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Difficult choices facing the country | Jake Smith Opinion Column | AccountingWEB
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Difficult choices facing the country

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Former Chancellor, Philip Hammond's recent appearance at an accountancy trade show gave Jake Smith plenty of food for thought as the UK prepares to head to the ballot box.

23rd May 2024
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At last week's Accountex, Lord Hammond gave a well-attended and interesting talk titled 'what the future looks like for the UK economy and public finances'.

I thought that some of the points he raised would make a good piece, but then events on Wednesday had me rethinking my plans.

Rumour mills in overdrive

On Wednesday morning we started to hear lots of rumours from various sources that the prime minister might be about to announce the start of a general election campaign.

At the same time, there were other rumours that the current Chancellor Jeremy Hunt may be removed in a reshuffle, this would have meant that there would have been an incredible six different Chancellors in the five years since Phillip Hammond left the post! 

As the day went on it became clear that the UK was set for a general election on 4 July. So after a soaking wet prime minister Sunak confirmed the date for the election, whilst being almost drowned out by Labour's 1997 anthem ‘Things can only get better’, I wondered whether I should change the topic of my column.

Politicians can speak their mind once they’ve left office

In support of my eldest child sitting his Economics A level this week, I’ve decided to stick with the original plan and discuss what I found most interesting from Hammond’s talk at the Excel last week.

One thing that struck me is that I often prefer how politicians of many flavours discuss politics, particularly the economy, once they’ve left office. 

As soon as they’re able to speak their mind freely and not have to stick to party lines or support policies they don’t fully believe in, I’m reminded that many of them are highly educated and articulate public speakers. Not that this guarantees that they make sense, but I’m pleased and quite surprised to say that I found myself agreeing with many things in Hammond’s case. 

I remember Hammond as a relatively safe pair of hands as Chancellor, not particularly high profile compared to some in the role, though given the chaos we’ve seen since (particularly with Zahawi and Kwarteng) that is possibly high praise and shows what is actually needed in the role.

Four Ds will mean painful decisions for the country

Hammond talked about the four Ds that he said highlighted the challenges any Chancellor will face over the next few years.

Demographics - with an ageing population we will have to deal with having fewer taxpayers and more people with complex health needs leading to funding challenges in health and pensions

Decarbonisation - how do we ensure that we take the necessary action to deal with the climate crisis, and how will these actions affect our economic growth?

Defence - the need to re-arm and prepare for increased risk of conflict due to Russia and perhaps even China, this will cost a huge amount of money.

Democracy - the need to ensure that the public is consulted, understands and is supportive of the decisions being made on their behalf.

Of these, I think Hammond's thoughts on the final item were revealing. He claimed that none of our politicians were talking about the decisions that need to be made and that across the major parties, everyone seemed to have their head in the sand and were simply not talking about the inevitable pain that we will all face however we try to tackle the issues.

Will the election see any meaningful debate on these issues?

The problem as Hammond described, is there is no silver bullet for any of these issues. Both major parties know this and that’s possibly why they aren’t talking about them openly.

Increasing tax levels from their current record highs risks serious electoral discontent, borrowing is more or less maxed out, so where will the money come from?

The demographics discussion is important as the inter-generational challenge is at breaking point. At some point our working-age population, particularly anyone under 40, might just stop agreeing to support the costs of health, care and pensions for the older generations who have mostly benefitted from rising property prices, generous pensions and lifelong careers.

Hammond suggested that tax policy is going to need to address all of the points to help us shape the economy we want.

He said tax was seen as a necessary evil, claiming that those on the right want taxation to be as low as possible, while those on the left see it as a way to redistribute wealth.

He argued that it should be used to direct capital where it can be used best, using a combination of incentives and exclusions to achieve policy goals.

Examples he gave were capital allowances that can improve productivity, investment and efficiency, R&D credits, which he said were vital to ensure we can compete on a global scale but are prone to fraud. He also discussed the VAT threshold which he believes should be far lower to avoid the cliff edge that deters business growth for those approaching the threshold. Indeed, he said he was disappointed that it had recently been raised to £90,000 by Jeremy Hunt. One interesting admission was that Hammond said he wished he'd lowered it considerably to perhaps £20,000 but was afraid of the reaction of the Sun newspaper and the White Van Man.

