Half of British adults financially at risk

As the wealth divide in Britain deepens, half of all adults in the UK are financially vulnerable, with a growing wealth gap between young and old. Millions are having to resort from friends and family to make ends meet. This is not the view of a left-wing think tank, but of the Financial Conduct Authority.

Financial Lives is the FCA’s largest tracking survey of consumers and their use of financial services, drawing on responses from just under 13,000 UK consumers aged 18 and over. The aim of the survey is to provide the FCA with unique insights into people’s experiences of retail financial products and services. The findings will help the FCA meet its objectives.

The survey collects information about the financial products consumers use and their attitudes to managing their money. It covers their experiences of using financial products and services, as well as their experiences of dealing with the firms that provide them.  The report tells the financial story for six different age groups to show key themes at each life stage, from those 18-24 to those 65 and over.

50 per cent of UK adults (25.6 million) display one or more characteristics that signal their potential vulnerability – they may be at increased risk of harm, or would suffer disproportionately if harm occurred. Potential vulnerability does not mean all people with these characteristics will suffer harm. For all age groups the proportions showing characteristics of vulnerability are around the national average of 50 per cent, except that for those 75 and over the proportions showing vulnerable characteristics are higher:  69 per cent for the 75s and over, and 77 per cent for the 85s and over.

The highest proportion (77 per cent) of those with these characteristics are among the unbanked, and among the unemployed who are looking for work. Women account for the larger number of those with these characteristics, compared with men (46 per cent or 11.7 million), as 53 per cent of UK women (or 13.9 million) are potentially vulnerable.

Looking at the survey results from an age group perspective, the data reveal some interesting characteristics of UK consumers:

• Single parents aged 18-34 are 3 times as likely to use high-cost loans: 17 per cent compared to the UK average of 6 per cent.
• The FCA describe 13 per cent of 25-34 year olds as being in difficulty, because they have missed paying domestic bills or meeting credit commitments in 3 or more of the last 6 months.
• Just 35 per cent of those aged 45-54 have given a great deal of thought as to how they will manage in retirement. Those aged 65 and over are least likely to check if an internet site is secure before giving their bank or credit card details.

There have been rumours circulating about possible measures to be taken in the Budget by the Chancellor to offset the intergenerational divide. The very generous tax reliefs on pensions for contributors of pensionable age could be curtailed. Stamp duty might be eliminated for younger purchasers of cheaper properties. However, arguably these measures are tinkering at the edges.

You can read more about the report here: Financial Lives

Are economic fundamentals strong?

The Chancellor's article in The Times on Wednesday has attracted criticism from Brexiteers, some of whom have argued that he should be sacked (his remarks before the Commons Treasury committee seem to have caused particular offence). I am more interested in his claim that 'the fundamentals of economy are strong'.

We have now had a decade of weak productivity growth which constrains possibilities for increases in real wages. Initially, this could be blamed on labour hoarding after the GFC or impairments in the banking system, but these arguments no longer apply. Indeed, the Office for Budget Responsibility is likely to cut its predictions for productivity growth, posing challenges for the Chancellor's budget judgment: Forecast Evaluation Report

Even economists cannot agree about why productivity performance is so poor. One explanation has been weak business investment since the GFC. Low interest rates have meant that there has been a limited 'shake out' effect of weaker companies, so one does not see the kind of 'batting average' effect on productivity one saw during the Thatcher years.

It may also be the case that it can be more challenging to secure productivity gains in a service oriented economy, although I appreciate that that is a more contentious claim.

It could also be argued that downward pressure on wages and an emphasis on labour flexibility has reinforced low productivity ways of working and attracted relatively unskilled migrant workers. However, it may not be possible to substitute capital for labour in many of the activities they undertake. What is clear is that the answer to the productivity problem is not to be found in further tinkering with the labour market.

If one wants further evidence, the IMF has singled out the UK as a 'notable exception' to an improving global economic outlook, arguing that the negative effects of Brexit are beginning to show. In its twice yearly Economic Outlook, the IMF reduced its UK long-term growth outlook from 1.9 per cent to 1.7 per cent (the long-term trend is in the region of two per cent).

Rodney Bickerstaffe

At the beginning of PMQs today Jeremy Corbyn paid tribute to trade union leader Rodney Bickerstaffe. The prime minister had difficulty in composing an appropriate reply. Indeed, she kept stumbling over her words in at least the early part of PMQs.

I knew Rodney Bickerstaffe through his involvement in the Modern Records Centre of the University of Warwick. Indeed, he was a honorary graduate of the University, although there is no tribute to him on the University website.

Jeremy Corbyn paid tribute today his role in securing the minimum wage, and rightly so. Rodney was well to my left, but we agreed on one thing: the continuing importance of manufacturing industry and the need for that to be reflected in the collections of the MRC which was originally set up primarily to house the records of employers' associations and trade unions (as well as the Crossman diaries).

