I have written this morning about the costs that will arise as a result of our need to make good on decades of underinvestment in the UK economy. Doing so, I said that:
Who will survive in the face of the need for running water in Johannesburg, and essential services in the world at large? Will it be the landlord or the people? That is the question. It will define the new economic and the new politics that we need.
I think it is only fair to say that I have asked this question before. I wrote this blog post on 4 March 2020, well before the full implications of Covid had been appreciated by many, including our government:
I have already discussed the potential economic implications of coronavirus this morning. The purpose of this blog is to summarise the underlying economic logic of what I have said.
We will have an economic crisis in 2020 as a result of coronavirus. There can now be no doubt of that; the likelihood that this epidemic can now be contained seems to be very low indeed. The evidence from China is that the impact on productivity and the economy at large is enormous. Whether we can survive the impact of this epidemic without major economic consequences arising is largely dependent upon the effectiveness of the planning that the government undertakes now. What is apparent is that at present there are a few signs that this planning is taking place. We can hope for it in the forthcoming budget, but the signs are, so far, not good.
The key issue that the government has to decide upon is who will bear the economic consequences of what is to happen. I have already indicated in my first post on this issue that I think that the consequences of this epidemic will fall upon three clearly identifiable groups, which are individuals, businesses and government. However, when appraising who will bear the cost the criteria are slightly different.
It is unacceptable that individuals bear the cost of this crisis. There is simply too little economic resilience within the population as a whole for that to be the case. Far too many people have too few savings to survive major periods of economic inactivity without massive prejudice to their short-term and long-term well-being.
In addition, it is unacceptable that many businesses should fail through no fault of their own but that is what will happen unless the government steps in to prevent the major economic downturn that might happen this year. Cash flow issues will cripple many companies.
In that case it would seem that consequences of what might happen will fall, in the first instance, on the government.
As I explained in my previous post, the government can afford to bear a substantial cost from this epidemic precisely because it alone in the economy can suffer a cash flow crisis without risk arising. That is because the government of a country like the UK which has its own central bank and its own currency always has the means to create as much cash as their economy needs. This is, if ever there was a time to do so, the moment to appreciate that fact and use that ability.
But that is not to say that there are no costs to an epidemic: clearly there are. In that case the question has to be asked as to who should bear that cost. There are three groups who should.
Firstly, landlords should. I have already suggested that should the epidemic spread, then as a matter of statutory right, any tenant should be provided with a minimum three-month rent-free period to ease the stress upon them whilst this crisis lasts. I would suggest that the grant of that extension should be automatic to anyone who does not make a due payment of rent on the required date during the period of the epidemic. They should be automatically granted this extension by the landlord without having to make any further application or to complete any additional paperwork.
I stress that the cost of this will fall directly upon the landlords in question. I am quite deliberately suggesting that they should bear the heaviest burden of dealing with the epidemic. The reason is simple and is that whatever happens they will still have an asset at the end of this period, and no other sector can guarantee that at present. As a consequence, they have the greatest capacity to bear this cost. And, if it so happens that some landlords do fail as a consequence, the assets that they have owned will still exist after this failure and so the economy can manage the consequences of this.
Second, I suggest that the costs of this crisis fall upon the finance sector. This is because, as I have also noted in my previous post, I think that anyone who has a mortgage or loan (including a lease) that they cannot afford to meet during the course of the epidemic period should be granted an automatic three-month extension to their loan period, which period might again be extended if the epidemic lasts longer than is expected. Once more, I suggest that there should be no need to apply for this extension: a simple default should be enough to trigger it. I am not, in this case, suggesting that the interest owing not be due, though: it could be settled at the end of the loan. What I am saying is that cash flow must be eased.
What these two straightforward recommendations suggest is that it is those with wealth, and not those with low incomes or tight cash flows, who should bear the burden of this crisis. That meets any definition of justice that I know of. But in both cases I am also being realistic: the value of financial assets of banks and other lenders is being preserved by this recommendation when if loan waivers were not in place it is likely that they would be prejudiced, whilst the value of land assets is not in any way diminished as a result of there being a rent-free period imposed for an external reason. To be blunt, given the risk that both the financial and rental sectors face as a result of an epidemic the proposed automatic waivers leave them in a better position than they would be in without them.
And what of government, which is the third party to suffer a loss? Its risk can be covered by coronavirus quantitative easing.
A plan of this sort is urgently needed, and now.
Why note this now? There are three reasons for doing so.
Firstly, we failed to plan properly for Covid. In particular, we failed to plan for the longer-term consequences of that crisis, and as a result, and as I predicted, we have had a cost-of-living crisis and a continuing risk of recession, none of which was necessary.
Secondly, by protecting the rights of landlords and bankers, as we did, the cost of the Covid crisis was transferred onto households, and we have all seen the consequences. Destitution is arising and there is real suffering as a consequence.
Third, this matter has not gone away. If anything, the economic crisis that we face is deepening, and the need to make choices as to whom to prioritise is growing, but there appears to be no evidence of any understanding that this choice is even required.
We really do need an economics that prioritises the needs of people. I hoped Covid might deliver that. It did not. But the need has not gone away.
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Economics for the many, not the few.
