What caught my eye this week.
Well so much for the adults in the room. It turns out all the grown-ups in government are on the front benches. But Corbyn’s kiddos are still pulling the strings.
Keir Starmer and Rachel Reeves reminded me this week of college students back home to do a bit of babysitting.
At last it’s their turn to earn beer money watching Netflix! But they can’t be dealing with the actual kids so they lock them in a spare bedroom with a Nintendo Switch to amuse themselves.
Wait – is that smoke?
Spot the moment the resultant surely-terminal footage of a tearful Chancellor Rachel Reeves went viral:

Belaboured castle
Anyone who thinks this week’s bonfire of Labour’s modest welfare reforms must finally represent the low-water mark for British politics might want to book an appointment with 2029.
Because it’s now clear that sitting behind Starmer and Reeves are a cohort of leftwing MPs who don’t and won’t care how out-of-whack with they are with the mood of the nation.
Reeves always faced a thankless and perhaps impossible task. She and Starmer made it even worse by imposing fiscal constraints that won the election battle but have hamstrung the subsequent war.
Now either tax rises or more borrowing must come following this week’s events. And/or a loosening of those rules, which can only happen via the blood sacrifice substitution of a new Chancellor.
Probably all three? And neither the electorate nor the bond markets will approve.
It’s all good news for Nigel Farage and Reform. They can keep promising populist tosh to their credulous supporters, while postponing their own inevitable implosion for any future contact with our rickety reality.
Buckle up.
Counting the cost
It’s true I was never crazy for the Starmer/Reeves duo.
As I wrote after 2024’s General Election:
I’m not expecting miracles. I’m barely expecting anything.
Just not shooting ourselves in the foot for a few years would be nice.
The best hope for Labour – and more importantly the country – is that stability and sanity at the top, plus some judicious low-cost tweaks to planning and policy – might unlock capital spending and investment.
Rishi Sunak and Jeremy Hunt had already halted a seven-year-long limbo competition that had taken the bar for standards down to historic lows. I dared to believe Labour might raise it.
However given that – near-uniquely among commentators – I remember and am not afraid to state that Brexit has permanently impaired the UK economy and is responsible for at least £40bn in missing tax revenues – pretty much the sum that all these spending battles are being fought over, though the news reports never mention it – I noted:
This time things really can only get better.
Except that unlike in the 1990s, it’s now more akin to when you come around from a heart attack and a machine is faintly beeping in the background.
…and all we’ve had since waking is hapless palliative care.
Higher taxes on business (such as Employer’s NI), strong talk but little visible results yet on planning and infrastructure, still higher spending, and leaders too fearful to name the blunder that partly put us in this hole.
Belittled Britain
I know it’s boring to be reminded of it again, but it shouldn’t be controversial.
You can’t leave a huge trading bloc that boosted Britain’s GDP for 47 years without economic harm. And you can’t expect that damage not to show up in the nation’s finances.
Well, this is it showing up.
Add to that an unfortunate succession of further costly crisis – Covid, Ukraine – and the UK never stood much of a chance.
We needed a political titan – a Thatcher, an Atlee, maybe even a Heseltine – with the vision, command, and charisma to push through evasive action commensurate with the bodyblow of leaving the EU.
At best we’ve had journeymen. At worst shysters.
Allocate those labels to suit your prejudices. We can all agree that faced with a Herculean task we’ve been short one Hercules.
There aren’t easy options. But curbing state spending was a better difficult decision from here.
At least I’d have made it a multi-generational effort. Toughening up welfare payment rules but getting rid of the unsustainable pension triple-lock as a quid pro quo for starters.
We’re on a road to nowhere
As things stand, following this latest retreat fund manager Gordon Shannon told City AM that the markets will demand tax rises to maintain fiscal stability:
“The market is requiring you to put up taxes, so you do that but then that pushes down growth more, which makes everyone a bit less happy to make investments in the UK. So more money leaves, so your borrowing requirements are higher because you’re trying to support an economy that’s now floundering.
“What do you do there? You’ve got to borrow more.”
“And that means that, you know, an awful lot of things just won’t happen, whether that’s building a new factory or employing new workers starting a business, a lot of these things won’t come through. And at the margin, that definitely means a lowering of the growth trajectory…which was already in a pretty lackluster state. So, yeah, you’re in a bit of a hell slide there.”
It means non-core taxes up again while mainstream tax thresholds are frozen for even longer. The economy paddling nowhere. And voters who feel like they’re going backwards – or who increasingly even leave the UK, if they are rich enough.
There better be something distracting to watch on Netflix…
Have a great weekend.
From Monevator
Our updated guide to find you the best broker – Monevator
How to keep Child Benefit and retire richer despite the High Income Child Benefit Charge – Monevator
From the archive-ator: Why I’m saving and investing for the disaster to come – Monevator
News
Rachel Reeves poised to cut ISA allowance – Yahoo Finance
Disposable income per head slumps despite economic growth – City AM
First-time buyers and retirees set to gain from mooted mortgage changes – Independent
UK on track for biggest year of takeovers since 2021… – City AM
…even as IPO fundraising in London is at a 30-year low… – CNBC
…though Revolut and Octopus mulling joining new Pisces exchange – City AM
AstraZeneca pops on news CEO wants to move base to US – Proactive Investors
MPs tell Rachel Reeves Lifetime ISA rules are ‘nonsensical’ – City AM
Santander to buy TSB: what does it mean for customers? – This Is Money
IFS proposes abolishing triple-lock in wide-ranging pension review [Research] – IFS

House prices see biggest monthly fall for over two years – BBC
Products and services
NS&I launches new fixed-rate savings accounts – This Is Money
Robin Hood offers EU customers access to 200 ETFs and stocks – ETF Stream
Get up to £2,000 when you switch to an Interactive Investor SIPP. Terms and fees apply. – Interactive Investor
Goldman Sachs’ Marcus offers 4.55% one-year savings to new sign-ups – Marcus
Warning over hefty car renewal price rises – Guardian
Get up to £100 as a welcome bonus when you open a new account with InvestEngine via our link. (Minimum deposit of £100, T&Cs apply. Capital at risk) – InvestEngine
Experian (re)launches free credit reports – Be Clever With Your Cash
Budget airlines increase cabin baggage sizes ahead of EU rules – Guardian
Homes for sale with outbuildings and studios, in pictures – Guardian
Comment and opinion
£100,000 isn’t a big salary, and we need to talk about it – City AM
Why financial independence is overrated – Of Dollars and Data
Passive investing is fuelling the rise of mega-firms [Research] – Morningstar
Whatc new FCA ‘targeted support’ rules mean for your finances – Which
Slow, steady, sustainable – A Teachable Moment
The boomerang bankers for whom escape becomes exile [Paywall] – FT
How house sitting services enabled one couple to save to buy in London – Standard
Can you get Berkshire-like returns without Buffett? – Meb Faber
Solving the retirement income puzzle [Podcast] – Humans vs Retirement
Private markets update mini-special
Private equity mid-year report – Bain and Company
A valuation reckoning looms – Verdad
The past is prologue for private equity fund returns – K.O.I.
Naughty corner: Active antics
WisdomTree Europe Defence ETF passes $3bn AUM in three months – Trustnet
Buying baskets of swan-diving stocks can work – Morningstar
Just keep going, or reflect and adapt? – Value and Opportunity
How Harry Stebbings went from a podcast to a $650m VC firm – Forbes
This metric suggests it’s time to chase US stocks – Sherwood
London-listed companies pile into Bitcoin [Paywall] – FT
Surprisingly winning chat with billionaire Mike Novogratz [Podcast] – My First Million
Productivity mini-special
Why ‘micro-efficiencies’ are on the rise – Guardian
A new approach to productivity – VegOut
Kindle book bargains
The Tipping Point by Malcolm Gladwell – £0.99 on Kindle
Chip War: The Fight for the World’s Most Critical Technology by Chris Miller – £0.99 on Kindle
The Everything Store: Jeff Bezos and the Age of Amazon by Brad Stone – £0.99 on Kindle
Essentialism: The Disciplined Pursuit of Less by Greg McKeown – £1.99 on Kindle
Or pick up one of the all-time great investing classics – Monevator shop
Environmental factors
In Japan, fewer people doesn’t always mean more biodiversity – The Conversation
Scientists question this startup’s plan to save the oceans – Associated Press
Can mirrors in space and underwater curtains save the Arctic ice caps? – Guardian
Dual heat domes hit Europe and US [Paywall] – FT
Leeds-Liverpool canal lock gates closed due to lack of rainfall – BBC
Robot overlord roundup
How to get the most out of AI deep research – Operator’s Handbook
Swedish ‘vibe coding’ AI startup Lovable raises $150m at near-$2bn valuation… – T.N.W.
