CGS ECONOMICS MAGAZINE 19/11/21 THE CURRENT ACCOUNT ISSUE 4
Fees over Funding
FEATURING: •
‘Fees over funding’ by Georgie (Year 12)
According to the Institute for Fiscal Studies the gap between the funding of state and private schools has doubled and is predicted to widen further, as state school Headteachers face a funding shortfall of £5.7 billion. As it currently stands, private school fees are approximately £17,232 per pupil annually, whereas state school spending per pupil is roughly £7,100 per year. This leaves state
•
(Year 12) •
systems at its recent conference. Sir Keir Starmer pushed to have the charitable status removed from private schools,
Lois (Year 12) •
state school spending and aid pupils who come from a more disadvantaged background.
.
‘What is happening to inflation in the UK?’ by Holly (Year 12)
•
‘The new government budget’ by Eleanor (Year 12)
•
‘UK economic growth’ by Geri (Year 12)
and the associated exemptions from VAT and business rates. Starmer hoped to use this excess funding to increase
‘Get your turkeys before they fly off the shelves’ by
schools with an average ‘cash gap’ of £10,000. Private school fees were 90% higher than state school spending in 2020-2021 compared with a gap of 39% in 2009-2010. The Labour Party touched on the inequality within the two
‘HGV drivers’ by Darma
•
‘Petrol shortages’ by Lakshya and Millie (Year 12)
Kate Green, the shadow education secretary said, ‘state school student budgets have been hammered in the last decade.’ There is a clear difference in the resourcing of state and private schools. Much lower budgets per pupil mean there
It is also the case that in 2020 and 2021, when GCSE and A levels were cancelled, students in private schools were disproportionately advantaged by the system which saw schools award grades.
is less available to spend on mental health support and wellbeing and private schools
It is arguable that our politicians have
are much more likely to be able to keep their technology up to date, all of which
this funding gap. In the late 2000s,
can have an impact on learning. Nadhim Zahawi, the current Secretary of State for Education, is yet to touch on the topic. Many state secondary schools have converted to academies in recent years in order to release themselves from the ties of already-stretched local authorities and receive their funding directly from central government. This at least has allowed them to manage their entire budgets and potentially maximise the spend per pupil. Primary schools have struggled to academise in the same way because of their size and lack of staff specialising in finance, HR and facilities. After the failure to support state school children during the pandemic, former Secretary of State for Education, Gavin Williamson criticized parents saying children lacked ‘order and discipline during lockdown’.
failed to address the rapid growth of Chancellor Gordon Brown promised an increase in state school spending to match private school funds. We are still waiting.
HGV DRIVERS Over the past month, there has been a crippling shortage of HGV lorry drivers in the UK. This is a complex problem, as some goods are perishable, and without getting these goods to consumers they are going to be wasted, as consumers cannot access them. The government, in its defence, has said that there is a ‘worldwide shortage of HGV drivers.’ Even if this is true, there is still a huge lack of supply of drivers in the UK, due to the workers finding better financially favourable opportunities elsewhere. However, there are a few factors causing this, one of them is that due to the UK opting to leave the European Union, European drivers have moved to Europe, and they’re unable to return or are choosing not to, as they can find better and more consistent work in Europe. Even though the government have offered 10,000 Visas, only about 300 applications were received as there was a delay in processing applications, and only 20 of those applications went through.
What have the government done to solve this? The Government have relaxed the restrictions
of
late-night
supermarkets,
food
deliveries
retailers,
to and
distribution centres in England. Without
They are also being petitioned to allow Personal Service Vehicle drivers to enable to them to drive Heavy Goods vehicles. This fast-tracking method
this, there would be a knock-on effect on
should make it easier to transfer, hoping to entice drivers.
consumers,
According
and
with
consumers
not
receiving as much variety of goods/ delayed delivery of goods. To speed up the process of delivery, the government is spending half a million more on the existing £20 million, to encourage people to use trains and ships for freight, the Mode Shift Revenue Support grant scheme. This takes 29,000 more lorry goods off the roads until March 2022. They are further investing £17 million to create HGV skills bootcamps to train up to 5,000 people to become HGV drivers.
to
the
government's
National Careers Service, a lorry driver on average earns between £18,500 and £35,000. Their salary has been inflated up to £58,000 to encourage them to return from Europe and carry on working in the UK. An example of this is John Lewis increasing the salaries for lorry drivers so the retailer can continue to recruit drivers at market competitive rates.
