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Jeremy Smith

Articles by Jeremy Smith

UK GDP – the Q2 close-down, and the distorting effect of ‘imputed rental’

October 1, 2020

On Wednesday (30 September) the Office for National Statistics published its second estimate of GDP for the second quarter of 2020, April to June.  The very marginally positive news is that the fall, between Q1 and Q2, was reduced from 20.4% to 19.8%.  Since this was still the largest recorded quarterly fall since records commence in 1955, this is hardly a cause for jubilation – and even less so since the Q1 drop was raised from -2.2% to -2.5%.As we discuss below, the position would arguably be still worse, save for the curious treatment of ‘imputed rent’ for houseowners, which – as a purely fictional or metaphysical element – nonetheless forms an

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This time, Mr Sunak has got it wrong

September 24, 2020

Till now, I have supported much of what Chancellor Rishi Sunak has put in place, as measures to help the economy through the pandemic.  The furlough scheme has proved its worth. But today’s measures are inadequate and disappointing.  The new Job Support Scheme, under which the government will pay some 22% of the wages of employees who work at least one third of their usual hours.  This compares with the 60% of wages to be paid by the government in October, the last month of the furlough scheme. According to the Financial Times, the monthly cost of the new scheme might by around £1 billion, compared to £4 billion per month for

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Commercial property: * Prêt a Payer *, or Prêt-à-Fermer?

August 31, 2020

The government wants us to return to our office workplaces in the cities.   The FT tells us:“The government will [this] week launch a media campaign to encourage more employees back to their workplaces amid growing concern in Downing Street over the rising number of job losses at service businesses in city centres that are reeling from a lack of customers. And from Sky News (Aug 20): “Just one in six workers have gone back to work in cities this summer after companies and staff ignored government pleas to return, leaving economic activity deeply depressed and placing thousands of small businesses at risk of collapse….[W]orker

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Our ‘scenario’ for UK GDP in 2020 (a 14% annual fall)

April 28, 2020

Source: ONS with our own estimation for 2020

The Wall Street Journal reported over the weekend (but not as a great surprise) that US GDP is likely to fall in the first Quarter –  before the main impact of the coronavirus hit – at the fastest rate since the global financial crisis: “This is just the beginning,” said Beth Ann Bovino, S&P Global’s chief U.S. economist, who estimates that GDP dropped at a 7.5% annual rate in the first quarter.  Also not surprisingly, the WSJ predicted far worse for April, and thus for Q2, and reminded of the extraordinary sudden rise in unemployment in the States: “By the end of March, over 10

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Confronting twin perils of pandemic and austerity – some lessons from 1920 & 2020

April 20, 2020

Extract from Resolutions of Brussels International Financial Conference 1920

SummaryThe UK is experiencing, as a result of the COVID 19 crisis and response, its most severe economic downturn on record; the largest in the last century was in 1921, when annual GDP fell by 9.7%.  In assessing the likely level of the fall, the Office for Budget Responsibility (OBR)’s “reference scenario” seeks to take account of previous pandemic experience. The OBR and Resolution Foundation draw on a recent research paper (Barro, Weng & Ursúa) which claims that Spanish flu-generated economic declines for GDP and consumption amounted “in the typical

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Ways & means of paying Government’s growing bills – financing or cashflow?

April 9, 2020

“The Bank has always held itself bound to the extent of its power to render the assistance required by the Treasury in any exigency and under any condition of the Money Market.” – James Currie, Governor of Bank of England, July 1885 to Lord Salisbury, Prime MinisterThe new agreement between Government and Bank of England to make the Government’s overdraft with the Bank (the Ways and Means Facility) open-ended has been characterised as direct “monetary financing” of government.  We don’t agree, at least for now. The Facility has however a long and valuable history of service, even if post-1998, with the “independence” of the Bank and establishment of the Debt Management Office, it has mainly been kept in hibernation.  It has stood at £370 million for most of the last

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Bailey goes up an inflation blind alley – but what role for BoE ‘monetary financing’?