…while GitHub CEO asks: has AI made ‘learn to code’ obsolete? – Freethink
ChatGPT wipes out entry-level jobs – City AM
Productivity, AI, and pushback – Seth Godin
Second-order beneficiaries of AI [Research, April, PDF] – Morgan Stanley
Not at the dinner table
Would you rather have cheap energy, or stupid culture wars? – Noahpinion
The alarming rise of officers behind masks in the US – Guardian
Off our beat
Biscuit museum’s Jaffa Cake display reignites old debate – Guardian
The story of how Google became Google [Podcast] – Acquired
Are two Star Wars Jawa figures from the 1970s worth £60,000? – This Is Money
The ascendance of algorithmic tyranny – Noema
Salvation from slop – Not Boring
The U-shaped happiness/age curve has become a slope [PDF] – NBER
Indie music legends pick their favourite Oasis songs – Guardian
And finally…
“To finish first you have to finish.”
– Charlie Munger, Damn Right!
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I cannot recommend highly enough the Brad Stone Amazon book. 99p is a steal. Great column as always (if depressing).
Concur with your sentiments TI.
Can’t we have just one significant politician and honestly discuss the state of the UKs finances with no bias and a credible financial plan.
We had the Tories throwing the towel in early after they had sunk the economy. Labour handcuffed by election promises on the economy. Reform rubbing their hands in delight. They recently took over my local council on an anti-woke platform. Unfortunately, they are failing to attend meetings such as Adult Care, Planning etc., thus providing no leadership and now no answers to the budget deficit they inherited.
Who was it again who said “it’s the economy stupid”?.
Yep. Hate to do it but I agree with you.
When did our politicians become so bad at politics ? Throwing money at unions and asking nothing in return?
Maybe it will be the IMF again.
Anyone still have Fire aspirations?
Just a comment on the ‘Why financial freedom is overrated’ article.
I’ve seen this idea crop up a lot, that people need to work to be happy, because they lose purpose otherwise. The author talks about financially ‘flexing’ when mentioning being financially independent, but this is the biggest flex of all. It basically says that “I do a really important job and the world would be much worse place without me”. Well good for you, but this isn’t true for most people. Most people do crappy jobs that involve making money for corporations. I’ll be damned if I can see where one derives a sense of purpose from that.
I’ll agree partially with the idea of financial freedom and the ability to swap a meaningless job for one that pays worse but offers fulfillment and purpose. But it’s hardly a given that one can simply walk into one of these jobs.
Great analysis as always.
Never be afraid of exposing the elephant in the room – in the UK’s case Brexit – and the colossal damage it has inflicted on the British economy. But as you suggest, we aint seen nothing yet compared to a 2029 scenario in which the same idiots who brought us that disease will be charge of the country. Perhaps the time is already ripe to begin thinking about how to protect ourselves from the inevitable chaos?
@Lee Briggs. “Can’t we have just one significant politician and honestly discuss the state of the UKs finances with no bias and a credible financial plan.”
It wouldn’t work. Politicians who try to be honest become unemployed at the next election. A majority of the electorate doesn’t want reality and will vote out anyone who tries it. More than anything, the electorate wants anger and grievance. Their fantasy is that they are hard done by. That it was somebody else’s fault for their (false) perception that their life is not as good as they deserve. Reform, like Trump, offers grievance a plenty. Reform is a symptom of irrationality that inflicts an ever larger part of the population.
> Reform is a symptom of irrationality that inflicts an ever larger part of the population.
Are there any recognized causes for a growing part of the population being so afflicted? Accepting it is political suicide to discuss the situation honestly, moving towards an electorate where it would no longer be so is a helpful first step.
@AW I’ll agree partially with the idea of financial freedom and the ability to swap a meaningless job for one that pays worse but offers fulfillment and purpose. But it’s hardly a given that one can simply walk into one of these jobs.
The wonderful thing about financial independence is that you can take a job that pays nothing but offers fulfillment and purpose, aka volunteering. You don’t need to be FI to volunteer, but it helps considerably as you’ve no ‘day job’ to get in the way.
The ‘Chancellor’ was crying on the front bench during PMQs. Hello. I didn’t think it could get much worse after Blair and then the Tories, but just look at the state of it ffs. She lied to get the job and she’s clearly not up to it. Some lippy and a fake smile the next day won’t fix this circus.
@Ecomiser (#8)
I think that’s largely the conclusion I come to. Financial independence means you can do whatever you want, even if that means doing it for free. There’s no cost of failure, so no pressure. Financial freedom suggests you still need to work, but that may simply mean you swap a crappy well paid job for a crappy low paid one. Hardly aspirational. Financial independence must surely still be the goal.
Very much a post that plays to the gallery/prejudices of the mostly very affluent inhabitants of this blog.
I’m not actually a Labour voter, but it seems to me that the Labour MP’s who have pressured the government in recent days are not some ‘loony left Corbynites’, but, at root, MP’s with traditional Labour views of what is important.
What ZX said.
However, TI, I have to push back on the hand wringing over the climb-down. Make no bones about it, the proposals were terrible policy and terrible politics.
Others have already written plenty about what a shambles these “reforms” were (see for example, Frances Coppola). I’ll leave it there, as I don’t want to write war and peace (and believe me, one could on all the flaws in the proposals).
Safe to say, if this was the best Starmer, Reeves and Kendall could come up with, then the adults really aren’t in charge.
Unfortunately we get the politicians we deserve. No party is advocating taking the really difficult decisions, because doing so would make them unelectable.
Unfortunately this means things will deteriorate until a crisis forces the government’s hand. But that’s going to be messy.
It’s exactly the same with climate change, Ukraine, and I’m sure many other issues. Tentative steps that achieve small short term wins, or at least the appearance of, but make the likely worst case scenario slightly more inevitable.
Some paid jobs are kinda fun, most are not. Many volunteering jobs are also not terribly fun, because they are often made up of tasks the paid staff don’t want to do, and/or that the organisation cannot afford to pay for – and for sure, no-one wants to risk a volunteer walking off or damaging something mission critical.
This is one of the dilemmas I face. I’m FI, but have carved out a niche where the hours, work, conditions and pay suit me very well so I might as well keep doing it.
Nothing sums up the current situation like the current Durham Miners Rally where the Palestinian ambassador has been invited as guest of honour no doubt to declaim his current thoughts on the Gaza situation and Jews in particular
The Local Council-now Reform run and presumably representative of the local community has publicly been declined an invitation
These are very deep divisions
Brexit of course is but another example-there are many others
Not sure what the answer to this conundrum is but it increasingly looks like a really serious crisis -financial crash?-is the only way a resolution will be arrived at by installing some sense of reality to our ruling class and their voters
What are investors to do?
Very sad times
xxd09
Labour was given a large majority – albeit on a relatively small share of the popular vote of a more right-leaning public – on a platform that relentless emphasised growth and stability, not more welfare and higher spending.
I’m not making a moral judgement or political opinion here, in particular, just stating facts.
So far we’ve had economic growth-damaging taxes on business and now a week of chaos in Parliament that seeped into the financial markets. Something I’d hoped we’d seen the last of.
I’m not here to stand up for the Welfare bill. I have read the critiques, and I can see it seems hasty and ill-considered, maybe even cruel.
