Cross-party MPs conclude government schemes drawn up ‘on the hoof’ amid Covid-19 crisis

Rishi Sunak is preparing an autumn of spending cuts – an economic folly and a political gambleThis is the week that Boris Johnson and Rishi Sunak began softening up doctors, teachers and other public sector workers for a squeeze to their pay and cuts to their departmental budgets. They have done their best to muffle that particular bit of bad news. Instead, aides to the publicity-conscious Mr Sunak briefed journalists on an inflation-busting pay rise for public servants – and on Tuesday got the desired morning headlines. Later that same day, the chancellor admitted it was a one-off for this financial year, and that over the longer run “we must exercise restraint in future public sector pay awards”. Meaning cuts are coming. It had been a crass and short-lived publicity trick: flash the cash in a big show now, then admit it would all be taken back in time. Not only that but, as the Trades Union Congress pointed out, in all the government’s trumpeting of its apparent largesse, little acknowledgement was given that there would be no such increment for jobcentre advisers, local government employees or care workers.Spin is a hardly a novelty on Downing Street, but the prime minister has developed a new, yet increasingly tiresome, strategy: blurt a falsehood, confess the truth, then hope the furore around the initial fib fixes it all the more firmly in voters’ minds. So Mr Johnson postures as the new Roosevelt, then announces a small spending commitment – but evidently hopes busy and only half-attentive voters will be left with the magic words “new deal”. Continue reading...

The huge economic boost breaks important political taboos, and suggests a willingness for more integrationIt was a long time coming, but the coronavirus crisis seems to have allowed Europe to make a leap towards genuine integration. The global financial crisis in 2008 exposed the inherent fragilities and incompleteness of Europe’s monetary union, prompting a decade of agonising debate over fiscal union. Essentially, sharing a common currency without sharing a real budget was always going to be unstable and potentially dangerous .Related: EU summit deal: what has been agreed and why was it so difficult? Continue reading...

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The PM’s chief adviser thinks postwar US successes can be replicated here. But context is everything

The pandemic arrived in the run up to the tourist season, hitting seaside towns hard. We visited Brighton to find out how businesses and beach-goers are adaptingOf all the things coronavirus has taken away from life on Brighton’s seafront, among the saddest must be the high-fives. Previously undertaken without worrying where hands have been and what germs they might be carrying, they are now strongly discouraged: a sign actively bans them. “It says ‘No high-fives’,” says Katie Mintram, with a small laugh. She has run Yellowave beach sports centre – a cafe and several volleyball courts – since 2007. She is navigating her way through a summer that feels very different from normal. “In volleyball, it’s all about high-fives.”Yellowave is on the beach itself. Stepping over the tracks of the Volk’s Electric Railway (still closed) from a very quiet Madeira Drive is like stepping into a parallel world – busy, peopled, thriving, normal. Each of the six courts is full, matches being played by fit, happy people in shorts and bikinis; many of the cafe’s outdoor tables have customers sitting at them. It is nowhere near as bleak as the shuttered snack bars and souvenir shops on the main road. That is because there is a tournament on, explains Mintram – the first of the summer. “If the tournament wasn’t here, it probably would have been a bit more depressing,” she says. Continue reading...

FTSE 100 remained flat on a weak dollar and fears of a double spike after lockdownThe euro hit an 18-month high and stock markets gained ground after the EU agreed a €750bn pandemic recovery fund, in a deal struck hot on the heels of reports that a coronavirus vaccine could be ready within months.After more than four days of tortuous negotiation, the EU’s 27 leaders resolved to issue debt jointly, with the proceeds to be disbursed to countries wrestling with an economic downturn not seen since the Great Depression. Continue reading...

The chancellor is targeting savings from departments that will need more funding not lessThe government has embarked on a spending review across Whitehall that the chancellor says must include pay restraint.Rishi Sunak, in a letter to his cabinet colleagues, spells out his priorities for Whitehall departments and in among the calls for Britain to become a “scientific superpower”, improve public services and tackle crime, is the demand for a clampdown on pay.Related: Coronavirus: almost 900,000 public sector workers to get pay rise, says Sunak Continue reading...

Unions accuse chancellor of using smokescreen tactics to hide plans for pay restraint

Rolling coverage of the latest economic and financial news, as European stock markets hit five-month highs

Pandemic could reverse progress for women all over the world without governments taking powerful measures

The two powers must reach an understanding that competition does not preclude cooperationNot a day seems to pass without further evidence of the mounting economic tensions between China and the US, the world’s two largest economies. This growing antagonism will have a bigger immediate impact on China than on the US, as bilateral decoupling fuels a broader ongoing process of deglobalisation. And the negative spillover effects for a subset of other countries – which I call the dual-option economies – could be particularly significant.Even from a purely economic perspective, it is hard to envisage any durable abatement of Sino-American tensions in the near future. And that is before factoring in national-security issues, let alone those relating to technology and human rights.Related: TikTok halts talks on London HQ amid UK-China tensions Continue reading...

