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Just listening to the news headlines and inflation is at 6.2% and the Rishi is due to announce some measures today to provide support to the increases in cost of living.
Last week inflation was high, so the bank of England increased the interest rates.
I understand that increasing interest rates puts less money in your pocket, or makes it more expensive to borrow, so you spend less, which helps to control inflation. So why would the government want to put more money in our pockets, that will drive further inflation?
Is this just political point scoring?
Whilst I'm at it, one of the suggestions is to cut fuel duty by 5p at a cost of around £2bn. Again, I dont understand why. The recent increase in energy and fuel prices must have bought more environmental benefit than any government policy ever has, not only that but the government have clean hands as its an international issue with the bonus of it not costing anything and and the gov generate more revenue from existing % duty rates.
Obvs this doesnt gloss over the real hardship that households face, but if getting inflation under control is real priority then dont we need to suffer a bit?
I was also puzzled by the potential fuel duty cut when it would surely help those struggling more to apply a subsidy to energy bills, which everyone has to pay. A third of households don't have access to private cars.
I understand that increasing interest rates puts less money in your pocket, or makes it more expensive to borrow, so you spend less, which helps to control inflation.
I don't get it either. It's not discretionary spending that's driving inflation, so I'm not even sure of the logic of this approach is valid at the moment.
If done right (I doubt it will be) the support could end up in the pockets of people with no discretionary spending, so little effect on inflation, where as interest rates should damp demand from business and the better off.
So much of this is supply side inflation though. Costs are up everywhere, and that can’t really be mitigated against with the tools this government is happy to use. Step one is to make it easier and cheaper to trade with close economies, rather than those which add huge fuel miles to goods including food. Step two is to insulate Britain and massively increase onshore and costal renewal energy production and storage, not just pin everything on at sea production and gas use for peak demand.
As for (vehicle) fuel… I agree with you, let the price stay high and put money in pockets via tax and benefit changes instead… so that the “support” can help those using public transport as much a possible as well as those driving more.
Because there are local elections in May
And , in more detail, if the Tory party are looked on as the nasty party (nasty, corrupt and lying) BUT economically competent it's not a good look if you're demonstrated not to be especially competent economically as well
It's how you target the suffering is the issue - support is needed by those facing the choice between eating and heating, not by those struggling to choose between a Tesla and a new conservatory.
The pandemic and the fuel price hikes should be focusing attention on changing how society moves to a more sustainable footing, but that's a generational shift and governments are 40 years behind the curve - it was a topic covered in my O level geography back in the 80s ffs.
I think the mistake would be in thinking they've got the slightest idea what they're doing - they're just making it up as they go along, mindful only of the headlines.
I was also puzzled by the potential fuel duty cut when it would surely help those struggling more to apply a subsidy to energy bills, which everyone has to pay. A third of households don’t have access to private cars.
Fuel prices affect everyone though - bread doesn't bake itself, and it doesn't transport itself to the shops, so everyone is affected there as well.
It's not quick or easy to make changes to the tax system though. In terms of family budget I suppose many poorer people spend a disproportionately large amount on energy (Fuelfor the car to get to work or heating and cooking)
The £4 per month duty saving is really going to help me with the £80 gas/elec rise and £30 extra council tax
[rolls eyes]
Fuel prices affect everyone though – bread doesn’t bake itself, and it doesn’t transport itself to the shops, so everyone is affected there as well.
I’d guess very little of that (most) supply chain(s) relies on unleaded as opposed to diesel. Tax cut on petrol is just a sop to Tory voters.
economically competent
Ha! Stop, it it hurts.
The red side are more competent, the blue side introduced and raise taxes and always leave a huge deficit when de-selected.
What we are seeing is government by the accountancy class who don't have the ability to see beyond saving a fiver this week that will cost the rest of us a monkey to put right in a month's time. It goes hand in hand with not realising that providing a service doesn't have to generate it's own profit so long as it benefits wider society.
About 17% of the pump price of fuel is VAT, so as the price has risen the total tax take has risen. Cutting 5p off fuel duty removes the tax windfall.Maybe that's part of the logic.
I understand that fuel prices affect everyone albeit in a less direct way. But the increase in energy costs has been and will be much greater than fuel increase. So I just assumed that would be the obvious one to target because it's a direct and mandatory expenditure for every household. Though I understand they've already announced that loan scheme for energy so maybe that's all they're doing.