On the other hand, I’m not a young man any more and I cannot remember ANY cuts to benefits or welfare that were acclaimed as thoughtful and reasonable, maybe even kind.
So, you know.
But anyway this bill was what the governing Labour party — with a sizeable majority — put to Parliament, and was routed on. That is inept.
If any readers think I’m talking my book for the affluent classes, you should wait to see the guys waiting in the wings to take over.
Similarly, if we lose the faith of the bond markets again and the UK’s chunky borrowing costs on the national debt rise still further, you can tell me then if you think I was unreasonable making these statements now — ahead of and trying to ward off the far deeper spending cuts that would then be deemed necessary.
Finally, again, I’m hugely sympathetic given that I never forget this country is trying to support the spending expectations of yesteryear on an economy that was purposelessly damaged by Brexit and that few have the guts to remind the public about.
I voted Labour last time and of the current alternatives I’d reluctantly vote for them again. But that doesn’t mean they’re not the barely-best of a bad bunch, or that they’re not making a fist of things.
@TI
“…of a more right-leaning public.”
Really? Why do you say that? Even using the vote result as a gauge, Labour & Green Party had about 40.1% of the vote; Conservatives and Reform 38.0%. Things look fairly evenly divided.
I have to concur with @Trufflehunt that the Labour MPs who opposed the bill were not “Corbyn’s kiddos” and hardly left-wing. But they know that their constituents are asking what Labour has achieved during a year in power; Starmer may claim to see the first green shoots of waiting list reductions in the NHS but those aren’t visible to anyone attending A&E. It looks as if the Labour leadership’s headline policies were to make life worse for those least able to cope with that, the elderly and the disabled, and it was hard for rank and file MPs to sign up for that.
The justification seems to be to “save” small amounts of public expenditure. But we know from 15 years of trying that austerity doesn’t turn the economy around, and what it has done is weakened the public services environment which is needed to support growth. The country needs a different approach, and after all the frustration with Conservative governments the electorate put their faith in Labour to deliver that… and they have flunked it.
I see nothing “left-wing” in the opinions expressed. The first government I became aware of as a child was that of Harold Macmillan, an old-fashioned patrician Tory, but Starmer’s government is to the right of that, and I would say to the right of Heath’s and Major’s too. Current Labour policies are more in line with Thatcher or Cameron. Those backbench rebels simply represent mainstream Labour as it was under Blair or Brown, neither of which were particularly left wing.
The reality is we now have a soft-hard right-wing party in the UK leading in the polls (Reform obviously) and a Tory party that has lurched rightwards in the years post-Brexit.
There’s no equivalent new party on the Left, and without consulting the stats to reply I don’t think the Greens can claim that role either. That said I meant ‘more’ in two sense though — voters more right-wing then they were, yes, but also more right-wing than Labour itself.
Labour has only been in power for nine years out of the last 46 years. That’s about 20% of the time. We can argue about the UK electoral system etc, but this is not a country that leans heavily left-wing.
In any event we all agree Labour ‘flunked’ it. If a majority of the rebel MPs were reasonable as is being argued, then a reasonable and superior compromise could/should have been worked out beforehand. I have my doubts, but the government has failed on either yardstick.
Finally, stand up in Parliament and say the Tories and Reform (/Farage) brought forward these unpalatable choices due to Brexit.
Do it every day. Change the narrative.
They don’t have to argue for rejoining, but at least admit where we are and why.
Collectively we get the politicians we deserve. We don’t want to hear the truth. We recognise something’s not right, there’s no appetite to take difficult decisions so we’ll fight over the share of the pie. A greater amount of our capital will pay for current spending (e.g elderly) through increased taxation which will lower growth further. It’s a doom loop.
Whatever…I barely care any more. The collective electorate is moronic and gets what they deserve. shockingly palliative care, crap state schools, awful court system. I’ve got enough cash now more or less to rise above it. No man’s an island but I’m having a good go. Private schools, health care, lawyers if needed – I can pay my way out of most things now.
Downside is I’m getting totally pumped in PAYE to the tune of hundreds of k each year so will just have to suck it up for a bit longer. After which I’m out of here. There’s still the reasonable possibility of moving to the US workwise where quality of life is clearly much better if you aren’t on the margins but the time to get a green card is a bit problematic. EU passports provide complete optionality too as well.
The bond market will probably intervene eventually.
Seeing as @TI & @TA have done a spoof movie piece before, maybe @TI could channel Carpenter’s (proto cyberpunk) Escape from New York, Scott’s Blade Runner and Gibson’s Neuromancer (‘Escape from Brexit’, or perhaps ‘Let’s exit Brexit’ 😉 ), with @TI as Kurt Russell’s (“call me Snake”) antihero, and a Nigel Farage lookalike for Lee Van Cleef’s Police Chief Bob Hauk (Snake to Hauk “I don’t give a f*** about your Referendum or your Brexit”).
Seriously, bad though it is now, this situation ain’t dystopia, yet.
We might have screwed up ties with our nearest and biggest trading partners, be caught in the middle of a global trade war, be only a year out from race riots across Britain’s towns, have real wars raging across the Middle East, with a fascist clown in the White House, a DM debt crisis brewing etcetera, but, looking back to the 1970s (with Nixon, the Yom Kippur war, the Oil Embargo, the three day week, the 1974 miners strike, the rampant inflation, the 1976 IMF bailout and the 1979 Winter of Discontent), things have been a lot worse.
So, chin up.
Equity markets are at ATHs.
And something really big may be brewing in the productivity space (or not) with Machine Learning (and maybe near future AGI).
Always look on bright side of life, as they say (continuing the film theme) in the Life of Brian – or perhaps that should be Vera Lynn’s ‘We’ll Meet Again’ at the end of Kubrick’s Dr. Strangelove.
If we’re rescued by technotopia, then it’s time to go all in Nvidia, AMD, TSMC, ASML, Tesla and Palantir. A corporate profit boom and supply side revolution with relentless deflation beckons. Anything long on future growth goes.
And if we’re on the track to stagflation, slow demographic implosion and Peronist madness with ‘our Nigel’ as the Pied Piper, then it’s contrastingly time to load up on gold/silver/miners and Nick Sleep/Terry Smith/Nick Train quality value plays and maybe some defensive deep value from the EM space.
We’ll find out soon enough which of those two paths we’re on. The high road, or the road to nowhere. Fork in the road time again. As it always is.
Would be interested TI in your views on the opinion piece in today’s Times that the UK’s main act of self harm (that makes Brexit seem a minor blip) was to structure government debt too heavily to short and inflation linked, which is why we are more beholden to the debt markets than others. As we saw with Rachel’s tears.
And why we are pretty much stuffed as a country as a result. It was a scary read!
So on the assumption that no government will ever get elected to do what is needed to sort out our debt structure, is there something us current/future retirees need to factor into our thinking, ie given the likely trajectory of gilts?
Thank you Trufflehunt and Jonathan – a rare bit of lazy analysis from TI for me. There are very few Corbynites left in Labour who haven’t already been suspended. The cost-cutting Labour has proposed has been on the backs of the old, disabled and most vulnerable. Most people of any political persuasion find that objectionable.
What is the oldest democracy with universal voting and how has the problem of promising everybody everything been dealt with in the past? Maybe we need to go back to monarchy!?
I think it is wrong to say we have two major parties. Labour and Conservative contain at least 2 sub-parties. Brexit occurred because Cameron was trying to control the right wing rump. Labour, with a large array of one term backbenchers, has just demonstrated a similar lack of control.
Perhaps if we reduced the number or MP’s by a third we might get a more cohesive system.
@Paraquat — If you’re right then I expect we’ll see a surge in support for Labour in the next local/by-elections. (Spoiler: we won’t).
Again, I voted Labour. They have been given a tight leash to run with by an electorate who largely feels taxes on everyday people are now too high and that life is too hard (regardless of the merits of that view) and who was mostly fed-up with the incompetent Tories versus being wildly enthusiastic about Labour. Now they’ve delivered a week of gross incompetence, it will have knock-on effects, and their chances of re-election are receding fast, which by my lights is not a good thing given the other players currently.
