In come taxes: Britain’s austere economic plan

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Hello and welcome to the Intelligence from the Economist. In London, I'm Jason Palmer.

And in New York, I'm John Fassman. Every weekday we provide a fresh perspective on the events shaping your world.

The World cup begins this weekend in Qatar, a hosting first for the Gulf country. Fans are excited, of course, but controversy threatens to overshadow the football, from questions of human rights to whether the country is even ready for the event.

And New York is a city of 8 million people and 2 million rats. The two species have long lived an uneasy coexistence. But Eric Adams, the city's new mayor, has had enough. He's declared open season on rodents.

But first, Yesterday, Britain's Finance Minister, Jeremy Hunt stood before Parliament to deliver a stinging package of tax rises and spending.

Cuts in the face of unprecedented global headwinds. Families, pensioners, businesses, teachers, nurses and many others are worried about the future. So today we deliver a plan to tackle the cost of living crisis and rebuild our economy.

Eye watering energy bills and double digit inflation have destroyed any chance of a quick post pandemic recovery.

The UK, like other countries, is now in recession.

Mr. Hunt's plan is a far cry from the disastrous mini budget of his predecessor, Quasi Kwarteng, who who promised sweeping but unfunded tax cuts.

But I'm not going to cut the.

Additional Rate of tax today, Mr. Speaker.

I'm going to abolish it altogether from April 23rd.

Tax cuts that ultimately cost him and his boss, Prime Minister Liz Truss, their jobs.

Given the situation, I cannot deliver the mandate on which I was elected by the Conservative Party.

Yesterday's announcement was a bitter dose of economic reality, one that's going to return the country to the kind of austerity that defined much of the past decade.

Jeremy Hunt's autumn's statement was a really important moment for this government, but also defining the response to the enormous economic challenges that the British economy faces.

Zemaja Keynes is the Economist's Britain Economics editor.

Essentially, since the pandemic, there's been this fairly relaxed approach to public spending. You also saw relatively recently the Trust government trying to implement large unfunded tax cuts. Those ideas. That spirit seems to have ended. We're now going into a period of economic hardship and also belt tightening.

You mentioned enormous challenges. What are they? What's the scope of the problem that's.

Being addressed here in the near term? Essentially, the economy is being hammered by a huge, huge energy price shock that is contributing to a massive fall in households disposable incomes. We've got a 4.3% drop this year expected by the Office for Budget Responsibility, which is this fiscal watchdog, and then another drop next year of 2.8%. That's really, really large and essentially the two largest falls in that measure since records began in the mid-1950s. In the short run, then, households are really going to feel the squeeze. In the medium term, we've got this big fiscal challenge. Essentially those high energy prices mean that GDP is lower. We've also got an inflation problem and rising interest rates around the world. That means debt interest spending is higher and that means that borrowing has gone up. And the government has fiscal targets that it wants to achieve. But those underlying deteriorations in the economic outlook mean that those fiscal rules are much harder to achieve. And so altogether that means that over the next five years, the government is looking for ways to raise taxes and restrain spending so that debt to GDP can be falling in five years time.

So thinking about the short term and the long term halves of this, then what does the autumn statement do for the short term part?

I think the biggest element of this package announced yesterday for the short term was this package that the government unveiled, meant to help households with energy bills after next April. Liz Truss had promised to freeze the average household energy bill at two and a half thousand pounds for two years. What Jeremy Hunt said is he's not going to be that generous. So the energy price cap is going to translate to an average household bill of £3,000 for the 12 months after April. So that's a less generous policy. And then also at the same time, pensioners, poor households are going to get one off Help. Right. So there is some support for households as they try to deal with these extreme price changes. I guess the other very short term measure is that the government is increasing its tax on energy companies as a short term revenue raiser. It's increasing the rate on oil and gas companies, but also expanding a tax to electricity generators. Lots of squeals in the industry about this, but obviously politically very popular.

Okay, and what about the longer term measures?

