The cost of living

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dyqik
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Re: The cost of living

Post by dyqik » Wed Jul 27, 2022 2:34 pm

Woodchopper wrote:
Wed Jul 27, 2022 12:52 pm
El Pollo Diablo wrote:
Wed Jul 27, 2022 11:50 am
Quick question from me on inflation - how does the current high inflation affect government income from taxes, etc?
Returns from VAT increase automatically.
Only if rising prices do not result in a decrease in sales volume.

Inflation makes it more attractive to buy now on credit before interest rates go up, but also makes it harder to buy as much. Only if pay rises with inflation, and without significant lag, is that likely.

Since pay rises usually lag inflation, then inflation on VAT exempt essential items, like food staples, water, and rent, or on low VAT rated items like energy, will likely divert sales from full VAT items to lower or zero VAT items, reducing VAT returns.

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Re: The cost of living

Post by Gfamily » Wed Jul 27, 2022 3:29 pm

Woodchopper wrote:
Wed Jul 27, 2022 12:52 pm
El Pollo Diablo wrote:
Wed Jul 27, 2022 11:50 am
Quick question from me on inflation - how does the current high inflation affect government income from taxes, etc?
Returns from VAT increase automatically.
Hmm, this assumes no change in discretionary spending on Vat rated goods and services.
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Re: The cost of living

Post by Woodchopper » Wed Jul 27, 2022 7:47 pm

Gfamily wrote:
Wed Jul 27, 2022 3:29 pm
Woodchopper wrote:
Wed Jul 27, 2022 12:52 pm
El Pollo Diablo wrote:
Wed Jul 27, 2022 11:50 am
Quick question from me on inflation - how does the current high inflation affect government income from taxes, etc?
Returns from VAT increase automatically.
Hmm, this assumes no change in discretionary spending on Vat rated goods and services.
Yes, cetris paribus and all that. There would likely be a drop in demand.

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Re: The cost of living

Post by Woodchopper » Wed Jul 27, 2022 7:49 pm

dyqik wrote:
Wed Jul 27, 2022 2:34 pm
Woodchopper wrote:
Wed Jul 27, 2022 12:52 pm
El Pollo Diablo wrote:
Wed Jul 27, 2022 11:50 am
Quick question from me on inflation - how does the current high inflation affect government income from taxes, etc?
Returns from VAT increase automatically.
Only if rising prices do not result in a decrease in sales volume.

Inflation makes it more attractive to buy now on credit before interest rates go up, but also makes it harder to buy as much. Only if pay rises with inflation, and without significant lag, is that likely.

Since pay rises usually lag inflation, then inflation on VAT exempt essential items, like food staples, water, and rent, or on low VAT rated items like energy, will likely divert sales from full VAT items to lower or zero VAT items, reducing VAT returns.
Yes, indeed, it’s complicated. Consumption may well drop except among people who get index linked increases in income (eg pensioners).

We’ll have to see by how much, and the overall effect on how much tax the government raises from VAT.

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Re: The cost of living

Post by dyqik » Wed Jul 27, 2022 11:34 pm

With food and energy prices going up faster than other prices, then even with index linked incomes, spending will shift from full VAT to lower VAT expenditure.

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Re: The cost of living

Post by Brightonian » Thu Aug 04, 2022 1:51 pm

I'm aware Melville's an anti-vaxxer or anti-masker or something, but during lockdowns I did wonder from time to time why the economy wasn't wrecked by so many people getting furloughed etc.

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Re: The cost of living

Post by Bird on a Fire » Thu Aug 04, 2022 2:08 pm

It was wrecked, though?
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Re: The cost of living

Post by Brightonian » Thu Aug 04, 2022 2:33 pm

Bird on a Fire wrote:
Thu Aug 04, 2022 2:08 pm
It was wrecked, though?
Well, different values of 'wrecked' really - I was thinking of Russian type destitution following the collapse of the Soviet Union, with pensions becoming worthless and so on.