Again, I didn’t say anything about the specifics of this bill in my piece — I said this was no way to govern right now. Perhaps Corbynite was too extreme, I could concede that. But in terms of rebelling against the leadership a year into Parliament and massively damaging their own party, it’s very much in keeping.
@David F — I haven’t read the piece and am not an expert on the government debt markets, but my understanding is that’s completely true. Have a lot of inflation-linked debt was a boon for the many years that inflation was quiescent. Now it’s not! Of course you have to remember that linkers themselves were brought in to deal with another credibility gap of a former age, IIRC
The best lucky break Labour have had all year (and there have been precious few) is that Truss already triggered all the LDI stuff three years ago and the pension funds and others since cleared house.
This week’s dislocations probably weren’t enough to trigger a similar doom-loop — especially given we’re hopefully on the other side of the rate rise and inflation fear hill — but one does wonder…?
@TI #19: “Labour has only been in power for nine years out of the last 46 years”: May 1997 through May of 2010, and then July 2024 to date, makes a total of 14 years on my calculator, so about 30% of the period all told.
@MrOptimistic, the issue of two parties each an uneasy coalition of smaller groups seems to be an issue of both the UK and the USA. It is easy to propose that a more proportional electoral system and smaller tighter parliaments might bring improvements – but as with so much else it isn’t easy to see how we might get there from here. There is no political benefit in tackling arcane problems of electoral reform.
@George — oops yes don’t moderate comments at the gym is the lesson here, cheers!
Still, a clear minority of the time, and that holds true if you go back further is the point.
@Xeny (#7),
IMO, you could do a lot worse than read @ermines latest post
@TI I think we can agree it’s a massive balls up by Labour. But I’m not sure why you lay the blame at backbenchers rather than the cabinet and leader. Neither Reeves nor Starmer have appeared to be grown ups in their handling of this, the party or the original proposals. The whole grown up politics rhetoric is such a lazy cliche that assumes superiority without interrogation – it puts my back up the minute anyone uses it.
@G (#14) It depends on the size of the organisation. I’ve been a member of lots of community groups with no paid staff, I’ve also been the only paid staff for one charity.
@ Paraquat
I think most people understand that we have perverse incentives. Many more people are claiming to be “disabled”, and we have recently being giving pip out in an uncontrolled manner.
We aren’t wealthy enough as a county to let 20% of adults be economically inactive. This isn’t fair on anyone, especially the tax payer (top 5%) and those on min wage muddling through.
Life is unfair and those on min wage working 40 hours a week deserve to be better off than those who don’t work, disabled or not.
The welfare state needs shrinking, and a cap on it in terms of GDP.
Personal anecdote – I know a millionaire who recently bought a 4 year old, 7 seater BMW with 100k miles on the clock – the first owner was a motability customer. This simply can’t be right. Old basic cars yes, new premium model cars no – nonsense , it needs to end.
This is why Farage will be elected next – not that it will do much good
@DavidF. “UK’s main act of self harm … was to structure government debt too heavily to short and inflation linked”.
The UK has the longest duration bond market pretty much out there. It’s definately not short. Issuing short dated bonds is risky since it creates rollover risk (i.e. imagine if you only issued 2-year bonds, you’d have to rollover the whole debt burden ever 2 years). Talk to Turkey how that went. The UK is in the opposite position. It’s rollover risk is much lower than pretty much anyone else.
@ZX — Ah, I overlooked the short bit of @DavidF’s question. It’s true with respect to linkers that the UK is more exposed than developed peers though, right?
@Boltt No one owns a car on Motability, you lease it. Blame the scheme for the type of cars available, not those leasing cars essential to their day-to-day lives. And as for deserving to earn more. PIP isn’t an out of work benefit. Most use it so they can actually go to work and not claim benefits. Besides, it’s just a reflection of the extra costs disabled people face for everyday living. There’s nothing unfair about it apart from the very few who abuse the system.
Worth remembering also that Motability isn’t just for people in poverty or receipt of PIP but anyone who wants vehicles adapted for disabled use – including rich people and wealthy pensioners.
My limited knowledge of Motability – from buying an ex-Motability car, not a prestige make – is that they are provided to disabled people on a three year lease and then sold on secondhand. The fact that Boltt’s friend’s car was 4 years old makes me wonder whether it had been one equipped with modifications that couldn’t be sold until it had been restored for general use. It seems from Wikipedia that dealerships can sign up to be part of the scheme, and there is no reason why they should rule out BMW if they provided a suitable lease deal
@Boltt – “We aren’t wealthy enough as a county to let 20% of adults be economically inactive. This isn’t fair on anyone, especially the tax payer (top 5%) and those on min wage muddling through.”
The UK has never had an economically inactive % below 20%. The lowest it ever reached was just over 20% immediately prior to the COVID pandemic. It has edged up by about 1pp since then.
R.e. Motability cars, people trade in their high rate mobility PIP for the car lease. It’s for 3 years (not 4). If they want a beemer or Merc or something more than a small family car (generally speaking) they have to put n additional down payment down, ranging from hundreds to potentially thousands. Often ‘higher end’ cars require relatively lower down payments as they hold their value more (lower depreciation) and with leasing you’re mainly paying the depreciation on a car when it’s new. Overall, whenever it has been looked at, Motability has had excellent economic outcomes as it’s a win-win for everyone (even for the right wing rags which get to generate plenty of ragebait out of it).
#6 & 7 @ZX & Xeny: Reform irrationality syndrome: Politics is about shared stories not facts. Feelings not reason. Fear and resentment play well.
Un/Happiness is just a gap between expectation and reality. If expectations inflate faster than reality improves voters get restless. If reality dips, then they get mad. And in that state of mind they’ll even vote against their own interests if they think it will make life harder for those they hold responsible. This from the DT today on MAGA and Medicaid cuts in ‘the Big Beautiful Budget Aid’: “Of the 200 counties with the highest proportion of voters reliant on public health insurance, a staggering 84% voted for Trump in last year’s election.”
Turning to investing – the Meb Faber link – why can’t Cambrian launch a UCITS LSE listed ETF for this? I’d buy.
Low Volatility anomaly is the second free lunch alongside diversification. Overlay it with shareholder yield and momentum ‘factor’ and why not then lever 1.25x – 1.5x to get to the S&P 500 volatility and max drawdown? I’d take that for a 1965-2023 18% to 19% CAGR and 0.68 Sharpe ratio.
Opsie Act not Aid.
The major problems the country face need solving, and most of the solutions need money, whether that is up front investment or simply a bigger pot to keep the current solutions going. Higher taxation is coming, and probably wealth taxes too. Somewhat vilification of the sick and disabled etc was a terrible strategy and a waste of time and effort. Most sick and disabled people are not living the dream. Sure, look at genuine “waste” and merge disability/health bodies/quangos etc and do all the obvious things, but sorry, taking support from genuine sick and disabled people is not going to fix the UK. That one guy you know with a modified car so he can get his daughters wheel chair in, or the guy who got extra money for adaptions so he can get to his work, is not where the UK budget “waste” is, and even if it is where a large part of the *spend* is, in the majority of cases, ‘waste’ is probably not the right word.
We need adult grown up politicians who are prepared to look beyond their next election period. I am not hopeful.
@ZXSpectrum
Cutting from the relevant part of the article:
All countries had borrowed, but most had done so locking in low rates for ten or more years, come what may. They paid a bit more for the certainty but did so anyway: if inflation came back, they’d be protected. But Britain was gambling on that never happening. About a quarter of our national debt was linked to inflation, so if rates rose taxpayers would be hugely on the hook. No major country had even half as much exposure. It was a bomb, primed to explode under British public finances.
Sunak was told to stop worrying about inflation, but didn’t. He’d run the numbers, but could barely believe them himself. We can all believe them now. UK debt interest, almost £50 billion a year then, is now £110 billion and rising. The extra £60 billion buys us nothing but it’s far more than we spend on transport, police, prisons and courts. When inflation first returned, Germany’s debt interest actually fell: they had sensibly locked in low borrowing rates. Britain had done the opposite: exposed the nation not just to inflation but to every twist in the global wind.
