Should economists be worried about the coronavirus?

The coronavirus has been in the news this weekend with the 35,000 people in different countries being affected. In addition, the business pages of many papers are expressing concern about the implications the coronavirus might have on Western economies – what economists refer to as an economic shock – with the Federal Reserve Bank talking of a risk to the global economy. This is because of the increasing importance of China in the world today. Not only is it the second largest economy, accounting for 19.7% of world GDP, it also demands a staggering 69% of world mineral production. 20% of world tourism spending is linked to China, both inward and outward, with the Japanese economy predicted to experience a £17.3bn cost from the virus. Cathay Pacific, a Hong Kong based airline, has asked 27,000 staff to take a three-week unpaid holiday while, in the UK last year 415,000 visitors from China spent £714 million in UK hotels, shops, restaurants, etc. One estimate in the newspapers suggests every 22 visitors from China to the UK creates an additional job.

China now accounts for 13% of world trade. Wuhan, the region where the outbreak started, is prominent in world car production. Honda, Toyota and General Motors have factories there and many of these are currently closed to prevent workers travelling to work and catching or spreading the disease. Similarly, many shops are closed and Chinese branches of Western stores, particularly luxury products, such as Burberry, Estee Lauder and Canadian Goose have talked of falling sales in China as Chinese citizens stop shopping for such luxuries and the number of foreign tourists to China drops significantly. Ralph Lauren has closed 55 of its 110 stores in China. China is the world’s largest oil importer, daily consuming as much as the UK,  France, Germany, Italy, Spain, Japan and South Korea, and, as China’s economy slows oil prices have dropped with analysts comparing it to the fall as a result of the financial crisis

Apart from direct effects, China factories have a major impact on world supply chains, assembling products and producing components from everything from cars to iPhones. Fiat Chrysler, the Italian-American carmaker, has said that it could shut one of its plants on the Continent if the disruption continues while Sony and Nintendo have both talked of unavoidable delays in the supply of some of their products.

As Chinese production slows and both its exports and imports decrease, world growth will fall. Whether this is a temporary blip or a permanent drop will depend on how serious the epidemic turns out to be. However there is an upside – in China demand for  contraceptives and  Netflix subscriptions are both booming.

Why economists do not like Xmas

Economics is sometimes called the gloomy science and economists are not the most popular people at parties. Tell someone you are an economist and their eyes glaze over and they go off to talk to someone more cheerful like an undertaker. One could possibly blame Thomas Malthus and his 1798 work  ‘An Essay on the Principle of Population’ for this since, in it, he argued that population grows exponentially (2, 4, 8, 16, 32, etc) while food production grows arithmetically (2, 4, 6, 8, 10, etc) so the former would outstrip the latter and war, disease or starvation would occur to restore a balance.

Although it has not enhanced their popularity, economists have looked at the benefits of giving presents at Xmas and come up with the conclusion that such activities involve a significant waste of resources for society. This was originally suggested in 1993 by Joel Waldfogel who wrote “The Deadweight Loss of Christmas”. He argued that, at Xmas, we are making choices for other people and since we have less information about their desires than they do, we are unlikely to buy what they would ideally purchase for themselves. Therefore the most efficient way of celebrating Xmas is either by giving cash or for potential recipients to improve the level of  information in the market by producing a list of one’s desired gifts.

However there is an argument that donors receives a benefit from giving gifts which they would not receive simply by passing over an envelope of cash since the gift reflects the amount of time spent in searching for the ideal present.

Although not recommended as a recipe for a harmonious family Xmas, an economist might suggest that, in order to maximise utility, rich people ought to forget about giving their family presents or money but should, instead, donate the money to those with a lower income since, for those on low incomes, the utility they gain from receiving money will exceed the loss in utility experienced by the donors.

 

 

gifts are frequently worth less to the recipient than they cost the giver and therefore there is a deadweight loss to society. Giving gift token are also inefficient, as judged by the discount rates they are sold at on eBay after Xmas. Therefore the most efficient way

 

 

Time is Money?

Last week’s and this week’s blog have moved away from the current state of the UK economy, Brexit, trade wars and other depressing areas and look instead at some of the techniques economists use when making comparisons between different projects.

When comparing alternatives, it is necessary to identify all the costs and benefits – monetary and non-monetary – and compare them. This involves finding a way of expressing them in money terms. Last week’s blog looked at how economists value a human life while this week’s considers the value of travel time (VTT), the amount of money a traveller is willing to pay to save time, measured in pounds per hour. This is important when considering whether to pursue major transport infrastructure projects since savings in travel time are an important benefit to be considered, as well as construction costs, savings in vehicle running costs from shorter or less congested journeys and reductions in accidents and fatalities.