Yeah, so thinking about the longer term, those measures that the government is looking for to reduce borrowing have been almost entirely been moved till after the next election. In the short term, you actually have this high borrowing, fairly loose stance and then that reverses and you get tightening in 20, 25, 26, 27. And that comes in in two ways. First of all, you have tax increases. The other thing that he's doing is he is penciling in much less generous increases to public services spending than were previously planned. And I think the worry is that if you've got really big hungry departments like the nhs, then with that kind of settlement, that actually means much, much less generous settlements for the unprotected departments, police, local government, that kind of thing. And we've also just had a very long period of squeezes to those services. The dangerous. There really isn't very much fat to trim and I think there are questions about how credible those settlements will be.

So what you're suggesting is that they're doing the easy part now and putting off the really hard part for later with questions around the credibility of that. As you say, what do the markets make of that? What do investors think of that plan relative to what they very clearly thought about Liz Truss's plan?

Yeah, I mean, the market reaction so far has been fairly muted, which I suppose means that they believe the government when it says it's going to implement these changes. I think that supports this idea that I suppose the problem with the trust squatting budget was that they didn't even pretend that at some point they were going to make the books balance. But also part of the problem with their fiscal statement was the kind of bad vibes. Right. They didn't get a forecast from the obr. And, you know, there couldn't be a bigger contrast between what they did and what Jeremy Hunt is doing presentationally at least, and that, I guess, seems to have reassured investors that things are on track.

So a return then, in your view, to some sanity, some orthodoxy in this stuff. Is this, in your view, what will fix the holes that need to be fixed in Britain?

I think the question right now is whether the policy mix is right. So at the moment, in the short term, you have fairly loose fiscal policy, lots of spending on energy price support, pretty high borrowing. Borrowing this year is expected to come to 7.1% of GDP. That's not a small number. And I guess the criticism of that is that too much of this has been backloaded, Right? With looser fiscal policy, you're asking the bank of England to do rather a lot. You're asking them to raise interest rates quite a lot. And perhaps a better fiscal monetary policy mix might have involved tighter fiscal policy in the near term, perhaps just increased tax rates now, and that would leave the bank of England having to do less. It could mean that they wouldn't have to raise interest rates as high. And that could have the other benefit of trying to constrain your debt to GDP ratio so that when another shock hits, you're better prepared. I think what I'm worried about is that the government isn't making a kind of economic judgment about smoothing shocks or the right balance of fiscal and monetary policy here. What they're doing is they're making a political judgment. They're saying, obviously the outlook over the next couple of years is going to be awful. They don't want to make it worse for the next election, and then they'll start really squeezing the fiscal tax after the next election. So I guess I worry that this is a political judgment rather than an economic one.

Zemeya, thanks very much for joining us.

Thanks so much for having me.

Mr. You invited the whole world to the. You. You invited the whole world to come here. Why can't we film? It's a public place.

This week, organizers of the FIFA World cup in Qatar apologized after a Danish television crew was stopped from filming in the capital, Doha.

But you can break the camera. You want to break the camera?

Okay, you break the camera. It was the latest stumble for the Gulf state ahead of the tournament, which kicks off this weekend. When Qatar won the bid in 2010, residents erupted in cheers. It marked the first time an Arab country had been chosen to host the World Cup. But increased scrutiny on the country's spotty human rights record has threatened to overshadow the tournament.

But a recent report by Human Rights Watch highlighted the plight of the 1.2 million migrant workers who live here.

Qatari government has responded to criticism over the country's treatment of the LGBT LGBTQ community. Ahead of this month's FIFA, there are.

Renewed doubts about the suitability of the.

Arab state to host the tournament.

Over the coming weeks, more than 1 million football fans are expected to descend on the Gulf state. But preparations for the World cup haven't all gone to plan.

There was a lot of confusion in 2010 when the world cup was awarded to Qatar, about why this very small country even wanted to host it in the first place.

Greg Karlstrom is a Middle east correspondent for the Economist.

I think the answer has a lot to do with the fact that Qatar is always trying to stand out from its neighbors from Saudi Arabia and the uae. It's tried to become a diplomatic player, wading into conflicts around the region. Founded Al Jazeera, which was for a long time the best respected TV network in the Middle East. And of course, it also sits on an ocean of natural gas, which gives it basically unlimited money to spend on whatever it wants. And so you put together that desire to stand out and those nearly bottomless resources. And it saw the World cup as a way to bolster its reputation. But doing so has also in many ways turned into a headache.

