Please explain to me like I’m a 5 year old. How do we fix the economy?

[bushproblems]

The job market is shocking, the minimum wage rise has not pushed up the salaries in the next bracket, food is so expensive and working hard no longer feels like it provides the rewards it used to.

Im earning more than I have in my life, but I feel poorer than I did 10 years ago when I was just above minimum wage.

I get that employers have more costs so the profits of a company won’t trickle down like it did, but what, or who, can fix this?

Im feeling very despondent about the future for me and for the younger people in my family

The UK tax system already burdens high earners quite heavily, and by high earners I don't just mean people getting a £500k bonus every year, I also mean people in quite ordinary professions making around about £100k (don't shoot! this is an unthinkable amount of money to me, I promise). With this in mind, there is more wiggle room when it comes to increasing taxpayer morale by making sure people get value back from their taxes.

This might be an incredibly boring and nerdy thing to say but wealth taxes are generally very hard to design and implement. Do you tax at the time of transfer (which we already do, for example IHT and SDLT) or periodically whilst an asset is still in ownership. If the latter, how are assets valued? Who pays for the valuation? How are these valuations standardised? Morally I think many of us would like to see the richest pay more, but it's incredibly difficult to do this without provoking unwanted compensatory behaviours.

There's lots of things, we could do:

Rejoin the EU - our economy is around 4% smaller due to leaving, with new trade deals not making up the loss - challenge is there was a democratic vote to leave and it is unlikely we would be accepted back on the same terms.

Public sector investment to "crowd in" private sector - Manchester is a good example of this, with public money loaned to private companies and a consistent planning process kick starting a building boom, areas having clusters in particular sectors (life sciences/tech/media) increases productivity, improvements to public transport increasing the talent pool available to businesses - challenge is public sector borrowing is already high and therefore you would have to convince bond holders that the investments will pay for themselves.

Energy is far too expensive in this country and in Europe, with USA multiples cheaper due to indiscriminate fossil fuel usage, making it very difficult for any energy intensive businesses to compete. Investment in renewables, battery storage and interconnectors with Europe to efficiently trade energy will result in much cheaper prices in the long run, but the challenge is it is massively expensive to build the infrastructure and stop utilising old infrastructure.

Training and education, there are massive skills and qualifications gaps, along with very little training in how to effectively manage people. If you are employed, unless you are willing to pay for training yourself it is very difficult to move industry post school education. With AI looming it is vital that people are able to use this technology or move industries. The government should give people the opportunity to retrain, but again this would require more spending with no guarantee on return.

Housing, especially council housing, needs building. As builders have merged, they have become more risk averse, sitting on large land banks and only releasing land where sufficiently high enough sales prices can be achieved. The green belt has also massively constrained where you can build in the key places (commutable distances from large cities) where you would want to build. Again the government would need to make an investment case for borrowing more to build. There could also be rules around not allowing builders / investors to sit on land for too long. Major challenges here as we do not have enough trained builders and there is a limit to how many houses you can build whilst maintaining a sufficient profit for private builders and there are benefits for wildlife of retaining greenbelt.

We can't cut or deregulate to prosperity as some politicians would have you believe (well you can but not without creating massive harm). The economy is made up of people, government and business investment, plus external investment. People and businesses have not had a stable environment to invest and a higher tax burden and overcomplicated tax system has sucked money out of the economy. We can attract foreign investment but that ultimately will see the investors extract money. Therefore, it is my view the best way forwards is for the government to make the positive case for investing in people and infrastructure by borrowing more based on future revenue and also reducing trade friction with Europe. This will aid in creating good jobs, lower energy costs and a property market not based on treating property as an ever appreciating asset rather than a home.

Yes, getting on top of land hoarding by housebuilders is a great idea - definitely one of the many sectors in which I would design some much stricter competition law were I in charge. The fantasy that private housebuilders will solve the housing crisis needs to be addressed. Even on the ground, on site, site managers will tell you that they are expected to focus manpower on the private sale houses as the higher-ups expect the unprofitable social and affordable housing to build itself.

