Posts Tagged ‘Office for National Statistics’


April was a good month for bonuses. The reason is not hard to see. The upper tax rate was cut from 50 to 45 per cent in April so a lot of bonuses were deferred from the previous financial year. In all, April saw no less than £4.2 billion paid out in bonuses; that was £1.7 billion up on last year.

Not bad.

Of the total amount paid out, the finance industry saw £1.3 billion. The ‘FT’ reckons that by deferring bonuses in this way, roughly £35 million was saved in tax.

But this begs the question: did the cut in income taxes just impact upon the timing of the bonuses, or, as a result of the lower tax rates, did companies choose to pay out higher bonuses?

The government reckons that by cutting the top tax rate, pay awards will rise, and its tax receipts will increase too. Economic theory has a name for it. It is called the Laffer curve. If the tax rate was say 100 per cent, in a free society no one would bother to work, and tax receipts would be zero. If the tax rate was zero, tax receipts would also be zero. So the government has to find the optimal level.

The current government seems to be saying that level is less than 45 per cent. Is that right?

© Investment & Business News 2013

The rich get richer and the poor get poorer. It sucks, but that is the way of the world. At least that is what most of us assume, but data from the ONS out this week suggests this may be wrong.

Since the start of the economic downturn in 2007/8 the richest 20 per cent of households have seen disposable income fall by 6.8 per cent, the poorest 20 per cent have seen income rise by 6.9 per cent.

It is important that we point out what we mean by disposable income at this point – it’s after taxes and benefits. The ONS has included VAT in the equation, by the way.

In 2011/12 the richest 20 per cent – before taxes and benefits – enjoyed income of £78,300, which is 14 times greater than the poorest fifth, which had an average income of £5,400. That is a ratio of 14 to one.

But take into account taxes and benefits and things look different – very different. The top 20 per cent saw disposable income fall to £57,300, while the bottom 20 per cent saw it rise to £15,800. The ratio changes to just four to one.

So what a bunch of socialists the government of the last few years has been. Except they haven’t really.

For one thing, the data does not tell the full story. It does not tell us about average income in the top 1 per cent quartile.

Besides if you drill down, things look different. If you look over a much longer time period, say from 1977, a quite different picture emerges. Since 1977, disposable income for the bottom 20 per cent has risen by 1.93 per cent, and by 2.49 per cent for the top 20 per cent.

There is in any case a more noticeable gap between the top 20 per cent and the rest of the population.

Average disposable income for the second poorest 20 per cent was £21,373 in the last financial year, or 1.35 times more than the first 20 per cent. Average disposable income for the middle 20 per cent was £27,526, or 1.29 times the average for the second poorest. Average disposable income for the second richest 20 per cent was £34,437, or 1.25 times the average for the middle 20 per cent. And average disposable income for the richest 20 per cent was 1.66 times the second richest.

But then again, so what? Don’t the rules of numbers mean that the average of the top 20 per cent will always be much higher than everyone else for the simple reason there is no upper limit to the top 20 per cent. The lowest disposable income can be is zero, the highest is… well, it’s infinite. Instead let’s look at how things have changed.

Equivalised disposable income, by the way, means: “The total income of a household, after tax and other deductions, that is available for spending or saving, divided by the number of household members converted into equalised adults; household members are equalised or made equivalent by weighting each according to their age, using the so-called modified OECD equivalence scale.” See: Glossary: Equivalised disposable income

And by the way just one more point. The proportion of people in the bottom 20 per cent who are retired has fallen over this time period. . This is because retired households have seen incomes growing at a faster rate than those of non-retired households.

© Investment & Business News 2013

“The recovery is based on shaky foundations,” said Capital Economics in its analysis of the latest data on UK GDP. The good news, according to our beloved compiler of statistics otherwise known as the ONS, is that the UK never did have a double dip recession after all. The bad news? Well, there’s lots of that.

Do you remember Norman Lamont? Poor old Norm! He said he could see signs of green shoots. The media, with stats to back them up, had a jolly good laugh at the then chancellor’s expense. Subsequent data showed that Mr Lamont was right, but by then no one cared.