April 7, 2020

This post argues that the new Governor of the Bank of England is wrong to address the Bank’s role in the crisis through the prism of traditional ‘price stability targeting’. Rather, the Bank’s duty and task is to support the government’s economic (including fiscal) policies, and in particular – and in so doing – to act to protect the financial stability of the whole system. Actions to support the Bank’s monetary and financial stability objectives need to be integrated.On 5th April, the Financial Times published an article by the new Governor of the Bank of England, Andrew Bailey, entitled “Bank of England is not doing ‘monetary financing’”, and with the curious subtitle, “We will protect independence of inflation targeting”. Now, the first – monetary financing – is

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The Treasury’s Budget Report breaks the law on fiscal rules

March 11, 2020

“The Treasury must explain the reasons for any departure from the previous mandate and/or supplementary targets.“ From the current Charter for Budget Responsibility’s fiscal rules“The Treasury may from time to time modify the Charter… When the Charter is modified the Treasury must lay the modified Charter before Parliament.”From the 2011 Budget Responsibility and National Audit Act 2011—————-There’s no getting away from it – in the manner in which it has put forward today’s Budget, the government – and specifically the Treasury – have acted in breach of the law.  The government’s Budget Report is required to set out how it is meeting the present, legally prescribed fiscal rules and targets. It has ridden roughshod over this requirement, instead laying down rules that –

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A farewell to ‘fiscal rules’?

March 6, 2020

Image: latest version of Charter including fiscal rules, put before Parliament January 2017

Dirty secrets? Yesterday (5 March) the Financial Times published an article by its economics editor Chris Giles, under the title “The Treasury has two dirty secrets on its fiscal rules”. Underneath that, the sub-heading read “What is the use of gleaming new hospital equipment if there is no money to pay staff to operate it?”.Now this is all rather amazing, given the degree of deference generally shown to ‘fiscal rules, Though this debunking is no doubt timely for new Chancellor Rishi Sunak – as he prepares

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Feeble UK productivity – it’s still down to austerity and lack of demand

January 31, 2020

Image with acknowledgment to

In his FT article yesterday (30 January), “The UK’s employment and productivity puzzle”, Martin Wolf says“The most important point is that the aggregate productivity performance of the UK economy since the financial crisis of 2007-08 has been its worst by far since 1860”. The key questions, however, are why this is so, and what to do about it. The ONS statistics do not take us back to the 1860s, but only to 1971.  We have calculated the average percentage quarterly change in labour productivity

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Rethinking Britain: the fundamental choice we face on December 12th

November 13, 2019

At stake in December’s General Election in December is much more than just Brexit, though Brexit in the form proposed would be damaging enough.  It is a fundamental choice of the kind of society we want to develop.  In September, “Rethinking Britain: Policy Ideas for the Many”, was published, of which I was co-editor. The book brings together the creative ideas – across a wide range of economic and social policy fields – for a revived Britain based on the principles of a progressive, future-focused social democracy.  Some 40 authors have contributed.I was given the challenging task of writing the introduction and conclusion to the book.  Below,

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Its new report blocked – so is the Office for Budget Responsibility really independent?

November 7, 2019

Cabinet Secretary Mark Sedwill has in our view acted unlawfully in ‘advising’ or ‘ordering’ the Office for Budget Responsibility not to publish its report on technical changes in relation to its March 2019 fiscal and economic forecast, due out today.  By giving way, the OBR has helped to undermine its own independence. The only winner is the Conservative government, which wants to avoid scrutiny of its economic policies during the election.The OBR’s website tersely states:“Publication of our restated forecast will no longer go ahead today following advice from the Cabinet Secretary.As we notified the Treasury and Treasury Select Committee on 29