When trying to value time saved by drivers and passengers, we first need to identify whether the journey is for work or non-work, (leisure and commuting) since the two are valued differently. A government paper in 2015 suggested commuting time saved should be valued at £11.21 per hour while leisure time is worth only £5.21. Time spent travelling for business is more complex with an average of £18.23 per hour, considerably more valuable than non-work time. This average contains considerable variations. For example, an hour saved on a business journey by car is worth £25.74 if the journey is more than 100 miles while, if it is less than 20 miles, the value is only £8.21 per hour. Time spent on rail travel, which might be expected to be less valuable because of the opportunity to work on the train, is actually more valuable, with an hour saved on a rail journey of more than 100 miles worth £28.99 per hour. This could be because the government paper takes into account the quality of the travel experience and considers such factors as whether the mode of transport is likely to be early or late and whether, on a train there are many, few or no seats free. Therefore, an hour spent in a car listening to the radio is far less of a cost to the employee than having to travel in a crowded train.

The final way in which time needs to be considered is in how we value costs and benefits accrued at different stages of a project. In a typical infrastructure project, the construction costs are front-loaded while the benefits, such as time saved and revenue generated occur over a longer period. If you were asked whether you preferred £100 today or the same sum in five years, you, along with the majority of the population, would prefer the former, not least because you could put the £100 in a savings account and it would be worth more than £100 in five years. Therefore economists “discount” the value of future costs and benefits and express the costs and benefits in terms of the “net present value” – the monetary value today of future costs and benefits. In a simple example, if the interest rate today were 5% and a project incurred costs of £100m today, the project would need at least £105m of revenue in a year’s time to be viable. In reality, one is not looking at one cost and one revenue figure but a series of figures over many years. The interest rate chosen is crucial since it would require revenue of £161 in five years to cover costs of £100 today at 10% but only £110 at 2% – a figure much closer to today’s borrowing rates. Hence the argument that now is an ideal time for our government to be improving the UK’s infrastructure.

What is the value of a human life?

Imagine you are an economist in the Department of Transport advising the Minister who has to chose between two alternative transport options. One is significantly more expensive than the other but will have a greater impact on road safety because it improves a major blackspot, notorious for fatal accidents between pedestrians and cyclists. Alternatively, if you were working for a health authority, you might have to advise on allocating scarce resource between areas which particularly benefit the elderly, such as hip replacements, or putting the money into areas which benefit other sectors of the population such as paediatrics. Although it might seem difficult and subjective, economists working in these areas have to place monetary values on a human life.

One way of valuing a human life is the VSL (Value of a Statistical Life) which uses  the money a person would pay to save one human life. This is not asking what they would pay to save their life or that of a member of their family or a friend, but the value they would place on an anonymous life. Alternatively, rather than carrying out surveys, economists consider future average earnings. Therefore the value of a life varies according to the age of the people being considered, hence actions which save a child’s life are more valuable than those which benefit the elderly. More problematical, this implies that saving lives in a high-income area is of greater value to society than in a depressed region.  Unsurprisingly, there is very little international agreement about the answer. The UK government figure is around €2.02m while the USA Department of Transport figure is €8.75m, indicating the way the VSL varies according to income levels.

A study in Sierra Leone illustrated this by looking at people’s preferred transport options to get from the capital, Freetown, across water, to the airport. By examining the different methods of travel (ferry, water taxi or  hovercraft) and considering the duration of the journey and the risks involved, the study found that the VSL of an African traveller ($577,000) was lower than that of a non-African traveller ($924,000) which was largely explained by the level of income, with higher income earners choosing the safest method – water-taxi-  even  though it was more expensive and took longer.

A new approach, used particularly in healthcare economics, estimates the “Value of a Statistical Life Year” (VSLY) which measures the value of one additional year of life. If a medical process, such as a heart transplant for an elderly patient, costs £50,000 and increases life expectancy by one year yet costs £60,000 then in economic terms it is not cost-effective. However if the same treatment were provided for a child which increased their life expectancy by fifty years, then it would be extremely cost-effective. This approach has been made more sophisticated by introducing the idea of a Quality-Adjusted Life Year which is defined by NICE (the National Institute for Health and Care Excellence) as:

 “A measure of the state of health of a person or group in which the benefits, in terms of length of life, are adjusted to reflect the quality of life. One QALY is equal to 1 year of life in perfect health.
QALYs are calculated by estimating the years of life remaining for a patient following a particular treatment or intervention and weighting each year with a quality-of-life score (on a 0 to 1 scale). It is often measured in terms of the person’s ability to carry out the activities of daily life, and freedom from pain and mental disturbance.”

