The next step of the recovering UK economy – 8/11/2011

 

The next step of the recovering UK economy – 8/11/2011

There are quite a number of ways by which a Government can re-ignite it’s economy. The two usual ones are now being utilised in the UK – ignite the housing market by allowing more house building on Green Belt land – and printing more money in exchange for some limited inflation later on. However, the third, the most difficult and yet the most effective method, has yet to be deployed.

The first one is allowing more houses to be built, and it is the traditional way of boosting the economy. However, that begs the assumption that there are sufficient “first time buyers” out there who have well salaried jobs and who want to buy them.

The second is rebuilding the economy from the corporate end by increasing liquidity in the Banks, through printing money. This also works, but it takes quite a long time to work through the system and create increased employment in the private sector. The tragedy is that extended years of increasing unemployment will inevitably result in very large numbers of people, wives, husbands and children, who will be subjected to huge personal suffering along the way.

The only real way of rapidly boosting the economy, and corporate profitability with the resulting increased revenues to the Treasury, and quickly reducing the unemployment register, is by putting money back into the hands of those who are going to spend it in the high street. Increased spending in the high street feeds directly into small businesses, enabling them to develop and expand.

These are the businesses who currently only employ one person, the owner, but they are also the same businesses who, only a year or two ago, used to employ two or three other chaps as well, and occasionally even some temporary staff when business was really good. They are the artisans or our economy, the painters and decorators, the jobbing builders, the roofers, the electricians and plumbers, the small service providers like TV engineers, financial planners, window cleaners, gardeners, car valet services, take away delivery people, ….. solar power installers, wedding party planners, interior designers, taxi services, butchers, bakers and the candlestick makers….. These are the businesses who will take on the unemployed, teach them a trade, and turn them into happy, ambitious citizens.

For the current unemployed, and the many who will join them from the public sector over the next year or so, speed is of the essence. It is far quicker to start the economy through the high street spender, rather than wait for the Banks to pay down their debt and then start lending into business once more.

At this point, there are a couple of other statistical and economic facts about the UK which I think we should consider.

1)     In the next few years, the retired population of this country will become the single biggest voter category, which is a fact that I hope will grab the average politician’s thinking processes.

2)     The amount of the state pension in the UK is a national disgrace at just over £100 week, and we do now have old people starving in their dilapidated homes or even sleeping rough on the street.

At first glance, increasing the state pension to at least £200 per week for everybody over age 65 (yes 65, not 66 or 67), would seem impossible in the current times of national indebtedness and the dire need to reduce public expenditure rather than expand it. However, it most certainly is possible if we consider the huge capital that has been generated inside private pensions, company pensions, and occupational pensions, since 1978 by allowing everybody to contract out of the state second pension (previously known as SERPS). By my calculation there is approximately £800 billion in these schemes, and there is no reason why this money cannot be repatriated to the national state pension fund in exchange for an immediate increase to a “£200 per week state pension”, for everybody over age 65.

I calculate that, as a country, we would then have approximately 8 to 12 years whilst this “repatriated fund” exhausts itself through the new £200 per week state pension payment. During those years we will need to review and then properly fund our state pension for the years thereafter, through realistic national insurance contributions. I also calculate that the immediate increase to the high street spend, across the entire country, would be very nearly £2billion per week. Such a permanent and consistent boost to the local economy would turn it from stagnation into rapid expansion within months. There would then be very large amounts of new employment, at a local level, for anybody who really wants it.

By increasing the state pension to £200 per week, there would also be a large number of substantial savings to be made, right across the entire public sector. For example, there would no longer be any need for, bus passes, council tax rebates, winter fuel allowances, means testing, attendance allowances, mobility allowances, disability allowances or any other form of pension income assessment for additional benefits, and there would be no need for the people who have built managerial careers for themselves in administering them. All of this is before we consider the benefits to the National Health Service budget simply because of our elderly population would be in far better health, as they could then afford to eat properly. There would also be a substantial reduction in the costs of long term care to the state because the elderly would be largely paying for it themselves out of their own pension.

The more one thinks about it the more one realises that the local economy would rapidly become the provision of services and products which the people want to buy. The people would be in command of those services because they would be in command of their own funding to pay for them, rather than the Council. People would either be over age 65 and retired on a proper state pension income, or they would have a proper job in providing those services.

The local swimming pool would be able to charge a realistic entry fee. Parking fees on council car parks would disappear, enabling people to visit town and spend their money in the way they want, rather than the way local government prescribes, and if the supermarket chains were at last made to pay the same business rates as the small high street retailer, the high street and the local community would thrive again.                                                                                                                                                                                    

Speaking as an economist and an investment manager, there is no doubt that the current Government will eventually get our economy right. It is just a matter of whether they want to take the fast but radical route to permanent and enduring economic recovery in the UK, directly through the high street, or whether they want to drag the job out by waiting for the Banks, and large commercial interests to pay down their own debt before they start investing in the economy again. The latter will be a very slow and painful process, especially to those who are thrown out of work and may have to wait for several years before they find new employment.

Today, we may well be living at a unique historical moment. It is a period in time when there is a clear opportunity for our politicians to put the UK economy in order for many years to come, and our society and our communities as well. Let’s hope that David has the courage to do it, and secure his place in our great Nation’s extraordinary history.