Grow Baby Grow (or maybe that should be Growth Rachel Growth)

 The UK economy (in fact most of Europe) is in bad shape.

Growth has been elusive for the last 20+ years and was at best crawling along,  however Rachel has crashed the economy and hence she has decided growth is the only way she can carry on with her shopping spree.

Recently I saw Jon Moynihan on TV discussing growth and the economy in order to plug his new book: Return to Growth How to Fix the Ecomony.  I was impressed with him so decided to order his books.  

I am equally impressed with his books as I was with him on TV.  He has managed to get answers to questions I have been pondering. I suggest Rachel orders a copy - she clearly needs to learn about economics.

The first question I have been pondering is whether immigration is good for the economy.  Certainly the mantra being pushed is that it's absolutely good for the economy yet I am observing the opposite. Sure it's giving me better world cuisine (although I would argue I don't really need yet another Indian restaurant - I already have about 20 within 1 mile of my house).

So  a while back I did some digging.  Sure GDP is just about rising - but GDP per capita is the important measure. The scant data I could find suggested that in the early phases, immigration from Europe in the early 2000s was generally beneficial to the economy although that did change as these immigrant became settled eg had kids, got older and needed healthcare etc. More recent data suggested that the more recent waves of immigrants have not added anything to the economy - in fact they are a net drain.  That kind of backs up what I observe - they are "gig employees" or working in the "black economy" and hence are not paying taxes but are a drain on taxpayer funded services.

However Jon Moynihan's book has the data I was looking for.  Since about 2003 GDP per capita has stagnated.  Adding more and more immigrants (10 million more) has not actually added anything to the economy - we have all become poorer as GDP per head has remained static but inflation has eaten into that GDP.

This was bought home to me recently by the fact that if Britain was absorbed into the United States and became the 51st State, we would be the poorest state in the whole of America. Given states like Louisiana are visibly poor I was surprised to see this. Yet Louisiana's GDP per capita is $54,400 (£43,600) whilst the UK is $48,800 (£39,100). 

Jon's book highlights that the GDP per Capita for the UK and USA in 1939 were more or less the same. After the war the USA roared ahead. Britain was still growing per capita - Thatcher helped Britain keep pace with Germany but since 2009 Britain's GBP per capita has pretty much flat lined and Germany has roared ahead of us. 

The numbers don't lie. The UK is poor.

In part the problem is the exchange rates have made us poorer - whether deliberately or not. Currently £1 buys you about $1.2 whereas in 2006 £1 would have bought you $1.8.  Similarly £1 buys you EU1.2 but in 2006 this would have bought you 1.43.  Markets ultimately set exchange rates - the markets think the great British pound is not so great.

In the past, London's financial markets propped up the overall economy. Not any more.  Regulation has stopped that.  Bonuses have been capped by regulation (higher bonuses result in higher GDP), red tape has made the London Stock Exchange a shadow of it's former self. 

So immigration needs to be controlled or at least immigrants don't get public services unless they have contributed towards them (ie paid taxes). 

The UK economy doesn't really make much nowadays - if we do it's high end premium - eg Rolls Royces, Bentley, McLaren.  We have known for decades that the UK is mostly a services economy. Yet virtually all business needs energy and sadly UK energy prices are shockingly high. The UK consumer energy price is  24.86p / kwh whereas in the USA it's 16.54c/kwh (13.26p/kwh) so nearly half the price.

Germany, which is in a terrible mess after Merkel decided to turn off all the Nuclear and be reliant on Russian gas, charges 16.54c/kwh (13.91p/kwh).  Not far off half of the USA's price.....

So why are UK consumer  energy prices so high?  Well 5% tax goes to the government.  And there's a hidden 25% energy levy (tax by another name) that pretty much is given  free to companies like Siemens to build wind turbines (which are supposed to be energy competitive with gas power stations).  If all this was stripped out, we would be paying about 17.7p/kwh - not quite as low as Germany or the USA but getting close.

The UK industrial energy price is 25p / kwh compared to Germany at 15p / kwh, Sweden 7p / kwh. We are seeing the consequences of this with Tata Steel closing the Port Talbot steel works.  The USA is circa 5p / kwh and they have seen significant economic growth since the pandemic whilst the UK has stagnated.  There's a direct correlation between energy prices and economic output.

Cheap energy is good for business. So the UK is at a competitive disadvantage because of our energy prices.  Tata Steel in Wales closure is one consequence but energy intensive opportunities like AI will be based in countries where energy is cheap - forget the UK.

So if Rachel wants to stimulate growth (which can only originate from business) she should be looking to drastically lower the UK energy costs.  However she is looking to fund big infrastructure projects - speculative government investment - sure taxpayers money squandered on infrastructure projects will employ lots of people but unless the investment is an asset (ie produces income/revenue) it is not an investment by definition.  If it was an asset then I could subscribe to the investment and receive dividends (income from profits) from this. These investment turkeys will eventually come home to roost.