Its all about giving to the rich and taking from the poor. Fuel duty cut will give the rich far more than the poorer sections of society and of course the poorest who do not own cars get nowt
The best way to put money in the hands of those who need it most is thru the benefits system which can be done quickly and easily - remember the £20 uplift during covid restrictions?
But this is the tory party their only purpose is to concentrate power and wealth in the hands of the wealthy.
If Howard Cox and his band of frothing ranters were lobbying to cut domestic gas and electricity prices instead of petrol and diesel would Sunak by looking at making a bigger cut there?
Heard Cox on the radio yesterday and he sounded like Farage.
Some interesting thoughts.
The point about being able to target those that most need support makes sense - but that wouldnt be through fuel duty as said.
singletrackworld.com/forum/topic/i-dont-get-it-inflation-high-so-raise-interest-rates-but-now-extra-support/#post-12300104
I wonder what has happened to volumes though? Presumably the increasing prices and the pandemic (eg working from home) have lead to big reductions in fuel sales?
The red side are more competent, the blue side introduced and raise taxes and always leave a huge deficit when de-selected.
Can’t remember that happening last time!
Politicising this issue is probably pointless just now, the government departments with their permanent staff are who control the data and reports, think tanks, etc then support them with assurance and review.
Will wait and see what happens though, I dare say fuel duty is a political one, it’s an easy win, as it effectively costs them nothing, as the increase in fuel prices means the VAT has gone up to bring more tax in.
Fuel prices affect everyone though – bread doesn’t bake itself, and it doesn’t transport itself to the shops, so everyone is affected there as well.
Actually, red diesel is largely being removed from use imminently, so engine fuel cost for some sectors, (farming probably the most pertinent to general inflation as food cost will rise to compensate) will be getting hit with a double whammy of new duty and price increases!
The best way to put money in the hands of those who need it most is thru the benefits system which can be done quickly and easily – remember the £20 uplift during covid restrictions?
I do and of course the conservative government put them in place, supporting those that may (or may not) have needed additional support.
Lets not also not forget the £150 council tax support to those in, erm, smaller houses (that presumably cost less to heat).
I think the weather this week will make it easier to forget about energy prices for a while, people wont need to trade heat for food for another 6 or 7 months.
Well the whole issue is politicised. Cutting fuel duty is a political decision that benefits there voters and makes them look like they're doing sometihng for the poor people , but you don't see an increase in Universal Credit to account for increased inflation
What we are seeing is government by the accountancy class who don’t have the ability to see beyond saving a fiver this week that will cost the rest of us a monkey to put right in a month’s time. It goes hand in hand with not realising that providing a service doesn’t have to generate it’s own profit so long as it benefits wider society.
Imagine upfront investments on ffordable social housing, school, family support, vocational training, and then the savings in crime, antisocial behaviour, benefits etc. Never gonna happen.
I think the weather this week will make it easier to forget about energy prices for a while, people wont need to trade heat for food for another 6 or 7 months.
Next week's forecast suggests otherwise
Well the whole issue is politicised.
Every budget throughout history has been politicised.
Did you wake up yesterday? Competence and planning are not this government's strong suit. They make changes that are easy not necessarily ones that work long term
About 17% of the pump price of fuel is VAT, so as the price has risen the total tax take has risen. Cutting 5p off fuel duty removes the tax windfall. Maybe that’s part of the logic.
Yes, very true. There is a fixed amount of duty on a litre of fuel (58p). Then there is VAT on top which is just a percentage (20%) of the total. So at £1.70 a litre 34p is VAT. at 1.40 a litre (which is roughly where prices were pre crisis) The VAT take is 28p. Knocking 5p off fuel duty isn't really costing the government anything as I doubt they had factored in a massive hike in VAT from fuel into the budget.
So as to be expected from Sunak, he is doing the absolute minimum while trying to look like he is giving money away.
I understand that increasing interest rates puts less money in your pocket, or makes it more expensive to borrow, so you spend less, which helps to control inflation. So why would the government want to put more money in our pockets, that will drive further inflation?
You are not grasping how poor a lot of people in the UK are. They won't be spending less because interest rates are high when all their money is used up on food, energy and accommodation.
Give them a bit more money and they can pay their bills, eat etc,. None of which will drive inflation.