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The Great Brexit Wrench

October 23, 2019

The Progressive Economy Forum today launched its new report, “The Great Brexit Wrench”, on the economic and political implications of Brexit. The report is by PRIME’s co-director Jeremy Smith, and looks at the background to and implications of Brexit from many different angles. It argues that there is no form of Brexit which will have a positive economic or political outcome. Brexit is however strongly backed by the pro-deregulation wing of British business – e.g. the business lobby organisation Open Europe — and the Conservative Party. Shadow Chancellor of the Exchequer John McDonnell described the report as “an excellent summary” of the

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UK Supreme Court – Johnson has ignored his “constitutional responsibility” as Prime Minister

September 24, 2019

So the UK Supreme Court (a bench of 11 judges) has delivered its judgment. Unaninmously. The prorogation of Parliament, based on the unlawful advice of Prime Minister Johnson, even if in form an act of the Queen, was null and void and of no effect.A couple of weeks ago, I concluded my post on The Rogue Prorogation and the English-Scottish judicial divide with these words:Whether the (UK) Supreme Court will be willing to go quite as far in making inferences of fact so adverse to the government as those drawn by the [Scottish] Court of Session, I have some doubts, even though I am absolutely sure those inferences are valid in reality. But at the very least, the Supreme Court should affirm the potential of judicial intervention if the true intent of a government (as

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The Rogue Prorogation and the English-Scottish judicial divide

September 12, 2019

As the pressures and contradictions of no-deal Brexit threaten the unity of the United Kingdom, further fissures are to be seen through the prisms of judical reasoning, in which English and Scottish judges view and interpet the world in utterly divergent ways.The English High Court (which included the Lord Chief Justice and the Master of the Rolls) has curtly dismissed the claim that the Prime Minister’s decision to seek prorogation of Parliament, for the five week period so shortly before the current Brexit deadline, was unlawful.  By contrast, the Scottish Court of Session (hearing the case on appeal) has held that the

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From Hammond on to Johnson – where next for fiscal policy?

July 21, 2019

As Mr Johnson takes over as Leader of the Conservative Hard Brexit Cult, and by virtue thereof as Prime Minister, it is timely to take a quick look at what his economic and fiscal policy options are – at least in the lead up to DD-Day (Do or Die) on 31st October. It’s equally important to take stock of Mr Hammond’s record as he quietly fades away after three years as Chancellor of the Exchequer.Johnson proposes tax cuts for corporates (reduction in corporate tax rate, already one of the lowest of major economies), and praises President Trump’s example:“He has been very clever in allowing businesses to offset capital

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Of vaulting ambition, Macbeth, and what GATT Article 24 actually says

June 25, 2019

Macbeth:I have no spurTo prick the sides of my intent, but onlyVaulting ambition, which o’erleaps itself,And falls on th’other. . . .Boris Johnson is a moral (or is it amoral?) coward, dispenser of racist remarks, teller of untruths, and general political fantasist. Driven by ambition and lust for power, he appears to have no principles to guide him save expediency and openness to self-serving opportunity. As to those screams in the middle of the night, here’s Lennox’s rather resonant description:The night has been unruly: where we lay,Our chimneys were blown down; and, as they say,Lamentings heard i’ the air; strange

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UK economy 2010-2018 – the devastating impact of the age of austerity

March 6, 2019

I’ve just been updating our data for GDP per head of population (from the OECD database plus adding the ONS estimate for 2018) and noticed a startling fact. The age of austerity, starting with the 2010 Coalition government, and on to the Cameron / May governments, has to date been the worst since records began for annual change in GDP per head . The average increase in GDP per head of population, from 2010 to 2018, inclusive is lower than the decade 2000 to 2009, i.e. the decade that included the impact of two terrible years of the peak Great Financial Crisis. From 1971 to 2007, the annual average percentage increase was somewhere between 2 to 2.5%. This includes the 1970s, with all its so-called stagflation, the Thatcher period of deregulation and

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Brexit Agreement: a bad deal, a worse Protocol – time to consult the people!