I well remember his pleasure when we examined together some material we had purchased relating to Victor Grayson, the pioneer Labour MP for Colne Valley who disappeared in circumstances never fully explained. The papers concerned one of his biographers, Reg Groves.

Why markets are broken

The market economy is not functioning as it should because of a lack of competition, according to a report from the Social Market Foundation which styles itself as 'the voice of the radical centre': Lack of competition

The research finds that all too often, the markets that matter most to consumers are concentrated in the hands of a small number of large companies. That’s bad for customers and bad for the wider economy: where companies don’t have to fight hard to win and keep their customers, they face less pressure to reduce prices and to increase quality, to invest and to innovate. In other words, concentrated markets are often uncompetitive. The research also identifies a link between higher levels of market concentration and lower levels of customer service and trust in markets.

It is argued that the UK’s economic status quo is at a critical juncture. Faith in a largely “free market” settlement is increasingly in doubt, as household incomes are squeezed and many fail to see economic growth translating into an improvement in their day-to-day lives.

It is stated that in this environment, it is more important than ever that consumer markets work well and deliver good outcomes for households. If they don’t, markets risk being replaced with state ownership as the electorate loses faith in private enterprise.

Scott Corfe, the SMF's chief economist and author of the study said: 'Consumers and the economy are getting a bad deal because free markets are not free enough. Big companies in sectors such as broadband, mobile telephony and personal banking do not face enough competition. As a result they can charge more and invest less.'

Reports by the Competition and Markets Authority last year found that lack of competition between retail banks costs customers the equivalent of £116 a year each and an investigation into the energy industry found that consumers in Britain were paying £1.7bn a year too much for energy. However, critics said that the changes recommended by the CMA amounted to little more than tinkering and did not address the fundamental problems.

The collapse of Monarch means that there will be less competition for domestic and European flights, pushing up prices and forcing more travellers to rely on Ryanair who treat their customers with contempt.

In principle, vigorous competition policies should be the antidote to excessive concentration, they are certainly the remedy favoured by economists. However, enforcing such policies in practice often leads to legal challenges by big companies which take years to resolve. The EU competition commissioner is doing her best to challenge big hi tech companies in particular, but this will not help the UK in the long run.

I was once asked by an economist colleague why John Major's government had taken no effective action on competition policy. I pointed out that the CBI was back in favour and was lobbying on the issue. Admittedly, the policies were eventually put into effect by New Labour.

However, the problems remain. Too many big businesses treat customers with contempt. Companies do not fear losing their customers and have become lazy fat cats on their profits, basking in the sunshine. Regulation has been inadequate (some think there should be one super regulator rather than sector specific ones). The impression is given that markets benefit the few rather than the many.

Marxists would, of course, say that this represents an inevitable drift towards monopoly capitalism. But a weaker and less supine government might be able to do something effective to tackle the issue.

The murky world of political lobbying

I take a look at this for the Speri blog, arguing that more transparency and tighter regulation is needed; Lobbying

Voicegate

I can feel sympathy for the prime minister, I have had far less important speeches interrupted by a frog in the throat. She may well have been affected by fatigue (26 interviews yesterday) and we have to remember that she is diabetic. However, pity or sympathy is not necessarily what she needs.

The difficulty is that I (and I think others) started to focus on whether she would get to the end of the speech rather than its substantive content. Her opponents were able to start tweeting remarks about 'weak and wobbly'. It didn't help her to get across her theme about reviving 'the British dream', arguing that the left does not have a monopoly on compassion.

The interruption by a prankster/protester (I have seen two names on social media) with a P45 signed by 'Boris Johnson' actually helped her after a rather flat period in her speech with little applause, she was able to turn it to her advantage. She suggested that Jeremy Corbyn should get a P45. The fact that the comedian was able to get so close for so long does raise issues about security.

She also made good use of the provision of a throat pastille by the Chancellor, saying that you do get something for free from him. Amber Rudd (who interviewed well on Radio 5 earlier) had to encourage Boris Johnson to get up for a standing ovation.

What is more significant is a contradiction in the heart of the speech: defending free markets, but then (correctly) identifying so many markets that are broken. Putting a cap on energy prices is a policy that Ed Miliband advocated.

In terms of the broken housing market, one has to ask how it was broken in the first place. Perhaps Mrs Thatcher should have not have sold off so much social housing, although admittedly it was a popular policy.

She said that house builders should 'do their duty' and build the houses, but presumably they are responding to market signals in a market economy.

She started well by getting her apology for the election campaign early, admitting that it was too scripted and too presidential and saying 'I hold my hands up.'

On Brexit, she said that the Government would prepare for every eventuality, suggesting that the 'no deal' option is still on the table.

The fact that the 'f' fell off the slogan behind the platform reinforced the impression of disarray. The activists rallied round her, but they looked rather grim faced. This conference has not revived spirits in the party.

