geography of this country.

The best that can be said is that if the world is changing, we’re doing something about it rather than passively sitting back. (Albeit I think the wrong thing.)

One might also argue that the swing to the Tories in Leave-voting towns – and the evident disquiet if not disgust in many of those places for what Corbyn’s Labour represented – shows a final flowering of Thatcherism. After all, Thatcher – whom on balance I admired – wanted working class people to throw off preconceptions of where they came from and aspire to be middle-class types, just like traditional Tory voters.

Haven’t they done just that? Well that discussion is for another day, and another website.

From my perspective here, the issue for our net worth is the country is in flux and it’s not clear where we’re going. To me the UK is ‘in play’.

The new government will set the tone, of course. What can we say about its ideological convictions, beyond ‘getting Brexit done’?

I believe Boris Johnson’s only absolute conviction is Boris Johnson. Before you shake your fist, consider that we knew him first as the globalist, liberal-ish London mayor. He then went on to recast himself as the leader of a nationalistic and subsequently populist project, and latterly he’s been trying on the robes of a one nation ‘King of the North’.

If you find these shifts consistent, you’ll reach your own conclusions. I don’t and so I’m inclined to discount anything he says. I’d rather look at what he seeks to gain, which is re-election, in assessing his motives.

Dominic Cummings has been cast as the closest this Conservative government has to an intellectual wing. What does he stand for, and how should we prepare?

The short answer is read his blog. You’ll find long screeds against government and paeans in favour of technology, science, cleverness, and the markets. If you’ve less time on your hands, this New Statesman article is reasonably non-partisan.

My take is that Cummings is more an arsonist than a firefighter. He seems angry, he’s against a lot of things, and so far we’ve seen how effectively he can take things down but not what he can build. I think he believes the market, science, and data can do a better job of coming up with solutions than government anyway, and he has expressed a deep antipathy towards establishment politics.

In more normal times I’d actually expect to sit more on his side of the room. But we’d be on the fringes, where radicals belong, gestating ideas to be cautiously cherry-picked, not at the heart of government, swinging an axe.

So there’s the potential here for disconcerting levels of change – as if Brexit wasn’t change enough for a generation.

You might say bring it on, after all you wanted Brexit. But what if the next institution the axe targets is your legal protections through the courts, or mandatory vaccinations, or the BBC, or national service, or food standards, or the House of Lords, or the armed forces, or the benefits system, or the promise of a state pension?

I’m just throwing out examples, not making predictions. The point is revolutionaries are by definition agents of change. You might not get the change you wished for.

Incidentally, the defeated Labour party manifesto shows traces of the same trends. In place of the pragmatic social democracy of Blair and Brown, we had a Hard Left manifesto from the early 1980s, albeit stripped of the guff about state control of car makers and so on.

Remember, something like half of people under 45 voted for Corbyn’s Labour manifesto.

Tory voters are dying, Labour voters are still being born.

So again, be careful what you wish for. Who is to say the next lurch won’t be back from a harder right-wing government to a harder left one?

As someone who believes this election was hugely influenced by Leave/Remain, I certainly don’t write off Corbynism. Nor will Johnson, so we can expect to see some efforts to shore up his new base in the formerly Labour-voting regions.

A tinfoil hat bit to conclude: Have a ‘bug out’ plan

The point for me is that you need a Plan B. I believe there’s a non-trivial chance you may want to get out of the UK in the next five to 20 years.

Before I get screamed at – or this post referenced in ten years as ludicrous – I’m only talking perhaps a 5-10% chance as things stand. So it’s a small chance, but it might happen. That’s the way probability works.

Probably we won’t spiral down into some hard-right / hard-left Dystopian nightmare. Perhaps having these modest populist convulsions today will see off deeper problems that other countries will need to face in the years to come? That was one argument made by some Leave voters, who felt we’d be more flexible outside of the EU.

