Food Banks: A Bailout Too Far?

Food banks are somewhat provocative. The outcry of emotion usually triggers off related discussions, often about how austerity has pushed some members of society to use them and also how much food supermarkets and food stores throw away. Their individual usage has been increasing dramatically over the last five years and they have become a sensitive subject relating to the government’s austerity measures; you could even suggest their increase in use is one of the staples of the Conservative government.

But is their usage beneficial in both the short and long run?

Austerity has been covered in some depth on this blog, pieces here and here discuss some of the consequences of a government determined to slash public sector expenditure by the highest historical levels. The discussion here is aimed at the ramifications of such actions, particularly at the exponential increase of food bank supply and usage.

The Independent.
The Independent.

Moral hazard is a useful economic term, meaning when two parties engage into an agreement both can act independent from one another, contrary to the principles of the agreement itself. If you think of a car, a car has seat belts to prevent fatal and other injuries. But before cars had seat belts cars and the roads were safer because people drove slower. By driving slower there were less accidents. Of course you should wear a seat belt when driving, but it is an interesting argument and one that should make you think. If you drive slower you are less likely yo crash.

Another example is a salesperson with zero commission, the person receives a flat wage. Without the incentive of commission his or her business activity may relate to the flatness of the wage because there is no incentive to increase the variable i.e. the selling of more goods and services. A Salesperson is meant to sell as much as they can, without commission a worker that sells one unit receives the same wage as a worker that sells one hundred units. This is moral hazard. Clearly food banks enter into this discussion because as a means to equip oneself with emergency relief food is vital to survival; man’s basic requirements of food, shelter and clothing are the basic necessities required regardless of culture, belief, demographic etc.

The Trussell Trust are the largest food bank group in the UK. They actually began in 1994 and usually work as an intermediary between different social groups as a gap to help vulnerable members of society. This means that people are advised to go to a bank where they will usually be given three days’ worth of food, a person to talk to and advice to help them along what is usually a difficult journey. This is honorable and noble work.

Ultimately Food Banks present society with a huge dilemma. The graph below illustrates the dramatic increase from the market leading food bank.

The Trussell Trust
The Trussell Trust

In 2011 some 128,697 adults used the Trussell Trust’s facilities, there were also ninety six facilities nationwide and these banks would open two to three days a week. In 2015 there are now four hundred and fourteen banks opening seven days a week. This is an increase of over four times the amount in just four years, equating to around a 100% increase every year. This is a huge increase in supply. The growing problem of food bank usage is the poverty consciousness it has instilled into our public psyche. Of course the mass media’s coverage of the economy is usually one of “tough” economic times and buzzwords such as “debt” and “difficulty” also shapes our collective thought and thus helps shape the societal narrative if you will.

This increasing form of dependency represents a complex moral hazard: should some food banks close in order to promote self-sufficiency?

This is one of the problems with strict economic analysis, it can be rather limiting when discussing sensitive issues, such as charity. However, a benefit for this form of analysis is the fact that when we do look at the facts, as crude as that can be sometimes, we can narrow down at what is vital and what is not. If more food banks closed people would be forced to find food elsewhere, agencies such as schools, sometimes police, social services and even GPs in small areas are all responsible for sending members of the public to food banks. The dependency the food bank increase has caused has maybe prompted an over reliance upon their use. And an over reliance on charitable handouts only prolongs the problem; without self-evaluation to confront the larger issue at hand the user will be going around in a slow circle.

The evidence presented does show that the increase in food banks supply from the market leader (ninety six in 2011 to four hundred and fourteen in 2015) a proportionate increase in demand. The users and social agencies utilizing food banks could not send people to food banks if their number was capped or they did not exist, they would be forced to seek nutrition from another means and self-sufficiency is the only cure for people who rely on charity. Another unfortunate problem is the fact that many of the main users of foods banks are children. According to Barnardo’s 33% of all children in the UK live in poverty. Not only does this mean they are immediately more susceptible to health concerns, monetary issues and their educational achievement but they are more likely to be recommended by their schools and social services for food bank usage. From 82,679 children in 2011 to 687,607 in 2015. What kind of future does a child have if they become so used to charitable handouts as a means of provision?

Food banks are a fantastic one off stop to help people in desperate times; a buffer to enable a person or people to get back onto their feet. When they were incepted they probably had this idea. The increase in food banks and thus their usage is an unfortunate concern as an over dependency creates problems and this can only prolong the negativity that the food is trying alleviate. The increase in usage is partly down to an increase in supply of facilities themselves, the mass media coverage and austerity policies. The government could impose a cap on how many banks are allowed to operate but this is unlikely due to the laissez faire attitude from the government.

An increase in charitable handouts is a sad consequence that has no direct route or origin, but austerity has certainly played a part.