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Re: The cost of living

Post by plodder » Fri Aug 05, 2022 11:32 am

Bird on a Fire wrote:
Sun Jul 17, 2022 11:25 pm
Almost like long term growth requires long term thinking.
It’s the opposite. The less people with big ideas and influence in positions of authority, the more growth, because capitalism. Problem comes when economic growth isn’t your #1 priority, or when growth bumps up against externalities like “fossil fuels are bad”.

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Re: The cost of living

Post by Woodchopper » Mon Aug 22, 2022 12:03 pm


UK inflation is on course to hit 18.6 per cent in January — the highest peak in almost half a century — because of soaring wholesale gas prices, according to a new forecast from Citigroup based on the latest market prices.

The investment bank predicted that the retail energy price cap would be raised to £4,567 in January and then £5,816 in April, compared with the current level of £1,971 a year — shifts it said would lead to inflation “entering the stratosphere”.

“We now expect CPI inflation to peak at over 18 per cent in January,” said Benjamin Nabarro, chief UK economist at Citi. That would be higher than the peak of inflation after the second Opec oil shock of 1979 when CPI reached 17.8 per cent, according to estimates from the Office for National Statistics.

Such a rate of inflation would squeeze household incomes hard and further push the UK economy into recession, but Nabarro said the scale of the likely inflation would push the Bank of England to tighten monetary policy further.

UK and European wholesale natural gas prices are already trading at close to 10 times normal levels and other forecasters have also raised their inflation predictions.

Goldman Sachs and EY said they expected an inflation rate of at least 15 per cent around the start of next year and the Bank of England said this month that inflation would exceed 13 per cent towards the end of the year.
https://www.ft.com/content/778e65e1-6ec ... 701eb29567

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Re: The cost of living

Post by lpm » Mon Aug 22, 2022 12:42 pm

Horrific. Both Truss and Sunak's plans would worsen inflation and are all set to damage living standards even more. Starmer's plan is even worse, but it seems popular which is what matters to an opposition party.

The following is my economic plan for dealing with this.

1) Increase public sector pay by 10%
2) Increase minimum wage by 10%
3) Increase pension and benefits by 10%
4) Shove interest rates up to 5%+
5) Let energy prices rise freely to wherever they go, fossil fuel burning is still too cheap. Ditch the illusionary "cap".
6) Raise taxes on the top deciles, partly through freezing the 40% band at the £50k mark which captures more and more people, partly through 50% at £80k and 60% at £120k

It's outside govt control, but obviously private sector pay would be driven up by around 10% as well, dependent on sector, union power etc.

There would then be further rounds of pay rise over the next couple of years, in line with whatever happens with inflation. Plus further interest rate rises where necessary. Plus a national campaign called Insulate Britain and a Green New Deal of renewables investment.

The outcome I want in 5 years is:

1) Everyone able to afford food
2) Energy bills permanently higher as a proportion of household spend. Insulated and solar powered homes would have great paybacks. Actual energy usage would be significantly lower
3) Other stuff lower as a proportion of household spend, eventually restoring living standards to 2019 levels
4) Lower house prices in real terms, but higher mortgage costs. This reduces the deposit needed for first time buyers
5) In general, everyone paying more taxes

The outcome I don't want is permanently subsidised fossil fuel burning, which is effectively what Labour & LibDems are proposing, and what Sunak is heading towards.

This problem ultimately is only going to be met by higher pay. Everything else is just temporary shuffling.
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Re: The cost of living

Post by bjn » Mon Aug 22, 2022 2:50 pm

lpm wrote:
Mon Aug 22, 2022 12:42 pm
Horrific. Both Truss and Sunak's plans would worsen inflation and are all set to damage living standards even more. Starmer's plan is even worse, but it seems popular which is what matters to an opposition party.

The following is my economic plan for dealing with this.

1) Increase public sector pay by 10%
2) Increase minimum wage by 10%
3) Increase pension and benefits by 10%
4) Shove interest rates up to 5%+
5) Let energy prices rise freely to wherever they go, fossil fuel burning is still too cheap. Ditch the illusionary "cap".
6) Raise taxes on the top deciles, partly through freezing the 40% band at the £50k mark which captures more and more people, partly through 50% at £80k and 60% at £120k

It's outside govt control, but obviously private sector pay would be driven up by around 10% as well, dependent on sector, union power etc.