What does this mean for you? In Felixstowe, on 14th October, there was a backlog of shipping containers, and it is unlikely that this has been solved by now. Normally, once the ships carry containers to port, containers are checked and unloaded, but due to the lack of lorry drivers and staff overall, the containers stack up and end up being diverted to other ports. All the containers arriving at once in ports, creating a delay in the delivery and unloading of goods in shops. One effect of this is that there will be shortages this Christmas, due to the difficulty of getting stock of toys. There is a decrease in the variety of goods/ food products available in supermarkets and lots of empty shelves, because of the issues in the delivery process. Tesco bosses have stated that the lorry driver shortage was affecting fresh food with short shelf life the most. A blueberry farmer has said, “We have been told by the haulier company we have used for years that they can only come and pick up our fruit once a week. But the fruit only have a five-day shelf life so we need picking up every day. If we can’t get our fruit to the supermarkets, that is massively significant,”. This and the food shortage has a knock on effect on many groups, for example other food companies that use blueberries in their products will be forced to reduce their output, and their profit and income will therefore decrease. This has created 48 tonnes of food waste each week.
This survey shows that one of Haulier’s two biggest reasons for shortages is Brexit. The government appears to have overlooked the most significant factor.
GET YOUR CHRISTMAS TURKEYS BEFORE THEY FLY OFF THE SHELVES The UK is looking optimistic about a normal Christmas this year, after Boris decided to cancel Christmas. However, it isn’t going to come without its own problems; panic buying hasn’t been uncommon in the past few years, the COVID-19 pandemic causing supply chain issues, as well as the recent decline in labour due to the impacts of Brexit. However, many companies are already starting to warn consumers to start their Christmas shopping, as fears of many festive staples going out of stock are rising rapidly.
One huge concern for many households is
However, it’s not all bad news; British
the large Christmas dinner that millions of
supplies of lamb and beef are reported as being plentiful, and could be used as
people like to enjoy each year. Firstly, turkey supplies have been reported by the British Poultry Council to have dropped
alternative due to the less laborintensive rearing process.
already by 20%, whilst UK supermarket chain Iceland has reported an increase in
Experts are also warning that items like
frozen poultry demand by 409%. In
beer and soft drinks could be at risk due to their reliance on C02, as long-
addition, supplies of Christmas specialties like pigs in blankets are all under threat, due to the lack of labour supply – resulting
term issues with production caused shortages in the gas during September.
meat producers are calling for at least
However, to overcome this, the UK government has sent out millions of
15,000 extra workers. As a solution, the
pounds to American suppliers to helpful
government has issued 1000 temporary visa for butchers, but the heads of the
the rising prices and falling supply, in
production lines are already saying its too late, and supply chains have already been
these effects.
in around 120,000 pigs being culled, while
affected beyond repair for Christmas. The result of this is that consumers are going to be left with less choice, as well as likely a lower standard of goods, as imported meats are reported by British farmers to be of inferior quality.
hopes that the nation won’t experience
Another huge tradition for many families
Grant also says that most of their stores
during the festive season is the buying
have increased stock by 10% to try and
and decorating of a Christmas tree.
avoid last-minute challenges with toy
Issues with imports for capital like pallets
deliveries. In addition to children’s toys,
and fertiliser, as well as the lack of
the supply of popular gifts like the
seasonal workers had meant that the
PlayStation5 and iPhones has also been
estimated 6 million trees sold each year
hindered by a global shortage of
may not reach its typical target. However,
microchips, as well as the shipping
supply of trees isn’t in fact the main issue;
delays, leaving goods at ports for
Mark
of
weeks. Sony reported that supplies for
Christmastrees.co.uk, reports that retail
their gaming gadgets struggled during the pandemic, a result of the many
Rofe,
owner
prices will rise around 10%, but the British Christmas
Tree
Growers
Association
urges households to continue to buy trees like normal, as they will be supporting local farmers who typically rely on regular customers
during
the
busy
festive
season. Furthermore, John Lewis has also said that artificial tree sales rose by 1300%
in
the
first
few
weeks
of
September, and sales of decorations like
lockdowns leaving teens across the world bored and demanding a way to shift their social lives online. They are only predicting this shortage to worsen as the festive season approaches, rapid demand mixed with the lack of the microchips resulting in firms racing to try and increase their supply by any means.
neon lighting has also increased by 2000%. Finally, shortages of toys have already been reported by top manufacturing bosses, as toy sales boomed in the pandemic, and the issues with supply chains have caused a long-term backlog. Gary Grant, owner of the toy retailer The Entertainer, has already warned that they are facing stock shortages, as many shipping containers have only finally left Asia after many delays, meaning they are predicted to arrive by late November, just in time for the sudden Christmas rush.
