Skip to content

Could indeed happen, sure

Jeremy Hunt’s tax raid will help to trigger the biggest income squeeze in a century as the cost of living crisis becomes “far worse” next year, forecasters have warned.

Households will suffer a 3.8pc slump in real disposable incomes in 2023 because of rising taxes, interest rates and energy bills, according to predictions by the Resolution Foundation think tank. This equates to an £880 drop in earning power and is the biggest fall for a century.

Those better at maths than me can have a go at this. If we all do nothing for a year, but still pay ourselves, so how much do living standards have to fall in future years – over how many – to make up for having done nothing for a year?

My rough sketch is if it’s 100% do nothing then it’s 1% for 100 years, 2% for 50 and so on……

19 thoughts on “Could indeed happen, sure”

  1. You’re assuming 100% of production goes into capital. If you’re building a bridge and your workers down tools for a year, then yes, it’ll take a year longer to build. But if your local pub is closed for a year and you have to drink at home instead, then your standard of living bounces right back when it re-opens.

  2. Bloke in the Fourth Reich

    It’s just an extension of the trend for decades of more people using the government to steal and consume the productivity of other people. The more interesting question is how far you can push this before Atlas shrugs. Anecdatal evidence suggests at least some people in the US are already pushed beyond that point (Europeans will put up with their pockets being raided more).

  3. I more or less agree with the arithmetic:
    If 10% of former producers produce nothing for a year but get full pay, then living standards have to fall by that lost output – say 5% in year one, 0% in year 2 (so another year of 5% less), and then we can bounce back up.

    I do wish the Res Foundation would take immigration effects into account though – I bet all the HK arrivals had much higher previous year incomes, while legal Albanians much lower, and UA approx the same, but they simply don’t bother. Meanwhile people leaving UK for Dubai or USA are presumably taking a pay rise.
    Instead the Res Foundation gets their data from:
    “The research uses data from an online survey of 10,470 adults aged 18+ conducted by YouGov, and supported by the Health Foundation. The figures presented from the online survey . . “

  4. “a 3.8pc slump in real disposable incomes in 2023”: how lucky and how rich we are. ONLY 3.8%, after allowing for inflation, and it’s fraction of disposable income at that.

    Come to think of it, is there a standard British definition of “disposable” income? If so, what does it exclude? Housing costs? Heating and transport costs? Food? Clothes and shoes?

    Surely not life insurance and pension saving, though I don’t see why at least the former should be excluded.

  5. @dearieme

    The IFS calculate disposable income as net of income tax and council tax but inclusive of ‘benefits’, what you have in your sweaty mit before shelling out for housing, your tab at the off licence, etc.

  6. Thanks, BG. Net of income tax and council tax, inclusive of benefits – sounds sensible. But surely food, shelter, water and warmth aren’t matters of “disposable”? Without them you die. They are, at some modest level, essential.

  7. Essential, but then you get to choose the standard of accommodation and cuisine. Lifestyle, how you spend your disposable income, is up to you. You want to live in London, one of the most expensive cities in the world, so be it – blow it all on rent. You want to heat and eat go live in Wales.

  8. Disposable income is, as BG says, income after income tax and council tax.
    What you’re thinking of is discretionary income, income to spend on what you like after taxes, heating, eating, etc

  9. Maths is not enough here. Firstly, the special case of 100%. In that case, we’re all dead. There would be no shops to sell us food, no gas or electricity supply to heat our homes, no filling stations to allow us to flee, and no flights or ferries to let us leave. Only those with their own private international transport would survive.

    However, for more realistic levels of doing nothing, there will be a hysteresis effect. A shop which stops selling stuff for a year may never recover as its customers will have become used to going elsewhere. An employee who takes a year off may find the gap on their CV makes them less attractive to employers. This is one of the reasons why the Second World War was so damaging to British industry – foreign customers were forced to go elsewhere which stimulated foreign competition making it impossible for British companies to resume where they left off.

    @Andrew – “if your local pub is closed for a year and you have to drink at home instead, then your standard of living bounces right back when it re-opens.”

    Not likely. In that year you have either got used to not going to the pub or have found an alternative. And unless you go to the pub for solitary drinking, all your drinking companions have done likewise. So the pub will probably close again due to the lack of business.

  10. “What you’re thinking of is discretionary income”: I think you’re right, CD. But in that case all that “disposable income” seems to mean is net income after those two taxes which doesn’t seem a terribly interesting category since it gives little impression of how tight things are for some people.

    I had a conversation the other day with a young woman who couldn’t afford private dentistry and couldn’t find a local NHS practice. As she said she’ll end up with her problem being treated in hospital at great expense to the taxpayer. I found her persuasive: I suspect that what governments from Blair onwards have done to the working poor/poorish is harsh. I suppose the counsel of perfection is that she move to part of the country where the cost of living is cheaper and there are still NHS practices that will accept new patients. Are there such places?

    And still I ask: what on earth was Blair’s attack on NHS dentistry about? What were his motives? What did he hope to achieve? It’s all a mystery to me. By contrast I do understand why he waged economic war on the working poor by admitting shit tons of immigrants. Jack Straw blew the gaff on that.

  11. I suspect dentistry is the canary in the mine as far as our NHS is concerned. When I moved to London in the late 70s most dentists had already closed their books on NHS patients and I was obliged to go private. From what I can see, this has now become common for many basic medical procedures – and the government is counting on it. The NHS doesn’t have the resources to treat our ever expanding population and relies on those with money – or employees fortunate enough to be working for employers providing private medical insurance – to take up the slack. NHS destistry will become extinct within my lifetime.

  12. “The NHS doesn’t have the resources to treat our ever expanding population”. So it says but in fact it has much the same level of income per capita as the systems in comparable continental countries. I conclude that it just the cash badly.

  13. “Uses the cash badly?”

    I don’t doubt it. Probably need better managers rather than less of them. I’m told low-grade clerical staff are a problem, but then so apparently is the creaking IT system. An organisation the size of ‘our’ NHS is bound to have its share of plonkers, both medics and admin staff. Whatever… The NHS’s faults are widely reported on and appear insurmountable, a basket case, yet I can’t imagine politicians of any stripe having the courage to break up/reform the organisation. Demand for its services appear insatiable and reflect the general poor health of our population. Perhaps when we all die off and are replaced by clean living non-drinking Millennials the situation will improve?

  14. and there are still NHS practices that will accept new patients. Are there such places?

    Mine does. 5 min walk down the road. And it is owned by a very posh Glaswegian dentist who my wife and son-in-law attend privately for corrections of previous dentistry.

  15. and there are still NHS practices that will accept new patients. Are there such places?

    Mine does. 5 min walk down the road. And it is owned by a very posh Glaswegian dentist who my wife and son-in-law attend privately for corrections of previous dentistry.

Leave a Reply

Your email address will not be published. Required fields are marked *