Osborne Budget

Has The Government Improved The Standard Of Living In The UK?

With General Election campaigns well under way and the speculative dust settled from the 2015 Budget the timing is right for an analytical look at the coalition and their five-year premiership so far. This piece is not aimed at dissecting each manifesto claim made by the Tories, rather a commentary on living standards in the UK today.

Have the government’s policies actually improved the living standards of the average UK citizen?

Measuring living standards and the statistics and data used is critical to illustrate an accurate portrayal of actual living standards for the average person. Undoubtedly aggregate figures are important, especially when making macro comparisons with other economies. Nonetheless individuals should also be made aware with stats and figures they can truly relate to; GDP Per Capita figures give a clearer indication of this because they show the average wage per person. Moreover, people can see what the average person earns; they can also use the figure and compare how they are doing in comparison.

To arrive at a GDP per capita figure we take the Gross Domestic Product, (the sum of all work, spending and production) and we divide that by the total population we then arrive at a GDP per capita figure. This figure is a more accurate representation of the living standards for the average Briton as it provides the mean wage for everyone in the nation. Like all stats, always take them with a pinch of salt and never consider them to be final or conclusive, rather a useful analytical tool used to portray the bigger picture.

If we go back to 2009 the UK and most advanced economies were in the midst of the worst financial crisis since the Wall Street crash of 1929. I have opined my thoughts on the matter here and here. Prior to the hung parliament and David Cameron assuming leadership, Gordon Brown, the Prime Minister at the time and his Chancellor Alastair Darling, sanctioned tax payer’s money to be used on “bailing out the banks.” The term often used to describe the process that saw taxes being deployed as a monetary safety net for the struggling banks; banks that would have been crushed by their own recklessness had the tax funded finance package not arrived.

It is worth mentioning the background to the crisis in some minor detail as Prime Minister David Cameron has described this election as the “most important in a generation.” This is because the Tories have structured their election campaign on their idea of economic recovery and why continuity rather than change is required for the citizens in the UK. In the pre-election Budget Chancellor of the Exchequer George Osborne claimed, “Our economy had suffered a collapse greater than almost any country.”

Britain’s GDP like other nations suffered as a result of the global financial crash but can The Chancellor truly suggest that the financial crisis hit Britain as hard as some of the less developed nations such as Ireland, Greece or Portugal? The UK is not a Eurozone member, so it does not have to adjust economic policy in line with eighteen other nations, unlike the mentioned nations. In addition, nations such as France and Germany have higher GDP and GDP per capita figures than the UK. Both are members of what is clearly an unbalanced monetary union and still have had a stronger recovery in living standard terms since 2009.

Mr. Osborne added:

“Five years ago, living standards were set back years by the great recession. Today, the latest projections show that living standards will be higher than when we took office.”

At a time when the electorate needed reassurances and tangible evidence of a recovery it seemed a little odd to refer to living standard projections rather than the subsequent record during the coalition’s time in office. The graph below highlights GDP per capita from 2007-2014:

Figures from the World Bank. Constructed by Author
World Bank

As you can see in 2009 when the coalition took office living standards where at the lowest point on the range displayed. This is no surprise as the aftermath of the banking crisis combined with the deficit reduction policies imposed by the government caused a shock to the economic system. Since then living standards have been the lowest among Britain’s adversaries, Germany and France respectively. So it remains unclear what the Chancellor meant when he proudly professed “Britain was walking tall again.”

According to ONS figures, unemployment in the UK ( February 5.7%) is lower than France (10.6%), Germany (4.8%) has a lower rate however; but the news was welcomed by the coalition. With French unemployment higher than the UK’s it highlights the importance of looking at the average wage per person as opposed to other figures because they do not portray a clearer picture of living standards.

Unemployment figures cannot account for underemployment. Underemployment looks at labour utilization (how productive workers are) as opposed to just labour (people in jobs). For example, a PHD holder working in a fast food restaurant is said to be “underemployed” because they posses a skill set that exceeds their requirements for the role, yet they are employed nonetheless. An extreme example yes but the idea is to look at situations where highly qualified individuals are accepting roles where their skills are not enhanced or utilized. This is a likely factor behind the UK’s laborious productivity and why it can have more people in jobs yet lower wages for those workers. According to the Bank of England in their Quarterly Bulletin 2014 Q2

“Since the onset of the 2007-08 financial crisis, labour productivity in the United Kingdom has been exceptionally weak. Despite some modest improvements in 2013, whole-economy output per hour remains around 16% below the level implied by its pre-crisis trend.”

In addition to that, Stephanie Flanders writing in the Financial Times suggests:

 “That the average UK worker, in Yorkshire or anywhere else, now produces less in five days than a French one does in four.”