There would then be further rounds of pay rise over the next couple of years, in line with whatever happens with inflation. Plus further interest rate rises where necessary. Plus a national campaign called Insulate Britain and a Green New Deal of renewables investment.

The outcome I want in 5 years is:

1) Everyone able to afford food
2) Energy bills permanently higher as a proportion of household spend. Insulated and solar powered homes would have great paybacks. Actual energy usage would be significantly lower
3) Other stuff lower as a proportion of household spend, eventually restoring living standards to 2019 levels
4) Lower house prices in real terms, but higher mortgage costs. This reduces the deposit needed for first time buyers
5) In general, everyone paying more taxes

The outcome I don't want is permanently subsidised fossil fuel burning, which is effectively what Labour & LibDems are proposing, and what Sunak is heading towards.

This problem ultimately is only going to be met by higher pay. Everything else is just temporary shuffling.
Michael Liebreich has an interesting take on how to handle electricity costs. Currently zero carbon sources generate about 60% of our electricity and have very low or zero marginal costs. So he suggests we split the market into two, a low carbon market and a fossil fuel market. The low carbon market has a 'reasonable' cap on prices, while the fossil fuel market is uncapped. This should lead to lower retail prices. You effectively treat the FF generators as a 'bad bank' which you run down over time which no-one wants to buy from if they can help it.

Given a big chunk of the zero carbon generators are on CFDs, they aren't seeing any increased revenue from the current prices, that's being recouped by the government instead.

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Re: The cost of living

Post by Bird on a Fire » Mon Aug 22, 2022 4:55 pm

Long-term carbon strategy is very important, but I also think it's probably best if people don't freeze or starve to death this winter. Some kind of mechanism to stop that happening is probably a good idea.

I appreciate that killing loads of poor people is the only incentive that would make Tories pass environmental legislation, but can we come up with anything here that would keep vulnerable people safe without drastically worsening the country's emissions?

Obviously reducing demand from the UK's leaky housing stock should be top priority, as that's the most efficient way to insulate Britain (NPI) from any future price issues. Electrification etc. likewise.

But beyond that, everyone knows that the global top 10% richest do over half of emissions, which is those earning US$40k/year or more. That's roughly the UK median income. So what about a progressive cap, where poorer people (whose consumption is lower anyway) pay less per unit, and are prioritized for help with insulation etc. too? (The latter obviously involves forcing landlords and social housing providers to do much of the work.)

Worth bearing in mind too that part of the reason this problem is so much worse in the UK than elsewhere is (once again) the naked profiteering of exploitative corporations rather than anything inherent to the provision of energy. So taxing the sh.t out of fossil companies, and the banks that fund them, makes sense.

I like Liebreich's split market idea, and it's the kind of wonky financial tinkering that UK politicians love because it doesn't seem remotely radical - but in this case its consequences could be. I'd like to see that idea get more attention.

An across-the-board subsidy on all energy use is clearly a backward move. But, anyone whose been interested in the climate for more than a few months is very keen to emphasize that the transition should be just - nobody wants the UK to meet its Paris goals by killing pensioners. So a non-sh.t plan needs to be developed and implemented by the end of the year. Any suggestions here need an appropriate timeframe.
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Re: The cost of living

Post by lpm » Mon Aug 22, 2022 5:44 pm

BoaF, your implicit starting point is that there is sufficient energy generation but it costs too much.

This is the wrong place to start. There is a shortage of energy across Europe. Due to a war somewhere or other.

Therefore it needs to be rationed out somehow. Normally this is done via price. High prices trigger more investment in energy generation, e.g. solar panels on a house roof or 1,000 new wind turbines. High prices trigger lower consumption, e.g. lowering the thermostat or installing LED lights.

This is not due to "the naked profiteering of exploitative corporations". It is in fact inherent to the provision of energy. I'm more than happy for you to tax the fossil fuel companies as high as you like but that doesn't send any extra therms of gas or kW of electricity to a pensioner's home.