How so? What's gone wrong?

I think what a lot of officials didn't realize in Qatar is that if you're going to host the world's biggest sporting event, you're going to attract a lot of scrutiny for doing it. So we've seen more than a decade of often quite bad press, some of it around things like accusations. Qatar denies that it bribed FIFA in order to be chosen as the host. And then there are some more systemic issues to do with human rights. I think the one that has come in for the greatest criticism in the foreign press has been the rights of migrant workers. They make up 95% of the labor force. They are the ones who are building all of the stadiums and all of this new infrastructure that's gone in for the tournament and historically have been treated quite badly. And then there are concerns about hosting the tournament in such a conservative country. Gay fans or gay athletes worried about going to a country where homosexuality is illegal, where there are some quite draconian, onerous laws on the books against homosexuality. Also a historically male dominated society. And there are concerns about discrimination against women. Many of these laws not enforced, particularly against expats and certainly I would say against football fans who are planning to come to visit. But FIFA nonetheless chose to host the tournament in a country with these sorts of laws on the books. And I think, understandably, many fans and many people around the world have been concerned about these issues. And those concerns have somewhat come to overshadow the games.

And how has the Qatari government responded.

On the question of labor rights? Both the government and officials from FIFA say there's been some progress that Qatar has been working on labor issues. FIFA remains in positive, ongoing dialogue with the international Labour Party organization. The international. They're not lying about that. There has been progress, particularly around what's known as the sponsorship system, which ties migrant workers to their employers. Workers can now change jobs. They can leave the country without their employer's permission. There's a new minimum wage that's been implemented. There has been some progress there on human rights. There is a desire, I think, to duck that question. And the emir, Sheikh Tamim Al Thani, insisted that anyone could attend the tournament. Listen, everybody is welcome in Doha. We do not stop anybody from coming to Doha with any different backgrounds, any different belief. Qatar is a very welcoming country, but there are still a lot of concerns about, you know, particularly if you are a gay fan who wants to attend the tournament. What is your experience going to be like?

So how are the preparations for the tournament itself going so far?

Qatar is a country that is really more of a city state. There's one big city, the capital, Doha, and then there's not much else in the country. And so to make that very small place ready to host 1.2 million fans has been a massive undertaking. The country has spent as much as $300 billion over the past 12 years. A lot of the big ticket infrastructure is done, and it's been done well. They now have eight stadiums. There are hundreds of kilometers of new roads and motorways. There's a new metro system that was built from scratch since 2010. It cost $36 billion to build. What felt less finished when I was there a few weeks ago was the accommodation, the places where fans are going to stay, particularly the fan vil that are meant to host thousands or tens of thousands of fans at a time. I visited several of them when I was in town and they all looked like construction sites and they all looked very far from being done.

And Greg, Qatar will be the first Middle Eastern country to host the World Cup. What do its neighbors make of its hosting?

Its neighbors are excited about it, which is a bit funny because these neighbors, until about two years ago, maintained a blockade on Qatar. They had severed all travel ties and trade ties in 2017 and for the better part of four years they kept an embargo on Qatar. They lifted that at the beginning of last year and now they're hoping to capitalize on the World Cup. You have some fans who haven't been able to find accommodation in Doha or it's too expensive, or maybe they have concerns around the restrictions on alcohol sales in Qatar. And so tens of thousands of fans are opting to stay elsewhere and then just commute to Doha for the matches. I think the biggest winner from this will be Dubai, which isn't surprising because it's always been the most popular tourism, tourism destination in the Gulf. On busy match days, there'll be as many as 50 shuttle flights going back and forth between Doha and Dubai. On a smaller scale, Saudi Arabia and Oman increased flights back and forth to Doha. They're expecting thousands of fans to come. And so there's a lot of excitement about this. In the other Gulf states, they didn't have to spend hundreds of billions of dollars on infrastructure, but they're going to reap an immediate reward from the World Cup.

So Greg, on the one hand, this is probably the most popular sports tournament in the world. On the other, it's come with huge costs and controversy. Do you think in the end it will have been worth it for Qatar?