The World Health Organisation uses a range of between one and three times per capita GDP of the country per additional QALY while a value of £30,000 per QALY has been identified as the upper limit for treatments deemed cost effective in the UK,  approximately the value of per capita GDP.

Whether this figure is too low is a question for politicians rather than economists.

An Ageing Population

The world is getting older and this has significant implications for the working population, those who have retired and those about to enter employment. The country facing the most immediate crisis is Japan with its rapidly ageing population. Those over 65 years old now account for 28% of their population and their life expectancy is 84 – the highest in the world. It is predicted that over half of the babies born there today will live to over 100 years old.  In addition, it has the lowest birthrate since its records began 120 years ago and therefore its population is falling. In the UK the population is ageing. The proportion aged 65 or over in 2016 was 18% of the population (11.8 million) and the ONS predict that by 2066 this figure will have increased to 26% of the total population (20.4 million).

We can expect this to result in an increasing budget deficit as pension payments increase because of longer life expectancy. Governments will face increasing costs of health care as people live longer and consume more health care which is becoming increasingly expensive for those in later life as medical science has improved. Linked to this, the tax burden on those of working age will increase as the proportion of the population not working increases. Partially offsetting this, there has been an increase in the proportion of older people working as their health has improved; for example, in the UK, the proportion of over 70s working has more than doubled in the last ten years but it is still only one in twelve. However if people are working longer, their ability to provide care for elderly relatives will diminish. A key concept to consider is the “Old age dependency ratio” (OADR) – the number of people of State Pension age (SPA) per 1,000 people of working age. In the UK this is forecast to increase significantly beyond 2030, therefore suggesting either increased taxes, reduced levels of care, increased immigration,reduced real pensions or making the elderly pay an increased proportion of costs currently paid by the state.

The impact on the structure of the economy is also significant. Many older people live in houses which are too large for them, bought when they had children who have now left home. A shortage of suitable smaller accommodation, combined with the relatively high costs of down-sizing prevents some of them from moving, thereby restricting the supply of housing for younger families. There is also an increasing need for workers in the NHS and care industries to look after the rising number of elderly people. There is also a regional impact since proportionately more elderly people live in rural and coastal areas, placing a proportionately higher burden on local authorities and the NHS in those areas. Another issue is that over the past few years, the relative income of UK pensioners has increased due to the introduction of the “Triple Lock” in 2011 – a government commitment to increase pensions annually by the highest of average earnings, the rate of inflation or a minimum of 2.5%.  Since then both inflation and earnings growth have been low and the 2.5% increase has therefore increased pension incomes relative to earnings. This is supported by a government study which looked at the percentage of people in 2015/16 of different age groups reporting it “quite or very difficult to get by financially” which showed that the lowest percentage of those in difficulty were the two highest age groups, 65 – 74 and 75 and over, which reported 3.1% and 1.4% respectively. These returns compare with the next lowest, the 16 – 24 age group, who reported 5.8% in difficulty.

 

The UK’s Foreign Exchange Reserves and the value of Sterling

Last week was the worst for the pound for a year as holders of sterling sold it following the collapse of the talks between the Conservatives and Labour on how to proceed with Brexit.  On the foreign exchange markets, the price of a currency is determined by supply and demand and, if holders of sterling wish to sell it to buy euros or dollars, then the supply of sterling increases and the price falls. Simultaneously, given the state of political uncertainty, demand for sterling on the foreign exchange market fell, further weakening the value of the pound against other currencies. As a result, sterling dropped to $1.27, losing 1.85% of its value during the week.

Most forex transactions are made using the U.S. dollar, euro, pound and Japanese yen; although one might think that currency is mainly traded on the FOREX market to buy foreign goods and services, this is not the case. On average $5.5 trillion is traded each day but less than 5% of this is to buy goods and services. The majority is to purchase financial assets (e.g. foreign shares and government bonds and to place money into an overseas bank account) or to speculate about the likely movements of currencies to make a profit. Therefore, confidence in an economy is crucial in determining its value.