The other killer was the post-crash money-printing, quantitative easing, done in a way that swapped long-term security for short-term risk. This is how Britain ended up more exposed than almost anyone else to markets and their daily mood swings.
@ TDM /JB
The car was actually a 5 years only, single owner(registered keeper) with no evidence of modifications. So not fitting the usual criteria for extending the lease.
The govt figures I just searched (and I’m sure there’s better numbers elsewhere ) show pip/DLA claimants going from around. 2.5m to nearly 5m over the last 10 years (section 6)
https://www.gov.uk/government/statistics/dwp-benefits-statistics-february-2025/dwp-benefits-statistics-february-2025#sect-5
As a decent society we need to help the weak and vulnerable, but it’s needs to be reasonable and not open to easy abuse – and some conditions simply shouldn’t be allowed. Eg a survey said 25% said they had a disability, hence why self certification is easily gamed forms can’t be the process.
Our national debt is large, and the unfunded part mostly ignored – we aren’t wealthy anymore and we should start cutting our cloth accordingly. Why is it unreasonable to have an agreed % of GDP for the less able?
Many people have had easy lives and have never seen life on a rough council estate – some people don’t follow rules, break laws, lie cheat etc. we shouldn’t pretend incentives don’t matter. Why work 40 hours if I don’t need to… I have at least 2 close family memes in receipt of pip – I don’t think they’d have got anything 30 years ago.
The figure I saw recently that sums up our problem is along the lines of – the EU is 6% of world population, 16% of economic output and 50% of world welfare. I imagine these are out of date but it highlights the position we find ourselves in.
We aren’t Scandinavia, if we want their level of social spending it’s the median earners who aren’t paying their way.
We seem to be at a cross roads. Too many people get too much free stuff. And this is seen by others who work hard and don’t any/much free stuff. The most industrious people are punished – no CB, no child care, no tax free allowance. So their response is working less hours, retire early or move county.
With 30% of income tax coming from 1% of tax payers (is it 35 or 40% who don’t pay any tax) we are reaching a point of no return. If we change their behaviour or push them away it will be very unlikely that we can go back to the “old way”.
So while it’s unpalatable to cut benefits, move people out of high cost of Living areas, making people work when they don’t want to, make people live is shared accommodation, or sending non uk citizens home when their jobs/courses/prison sentences end – if we don’t do some really hard stuff soon it will be too late. Ie IMF and worse.
I hope I’m wrong.
Roughly 68m in the UK. Circa 13m on state pension, 12m of age of less than 18 and 10m economically inactive.
Some people on state pension will clearly still be working, I am not suggesting sending less than 18 year olds down the coalmine and there are plenty of stay at home parents or those genuinely ill but whatever. The system cannot support more than 50% not paying their way particularly when the average median wage is only about £38k. Which is a factor not the factor but a factor in the numbers of new born childing falling rapidly, which compounds the problem.
By 2030 around 50% of the workforce will be over 50. Staggering statistic.
The only obvious way out of this in coming decades is going to be large scale immigration to support a rapidly aging population with all the associated issues this will bring.
Population is like lemmings running off the cliff.
@Boltt you generally speaking can’t extend the lease on Motability cars, so the most likely outcome is the the first owner bought the car after the 3 years and then sold it. Regardless, I don’t see the problem.
With regards to the rest of your post, being frank, it reads like a laundry list of Daily Mail headlines. In my opinion this is the reason we’ve got ourselves into such a mess on welfare.
The starting point has been, we’re spending too much on welfare and we have to cut it (ignoring the fact that overall welfare as percentage of GDP is high, but not the highest it’s been compared to the past). Therefore, the reforms lead with – how do you we save money rather than how do we solve this problem.
Two illustrations of this.
First, PIP. It was brought in to replace DLA. The main drive behind it was that it would save money as we’d be assessing people regularly and taking the benefit away if they didn’t qualify. Instead, as we’ve seen, the opposite has happened – combined PIP and DLA payments have massively increased. There are a multitude of likely reasons for this, I won’t dwell on them, but they were entirely forseen a decade ago. I’ll highlight with my second illustration.
My second example is the increases to state pension age. It was agreed they needed to rise but nobody seemingly put any measures in place to deal with the potential outcome. For women, their state pension age has gone from 60 to 66 and will increase further to 68. In the meantime, disability claims by this cohort (50-64) have rocketed. We’re not exactly sure why, we know that in large parts of the country healthy life expectancy is falling. We also know that ageism in the workplace is rife. Many people made redundant in the 50s and 60s struggle to find another job. Perhaps in the past they could have coasted the gap between their late 50s and state retirement age. But as the gap has increased, the generosity of non-disability has declined (standard allowance UC is not enough to live on) and that many of these people are very likely disabled to some degree then we’ve seen their numbers increase.
Again, entirely foreseeable. But the government did nothing about it.
If one comment could sum up why you are mistaken, it is this: “Too many people get too much free stuff.”
This is the underlying problem of it all. People hate us spending money on unemployment benefits. So over the years we’ve made them more and more miserly. To the point that it’s almost impossible to live off those alone. Therefore, we’ve created enormous incentives for people to claim for other benefits (lest they don’t have food to feed their children or money to warm their homes). We’ve pushed people away from transitory benefits (that ideally should be designed to get people back on their feet) onto more permant ones. And we shouldn’t blame people for that! The reality is, very few countries are able to take benefits away from current claimants – it’s obviously going to be unpopular. You need only look at what happened with the winter fuel allowance. Yet, for reasons that escape me, consecutive UK governments keep banging their head on this same wall.
@Boltt #43
> We aren’t wealthy enough as a county to let 20% of adults be economically inactive.
You’re talking about me, mate, of technically working age but ‘economically inactive’. I’ll have you know that I claimed six month’s unemployment benefit. In 1982. And I pay tax, as it happens more CGT than income tax for the foreseeable future but income tax too..
So don’t lump all of the economically inactive as sitting in their Motability cars claiming PIP and what have you, as indicated by the right-wing yellow press. And indeed before saying they are all deadbeats at least ask the question if some of them aren’t.
Why did I become economically inactive? Nothing to do with benefits one way or the other, I didn’t bother to claim income based JSA for six months after leaving work because a) the sum was paltry and b) the process would have done my nut in.
I became ‘economically inactive’ because of the increasing enshittification of work. What I did was OK, indeed often interesting but the way it was being done was getting more and more crap. Work really isn’t the only way of having meaning in your life. While we are on the topic of being economically inactive, why is economic activity only permitted when you sell your time for money? I pay tax because I make money from money, I even pay income tax and CGT but I am ‘economically inactive’. WTF is up with that?
@Boltt, there is a certain irony in complaining that 20% of adults are economically inactive on a website where one of the main things discussed is how to retire early.
@tdm
When I bought the car the V5 register keeper was motabiliy. The current v5 states 1 previous owner. So I’m happy to conclude it was a motabiliy car for 5 years.
What is a sustainable level for uk adults to be net takers/contributors when the pension costs about £300k pp? Surely we need net contributors to be around 30-40th percentile of earners.
It may not be kind but current path isn’t working. A final example of personal nonsense we pay for is:
On pip housing benefit is paid 100% for the patent even when adult children in the house work and earn good money. We are too generous in the wrong places.
Ps
@ermine/jb
Self funding economic inactives are acceptable.
Portfolio-wise, the rejection of a cost cutting measure by backbench Labour MPs confirms my fear, as expressed last week, that Britain is on a probably irreversible road to fiscal failure. The position is pretty desperate; one sign of that is a statistic I saw that we have got to a situation where around 60% of total income tax is paid by the top 10% (morally shameful and financially far too precarious for comfort. Where is the social contract in that? Where are the “normal people” pulling their weight?) And so it becomes a case for me of some more gold and some more inflation-linked bonds (which are difficult for governments to try to inflate away) and less straight gilts.