The point is this prospect of national calamity was effectively non-existent 20 years ago. The UK was one of the most politically stable countries on the planet. This is no longer the case.

So get your F-off fund. In a worse-case scenario you may need to deploy it against more than just an unpleasant boss. Consider using some of that fund to explore and if needed secure the potential for a life in an alternative jurisdiction.

I made sure my Plan B was solid in the weeks after the Referendum. I suggest you do, too.

Think I’m being hysterical? As I said, I’d guess it’s only a 5-10% chance I’ll need it, gut feel. But it’s the sort of thing that if you need it, you really need it.

While I don’t claim to be a fortune teller, I’ve long warned there’d be societal consequences from the financial crisis, such as in this post back in 2012.

We are certainly not yet off that train. I’m not even sure we’ve left the station.


Note: If you’d like to comment please try to focus as much as possible on money and investing consequences. I understand I’ve strayed a bit above, but that’s my prerogative as this blog’s owner and waffler-in-chief! 🙂 For the sake of a good conversation, if you like the Johnson agenda it’d be better to focus on what tax and spending benefits you see. If not so much better to focus on what practical steps you’re taking to mitigate any downsides.

Please stay polite. I didn’t delete a single comment on the post-election Weekend Reading, and it’d be great to avoid doing so again today.

[Source and larger version of voting poll in top-right: Paul Lewis via Twitter.]

Receive my articles for free in your inbox. Type your email and press submit:

{ 130 comments… add one }
  • 101 John B December 21, 2019, 4:15 pm

    I’ve become more of a “I’m all right Jack” persuasion too. I’ve spent too much time on politics over the last few years, and if the public in general are idiots, I will focus on my friends and hobbies. The Tories won’t be able to sink my finances, and I can do more for all the wildlife in my nature reserves.

  • 102 Richard December 21, 2019, 5:00 pm

    @ZX – isnt that the sort of arguments the aristocracy would have said in yesteryear about giving the vote to the ‘uneducated’ working man? We could try ‘benevolent’ dictatorship or only the wealthy/intelligent can vote, but benevolent is generally in the eye of the beholder and both can be corrupted quite easily. I don’t know what the answer is, but probably democracy with greater emphasis on education (esp children). Those old people will die off and the young will inherit the earth (whats left…).

    The other thing that is interesting about the talk of upping sticks is how many of these other countries are actually better at the local level? Most of Europe has seen similar movements and while they haven’t managed to take over they still have quite a loud voice. Outside Europe, most countries have very strict immigration rules if you are not rich to start with. Not sure the grass is always that greener.

  • 103 FlyByNight December 21, 2019, 6:14 pm

    @Richard – I wonder if the answer (while not perfect) might be a more representative system like proportional representation?

    It feels like we lurch from left to right and then back again with different groups feeling disenfranchised at different times.

    I agree with ZXSpectrum48k – I’m finding it difficult to rationalise the arguments and it does feel like some of the population “prefer feelings, belief and magical thinking to empirical data, science and math”. And it looks like recent events are going to continue to have a very real negative impact financially.

    Taking vote share into consideration the mandate is less clear – with the country still largely split between leave parties and remain parties.

    PR would at least give a more representative view of “the will of the people”, and make everyone’s vote equal rather than where we are now where one half of the population can make a decision which has a profound negative impact on the other half.

  • 104 ermine December 21, 2019, 8:15 pm

    > it does feel like some of the population “prefer feelings, belief and magical thinking to empirical data, science and math”.

    Although belief and magical thinking may be an issue, there’s nothing that wrong with feelings when it comes to running human affairs. Although I didn’t share it, the feeling of losing self-determination, ie sovereignty, may be worth a cost to some, perhaps many, it appears. There are other historical examples of values trumping economic considerations. It would probably have been cheaper not to fight WW2. Closer to home, you really can’t make the business case for having children in a developed country but it’s a very widespread non-data-driven lifestyle choice, values not economics again 😉

  • 105 Earthling December 21, 2019, 10:57 pm

    “Tory voters are dying, labour voters are still being born”. Sorry to disappoint you but as labour voters grow up and pay taxes for 20 years they become Tory voters.