The UK’s reserves of foreign currency, currently standing at $137bn, are used by the Bank of England to protect the value of the pound on the foreign exchange market. The reserves, at their highest level for at least 21 years, are held mainly in US dollars and can be used to buy pounds on the foreign exchange market, thus increasing the demand for pounds and hence increasing the price, or rate of exchange of the pound against other countries.

According to the IMF, they grew 19% in the last quarter of 2018 because the government wanted to have them available in case they were needed after the originally-planned Brexit date. However if one compares the value of our reserves against the £420 billion of sterling traded daily by UK financial institutions one can see that, while the UK authorities might be able to nudge the value of sterling and slow down its fall, we do not have the resources to withstand a major fall in its value unless the government decides to borrow heavily overseas from foreign governments, banks and the IMF.

Shopping not going too well for Sainsbury’s and Asda.

A typical UK family spends approximately 10% on food, with the figure being 4% higher for low income families. Therefore, what happens in the grocery industry is of significance to all consumers in the UK.

The proposed merger of Sainsbury’s and Asda would, if no changes are made in their operation, create a business which has 29% of the grocery market (Sainsbury’s 15% and Asda 14%), employ 343,000 workers (Sainsbury’s 187,000 and Asda 156,000), have 2,104 stores (Sainsbury’s 1,428, Asda 676) and revenue of £50.7bn (Sainsbury’s £28.5bn, Asda £22.2bn). The new business, which joins Britain’s second and third largest supermarkets together, would push Tesco out of first place

The arguments in favour of the merger focus on the economies of scale which the new firm would gain, such as bulk buying and marketing economies. It would allow it to build a stronger on-line presence and counter the competition from the discounters Aldi and Lidl and also from the entry of Amazon into the grocery market. According to the Chief Executive of Sainbury’s, consumers would benefit from price cuts of 10% on “everyday products”.

Elsewhere, there were concerns that the merger would reduce competition. The CMA has identified 694 areas of the country where it would fall because both Sainsbury’s and Asda have stores (either supermarkets or convenience stores) which currently compete. However, Sainsbury’s and Asda argue that the physical presence of stores is increasingly unimportant as more shopping is done on-line. Consumer groups and trade unions fear that the merger would effectively create a duopoly among the supermarkets (Tesco and Sainsbury’s/Asda) which would allow pressure to be placed on suppliers to lower prices, would involve redundancies as the new firm closed stores and sacked staff and lead to lower quality and higher prices.

Although their final report is not due until April, the Competition and Market Authority announced last month that the proposed merger  was likely to be against the public interest, leading to higher prices and a reduction in the range and quality of products. They have the power to block the deal or, if they allow it, to ensure that the two companies sell off a number of stores and allow another company to buy either the Sainsbury’s or Asda brand.

An Economic Update

Rising employment                   Falling unemployment       Low inflation                Rising pay

Forecast inflation increases    Falling productivity              Forecast job losses

Falling confidence                      Increasing balance of trade deficit    Rising household debt

Over the last two weeks there has been much economic data published, together with forecasts of what might be in store for the economy over the next few years. While some of what has been announced for the future is easy to assess, such as Honda’s announcement of the closure of its Swindon factory in 2022, some of the data is contradictory, so it is not easy to see exactly how we are doing. Furthermore, the picture is clouded by difficulty in distinguishing between temporary features due to Brexit uncertainty, such as businesses delaying investment decisions with the Head of Make UK, a body representing engineering companies, talking of a no deal as being “catastrophic”. There are also factors such as increasing household debt which might have a significant long-term impact on the economy.

On the optimistic side, the latest labour market figures are positive. Employment has risen in the last three months of 2018 and, compared to a year earlier, has increased by almost half a million, with most of the increase being accounted for by an increase in female employment. Unemployment remains at 4.0%, or 1.36 million people, the lowest rate for approximately 40 years; the employment rate (the percentage of 16 – 64 year olds in work) was at 75.8%, another record, and therefore the activity rate – those who cannot or do not wish to work such as students or those medically unable to work – has fallen to a record low. In addition, the number of vacancies has risen to 870,000, the highest ever recorded, with the increases being mainly in the service sector such as retailing.

The ONS has also announced the January inflation figures which show prices are now rising at 1.8%, down from 2.1% in December. This is partly due to the energy price cap and falling fuel prices, but economists are predicting that the fall below the government’s 2% target will only be short-term as increasing oil prices and planned energy price rises feed through into the CPI.