My pet economic moans are the pensions triple lock, and right to buy. And Brexit. No real suggestions as they're all too politically sensitive or irreversible to address. Just a shame.

Just a well-informed-ish hunch, but I believe a lot of sectors are relying on the covert use of what is effectively human trafficking to undercut the salaries they have to pay. As well as being inherently evil, this forces the citizen workforce out of employment.

Why are prices going up?
Why have house prices gone up?

It's easy to say things like reduce the cost of childcare so parents can work more but how? What are the nuts and bolts of it? And if parents can work more then they can earn more and prices go up because people have more money to spend.

People charge what they do for things because (some) people can pay those prices for things,

Private companies are in the business to make money, for their owners and shareholders and stakeholders. They make things reasonably affordable for some people or they go bust. But the bottom line is to make money.

State companies need to be funded by the government who get money from taxes they impose. There is a limit to what they can own. The NHS is owned and run by the state but the country has more and more elderly people needing more and more care.

Then there's politics involved. People argue about where the balance lies. Do we want less taxation and a smaller welfare burden? Or the opposite? And how?

People generally seem to want great funded healthcare and education etc but do they want to pay for it?

And that's just a few things off the top of my head without even going into globalisation, wars, leaving the EU, etc etc etc.

There are so many itty bitty things that cumulatively have screwed us all - see also the leasehold system, a bizarre and archaic peculiarity of land law that messes up the economy in many ways. It prevents people from buying property, especially in urban areas where a flat is the only realistic option for a starter home, because it's not generally that tempting to buy a leasehold flat only to find out that your ground rent and service charge are going to skyrocket by thousands of pounds every year, making the flat unafforable and unsellable. The Labour govt's ambitions of ending the leasehold system were quickly dampened by the fact that the owners of the freeholds are often... bloody pension funds!!

Also younger people will want good education and childcare etc. But their values will likely shift to pensions and healthcare as they get older.

Those on minimum wage are going to likely want different things to those on top salaries. Some of those will be the same people as they go through life.

I would argue that the welfare burden is so high because work does not pay - the real value of salaries is too low. The workforce can no longer access a standard of living that makes work sustainable. This is what needs fixing.

There are some good ideas on this thread.

• Housing and energy are far and away the biggest costs on the state directly and indirectly. Good quality social housing pays for itself - I'd love to see a Government commit to halving housing benefit by building good quality social housing. A proper mix from starter flats to supported care housing. Done right, it would also save on hospital admissions by stopping falls, trips, respiratory problems (mould) as well as cutting energy bills.
• Energy bills are crippling business across the UK: there's a reason why manufacturers are struggling as well as smaller businesses. It's great we are building green capacity for the future, but we also need relief now. I think Miliband is looking at this as we base our energy pricing on gas (most expensive) instead of solar or wind.
• We need to have a grown up conversation about what the NHS can fund and how. Over 70s are the most intensive hospital users and we have to find ways to stop repeated admissions and long term hospital stays when people no longer need intensive nursing but can't go home. The problem will get worse as the numbers increase.
• I agree that upskilling and ongoing training needs to become a mindset for most of us, with more FE and online e training available at an affordable cost. This is something we communicate to employers quite easily via HMRC and everyone else via libraries, hubs and jobshops.
• The tax system needs reforming, especially the council tax banding, income tax cliff edges and universal credit crap shenanigans. I suspect the working tax credit will end up being worthless in the long run, due to frozen banding and inflation creep.

I don't think it's meant to be fixed. I think it's being run down deliberately. There's a new system coming in imo.

Rejoining the European single market should be job number one. But Farage will kibosh that, and the same idiots who voted for Brexit will vote for him again.

A big old war would probably shake things up a bit, boost manufacturing. We'll almost certainly get one soon, so, job done.