When data out last year revealed that the UK was back in recession, people cared a great deal. At one point, the ONS had the UK contracting by 0.4 per cent in Q4 2011 and by 0.3 per cent in Q1 2012. So that was two quarters of contraction; woe was up, the UK was in recession. The ONS had the UK contracting in Q2 2012 too, but that is a different story.

Since then the ONS has revised its data, and then revised it some more, and in its latest revision of revision of revision it is now saying that the UK was in fact flat – that is to say growth was zero per cent between Q4 2011 and Q1 2012. So there was no double dip. It also decided that the recession of 2008/09 was worse than it previously estimated, with the UK contracting by 7.2 per cent instead of by 6.3 per cent as it previously estimated.

The news on the latest quarter was okay, but not so good when you drill down. It also has current GDP 3.9 per cent below the pre finance crisis peak, whereas it previously had GDP 2.6 per cent less than peak.

The ONS still reckons the UK expanded by 0.3 per cent in Q1 this year, however. But it recorded a 1.9 per cent drop in business investment, despite a 4.9 per cent rise in company profits. In other words, companies are not investing their profits. Household incomes were 1.7 per cent less in Q1 than in Q4 2012, which does rather beg the question: if incomes were less and investment down, how did growth occur? The answer lies in savings – or rather lack of them. The ONS reckons households’ saving ratio has fallen from 5.9 per cent in Q4 2012, to 4.2 per cent in Q1 2013. So can that last, and indeed do we want it to?

The UK economy needs its households to spend more and save less. But common sense dictates that households need to save more. The answer lies in households saving more, and the money saved being used to fund investment. But as the fall in business investment shows, this has not happened.

Here is an idea: why doesn’t the government borrow from these savings, and invest the money? Well, if it did it would become a Keynesian government, and we wouldn’t want that, would we?

© Investment & Business News 2013

What will you be doing when you are over 65, assuming that is that you are not already over that age? Do you think you will still be working? Now forward wind the clock. Let’s for the sake of argument say the date is 2035, meaning that if you are 43 today, you will be passing the 65 mark. What will things look like then?

This is perhaps the single most important underlying force at the work in the UK economy today. It may determine future growth, future prosperity, or indeed poverty. Understand this, and you are closer to understanding what is really going on beneath the surface.

According to the Office of National Statistics (ONS), between February and April this year just over one million people over the age of 65 were in work. It was the first time ever that this number topped the million mark. The ONS says the rise in the number of over-65’s working is partly down to more people staying on at work and also more people of this age group in the population.

So let’s drill down a little. In April 1992, 478,000 over-65’s were working. That was 94.2 of the population of this group. By April 2000, not a lot had changed. 457,000 over-65’s were working, or 94.7 per cent of the population of this age group. Throughout the noughties things did change, however, and by quite a lot. Between 2000 and 2013 the number of over-65’s in the UK leapt from around 480,000 to about 1.1 million. During that same period the percentage over 65 who were working rose from just over 5 per cent, to a fraction less than 10 per cent.

In 2013, the proportion of the UK population over 65 is around 16.5 per cent.

Now forward wind the clock. The ONS reckons that by 2035 the population of over-65’s will be around 17 million or 23 per cent of the overall population. Assuming the proportion of those over 65 in employment stays the same, this means that by 2035 roughly 1.7 million will be working. Given that it seems certain the proportion of over-65’s working will rise, that means by 2035 the number of over-65’s with jobs will probably exceed 2 million, and will more likely top 3 million, even more.
Is this a disaster for UK plc?

Superficial analysis says that as more over-65’s work, there will be less work for under-65’s. But that is not how it is supposed to pan out. The more people in the UK who are earning, the higher will be demand, and demand creates new jobs.

There is another point, however. The appalling performance of the stock market over the last 13 years, combined with the fragility of the housing market, means that this growing population cannot just assume their pension pots will grow at the kind of rates enjoyed by those who were saving in the 1980’s and 1990’s for example.

But is it a good thing that more older people are working and that this number is set to rise?

One way of looking at is to say consider the alternative. Would you rather live longer but work longer, or would you rather it was like the 1960s, when you retired at a younger age, but almost certainly keeled over a good deal younger too?

