Whitehall “braced for private schools collapse” 6

[ICouldBeVioletSky]

Continuation of previous threads to discuss VAT on independent school fees.

And do you think the problems in the US were caused by their benefit system?

I take my eye of this thread and suddenly VAT on private schools is going to cause WW3?

That is a pretty twisted way of looking at it! It’s not that they would like to give money to the school but won’t out of spite against the poor, but more that the emotional conditions that exist in their relationship with a private school don’t exist in their relationship with a state school. If you want to be angry about that, go ahead, but it won’t solve the problem.

I like Gary Stevenson, he has a really interesting, subversive take on economics. His explanation of the asset accumulation spiral did change my opinion on wealth taxes somewhat when I heard it.

I don't think he's gets it all right though. His opinions definitely show his background - with focus entirely on money itself, rather than what money is within the economy, and the concept of 'economic value' and how it's created. I think he would enjoy eg Hidden Order by David Friedman - instead of just trying to figure it all out himself.

So looking at his take on covid. He thinks because the rich ended up having more money at the end of covid than before - and furloughed people didn’t - this means that the government gave the £700bn of covid support to the rich (and then all his other conclusions come from that)

But actually, the £700billion was spent to replace lost productivity. Ie value which was not created because furloughed people didn't work. The furloughed workers would normally have lived on some of the value they created (the rest going in taxes and return to people lending capital) but instead the government printed money and gave it to them to live on instead. Ie the government borrowed future economic value which other people would need to produce for free in future years. That future economic value was consumed by the furloughed workers in the form of leisure time during lockdown. We now need to create that borrowed economic value without getting to consume it, hence the cost of living crisis.

The reason wealthy people ended up with more money at the end of covid is that it forced them to delay their spending. So they kept that unspent money for later (and also gained because delaying spending does itself have economic value, since the created value is avaliable to other people in the meantime) But they would have accrued that same value if they delayed their spending for any other reason, even without the government spending £700billion. So it makes no sense to say that the money was given to them. They just spent their own money at a different point in time.

He says that no-one has thought about where the money ended up, but he's wrong. It's just that it's actually quite obvious: but he doesn't see it because he's only looking at the end result in accrued wealth, not at how that was the result of changed production of economic value during that time.

The reason lockdown increased inequality (which I agree it did) is that the type of work which allows people to accumulate wealth was also the type of work which could continue through lock down.

That doesn’t make the huge loss of productivity from lockdown the fault of the people who continued to work and create value during that time. They were in fact handing over a substantial amount of the value they were still creating to people who spent the summer relaxing in their garden. Furlough costs would have been even higher if everyone had stopped.

It might have been better not to do lockdowns, who can tell. But that certainly isn’t the fault of 'the rich' and it certainly isn’t 'the poor' who paid for it.

If you think that the unconstrained immigration Boris Johnson initiated will help deal with our demographics, you're not thinking clearly enough or far enough into the future.

I think there are many problems facing us. I think living standards are decreasing, and I think a realistic, clear-thinking (not idealistic) approach is our best chance to slow the decline for everyone.

AI is of course the disruptive wild card which will change everything, one way or another.

Probably not directly. But over-reaching governments, excessive taxation and a resulting economic collapse might.

Yes well said.

@strawberrybubblegum ,

I really enjoyed reading your post and it gave me a lot of food for thought. Maybe the reality is somewhere between what you have posted and Gary Stevenson’s.

‘I don't think he's gets it all right though. His opinions definitely show his background - with focus entirely on money itself, rather than what money is within the economy, and the concept of 'economic value' and how it's created. I think he would enjoy eg Hidden Order by David Friedman - instead of just trying to figure it all out himself.’

He does have both a degree in economics and a masters in econometrics, both from top universities, so I think he will have read quite a lot around the subject! I, on the other hand, will probably order your recommendation.

‘The reason lockdown increased inequality (which I agree it did) is that the type of work which allows people to accumulate wealth was also the type of work which could continue through lock down’.

I don’t think the lawyers, accountants and bankers could have done as much ‘productive’ work if the companies paying their fees were no longer able to do so! A lot of the support went from the government to restaurant owners (say) and then a fair proportion got paid to their professional advisors.

‘That doesn’t make the huge loss of productivity from lockdown the fault of the people who continued to work and create value during that time. They were in fact handing over a substantial amount of the value they were still creating to people who spent the summer relaxing in their garden. Furlough costs would have been even higher if everyone had stopped.’

