22.6.21
Macroeconomic Policy

The return of inflation?

  • Warnings about the “beast of inflation”. Earlier this month, the Bank of England’s Chief Economist Andy Haldane (widely seen as a progressive figure) called for pre-emptive measures to prevent overheating of the UK economy leading to a resurgence of inflation. Referencing rising commodity prices - such as oil, lumber, silicone chips, iron, corn and soybeans - labour shortages and forecasts of a rapid rise in consumption, Haldane warned of the “most dangerous moment for monetary policy since inflation-targeting was first introduced into the UK in 1992”.
  • ~~And elsewhere… Former German finance minister Wolfgang Schauble (a conservative) and former US Treasury Secretary Larry Summers (a Democrat) have also warned of inflationary pressures, in the EU and US respectively.  

  • The case for pre-emptive action. Haldane emphasised the adverse effects of inflation on businesses, consumers, financial markets and indebted governments, recommending preemptive action to stave off inflationary pressures: “Waiting too long risks interest rate rises that are larger and faster than anyone would expect or want. It runs the risk of the brakes needing to be slammed on to an overheating economic engine...acting early as inflation risks grow is the best way of heading off future threat”.

Weekly Updates

Welfare and work

  • A living income. The New Economics Foundation launched its Living Income campaign. It argues that, without a change in government policy, by 2022 32% of the UK population (21.4 million people) will be living below a needs-based ‘minimum income standard’.
  • ~~Breakdown. This figure includes 45% (7 million) of children, 70% of single parents, 50% of all renters and more than ⅓ of all families in the North East, West Midlands and London. (Twitter thread summary)
  • ~~Reform. NEF calls for a ‘needs-based’ approach to social security to ensure that everyone has a decent minimum standard of living. NEF’s Sarah Arnold argues that a multi-dimensional crisis requires tackling low pay, strained public services and patchy social security, with priority given to welfare reform.

Environment, climate change and finance

  • UK Infrastructure Bank launch. The UK Infrastructure Bank launched last week with a remit to issue loans, equity or guarantees to private projects that help tackle climate change and/or reduce regional inequalities. The BBC reports that the bank will allow local authorities to borrow money in due course.
  • ~~Analysis. The UCL Institute for Innovation and Public Policy’s Thomas Marois compared how the publicly-owned bank compares with other national infrastructure banks in Germany and Canada. The author notes the “remarkably little” investment given to the bank by HMT (£1.5bn annually) and a “fraught public-private partnership strategy that often costs taxpayers more while delivering less.” He concludes that the new bank is “anchored to past ‘market-failure’ approaches rather than a future where public banks, public purpose, and citizen engagement provide credible and innovative solutions to green and just transitions for people and planet.”

  • Green finance. The Aldersgate Group released a new report on Financing the Future in collaboration with the Centire for the Understanding of Sustainable Prosperity, exploring the critical role of green finance in lowering the cost of private investment in low carbon infrastructure and nature-based solutions.

  • Bank of England's "brown" funding. The Bank of England’s climate-related financial disclosure report revealed the Bank’s £20bn asset purchasing scheme is funding “brown” industries contributing to an “implied temperature rise” of 3°C, double the limit sought by the Paris Climate Agreement.
  • ~~Criticism. Positive Money called on the bank to deliver its green mandate and take decisive action now, for instance by excluding fossil fuel companies from its portfolios and penalising dirty lending across the financial system.

Trade and migration

  • Post-Brexit immigration trends and labour shortages. Indeed’s Hiring Lab analysis of international jobseeker interest in Britain shows declining popularity of the UK to EU migrants, whilst job searchers from elsewhere in the world remain “remarkably stable”. The analysis suggests that employers “hoping to recruit from overseas for lower-paid jobs, including childcare, hospitality and leisure, may face challenges”.

Tax

  • Assessing the G7 corporate tax deal. John McDonnell, Prem Sikka, Daniela Gabor and John Christensen discussed “how progressive the G7 tax deal is” in an online event hosted by Claim the Future.

  • New tool to compare national tax expenditures. The Council on Economic Policies and German Development Institute launched the Global Tax Expenditures Database (GTED), a new tool to track tax incentives, tax breaks for firms, tax deductions for households and lower tax rates for specific goods across the world. The tool aims to increase transparency on tax expenditures by national governments, and includes a repository for blogs, working papers, publications and events.

Local economies

Public services and wellbeing

  • Childcare and the labour market. Charity Pregnant then Screwed called for an independent review of childcare funding and affordability, drawing attention to the UK’s “second most expensive childcare system in the world” and its impact on child poverty and the labour market. The petition reached over 100,000 signatures so will be debated in parliament.

  • Adult social care and the labour market. Author John Merrick outlined the economics of a privatised model of care, and its effects in the deindustrialised town of Crewe, looking at the poor quality of work for low-pay that leads to higher prices for consumers.