@Boltt and @Hospitaller Income tax is about 28% of tax receipts according to the IFS, maybe more if you include NICs but still not even half. Of course you’re entitled to feel you pay more tax than all them layabouts, thought it might be notable to observe that broad prosperity rose faster at a time when income tax was a higher. I recall the Beatles bitching about the taxman on the radio when I was at school. My younger self paid more as a percentage of my then income in tax when I started work than the percentage when I left work on a respectably higher salary in real terms. The Coalition government’s lifting of the personal allowance was quite dramatic, and the freezing of this allowance is slowly drifting it back to where it was.
We really aren’t in Beatles territory or anywhere near. The right-wing press rabble rousing on tax is entertainment, not fact. The Torygraph’s assertion that IHT is the most hated tax is laughable given that 95% of estates don’t pay it, given people can typically swing to leave £1mn to the typical beneficiaries of children or grandchildren through aggregation of the parents allowances.
@Boltt: “self funding economic inactives are acceptable”. While I think most share that point of view, there is still a question of whether the economy would be in a better state if those individuals remained in work.
And there really needs to be a proper national discussion of whether getting sickness treated on a reasonable timescale and having decent access to social care if necessary, is less desirable than having a proportion of the population needing to leave the workforce to look after elderly relatives or disabled children on a waiting list for the treatment they need and unable to access other care.
As I pointed out above, it is an experiment we have been going through. Fifteen years ago Cameron and Osborne decided to systematically reduce the funding they inherited from Blair and Brown, and that approach has continued up until Starmer and Reeves. While it is always impossible to compare an alternative history, I think it is fair to ask whether austerity has benefitted the country’s economy in any way.
@TI. I’d argue that issuing long-dated linkers has overall been a pretty good trade for the UK. As typical, there is now recency bias. Yes, it looked bad in 2022/23 but that ignores the prior 25+ years. Why are we so certain inflation will be high in the next 30 years? Plus, there is very good structural demand for linkers vs. nominals, so that means the DMO can issue cheaper in relative terms. It’s diversifies issuance. It’s just not a clear cut issue of right vs. wrong.
The main issue is the unwillingness of the DMO to take more risk. That comes from fear of being wrong. They would be blamed by those above them – people who are, frankly, pretty clueless about how bond markets work. Many countries overissued during the negative real yield period. Took the money and stuffed it into sovereign wealth funds or infrastructure investments. You can argue it was a speculative trade but, really, if the UK had issued more 30-50-year linkers at -2 to -3% real yield, how much risk is really being taken? The market would not have freaked out at all.
I’d also make the point that if the UK is in such fiscal dire straits, why is Sterling not showing that? The reality is that EURGBP is smack bang in the middle of it’s range since Brexit. Both the US and Europe are equally fiscally in trouble. We are not an outlier.
@Boltt – your story changes more than Starmer’s U-turns. First it was someone you know that bought a 4 year old car from a Motability owner now it is you who bought a 5 year car. (P.s. you can have a 5 year lease for wheelchair adapted vehicles).
Oh and PIP has nothing to do with housing benefit btw…
@hospitaller
I couldn’t resist the 5.4% on some long gilts shortly after the tears.
@jb
A national discussion would be a good idea and get all parties to accept. Do we need to agree to live within our means and consider the national debt (inc pension)? In hard times niceties are sacrificed.
@ermine
We talked about historic tax rates on your blog a while back. Basic rate was 33% in 1979 ex ni – and the tax free allowance was circa 2/3rds of the current level in real terms. We should bite the bullet merge tax and ni (hitting the pensioners will be on message for the govt) and then genuinely consider a flat tax. Encouraging the highest paid/most productive to work less /retire /emigrate is folly – and easily fixed
@ermine and Jonathan B – I’m in agreement. I did some work for a while around the retirement / adequacy space. A very common story you came across is people (especially women) having life events in their 50s and 60s and effectively being forced out of work. Sometimes it would be caring responsibilities (parents or grandchildren), sometimes ill-health and getting stuck on endless waiting lists, sometimes it was just pure ageism. There was a lot of job enshittification. Less autonomy, more intensity (although that appears to have fallen post pandemic).
Often individuals would get into a cycle, made redundant, get new job, fired within 2 years (no reason needed) or employers wouldn’t make reasonable adjustments (need to pick up my grandchildren from school once a week and being told no). Work just didn’t pay – in quantum or certainty.
My big concern is that over time this cohort are increasingly less likely to own their own home or be in social housing. Increasingly they are in private rentals. Their financial resilience is becoming weaker and weaker. We’re already seeing up ticks in people working beyond state pension age and into their 70s. This isn’t necessarily a bad thing. But we should be concerned if this is increasingly desperate people doing desperate things.
” Every day, something for the haters…”.
(Paul Dacre – Former editor, Daily Mail ).
The Labour leadership targeted some of the most vulnerable people in society and a lot of MPs refused to go along with it. Good.
I’ve had conversations with people who tell me we can’t ‘afford’ to offer support to people with disabilities. It’s all just too bad.
But those same people are up in arms about private schools paying VAT. Apparently we CAN afford tax breaks for wealthy parents. Says it all really.
@The Details Man, thanks for the interesting contribution to the discussion.
You end by highlighting how those retiring in future are less likely to own their home or be in social housing. One of @TI’s many interesting links above (they are always appreciated) is a lengthy review of pensions by the Institute for Fiscal Studies. I mention it because it quotes an organisation called the Pensions and Lifetime Savings Association as estimating the minimum adequate retirement income after tax to be £13,400 excluding housing costs. So you are talking about something like £20,000 income for someone with a social rent or the ongoing cost of an owned home. Private rentals would be considerably more.
The change in the proportion living in their own home or in social housing is likely to mean more pressure on housing benefits in the future; it would be interesting to know how much of it is payments to pensioners. I read recently that the state now makes a bigger contribution to housing (adjusted for inflation) than it did in the days when council housing was being built, simply because of the much higher cost of private rentals. You have to ask whether that change in policy was actually beneficial to government finances and general wellbeing.
@tdm
Btw…
https://england.shelter.org.uk/housing_advice/benefits/universal_credit_housing_cost_contributions
Is called the non dependant contribution, and there is non if parent in on pip.
/******
I was trying to keep things general, but if you want a copy of the v5 I’ll email you it.
A proper adversarial debate gentlemen with very few abusive asides-can we keep it this way please
I am learning a lot of new facts ,figures and situations
Out of this sort of powerful……
“Crossing of swords” which I am sure we are all having in our own neighbourhoods will hopefully come a way forward
More please
xxd09
@ All – great thread. I haven’t got any time, so shouldn’t even be reading, but given the range of informed views, I couldn’t stop myself.
FWIW, the Institute For Fiscal Studies has argued that a likely culprit for the disability benefit explosion has been the withdrawal of support services plus reductions in other benefits e.g. Universal Credit – as per TDM’s view.
That does make more sense to me as a trend than people becoming lazy shysters of late. Though of course there are always spectacular examples of people who cheat the system.
@Jonathan B – Yes, the PLSA have been doing some good work in calculating adequacy for retirement incomes. There are some shortcomings with some of the methodology (which I think might have been touched on in an old Monevator post). Obviously chief among those are that it doesn’t cover housing costs. They now provide estimates of those alongside those figures and those kind of highlight the problem. You’re talking about adding and extra £8000pa+ for one bedroom flats in most cities.
@Boltt – perhaps I took it a bit far with “nothing to do” but PIP has no impact on housing benefit as it’s not an ‘income benefit’ and housing benefit is assessed on income. What you’re refering to is a deduction from UC (housing benefit) – rather than a contribution – which applies generally speaking if you’re claiming housing benefit but living with someone else. Generally speaking (for info of those reading), the deduction isn’t applied if someone is receiving a “care” benefit (that is PIP daily living, DLA care or Attendance Allowance). The reason is that to get those benefits you are generally receiving care from someone (typically the person you live with). The genesis of this is that we’d much rather have relatives provide free care than incentivise them to move out and therefore have local councils have to pick up the tab for more social care. Whether that happens in practice however is another matter.