Because of the tightening labour market, it is not surprising that wages are increasing with the latest data showing an annual increase of 3.4%. Comparing this figure with the latest inflation data shows that real incomes are now increasing by 1.6%, the fastest rate since summer, 2016. However, in real terms, average pay is still £10 per week lower than it was ten years ago and, despite rising real incomes, consumer confidence is falling, as measured by the Household Finance Index. This is a measure which tries to predict changing consumer behaviour. It is based on monthly responses from over 2,000 households, chosen to accurately reflect the country’s income, regional and age distribution. Among items examined are changes in household income, spending and savings, job security, household debt and borrowing, inflationary expectations, house prices and confidence in the government.

A key negative figure for the economy is the low GDP growth, which was only 0.2% in the last three months of 2018 and 1.4% for 2018, the lowest increase since 2009. While household and government consumption were positive, a poor balance of payments and falling investment reduced growth. The combination of high employment, low investment and low growth in GDP explain the poor productivity data for the UK with output per person falling 0.1% last year.

However, one positive figure is the latest data on government borrowing which, for January 2019, was a surplus of £14.9bn. While January is always a good month, because of self-assessed income taxes, capital gains tax, corporation tax and VAT falling due in January, the actual taxes received were higher than previously predicted, and government spending increased less than anticipated, meaning the actual budget surplus was almost 50% larger than the forecast surplus for the month of £10bn. The improved figures mean that government borrowing for 2018/19 is now likely to be £22bn rather than the previous forecast of £25.5bn, the lowest figure since 2001, and the National Debt, at £1.8 trillion is forecast to be 82.6% of GDP, compared to 85.6% last year. Most importantly, the deficit is likely to be only 1% of GDP giving the Chancellor scope to cut taxes and increase spending to boost the economy yet still remain within the 2% figure he suggested as a ceiling.

 

 

 

 

 

 

 

Do we have a housing crisis?

Last week it was announced that an American businessman had bought a house in St James’s Park, near Buckingham Palace, for £95 million. As you might expect, the house has a pool, gym, staff quarters and private gardens. At the other end of the scale, the Institute for Fiscal Studies recently reported that 40% of 25 – 34 year olds are not able to afford a 10% deposit to buy the cheapest house in their neighbourhood. In London, approximately twenty years ago, 90% would be able to afford the deposit whereas today only 33% can afford the deposit. Because of the difficulty faced by people getting on to the housing crisis, newspapers have been talking about a housing crisis for some time.

A sign of the housing crisis is the high price of housing, signifying either excess demand or restricted supply. Focusing first on the demand for housing, for many years buying a house was an ideal way of building up wealth for potential homeowners, thus increasing the demand for housing. Not only did borrowers previously receive tax remission for mortgage payments, the price of houses increased more or less continuously and so one could borrow, knowing that when the mortgage was repaid, the increase in the value of the house would more than have covered the cost of the mortgage. More recently the Government introduced the ‘Help to Buy Scheme’ in 2013, (now extended to 2023) which lends, interest fee, up to 20% of the cost of a new build home (40% in London) to borrowers who have been able to raise a 5% deposit, meaning they only need a mortgage for 75% of the value. It has helped to finance the construction of 170,000 homes of which 140,000 have been purchased by first-time buyers. But it has been expensive, costing taxpayers nearly £8 billion since 2013, and providing considerable profits for house builders as demand increased more than supply, thereby pushing up prices. Another criticism has been that the scheme has not helped the low-paid since they have not taken as much advantage of the scheme as those with higher incomes. In addition, we are seeing that buyers of homes using the scheme who now wish to sell, have found that their property has fallen in value since future buyers are not eligible for the help to buy assistance. There have also been a number of suggestions to boost supply. These include allowing more building on green belt land and introducing measures (not yet introduced) to help older buyers down-size and therefore free up larger homes.

Why are we so concerned about declines in house building and house purchases? Apart from the social and political issues which result from people not being able to afford to buy their own house, having to pay excessive rents or sleeping on the streets, there are significant economic implications of a failing housing market. Firstly, if  building slows, bricklayers, electricians, plumbers, etc, lose their jobs and firms making bricks, providing carpets, furniture, ovens, fridges, etc, also experience a decline for their products and services and subsequently cut back on labour. As a result, incomes fall and, given the multiplier effect, the impact on the economy will be significant. It is worth noting that the multiplier effect will be large since so much of the expenditure involved in housing is domestic – i.e. there is relatively little leaked out of the economy in the form of imports.