Plan B says government proposals unlawful in light of obligations to cut emissions

EU leaders have agreed a financial recovery plan after four days of intense negotiationsAfter four days and nights of hard-fought negotiations, EU leaders have agreed a €1.8tn (£1.6tn) financial package, comprising a €750bn recovery plan intended to haul the bloc out of the worst recession in its history, as well as a €1.074tn budget for 2021-27.Related: EU leaders seal deal on spending and €750bn Covid-19 recovery plans Continue reading...

The former WPP boss on the economy, Facebook and why his S4 Capital is growing despite the coronavirus crisisSir Martin Sorrell’s headline-grabbing, acrimonious departure from WPP seemed set to mark an ignominious end to the global ambitions of the most powerful man in advertising. But two years on his new media venture, S4 Capital, has just reached a market valuation of £1.5bn, making it worth more than DMGT, the publisher of the Daily Mail and Mail Online.Sorrell is now head of the UK’s sixth-biggest listed media company, with a value equal to a fifth of his bete noire WPP, and has continued to grow it even during the coronavirus pandemic. Continue reading...

Average income falls 4.5% in May compared with start of outbreak, thinktank says

Andy Haldane, however, clashes with fellow MPC member Silvana Tenreyo over economyThe Bank of England’s chief economist, Andy Haldane, has insisted that Britain is enjoying a V-shaped recovery, despite concerns among rival central bank policymakers that the economy is struggling after high-profile job cuts that are expected to send unemployment higher.Haldane, who has become a controversial figure in recent months for his comments that the UK is in the middle of a quick turnaround, said the UK economy had recovered about half of the massive fall in output that took place in March and April when the Covid-19 lockdown was most intense. Continue reading...

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Orbán accuses Netherlands’ Rutte of ‘communist’ tactics on tense third day of talks

The economist and author Ann Pettifor suggests books that offer hope for the future and the Green New DealEveryday life has been upended by the pandemic, but the Arctic heatwave is a reminder that the climate crisis still poses an urgent threat to humanity. We will need resolve, ambition and optimism as we emerge from lockdown, so we can forge the green recovery that is so crucial. One book that has sustained my faith in the future is Herman E Daly and John B Cobb’s hopeful vision, For the Common Good. Daly, once (briefly) the World Bank’s chief environmentalist, is an advocate of the steady state economy, central to the Green New Deal. This book is as relevant today as when it was first published, more than 30 years ago.JA Baker’s 1967 memoir The Peregrine, is another vision – of the ecstatic joy brought on by a deep connectedness to nature. Baker documents his daily and increasingly close connection to the austere Essex landscape that was his home, and to what Gerard Manley Hopkins called “the brute beauty and valour” of an extraordinary bird. For greater understanding of how connected all living things are, Peter Wohlleben’s The Secret Network of Nature is less intense, but startling and delightful. Each chapter is a self-contained exploration of some link in nature: “How Earthworms Control Wild Boar”; “Fairy Tales, Myths and Species Diversity”. Or try Lev Parikian’s witty Into the Tangled Bank. He starts with the wildlife found in your kitchen sink, and gradually deepens connections to nature within and outside your own four walls. Continue reading...

Covid-19, risk of no-deal Brexit and geopolitical tensions are dragging down spendingAlmost two thirds of companies plan to cut investment spending over the next three years as they look ahead to a slow recovery that will delay almost half from clawing back pre-Covid-19 levels of sales before next summer.A survey of finance directors by the accountants Deloitte found that 65% said a combination of the coronavirus pandemic, the potential for a no-deal Brexit and worsening geopolitical conflicts has forced them to reduce capital spending.Related: Five key areas Sunak must tackle to serve up economic recovery Continue reading...

Boris Johnson’s recovery plan will not succeed if he doesn’t put worker protection at its heartIt’s easy to see why Boris Johnson wants to send people working from home back to the office. Despite the gradual rolling back of lockdown, Britain’s big town and city centres remain eerily quiet places.The coronavirus crisis scattering city workers to the suburbs has delivered a hammer blow to urban economic activity, laying low the service sector that powers the country’s growth engine. Not a week has gone by without waves of job losses at companies reliant on people leaving their homes and heading into towns and cities. Continue reading...