But it highlights a particular issue with housing benefit (along with all manner of other problems with it, some of which Jonathan B hinted at above) that this is assessed on a quasi-individual basis rather than on a household basis. That also applies to things like the High Income Child Benefit Charge and the 100k cliff edge with child care vouchers. One person earns a penny over the limit and it applies, two people earning a penny under the limit, it doesn’t. These kind of friction points between household v individual cause all sorts of distorted incentives and issues.
P.s. r.e. the Motability car, I didn’t mean to take it that far – however, if I had a pound for every ‘story’ about Motability being abused and it turning out to be nonsense, well, I’d be FI several times over!
I’m increasingly convinced that these comments about ‘the market is telling us X’ are just variations of narrative fallacy that tell us nothing useful other than the preconceptions of the narrator. The idea that we should then use these narratives to allow (fear of) Krugman’s confidence fairy to drive policy is just nuts.
I don’t think many want to see the infirm, young or old, suffering ill health, and struggling financially. Thats what a caring society is for, to support those less fortunate than norm. The problem is, the rules are constantly being gamed, fiddled, and abused. You can always see a number of “disabled” parked up in the supermarket car parks, apparently fit and well. I appreciate that not all disabilities are apparent.
No PIP assessor wants aggravation, and although the reasons for an apparent “disability” should be challenged, many aren’t, and a substantial number of PIP tribunal appeals are successful, so what’s the point. That’s one of the reasons why the numbers have significantly increased and will continue to do so.
You want the “unsustainable triple lock abolished”, what about those less fortunate who rely on the annual increase, having retired before 2016, whose basic pension is £176 per week and whose spouse will get even less ?.
For a forty-hour week, a minimum wage earner now earns £25k plus per year, yet you begrudge someone who was working before you were potty trained, a basic standard, which is far less than your Euro cohorts.
Since the pension allowance now costs £50bn annually, why not temporarily reduce it to £20bn until the fiscal situation is improved. That won’t happen, because all those with the purse strings in and out of government will never relinquish control of such a gift. Far easier to asset strip the old, infirm, and low wage earners, they have no union back up.
Just this past week, Mr Monevator bless him, was advising how to earn £80k per year and retain the child allowance. Everyone is at it, but there will be a reckoning, there has to be.
As for the deceitful, misleading, duplicitous, Heseltine, I give up. Although I’m sure his dog loves him. Agree Clem Attlee.
Absolutely this! >>
@Boltt, there is a certain irony in complaining that 20% of adults are economically inactive on a website where one of the main things discussed is how to retire early.
Really great thread, thanks to everyone for the very many good comments.
Cheers @ZXSpectrum48K for the extra colour on linkers. Agree it was a boon until it wasn’t!
Essentially — and this feeds into a couple of other comments directed my way in this thread — this website exists to help people who are ready to make sacrifices / go without consumption now to secure better financial futures.
It is not something for nothing. It is a trade-off. It is taking responsibility for your financial future.
Of course I accept that there will be many among those in receipt — or set to be in receipt — of the unsustainable state pension who through their own life circumstances will have found it difficult to save extra for their own retirement.
I wasn’t born with a silver spoon, I voted Labour etc etc.
However at some point (a) we need to assume that people have some responsibility, generally, for how their lives turn out (b) we need to accept differentiated outcomes based on, for instance, whether one person saved and sacrificed and another spent all their disposable income and saved very little and (c) enable the generations behind us to have a reasonable chance of enjoying life now and saving for the future without too much of their productive output going on paying an increasing share of GDP to the eldest in the population, a cohort who have frankly had their chance, and equally a population where unfortunately it’s very hard to tell at this remove whether they saved or could have saved or spent with abandon, barring the observation that the Boomers are the richest generation yet, even many of the poorer among them got the right to buy their own council home for a steal, you could be a hippy on Friday in the 60s and have a job on Monday, and starter homes cost less than 3x earnings versus 8-10x earnings today.
In other words, most of them had plenty of opportunities.
You don’t have to take my word for ‘unsustainable’. Have a look at the OBR projections — pensions at 7.9% of GDP in 50 years, net interest expense at over 11% etc — and see what you think is reasonable.
If your solution is to hope for an economic miracle of some kind fair enough, but that doesn’t seem a wise plan to me. 🙂
https://obr.uk/frs/fiscal-risks-and-sustainability-september-2024/
@Barney – Re: triple lock – most sensible commentators I’ve read / heard aren’t into asset-stripping the old and infirm. They just note the projections re: declining working age population and suggest maybe we could get by with a double lock. I’d be happy with maintaining the link to inflation. I won’t get the SP for a good while yet so any downgrade will affect me. My SP age has already been pushed out twice. It’s just a question of making the sums add up.
I’ll note the the Europeans pay more taxes while the Australians means test theirs. We’re all facing the same problems: declining working age dependency ratio.
I’m a little surprised the water muddying around PIP has made it to the Monevator comments, I’d like to offer up some context of my own.
I’m amazed it’s made it this far without anyone mentioning that since Covid the majority of PIP claims are dealt with over phone assessments rather than in person. It doesn’t take a genius to note this arrangement will massively increase the likelihood of fraud. It also reduces the friction which again only encourages those chancing their arm.
The issues also stem back to the “Parity of esteem” change in 2010 which has opened the floodgates to spurious claims related to mental conditions the DWP choose not to question more often than not.
Finally it not being means tested seems completely counter to common sense – why on earth do we have Rosie Jones complaining about her payments being cut when I struggle to believe someone provided regular work by the state owned broadcasters is struggling for cash…
Also just noticed this: https://x.com/ScottGoetz_/status/1941884662340583935?
Incentives matter yet again.
This week’s ‘The Briefing Room’ on Radio 4 covers the disability benefit conundrum. Well worth a listen, if only to get a grip on mind bending complexity of the system.
Re: Triple Lock. It’s a “best of” option, which becomes exponentially more expensive over time given compounding. Imagine, each year, I gave you the best return from 2.5%, bonds or stocks. Compound that up and see how it looks after 50 years vs. the equivalent returns on each individual asset. The triple lock is so clearly unaffordable. Most countries use CPI or average earnings. I tend to favour earnings since it directly relates pensions to how much workers earn (and it’s the workers who are paying).
ONS projections show the number of people in the UK aged 65+ increases by 35% from 12.5m in 2020 to 15.9m in 2040. This contrasts with a 2% increase in those between 20-64 (38.9m to 39.5m). We’re already close to 50% of NHS spending being on those 65+. Going forward, NHS and social care spending will need to grow by 4%/annum just to breakeven.
Without growth of 4%, functionally, the state care system will become a wealth tax on the young to provide for the old. It’s why I’ve have this hatred for unfunded DB pension schemes and the NHS funding model. The basic idea of the NHS, state social care, state pensions, unfunded DB public sector pensions is lovely when you have a nice demographic pyramid where workers outnumber pensioners by 5:1. It simply doesn’t work at 2.5:1. Why would you ever build a system that assumes your demographics will be favourable or constant? Especially when the likely impact of such a system is to increase longevity, invert the demographic pyramid and guarantee it’s future collapse. It’s an unstable solution.
This problem has been totally predictable for 50 years. It’s not a leftfield issue. No voter can act surprised or say they are ignorant. Politicians tried to use immigration to offset the problem, but voters then blame them for that. What do voters expect? They are politicians, not bloody magicians.
@TI, thanks for that intriguing OBR forecast. It is extraordinarily certain given the range of possibilities over the next 50 years, predicting areas of expenditure to a precision of 0.1%. And assuming there will be no change in government policy (triple lock) over all that time. To be fair though it does discuss in detail the possible impact of climate change which is likely to affect the predictions massively.
It would be fascinating to know if there was any equivalent forecast in 1975 that could be compared to today’s reality. There have been huge changes since then which almost certainly means simple extrapolation will have been massively wrong.