  • 106 Matthew December 22, 2019, 7:06 am

    @johnb – you have a point that aging tory voters are more likely to be on the recieving end of the nhs, and although some preventative care might save money, some preventative care extends lives (and aging population) and therefore costs of keeping people in failing health alive for longer. Also I think the unemployed have more time to go to the gp about every little thing whilst a worker could not, so a small charge might improve access. If you want you could make truely preventative things free, or refund the gp’s fee if they prescribe – perhaps that way you could abolish prescription charges totally.

    You mention insurers add friction – i believe you mean they take profit? They may do but introducing a profit motive and pressuring the health providers to cut costs should create a previously non existent competition – if we believed everything was more efficient in nationalised hands we’d have had economic development similar to the old soviets. Profit ought to be reinvested into the secondary stocks+bonds markets, providing liquidity for share/bond issues for company growth, or spent, stimulating other parts of the economy in a diluted way.

    Also the american private sector funds new drug deve that the NHS does not – you need some rich people willing to pay the initial high costs of new drugs to make their development worthwhile

  • 107 John B December 22, 2019, 5:09 pm

    @Matthew. Its hard to discuss with someone who seems reluctant to keep people alive longer. The evidence from the American health system is that it costs twice as much to run for the same level of treatment as the NHS, with the extra cost going on administrators both in hospitals and insurers and lawyers. Its not a small matter of corporate profit, its a matter of millions of people pushing paper and trying to stop others receiving healthcare. Private sector drug companies develop drugs for diseases of the rich, so we don’t get new antibiotics (which must be held in reserve to avoid resistance developing) or anti-malarials.

    I was dead against Labour nationalising Broadband and stealing shares, but equally liked getting natural monopolies like energy billing (not generation) into state hands.

    As it stands my EDF shares keep paying dividends, but I hate having to shop round as they keep screwing their loyal customers over price. The worry is the Tories will try to sell me shares in Kings College NHS Trust, so my dividend rises for every treatment they refuse to give me.

  • 108 The Investor December 22, 2019, 7:25 pm

    Regarding the NHS. Most of us believe in some form of redistribution of wealth via taxation. Of course, some more than others.

    Personally, I’m not aghast at the status quo; I don’t think it should go much higher. Others may disagree, or feel it should be much lower.

    Regardless, once you’ve taken care of the courts, the army, perhaps the roads, it seems to me that health care spending is the next easiest place to reach a consensus on. We’re all unequally lucky at birth, genetically and in terms of upbringing. From there the health casino pays out for us all in different ways. Sure some behaviours are bad for health, others good, but only at either the margins of bad behaviour (confirmed meth addict) or at the aggregate (smoking) do these impacts reliably show up. On an individual level it’s pretty much a lottery.

    Unequal starting position, unequal luckiness, unequal ability to cope, catastrophic impact at the extremes — isn’t this the easiest thing in the world to make the socialist (i.e. NHS) case for? It ticks every box.

    It even ticks the emotional factor box. Personally, I am not much moved if some poorer people have to use iPhone 4s while others use iPhone 10s, some holiday in the Med once a year, others in Madagascar. But I am very moved if some get treatment for an illness that struck them out of the blue, and others don’t because they couldn’t afford or prioritize insurance or because treating it would bankrupt their family.

    There are difficult arguments about capacity, how much buffer to build into the NHS system, and the work of NICE in evaluating the cost/benefit of different treatments.

    But for me — and I think most people in the UK now — arguing about the core principles of the NHS is time wasted. The NHS delivers huge targeted bang for the buck for me, re-distribution wise, compared to, to give just one example, in-work benefits that someone spends on cigarettes.

    If we want to roll back the State, I’d look elsewhere. Even Johnson seems to agree.