What wbo said. It's always economy first. If or when things settle down then they can tub thump about how they're the party of prosperity and economic stability etc ad nauseum. This in turn will appeal to even those who are suffering from their policies.
Fuel duty cut will give the rich far more than the poorer sections of society and of course the poorest who do not own cars get nowt
There are a lot of poor people who need cars to get to jobs (because PT is ineffective, and they were forced to take whatever job they could find that may have been difficult to get to) and are struggling to put fuel in. These are the people who will be hit the most. The rich can still afford to put fuel in at these prices.
Read the guardian link molgrips
Put the same amount of money into benefits then the poorest get far more money and the rich get nothing
Reduction in fuel duty gives money to the richest
Can’t remember that happening last time!
No it didn't but by the same token the economy didn't tank and Gordon Brown was the go to chap by other world leaders for advice on stemming the crash. See the whole picture not just the bit that plays to media stereotype.
Imagine upfront investments on ffordable social housing, school, family support, vocational training, and then the savings in crime, antisocial behaviour, benefits etc. Never gonna happen.
Removes at a stroke the scope for culture wars from the current shower. I see no downside!!
EDIT Maybe we should act like we expect more from our political representatives, the electorates version of nudge theory.
The interest lever is utter nonsense.
It's basically the only lever the BoE choose to use. They're absolutely tinkering at the seams and using a sledgehammer. For all the wrong reasons. Antiquated. (All this happens because were trapped in a four decade long mindset that the private market solves human needs.)
We are way past monetary policy fiddling. The BoE really do need a new remit and controls. (Evidence did show up in the pandemeic of this.)
There has always been some form of inflation somewhere in the economy. This particular brand has shifted from HPI to CPI - so is particularly cutting.
If you really want to understand inflation (and to be fair no one really does.) Here is nice update.
Don't let the right wing fool you - the current inflation is not caused by issuing money.
I'd also go further - Sunak is both incompetent and complicit. A Brexiteer too his bone, and equally doesn't understand how the economy works.
So whenever he opens his mouth rubbish pours out. The BoE performed 400billion of Q/E during the pandemic - more or less the amount spent on the pandemic. Money cost neutral.
No borrowing cost or cost to the tax-payer and yet Sunak on record saying the government doesn't have money of its own.
How can you be this stupid and ignorant? Well that appears to be a given thee days.
The country is ripe for re-wiring - were not going to get that today.
The trouble with the 'economy' at large is that workers have become separated from it.
So we look to these experts to control inflation and taxation - but they're indifferent to the human cost in this process.
We listen to the business commentators and they talk about the FTSE and all this bollocks without the human cost attached to it.
Only one place can create new money for spending that fires economy and that's the government through new money. It's the money that makes up the national 'debt' that ironically sits in circulation driving the economy. The aim to reduce this in difficult times is the exact opposite of what we need to do.
Commercial banks have their place but they issue loans, so although that can drive investment it's not like the investment that government makes.
A balanced economy not a balanced budget should be the aim.
I think recession is coming to be honest. It was almost there in early 2020 and now we've had these supply shocks post pandemic that create inflationary ripples - we will be heading back there, unless big spending is correctly targeted.
Put the same amount of money into benefits then the poorest get far more money and the rich get nothing
Not disagreeing with that. Just that fuel prices do affect many poor and struggling.
Episdoe 129: MMT Lens On The Chancellor's Spring Statement
New podcast on what might be on the table in Sunak's statement. (From an MMT perspective.)
I'm big fans of these guys. They do good work and analysis. I interviewed them both in 2020 for a project I was researching.
I haven't read the rest of the posts but in my view it's pure flailing around BUT tied to their ideology.
Their ideology is why we are here, and their key policy (Brexit) is negatively impacting the UK. They've no way out, so it's just smoke & mirrors and the highest taxes in living memory (40 years of work in my case).
Just that fuel prices do affect many poor and struggling.
As ever... the answer is to make the poor less poor (or in this case, take action to stop them becoming more poor as their incomes are devalued by the rising cost of living), not to give tax breaks to those who can and do buy more (of in this case fuel) than them.
No, I don't get it either.
As an armchair economist, I confidently, and wrongly declared that the BOE wouldn't raise rates because inflation is being driven by global events (and yes, Brexit) and not overconfident consumers. Raises rates now seems like kicking us when we're down.