As people tend to mimic what they’ve heard, it’s crucial in this crisis that the right ideas prevailIdeas matter. They shape not just how we think, but what we do. And economics ideas matter more than most, given the central role they play in our politics, especially at times of crisis. I thought the idea that the UK was facing bankruptcy, supposedly like crisis-stricken Greece, played a major role in the speed and scale of austerity after the financial crisis, despite being nonsense. Others said it was pure politics, not ideas, that mattered.Luckily, more conclusive evidence is available. A fascinating recent study examined the impact of US judges attending a controversial two-week economics course, which was criticised at the time (the final decades of the 20th century) for its bias towards conservative economics. The paper shows that judges who attended the course tended to use more economics-related language in the years that followed, including phrases such as “efficiency” in their judgments. They were also significantly more likely to deliver conservative verdicts in economic cases, ruling against government regulators and delivering harsher criminal sentences. So far, so worrying. And these ideas spread. Other judges “exposed” to the attendees of the course were also more likely to start using similar language. Continue reading...

Without clear leadership from the top, employers will simply not risk a full return to the workplace this yearThere is little chance of the economy staging a full recovery by the middle of the decade, let alone by Christmas, as Boris Johnson believes is possible.Speaking with the optimism of a first world war general, the prime minister said on Friday that most restrictions on business activity would be lifted by December. This, he intimated, meant that for much of the population there will be a return to pre-coronavirus ways of working by the end of the year.it will take greater trust in plans to ease the lockdown and huge investment by government to bring the economy back to life Continue reading...

With bad economic news coming hard on the heels of the ‘mini-budget’, we look at the issues the chancellor must address in time for autumnThe direction of travel is set. After four months of lockdown, Boris Johnson last week announced fresh plans to get more companies to bring employees back to workplaces across England from August. Getting life back as close to normal as possible by Christmas is the prime minister’s aim, but significant challenges remain on Britain’s road to recovery, as was demonstrated by a series of worrying economic updates.Figures out last week showed that Britain’s economy failed to rebound by as much as had been hoped in May, when the prime minister first attempted to relax lockdown controls. The Office for Budget Responsibility killed off the idea of a rapid bounce-back, and warned that by Christmas unemployment could hit levels not seen since the 1980s. Continue reading...

Meeting follows acrimonious first day of negotiations with Dutch prime minister demanding national veto on spendingEU leaders reconvened a summit in Brussels after a stormy first day of talks on the terms of a €750bn (£682bn) economic recovery package ended with the Dutch prime minister, Mark Rutte, complaining of an increasingly “surly” response to his demand for a national veto on spending.Prime ministers and presidents declined to comment as they arrived back at the Europa building after the previous day’s 13 hours of talks – the first in person meeting for five months – ended in acrimony.Related: Angela Merkel set for central role in talks on EU recovery plan Continue reading...

Cooperation needed to avoid turning Covid-19 into deeper economic crisis, says economistPrivate sector lenders to some of the world’s poorest countries should agree plans to reduce debt payments or risk turning the Covid-19 pandemic into a deeper economic crisis, the World Bank has said.Speaking before the start of the G20 finance ministers meeting this weekend, the bank’s chief economist, Carmen Reinhart, said banks and hedge funds that lend to the developing world should cooperate with moves to cut debt payments, allowing poorer countries to pay for vital medical and food supplies. Continue reading...

John Marsh on modern monetary theory and David Cockayne on doughnut economics and artThe Guardian has done us all a service with this editorial (The Guardian view on Covid-19 economics: the austerity con of deficit hysteria, 14 July). I am reading Stephanie Kelton’s book and I believe that it may start a revolution in economic policy.Prof Kelton’s concern is not the government financial deficit – the balance between taxes and government spending – but the deficits and imbalance in the real economy such as unemployment and housing shortages. Modern monetary theory (MMT) suggests that governments which issue their own money cannot “go broke”. Continue reading...

GMB says employers need more support to ensure safe return on 1 August

Since March, unemployed Americans have received government money to pay rent and buy food – but if Congress can’t agree a new deal, what then?If Donald Trump and Senate Republicans have their way, roughly a week from now, the US will swap an imagined economic problem for a predictably devastating one, economists have warned.Related: 1.3m more file for unemployment as US economy continues to reelIt is such a feeling of being caged and trapped, and every decision I can make is a bad oneRelated: How will we know the US economy is recovering? Here are my key metrics | Gene Marks Continue reading...

