The collapse in disposable income will be about as grim as you can imagine – so why is the government embracing it?

Published

2 years ago

November 18, 2022

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Let’s start with a tale of two charts. Or rather, one chart.

Be warned: it’s not a pretty chart. It shows how average household disposable income changed each year since 1955 and for the most part it’s a story of progress.

As the years have gone on, we have seen our disposable incomes rise in most years.

But here’s where it gets gritty, because that run is about to come to a crashing end. Back in March, the Office for Budget Responsibility produced this chart, and it showed the single worst year for disposable income changes since records began in the 1950s.

Back then, Rishi Sunak was chancellor and behind the scenes he was furious with the OBR. Why did they ruin his finely honed spring statement with their chart of misery?

Now roll forward to today. The OBR updated the chart for the autumn statement and the prognosis was even worse.

Now we are facing not just the worst year for household disposable income in modern history, but the two worst years, one after another. It is about as grim as you could imagine.

And if there’s one chart you want to bear in mind over the coming months as households face a squeeze the likes of which they rarely ever have, and many are pushed closer than ever before towards penury, it’s this one.

However, this time around, far from being furious about the publication of the chart, the Treasury has effectively embraced it. And this change in attitude tells you rather a lot.

Whereas Mr Sunak once wanted to play down the economic misery facing the country, today he wants to emphasise it.

The government wants everyone to know how tough things are because the fiscal remedies it’s implementing in the autumn statement would be doubly unpalatable without some sort of justification.

The rationale in Whitehall is that if people realise how miserable the economic climate is, they might be more willing to put up with another dose of fiscal contraction.

It’s worth saying, however, that the squeeze priced in within the autumn statement is not quite as tough as the pre-event leaks might have suggested

In numerical terms, at least, this is not the austerity we saw during the Osborne years. But for many government departments already cut to the bone, it will feel pretty brutal all the same.

For education and the NHS, there were unexpected increases in funding – but inflation is likely to eat into those increases very quickly indeed.

However, take a step back and look at where the public finances land in five years’ time. Back in March, the plan was to get public sector net borrowing down to £31.6bn by 2026/27. As of the autumn statement, the plan is to get it down to only £80.3bn.

Back in the day, this would have been considered a high budget deficit – above 2% of gross domestic product. Fiscal conservatism this ain’t.

But for all the talk of austerity and cuts, the reality is that the chancellor didn’t cut quite as much as some had expected.

This is not to say there is much joy coming our way from the Exchequer: there will be an average of £55bn of contraction – all to fill in the much-vaunted black hole which some economists argue never really existed.

But had the chancellor wanted to get the public finances back to where they were supposed to end up as of March, it would have involved an extra £50bn of cuts – truly grisly austerity.

This was, in one sense, a very middle-of-the-road fiscal event: decidedly boring, decidedly unshowy and decidedly lacking in surprises. It reads less like an economic philosophy than an effort to clean up a mess.

Much of the documents are devoted to accounting for how the potential promises of the Truss era ballooned the public finances in one direction, before being yanked back towards earth in the Sunak era.

The question now is whether unwinding all that spaghetti will actually help the Conservative Party rebuild its trust with the British public.

And, most of all, the question is how the public will fare over the coming months.

The OBR’s forecasts paint a picture of a recession unlike most we’ve felt for a long time – a recession not of the business sector or the financial system, but one that hits consumers square in the pocket.

It’ll be a very painful few months. The difference is that this time around, the government isn’t afraid of charts telling you precisely that.

World

Inside a NATO base in Poland – as residents bordering Russia say ‘scare tactic’ is needed

Published

3 hours ago

April 10, 2025

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Inside a NATO base in Poland - as residents bordering Russia say 'scare tactic' is needed

Along the thin strip of beach and woodland known as the Vistula Spit which marks the northernmost demarcation between Poland and the Russian exclave of Kaliningrad, there is not much in the way of a border.

Just some torn wire fencing and a few rotten posts which seem to stagger drunkenly into the shallows of the Baltic Sea.