November 15, 2018

The main body of the draft Withdrawal Agreement is certainly long and detailed – a tribute to the efficiency of the EU’s legal services – but it mainly contains the sort of provisions one would expect for the terms of the separation, and for issues that straddle the departure timeline.  There is a transition phase to 31 December 2020, which can be extended, when EU law continues to apply, and the European Court of Justice still has jurisdiction. Citizen’s rights (relating to residence etc.) are – it seems properly – dealt with at length. The financial deal is more or less what one would expect on leaving the ‘club’ in such circumstances.  There is provision for resolving problems and disagreements.  If there has to be a Brexit, none of this is really controversial.The

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The EU’s dysfunctional fiscal rules empower the far right, both in Italy and elsewhere

October 31, 2018

PRIME’s co-director Jeremy Smith and Progressive Economy Forum Council member John Weeks analyse the “bar room budget-brawl” between the Italian government and the European Commission, and argue that the Commission’s wrong-footed response threatens to strengthen the far right – to avoid opening the door to fascism, the EU must ditch its bias towards austerity.No one doubts that Italy’s economy is in a mess. It has been for a long time. It was not always so. From 1971 until 1992, income per capita increased on average by 2.7% per year. Among G7 countries this was second only to Japan, and ahead of Germany and France. Since then, the position has dramatically reversed – with a post-1992 average growth rate (also GDP per head) of just 0.4% per year.Since 2000, broadly

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The slowing economy of the Single Market and NAFTA era

October 12, 2018

Ten years on from the full explosion of the Great Financial Crisis in autumn 2008, and Brexit lurking just round the corner…  A lot of the Brexit arguments revolve around the perceived pros and cons of the EU’s Single Market; meanwhile, President Trump has been using force majeure to overturn aspects of the 1994 NAFTA deal. Given this conjuncture, I thought it would be instructive to take stock and assess, over a longer time-frame, how the UK and other developed economies have performed from an overall macroeconomic perspective. To do this analysis, I have taken a group of ten “developed economies”, comprising the G7 plus three northern European countries, Denmark, Sweden and the Netherlands, and compared them since 1971, when the OECD dataset begins, in terms of the

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What Question(s) for a “People’s Vote” Referendum?

September 25, 2018

The calls for a “People’s Vote” on the government’s proposed Brexit ‘deal’ (if indeed there is one) grow louder, but are especially contentious for the Labour Party, whose membership is more minded to “remain” than the public at large, which still seems fairly evenly split. But the call for a People’s Vote is not so straightforward, partly now in terms of timing and Parliamentary arithmetic, but above all since it poses the tough question – what question to ask the People to vote on? Or indeed what questions, plural?For some, the answer seems simple.  Take the economist Simon Wren-Lewis, who in a blog post today (25 September) argues:“So what

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How Polanyi best explains Trump, Brexit and the over-reach of economic liberalism

December 31, 2017

Image via Wikipedia – fascists attack police, February 1934, Paris

It’s good to see the latest (21 December) New York Review of Books give space to a review – by Robert Kuttner of American Prospect– of a biography of "Karl Polanyi: a Life on the Left" by Gareth Dale.  For as we have been arguing for a long time, it was Polanyi who better than any other historian / analyst got to the heart of the contradictions of free market globalised liberalism, and saw that it was such economic liberalism, pushed too far, that is likely to lead to authoritarian, or even fascist, outcomes.As Kuttner puts it,“Global

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The Shadow Chancellor and the government’s debt interest payments

November 26, 2017

The following is a statement in response to recent media comment on the public finances, signed by 22 economists as at 26th November, 2017It can be downloaded here as a pdf. Andrew Neil of the BBC Politics programme recently challenged the Shadow Chancellor, John McDonnell, on the likely cost in interest payments of additional public borrowing. He suggested that current debt interest payments are estimated at £49 billion, and rising. His use of £49 billion was misleading, as it included £9bn owed by the Treasury to the Bank of England (BoE). Because the Bank is part of the public sector, £9bn is in effect owed by government to itself, as the Office of Budget Responsibility (OBR) explains.[1] The government’s debt interest payments are therefore £40bn.But the £40 billion is