Overall, Brexit and the pandemic is likely to cause supply issues in the UK and internationally, but experts have said that as long as we budget, shop sensibly, take advantage of sales and plan ahead, we should be set for a successful festive Christmas without the restrictions of the last year.
WHAT IS HAPPENING TO INFLATION IN THE UK? The inflation rate in the UK has been growing
for
a
number
of
reasons, including oil prices rising, food shortages from supply chain problems, higher bills in restaurants and hotels, and wage
increases.
These
factors
combined have caused the forecasted inflation rate to exceed 4% in the final quarter of 2021. This does not fall in line with the UK governments target of 2% and it is likely to have detrimental effects on the economy. business
This could be from
uncertainty
leading
to
a
reduction in investment or regressive effects on income redistribution and falling real incomes. The oil industry in the UK has caused copious amounts of demand-pull
(excess demand causes shortages, hence the general price level rises). The increase in demand for oil and inflation
gas, is pushing up the price of energy which directly affects individuals, who face heightening household heating costs, as well as businesses in terms of machine running costs, office heating and transportation costs. As oil is such a crucial commodity for manufactured goods, a rise in price, will contribute to increased costs of production.
As a result of this, cost-push inflation arises (firms raise their prices to push the
added costs onto the consumer, leading to a rise in the general price level). As of the 10th of November 2021, Brent crude oil was estimated at around $83.50 per barrel, contrasting greatly with April 20th, 2020, in which it reached its lowest point at $19.30 per barrel. Shortages are simultaneously occurring in other areas of the economy. The widespread lack of staff including fruit pickers, meat processors and HGV drivers has been exacerbated by Covid19 and Brexit. Products like tomatoes have almost doubled in price in the past year and vegetable oil is at its highest price now for over 30 years. This sparked outrage as not only is purchasing power of money declining but also a cut in Universal Credit and rise in National Insurance is causing further harm to low-income citizens.
Another factor in production causing cost-push inflation is greater spending on workers’ wages. Wages come out of business revenue, causing a rise in their production costs, which, once again, they are likely to push onto the consumer. One of the pre-budget leaks, was that the minimum wage may rise from £8.91 an hour to £9.50, designed to fulfil the government’s promise of a ‘high-wage economy’. This, along with the gradual reduction in unemployment (currently at 4.5%, the lowest it has been at this year), is likely to cause a higher average salary. The more disposable income one has, the more spending one is willing to undertake, causing demand-pull inflation.
For some sectors, where average pay is relatively low and consists of many minimumwage workers, this could be considered a benefit. In this case, the knock-on effect of inflation is outweighed by the advantages of having an increasingly fair distribution of income. So now we begin to wonder what the Bank of England can do to tackle inflation. A common solution is to raise interest rates, and there is currently a lot of speculation that the Bank of England will do this. Increasing interest rates causes borrowing money to become more expensive so people are more inclined to save their income instead. This leads to a reduction in spending so demand-pull inflation slows and fewer shortages occur. In some circumstances, the Bank of England has very limited control over inflation, for example, if inflation is caused by external forces like the heightened global energy prices. Energy is a necessity in daily life, so people continue to borrow and spend money regardless of interest rate changes, resulting in little change in inflation.
THE NEW OCTOBER GOVERNMENT BUDGET – HOW IT AFFECTS YOU On Wednesday 27th October, Chancellor of the Exchequer Rishi Sunak revealed his autumn budget to the House of Commons for the year ahead. The budget outlines the government’s plans for increasing or decreasing taxes and also includes decisions on where government revenue will be allocated to the specific sectors such as health, education and defence. This autumn’s budget prime focus was on the post-covid era and according to Mr Sunak, ‘will pave the way for an economy of higher wages, higher skills and rising productivity.’ The chancellor outlined an astonishing £150 billion spending plan as he pledged to spend now and cut taxes later on. Key highlights include the following: In the hope to reduce smoking prevalence a pack of cigarettes now costs £13.60 increasing in price by 88p as tobacco tax rises. However, from February 2023 the biggest tax cut to beer in 50 years will take place where beer drinkers will save 3p per pint and furthermore the cost of sparkling wine, prosecco and champagne will all fall potentially cutting the cost of a bottle by 53p. This decision will attempt to assist the hospitality sector to bounce back after the pandemic and increase consumption by encouraging people back into the pubs. Another significant aspect of the new budget was the changes in the Universal Credit tapper rate.