  • 109 Matthew December 22, 2019, 8:44 pm

    Indeed tories wouldn’t dare to do much to the nhs, at least not yet, although you have to wonder if the system is sustainable or even the best available for society as a whole. Like @TI says luck in life does vary considerably and it’s not much of a choice as to whether you use the service, but that’d be like buildings insurance – bad luck could be devastating, but there is still insurance to cover it.

    To argue not to heal the poor so much is morally difficult but when you have limited resources and we’re all paying taxes you have to wonder if we should focus resources on saving the most productive people first, and that the taxes saved will improve the quality of life for the poorer – the poor might have a lower quality of life in general so extending that life at great economic expense might cause more taxation and poverty and lower quality of life for everyone on the whole

    @johnb – i’m open minded about what you say that private might be inefficient with pen pushing, but i’m curious about why that would be? It goes against the logic of privitisation to have more pen pushing when the organisation cares more about the bottom line and has to answer to shareholders. I see the logic in restricting antibiotics or even reserving them for the elite but I wouldn’t see logic in restricting sales of everything unnecessarily, and if people are insured properly hopefully they can get treatments

  • 110 Learner December 22, 2019, 11:35 pm

    This thread has probably run it’s course but I’ll just add having lived in both UK and US for several years now.. I’m glad “saving the most productive people first” appears to be a minority belief here. Happy holidays all.

  • 111 JimJim December 23, 2019, 7:50 am

    @TI. ” Regardless, once you’ve taken care of the courts, the army, perhaps the roads, it seems to me that health care spending is the next easiest place to reach a consensus”
    Personally, whilst not disagreeing with the necessity of the NHS or funding it, surely education should be on that list?

  • 112 The Investor December 23, 2019, 8:12 am

    @JimJim — Education has similar benefits to health spending from a redistribution bang for buck, but I think it would come after healthcare on the “easiest place to reach a consensus” test. To go extreme, I think people can stand to see uneducated children wandering around / labouring in fields et cetera more than they can to see them dying in the streets.

    Don’t get me wrong, I’m a massive advocate of state education spending, and you’re right for exactly the same reasons as I gave for healthcare. Indeed I had a big argument with my most economically right-wing friend over it after posting that Gini co-efficient/income elasticity graph we saw on this site a few weeks ago, with this paragraph:

    Here’s a useful graph to ponder before the election. For those who don’t read charts all day, it suggests that more than other similar countries, what you earn in the UK is closely related to what your father earned (lefthand axis) and that the resultant society is more unequal than nearly all our peers (bottom axis). At the least, for me it implies we should tax and spend a *lot* on education – because we don’t all get the same start in life – and on universal healthcare – because we don’t all have the same luck, outcomes, or financial ability to cope.

    So you and I agree!

    My argument with my friend did surface some interesting (apparent) limits to education though. This recap is interesting:


  • 113 JimJim December 24, 2019, 7:36 am

    @TI Re. “The social mobility trap”
    Very interesting article, and from the experiences of myself and peers I went to school with I would concur with the vast majority of it. Cracking social mobility is perhaps a task beyond any current thinking, a level playing field is a fair thing to aspire to but running from the half way line to the goal is always going to be easier than the full length of the pitch. I was reading some (dated) but relevant to the subject stuff on real wage trends yesterday and came across this PPT (missing the speakers notes but readable) from the IFS… https://www.ifs.org.uk/uploads/Presentations/Understanding%20the%20recession_230915/SMachin.pdf
    Perhaps we have gone too far in clipping the wings of the unions?