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The UK since 2007 – an economic record of comparative mediocrity

September 6, 2017

We know that the UK economy has remained in a rut, plagued by foolish austerity and declining real wages, since the great financial crisis.  We know too that the Eurozone suffered its own, largely self-imposed, economic stasis or decline – notably from 2010 to 2015, with unemployment over 10% till late last year.So I thought it could be interesting to look, in a simple way, at the performance of a set of mainly developed economies, in Europe plus a few from other parts of the world, and compare their progress – or lack of it – over the 10 year period 2007 (representing the pre-crash peak for many countries) to 2016. And then see where the UK sits in comparison with others.I have added China and Poland as examples of what is happening elsewhere, in economically relatively

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The best UK/EU transition plan? If we can, extend the Article 50 period

August 3, 2017

On 30th June 2016, just one week after the EU Referendum, I wrote this:It has swiftly become clear, if it were not already so, that neither the government nor the leaders of the Brexit campaigns had anything resembling a plan for what to do if the people voted in favour of leaving the EU.  As Mark Carney rather mordantly put it in his speech today,“In Tim Geithner’s famous dictum, “plan beats no plan.” And in my experience, a plan that is clearly articulated and transparently executed is best of all.”In other words, addressed to the off-stage Brexiters, but also to the government whose decision it was to hold the referendum, “you’ve dumped us

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The decline and fall of real pay under the UK’s “flexible labour market” system

July 12, 2017

The Taylor “Review of Modern Working Practices”, published on Tuesday, is a fundamentally complacent document:“National labour markets have strengths and weaknesses and involve trade-offs between different goals but the British way is rightly seen internationally as largely successful.”True, the report expresses a number of reasonable aspirations and contains a number of sensible but gentle proposals, but it fails to come up with any strong proposals for dealing with the real problems faced by insecure workers in the UK today.  It does not even make the obvious recommendation, to remove the big court fees now imposed on workers wishing to challenge their employer in an industrial tribunal.  And while noting that the UK labour market suffers from weaknesses such as real wage

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The gaping contradictions in EU bank bail-out law and policy

June 26, 2017

The EU’s hugely complex banking resolution framework is generally supposed to have one key goal – to ensure that failing banks are ‘resolved’ without recourse to public bail-outs, thereby breaking the link between private banks and sovereigns…  The reality, we have seen today, is quite different – and, it seems, legal!  The EU can just about argue that technically, the rules have not been broken – but overall, the appearance is of a policy in logical disarray once again.After all, the whole purpose of EU banking resolution policy has been to prevent large tax-payer injections into stressed and failing private banking institutions – and instead, to ensure that the private sector investors take the financial pain. But the European Commission has, in conjunction with the

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OECD ignores deficit hawks, backs higher public investment in infrastructure & people

June 7, 2017

The Financial Times’ economics editor, Chris Giles, has had a busy few days. He has written several interesting articles, covering the absence of “the deficit” as a big election issue (as a hawk he’s really not happy about that), the OECD’s new forecast for the UK economy, and the marked similarities between the economies of France and the UK.  (More on this last, in a later post). Giles also found time to tweet, when asked why he had not referred to the 130 economists’ letter to the Observer (expressing broad support for the Labour Manifesto economic plans), that it was “disregarded because the 130 are not representative of

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Brookings dance to Trump’s tune on US government interest payments

May 28, 2017

I was looking at my Tweetdeck this morning when I came across this tweet from the Brookings Institution:

Now it is clearly a Good Thing in principle for the US Federal government’s budget to be explained in clear and simple ways, but why – I asked myself – do Brookings choose to concentrate today on interest payments (which form just 6% of outlays) rather than the programs that President Trump wants to cut to shreds?  I clicked on the link and found this in their explainer:“WHY DO WE SPEND SO MUCH ON INTEREST?The government has borrowed a lot: The federal debt held by the public amounted to slightly over $14 trillion by the end of 2016, a sum

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