Clearly the recovery is not close to pre-crisis levels so the government has not raised living standards for the average UK citizen. With slothful productivity levels systemic of what little recovery the nation has seen, it is difficult to fathom how the Chancellor could be so optimistic when clearly the past five years have been subdued. Political rhetoric should not be confused with economic reality and the reality is clear: living standards in the UK are not close to pre-crisis levels.

Great Read

Hello world. Today’s read touches on a poignant issue and that is the property market in the UK. I’ve previously touched on this issue here where I spoke about the dramatic effect gentrification is having on London. This piece has similarities. The report is from Transparency International UK and they make suggestions that could deter potential criminals laundering their dirty money into the UK property market.

Property in London is a secure investment as the price rarely drops due to excess demand and limited supply. Moreover, if precaution is not applied then inflationary pressures will force most Londoners to look elsewhere for properties which is the reality that most people in London now face, the capital is too expensive for most to afford and it does not help when London is such an attractive place for wealthy foreigners who view properties as secure investments. Market forces do not have to consider morality as they are not actually doing anything wrong from a business perspective; but caution should be applied as the social ramifications could lead to disillusionment from many Londoners, especially those on lower incomes.

Great Read

Hello world. Today’s read is from long time Daily Telegraph columnist Liam Halligan. Halligan has accurately pointed to flaws in the current economic revival attempt and has pointed the finger at the current recovery effort in its unfortunate failures to lead to genuine economic growth.

In the coming weeks I’ll be discussing the economic effort as we approach the next election in 2015.

Scottish Independence: Be Careful What You Wish For

Scottish not British
Scottish not British

This is a special piece about the SNP’s attempts for a Currency Union with the rest of the UK. It is flawed and the implications could be drastic. All patriotic rhetoric aside, the Scottish people should be careful of what they wish for.

Without question the potential breakup of the United Kingdom of Great Britain and Northern Ireland is a monumental and truly unique event. The Scottish people have been granted their request for the right as Scots to self-determination. This would result in much greater powers shifting away from Westminster and into the Scottish Parliament.

From an emotional and patriotic perspective their cries for independence are fully justified and understandable; the fact is Scotland was an independent nation a very long time ago. Most people in Scotland do not consider themselves British and feel disillusioned with the decision making process over four hundred miles away in Westminster. This is not a matter of mere geography, the distance purely emphasizes the point that they are culturally their own people.

It is this reason why the SNP have completely sold the Scottish YES campaign short by seeking a currency union with the England. If we analyse this call for ‘independence’ how independent can independence be if your currency; the common factor and medium that binds the market based society together, is determined by the same people you are claiming to want to leave? Surely that creates a more dependent nation than before?

Currency union is what the Eurozone is based on. Because the ECB (European Central Bank) controls all monetary policy (interest rates & supply of money) across the entire region. Nation states are rendered somewhat useless to self-determination when it comes to economic planning, specifically fiscal policy (government spending and taxation). Therefore, the ECB must always factor in contrasting economies when deciding what interest rates will be. Think of large economies such as Germany and France and then smaller economies such as Portugal and of course Greece.

Hypothetically, the ECB may raise interest rates across the Eurozone in order to curtail an economic boom. This could help the nations that are booming at a higher rate. Booming in the sense of higher and more potent economic activity. This is certainly possible when you look at just how different the economies are in the Eurozone. Some nations may benefit from higher rates of interest, whilst some may suffer. It will help some nations and hurt others.

This is a very realistic scenario for Scotland. All patriotism aside and let the facts dictate. Several businesses such as RBS, Lloyds, Standard Life and others have all stated they are in unwavering support of the Union and will leave Scotland if they get their independence. Firms such as Next and John Lewis suggest that Scottish versions of their stores could have to increase prices in order to maintain price stability with the rest of the union. Can you imagine Scottish people driving to Northern England just to save money for the same goods and services? This could boost England’s economy and deplete Scottish business in the long run.

There is a simple and rational solution and it is a genuine surprise that the SNP have not considered a fully independent Central Bank and Currency. Rather than seeking a currency union with the UK why not create your own? This is what a truly independent Scotland deserves. This hybrid, this poorly choreographed collaboration between two neighbours is not independence. It is dependence. This top-heavy relationship is highly unlikely to work for Scotland. As the evidence suggests for currency union in the Eurozone, (Greece, Spain, Ireland and Portugal) without fiscal AND monetary union determined by one single body tailored to the needs of your own economy there will ALWAYS be an imbalance. Mark Carney accurately described a currency union as “incompatible with sovereignty.” The SNP have however suggested a fiscal framework to avoid a Greek and Spanish like currency imbalance situation but it simply does not go far enough. The Union have made it clear what their view is and they want Scotland to remain. They have no obligation to make special arrangements for Scotland.