  • 114 Matthew December 24, 2019, 10:05 am

    Because of social mobility if you give the same education to the rich as the poor, the rich will still be better prepped for the world of lucrative work, so from a purely resource – allocating perspective there might only be limited bang for your buck in educating the working class who have no realistic hope of filling these jobs anyway – although again it’s political to sell the idea of more equal opportunity, and you do miss out on some innivation if the brightest poor never make it – but this has been the case throughout history and why only nobles who could write and be taken seriously appeared to contribute to science (newton, darwin, gallileo, etc) and partly why advancement took so long (as well as religious opposition and the blue skies lack of financial imperitive). It is still the case somewhat that the working class can never hope to be the most “polished” candidates, and those rich wpuld always try to shut out competition. The internet would at least allow the valid ideas from the poor to reach someone with the authority to do something. It’s just the unchangeable way of the world and we might be wasting taxpayers money fighting it; although it is political to give hope.

    At the end of the day society doesn’t need 100% geniuses, it needs people to wipe bums and harvest crops and move heavy things. AI will further increase the excess supply of brain, but at least will be listened to

    I also think that as society develops a surplus of everything we are more able to supply free education purely as a luxury item, for the fun of stimulating the mind and nothing more

  • 115 The Investor December 24, 2019, 10:33 am

    @Matthew — You tend to offer a very emotion-less and analytical view of things, which at first can be jarring but which sometimes does provoke me to think a bit more. There’s great value in seeing all sides, after all. 🙂

    However I do think you might occasionally follow your own clear logic a bit deeper. For example, on the reasoning you’ve give on this thread I’m not sure we’d have ever educated the peasantry through universal education nor brought in any State healthcare at all — because at any moment in time it might have seemed futile given (a) the status quo (b) history (c) the finite (but far from zero) ability to affect change.

    I think it’s quite true there are limits to what can be done, though I doubt we’re close to them from a purely theoretical perspective. I’m sure if we threw another £100bn a year at education then overall it would raise the educational level, to some degree. The issue would be that (understandably) people might feel they’ve already been taxed/redistributed enough. So the ‘perfect’ becomes more an issue of what’s pragmatic, or as you say political.

    I have no doubt we’re better off pushing towards what’s possible than the Western World resembling feudal Russia in the 18th Century because poor people are useless and uneducated and can’t read, and they just die anyway, etc. 😉

    @JimJim — On current trajectories I think AI is going to do more to social mobility than any policy over the next 10-30 years, though exactly what is currently unclear!

  • 116 xxd09 December 24, 2019, 10:46 am

    Where do genes come into this?
    If you are lucky and get a good handful the worlds your oyster
    Nothing any system can do with this “unfairness” except be aware of the “problem” and compensate
    Genes seem to be responsible for up to half our “success “ in life ( investing ?) as opposed to environmental effects over which we have some control
    A conundrum
    Democracy is the latest imperfect human way try to cope with this situation
    See where that got us!
    Anybody got a better idea?

  • 117 JimJim December 24, 2019, 11:00 am

    @TI, I suppose it all depends upon who controls that AI… If AI is productive, who owns the means of production? Then, potentially, we could revert to feudal times. (Extreme case for illustration, admittedly)

  • 118 Matthew December 24, 2019, 11:32 am

    @ti – appreciate that you appreciate the thinking outside of the box, I think that is something I can add in that way, and that we get a truer image of the limits to things, and get perspective, if we see where limits lie beyond what convention and emotion would allow. I believe it’s easier to test something like capitalism without other theories distorting the net of what we see, remove emotion, and keep historical perspective

    It would be possible to educate better – smarter rather than necessarily more expensive – the people in charge of education don’t understand how to make real money and thus can’t hope to educate children how, and would take the money and buy a new arts or sports facility or theatrical production or something.

    Besides that we do have the problem that you have a larger group of people vying for top jobs and feeling ashamed if they don’t, that they can’t stand wasted potential, by promoting education so heavily we are almost subliminally telling people it’s wrong to do menial work, that that is something they shouldn’t happily reside in, and because of this pressure to look like theyre succeeding you have only a small gap in wages between menial jobs and starting graduate jobs, because people will do unpaid internships, unpaid overtime, unpaid commuting, neverending study, just for that pride – at one point people have to say no – and if people value money more than pride it’s easier to say no to a prohibitive commute, prohibitive rents, limited gains from graduate work over unskilled

    You’d be peed off if years of study, sold to you, proved to be uneconomical – is it fair to continue doing this to kids? Even if society can afford to financially. At least investing is an attainable opportunity, and the internet and vanguard has been very good in that way.

