Business

Voters are being taken for fools on the economy

Published

3 weeks ago

June 18, 2024

Faisal Islam

Towering over the many hundreds of pages of promises, plans, strategies and spreadsheet costings in these general election manifestos is a single word: credibility.

One of the big areas where the credibility question has been raised is over taxes. There is an uneasy consensus among the two main parties that the next chancellor will not raise the main rates of income tax, national insurance, VAT or corporation tax.

But these promises rely on a perception that voters only care about their tax rates and, frankly, are blissfully ignorant about increases in their actual bills. Voters are being taken for fools. Even if the letter of manifesto promises not to raise tax rates from 2019 has been specifically adhered to, workers know that their taxes have shot up.

That’s because with the thresholds at which people start paying different rates of income tax frozen, high inflation – which has led to wage rises – has resulted in a huge and historic rise in taxes.

Despite the finger-pointing on tax, the single biggest tax rise is the ongoing freeze in income tax thresholds. This remains in place for the Conservatives, Labour and Liberal Democrats over the next three years. Already this year, the UK taxman is on the cusp of a record tax haul of over £1tn.

So given this, do these promises to leave various tax rates alone have any meaning or credibility at all?

Instead of answering this, both main parties have competed on accusing the other of large-sounding black holes, backed up by official-sounding reports.

The Conservatives have gone to some trouble to claim Labour have a secret £2,094 tax rise plan over the Parliament, and erroneously claimed some degree of civil service backing for that number. Labour in turn claimed the Conservatives’ manifesto would lead to a £4,800 increase in mortgage costs over the same period.

Magic elixir

Both main parties’ manifestos are less about detailed economic plans for office, but instead are broad marketing narratives aimed to serve the relevant central message.

How does Keir Starmer square not putting up the main rates of tax, investing in the future, not borrowing more and “never returning to austerity” in spending on public services?

The answer in the Labour manifesto is by getting the economy to grow faster with a plan to slash red tape on building homes and infrastructure.

Many recent administrations have claimed this magic elixir will prevent the need for tough choices on tax and spend.

Labour’s manifesto retains a Green Prosperity Plan for funding green steel, electric vehicles and clean energy, but this is significantly pared back from its original plan to pump tens of billions of pounds of borrowed money into green investment.

Elsewhere, such moves have indeed helped boost economic growth. But the scale of Labour’s moves are very modest compared to, for example, President Biden’s plans in the US.

Even under their most optimistic timetable, the impact of such changes would take several months, probably years.

In recent days, Labour figures have started to talk publicly about lowering the trade barriers with Europe created by the Brexit deal. That they are talking about Brexit is a sign of confidence, but also a reality that some business voices are pressing Labour to embrace a way to increase productivity that doesn’t require taxpayer funds.

What happens to Labour’s strategy if growth disappoints? It is a reasonable question given anaemic UK growth. The Labour frontbench have suggested variations of “I’m optimistic”, and “it just will”.

By autumn, there will be severe pressure on some types of spending and even on the rules Labour has decided to adhere to for borrowing. Although it was a modest manifesto in terms of the overall size of the policies, its commitments on tax and borrowing are, at the moment, a significant straitjacket on the actions of a possible Labour government.

For the Conservatives, the general narrative is that they do believe the state can now shrink from emergency pandemic and energy crisis levels. Fewer civil servants are required, they say, and the increase in working-age benefits can stop, now we are back to normal. Spending less on these things (while keeping the already planned £11bn a year increase from the income tax fiscal drag generated by those frozen tax thresholds) can free up space for slightly lowering other taxes, such as the rate of National Insurance.

This is a rather uncertain accounting basis for permanent tax cuts, but not impossible to deliver in very general terms. But there is no set of policies here that would be scored by the independent Office for Budget Responsibility (OBR) as raising £12bn. It is unclear which area of spending would lose support in order to provide the funding for the more certain impact of National Insurance cuts. If, for example, the rise in working-age disability is not a blip, then there could be austerity-style cuts in some government departments, such as those covering courts and councils.

There is a bigger question here, where perhaps smaller parties are contributing more. What is the optimal size of government? Is it now too big following years of crisis or too small for the challenges ahead? Have the public’s views on this matter changed since the pandemic and energy crisis? Do the shocks to the world economy from the net zero transition, growing global trade tensions and artificial intelligence require a different strategic approach?