Agree with this, sadly. Wealth is only becoming more and more concentrated in a few hands. The already unafforable housing stock is about to be hoovered up by Blackstone.

By taxing billionares and billion dollar companies.

It’s very simple in the short term. We stop spending money we can’t afford to spend. Once we are back on our feet a bit then we can start spending again,

the country’s economy is no different to your own household budget. If you are struggling to balance the books because you have large debts and high outgoings you don’t borrow more. You cut back everywhere possible, you try to reduce your debt and then as things start to look more under control you can start to spend a bit more again.

finding ways to reduce spending and then wimping out because someone in the family shouts “you can’t cancel Sky sports what about me. I like having that!. Poor me” just means your situation gets worse and worse. Listening to your teenager who says “let’s just carry on spending and in fact let’s spend even more on the credit card on things which are really just nice to haves and not absolute essentials” will make the situation worse.

so it isn’t difficult - it’s just not what the family wants to hear. But someone has to be the grown up.

The problem is that going without Sky TV is not the same thing as going without adequate housing, affordable food, or reliable healthcare, and it is difficult to remain economically productive if your workforce are continually deprived of these things.

The poor spend the money that also helps the economy to grow. At the moment they can’t afford to do that and it is affecting the uk economy negatively.

The uk has one of the worst rates of income inequality in the world and the gap is getting bigger. The top 20% are getting richer while the bottom 20% are getting poorer.

Meanwhile large companies are making increasingly large profits for their shareholders while their poorest workers are needing welfare payments to lay the rent and bills to put food on the table.

If things worked the way you suggest they do the U.K. economy should be absolutely booming. It isn’t.

I suspect what we actually need to do is to undo as much of Brexit as is possible to encourage investment in the U.K., reverse the NI employers increase and forget the ridiculous promise for not increasing NI for employees and increase that slightly, and sort out the water and energy companies. Fossil fuel companies will barely notice a windfall tax and have said they think there should be one. Then we should invest in infrastructure and a massive house building project. Preferably one that doesn’t involve large companies making profit from ‘affordable’ homes.

If all of that manages to put money back into people’s pockets so they will spend it we might get somewhere. And more money tends to lead to better long term health which should eventually reduce the people on sickness benefits.

Additionally, bloody everything relies on investor confidence. If the population don't have any money to spend then investors aren't going to be very confident.

And the country’s economy is very different to a household budget. It’s that way of thinking that got us into this mess in the first place. You don’t austerity your way out of a recession.

No you give people confidence to spend again which they get when they feel things are more under control.

And I didn’t say you stop buying food. I said you cut sky sports so that you can keep buying the food and paying the mortgage.

We need to start producing stuff again. Far too much money is going overseas.
Everything from steel works, to textiles is being imported.

Even stuff you order online and you think your paying a UK company is often transported from Europe which I'll also guess means the VAT is going overseas.

Social housing would help bring the housing market under control

A few months ago I happened to meet someone who had been working at a robotics company in the SF Bay area. He had been working on the creation of a "domestic servant" robot, designed to be operated remotely by an (exploited, underpaid) operative in the Philippines, and admitted that the whole project was unconscionable. There are more and more dystopian ways to outsource things than ever, it turns out 😕

It depends what you consider to be the "Sky Sports" of the economy.

How is any of that going to create jobs for young unemployed people?

That’s the manifesto the Tories were elected on in 2010 and 2016. They talked a lot about running the economy like a household budget and decreasing the debt. It was a catastrophic failure that stagnated the economy. And that was before they slammed the brakes on with Brexit. By that point our economy was already doing worse than those countries who had taken a different approach.

There’s a reason that in the last few years the Tories resorted to claiming the U.K. had the fastest growing economy in the G7. It hides the fact that even with that, the economy was still in a much worse state than anyone else’s.

Broadly the conservatives are better at managing the economy it seems. You can’t keep spending what you don’t have.

i use the example simply because the op asked to have it explained like she was a five year old. It’s also why the tories used it.