For true, unaltered and FULL independence Scotland require full control over both fiscal (government spending) and monetary (interest rates) policies. Without control over both Scotland need to ensure they have enough of a thriving and stable market to ensure their economic activity does not stray too far from that of England if they want to use the Pound Sterling. It will be very difficult to maintain that balance however, especially considering the unwavering stance from the Union.

Being Scottish is of the heart and mind and not necessarily of the ballot. Of course officially being an independent nation and having full national recognition is something to savour and for Alex Salmond, he gets to write his name into history forever. It should be approached with caution because the SNP’s approach lacks the real vision and authenticity the Scottish people deserve. If the Scottish economy does not create enough well paid and productive jobs in both short and long-run, if it does not open itself for real and beneficial investment then Scotland will suffer.


Good luck to the people of Scotland no matter what the outcome.  


Tricky Situation

Government’s current stance with regards to the potential Pfizer takeover of AstraZeneca sends mixed messages about UK recovery. 

Chairman & CEO Ian Read
Chairman & CEO Ian Read

David Cameron’s stance with regards to Pfizer’s potential takeover of AstraZeneca is somewhat peculiar. Research & Development especially in the Science industry signals innovation, persistence and longevity. Therefore the employment associated to the Science industry appears to be the kind that the UK economy desperately requires in order to aid the fragile recovery. The anomaly comes as a surprise because both the Prime Minister and the Chancellor favour a takeover bid from US firm Pfizer, albeit with “more assurances” from Pfizer. The government are of course powerless to stop the takeover and Pfizer have no obligation to pander to Westminster’s requests, still, supporting a takeover bid that is most likely to remove highly skilled jobs away from the UK is not exactly a favourable position to adopt. More potently, the wrong message about the UK labour market is being sent.

Pfizer Chairman Ian Read will have fully comprehended the saving potential by transferring 20% of AstraZeneca’s R&D department to a more cost-effective location. Pfizer shareholders will support the move away from the UK as dividends will rise due to the vast savings, an estimated £595million will be saved if the Pfizer manage to forsake the UK for a more cost effective location. Savings on such levels will provoke a reaction from shareholders who will always look to maximise their dividends. It is their right to exercise that privilege and governments are powerless to stop such an action. It should be noted however that sovereign governments have a debt to its citizens to ensure that everything is done to at least show firms why the UK is an attractive place to conduct business. To stay silent would be questionable; supporting the bid that possibly ends some 6,700 jobs in such a specialist and labour-rich sector such as Pharmaceuticals is a surprise. When one considers the economic rhetoric propagated by the government has been focused on full employment, safeguarding highly skilled jobs should subsequently be high on the list of priorities for the government.

Shadow Business Secretary Chuka Umunna said the assurances Pfizer had given ministers were “not worth the paper they are written on,” as it had declined to rule out breaking up AstraZeneca in the future.

“The government could act immediately to work to put in place a stronger public interest test encompassing cases with an impact on strategic elements of our science base and seek a proper, independent assessment of the potential takeover as Labour has called for. Instead, ministers have sat on their hands.”

Although it is the job of the opposition to opine an alternative perspective to that of the government, Chuka Umunna’s point does reflect the public interest and the Society of Biology, Biochemical Society, British Pharmacological Society and Royal Society of Chemistry all reflect his views. Nobel Prize winning Professor Andre Geim “fears” for the future of R&D in the UK. They all concur that recent mergers have led to firms seeking economies of scale, simultaneously translating to laboratory closures and job losses. This makes it even more astonishing that the government would encourage this particular takeover.

Hitherto both the Prime Minister and the Chancellor have maintained their faith in British business, especially in creating long-term employment opportunities. Just last month the Chancellor pledged to “fight” for full employment and of course he was referring to employment on a much larger scale. In the case of Pfizer, some 6,700 jobs could be lost. This case is more poignantly about what kind of message the public receives. Economies need something that is not tangible to fully recover and that is confidence. This contradiction does make the government look somewhat inconsistent. Had the government distanced itself or highlighted some of the features that make the UK an ideal place to conduct business, features such as the lowest corporation tax in the EU or Universities with rich heritage and so on it could at least tie in with the other messages they are sending about the recovery. Its current stance however leaves them looking somewhat flustered.



Great Read

Hello World.

Liam Halligan has a reputation as a straight-talking, logical and insightful journalist and this piece is no different. In his piece in The Telegraph Halligan discusses the present banking system in place in the UK and more specifically highlights the link between Investment and retail divisions. He goes on to explain and clarify that only complete separation will ensure catastrophic government bail-outs will not occur in the future, which could potentially save taxpayers billions. I’ve touched on this issue here.