On the face of it, the BOE are doing just that, in an almost insultingly simplistic way, they're targeted with keeping inflation at 2% and they'll act to achieve that as best they can, however painful or even sensible that is. You can read it yourself here:
https://www.bankofengland.co.uk/knowledgebank/why-are-interest-rates-in-the-uk-going-up#:~:text=W e've%20put%20up%20interest,help%20bring%20inflation%20back%20down.
It will reduce inflation, but not in a good way, economically anyway. Consumers will have to reduce digressionary spending to focus on essentials, but prices of those are rising quickly would only makes the situation worse. When retailers all start selling on price, you know there's a recession coming.
Then, here we have Sunak rushing in to save us all! The best thing, in my eyes at least would be to either scrap the NI rise for 12 months, or forever, or the duty on home energy. I think those would be the fairest and best ways to help. Reducing the duty on vehicle fuel... yeah it helps business, but there's a million better ways to do that. Vehicle fuel is a vote winner, very, very few people drive just when they need to, or drive in the most economically way possible. I think everyone's got a bit of flex they can use to try to mitigate that, and with crude prices falling, it would be easier to threaten the oil co's with a windfall tax to get them to pass the savings on.
To me, it's Sunak beating us with one hand, and then wiping away our tears with the other. We're being pimped really.
We have been living through an asset bubble for the past 30-40 years, while wages has stagnated.
We need inflation, especially wage inflation to equalise the equation. Unfortunately that does not match the neoliberal political consensus.
And what happens to all the people without assets?
I think recession is coming to be honest. It was almost there in early 2020 and now we’ve had these supply shocks post pandemic that create inflationary ripples – we will be heading back there, unless big spending is correctly targeted.
I'd say it's inevitable. The pandemic may keep the GDP figure positive and 'technically' not in recession, but the economy is delicate. There's can't be many people in the UK who are going to be able to maintain their usual spending habits in face of rising taxes and bills when the energy cap rises again in Oct, we'll take a much bigger hit, that £200 levy will hardly make a dent.
I'm sure I'm going to regret only fixing my mortgage for 2 years last month, I wish I'd swallowed the 10 year rate.
As usual Richard Murphy has it nailed. In short, we're being shafted good and proper. Not just the poor, but everyone. How we're not on the streets over this daylight robbery is a mystery.
"Without virtually any prior warning an inflation crisis has emerged that is wholly down to profiteering in the supply chains for food, oil and domestic energy. Since the actual costs of production for these items has not changed in any material way, exploitation can be the only explanation for what is happening in the face of shortages caused by Covid, war and, in our case, Brexit."
Without virtually any prior warning
Er... some people have been warning about the cumulative effects of dependancy on imported fossil fuels and putting up trade barriers with the rest of the continent... and who will benefit/profit from that... and the effect of quality of life for the average person... for yeeears.
But his assessment that this can only be addressed by holding down the cost of fossil fuels I can't agree with. That's only one of the options. It's the one the French seem to have gone for as it's simple to understand (they are perhaps scared of people coming onto the streets in yellow bibs), but isn't the only way. Intervention in that market is essential, but taking only that approach could benefit the well off more than those genuinely struggling (ie those not buying food while holding down two jobs... not those reconsidering driving to Scotland for a weekend of riding).
tthew
Actually, red diesel is largely being removed from use imminently, so engine fuel cost for some sectors, (farming probably the most pertinent to general inflation as food cost will rise to compensate) will be getting hit with a double whammy of new duty and price increases!
If I've read it correctly Agriculture, Horticulture, Fishing & Forestry can still use Red rebated fuel from the beginning of April 2022?
dazh
Full Member
As usual Richard Murphy has it nailed.
I agree with a lot of what he says, 5p off isn't going to solve anything, not when the forecast over the next month or so is for another 10-20% increase in fuel prices, same with aiming at Universal Credits or the likes to stave off the upcoming recession, or worse, that'll never do anything, there's just way too many variables and the row of dominoes that are lined up will fall even harder then, which will then affect the poorest even more.
This type of event, you really wish that all parties would pull together and work as a team, as a real parliament, utilising their resources for the best chance of outcome, as stated before, there are a lot of departments, universities, think tanks, etc that the government has resourcing and reviewing their policies and plans, would be nice to actually see the options and workings rather than just headlines.