And here is a bit of selfishness for you. The author of this article would actually quite like it if he was still writing until the day he died, providing that day is still some time off – say when he is 110…

© Investment & Business News 2013

Uk Population

Here’s a chart for the UK population as of now with a line for the official projections 10 years hence.

As a tool for prediction this chart can be quite powerful; pictures speak a lot louder than words.  The way to use the chart is to imagine the blue and red lines being pulled across the page as we all move inexorably towards God’s waiting room on the right.

We’ll be pulled past 2 marks on the way. The left block shows where young people (16 – 24) might find themselves becoming employed and paying taxes – remember that 20% don’t though so the ‘new workers’ line is copied and shifted lower.

The next mark, for the retiring age for men, shows an ever increasing rate of retirees, after a very steep previous 10 years there will be another 7 million arriving during our 10 year look into the future. You might notice an almost mirror image of the lowered ‘new workers’ line but the unemployed are living off the state too, so there is another 1 million to be added to the line on the right if we want to balance workers vs. state supported.

Unfortunately, because the leading edge of retirees points up and the leading edge of new workers points down, things just get worse. While this demonstrates the ex-growth nature of the economy it is reassuring to compare the huge block of substantially employed people and the much smaller wedge shaped block of the already retired.

So it looks a lot less gloomy right now but as our 10 year view unfolds it builds to uncomfortable levels all the way up to and past the baby boomer’s peak in 15 years.

Note how the red projection line slumps after the retirement age. I’d like to think that this is not an early death syndrome but rather an indication that retired people like to head off to countries with blue skies and sunshine. As we have seen, the retiree level is really lower than the new workers level and that’s a significant first; it just gets progressively worse after this as the retirees line builds even steeper and the workers line pulls across a dip. Incidentally there are dips because WW1 and WW2 were one breeding cycle apart (27 years) and the resulting post war pulses have yet to die down.

If you are about 50 now you are at the population peak age. Births subsequently declined for 13 consecutive years, and that was another first, signalling the end of centuries of perpetual population growth. Because accounting practices, pension arrangements, government finance, and much more, all worked because growth conveniently forgave all sorts of silly thinking, there were, and still are, bound to be some serious consequences.  The way the world works has changed forever.

The workings of pension schemes are of particular interest. With perpetual growth there was always a bigger pool of funds to pay out the liabilities so nobody needed to be particularly efficient. That is no longer the case and you can be sure there will be a raft of pension scheme failures.

With such a huge pension liability arriving over the next 15 years the pension funds have to prepare by switching out of equities and into bonds and then progressively the bonds are then sold as net payouts increase. Logically we might expect weak equities and strong bonds eventually followed by weak bonds.  When the bond sell-off stage arrives one wonders how the Government finances will work – who will they sell bonds to then?

An ex growth world has some implications for equities. Shareholders have got used to accepting lower yields in exchange for corporate growth. As soon as the growth stops then a proper yield will be required. As an example a company yielding 2% and going ex-growth might have to yield 4% to remain attractive. So that means the share price would have to halve!  How likely is this scenario?

Well take a supermarket for example. As a footfall company, whose profits are directly linked to the traffic through the door, the impact of an ex-growth population will be severe. Actually the population is not quite ex-growth, it is just slowing down, but even so companies in this category are subject to massive falls as soon as their growth is seen to end. Just to be safe, sell all your growth stocks?

You can see why there was a property boom over recent decades as the only way the available housing stock grew was via owners dying or new houses being built. Looking back it seems so obvious that fewer old people (from a previously smaller population) supplying demand from a much bigger block of house seekers would result in big price rises.

The chart is giving a strong indication of a repeat performance. Note how there is a bulge moving into the first time buyers age groups and then compare that to the lower height of the chart where old people might shuffle off. Demand will clearly outstrip supply for a while and looking forward 10 years this is increased by immigration as can be seen by the way the bulge actually grows as it moves across. The low end of the housing market looks like a good bet and you can expect a rally in the house builders too.

All this is good for the economy with an added twist. The baby boomers already have a house and yet they are about to inherit their parents houses which can easily be sold on at today’s fairly substantial prices; an added boost to the economy for several years to come.