I am not sure ‘fault’ is a good way of looking at it. They didn’t choose to spend time in their gardens, they were ordered to! And furlough payments were still a net wage cut for them, especially in service industries which included tips.

I am not an economist but a physicist who went on to have careers in banking and teaching. But physicists love a good thought experiment!

What would have happened for instance if the government had let the banks go to the wall in 2008? We would have had a recession and maybe even a depression. But isn’t that how capitalism is meant to work? It is meant to reward production, not cronyism.

People might have lost 90% of their assets and we would have had a major housing crash (a bit like the 70s) and houses, stocks and, shock horror, even the private education sector, would have become a lot cheaper. And then teachers, doctors and those in other areas not related to investment/finance/law could have bought the houses off the bankers and wealth would have been recycled.

What we have is crony capitalism where wealth is kept in the same hands and assets remain perpetually too expensive for those without generational wealth (again excluding a few professions mostly finance related).

@Araminta1003 ,

‘Like I said, there is no point staying in this country if you have young clever kids who are highly skilled. They will have a better life in many other developed countries.’

Such as where?

The EU has much the same problems as we do, stagnation, over regulation and the need for immigration to deal with a demographic time bomb.
And, due to over regulation, literally one globally significant high tech company (ASML) in a tech-dominated world. And they are turning increasingly to populism.

The U.S? Probably economically the best bet for an ambitious youngster, but under Trump?

Canada, getting caned by sanctions, and with the same stagnation and regulation, if not worse, than the EU.

It is easy to knock the country where you live and see all the problems, especially right now when we are struggling. But the grass isn’t necessarily greener elsewhere.

Why do you think I’m angry? It doesn’t affect me personally.

@Newbutoldfather - the clue is in the quality of life index. So any of Luxembourg, Netherlands, Denmark, Switzerland, Finland, Norway, Sweden, Austria, Australia, New Zealand, Australia, and in ordinary circumstances, yes, including the US. In fact, Spain is a better place than the UK now if you can get a good job,

Some will also consider Oman and UAE temporarily for good job prospects.

I don’t think unconstrained immigration is a good thing at all. I’m not a fan of climate change or wars, either, or genocide, or contagious diseases, or disability, or poverty, or infirmity in old age, or dementia. I also don’t like petty vandalism, crime not being investigated, hospitals that are overwhelmed and crumbling, schools that are having to make staff redundant, etc. I too could live in a fantasy world where climate change is an invention to keep us under control; where people unaffected by VAT on private school fees care about those who are; where people should get to consume as much as they want; everyone gets to be cared for nicely in their old age; nobody has to sell their home to pay for their care; no elderly person ever gets too hot or too cold; SEN children are properly cared for and educated without disrupting the education of children without SEN, but still in mainstream if their parents think this is appropriate and not because there aren’t enough special schools; people currently claiming tax credits are all appropriately employed looking after the elderly and vulnerable, picking fruit, cleaning, caring for our children and building our houses so that there is simultaneously hardly anyone on benefits and no need for low paid immigrants; anyone with assets gets to protect a large chunk of them from inheritance tax to pass on to their children, even if they only have assets because the state covered their care costs in old age; nobody gets priced out of the housing market if they are not already in it; the people most directly affected by immigration get to decide who is allowed into the country and who isn’t; and other countries behave towards us the way we feel entitled to be treated.

Everyone seems to be indulging in one fantasy or another (whether that they think they are being clear-eyed about the chances that they can continue to live a reasonably comfortable life, or have a more comfortable life, if we would only deal with benefits and immigration; or that they think we can squeeze more tax from working people whose main or sole income is from working, without the result being the wealth continues to accumulate in the hands of a tiny handful of humans who are busy throwing their weight around in supposedly democratic countries as we speak). I just carry on living within the fantasy like everyone else, because we all have to live somewhere, but quite honestly, everyone is sounding unrealistic to me, focusing on their own narrow bugbears and discrediting everyone else’s as though only the other person is a fantasist.