Ultimately we've got to face up to rationing, whether by price or rolling power cuts or Gestapo knocking on the door to turn down thermostats. For this winter, and several more years until Insulate Britain and the Great Renewables Building Program are complete, the only real option is to only heat one room in a house and put on extra jumpers. And this winter will see a lot of excess mortality because that's what happens in economic crises.
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Re: The cost of living

Post by bjn » Mon Aug 22, 2022 5:54 pm

Short term, replying purely on price signals will impoverish a lot of people, drive business bankrupt and kill. Explicit rationing, by some sane mechanism, is much more preferable in my eyes. Sunak and Truss won’t have any of it though.

Cameron deserves hanging up by his genitals for “getting rid of the green crap”. Useless c.nt.

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Re: The cost of living

Post by Bird on a Fire » Mon Aug 22, 2022 6:47 pm

Obviously consumption needs to decline. But the poorest in society are generally already using the bare minimum to avoid freezing to death in their poorly insulated homes. That isn't the consumption a civilised society should target. Find a target for your rationing who won't die.

And profiteering is obviously a factor in pricing, as energy companies in the UK (but not everywhere - it's a political choice to allow it) are making record profits. If that money were usefully redistributed some people could pay less.
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Re: The cost of living

Post by lpm » Mon Aug 22, 2022 7:16 pm

Are you guys too dumb to notice I'm shoving pensions up 10%, with further rounds of increases over the next couple of years in line with whatever happens with inflation?

Where's your "impoverishing" and "freezing to death" coming from? It'll be grim in the way all recessions are grim for the economically vulnerable, indirect not direct killing. Explicit rationing would kill far more.
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Re: The cost of living

Post by bjn » Mon Aug 22, 2022 7:33 pm

lpm wrote:
Mon Aug 22, 2022 7:16 pm
Are you guys too dumb to notice I'm shoving pensions up 10%, with further rounds of increases over the next couple of years in line with whatever happens with inflation?

Where's your "impoverishing" and "freezing to death" coming from? It'll be grim in the way all recessions are grim for the economically vulnerable, indirect not direct killing. Explicit rationing would kill far more.
10% will do sweet FA when you are on the hook for an extra £4K and you are on minimum age.

Rationing food had Britain at its healthiest during and after WWII, so I'm not sure about it killing more people. Allocate some number of kWh per person per household at fixed prices, above that market rates.

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Re: The cost of living

Post by Bird on a Fire » Mon Aug 22, 2022 7:44 pm

Plus there's plenty of people who don't receive pensions, like working -age people for example.
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Re: The cost of living

Post by Sciolus » Mon Aug 22, 2022 7:46 pm

It's extraordinary how little the commentary on the cost of living crisis addresses reducing consumption, especially of energy. 90% of moanfests don't mention it at all, of the remainder 90% give it the most cursory mention, and of the rest, 90% are utter shite. If anyone other than me has suggested an emergency redeployment of the economy into provision of home insulation, I've missed it.
lpm wrote:
Mon Aug 22, 2022 5:44 pm
High prices trigger lower consumption, e.g. lowering the thermostat or installing LED lights.
Mmm. I can't find comparable data for electricity and gas consumption, but ONS provide daily figures for petrol/diesel sales:
FuelSales.png
FuelSales.png (296.52 KiB) Viewed 805 times
If you can spot any signal from a 50% increase in fuel price, I can't (remembering that there has been substantial growth in EV mileage this year). And I can't believe that the average driver can't cut 10% off their fuel consumption easily by reducing unnecessary mileage and driving more efficiently. I still see loads of motorists accelerating up to red lights, disabling their start-stop, doing 80+, idling while parked, you name it.

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Re: The cost of living

Post by Woodchopper » Mon Aug 22, 2022 8:05 pm

bjn wrote:
Mon Aug 22, 2022 7:33 pm
lpm wrote:
Mon Aug 22, 2022 7:16 pm
Are you guys too dumb to notice I'm shoving pensions up 10%, with further rounds of increases over the next couple of years in line with whatever happens with inflation?

