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Saturday 21st November 2020
Hi Friend,
We will build the largest navy in Europe ...
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| With a public sector pay freeze ...
Boris Johnson announced this week, a huge £24 billion war chest to transform the armed forces and become "Europe's naval superpower once again".
"We will build the largest navy in Europe" said the Prime Minister, "paid for by a public sector pay freeze and a raid on pensions", said the Chancellor of the Exchequer.
Rishi Sunak has been considering an array of options for raising taxes to ease the growing deficit. The latest figures, confirm borrowing in the financial year to October was £276 billion. Figures published by the OBR suggest borrowing could increase to £372 billion in the current financial year. Some analysts now expect total borrowing to be over £400 billion.
The level of total debt increased to £2.1 trillion at the end of the month. Add in debt from the Public Sector Bank Holdings and the debt increases to £2.4 trillion. Toss in a few additional public sector liabilities and total public sector exposure, increases to £2.5 trillion. So how to pay for it all?
The Chancellor has pledged to bring soaring government borrowing under control. The Treasury is considering a range of options to plot a route out of the economic devastation caused by Covid, according to Sophy Ridge, writing for Sky News today. Rishi Sunak is due to make an appearance on Sophy Ridge Live this Sunday, ahead of next week's spending review.
The route out of the "devastation" is growth not tax rises. Growth will follow as the economy recovers from set back. Retail sales, excluding fuel were up by almost 8% in volume terms in October. Household goods increased by 16%, DIY and Garden Centre sales increased by 30%. Carpet sales were up by over 50%. Online sales increased by 60%, accounting for 29% of all retail transactions.
The Treasury always has a "bucket list" of possible tax increases. The secret is to keep them in the bucket under a pile of sand. Remember the pasty tax and the caravan tax? Is this really the time to impose a pay freeze on public sector workers or consider a raid on pension tax relief for higher earners?
If radical measures are required, VAT on mortgage payments could raise an additional £12 billion each year. A window tax, always an old favorite, could yield and additional £10 billion that's for sure. Young people under 25 could pay for the vaccines of the over 60's. That would be another great cash generator.
Sunak's messaging has drifted off course since Allegra Stratton left the camp. The UK's favorite cabinet member is no longer favorite to be the next Prime Minister. Worse still, Andy Burnham is the new nation's heart throb according to the "Loose Women" panel.
"Loose women swoon over sex symbol Andy Burnham" the headlines in the Manchester Evening News this month. "He makes my heart go funny" said Panelist Nadia Sawalha.
We are looking for a great performance by the Chancellor in the spending review next week. Too much talk of tax rises and many more hearts will go funny ...
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| The biggest trade group in the world ...
In the first of our short notes on "The Economics of Mr Trump" we look at trade and developments in South East Asia. A "Coup for China and a setback for Uncle Sam", analysts react to the world's largest trade deal that excludes the USA.
One of the first steps of the Trump administration, was to walk away from the Trans Pacific Partnership. The executive order signed in January 2017 effectively reversed the Obama decision to form a trade alliance with eleven pacific rim partners.
The partnership included the US, Canada, Japan, Australia, New Zealand, Chile and Peru. Without the USA, the partnership foundered, creating a vacuum, into which China was keen to make the move
Now, China and 14 other East Asian countries have signed one of the largest ever free trade deals, encompassing almost a third of the world’s population and a third of economic output.
Nations including Japan, South Korea, Australia and New Zealand agreed the Regional Comprehensive Economic Partnership, [RCEP] with the ASEAN group. The deal cuts tariffs and increases market access across some of the world’s most dynamic economies. The signing, cemented the RCEP, as the largest trading bloc in the world covering a market of 2.2 billion people and $27 trillion of global output.
The trade deal is larger than the North American USMCA ($23.4 trillion) and the European EU ($17.6 trillion). The global centre of economic gravity keeps pushing relentlessly to the East. Forecasts are for the area to account for almost 50% of world economic activity in the future. India may well join within the next five years.
The RCEP will boost Asian economies by reducing tariffs, implementing new online trading rules and bolstering supply chains with common “rules of origin”. The deal means a RCEP compliant product will now be able to access 15 countries on beneficial terms. It also marks the first free trade deal between China, Japan and South Korea — key rival powers in the region.
The 10-member Association of Southeast Asian Nations signed the mega deal with the region’s top trading partners China, Japan, South Korea, Australia and New Zealand. ASEAN is made up of Indonesia, Thailand, Singapore, Malaysia, the Philippines, Vietnam, Brunei, Cambodia, Myanmar, and Laos.
The
move will consolidate Chinese power, as the world’s second largest
economy. China is expected to overtake the USA as the largest economy in
the world within ten years. The Renminbi is being readied to step up as
a reserve currency in the years ahead. The demise of the dollar accelerates as China reduces Dollar holdings and transitions to the Yen.
So much for the The Economics of Mr Trump and America First. Next week we look at the impacts of Trump's tariffs and trade policy on the US economy ... Don't Miss That!
That's all for this week! Have a great, safe, week-end ... Hands, Face and Space ...
John
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