Remember back in December last year, in the run up to the General Election, Labour were announcing spending plans after spending plans. Free broadband, nationalised rail services, abolish tuition fees.
Tory supporters were up in arms. “How will you fund this spending spree?!” they rightfully bellowed.
Can you imagine, within 10 months, a Conservative government has spent hundreds of billions of pounds to, effectively, pay people to stay home (furlough scheme), gave businesses grants with little background checks, guaranteed business loans, handed out free food (Eat Out To Help Out) and extended free school meals (thank you Marcus Rashford).
If you squint, it looks like we have a socialist government in charge. Jeremy Corbyn, it seems, has been playing chess in 3D.
Rishi Sunak announced a “Jobs Support Scheme” last week as a replacement for the Furlough scheme. It’s basically the government subsidising wages of those who’d otherwise be made redundant. It’s a little complicated to explain so bear with me.
- Employees work a third of their usual hours, which is paid for by the employer
- Of the remaining two thirds of hours not worked, the government will cover a third of those wages, while the employer covers another third
- The employee would receive roughly 77% of their salary
- If a person were to earn £30k a year, they’d get £10k for working from their employer, £6,660 from the gov and £6,660 from their employer for not working. Bringing a total of £23,320 (roughly 78% of their normal salary)
Would this work I hear you say? If you were an employer looking to make a person redundant, would you pay that person 55% of their salary for working 33% of their usual hours to do a job that probably isn’t needed?
The answer is obviously no but then again, humans aren’t always logical creatures.
Speaking of humans defying logic, what is of bigger importance than a covid-19 hit economy is, a no-deal-Brexit hit economy. That is according to the London School of Economics.
In fact, they say a No Deal Brexit will have a 2 to 3 times bigger impact on the UK economy compared to covid-19. It seems this once-in-a-century pandemic isn’t as bad as everyone thought it’d be then. Thank you Brexiteers 👍🏽
If there’s any good news, it’s that the above tidbit is based modelling over 20 years 🤣.
London School of Economics estimate the impact of a No Deal Brexit in 20 years time will be around 8% GDP.
Whereas, the Bank of England calculate the impact of covid-19 will only be 1.7% of GDP up to 2022. They also said the covid-19 impact will be 23% of GDP within the first year but we don’t need good news like that in this article.
If you’re wondering what GDP is, it stands for Gross Domestic Product and is generally used to describe the size of an economy (or to be more specific, the changes in size of an economy in percentage terms). It’s the financial value of all goods and services produced in a country within, normally, a period of one year.
To oversimplify it, think of a countries economy as a giant basket containing cherries. Their GDP would be the amount of cherries they can pick in a year. Obviously some countries would have fancy machinery so would be able to pick more than other countries who’d rely on human labour. Some countries would also be more prone to external shocks, like a hot dry summer so can’t grow as many cherries as others.
If you’re still confused, you’re welcome to leave a comment and I’ll get back to you one day (most likely never).
The last topic I wanted to touch on was investing in gold. I feel there’s a lot of misunderstanding out there about it as an investment option. I’d like to make it clear, no serious investor actually treats gold as a first choice. The only reason serious investors invest in gold is when they feel other more reliable options aren’t actually as reliable.
What’s stronger than gold as an investment option? The American dollar.
However, as an investor, if I see the American economy is ravaged by runaway inflation and mammoth job losses, I’d naturally assume the value of the dollar would depreciate (read fall).
So I’d sell ASAP (to reduce my losses) and turn to what I would then believe to be the next valuable option, another currency. Or failing that… You’ve guessed it, gold.
Now you’ll see the value of gold rise as investors flock to it. But, if I see the Federal Reserve (the American Bank of England – I can’t say Bank of America because that’s another private company) plan to pump in billions of dollars into the American economy, suddenly I feel more confident in the dollar as a safe investment option.
So I’d sell all free gold I have and go back to the dollar. So the value of the dollar would appreciate (rise), while gold depreciates in value. Yes, gold can and does depreciate in value.