The Liberal Democrats and Greens separately say social care and health spending should increase with some significant tax increases. Reform argues that the state should be significantly smaller, and also suggests a massive £35bn funding pot could be made available if the Bank of England stopped paying interest on the bonds it holds as a result of the post-financial crisis quantitative easing programme.

The central bank pays interest on these bonds to commercial banks, but with rates now much higher than they were in 2009 that has become very expensive. Stopping paying that interest is an intriguing idea that has attracted attention from the Labour left too. But it would essentially be getting large sums from big banks, in a way that could then make it complicated for banks to pass on expected lower interest rates to households in the coming months.

So the manifestos do not represent concrete economic plans. At best they are very broad strategies, designed not to offend voters. They basically say “trust me, you might not love us, but the other guys are dangerous”. Given the tumultuous changes in the world and the country, and the cost of living crisis they have endured, voters deserved a bit more clarity.

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Business

John Cena announces retirement from in-ring competition in 2025, WWE says By Reuters

Published

4 hours ago

July 7, 2024

Reuters

(Reuters) – U.S. wrestling superstar and actor John Cena announced retirement from in-ring competition in 2025, World Wrestling (NYSE:) Entertainment (WWE) said in a post on social media platform X on Saturday.

“John Cena announces retirement from in-ring competition, stating that WrestleMania 41 in Las Vegas will be his last,” WWE said.

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Business

Recession indicator is close to sounding the alarm as unemployment rises

Published

11 hours ago

July 6, 2024

Jason Ma

While unemployment is still historically low, its rate of increase could be a sign of deteriorating economic conditions. That’s where the so-called Sahm Rule comes in.

It says that when the three-month moving average of the jobless rate rises by at least a half-percentage point from its low during the previous 12 months, then a recession has started. This rule would have signaled every recession since 1970.

Based on the latest unemployment figures from the Labor Department’s monthly report on Friday, the gap between the two has expanded to 0.43 in June from 0.37 in May.

It’s now at the highest level since March 2021, when the economy was still recovering from the pandemic-induced crash.

The creator of the rule, Claudia Sahm, was an economist at the Federal Reserve and is now chief economist at New Century Advisors. She has previously explained that even from low levels a rising unemployment rate can set off a negative feedback loop that leads to a recession.

“When workers lose paychecks, they cut back on spending, and as businesses lose customers, they need fewer workers, and so on,” she wrote in a Bloomberg opinion column in November, adding that once this feedback loop starts, it is usually self-reinforcing and accelerates.

But she also said the pandemic may have caused so many disruptions in the economy and the labor market that indicators like the Sahm Rule that are based on unemployment may not be as accurate right now.

A few weeks ago, however, Sahm told CNBC that the Federal Reserve risks sending the economy into a recession by continuing to hold off on rate cuts.

“My baseline is not recession,” she said on June 18. “But it’s a real risk, and I do not understand why the Fed is pushing that risk. I’m not sure what they’re waiting for.”

That came days after the Fed’s June policy meeting when central bankers kept rates steady after holding them at 5.25%-5.5%—the highest since 2001—since July 2023.

The Fed meets again at the end of this month and is expected to remain on hold, but odds are rising that a cut could happen in September.

Sahm also said last month that the Fed Chair Jerome Powell’s stated preference to wait for a deterioration in job gains is a mistake and that policymakers should instead focus on the rate of change in the labor market.

“We’ve gone into recession with all different levels of unemployment,” she explained. “These dynamics feed on themselves. If people lose their jobs, they stop spending, [and] more people lose jobs.”

Meanwhile, Wall Street has had a more sanguine view of the economy, citing last year’s widespread recession predictions that proved wrong as well as the AI boom that’s helping to fuel a wave of investment and earnings growth.

Last month, Neuberger Berman senior portfolio manager Steve Eisman also pointed to the boost in infrastructure spending.

“We’re just powering through, and I think the only conclusion you can reach is that the U.S. economy is more dynamic than it’s ever been in its history,” he told CNBC.

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Business

Joe Biden rejects calls to quit presidential race as clamour grows for his exit

Published

11 hours ago

July 6, 2024

Lauren Fedor

Joe Biden faced a growing clamour among Democrats to drop out of the 2024 presidential race on the weekend despite stepped-up public appearances aimed at proving he is mentally fit to take on Donald Trump.

