The need to take tough Budget calls and take away teenagers’ phones

Morning all,

Another week, another row – this time over whether raising employer National Insurance (NI) would breach the Government’s manifesto. This is a silly row – levying NI on employer’s pension contributions (as we’ve proposed) clearly isn’t a breach, and even raising employer NI is not a direct ‘tax on working people’.

It’s also a distraction from the more important discussion we need to have about the scale of tax rises necessary to prevent our public services from crumbling (further), as Chart of the Week explains. We didn’t face up to this enough during the election – please can we address it now?

But look, delivering a Budget in these straightened times isn’t easy. Don’t believe me? Then have a go with this great new interactive feature from the FT. We’ve been collaborating with the FT over the summer to make The Chancellor Game close to impossible to ‘win’. As someone said to me yesterday “whatever I do, the Cabinet shout at me!”. Well, to govern is to choose.

Enjoy!

Mike

Interim Chief Executive
Resolution Foundation

Acemoglu acknowledged. This week the economic behemoth affectionately dubbed “AJR” (Daron Acemoglu, Simon Johnson and James A. Robinson) won the Nobel Prize for Economics. Acemoglu’s Nobel nod was viewed as an inevitability by many – he’s often described as the most cited economist of the 21^st century (with 247,553 citations on Google scholar). Their best known piece makes the case that strong institutions are a fundamental cause of long-term growth, and argues that it’s those with the political power that get to shape the institutions, with their evidence drawn from the legacy of colonization of much of the world by different European powers. If you want more Acemoglu, then this thread is an insightful summary of his work, and the conversations it has sparked. A lot of the ‘takes’ are from econ dudes, so do check out Alice Evans’s write-up, including how Acemoglu’s theories have influenced her thinking about the different paths that gender equality takes across the world. And, for balance, there are those who are less impressed by the committee’s decision, seeing it as a move away from celebrating economic-as-a-science. If you’re keen to hear from the man himself, checkout the conversation we had with him on the RF stage last spring, discussing how we can ensure that technological change boosts our national prosperity.

Helping households. The beginning of this month saw the launch of the sixth Household Support Fund (HSF), adding £500 million to the £3 billion local authorities in England have already put towards supporting low-income households since it began in 2021. Despite being brought on as a temporary stopgap in the pandemic, the HSF has become integral to the structure of local welfare, and this blog from Policy in Practice shows how that initial £3 billion has already been spent, with £2 out of every £3 are being spent on children. Stepping back, the HSF is a great example of how our welfare system has become more devolved or delegated, and we’re part of a major new research project trying to understand that variation, and recommend how local, national and UK governments can better work together.

Teenage tech. This recent paper has bad news for tech addicts – screen-time is bad for us. Specifically, the study found that it leads to worse outcomes for students. This paper examines how mobile app use at a Chinese university affected grades at university and wages after graduation, and it’s not pretty. An increase in phone usage of just one standard deviation reduced degree results by a whopping 36.2 percent, and lowered wages by 2.3 per cent. I think perhaps the biggest kicker here is that app use is contagious: having a persistent phone user as a roommate significantly increases your own use. How do the study’s authors figure this all out? It’s based on a slightly mind-blowing amount of data, including geolocation data on time spent in dorms, as opposed to studying in the library. So be careful next time you’re stuck in a social media black-hole – second-hand scrolling carries real risks.

Cartography cwiz. If the previous paper hasn’t made you put your phone down, then, for those of you unable to win our fiendishly difficult Chancellor simulation, we’ve got an alternative quiz that you can use to wile away your Friday afternoon. See if you can identify these locations based on outline alone – difficulty ranges from local authorities to built-up areas. It’s even harder than GeoGuessr.

Rigged regulation. You can’t bring in the biggest shake-up of worker’s rights in a generation without a little push back. Which The Times gave us with their defence of zero hours contracts (ZHCs), drawing on two different papers. Their case rests on the argument that “most people on zero hour contracts, the data suggests, find it suits them”. Is their summary fair? The first nugget on which this argument rests is that official data underestimates how many people are actually on ZHCs. By how much? This research analyses 46 million job vacancies to suggest that the number of those on ZHCs is actually four-times higher than official figures. The second paper bases the popularity of ZHCs on the fact that few zero-hours workers apply for permanent positions when given the choice. But there are a few things in the two academic papers that got less coverage. One makes a crucial distinction between ‘safe flexibility’ and ‘risky flexibility’, highlighting that the latter is much more common in low-wage occupations. And the other acknowledges that zero-hour workers are more likely to experience wage markdowns. So, was The Times summary a fair one? It’s complicated…

Chart of the Week

We as-good-as-know that the Chancellor will tweak her fiscal rules. One likely change is to the ‘debt-falling’ rule, to allow for more debt-financed public investment. That’s very welcome, but it doesn’t wash away the tough tax-and-spend decisions because, as Chart of the Week shows, she has also committed to a ‘current balance’ fiscal rule which will prove hard to meet. This rule allows borrowing to invest, but not to fund day-to-day public services, debt interest, public pensions or welfare payments: that spending needs to be covered by taxes. In the last Budget, then-Chancellor Jeremy Hunt had significant headroom against this rule. So far so good. But, critically, the only way that Jeremy Hunt could achieve this was through his ‘plans’ for further austerity (and by ‘plans’, we mean a sentence in the Spring Budget) that imply £21 billion a year of cuts to unprotected departments like the Home Office, Justice and local government. If we assume the Treasury spends more to avoid these cuts, plus account for the effects of the ‘overspend’ identified back in July, plus meeting extra debt interest costs of additional investment, then that headroom into a black hole overshoot of nearly £20 billion – even after some good news on the economy, which isn’t guaranteed. But we shouldn’t pretend that “avoiding austerity” on this technical measure is the same as adequately funding public services. Anyone who uses local services, courtrooms, the NHS, social care, or SEN provision can see that they need more cash, not less. This is probably why you’re now hearing reports that the Government has a £40 billion hole to fill. The current balance rule means that this has to be filled via extra tax revenues, or cuts to welfare or pension spending, rather than higher borrowing. So, let’s drop the NI rows and have a grown-up conversation about what is the least-bad way to raise the revenue that our public services need.