 Sadly most politicians don't understand this.  For example it was obvious the HS2 business case didn't make sense long before the costs spiralled out of control.  A similar story with the Brighton i360. The council loaned the company £50M to build it.  They had to borrow from the council because the business case didnt make sense and no commercial lender would lend them the money.  So the council decided they knew better than the banks and "lent" them the £50M. Unfortunately it didnt work out and the company went bankrupt.  The taxpayer will end up giving away £50M to the bankrupt i360 company in order that the adminstrator can sell it at a loss.  Surely Brighton council should be a secured creditor and take ownership of the asset.  If I didn't pay my mortgage, the bank would repossess the house - they would not write off my mortgage so I could sell the house to anybody that wanted it....

We need growth. Real per capita growth not the fake growth we have had for the last 20 years. If immigration was stopped tomorrow, the ONS would declare there is a recession.  Why? Well the overall GDP number would fall (but GDP per capita would rise). Immigration is a Ponzi scheme. We need more suckers moving to the country to create the illusion that GDP is growing.

The reality is the overall economy is not growing - that means the pie is not growing yet there are more immigrants that need a slice of pie. That means those who already have a slice of pie have to be poorer in order to share their slice with everyone. This is reflected in Labour's stance of "tax the rich" (or not so rich). In other words - forced wealth redistribution.

 Yet the rich millionaires aren't keen on sharing their pie so are leaving Britain at a rate of 1 every 45 minutes.  Each millionaire pays tax equivalent to 40 median workers. So today and each day onwards 1,280 median workers per day will need to pay more tax to compensate for the loss of millionaires. Assuming these millionaires keep fleeing sinking Britain at the same pace, then 2.3 million average workers will need to pay the additional tax to compensate for the loss of these millionaires by the end of Labour's term in office (assuming they survive that long). 

The Ponzi scheme is collapsing. 

Immigration needs to stop or we need to stop giving immigrants any benefits until they have paid for them.

The problem is not limited to immigrant.  We have developed our own in-house British financial drains. People elect to not work and the generous social safety net looks after them.  Take PIP (Personal Independence Payments). If you qualify you get £108.55 per week (£5,644.60 per year) tax free. 3.6 Million people get PIP on top of other benefits - £20 Billion (a Rachel sized Blackhole).  Some will get more than than £108.55 per week. If you are prescribed Prozac you pretty much qualify for PIP.  I'm seriously depressed about the state of the economy - when I can finally get a Doctor's appointment I will surely qualify for PIP!

So we need to achieve growth.  What countries have high growth compared to the UK (typically less than 1%)?

- Hong Kong  3.2%

- Singapore  2.6%

- Taiwan 3.7%

- Rwanda  7%

And what are the highest levels of taxation in these countries compared to the UK's highest effective rate of 62% (marginal rate between £100k - £125k) ?

- Hong Kong    15%

- Singapore   22%

- Taiwan   40%

- Rwanda  30%

So there's a correlation between low taxation and high growth.  

What is Rachel doing?  Raising taxes.  As there's a correlation between low taxation and GDP growth, you can ask yourself whether she will achieve more or less growth?

Like compound interest, there's compound growth.  If Rwanda manages to sustain that level of growth and Britain remains in the doldrums, then Rwanda will be richer than Britain by about 2070. 

UK government debt is now nearly £2.8 Trillion (bigger than the annual GDP). The interest rate has risen to 5.25% on 30 year gilts. The Debt Management Office report for for early Jan shows  there are £2,704Bn worth of debt and £1,400 Bn of 30 year gilts & 10 year gilts in issue. Borrowing costs have increased by 1% for both 10 year and 30 year gilts.

The OBR forecasts that government debt is set to rise to 283% of GDP (note if the government pension schemes were declared as liabilities (yet another Ponzi scheme) then Government debt would already be 150% of GDP) by 2067. Assuming gilt rates were still the same (a huge assumption) then 14% of all tax would be to service the debt.

So very crudely right now we have zero growth and the cost of borrowing is roughly 5% of GDP (since the size of the debt is roughly 100% of GDP). So 5% of GDP (£140 BILLION) flows out of the UK into foreign coffers.  In other words the net wealth (or GDP per capita) of the UK is decreasing by 5% each year due to this net outflow of taxes. We are getting poorer with each year and forecast is that's going to get a lot worse.

So what next?  I pray Fairy Godmother Rachel will waive her magic wand and "there shall be growth" however I suspect what happens in fairytales is not true.  

Unless there is fundamental change and some harsh cut backs in government spending and allowing taxes to be reduced, then the UK is  destined to be become a 3rd world country and we will become poorer with each passing year. 

Maybe it's a good time to get in early in Rwanda?