Letter from Great Britain – 06-13-20

“The Financial Jigsaw” has been serialised here and now is replaced by this weekly “Letter from Great Britain.”

NOTE – If anyone would like an electronic copy of the complete book, I should be pleased to email a free PDF on request to: [email protected].

One website about the UK is always worth reading because the author, Dr Richard North, is an experienced health professional and provides useful information on a daily basis.  http://eureferendum.com/

The primary reason we now face a second Great Depression is because the small business sector across the western world has been destroyed.  Small businesses are vital to all economies, representing in the USA and UK around 50% of the job market. The closures in USA have already resulted in around 40 million job losses in the past two months.  Add that to the 95 million Americans that have been out of work but not counted by the BLS as unemployed – as well as the 11 million people that are counted – and you are looking at nearly 150 million working age people not generating an income.

[AND don’t forget that there are confusing anomalies in this week’s euphoria in the US employment numbers.  Everybody seems to have forgotten about the PPP loans.  20 million private sector “employees” went from unemployed and collecting unemployment benefits, to employed and getting paid with PPP loans/grants, so are now being paid by the US Government via these PPP loans (just started being doled out in May), and being reported as “employed” (whether they are working or not).  Without the PPP loans, those 20 million “employed” would go “poof” and become unemployed.]

In the UK we have a similar distortion as 8 million workers are being keep in employment through the government ‘furlough’ scheme paying their wages (at up to £2,500/mth) and thus not ‘unemployed’ – it’s all smoke and mirrors.

The number of UK workers claiming unemployment benefits increased by the most since records began in April to reach almost 2.1 million, according to official figures capturing the onset of the coronavirus crisis.  Here is a recent short article describing the circumstances as of date:

https://www.theguardian.com/business/2020/jun/12/britains-gdp-falls-204-in-april-as-economy-is-paralysed-by-lockdown

In a reflection of mounting job losses across the country, the Office for National Statistics (ONS) said about 856,500 people signed up for universal credit and jobseeker’s allowance benefits in April, driving up the overall UK claimant count by 69% in a single month.

The surge marked the biggest monthly increase since comparable records began in the early 1970s, while the overall number of people claiming benefits due to unemployment has risen above 2 million for the first time since 1996.

Economists said the dramatic increase in unemployment would have been much higher without the government’s emergency wage subsidy scheme. About 8m jobs have been protected at about 1m companies in the opening weeks of the programme, in which the government pays 80% of workers’ wages up to £2,500 per month. The ONS does not count furloughed workers as unemployed.

Unemployment is expected to steadily climb in the coming months as Britain grapples with the deepest recession in more than three centuries, while the Treasury has also been warned the gradual winding down of its emergency support from August could trigger a fresh wave of job losses.

Tej Parikh, the chief economist at the Institute of Directors, said: “While furloughing is holding off some job losses for now, it’s not yet clear how firms will react as the scheme changes in August and as social distancing continues.”

“Many companies will still be in the middle of a cashflow crisis, and will struggle with any cost increases. Government faces an onerous task in winding down the scheme without causing too much pain.”

The ONS cautioned that the increased number of people claiming benefits may not be as a direct consequence of unemployment, as the government had expanded eligibility for universal credit in response to Covid-19.

However, the first official attempts to gauge the economic fallout showed the number of employees on company payrolls plunged by 450,000 at the start of April as staff were let go and hiring ceased. The number of vacancies posted by companies looking for new staff also halved.

The Institute for Employment Studies warned unemployment was rising fastest in parts of Britain that were already worst off.  It said one in nine residents in Blackpool (11%) are claiming unemployment benefits, up from 7% in March. The number of claims increased most in the north of England and Northern Ireland, and rose the least in the South-east and the east of England.

Tony Wilson, director of the think-tank, said the snapshot probably understated the severity of the crisis as it counted claims up until 9 April. “In reality, unemployment today is likely to already be close to 3 million,” he added.

Government statisticians said the official jobs market figures were yet to catch up with the economy effectively grinding to a halt, after the launch of the nationwide lockdown on 23 March.  Providing a snapshot of the jobs market before Covid-19 struck, the ONS headline unemployment metric fell slightly to 3.9% in the three months to March, marking the lowest level of unemployment since the mid-1970s. The percentage of people in work also reached a joint-record high.

However, early estimates suggested the number of hours worked in Britain fell sharply in the last two weeks of March after restrictions came in, with the amount of time spent working plunging to about 25% below normal levels.

Jonathan Athow, the deputy national statistician at the ONS, said: “This is a huge fall, and evidence of employers either putting staff on furlough and/or cutting the hours of those still working.”  He said the sectors with the biggest fall in hours worked were hotels, restaurants and construction, which had recorded the biggest declines in economic activity. Healthcare hours were broadly unchanged.

In a signal of the looming damage for workers’ pay packets, government statisticians said annual wage growth slowed to 1.5% in March, the lowest rate in almost six years. Economists warned there would probably be an outright decline in average earnings within months.  Following one of the weakest recoveries in history from the 2008 financial crisis, average wage packets after inflation only returned to 2007 levels at the end of 2019, marking 12 years without progress for workers.

My friend, Dr Tim Morgan, has published a detailed analysis of projected incomes going forward (which he calls ‘prosperity’) using his own SEEDS modelling system and which I used when writing my book, ‘The Financial Jigsaw’.  Worth a read:

https://surplusenergyeconomics.wordpress.com/2020/06/07/173-the-affordability-crisis/

Now that UK has left EUROPE I will comment on relevant EU – UK events as they arise:

A tricky part of the Brexit negotiations concerns the fishing industry and is likely to cause problems for the combatants.  This article explains the details and what is the likely outcome.  A no-deal Brexit of course solves this one:

Fishing is a drop in the ocean of the UK economy (just 0.12% of economic output) but has become one of the most intractable issues of the Brexit talks. The reasons boil down to history, geography and politics. More than 100 categories of fish straddle EU-UK waters. Securing greater British control of these fish was a big promise of the 2016 Brexit campaign, one repeated by Boris Johnson ahead of his 2019 election victory.

But the EU has eight member states with a lot to lose, including Belgium, Denmark and Germany, who say they can trace their exploits fishing in British waters back hundreds of years.

So what does the UK want?  More fish is the short answer. The government believes the deal agreed on British entry into the European Economic Community in 1973 was unfair and needs to be unpicked.  That agreement – later enshrined in the common fisheries policy (CFP) – is based on historic catches. The result is that EU-based fleets land about eight times as much fish in UK waters as British fishermen do in EU waters, according to UK government data.

The UK wants to agree annual quotas with the EU based on the principle of “zonal attachment”, meaning agreeing shares based on the percentage of fish inside each side’s exclusive economic zone (a 200-mile area round the shore). British officials argue that this system would be fairer, more scientific and is already used by the EU in its annual quota-setting talks with Norway.

https://www.theguardian.com/politics/2020/jun/02/wheres-the-catch-in-the-brexit-fishing-talks

To be continued next week.

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Author: Austrian Peter

Peter J. Underwood is a retired international accountant and qualified humanistic counsellor living in Bruton, UK, with his wife, Yvonne. He pursued a career as an entrepreneur and business consultant, having founded several successful businesses in the UK and South Africa His latest Substack blog describes the African concept of Ubuntu - a system of localised community support using a gift economy model. View all posts by Austrian Peter