Business

The government has been told to stop neglecting London’s trains if the UK wants to boost its status as a global trading hub. London’s transport network needs to be “properly funded” if the City is to boost the government’s global trade agenda, said Catherine McGuinness, chair of the City of London Cooperation. The city, as the country’s most important services’ hub, needs infrastructure that is “not in decline, managed or otherwise” she added, speaking at a trade conference organized by the Centre for Policy Studies at London’s Guildhall on Monday.Her remarks follow an interview with London’s transport commissioner, Andy Byfold, with the Observer on Sunday, in which he warned that unless fresh investment is agreed, the capital is “staring into the abyss”. “The negative route, the danger we face, is a managed decline, Mr Byfold said.Ms McGuinness also noted that much of the government’s rhetoric has focused on the quick wins from liberalising trade in goods by cutting tariffs with free trade deals. City leaders, including Ms McGuinness, called on the government to do more to boost trade in services, which is often poorly served by too great a focus on Free Trade Agreements. This approach, they say, does not reflect the UK’s economic strengths as a services-heavy economy. The sector accounts for around 80 per cent of GDP, and employs more than two million workers. Yet the UK’s most economically significant bilateral trade agreement, the EU-UK trade and cooperation agreement, provides relatively weak provisions for services. The impact of Brexit on services’ trade is not yet clear, in part as it is harder to measure than that in goods.Compared to goods’ focused deals, trade in services is often more challenging, Ms McGuinness said, because of regulatory barriers. It therefore demands intense “regulatory dialogue” including side routes like memorandums of understanding and regulatory forums. The remarks have particular significance post-Brexit, as the UK still lacks an effective regulatory forum with one of its biggest markets for financial services exports, the EU. A memorandum of understanding has yet to be formally agreed and signed between the two parties. Proposals made by Brussels also indicate that it plans to crack down on cross-border activity, including banks serving EU clients from London.Meanwhile, the UK should “be worried” about the future of the multilateral trading system, said Peter Mandelson, a former trade commissioner to the EU. “China has been adept at spotting and exploiting gaps” in the WTO rulebook, Mr Mandelson said. But it is not the only country to “play fast and loose” with the WTO’s rules. The system needs repair and improvement, he added.The comments came after the trade secretary, Anne-Marie Trevelyan, told City leaders that the UK must prepare for a shift in “global economic gravity” towards Asia.The trade secretary said: “The seven largest emerging economies are projected to surpass the economic size of the G7 during the 2030s.“Between 2019 and 2050, more than half of global growth is expected tom come from the Indo-Pacific,” she added. The UK has already started the process of joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). And talks are also expected to begin “in the months ahead” with the Gulf Cooperation Council which includes Saudi Arabia. Trade talks with India are expected to begin early in 2022. More

The UK’s most vulnerable families and pensioners face an 18-month-long squeeze on incomes as benefits fail to keep pace with a surge in the cost of living, economists have warned. The speed of price growth is set to peak at close to 5 per cent in spring next year and remain high for the next two years according to the Bank of England and government spending watchdog, the Office for Budget Responsibility. It means people on benefits will have to wait for the lagging state pension and universal credit to catch up with surging inflation. As pressure grows on the chancellor to ease the burden, Baroness Altmann, Conservative peer and former pensions minister, said the pressure would be felt disproportionately by the less well-off.“I do worry that the lives of older people who don’t have huge wealth don’t seem to matter,” she told The Independent. “Policies have been introduced that seem to favour those older people who are already well-off and have taken money away from those who can least afford it.”She added that pensioners were especially exposed to inflation, as poorer retired people spend a greater share of their income on “basic essentials” which have shot up in price.This year, the 3.1 per cent increase in benefits planned for next spring is in line with the consumer price index’s (CPI) reading in September, despite the most recent data for October showing that inflation was at 4.2 per cent. This now is also the case for the state pension, after the government said it would break the so-called triple lock, which would have increased it by whichever was highest out of earnings, inflation or 2.5 per cent. Mr Sunak has been urged to use part of the saving made from cutting the £20-per-week universal credit uplift to address the energy-induced crisis in the cost of living. Mike Brewer, chief economist and deputy chief executive of the Resolution Foundation, said: “He could spend some of the money he saved from £20-per-week on energy-specific measures, whether that be the warm homes discount or cold weather payments.“We’re also in a for a year or several months of stagnating real wages too.”Guaranteeing the triple lock was a key Conservative manifesto pledge, but was put on hold in September for a year.Analysis by the Liberal Democrats suggests the move could leave pensioners £2.6bn poorer in real terms next year if the Bank of England’s forecasts for the rate of price growth prove correct, meaning that those on the basic state pension will be £208 a year worse off, while those on the new state pension will be £273 worse off.Households have already faced months of rising costs and near-stagnant benefits. The inflation-linked increase to universal credit and some other benefits was 0.5 per cent, far below the rate experienced by households in the 12 months to October.And a slowdown in wage growth throughout 2022 is expected to only be a growing problem for Rishi Sunak, according to the Resolution Foundation. Even in-work households who draw on benefits will feel a squeeze on their budgets through to next winter, as inflation eats through pay growth.Added to this sorry picture is rising energy bills, said Mr Brewer, with soaring gas prices being one of the biggest drivers in price growth in recent months. They are set to continue to push up households’ costs. The energy price cap, designed to limit the level at which energy providers can increase bills, could rise by as much as 30 per cent in April next year, according to analysts at research company Cornwall Insight.Labour’s shadow work and pensions secretary Jonathan Reynolds told The Independent: “This Conservative-made cost of living crisis is set to hammer those who can least afford it. “The government’s actions should be making life easier, not harder for people this winter, yet instead they have pressed ahead with universal credit cuts, tax hikes and a broken promise on the pensions triple lock. Labour would ease the burden by cutting VAT on energy bills to bring bills down immediately.”Jonathan Cribb, senior research economist at the Institute for Fiscal Studies told The Independent that the crisis will just “get harder if inflation climbs further”.Unexpected inflation spikes are particularly bad for those on fixed incomes, he added. The chancellor said in response to Wednesday’s inflation rise that many countries were experiencing higher inflation, and that the government was helping people to improve job prospects by allowing universal credit recipients to earn more money before losing some of their benefits. “We are also providing more immediate support, including through the £500m household support fund for the most vulnerable families, fuel and alcohol duty freezes, and the energy price cap,” Mr Sunak said. More

