Uncategorized

by

Cash – COVID-19 Virus

“Turnover is vanity, profit is sanity, but cash is reality”.

There are plenty of unprofitable businesses in the world some with very high turnovers, but there are none without cash. Some businesses have mountains of cash like Apple and Amazon, tucked away in low tax regimes. Obviously they are “smart” businesses avoiding paying taxes to states that waste the money on things like universal healthcare. I wonder if all those tax dodgers are immune to COVID-19?

However I digress. In the last budget, that was six days ago when the world was a different place, the Chancellor announced a £12bn package of measures to support business. This morning on the Today Programme that amount was dismissed as a rounding error for the scale of support needed.

The need is not for tax relief next month  it is for cash, today or tomorrow. The reason for this is that so many businesses in the hospitality industry operate on very tight cash margins. Once day to day operating costs are covered the money coming into the business during a month provides the cash to pay for the salaries and the tax bills at the end of the month, and if you are lucky an element of profit. If halfway through the month, say on the 16th, the Prime Minister tells all your customers they should not go into your pub, restaurant, hotel, theatre etc then it is very likely by the end of the month you will not be able to pay your salary or tax bill.

HMRC can be as understanding about late payment of tax as they want, staff will either sue for their wages, or walk out, or both. In any of those scenario’s its game over for the business.

This is what will happen to hundred of businesses around the country and thousands of staff, possibly millions as it is clear other industry sectors are beset by the same basic cash problem. The scale of the problem is enormous.

Providing cash to keep businesses afloat when there are no customers, for one, two or six months is a mind boggling number. So big it may be dismissed out of hand. But then on the other hand the alternatives are not great.

Firstly, there is a logistical problem. In the space of a couple of weeks hundreds of thousands could be being made unemployed. The DWP are wrestling with Universal Credit, and losing. They will be overwhelmed with demand for from new claimants. The transfer payment bill will go through the roof.

Although the social security bill will balloon, as people move from low wages of circa £300 per week (most hospitality workers are on minimum wage) to unemployment benefit of around £70 per week the impact on demand in the economy will be immense. Causing other businesses to contract or collapse creating a vicious circle of decline, further reducing tax revenues and further increasing transfer costs.

The level of discontent this will generate in a population restricted to their homes does not bare thinking about.

COVID-19 is not just infecting people it is infecting the economy. More specifically it is attacking cash, the life blood of all current economic life. The only way to insulate against this is an enormous transfusion of  new cash into the economy. As Jim O’Neil suggested on the Today Programme we need Quantitative Easing for people. Others have called it helicopter money, after the notion that you empty sacks of money out of helicopters. The idea being to put effective demand into the hands of consumers, the vast majority of whom will spend all of it and thus stimulate the economy.

There are some very radical proposals kicking around at the moment. If people thought the last budget was a radical spend budget for a Tory government, they ain’t seen nothing yet.

(Declaration of interest – The writer part owns a small restaurant)

by

What a difference a day makes!

On Sunday I posted about a likely shift in gear as the government responded to a growing chorus of concern about the scale of the response to COVID-19. I agonised over sharing a link to an article by Tomas Pueyo which painted a rather bleak picture and was urging radical action on social distancing immediately. I did not want to contribute to a growing sense of unease. Little did I know.

I have more confidence now and believe yesterday was merely an introduction of what is to come and that by the end of the week legislation will be in place to enforce a much more rigid programme of social distancing, nay social isolation.

The report from Imperial College London has focused policy makers minds with its projections of a quarter of a million deaths unless radical action is taken to slow the spread of the disease. This would overwhelm the NHS and involve medial staff making live or die decisions.

There were a number of criticisms one could make about yesterday’s speech and it is easy to snipe from the sidelines. however phrases about what we are “going to recommend” do not help. And suggesting what people do is too weak. There may not be the legislation to back up clear instructions at the moment but that should not prevent them from being given and it is a matter of days, maybe hours, before that legislation is in place.

Two things are absolutely clear:

  1. Social distancing should be taken really seriously. No social gatherings at all. There is plenty of guidance on this. One practical piece of advice, have a soap dispenser that you have to step over to get into your home. As soon as you come in from outside wash your hands before you touch anything. The virus can remain on surfaces for 72 hours+
  2. Isolated individuals and families, particularly the elderly, who do not have local support will need help from their neighbours. Such help is the right thing to do from a moral point of view but also from a public health point of view. If people are infected  and hungry they will go out. Unless they are critical hospitals will not be interested. There is not the infrastructure of public social care support to help them. It is going to come down to neighbours to help them maintain the isolation.

