Author Archives: tansdell

UK Inequality

The UK is a very unequal nation – and that’s a fact. It’s gotten worse in the last 10-15 years as the harsh realities of Austerity have hit, and it only seems to be getting worse, but what are the actual stats?

As the above map shows, Income in the UK is heavily centred around Southern England, especially in the South East and London -where average Disposable Income per Household is nearly double that of the poorest region of the UK – North East England.

And it doesn’t get much better if we look at some of the countries themselves. In Scotland (below) and Wales (above) – two of the more left-leaning countries in the UK – Income Inequality is still pervasive. In Wales, the most affluent area of the country, Monmouthshire, has 46% more Gross Disposable Income per Household than the poorest (Blaenau Gwent). Strikingly, these two areas share a border and are in the same region of the nation. Of course, BG encompasses part of the Brecon Beacons, and was hard hit by the closure of the coal mines, but it is still striking to see the difference between the two

In Scotland, higher Incomes are generally found in one of 3 areas: Glasgow Suburbs, Aberdeenshire and Edinburgh. Other than that, a lot of poorer regions can be found in the more sparsely populated areas of Scotland. Indeed, the richest region, East Renfrewshire, has about 64% more Weekly Household Income compared to the poorest region – Inverclyde.

If you are interested in seeing more about just how bad Income Inequality is in the UK and the reasons for it, I can’t recommend the following video by TLDR News enough. Watch it if you’ve got 14 minutes spare!

UK Inflation – January 2022

You may well have seen the above headline, or something similar, doing the rounds this week on various news websites – The UK’s rate of Inflation has risen to 5.4%. But why is this happening?

In economics, we say that there are two types of Inflation: Demand-Pull Inflation and Cost-Push Inflation. Demand Pull Inflation is normally seen during Economic Booms, when growth rates are strong, Unemployment is dropping and, generally, people and businesses have more confidence. This causes Businesses to invest more and Consumers to consume more. Investment (I) and Consumption (C) are both components of Aggregate Demand (AD), so if they’re rising so is AD. If AD increases too quickly, there will be more competition for resources, goods and services, so naturally the prices of these things will go up – causing Inflation. That’s not what’s happening here though.

As you can see in the data below, there has been a sharp rise in UK Inflation in the last 6 months or so – from nearly 0% to our rate now of 5.4%. And this is largely due to Cost-Push Inflation.

Inflation

So what is Cost Push Inflation? At its most simple level, Cost-Push Inflation is caused by increasing costs of production for businesses, that are then passed on to consumers so that businesses can maintain their profit margins. In recent months, the price of many things has been rising:

  • Since the start of 2020, the price of a sailing a shipping container from Asia to Europe has gone up from ≈$1,300 to ≈$12,500 – that’s a 10x increase in little over 2 years
  • As has been well documented, gas prices in the UK have risen from a wholesale price of 50p/therm in Summer 2021 to about 350p/therm now – that’s a 7x increase in 6 months
  • As part of the ongoing Brexit process, we officially left the EU’s Single Market in January 2021 – meaning trade restrictions and customs regulations had to be re-implemented at our borders, causing increased pressure on hauliers and a drop in efficiency that, ultimately, makes it more expensive for customers. Costs for cross-channel shipping have gone from ≈€1.50/km to ≈€6/km – a 4x increase

And these are just some of the costs that have gone up in price! You’ll also have heard of HGV Driver shortages too, and there are plenty of other input prices that are rising. All of this means UK Producers are having to pass on these costs to consumers – causing Inflation to rise. But how could we show this diagrammatically?

As the diagrams above show (Classical Right, Keynesian Left), an increase in costs causes SRAS/AS to shift inwards – causing the Price Level of the economy to rise and, worryingly, the Real Output (GDP) of the economy to slow, or even shrink. Why is this a problem? Stagflation – where Price Levels rise, without an increase in Output.