Where's your "impoverishing" and "freezing to death" coming from? It'll be grim in the way all recessions are grim for the economically vulnerable, indirect not direct killing. Explicit rationing would kill far more.
10% will do sweet FA when you are on the hook for an extra £4K and you are on minimum age.

Rationing food had Britain at its healthiest during and after WWII, so I'm not sure about it killing more people. Allocate some number of kWh per person per household at fixed prices, above that market rates.
Two problems with rationing.

Firstly as discussed at length on Brexit and immigration, the UK government doesn’t know how many people live in the country, let alone where they all live (hence the need for a Roman style census every decade). It can of course try to use existing data sources (eg taxation) but very many people will fall outside and they tend to be the most marginalised. There’s no way that it’s going to be able to find out over the next couple of months.

Secondly, rationing energy rather than food has the potential to lead to inequality. For example, heating will be the biggest cost for many over the next nine months. One energy ration in a one bedroom flat might be survivable. But three energy rations in the same space (mum, dad and infant) will be luxurious.


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Re: The cost of living

Post by lpm » Mon Aug 22, 2022 8:23 pm

bjn wrote:
Mon Aug 22, 2022 7:33 pm
lpm wrote:
Mon Aug 22, 2022 7:16 pm
Are you guys too dumb to notice I'm shoving pensions up 10%, with further rounds of increases over the next couple of years in line with whatever happens with inflation?

Where's your "impoverishing" and "freezing to death" coming from? It'll be grim in the way all recessions are grim for the economically vulnerable, indirect not direct killing. Explicit rationing would kill far more.
10% will do sweet FA when you are on the hook for an extra £4K and you are on minimum age.

Rationing food had Britain at its healthiest during and after WWII, so I'm not sure about it killing more people. Allocate some number of kWh per person per household at fixed prices, above that market rates.
The minimum wage is £20k a year. At 10% a household with a mix of minimum wage and benefits could easily see post tax income rise by £3k. Is that classified as "sweet FA" in your world?

If the cap rises from £1,300 pre crisis to £5,300 then inflation will be much higher than 10% and minimum wage will rise accordingly. From memory, the min wage rise was 6.6% in April 2022, a couple more years and it could be a 30% uplift overall.

I'm a bit concerned that a lefty forum isn't instinctively concluding wage rises will be the answer, along with union power and benefits and pensions.
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Re: The cost of living

Post by Sciolus » Mon Aug 22, 2022 8:55 pm

Sciolus wrote:
Mon Aug 22, 2022 7:46 pm
90% are utter shite.
Today's effort is even worse: How high will my energy bill go and can I reduce it?

(Thanks for the links, Chops, but on further thought I wouldn't expect to see a meaningful signal in gas and electricity because trends are confounded by weather and the price increase hasn't really arrived yet.)

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Re: The cost of living

Post by bjn » Mon Aug 22, 2022 9:18 pm

Sciolus wrote:
Mon Aug 22, 2022 7:46 pm
It's extraordinary how little the commentary on the cost of living crisis addresses reducing consumption, especially of energy. 90% of moanfests don't mention it at all, of the remainder 90% give it the most cursory mention, and of the rest, 90% are utter shite. If anyone other than me has suggested an emergency redeployment of the economy into provision of home insulation, I've missed it.
Ahem, I've wittered on about it for aaaaages and was why I called Cameron a c.nt, if the 'green crap' had been implemented billions would have been knocked off the annual heating bill for the UK, along with associated carbon emissions.

Also, from the Liebreich link I posted above...
...The only thing that can possibly reduce people's heating bills in time for this winter is energy efficiency....

And it's true: while we can certainly reduce our gas use by turning the thermostats right down, get much below 19C and you soon have a noticeably chilly and unpleasant living room or office. The trick is to look for real energy efficiency - things that reduce energy demand without compromising comfort - and they really are not hard to find, particularly if you make the modest of investments. It's amazing how much can be achieved by reducing drafts, maintaining HVAC systems, not heating offices when people are working from home, not heating annexes and basements, inflating tires to the correct pressure, and so on.

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