I think there are two questions around will it be worth it? The first is reputation. What does their reputation look like? We just have to wait a month to know the answer to that. I think the other question is economic. You drive around parts of the country now and you see all of these new hotels that have been built, all of these new highways. It's hard to see a lot of this being put to long term use. And so there's a possibility that much of this infrastructure for the Qataris ends up being a very expensive white elephant and that the real, immediate, tangible benefit from this goes to neighboring countries.

All right, Greg, thanks so much for joining us today.

Thank you.

New York City, home to the Statue of Liberty, the Empire State Building, and a whole lot of rats. Is there a more quintessential image of New York than a rat carrying a slice of pizza down some subway stairs? Pizza rat was a small but impactful event in the life of the Internet that spurred the creation of hundreds of memes.

Pizza rat. Where's he going with that?

Maybe back to his flat.

But aside from fueling meme creation, rats are wreaking havoc on New Yorkers quality of life and their numbers only seem to be increasing. But the rats of New York have A new enemy. Everyone that knows me, they know one thing. I hate rats. You know, when we started kids killing them in borough hall, you know, some of the same folks are criticizing us now. Called me a murderer because I was killing rats. Eric the Verminator Adams, also known as the mayor of New York, has taken on the challenge of making New York a more livable city. And getting rid of rodents is one of his chief aims.

Recently, Eric Adams, New York City's mayor, and his Department of Sanitation Commissioner Jessica Tisch held a press conference.

Rosemary Ward is our New York reporter.

They announced a plan to end the rats, as they put it, the all night all you can eat buffet. Good afternoon and thank you for being here. It is an exciting day because we are about to do something that no one has had the political will or political capital to pull off over the past 50 years.

And what is that plan? What does that entail?

Well, the scheme includes new rules for rubbish management. Rubbish is now left on the curb for as long as 14 hours and it'll now be picked up within four. The Department of Sanitation will design tailored routes to get rubbish off the streets almost immediately. And the city has stepped up enforcement of illegal dumping and has also recently implemented America's largest curbside composting program, helping narrow the access to to food for rats. And to further arm itself against rats, the City has hired McKinsey, the consulting firm to study scalable rat proof trash containers across the city.

Now, I'm sure the rats will be running scared from McKinsey, but is there anything else the city's doing?

The City council passed its own series of measures, or rat package. One bill focuses on building sites and requires the use of licensed exterminators before getting construction permits. And the mayor also announced new measures. On November 10, he announced a consolidation of citywide cleaning, which includes adding more staff and more shifts. And he also announced more money, $14.5 million in new funding to clean the city streets and parks.

What do New Yorkers make of all this?

Well, they're not happy about all the rats. And some New Yorkers have taken matters into their own hands. One group of rat vigilantes called the Writer's Alley Trencher Fed society, or rats hunt vermin with their dogs. I spoke to the founder, Richard Reynolds, who gave me an update on the rat problem in the city.

Right now we're getting a lot of activity on the Upper west side. We haven't figured out exactly where the rats are. We've gone up there any number of times.

And despite the fact that calls are still coming in a lot. Richard told me he believes the city is doing a good job, but he doesn't think rats will be eradicated anytime soon.

The city's efforts are working.

We'll never be out of business, of course, because there's always more rats.

So, Roe, do you think these new measures will work?

Sadly, all these new rules and regulations may not be enough. Controlling rats will require everyone that lives or works in the city to play a role. And that's actually the real issue. As one urban rodentologist told me, one bad property owner on a block of, say, 10 beautiful homes can cause the entire block to experience sightings of rats. So for this to work, and for Mayor Adams goal of eradicating the city of rats, the whole city would have to come together.

So you're saying New Yorkers will have to rat each other out?

It might come to that. It might come to that.

All right, Raoul, thanks so much for joining us today.

Thank you, John.

That's all for this episode of the Intelligence. Our editors are Marguerite Howell and Chris Impey. Our sound engineer is Will Rowe. Our senior producers are Sam Westrin, Jack Gill, Rory Galloway, and John Jo Devlin. And our creative producer is William Warren. Our producers are Alize Jean Baptiste and Kevin Kaners. With extra production help this week from Maggie Khadifa and Emily Elias. We'll all see you back here on Monday.