This last point reinforces the idea that retiring couples with windfall cash will head for the sun. That’s bullish for overseas holiday homes so get in while they are depressed.

Any negatives? Well the way the dotted red line sits above the blue line has implications for NHS services over the next 10 years. It doesn’t look much but in percentage terms there is a significant increase with a detrimental age bias to account for too. An already stretched service has a crisis looming.

The big bulge in the new adults group will all be driving cars for the first time; good for the motor industry but bad for traffic jams.

Conclusions:  No great dramas for the next 10 years but this is the lull before the storm. After 15 years the peak of the baby boomers will be at retirement age and from then on it is hard to see how the books stack up unless the, already brimming, country is filled with more foreigners.

The houses to buyers ratio is likely to top out, leading to a sustained bear market in house prices. The stock market will slump horribly as it goes absolutely ex-growth and the pension funds go into net draw down.  The Government will find it hard to fund the state pension burden and increased demands on public services. Borrowing to bridge the gap will be hard as traditional lenders, in the net draw-down scenario, have no need to buy bonds. Interest rates may well climb as a result and then the National debt financing costs spiral up. Pay more, borrow more, pay higher; sounds familiar.

A UK Government default before 2028?  Not so hard to imagine is it?

Data – The Office for National Statistics

Opinion – Patrick O’Connormist


We asked is the debt on your home ‘a heavy burden’, ‘somewhat of a burden’ or ‘no problem at all’. The survey said: UH UHHHHH.

Actually, it was a bit more positive than that. The ONS has been looking at what it calls the burden of property debt in the UK, and compared the years 2006-08 with 2008-10. When the survey asked the key questions, the response elicited more of a ringing sound. In 2006-08 15.2 per cent of households opted for ‘heavy burden’. By 2008-10 the number had fallen to 13.6 per cent.

The percentage number who said ‘somewhat of a burden’ also decreased, from 38.0 to 37.0 per cent.

Surveys are great if your idea of fun is hearing buzzers. But what about some cold hard data?

It turns out that in 2008-10, 37.3 per cent of households said they had property debt. That was 0.9 percentage points down on the previous period.

The combined value of this property debt rose, however, from £822.2 billion to £847.9 billion.

© Investment & Business News 2013

The UK economy expanded by 0.3 per cent in Q1 of this year, or so says the first estimate of UK GDP produced by the ONS and published this morning, but it is still in a downturn.

It is good news, and George Osborne will no doubt be grinning and at the very least thinking: “Told you so.” Just bear in mind, however, that the UK’s total output is still some 2.5 per cent below the peak seen in early 2008.

The 0.3 per cent growth followed a 0.3 per cent contraction in Q4, 0.9 per cent growth in Q3 and contraction in the three previous quarters.

The ONS pointed out that the UK grew by 0.4 per cent over the last 18 months, or in other words, it has been flat – or very slightly more elevated than a pancake.

Services provided the real boost in Q1. They rose by 0.6 per cent. Industrial production, led by renewed activity in North Sea oil, jumped 0.2 per cent.

Construction knocked a massive 2.5 per cent off growth.

The data came as a surprise. Economists had expected worse. It makes a change. The ONS is good at surprising, but of late its estimates of GDP have been largely worse than expected.

So what can we say?

In many ways it’s like the good old days. The UK is growing on the back of services. Not sure what has happened to the manufacturing and export led recovery.

The Bank of England is now less likely to announce more QE when it next meets. The challenges remain, however. Inflation continues to outstrip wages, meaning real wages are falling. The manufacturing led recovery is an elusive as ever.

One possible solution is virtually screaming at us via the data.

Construction contracted by two and half per cent, or knocked some 0.2 percentage points off GDP.

The UK needs more construction. It needs more houses, and better infrastructure. Better infrastructure will make the UK more efficient.

Instead of playing with boosting house prices via mortgage guarantees, and now promoting lending for buy-to-let via funding for lending, (see: Bank of England pushes lending to small businesses, but buy-to-let falls into net too ) the UK government, ideally with help from the Bank of England and QE, needs to boost spending on construction.