Another way in which the housing market affects the economy is that a poorly-functioning housing market, causing high prices in booming areas, makes it difficult for firms to expand their labour force because workers cannot afford to move into the area. A final issue occurs via the wealth effect – the idea that households’ consumption is determined not only by their income but also by their wealth. For most people, their house is the main source of their wealth. Therefore, a booming housing market makes existing homeowners feel richer and they therefore spend more, believing that they have less need to save since their increasingly valuable house is adding to the value of their assets. Since the financial crisis, the housing market declined. When house prices dropped, people felt poorer and therefore felt the need to save more. This reduced consumption at a time when aggregate demand was already falling, thereby exacerbating the problems faced by the economy.

However, recently, after ten years of decline, the number of mortgages issued has increased and there was the highest number of first time buyers last year for 12 years, according to the government’s annual English Housing Survey, published in January. The increase was linked to the Help to Buy scheme, loans from parents and grandparents and a relaxation in the mortgage market. However we have also seen the slowest growth in house prices for six years, possibly down to Brexit uncertainty and last year receipts from stamp duty (a tax on house purchases) fell, largely because of the slowdown hitting the top end of the market.

Charles Dickens Revisited – A sad Christmas story for the Brexit Era.

The Chancellor of the Exchequer, George Philip Scrooge, or GP to his friends, distantly related to Ebenezer Scrooge, was at home in No 11 Downing Street, on Christmas Eve, 2019, writing a paper for the Prime Minister on what to do about the British economy, following the departure from the EU earlier in the year. Deep down he admitted to himself that the only reason he was doing this on Christmas Eve was because he was lonely. All his parliamentary friends (not that he had many of them these days) had left Westminster to go home to their families and even his neighbour, the Prime Minister, had gone to Washington to spend time with her friend Donald and his Russian acquaintances. GP also knew that he was very unlikely to get a visit from Santa this year. Not only were most presents held up at Calais because of the delays caused by border controls, Santa was having difficulty getting permission to bring his reindeer into the country because of new regulations affecting animals entering the UK and, if that wasn’t enough, his friends and relatives blamed him for the higher prices caused by import tariffs imposed on goods from the EU.

Gradually, despite his interest in the Treasury’s latest macroeconomic forecasts and the excitement of looking at all the negative numbers they contained, he started to feel sleepy, very sleepy. The next thing he knew, the room was full of people all keen to talk to him. The first, who looked well over 100 yet was wearing a very trendy hoody with a large letter K on the front,  started to talk to him about the need to raise aggregate demand, by cutting taxes and raising government spending in order to offset the fall in consumption and investment which had occurred early in 2019 as the UK economy crashed out of the EU after Parliament failed to ratify Teresa May’s plan and the subsequent “People’s Vote” resulted in an almost dead heat when 50.5% of the voters opted for a No Deal departure from the EU. One of K’s friends, a Canadian called MC, asked what he should be doing about interest rates since he had people telling him to cut them to boost the economy while others, due to go off skiing in the New Year, told him to increase them to boost the value of sterling, which had slumped after the decision to leave and was now at parity with the dollar. K was not too bothered about interest rates – he kept going on about being caught in something painful called the liquidity trap.

As soon as K and MC stopped talking, a new American voice piped up, with the letter L on his back, suggesting that what was really important was not to listen to K and his friends but to focus on the supply side of the economy and, in particular, on increasing incentives to work and raising productivity in the economy. L was illustrating his ideas on a napkin, suggesting that taxes should be cut, therefore encouraging people back into work and explaining that this would be self-financing, since government spending on benefits would fall and revenue would increase as the newly-employed paid taxes and spent more, increasing VAT and corporation tax receipts.

Suddenly GP awoke from his nightmare and his unwanted guests disappeared.  “I need a holiday” he thought said to himself and grabbed his laptop to start searching for a short break. He gave up on Europe pretty quickly because of the permit he would have to buy to go to the EU. Although it was only 7 euros, these days, following the fall in the value of sterling, 7 euros was a lot of money. He started to look at breaks in the UK. Driving was out because of the rising cost of fuel after recent oil price rises and the fall in the pound so it had to be a train journey, until he remembered that Crossrail had not been finished, HS2 had been scrapped because of rising cost estimates and the rest of the network were not running between Christmas and the New Year.  Back to the Treasury forecasts and looking forward to Xmas Day with the Queen’s Speech, while eating a Gregg’s turkey sandwich for lunch.