Usually for every pound earned, 63p is instantly deducted from the benefit payment however this has now decreased to 55p meaning households can keep more of what they earn. This new policy hopes to tackle the forecasted 4% rise in the cost of living in the near future and should make 2 million people in the UK £100 a year better off.
However, this
policy has been met with criticism as it doesn’t provide any help for people not in employment and some have argued it doesn’t make up for the deduction of the £20 a week Universal Credit uplift.
From 1st April 2022, employees on
According to the Office for Budget
minimum wages can look forward to
Responsibility due to the autumn
significant pay rises as the National
budget’s policies the economy is due
Living Wage is due to increase by 6.6%
to grow at a rate of 6.5%, which is
from
much
£8.91
to
£9.50
an
hour.
higher
than
previously
Additionally, the national minimum
anticipated and the unemployment
wage for under 18s will increase from
rate will peak at 5.2% much lower than
£4.62 to £4.81 and the minimum wage
the predicted
for 21–22 year-olds will rise from £8.36 to £9.18 an hour. Potentially, an
economy in a good position for recovery post pandemic. However,
increase in wages could lead to a loss
inflation is forecasted to rise to 4% in
of jobs as employers may reduce the
the coming year which could cause
number of people they recruit as now they have to pay higher wages to
problems such as speculation that the Bank of England may increase interest
current employees, however there has been no evidence to prove this.
rates which may hinder UK investment and lead to slower economic growth.
Expenditure on healthcare will increase
The government will have to keep an eye on this and put in the necessary
by £44 billion to over £177 billion with £6 billion put to help deal with prolonged NHS backlogs. Furthermore, an additional £1.8 billion will be invested into school pupils to help catch up with the disruption of the pandemic. A new national programme has also been launched to improve the countries’ numeracy skills as its been proven that individuals with poor mathematics face up to £1,600 a year in lost earnings.
11.9%
placing
policies to overcome this issue.
the
PETROL SHORTAGES Over the past few months, many Britons have wasted hours on end queuing up at petrol stations just to find out that they are unable to fill up their cars due to shortages. Police officers were reportedly monitoring certain sites and retailers had to propose fill-up limits due to the intense spike in demand.
On the 23rd September, BP warned that they would have to “temporarily” close a handful of its petrol stations because of a lack of drivers. In following days, long queues began forming outside stations across Britain amid fears that fuel would run out. Effects only worsened as Esso and Tesco announced that they were also closing some petrol stations, as further panic buying took place, which was responsible for 2/3 of the Petrol Retailers Association 5500 petrol stations to go dry and prices to rise to an 8 year high. The average petrol price at UK forecourts on 4th October was 136.1p a litre, and on 18th November has risen to a staggering 144.3p per litre – jumping by 6.02% in just over a month.
40,000 more drivers are still waiting to take their HGV test as they had been halted due to coronavirus. In the past year, the number of HGV drivers in Britain had fallen by 70,000 (305,000 – 235,000). The combination of Brexit and the pandemic has caused shortages in HGV drivers, therefore fuel cannot
be
transported
efficiently
across Britain causing many petrol suppliers to cut supply.PRA executive director, Gordon Balmer stated that ‘fuel stocks remain normal at refineries and terminal and deliveries have been reduced solely due to the shortage of HGV drivers.’ If this was the case, the question is who is to blame for this shortage? The shadow Home Secretary, Nick
But what caused the shortage in the first place?
Thomas-Symonds places the blame squarely at the hands of the
The cause of the problem is actually not due to a shortage of fuel in Britain, but rather a
government stating it was a ‘crisis of the government’s own leadership’. The
lack of drivers to transport it. About 25,000 HGV drivers from the EU left during 2020 and
situation became so severe that 200
did not return thanks to Brexit.
drive fuel tankers to help alleviate the situation.
military personnel were deployed in to
Although the extra workers will be welcome, they will not make an enormous difference given the small numbers involved and the fact that visas expire on Christmas Eve. The government will also be suspending competition law between However, others have claimed that the whole situation was a result of the media exaggerating
stories
of
shortages which led to panic buying. The UK suddenly saw images of people filling up empty containers with fuel, which only exacerbated the panic. Some say without panic buying that there would have been no drastic shortage, and the media control of the situation was the real cause for the sudden spiral of supply. In addition to the deployment of army personnel, the PRA was urging people not to panic buy, but advising drivers to keep their tanks at least one quarter full in case they have to drive to another station to fill up. Furthermore, BP said it was cutting deliveries to about 90% of its stations in an attempt to distribute supplies evenly. In another attempt to reduce the pressure, the government announced that 5,000 foreign HGV drivers will be eligible
to
come
to
Britain
temporary visas for three months.
on
oil firms, and this will make it easier for companies to share information and prioritise areas most in need.