It’s great that you were able and willing to donate so generously and usefully to your child’s school. I don’t think it really disproves my point, though. Yes, donations like this can make a real difference and can relieve pressure on the school’s budget elsewhere so that regular income can be reserved for core expenditure such as staff. But for most schools salaries are by far the largest outgoing, and they are very expensive. Even paring back just about everything that can reasonably be covered by donations (which, after all, cannot be 100% relied upon to come in every year) won’t leave enough to, say, reduce class sizes from 30 to 15 or 20 across the school, or to provide an extra, properly trained TA in every classroom. Nor will they change the culture of a school, or tackle bullying. These are the things that children really need, and these are often the reasons parents make the decision to sacrifice a lot of luxuries and some necessaries to pull their child out of the state sector and put them into private schools with smaller classes and more playground supervision. The other point I’d make is that even if you were to force all parents into the state sector, and even if many of those who could contribute generously did so, I suspect you would simply end up with extremely uneven state provision in which stark inequalities still existed. Wealthy parents would use their financial clout to buy into the right catchments and then beef up those schools’ facilities, leading to yet more wealthy parents making the same choice. There would still be parts of the country in which there simply weren’t any sufficiently wealthy parents to donate generously, leaving those schools unimproved. So what then? Do you start taxing the donations? Pool all donations and distribute them equally across the country? Would you have given so generously if your donation was going to be distributed to a bunch of other schools, leaving your children’s school only with a tiny percentage? And would you make entry into any given school a lottery (as Michaela does) rather than catchment based? And do you think any of this would address the problem of grossly inadequate SEND provision? Or the simple fact that children are very different, and whilst one might thrive in a busy, 30 child classroom another would be stressed, overstimulated and struggling? The reality is that one size does not fit all, and the best way to address that is to widen the choices available, not to enforce uniformity.

That's very eloquent @workaround . You may well be right. And our posts may well be full of sound and fury, signifying nothing. But I still feel a need to keep engaging and figuring - in the broader questions, I mean, not just VAT. I think the alternative is worse.

What we have is crony capitalism where wealth is kept in the same hands and assets remain perpetually too expensive for those without generational wealth (again excluding a few professions mostly finance related).

And people wonder why productivity is so low.

Everyone seems to be indulging in one fantasy or another (whether that they think they are being clear-eyed about the chances that they can continue to live a reasonably comfortable life, or have a more comfortable life, if we would only deal with benefits and immigration;

excellent post @Walkaround about the wider issues. People aren't ready to let go of the fantasy though hence why Reform are gaining traction.

Also simply not true. A house is perfectly in reach of a young couple both with semi-skilled full-time jobs ... so long as they are outside the SE. I see this achieved by many young people I know without family wealth.

The house price difference in the SE is a huge problem - especially for families who live there.

What is not true @strawberrybubblegum? that we have low productivity? High housing costs don't impact productivity?

or that housing isn't expensive? is it easier to build wealth these days?

The average price for a first-time home in the Midlands is £225k. In the NE and in Wales it's £180k. In Scotland it's £175k.

Full time NMW is £22.5k without any working age benefits added. So the average first time home outside the SE is less than 5x joint salary for a couple earning NMW.

In the SE it's £325k and in London £450k. That's much harder to achieve - especially because tax bands start biting. Each member of a SE couple would need to earn £32.5k each to get the same ratio as the NMW midlands couple. But actually, on £32.5k, they'll pay literally twice as much tax and NI - because our tax system doesn't allow for different costs of living in different parts of the country. So actually, they need to each be earning £35k to have the same house-buying opportunity as a young NMW couple in the Midlands.

People look at the raw numbers and say that house-buying is so much harder for the younger generation - but it really isn't. Not when you consider mortgage repayments as a proportion of salary. Outside the SE, it's actually very similar to a generation ago.

What has actually happened is that house prices in the SE have diverged hugely from the rest of the country in the last generation. That makes it really hard to buy a house in the SE. Nowhere else.

I never said no one couldn't buy a house?

Rent costs have rocketed, unfortunately. Which is a completely predictable result of government policies to tax landlords more and give new protection to non-paying tenants. It's always going to be tenants who end up paying the costs of those policies.

But we're talking about the ability of 'ordinary people' to acquire assets, ie buy a home.

wealth is kept in the same hands and assets remain perpetually too expensive for those without generational wealth (again excluding a few professions mostly finance related).

Assets = buying a home.

It absolutely isn't restricted to those with generational wealth. That's not true.

Assets aren't just homes & it is harder for younger people to buy homes because of higher deposits/ renting costs which is why so many have help

"Nearly two-thirds of first-time buyers (FTBs) since 2019 received financial support from their families"
"And for homeowners who are under 30, 76% accepted help, according to our latest analysis"

Plus many don't even count living at home to save as help.