Children and young people face becoming a lost generation due to rising education inequality, high taxes and climbing house prices, leading economists have warned.Analysis shows that, despite spending touted in Rishi Sunak’s Budget on education and childcare, those in further education over the next three years will face funding that is still 10 per cent lower than it was in 2010.Tax hikes introduced by the chancellor will also disproportionately hit younger people as they target work over wealth. Cohorts entering the jobs market will also face stagnant pay packets, with wages which are 40 per cent lower than predicted before the financial crash of 2008. They face the highest tax burden as a percentage of GDP since 1950 by 2026, equivalent to £3,000 per household even as inflation may reach 5 per cent next year.Kate Green, the shadow education secretary, told The Independent: “The chancellor has got the wrong priorities and young people are paying the price for it.“This is a Budget that will leave millions of families on lower incomes worse off, fails to match the scale of the education recovery challenge with the funding the government’s own catch-up commissioner Sir Kevan Collins said was needed, and still leaves sixth forms and colleges with less funding than they had more than a decade ago,” she added.Weak pay growth comes as younger people also face higher property prices. According to the Office for National Statistics the average UK house price was £25,000 higher in August than a year earlier, at a time of low interest rates and after the government cut stamp duty – a move widely criticised for further inflating the market.Economists said Mr Sunak had chosen to back measures that would have less of an impact on elder generations rather than those that would hit all ages equally.“In the autumn 2021 Budget, it’s notable that extra public spending is concentrated on health and social care for older people,” said Lord Willetts, president of the Resolution Foundation’s Intergenerational Centre.“We do have an obligation to older generations, but we need to do more for younger people as well,” he added.Funding for sixth form colleges will still be 10 per cent lower in real terms than in 2009-10 by 2024, when accounting for inflation, even as evidence suggests starkly deepening educational gaps between children and young people from wealthier and poorer backgrounds.Overall, the total allocation for schools’ Covid recovery in the budget amounted to £4.9bn. This was less than a third of the total requested by former government education tsar Sir Kevan, who resigned his post in June over dissatisfaction with the catch-up funding offered by the Treasury.In response to the Budget, the education expert wrote in The Times, that it was a “surrender” in the effort to recover lost learning. “The short-term saving offered by a limited recovery programme will be dwarfed by the long-term cost of successive cohorts leaving education with lower skills, an effect that will be most apparent in our poorest communities,” Sir Kevan added. The Budget “represents a false economy and a step towards a less equal society”.Older students were particularly poorly catered for in the budget, according to the IFS.“Spending per student in further education and sixth form colleges will remain well below 2010 levels. This is not a set of priorities which looks consistent with a long-term growth strategy,” director Paul Johnson said.Younger people were also hit harder than elders with higher taxation, despite the new health and social care levy, which aims to raise £12bn per year to address the pressures of an ageing population.“Both NICS [the health and social care levy] and changes to the personal allowance and higher rate threshold will affect younger people who are working rather than pensioners who are out of work,” said Xiaowei Xu, a senior research economist at the IFS. “The chancellor could have chosen to raise something like council tax that would have linked to homeowners and therefore linked to pensioners as well,” she added.While there was a clear need to increase funding for the NHS and social care, the chancellor needed to reconsider how much support he was offering younger people, economists said.The announcement of the increases to national insurance contributions, which will become a health and social care levy, came several weeks ahead of the Budget. The major tax increase was criticised at the time as being a tax on the working age population, rather than those most likely to be using social care services for age-related needs.The Budget was also criticised for falling short on childcare provisions. It also offered an increase in benefits only to those universal credit recipients who can work, as opposed to those who may need to care for their children full time. Children in those households will be, in relative terms, worse off even after changes to the national living wage and the universal credit taper.Shadow chancellor Rachel Reeves described the Budget as “hammering working people, while giving banks a tax cut”.“The Tories have no plan to tackle the cost-of-living crisis, no plan to shift the unfair taxes they’ve hit working people with and no plan for growth,” she said.Low interest rates have also fuelled higher asset prices in recent years, making it harder for younger workers to get on the housing ladder. “We have a continued period of significantly negative real interest rates, probably therefore continued high levels of asset prices and very poor levels of earnings growth, all of which tends to favour those who are older and wealthier relative to those who are younger and less wealthy,” Mr Johnson said.A Treasury spokesperson, said: “This Budget means billions of pounds to deliver the priorities of the British people by investing in stronger public services, including our education system, levelling up opportunity, driving business growth and helping working families with the cost of living.“It makes work pay by cutting the universal credit taper rate from 63p to 55p, and raising the national living wage by 6.6 per cent to £9.50 an hour in April 2022, which the Low Pay Commission estimate will benefit 2 million workers. And we ensured our action to fund health and social care announced in September applied fairly across generations by extending the health and social care levy to apply to those working over state pension age.” More