Some reasonably cohesive ideas on the UK’s financial system | USAEMALL.com

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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

But first, some brief comments on dynamic pricing. MainFT:

UK ministers plan to probe the use of “dynamic” pricing that has forced up costs for thousands of music fans who struggled to secure tickets for rock band Oasis.

The government will include the practice used by sites such as Ticketmaster in a forthcoming consultation into the ticketing market in the UK, which will be aimed at cracking down on unfair pricing and ticket touts.

In a statement on Sunday night, culture secretary Lisa Nandy said it had been “depressing to see vastly inflated prices excluding ordinary fans from having a chance of enjoying their favourite band live”. 

In case anyone has been rage-baited into thinking this is an area where government intervention is likely to be helpful, consider the following:

— you don’t have to buy Oasis tickets.
— you don’t have a right to get Oasis tickets at a reasonable price.
— a reunion tour directly following Noel Gallagher’s divorce may not have artistic reach and equity as its key aims.

Unrelatedly, but also on some levels utterly relatedly, here are some illustrative recent headlines concerning the UK:

— Keir Starmer ‘doom and gloom’ may go too far, some Labour MPs fear (1 September, BBC News)
— ‘We are in danger of being the doom and gloom government’: can Starmer’s hardline strategy actually work? (1 September, The Guardian)
— Keir Starmer is determined to make us miserable (26 August, The i paper)

Peel Hunt’s Kallum Pickering (formerly of Berenberg) wrote about The Gloom last week. Here are some extracts:

While it is normal for a new government to emphasise bad news early on as a way to provide cover for unpopular policy decisions, it is no longer clear whether Starmer’s hawkish tones are standard political theatrics or a genuine shift in policy direction…

— The gloomy narrative is at odds with the prevailing economic backdrop. Private sector balance sheets are healthy, labour markets are strong, and UK economic growth in the first half of the year was the strongest in the G7. Reacting to the improving economic situation, consumer and business expectations are recovering nicely. The government should be trying to nurture these green shoots of growth. Instead, its overly downbeat commentary may undermine confidence and frighten consumers and businesses into needless caution…

— While the government’s warnings of a potential fiscal tightening pose modest downside risks to growth, we remain optimistic in our medium-term assessment for the UK economy. Governments can be heavy-handed at times and misjudge policies – that is par for the course. For now, the overriding political theme remains that populism is over in the UK and that the major parties have returned to the centre – this is positive for UK businesses and financial markets and keeps the door open for solid growth.

Now is as good a time as any to reiterate the elephant that follows Chancellor Rachel Reeves into every room she enters: the UK’s fiscal rules, which she has chosen to maintain, are deeply stupid and harmful. This is gloom by choice.*

Nonetheless, we’re getting into black holes, which means tax hikes are looming. Which means people are trying to get ahead of the tax hikes, which means the tax take is probably increasing. Barclays’ Jack Meaning and Abbas Khan:

On tax, the most obvious lever would be to increase capital gains tax (CGT). A plausible change, would be to align the rates on CGT with income tax rates, but introduce an indexation allowance, which could raise high-single digit billions of pounds and would only affect the roughly 3% of the population who are subject to CGT. However, there is some evidence that the threat of this change is leading to asset holders preemptively selling assets, which would lower the saving in later periods but could, perversely, improve the fiscal position going into the budget by raising revenue. From a macroeconomic point of view, it is worth noting that our own forecast multipliers would imply that such a CGT change would lower the level of real GDP by 0.06%, making little difference to our growth forecast — less than the 0.1% reduction in the level of real GDP that would be implied by the discussed cuts to government consumption.

Citi has provided a useful cut-out-and-keep table:

One irony in all this is that — despite the implication of difficult choices being made — the black hole may actually be plugged by a fairly large increase in UK government borrowing . As NatWest’s Imogen Bachra points out, increased taxes won’t be able to balance the books quickly enough:

Whilst there has been growing attention on the fiscal “black hole” in the media in recent weeks and the potential tax rises that will be required to fill that, we think the market is potentially overstating the extent to which any tax rises will be able to fill a deficit this fiscal year.

The poor starting point (with CGNCR – the number which forms the basis for gilt issuance – already overshooting by £13bn just one-third of the way through the fiscal year) combines with other factors to present significant upside risks to the borrowing projections. Namely from above-inflation public sector pay rises, a somewhat weaker-than-expected tax take despite better-than-expected growth and compensation costs related to the infected blood inquiry. Latest data released last week also shows that take-up in NS&I is below the run-rate required to meet a £9bn funding forecast.

She adds:

The biggest risks to any further sell-off in gilt yields stems for global, rather than domestic, factors.

Here, via Citi’s Ben Nabarro — from a note released just after the latest public borrowing figures a fortnight ago — is another reason why things aren’t going as well as Reeves have have hoped (our emphasis):

The PSNB overshoot year to date currently stands at £3.2bn. At this point in the fiscal year, CGNCR tends to provide a more reliable steer on the state of the public finances. This morning these data showed the central cash requirement increasing to £29.6bn, versus the OBR’s forecast of £26.2bn. Cumulatively, the overshoot year to date now stands at £12.9bn. Current public consumption, on the accrued measures, is currently running £5.8bn above forecast, although investment remains well below. However, cash tax receipts also seem to be undershooting, reflecting the compositional weakness in the recent pickup in growth. Year-to-date receipts here have undershot on £1.8bn, including £1.2bn and £1.3bn undershoots in both self-assessed income tax receipts and VAT…

In terms of what this means in the run-in to the autumn, we think the main implication is that stronger growth is of course not translating into more fiscal headroom. Instead the recovery – which is concentrated in business to business and investment-focused sectors – is proving inefficient from a tax perspective. Revenue intensive consumption, by contrast, is struggling to get going. We think that leaves the Chancellor with some unenviable choices come the autumn.

One must imagine the UK gangly: in a pubescent sort of way, the economy is growing but in ways it hasn’t yet mastered. But to extend this terrible metaphor, it’s better to grow in a tax-inefficient way, and hope that things eventually improve, than to not grow at all. But at least there’s something to be somewhat happy about.

*blah blah blah the national media blah blah blah manufacturing consent blah blah blah we live in a society etc