Biden has two campaign events in the swing state of Pennsylvania on Sunday after a high-stakes primetime interview on Friday night failed to reassure fellow Democrats panicked by the 81-year-old’s shaky debate performance last week.

“It’s the worst possible outcome,” one veteran Democratic operative told the Financial Times after Biden’s interview aired on ABC News. “Not nearly strong enough to make us feel better, but not weak enough to convince Jill [Biden] to urge him to pull the plug.”

David Axelrod, the architect of Barack Obama’s successful 2008 presidential campaign, warned after the interview that Biden was “dangerously out-of-touch with the concerns people have about his capacities moving forward and his standing in this race”.

The roll call of Democrats calling for Biden to withdraw was joined on Saturday by Angie Craig, a House member from a swing district in Minnesota.

“President Biden is a good man & I appreciate his lifetime of service,” Craig wrote on social media platform X.

“But I believe he should step aside for the next generation of leadership. The stakes are too high.”

NBC News reported that the Democratic leader in the House, Hakeem Jeffries, was set to discuss the president’s candidacy among colleagues on Sunday.

Throughout the roughly 20-minute interview on ABC, Biden rejected opinion polls that show him trailing Trump both nationwide and in the pivotal swing states that will determine the election outcome.

“I don’t think anybody is more qualified to be president or win this race than me,” Biden said.

The president also dodged questions about whether he would be willing to undergo cognitive and neurological testing, at one point replying: “I have a cognitive test every single day, every day I have that test.”

Biden added: “You know, not only am I campaigning, I am running the world . . . for example, today, before I came out here, I am on the phone with the prime minister of, well anyway, I shouldn’t get into the detail, with Netanyahu, I’m on the phone with the new prime minister of England.” The president appeared to be referencing a call he had on Thursday with Israeli Prime Minister Benjamin Netanyahu, and another on Friday with new UK Prime Minister Sir Keir Starmer.

In another exchange, Biden appeared to suggest that nobody would be able to convince him to suspend his re-election bid, saying: “If the Lord almighty tells me to, I might do that.”

“It seems that the only person who still believes Biden should still be in the race is Biden,” said one top Democratic donor. Another Democratic donor called the interview “pathetic”, while another said it was “too little, too late”.

Many Democratic lawmakers, party operatives and influential donors have privately called for Biden to suspend his re-election campaign after last week’s debate reignited questions about the president’s age and fitness for office. But more critics have been willing to go public with their concerns in recent days.

Maura Healey, the Democratic governor of Massachusetts, became the first state governor to suggest Biden step aside on Friday. Healey was among governors who met the president for emergency talks at the White House this week.

She issued a statement urging him to “listen to the American people and carefully evaluate whether he remains our best hope to defeat Donald Trump”.

Meanwhile, the Washington Post reported on Friday that Mark Warner, a senator from Virginia, was working to assemble a group of Democratic senators to ask Biden to exit the race. A spokesperson for Warner did not respond to a request for comment.

Earlier on Friday, Biden delivered a defiant speech in Wisconsin, a swing state, telling a crowd of supporters that he would not bow to the mounting pressure on him to quit.

“Let me say this as clearly as I can: I’m staying in the race. I’ll beat Donald Trump.”

Reporters travelling with Biden noted several people standing outside the venue where he spoke in Wisconsin holding signs urging him to “bow out” and “pass the torch”. Another sign read: “Give it up, Joe.”

His campaign on Friday said it would spend another $50mn on advertising in the month of July, including for ad spots that would run during this month’s Republican National Convention and the Olympics.

Biden’s vice-president Kamala Harris, California governor Gavin Newsom and Michigan governor Gretchen Whitmer — all seen as possible candidates should Biden step aside — have remained publicly loyal to the president’s campaign. At a July 4 celebration at the White House on Thursday evening, Biden joined hands with his vice-president as some people in the crowd chanted, “four more years”.

But other prominent Democrats are more reluctant to share the stage with the president. When Biden visited Wisconsin on Friday, he was joined by the state’s Democratic governor, Tony Evers — but not Tammy Baldwin, the state’s Democratic senator, who is polling far ahead of the president.

The latest FiveThirtyEight polling average shows Trump leading Biden by just shy of two points in Wisconsin.