Beneath a sign barring entry, we find a couple of empty bottles of Russian cognac and vodka.

It doesn’t feel like the edge of NATO territory.

“I don’t see much protection. It’s not good,” says Krzysztof from Katowice, who has come to inspect the border himself.

“We have to have some kind of scare tactic, something to show that we are trying to strengthen our army,” says Grzegorz, who lives nearby.

“At the same time I think I would not base the defence of our country solely on our army. I am convinced that Europe or America, if anything were to happen, will help us 100%.”

Poland is investing massively in its defence, with military spending set to hit 4.7% of GDP in 2025, more than any other NATO country.

Polish Prime Minister Donald Tusk has said he will introduce voluntary military training for men of any age, and women too should they wish, so the army has a competent reserve force in the event of war.

He is investing $2.5bn in stronger border fortifications between Russia and Belarus, a project called East Shield which will include anti-tank obstacles, bunkers and potentially minefields too.

Along with its Baltic neighbours, Poland is withdrawing from the Ottawa convention against the use of land mines. It hasn’t committed to using them, but it wants to have that option.

We’ve been granted access to one of the cornerstones of Polish, and European defence, which is a couple of hours drive from the Vistula spit at the Redowicze military base.

Aegis Ashore Poland, together with its sister site in Romania, are the land-based arms of NATO’s missile defence shield over Europe, which is run by the US navy.

They are symbols of the US commitment to NATO and to the protection of Europe.

And despite changes at the top of the Pentagon it is “business as usual”, says Captain Michael Dwan who oversees air and missile defence within the US Sixth Fleet.

“Our mission to work with NATO forces has been unchanged. And so our commitment from the United States perspective and what capability we bring to ballistic missile defence and the defence of NATO is championed here in Poland.”

As far as Russia is concerned, NATO’s two missile defence bases in Romania and Poland represent a NATO threat on their doorstep and are therefore a “priority target for potential neutralisation”, per Russia’s foreign ministry.

NATO says the installations are purely defensive and their SM-3 interceptor missiles are not armed and are not intended to carry warheads. Russia counters they could easily be adapted to threaten Russia.

Not the case, Captain Dwan says.

“It’s not a matter of moving offensive weapons here into the facility, the hardware and the infrastructure is simply not installed.

“It would take months or years to change the mission of this site and a significant amount of money and capability and design.”

With so much marked “secret” on the site, it seems amazing to be granted the access.

But for NATO, transparency is part of deterrence. They want potential adversaries to know how sophisticated their radar and interception systems are.

They know that if they carried warheads on site, that would make them a target so they don’t.

Deterrence also depends on whether potential adversaries believe in the US’s commitment to NATO and to Europe’s defence.

On an operational level, as far as the troops are concerned, that commitment may still be iron-clad.

But as far as its commander-in-chief goes, there is still – as with so much around Donald Trump’s presidency – a great deal of uncertainty.

In the Oval Office on Wednesday afternoon President Trump suggested he might bundle a potential US troop drawdown in Europe together with the issue of EU trade and tariffs.

“Nice to wrap it up in one package,” he said, “it’s nice and clean”.

Probably not the way Europe sees it, not with a resurgent Russia on their doorstep, economic tailwinds breeding animosity and the notion of Pax Americana crumbling at their feet.

World

Asianmarkets bounce back after Trump pauses higher tariffs for most countries – despite increasing those on China to 125%

Published

9 hours ago

April 10, 2025

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Asianmarkets bounce back after Trump pauses higher tariffs for most countries - despite increasing those on China to 125%

Asian markets have reacted positively after Donald Trump paused his so-called “reciprocal” tariffs on most of America’s trading partners for 90 days, despite the US president increasing those on China to 125%.

There have been fears of a global recession and stock markets around the world had plummeted after Mr Trump announced his “Liberation Day” tariffs on Wednesday 2 April.

However, Japan’s Nikkei share average was up 8.2% by 3.50am BST, while the broader Topix had risen 7.5%.