Standing ovation for Bozza

Boris Johnson recalled the challenges he faced as London mayor in his conference speech

Boris Johnson got a standing ovation at the Conservative Party conference in Manchester today. How it will resonate outside the hall is another matter, but in a sense it is the people inside the hall that matter for they and their fellow activists could elect him as prime minister in a future contest.

I am no fan of Boris Johnson, but it was a clever and often (as one would expect) funny speech. He was even able to turn errors in reading his script into jokes. He could not be accused of disloyalty, pledging himself to every syllable of Theresa May's Florence speech, but still managed to carve out a distinctive position. He engaged in a lot of Jeremy Corbyn bashing, but it was his criticisms of his successor as London mayor, Sadiq Khan, that went down best in the hall.

He piled into the mood of pessimism, singling out the Financial Times (and by implication The Economist). His distinctive Brexit narrative centred around the role in the world that a global Britain could play, although in my view that involved some exaggeration of Britain's importance and the extent to which the UK is liked internationally.

His message was that Britain should 'seize the opportunities' of Brexit. No doubt he will seize any opportunity that presents itself of becoming prime minister for ambition is never far below the surface. There is nothing wrong with ambition, provided it is ambition to achieve things beyond personal advancement.

The Tory membership crisis

Tim Bale discusses the Tory membership crisis: ageing, not very representative of the population and not very active. They can't mobilise the troops on the ground in the way that a reinvigorated Labour Party can: Membership crisis

Whether his prescriptions for making things better would help is open to question, not that I could come up with any better ideas. In particular, it is difficult to appeal to younger voters when the market economy is not delivering for them. There is one of those sea changes in the political mood taking place that Jim Callaghan identified in 1979.

Jeremy Corbyn was right to suggest last week that the centre point in the political spectrum is not fixed and can be shifted. Margaret Thatcher tried to shift it to the right, with limited success given that voters had an attachment to the welfare state and in particular to the NHS. She was helped as much by an opposition in disarray as anything else.

What the Conservatives are good at is clinging on to office when the odds are against them. However, they are so divided and Brexit is in such a muddle that even that is open to doubt.

Lobbying: the dark side of politics?

The panel at the CAGE event in Brussels

Last week I gave a presentation on 'Lobbying: the Dark Side of Politics' at the University of Warwick's EU in office in Brussels on behalf of CAGE (Centre for Analysis of Global Economy). My presentation drew on my forthcoming 'Pocket Politics' book for Manchester University Press on the topic.

I started by pointing out that the freedom to associate is at the heart of liberal democracy and the existence of a large number of associations is a sign of a healthy civil society. Autocracies either prohibit such associations or they live a perilous existence.

Lobbies can help to avoid poorly designed policies by giving decision-makers perspectives and information they would not otherwise have, and this is particularly helpful for implementation.

However, it is important to retain a balance, although as someone said in discussion the difficult question is what that balance should be?

One thing that has to be guarded against is big business dominance, although some in discussion thought that the real risk of dominance these days was from hi tech businesses such as Amazon and Google which were almost beyond control, despite the efforts of the EU competition commissioner.

Smaller businesses are an important source of innovation and employment. One discussant argued that they were well organised in Brussels today. However, I discussed the difficulties that the emerging biocontrols industry had faced because of its lack of knowledge and resources compared with established large synthetic chemicals companies.

The need for a pluralistic political balance is one justification for regulation, but it also helps to protect the reputation of the industry. In this connection I discussed the recent Bell Pottinger affair, although that offered an example of successful self-regulation.

In many ways the EU was ahead of the curve in regulating lobbying, although there were still deficiencies. In discussion it was pointed out that there was little regulation of lobbying the Council and the whole 'trilogue' process between Commission, Council and Parliament was opaque.

In order to restore balance, the EU funds NGOs to the tune of €1.2bn in 2015, although much of this was for the delivery of development aid.

Considerable upheaval had been caused earlier in the year by the initiative of Markus Pieper (an EPP MEP from Germany) to reject funding for NGOs that oppose the 'strategic, commercial and social security objectives' of the EU. It was opposed by the Greens and the Social Democrats. The report was shelved and there is to be a special review by the Court of Auditors.

A commentator from the audience wanted to make a distinction between sectoral groups and advocacy groups. However, I think that the categorisation of the former as 'bad' and the latter as 'good' is an over simplification.

The general issues that needed to be borne in mind were:

• The legitimacy of the EU as a democratic polity
• Citizen engagement and confidence in the institutions
• The need for a balanced range of perspectives
• The reputation of lobbying

Citizens reject 'no deal' option

An interesting exercise by the Constitution Unit of UCL in deliberative democracy on post-Brexit options with a cross-section of citizens saw them reject the 'no deal' option just as politicians are reviving it. Their preference was to decouple from the EU with a bespoke deal, but failing that they preferred the UK to remain in the single market.

Full report here: Citizens assembly