Yesterday was tantamount to a declaration of war. Like all wars it depends upon public servants to be won. Sometimes that is the soldier, this time those on the front line are doctors, nurses and a range of other healthcare workers. We should not however forget the private sector workers who are on the front line particularly those operating the supermarket tills and transport staff who interact with the hundreds of members of public every day.

What is crystal clear now is that time is of the essence, and no longer should we underestimate what a difference a day makes.

by

Covid 19 and Public Debt

The Chancellor has just embarked on a huge spending spree in infrastructure investments. His argument being this is possible because interest rates are at historically low levels. Of course this has been the case for the past ten years. Since March 2009 the Bank of England’s base rate has been at or below 0.5%, with one period at 0.75% starting in August 2018 through to when the rate was cut to 0.25% yesterday.

This compares with rates which back in July 1998 were set at 7.5%. This rate drifted down over the subsequent years to 3.5% in July 2003, then slowly rising to 5.75% in 2007.

So for the whole period of the conservative government rates have been historically low. When inflation is taken into account the cost of borrowing for government has been pretty close to and at some points below zero, as it has in many other Western economies.

Over the period of Austerity many economists argued that borrowing to fund investment in infrastructure following the financial crash of 2008 would be a sensible. Counter cyclical investment of this sort would create new, real assets and not simply inflate the values of existing ones which the whole process of quantitative easing did.

But no, we were told this was not sensible. The public finance had to be put in order and the size of the state reduced to what we could afford. This refrain was repeated up to the last election where the Labour Party’s proposals were dismissed as the old “tax and spend” model lacking a prudent approach to public finances and debt.

Well, blow me, it’s suddenly ok. I don’t pretend to understand economics but I do bull***t.

However we should not be churlish but rather rejoice when a sinner sees the light. With all the zeal of a convert the government have gone beyond “tax and spend” to “spend and spend “. Not just announcing huge increases in borrowing but also increases in revenue expenditure, “whatever it takes” to support the NHS through the Covid-19. Further, they have announced a series of tax reductions to support business.

This is all, genuinely commendable. The real test of this government however will come when the impact of Covid-19 and subsequent exit from one of the three largest trading blocks in the world start impacting on the real economy. Recession is a real possibility and then tax receipts will fall like a stone. How they choose to balance the books then will be a genuine test of their commitment to “levelling up” the economy.

by

US voters turn their backs on female candidates | Financial Times

US voters turn their backs on female candidatesDemocratic primaries started with a record number of women, but now nearly all have dropped outElizabeth Warren (above) is one of the two women left in the race to run for the US presidency, but both have little chance of winning the nomination © Brian Snyder/ReutersShare on Twitter (opens new window)Share on Facebook (opens new window)Share on LinkedIn (opens new window)ShareSaveCourtney Weaver in Washington YESTERDAYPrint this page253Ahead of the North Carolina primary, Mellicent Blythe was torn between two candidates: Elizabeth Warren, the Massachusetts senator, and Amy Klobuchar, her Minnesota colleague.Yet when she came to cast her ballot on Tuesday, Ms Blythe, a social worker in Durham, North Carolina, found herself voting for the former vice-president Joe Biden: “I feel hypocritical because I did what I get frustrated with other people doing. I didn’t vote for Warren, because I was petrified she was going to lose out to [Bernie] Sanders and then Sanders would lose out to [President Donald] Trump.”

Source: US voters turn their backs on female candidates | Financial Times

 

Northern Comment – Elizabeth Warren is by far the most able candidate, who combines sharp intellect with genuine progressive values. It is a real shame that she did not get through to challenge President Trump. The contrast in terms of ability, values, morality, understanding of the mores of a democratic system, and the American constitution could not be greater. Elizabeth Warren has them President Trump does not.

I can however sympathise with voters wrestling with the question: who will beat Donald Trump, not who will be the best President. Whether these two issues are distinct is a moot point but you can understand why they apply in this election more than any other in modern American history.

Now it is Biden versus Sanders. In a time which demands radical change my preference would be Bernie Sanders. It is, in my view, perfectly reasonable the supporters of the two candidates should work as hard as they can now to get their choice the nomination.

But as soon as a decision is arrived at, the losing candidate must throw all his support behind the successful candidate. He must actively campaign to ensure all his supporters vote for the person running against Trump. Either of the candidates, indeed any of those that entered the race and dropped out would be preferable to President Trump. He is an existential threat, not just to US democracy, but to democracy around the world.

Nothing is more important that preventing Trump gaining 4 more years.