As I recall, the triple lock was introduced after a well-publicised report comparing pensions in the major economies showed that the UK had fallen well behind its peers. The policy was a way of incrementally improving that position without a sudden impact on government finances, but it was a mistake not to define the intended end-point; that might have been in relation to those other economies, or to the minimum wage of those in work. Eventually the ratchet effect needs to be ended and the state pension after that simply to maintain its position relative to other incomes (as suggested in that IFS document).
@ZX, if we had that 1975 forecast I think it would have seen population growth as the problem, not shrinkage. While increasing longevity was evident the falling birth rate wasn’t – what you are talking about hasn’t been predictable for as much as 50 years. The issue is simply how to plan for what we can see coming, and the challenge will be the low-paid jobs where human interaction is part of the requirement and can’t be replaced by a tech interface (like caring professions).
@ TI, @ TA, I agree re the unsustainability of triple lock. But it has enabled the SP to increase to a realistic level which is still inexpensive compared to similar economies.
It could be replaced by something that will not allow it to fall below a predetermined level, that hopefully, would placate those who are paying for it.
Whilst the future dependency ratio concern #71 will likely prove correct, I’d caution against assuming that it definitely will be.
For most of my life, and for that matter the lives of my parents too, the concern, even here ib the UK, had been one of overpopulation, not demographic deflation.
I’m sure many MV readers in their youths will recall the dire warnings of Ehrlich’s “Population Bomb” (1968).
I myself recall in the eighties reading English nuclear physicist John Fremlin’s 1972 “Be fruitful and multiply: life at the limits of population” in which Fremlin thought that the relentless and accelerating global growth in population seen in the 1960s would ultimately be constrained only by thermodynamics.
Funnily enough, EpochAI seem to make a similar assumption now on the limits to computation (above a petawatt, 100x global energy consumption now, well start to overheat, even using zero carbon emission nuclear power).
It’s only in the last decade or so that the concern has gone from over to under population. and from having too many people in the future for the work available to having too few.
So, whilst the inversion of the population pyramid and the dependency ratio disaster are real concerns now, and whilst demography is destiny, the future is unknowable, and only at best guessable.
Assuming fertility does not turn up (and I agree it’s unlikely that it will) we can’t know for sure that something else won’t intervene.
Tech permabull Tom Lee of Fundstrat was on CNBC the other day explaining his view that AI and robotics will be like finding an inexhaustible alien species to do all the work. 4 day weeks, higher incomes, more tax revenue, deflation and 20% unemployment, but with generous UBI, apparently beckon.
Now that could turn out to be rose tinted BS of course, but, given the pace of developments presently, I wouldn’t necessarily stake much money on that being so.
@Jonathan. In 1965 the fertility rate was 2.8. It was at 2.0 in 1975. By 1980, it was 1.73. It’s never got above 1.9 since then and is now below 1.5. Break even is 2.1. So I stand by the idea that for 50 years we’ve been below replacement levels and dependent on migration. Moreover, it’s a global phenomenon in the developed world. All attempts to reverse it have failed. How long do you need to see a pattern?
So what does the public want to do about it? They hate immigrants. They don’t want to pay more tax for that hip operation so they can shuffle around the house that is too big. They scream if you even mention paying for their care from their assets (‘dementia tax’).
So we’re basically gambling for an AI revolution to create robots that can do a hip operation whilst simultaneously wiping another OAP’s arse? No surprise if Skynet decides to Terminate us.
Keep state pension at the pitiful value that it is at with the current rules. Remove all tax breaks on private pensions. Alternatively, calculate the exact proportion of private pension contribution that was not taxed at individual level, including any NI from salary sacrifice – and on withdrawal, tax it at the exact same rate. Don’t think that is fair? – who do you think is milking the pension system? It is not those on median salaries or those living on state pensions. The only people benefitting from the generous pension system in the UK are those in the upper quartile, and moreso, the right tail of the income distribution, as they get the state pension anyway. This state pension that we are criticising is not even half of the median salary. Further, unless you exceed the lifetime allowance, you need to actually put a lot of effort into how to contribute to your pension and then withdraw it in such a way that you pay tax at a greater rate than the tax rate you paid on the way in.
There is a problem with the generosity of the pension system in the UK, but it is not the state pension. This sort of understanding is also why the current government is in so much trouble – their solutions to everything so far regarding benefits and tax is to focus on the people who have the least options financially, and you don’t get away with that as a labour government.
There are serious problems with the pension system in the UK, but maybe, just maybe, they should be looking for solutions that are in plain site and basically can be described as the areas being gamed by people earning way above the median salary. I say that, as ever, as someone who does the very same (all within the rules), but this is what actually irritates me about all the debate on issues such as pensions – the people abusing the pension benefits in the UK are not the people who need the state pension, it’s us! Up to 60k each year salary sacrificed, 1k extra with a lifetime ISA bonus, 21k (with 1k lisa bonus) in tax free investments/accounts, £500 tax free interest, dividend tax free allowance, capital gains tax allowance, etc etc. All of these parts of the system only really benefit the wealthy, as the guy on median income (and the 50% below him) is certainly not getting even close to putting in the ISA allowance, never mind maximising the other tax free parts of the system.
@Random Coder
Well, that’s how it is sometimes with very affluent people. Having gamed the system etc etc, and found their way to monetary wealth, they have developed insufficient awareness to realize that money does not on its own equal happiness. Instead, they look around for scapegoats. As in the ‘benefit scroungers’, the ‘lazy, good for nothing undeserving, unaffordable OAP’s’. The list goes on, and on, and on. Country going to the dogs..
@TI: “Essentially — and this feeds into a couple of other comments directed my way in this thread — this website exists to help people who are ready to make sacrifices / go without consumption now to secure better financial futures”
And that’s what the majority of the “Silent Generation” were, in their own way doing as best they could, but lacked the opportunities that now exist. The same generation suffering fourteen years of rationing, shortages, and severe austerity, from WW ll to the early fifties. Young men, whose future was blighted by national service, from Korea on. Very few were university educated, they’d had other priorities during the preceding years, and many were unable to obtain apprenticeships due to the “closed shop” or lack of a family connection, which, until Thatcher arrived, was condoned by all involved. They are the same pensioners who retired before 2016, now on £176 per week.
As to being a 60s hippy on Friday and in a job on Monday, somewhat true, as long as you didn’t mind shovelling sh—te or shift work on the line at Dagenham which I’m sure many subscribers wouldn’t tolerate, or last a day. With respect, you weren’t there, so you don’t really know. I can only reflect on the situation that I encountered. This isn’t a bleeding-heart piece, it’s how it was. As my late Dad used to say, there were never any “Good Old Days” they were always bad.
@ TA looking forward to Q2 update.
@Barney — Like many people I have a lot of admiration for that specific pre-war generation (born 1925 to 1945 from memory) and I’m more sympathetic to the idea that they had it tougher than the easy-mode Boomers who followed (and who often ride on their coattails, for example I read only 81,000 UK men served in Korea versus 3.8m in WW2). We also agree I think that the State pension before the triple-lock was too mean, so it’s done a worthwhile job of raising it.
However (a) that generation is dwindling, for obvious reasons, and so will drop out of the statistics (b) the long-term costs which I and others say are unsustainable will cover the Boomers and before too long Gen X pensioners like me (c) no money was paid into any sort of pension fund by that generation either, they just enjoyed the favourable demographics of there being very few old people around when they were working (d) as others have stated nobody is saying the state pension should be frozen, it’s this always-the-highest formula that is unsustainable.
By all means increase it with average earnings. While there’s no ‘paid-up’ fund or any of that nonsense, at least this way it’s vaguely linked to general living standards and one of the economic drivers required to pay for it. Still huge issues, given the demographic challenges, but a start.
And again, young people are currently pretty screwed, unless they inherit. That’s completely different from Gen X and before, where the young always faced better prospects. That’s unsustainable too, politically as well as economically, IMHO.
Cheers for the discussion. 🙂
, its still the best out there.