Finally, he talked about Pension tax relief, which is one of the largest reliefs the government gives individuals, and how we needed to see more of the funds saved in pensions being invested in UK assets – which currently only make up around 4% of pension funds and he said should be around 25%. This would mean UK companies could invest and grow, using the skills we have such as our world-leading high-tech manufacturing and the research skills of our universities.

Sadly for voters, or those tasked with putting together election manifestos, he didn't offer specific costed solutions to any of the challenges, as he said, there is no silver bullet.

But I found myself agreeing with him on the importance of the main points he made, and wishing that he'd done something about it when he had the chance.

It was a very different world in 2019. If he'd had the answers then would it have made me vote for him? We'll never know.

But in six weeks we'll have to make our own minds up about who we do trust with our vote.

Replies (6)

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By Open all hours
24th May 2024 09:22

As Jeremy Clarkson said we have a choice between those who have been stupid by accident and those who deliberately choose to be stupid. Either way things will not be getting better under any of them.

Thatchers fault? Some of the best used to go into politics and the civil service then big money in the city took the best and we are left with second rate minds and third rate ideas.

Thanks (1)
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By fitzroy
24th May 2024 09:57

Jake - would you mind asking your pending-Economics-A-level-taking off-spring, and sharing with us, if they have learned how 'money' is created? Have they been taught about the last time the Treasury issued it's own notes in the form of the Bradbury Pound at the outbreak of the Great War and have not done so since?

If not, this is a nice short explanation of what the UK Government did at that time:
https://archive.sustecweb.co.uk/past/sustec12-6/extract_from_the_financi...

The only problem the UK economy and public finances have is that money creation was gifted by the state to the banking industry who, literally, by way of their their banking licence, have a licence to create money out of nothing as debt. As the Bank of England was forced to admit in their Q1 2014 newsletter 'Money Creation in the Modern Economy' after it became clear that the pending publication of the emperical study by Prof Richard Werner was about to let the cat out of the bag.

https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/money-creatio...

https://www.sciencedirect.com/science/article/pii/S1057521914001070

The fact that the banking industry has the power to create our currency, out of nothing, and charge interest on such (even the Govenment has to pay interest on what should be its own currency, hence the national debt!), shows us who really runs the country. It matters not who is in Downing St.

Thanks (1)
Replying to fitzroy:
Jake Smith, AccountingWEB
By Jake Smith
24th May 2024 11:42

That first link is an angry rant at the greed of bankers isn’t it! Thank goodness everything is so much better now - oh hang on!

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Replying to Jake Smith:
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By fitzroy
24th May 2024 13:58

Er, no it's not. The first link is to work by The Rt. Hon. Thomas Johnston, P.C., ex-Lord Privy Seal 1934, explaining how and why the Treasury issued and subsequently withdrew the Bradbury Pound.

The second link is to the Bank of England's statement on how money is created by commercial banks when they issue a loan. I take it, then, that this is not taught at A level.

Thanks (1)
Replying to fitzroy:
Jake Smith, AccountingWEB
By Jake Smith
24th May 2024 18:31

Hi Fitzroy, I read it and found it really interesting, definitely didn’t know about this and I also enjoyed the relatively young suits from the BoE explaining money and quantitative Easing in the video. Every day is a learning day!

My comment about the piece about the Bradbury pound was that it felt (to me) that the author was rather unimpressed at the way the ability to create and therefore make money was handed over to greedy bankers.

I’ve asked my A level taking son whether they’ve been taught about this and he said that they were meant to be taught it but it wasn’t explained well enough and he’d read up on QE by himself, I’ve forwarded o. Your links and will report back if he decides to give me a response!

Thanks (2)
Replying to Jake Smith:
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By FactChecker
25th May 2024 20:26

I'm sure your son has more pressing matters on his mind right now ... but if he's actually interested in finance/economics, you could try asking him:

- whether Gordon Brown's push for BoE independence (via the Bank of England Act 1998) has been successful in his avowed aim to "remove political control over monetary policy and thereby strengthen global confidence in the UK economy"?

- or whether it has merely provided a figleaf behind which politicians can shelter, whilst unelected mates get to make the 'tough decisions' behind closed doors?

Thanks (3)