From opportunity hoarding to cheese hoarding

Morning all,

Disgruntled farmers are still in the news this week. On the same day that Barbour jackets and Hunter wellies overran SW1, I was speaking on ‘Why Should Economists Care About Equality of Opportunity?’. One of the other speakers used the delightful phrase “opportunity hoarding”… We’ll let you decide how apposite that was. Lots of little kids want to grow up to be farmers, but it’s certainly a lot easier if you can inherit a multi-million-pound farm free of tax.

In case you missed our big news, the Resolution Foundation’s Trustees have chosen our next Chief Executive: Ruth Curtice, who’s been at HMT for 15 years, will be joining us in January. We are thrilled to be welcoming her – and I will happily return to my previous role overseeing the research team.

Meanwhile, you’re stuck with me for the next eight editions of TOTC. So, let’s get to it.

This week, we’ve got tax, trade and cheese.

Have a great weekend,

Mike
Interim Chief Executive
Resolution Foundation

Lunch learning. With children consuming one-third of their daily diet in the cafeteria, school lunches could be a great route to tackling children’s health as well as their ability to focus in lessons. This research (declaration: by my ex-colleagues at the University of Essex) looks at how universal free school meals (UFSM) in four London Authorities affected obesity. The test areas started off with higher-than-average rates of childhood obesity – but saw them fall. The fall in obesity was greater for younger children (ages 4-5) than older ones (ages 10-11). But even within that older group, Year 6 children who had been exposed to UFSM throughout primary school did have lower obesity rates, whereas those getting them for the first time showed no significant changes in obesity or BMI scores. With an aging population and a struggling NHS, these kinds of policies could pay dividends in the future.

Globalisation and growth. TOTC is a sucker for a bit of economic history. So, with all the angst over the future of global trade (scroll to COTW for more on that), maybe we should take some lessons from its history. This research goes back to 1850 to analyse the relationship between economic growth and international trade across 20 European countries, and finds that growth begat trade, and trade begat growth. This two-way relationship has withstood financial crashes, recessions and periods of protectionist tariffs. Even the arrival of huge technological shifts and the advent of global production processes did not disrupt the link. We may well get the chance to put that relationship to the test if an era of tariffs is upon us once again.

Gor-gone-zola. Luxury cheese is being targeted by black market criminals. Last month, 950 truckles of artisanal cheese vanished from a London warehouse following a fraudulent order from a phantom buyer who has since disappeared. Cheese theft is nothing new – £80,0000 worth of Parmesan has been pinched near Padua, and £50,000 worth of Wensleydale went missing in Worcester (OK, it might not have been Wensleydale, but allow me my alliterations). What’s going on? The rising cost of energy has forced cheese prices high and kept them there. And organised crime is often well embedded in food supply chains which provide effective cover for the transfer of illegal goods. Some desperate firms are even mulling micro-chipping their Manchego to foil the thieves. But where could the swiped Stilton be stashed? Russia seems a likely destination, as their resident Edam enthusiasts seek Brie on the black market, to get around those pesky sanctions. And then – to add insult to injury – we learn that British cheesemakers missed out on World Cheese Awards after their entries were delayed due to post-Brexit custom checks. Cheddar luck next time!

Lax tax. As our tax-to-GDP ratio hits an all-time high, this feels like a great time to talk about bad taxes – and there are a lot of them about. But this particular substack post comes from a Venture Capital professional who is not a fan of the Seed Enterprise Investment Scheme (SEIS), Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCTs) – schemes created in the early 1990s to incentivise wealthy folks to invest in start-ups. He argues that their ability to de-risk investments (a sweetener for prospective investors) has become their primary purpose. Instead of using the schemes to invest in high-risk, high-reward ventures, fund managers are picking low risk investments so they can cash out with a juicy 30 per cent income tax relief. So far as we at RF can tell (based on HMRC’s cost estimates) the reliefs totalled £1.4bn in 2023-24 across Income Tax and Capital Gains Tax. So, we’re putting a lot of money behind schemes that promise growth, but only deliver tax cuts. Call me crazy, but maybe there’s a better way of going about this?

Anthropomorphising AI. Humans aren’t very good at understanding artificial intelligence – and no I’m not talking about when you struggle to make ChatGPT work. This analysis finds that people tend to assume that what is ‘easy’ or ‘difficult’ for humans is the same for AI. This is, of course, not right: AI can often be relied on for complex problem solving or other ‘human-difficult’ tasks (passing an MBA final exam, for example, or winning games of Go), but sometimes simple spelling or arithmetic can be outside its scope (remember the revelation that ChatGPT can’t count the number of r’s in strawberry?). But these kinds of mistakes are often misconstrued, with people misjudging any failure at ‘human-easy’ tasks as overall poor performance. If we want to get better at using AI, we’re going to need to get better at understanding it.

Chart of the week

Aside from the missiles flying into and out of Ukraine, the big geopolitical issue right now is trade. Specifically: will Trump deliver his promised universal trade tariffs (particularly targeting China and Mexico), potentially triggering an all-out trade war? And what would that might mean for domestic economies and living standards? Trade nerds aren’t used to being the cool cats, but now everyone’s after their hot takes. COTW explores how this trade fandango might affect us Brits. It’s not great news for us – we are quite exposed to universal tariffs on goods imported into the US, as they are one our key trading partners. But the not-so-bad news is that we export twice as many services to the US than goods (£126 billion vs £60 billion) so, if tariff tit-for-tats remain focused on goods, then we might avoid the biggest impacts to our economy (although there are lots of spillovers between goods and services). Third, the EU remains by far our largest trading partner for both goods and services. There’s a lot of talk about whether the UK should side with our cousins across the Atlantic, or our friends across the Channel. COTW shows why we should grit our teeth and try to stay as open as possible, including pushing ahead with improving relations with the EU. This stuff matters hugely for our economy, and for our living standards, so we’ll be publishing new research on the trajectory of UK trade in a couple of weeks’ time, and discussing it with the Trade Minister Douglas Alexander.