Similarly, the S&P 500 stock index had jumped 9.5% and global markets bounced back following Mr Trump’s announcement on Wednesday that the increased tariffs on nearly all trading partners would now be paused.

Tariffs latest: Trump gives reasons for pausing some tariffs

In a post on his Truth Social platform, Mr Trump said the “90-day pause” was for the “more than 75 countries” who had not retaliated against his tariffs “in any way”.

He added that during this period they would still have to pay a “substantially lowered” 10% tariff, which is “effective immediately”.

It is lower than the 20% tariff that Mr Trump had set for goods from the European Union, 24% on imports from Japan and 25% on products from South Korea.

The UK was already going to face a blanket 10% tariff under the new system.

Mr Trump said the increased 125% tariff on imported goods from China was “effective immediately”.

He added: “At some point, hopefully in the near future, China will realise that the days of ripping off the USA, and other countries, is no longer sustainable or acceptable.”

What’s in Trump’s tariff pause?

Here’s what Donald Trump’s tariff pause entails:

‘Reciprocal’ tariffs on hold

• Higher tariffs that took effect today on 57 trading partners will be paused for 90 days

• These include the EU, Japan and South Korea, all of which will face a baseline 10% duty instead

• Countries that already had a 10% levy imposed since last week – such as the UK – aren’t affected by the pause

China tariffs increased

• Trump imposed a higher 125% tariff on China

• That’s in addition to levies he imposed during his first term

• China had hit the US with 84% tariff earlier today, following tit-for-tat escalations

No change for Canada or Mexico

• Canadian and Mexican goods will remain subject to 25% fentanyl-related tariffs if they don’t comply with the US-Mexico-Canada trade agreement’s rules of origin

• Compliant goods are exempt

Car and metal tariffs remain

• Trump’s pause doesn’t apply to the 25% tariffs he levied on steel and aluminium in March and on cars (autos) on 3 April

• This 25% tariff on car parts does not come into effect until 3 May

Sectors at risk

• Copper, lumber, semiconductors, pharmaceuticals and critical minerals are expected to be subject to separate tariffs, in the same way autos are

Hours after Mr Trump announced the pause on tariffs for most countries, a White House official clarified that this did not apply to the 25% duties imposed on some US imports from Mexico and Canada.

The tariffs were first announced in February and Mexico and Canada were not included in the “Liberation Day” announcements.

Hours before the 125% tariff on China was revealed, Beijing said it was increasing tariffs on US goods by 50%.

It meant tariffs of 84% would be enforced on US goods – up from the 34% China had previously planned.

China ‘want to make a deal’

Asked why he posted “BE COOL” on Truth Social hours before announcing his tariff pause, Mr Trump told reporters at the White House: “I thought that people were jumping a little bit out of line.”

“They were getting yippy, you know, were getting a little bit yippy, a little bit afraid,” he added.

Mr Trump continued: “China wants to make a deal, they just don’t know how to go about it.

“[They’re] quite the proud people, and President Xi is a proud man. I know him very well, and they don’t know quite how to go about it, but they’ll figure it out.

“They’re in the process of figuring out, but they want to make a deal.”

White House press secretary Karoline Leavitt said the walk back was part of a grand negotiating strategy by Mr Trump.

“President Trump created maximum negotiating leverage for himself,” she said, adding that the news media “clearly failed to see what President Trump is doing here”.

US Treasury Secretary Scott Bessent also insisted Mr Trump had strengthened his hand through his tariffs.

“President Trump created maximum negotiating leverage for himself,” he said.

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Mr Bessent said Mr Trump decided to raise tariffs on China because Beijing hadn’t reached out to the US and instead increased its own levies on US goods.

Downing Street said that the UK will “coolly and calmly” continue its negotiations with the US.

A Number 10 spokeswoman said: “A trade war is in nobody’s interests. We don’t want any tariffs at all, so for jobs and livelihoods across the UK, we will coolly and calmly continue to negotiate in Britain’s interests.”