Non-dom data and flimsy forecasts

Yesterday the Government announced plans for eight new nuclear power stations. In the olden days this was big news; now it’s already off the bulletins. The news that’s actually gone nuclear is of course the Chancellor’s wife being a non-dom. That choice seems like madness from a political perspective – there are so few non-doms that a senior politician’s family being treated differently from almost everyone else is a very high risk. But it’s worth asking why they might have taken that risk (beyond the obvious of it saving £). In part the answer is that while it incredibly abnormal to be treated differently when you look at the population as a whole, it’s actually not remotely abnormal for the super-rich to be non-doms (see COTW).

Maybe that explains why the Chancellor feels so hard done by about the coverage. But you know who should feel really aggrieved by this week’s news? The W boson particle, where the idea that it’s got a (VERY) slightly bigger mass than previously thought has sent shockwaves across the (not easily excited) world of physics. Most of us wouldn’t appreciate everyone saying it’s a big deal we’re 0.1 per cent overweight so why should the W boson have to put up with it?

To marginally reduce the chance I get the same treatment, I’m off to climb some Welsh mountains and wander bits Suffolk for the next ten days. So TOTCs will take a break next week and be back with you on 22^nd April.

Happy Easter.

Torsten
Chief Executive
Resolution Foundation

Flimsy forecasts. A great Atlantic article offers a new pandemic-era twist on the Queen asking why no-one saw the financial crisis coming, pondering why many forecasts over recent years have been very wide of the mark. Many feared a house price bust, expected the inflation spike to be small/short lived, said unemployment/insolvencies for workers/ firms respectively would surge and claimed this would be a “she-cession”. None happened and the article offers food for thought on why such errors were made: our use of previous (but very different) recessions as a guide, the proliferation of new (but not always accurate) data, advocacy groups using data for campaigning purposes and that we’ve repeatedly underestimated the ability for individuals and firms to adapt. The paper touches on another reason that explains a lot of why outcomes in the UK weren’t as grim as I feared: the economic policy response was huge and (broadly) correct.

Increasing incomes. After the Spring Statement we argued that the UK badly needs some growth. In case you need persuading, read this paper that decomposes changes in typical household incomes from 1977 to 2019. What is the main driver of living standards rising? Productivity growth. In some phases rising inequality slowed (but didn’t stop) the feed through from that growth to typical income rising (ie the middle got less of it when the top increased its share of the pie), but over the last decade that hasn’t been happening. Today’s problem is a living standards stagnation reflecting our productivity growth collapsing. On which note…

Puzzling productivity. A great new paper from our friends at the Productivity Institute tries to shed light on this productivity disaster. Its main contribution is to challenge the idea that this experience is UK specific, noting that the US and continental Europe have seen similar slow-downs. Another way of putting that is that the UK weakness looks less puzzling in light of the slowdown in productivity at the frontier (ie the US). There’s a lot in that, although there’s also a danger of being too fatalistic if you conclude there’s little individual countries can do to shape their relative performance. As the paper itself notes the three decades pre-financial crisis saw the UK’s relative position improve, and given that we are still a VERY long way behind the US there is plenty of scope for our productivity to catch-up. Look our for an Economy 2030 Inquiry paper on this very topic in the next few months.

Growing gaps. The last two years has brutally exposed the overlap between economic inequality and health outcomes: the mortality rate from Covid was more than four times higher in the most deprived parts of England than the least deprived. This pattern is far from Covid-specific, shows an interesting overview article on obesity  from Rachel Griffith. The whole paper is worth your time, but if you look at one thing make it the chart on child obesity (figure 2). More deprived areas have higher child obesity rates, and they’re rising. But the big surprise to me is that there’s been no increase at all in the least-deprived areas, so that the gap between rates in the two has increased from 8.5 percentage points in 2006 to 13.3 by 2019. Against that backdrop it’s mad that an attempt by the Government to make lower income households smaller (via the two-child limit on benefits) has, as new research shows, just made them poorer. This week marks the five year anniversary of this indefensible policy and explains a good part of surging child poverty rates amongst larger families.

Chart of the Week

With totally impeccable timing, great new research was out yesterday on non-doms – UK residents who aren’t required to pay UK tax on their overseas incomes (or wealth via inheritance tax) because the UK isn’t their permanent home. What makes it great isn’t the timing though – it’s getting data on non-doms out to inform often fact-free debates about the policy area. What did we learn? There aren’t many non-doms (70k) BUT you’d be forgiven for thinking otherwise if you move in certain circles: 1-in-5 top earning bankers and 40 per cent of those with income over £5m are/were non-doms. My favourite bit of new information though is shown in this week’s Chart. Recent reforms made it more difficult for people to live in the UK for long periods without losing non-dom status. Some have argued this made us less competitive with talented/rich people flooding out the door or not arriving. But this chart shows that while the population of people currently claiming non-dom status has been falling, the total number of people residing in the UK who have at some point been non-dom has continued to rise. The reforms have levelled the tax playing field a little but not scared people off – because luckily the UK has more to offer than low taxes.