    Regarding genetics, I think we will gain control over that with gene therapy – using modified viruses to correct problems in dna – it won’t matter any more that medicine distorts evolution, and we won’t be messing with embryos, but one day it will extend beyond medical into cosmetic, but then life does anyway – and arguably it could remove some disadvantage.

    P.s. it’s surprising how much tax even lower earners pay with paye, ni, council tax, vat, petrol and insurance taxes all added together, and the landlord’s tax they pay via rents if they rent

  • 119 JimJim December 24, 2019, 11:54 am
  • 120 Matthew December 24, 2019, 2:41 pm

    @jimjim – ai alone is just another efficiency improvement upon existing assets for existing owners, but full automation one day would be the end of money – and with that the end of capitalism and socialism when humans are no longer working and everything is abundant, although humans, like all species, reproduce up to a terminal population where resources run out, although I feel technology can largely stay ahead of that, long enough to outlast any memory of who had claim of resources before

  • 121 Steve December 24, 2019, 3:17 pm

    @Matthew: “… like all species, reproduce up to a terminal population where resources run out …” But as countries/communities get richer their birth rates seem to drop below replacement level. This is clearly, in the cases of Japan and much of Europe, not because of lack of resources but for other reasons. (The world has already passed “peak child” and population growth is currently caused by increased survival).

    I do think that as AI, better education, longevity and other technologies impact our capitalist model will need to change quite drastically but whether it’s revolutionary or evolutionary is unclear. Imagine, for example, that Maslow’s hierarchy is pretty much reduced to self fulfilment … of course all this is a long way off in this troubled world but if we overcome the immediate threats of inequality, climate change, productivity etc I do see a golden future if mankind can cope with it.

  • 122 apb123 December 24, 2019, 7:50 pm

    There is a lot of conviction on here about the merits of EU membership. I for one keep out of politics but if your are all so data driven don’t to ignore the wisdom of the masses.

    i.e the electorate usually gets it right.

  • 123 Matthew December 25, 2019, 4:28 pm

    @apb – in the case of brexit I think what’s good for the economy (remaining, at least in the short term) has become what’s good for the 1%, and the 1% can’t win an election alone, the electorate does what suits the electorate

    @steve – considering that even in these developed economies you still have suicides and people feeling like they can’t afford more children – either not an acceptable quality of life (ie insufficient housing) or cant afford childcare on top of rent, you could say that humans have forced higher expectations on themselves than any other species which has reduced that point you say of peak child (ie must educate the young, can’t leave young unattended like other animals, must provide a solid house up to a certain standard (unlike other animals), and the standards for courting are also much higher, than they even used to be among humans let alone other species – so in the developed world I think these ever increasing standards have constrained the number of children think we can support

  • 124 JimJim December 25, 2019, 5:36 pm

    Perhaps I have had too much wine, … Actually I know I have had too much wine and answering posts in my inebriated state is not recommended (thank funk for autocorrect) but I give in. Gut feeling is sometimes a great thing to have as an investor but logic, data and process of thought have got me further than my gut ever has. A merry Christmas to all, I sign off from this post with this https://youtu.be/3sBqx_57wTw.
    jimJim big kisses and a happy New year

  • 125 Gooey Blob December 28, 2019, 3:49 pm

    Must admit I hadn’t thought about a “Plan B” fund but this post has made me think. I expect Boris to govern from the centre and be in power for a decade. But what if he gets it wrong and messes up spectacularly? What if Labour remain on the hard left yet don’t split as a result? The prospect of Labour returning with the same agenda next time and doing better than they did this time is terrifying.