Fund is accused of effectively bailing out private lenders to some of world’s poorest nations

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Chancellor’s statement ‘corrosive to public trust’ for passing old funds off as newRishi Sunak has been accused of repackaging up to £10bn of previously announced government spending to form the backbone of his summer statement plan to save jobs during the pandemic.Serving the chancellor with a blunt rebuke, the Institute for Fiscal Studies said it was “corrosive to public trust” for the government to reallocate old funds and pass them off as new money. Continue reading...

End of furlough scheme likely to unmask true impact of coronavirus crisis on workers

ONS says number of workers on payroll fell 2.2% from March although rate of decline fell in June

British Chambers of Commerce reports big firms more likely to cut jobs than smaller businessesAlmost a third of companies plan to make job cuts in the next three months as the government prepares to wind down its furlough scheme, one of Britain’s leading business lobby groups has warned.Sounding the alarm amid warnings of a steep rise in unemployment, the British Chambers of Commerce (BCC) said 29% of businesses in a survey of 7,400 firms planned to cut the size of their workforce in the next three months. Continue reading...

City calls for state-owned recovery corporation to handle £35bn of unsustainable government-backed debt

Court defeat for Brussels is reminder of glacial pace at which international tax reform proceedsMargrethe Vestager may as well give up. If the EU’s competition commissioner can’t win her highest-profile case in the EU’s second-highest court, then the EU’s tax arrangements, as they apply to multinational tech companies, will remain a free-for-all.In practice, she may plough on. The Luxembourg-based general court’s order that Apple does not need to pay €13bn (£11.7bn) in back taxes to the Irish government can be challenged. Lawyers may yet enjoy many more years of lucrative work. Continue reading...

All you need to know about CGT and the possible outcomes of the chancellor’s surprise reviewIs capital gains tax (CGT) going to rise dramatically as the government attempts to claw back the cost of extra spending during the coronavirus pandemic? A surprise review of CGT unveiled on Tuesday by chancellor Rishi Sunak opens the door to higher taxes on the wealthy and possibly middle income earners, too. Continue reading...

Rolling coverage of the latest economic and financial news

From Covid-19 to the tobacco industry to the climate crisis ... a punchy, amusing history of the deliberate misuse of statisticsThe old saw that there are “lies, damned lies and statistics” is attributed to various figures, but was already considered proverbial in 1890 – perhaps as an adaptation of the old lawyers’ joke that there were three kinds of liars: “the liar simple, the damned liar and the expert witness”.Even though we have been well warned for more than a century, people still use statistics dishonestly all the time – as when, for example, it emerged that the number of Covid-19 tests the British government claimed were being performed each day included tens of thousands of test kits that had merely been sent out in the post, as well as multiple tests performed on the same individuals. Continue reading...

Lift to 0.6% in June from 0.5% in May also fuelled by lack of summer sales on high street

G20 countries aim their pandemic bailout spending at fossil fuel industries, leaving Paris climate change targets in doubt

Chancellor’s directive to focus on how people escape CGT ‘feels like starting pistol for a tax grab’, says analystWealthy households could be in line for tax rises to claw back the cost of extra spending during the coronavirus pandemic, after the government called for a wide-ranging review of capital gains tax.Rishi Sunak surprised backbench Tory MPs after he ordered the examination of the main tax on asset sales, which reaps billions of pounds for the exchequer each year on the sale of second homes, works of art and stocks and shares. Continue reading...

A new book is a much-needed piece of heretical questioning for politicians who argue that something needs to be done about the size of the public debtThe record government deficits are keeping the economy on life support during the Covid-19 crisis, and removing them would be like pulling the plug. Without the state stepping in, there would be mass unemployment and bankruptcies. The government is spending so much because people and companies cannot do so. It ought to be obvious that fiscal deficits, in and of themselves, are neither good nor bad. They should be used to save jobs and keep inflation low.Yet the message from the chancellor, the government’s economic watchdog and thinktanks is that the current level of spending is unsustainable and needs to be brought down by raising tax revenues or reducing spending, or doing both. This is not an economic argument but a political one. The public is being made anxious about the “debt” so that this fear can be weaponised. By persuading voters that something must be done about the national finances, and sustaining that outrage, politicians can push for spending cuts. This is a repeat of the familiar austerity con that voters fell for a decade ago. Continue reading...

Office for Budget Responsibility forecasts UK’s biggest peacetime deficit in 300 years and permanent ‘economic scars’

Worst-case scenario warns output may not rise to pre-pandemic levels until 2024

Britain’s economy has shrunk by a quarter since the pandemic began...and its fiscal watchdog fears the recovery will be slow and painful

There was nothing inevitable about a weak bounce back – the UK government has delayed the recovery by its dithering

GDP would shrink 12.4% and unemployment more than double in one scenario as budget deficit hits £322bn