This
includes London and the South East, most likely due to the high population density. Many believed that higher bills at the pumps were due to petrol stations profiteering from the crisis. However, Madderson claimed that this was not price gouging but ‘general wholesale price increases caused by global factors’. Wholesale prices have risen by nearly 3% so firms pass additional costs onto consumers and a fall in the value of the sterling against the US dollar has also been a contributory factor. There was some anecdotal stories of higher than expected price rises, which some put down to profiteering.
UK ECONOMIC GROWTH – WHY IS IT LOWER THAN PRE-PANDEMIC? The UK's recovery from its third Covid-19 lockdown slowed considerably throughout the summer, as increased infection rates, the ‘pingdemic’, and worldwide supply shortages impacted the economy's growth. National output increased by 1.3 percent in the three months to September, according to the Office for National Statistics, but it was still 2.1 percent behind its pre-crisis level in the fourth quarter of 2019. The third-quarter performance followed a 5.5 percent increase in the three months leading up to June – at the time when restrictions such as mandatory masks and social distancing guidelines were being relaxed. During July 2021, as the number of Covid cases rose sharply (up to more than 48,000 Covid-19 cases on Sunday 18 July), more than half a million people were ‘pinged’ by the NHS app in the week up to the 7th of July. This meant that those who were pinged would have had to isolate for at least 10 days. This resulted in staff shortages and disruption in industries where people cannot easily work from home, including in supermarkets and on transport networks. Many businesses were worried that the situation could become even worse after social distancing rules had been scrapped, with even more people being advised to self-isolate.
Health activities and a huge increase in face-to-face appointments at surgeries in England drove
GP the
September growth, which is considered a temporary boost following a backlog of work accumulated during the pandemic. Services grew the fastest of the three main sectors of the economy. The hotel and restaurant sector, which accounts for approximately four-fifths of GDP, grew by 1.6 percent in the third quarter thanks to a 30 percent increase in activity.
Housebuyers also rushed to finalise purchases before the end of the stamp duty holiday, offering another relatively brief boost to the economy. Although the increase in growth in September was encouraging, some economists However,
had
some
concerns.
was
hindered
growth
recently due to a combination of rising Covid cases and shortages of raw materials, components and labour which “came together to present significant headwinds to growth”, said Alpesh Paleja, lead economist at the CBI.
In the third quarter, the UK goods and services balance of trade worsened as imports increased while exports decreased. UK exports were well below the 2019 average as exporters have struggled to capitalise on strong external demand, most likely due to Brexit and
Car manufacturing fell 8.2%, the most since May, along with a drop in car
some Covid-related shortages.
sales, as the industry was hit hard by shortages in microchips worldwide and
The Eat Out to Help Out Scheme,
supply chain disruptions. Manufacturing fell marginally in the
introduced from August 3rd through August 31st, was one of the
month but remained significantly below
government's policy initiatives to assist companies in reopening following the
pre-pandemic levels.
Covid
lockdown.
The
government
offered 50% off food and/or nonMoreover, business investment remained 12.4% below its pre-
alcoholic drinks eaten in participating establishments across the UK as part of
coronavirus pandemic levels in the third quarter, indicating anxiety about
the scheme.
the pace of recovery and the impact of Brexit. Lower business investment could reduce the future supply capacity of the economy meaning the economy could grow less quickly without generating inflation.
In total, there were almost 160 million individual meals claimed, with an average claim of £5.24 per meal.
The plan received £840 million in total payments – which
exceeded the Treasury's expectations of £500 million at the time the Scheme was announced. On Scheme days in August, the scheme increased customer demand for eating out. However, as restrictions on hospitality venues were re-imposed in mid-September, the number of people dining out plummeted. Regarding the future, we can only hope that our economy will continue to recover from Covid, and thanks to schemes like the Eat Out to Help Out scheme and the furlough scheme, the latter causing the unemployment rate to have fallen for eight months in a row, it looks like we are going to have a successful year ahead. We’re forecast to have the ‘fastest growth in the G7 this year’, according to Rishi Sunak, Chancellor of the Exchequer.
The graph shows that despite negative levels of growth currently, the UK is forecasted to experience an economic boom, followed by the GDP returning to its prepandemic rate by 2023