    For a start I need to make sure my UK investments are all sheltered within an ISA and that includes my VCTs. That way I can quickly liquidate my positions without tax penalties then move the lot out of the country before capital controls are introduced. I’m less sure about where I’d move myself though; fortunately I have a few years to think about that.

  • 126 Matthew December 28, 2019, 4:58 pm

    @gooeybob – I dont see VCTs as offering great returns, at least not for the risk. I think the tax advantages are priced in, and venture capital is sexier than something like mid cap or vanilla indexing, so is overpriced and a concentration of risk and larger spread from illiquidity. Mr market has been distorted by tax treatment

  • 127 Dan December 31, 2019, 1:09 pm


    I am from a working class background – I went to university for 4 years and entered the world of work into a recession with hundreds/thousands of people applying for what I considered to be poorly paid jobs with long commutes or high rents and quite frankly unsatisfying work.

    One day I decided enough was enough and started a ‘menial’ job at a FTSE 100 firm – I now comfortably earn more than my peers, own a home, have a skill and invest my earnings – those that I am still in touch with from university still seem to be suffering from the same problems I was 10 years ago.

    I have paid off my student loan, live within walking distance of work and my children’s schools and my wife works part time. My quality of life took a massive divergence for the better when I abandoned the ‘professional’ sphere of work, and I remember feeling confused, for a long time, as to why I was pressured so hard throughout my school years to go to university when there are quite a few different paths you can take to ‘happiness’ which don’t depend on earning no money for 4 years then working like a slave on low pay until you establish yourself professionally, whilst paying off the loan you took out for the privilege of entering that world.

    Don’t get me wrong, I wouldn’t change my choices retrospectively as those experiences formed me as a person, but I completely agree that encouraging every school child to go to university without thought for their realistic employment prospects once graduating is counter intuitive. I would be very much in favour of capping university places – a glut of graduates in Law, Accountancy, Business, etc does nothing but lower the earnings potential for graduates. Unpaid work should not be commonplace, it is exploitative and only suited to those with a large safety blanket or rather rich parents!

  • 128 Dan December 31, 2019, 2:14 pm

    Surely that adds to the problem? If no one avoided income tax there would be more receipts to spread throughout the system, so more money would be spent on education and healthcare?

    I’ve always found that calling people uneducated rabble tends to get their back up and cause them to become more deeply entrenched with their views – I feel this is one of the biggest problems in discourse today. Anyone with an opposing view to the ‘liberal elite’ (for want of a better term) is tarred and feathered as an idiot, racist, immoral or even self serving and shouted down as a heathen. Discussion and debate is the way forward, not both parties digging their trenches deeper.

  • 129 Matthew December 31, 2019, 5:18 pm

    @dan -well done on your success, as well as investing what you get – even those that do succeed often blow what they earn, and what you do with it is more important than what you get

    As you say, many of your peers who were educated didn’t have your level of success, I would be interested to know what set you apart from them?

    I certainly think at least that schools are not particularly in touch with the jobs markets (after all teachers are not working at the apex of the subject they teach) which is partly why rich kids have a difficult to resolve advantage, I think if you allowed corporate sponsorship for schools at least that would connect education to the jobs market a little more

  • 130 Dan January 2, 2020, 10:10 am

    @matthew – my willingness to pivot and change direction in response to the skewed jobs market at the time perhaps? Also a great deal of luck – a friend of a friend worked at the company which is how I heard about the vacancy. I was massively overqualified for the role but I explained my circumstances and it seemed to do the trick.

    Most of my peers carried on plugging away in similar roles and I have no doubt that they will eventually earn more money than me per annum – will that be worth all those years of earning far less, the long commutes or high rents, the unpaid overtime? Definitely not (for me).

    @TI – the article on social mobility is interesting. Bizarrely I have ended up doing almost exactly the same job my father did, albeit in a very roundabout way.

Leave a Comment