Andrew Lilico

Monday

23 May 2016
Andrew Lilico

The Treasury’s Brexit short-term impacts analysis: A bit high, a lot political

The Treasury's analysis of the short-term impact of Brexit offers us two scenarios for the two years following the referendum: a base ‘shock’ and a ‘severe shock’ scenario. The base case means 3.6pc less economic growth in the two years following Brexit, with inflation up 2.3 percentage points and house prices down 10pc. A first thing to grasp is the connection between the scenarios in this report and those in the previous Treasury report on the longer-term impact of Brexit. In its long-term impacts, the Treasury had three scenarios, for each of three options it claimed the UK had for its trade arrangements post-Brexit (all of which were very unlikely): an ‘EEA’ option; a ‘Canada’ option (the base case); and a ‘WTO’ option.

The Treasury’s Brexit short-term impacts analysis: A bit high, a lot political

Monday

14 Dec 2015
Andrew Lilico

Jobs miracle or low-pay disaster? Andrew Lilico and David Blanchflower debate

Dear David, From Q2 1979 to Q1 1981, quarterly real GDP fell in the UK by 5.5%. Unemployment rose rapidly, from 1.4m in Q2 1979 to 2.4m by the end of the recession, then continued rising through to its peak of 3.3m in 1984 – 12% of the workforce. Unemployment stayed above 3m for 51 straight months. This is the pattern economists expect in a serious recession. Unemployment rises, then stays persistently high, falling back only well into the recovery. It has also been the experience of much of the developed world since the Great Recession of 2008/09. So, for example, whereas US unemployment was below 5% in 2007, it rose to about 10% in 2010, falling back only gradually over several years thereafter. Similarly, in Spain unemployment rose from 8.

Jobs miracle or low-pay disaster? Andrew Lilico and David Blanchflower debate

Monday

23 Dec 2013
Andrew Lilico

We don’t want equal oppression for all, so stop attacking M&S

Lots of brouhaha the past few days about the apparent M&S policy (later back-tracked upon) of allowing Muslim staff not to serve pork or alcohol.  Why, though?  M&S presumably has orthodox Jewish staff whom it does not insist must work on Saturdays?  Why would we be any more outraged if it let some staff not serve booze? Obviously such an accommodation could be done poorly.  If there’s one thing certain to rile a Briton it’s a violation of queuing etiquette, and making someone stand in a queue only to discover at the end that you’d have to queue again at another counter just because the person at the desk didn’t want to touch your goods would be quite out of order.  That could obviously be worked around by having other staff available to stand in, but perhaps then the staff member that refused to sell certain items ought to be paid less, since doing less in the job, otherwise other staff might think it unfair.

We don’t want equal oppression for all, so stop attacking M&S

Tuesday

19 Oct 2010
Andrew Lilico

The day of reckoning draws near

Tomorrow we finally move from generalities to specifics.  No need to argue any more about whether the losers will be up in arms or will it all be a damp squib.  Tomorrow we get the gory detail. At the time of the Emergency Budget we were told to expect cuts in non-ring-fenced departments of 25 percent.  Then we heard that departments had been asked to provide scenarios for 25 percent and 40 percent cuts.  That was always going to be necessary because Defence and Education (the two largest departments apart from the ring-fenced Health) weren’t ever going to be cut by that much.  After today’s Strategic Defence and Security Review, we now know that Defence is being cut by 8 percent (through measures such as delaying Trident and not equipping the new aircraft carriers with planes).

The day of reckoning draws near

Thursday

27 May 2010
Andrew Lilico

Nearing the precipice?

Recent events in the Eurozone have led a number of commentators to suggest that we are nearing some repeat of the financial crisis that followed the nationalisation of Fannie Mae and Freddie Mac in August 2008 and the subsequent (and consequent) bankruptcy of Lehman's. In my view, the current situation is rather different from that in 2008, but matters could turn out much worse. Our situation is not like 2008 (yet) because: - not such a high proportion of AAA securities has been reduced to junk status - there are now slightly more robust resolution regimes in place for banks - banks have a bit more liquidity - US and UK banks have a bit more capital (notionally) However, it could turn out much worse than 2008 did because: - European banks have their undeclared subprime losses PLUS their sovereign debt losses - Rich countries have exhausted their taxpayer willingness to bail out banks - Poor countries have exhausted their solvency capacity to bail out banks - Both sets of countries nonetheless have implicitly or explicitly backed their banking sectors, so bank defaults will be quasi-sovereign defaults - There’s no money left for fiscal measures to smooth the path of transition if the banks go under - There’s not much scope for additional QE without really risking hyperinflation Thus, if the balloon goes up this time, it really goes up – the authorities mishandled and over-committed so badly in 2008 that a collapse of the banking sector this time could well mean the "Great Depression squared" scenario long feared (when in 2008 that wouldn’t have happened).

Nearing the precipice?

Monday

24 May 2010
Andrew Lilico

Undoing the spending of the last government

In the table below, we consider how the budgets of various departments grew over the last Labour government. It spells out the very large rises in Health and Education (together, the rises in these two departments accounted for 61 percent of the total rise in departmental expenditure over the period). And we can see that other departments, such the Foreign Office, experienced cuts. Then, in the later columns, we consider what percentage falls today’s cuts represent and what proportion of the total rises since 2004/5 they undo.  We see that the largest cuts fall on CLG communities, down by 7.3 percent, reversing 74 percent of the rises over the last Parliament.  Other departments experiencing cuts of 5 percent or more include Transport (reversing 65 percent of the rises since 2004/5), Work and Pensions (reversing 90 percent of the previous rises), and Environment, Food and Rural Affairs (which experienced a 5.

Undoing the spending of the last government

Monday

25 Jan 2010
Andrew Lilico

Here’s how you raise £100bn through tax hikes

Policy Exchange has repeatedly urged that the country’s fiscal problems should be addressed principally by spending cuts, combined with some tax rises.  We have recommended a ratio of 80 percent spending cuts to 20 percent tax rises. The “structural” deficit in the UK (i.e. the bit of the total deficit that will still be there once the economy has recovered) is estimated by the Treasury at 9 percent of GDP, or about £125 billion.  Not all of that needs to be eliminated quickly, but the vast majority of it does, say £100 billion.  So on a ratio of 80:20 our position equates to £80 billion in cuts in underlying spending (spending that isn’t the direct result of the recession) and about £20 billion in tax rises.   The government has already committed itself (albeit without any real detail) to about £38 billion in spending cuts and £19 billion in tax rises.

Tuesday

13 Oct 2009

Thursday

4 Jun 2009
Andrew Lilico

Brown’s second spending spree

Public spending is currently accelerating at an unprecedented pace — more swiftly, even, that during the total loss of control during the 1970s.  Spending is due to rise £120bn, 20%, in just three years from 2007/8 to 2010/11, taking it from 41% of GDP to above 50% — a much more rapid rise than in other parts of the world, lifting us from well below the EU average to well above.   The considerable majority of this rise is not the automatic result of the recession (extra unemployment benefits, etc.) – only 38% takes this form.  Neither is it any kind of “public works” programme – only 6% is extra capital spending.  Instead, the vast majority is extra consumption spending.  Many economists might support increasing spending during a recession.

Brown’s second spending spree
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