Indeed
I thought the principal reasons we had had a cost of living crisis were the short lived Liz Truss/Kwasi Kwarteng tenure, and the spike in energy costs due to the war in Ukraine. You’ve written before that the vast amounts of money produced for furlough etc. during Covid were not inflationary. And indeed, they didn’t appear to have been, with inflation only really going mad since Ukraine?
Truss and Kwarteng have nothing to really do with it; I have said so many times now.
Covid reopening too quickly creating supply chain issues plus speculation on the outbreak of war caus3dbthe 8nfkati8n we had.
Both have ended, as I always said they would.
Inflation yes, but interest rates appeared to spike considerably during the aftermath of Kwarteng’s budget. If you’re a mortgage payer who had the misfortune to be on the wrong end of that, the extra interest is a factor in your personal cost of living? Of course they’ve gone up even more since…
The spike was a total coincidence
Infaltion is never created that quickly – and this was not
We have a cost of living crisis because… well ‘markets’ don’t work, absolutely everyone is raking it in and government’s doing nothing.
Just a small example. My dog was diagnosed with a kidney disease and needs some meds. My vet (as would every other vet around here) charged me £150 a month for these meds. I paid for the first couple of months and then by chance found that the same meds cost £30 in the online vet pharmacy. But you need a prescription. Which they charge £30 – really just for a signature. I’m all for spending locally BTW and would happily pay 50% more to the local vet than on-line, but 5 times more is taking me for a fool. Most people don’t even know they can ask for a prescription or that they can buy medicines outside vet surgeries.
When we had a dog my wife was usually deeply irritated to fiund what the vet prescribed was available as an over the counter drug at the local pharmacist for human use.
Kalopl is a great pain killer for dogs with arthrtitis….
In the last hour we had a call from the vets.
Our dog has epilepsy and has a regular prescription.
Call from vets -‘we need to see him to re-new prescription’ -cost £60 quid just to see him plus the medication.
The Royal Society of Vets now say it has to be every three months.
The veterinary practice, like almost all in the area is now part of a chain. Like Undertakers, even solicitors and GP practices and other professions which were once local partnerships or sole traders. No economies of scale. Just extra charges. Many of them American I hear. So some dividends go out of the economy.
I can afford it but I feel for families with kids and pets. They are the ones making hard choices, Mr. Sunak, not you.
https://www.theguardian.com/lifeandstyle/2024/mar/19/end-of-landlords-surprisingly-simple-solution-to-uk-housing-crisis
Interesting article in the Guardian showing how the political will can change society as a whole.
Indeed….
A big thank you to el Deco for the link to this really inspiring must read article:
https://www.theguardian.com/lifeandstyle/2024/mar/19/end-of-landlords-surprisingly-simple-solution-to-uk-housing-crisis
Too many political sharks are claiming that without the perverse incentives offered to landlords in extortionate rents, for zero obligation provision of poorly maintained housing stock, we would have even fewer places to live. Beyond that audacious claim, there are the escalating number of entirely empty speculative investment properties in places like London while ordinary people scramble to find ever more precarious, overpriced places to live. This problem of unaffordable rents is even further exacerbated by the unreasonable pressure caused by AirB&B holiday lets.
The author of this article, Nick Bano, is a barrister specialising in renters’ rights and homelessness law. Bano has written a book: “Against Landlords: How to Solve the Housing Crisis”. I am sure it will be well worth reading when it is released on the 26 March (Verso, £16.99). I admit I had not looked at the actual statistics on housing. I had bought into the endless calls for more house building, but it looks like there could be a much simpler fix. Just like your well calculated changes to the existing taxation system in the UK, in all sectors we must stop punishing the most vulnerable to enrich the wealthy.
Thanks for the tip
I have ordered it
Here is a very good review of the book. https://www.rs21.org.uk/2024/03/16/against-landlords-how-to-solve-the-housing-crisis/
Thanks
We have the wrong sort of politicians. Andy Wightman, former Green MSP, and Scotland’s leading land ownership expert, wrote a book entitled “The Poor had no Lawyers” explaining how the enclosures benefited the wealthy. Well the poor have no politicians.
I don’t think Covid caused the cost of living crisis. It didn’t help, but wages have been spiralling down for some time. Two major factors caused the crisis which has been bubbling away since Thatcher removed the rent cap, the lack of housing and the rise of the buy to rent Landlord. Housing has become owned by mainly overseas investors who don’t care if no one can afford it as property values still continue to rise. The second pressure is privatisation which as resulted in more expensive services and lower wages. Add to that mix the mass layoffs in public services and higher education we have an underemployed population with no wage stability. For several years now consumer spending has been going down and the lower priced retailers have boomed though even some of them went to the wall during Covid. The High cost of rental property in town and city centres and the lower footfall has caused a lot of major retailers to downsize. Money is not circulating in local economies and more small businesses are bought by big corporate investors or are left to rot by landbankers hoping to make money without doing anything which as we know does happen. It is the lack of regulation of the property market and a whole tier of under employed graduates that used to be the prosperous middle classes that are causing cost of living crisis.
I have to say that many of your claims are wrong.
For example, most landlords are not foreign.
Making claims that do not stack with facts does not help.