Part 1:
During the 2030s the economic difficulties from continual high Government spending and rising national debt along with demographics trends will have materialised. The Baby-Boomers will be retired and the Millennial Generation will be taking the economic burden. Will the Euro still exist and will China have grown old before it gets rich? These questions and many more will be getting answered.
What do people need to face up to now to ensure that the 2030s aren’t the disaster the 1930s were? The next 20 years regardless of political affinity and out-of-date notions of left or right wing policies enforcing clichéd class stereotypes will witness the benefits or dereliction brought by policies and investment decisions made now, for namely:
- Energy- if shortages and black outs with social unrest are to be avoided. A mix of coal, gas, nuclear and renewable energy resources need to be maintained. Coal still provides over 40% and nuclear 19% approx. of energy needs in the UK with wind, solar, tidal and biomass still less than 10%. The fact is that new gas power plants are being shelved or mothballed whilst coal and nuclear are reduced and withdrawn doesn’t bode well. Carbon capture and sequestration needs to be incentivised and developed. It’s maybe too late to avoid black outs by 2016 when lack of new gas plants reduces the capacity margins to shortages but there’s time to deploy resources and technology to avoid them becoming a feature of life in the UK by the 2030s.
- Pensions- company defined benefit schemes (DB) are marvellous for those that have them already. However with increasing longevity and better medicines private schemes will not be able to provide the level of pension expected by policy holders. Most pensions illustrations are still forecasting 7% future grow of the funds. With the UK economy struggling to reach 2% growth in GDP since 2008-2013 and with much of Europe stuck with low growth too such growth predictions in private pension funds are wildly over optimistic and aren’t going to happen. By maintaining low interest rates annuities will continue to be miserable and when rates are increased watch houses prices fall unless salaries rise to compensate which will push up inflation. Therefore, people are going to have to work longer before retirement is taken, if ever, and defined contributions (DC) will become the only system private sector employers can prudently employ. Public sector final salary inflation-linked pensions are wonderful yet unfunded and paid out of contributions and tax receipts from HM treasury to make up any shortfall. These also will become hugely expensive for the government and therefore the taxpayer in the future. Trying to modify by capping or dare be said switch them to DC from DB will cause huge eruptions among public sector unions as already occurred on smaller adjustment issues. My prediction here is that Union leaders like Len McCluskey of Unite will or indeed are becoming as active and defiant as the NUM was under Arthur Scargill in the early 1980s whether their fate is the similar will be clear by the 2030s.
- Healthcare- similar to state provided public pensions the NHS is a wonderful public service and as a soldier returning from WW2 I would have wanted free healthcare plus affordable public housing for the rest of my life but can the 3rd and 4th generations still hope to claim the same rights. The NHS is a bottomless pit in terms of funding no amount will ever be enough. Therefore, unless more services are charged patient care, drug dispensation or medical procedures will diminish even if NHS funding maintains it current levels of government spending. Before the 2030s even comes a trip to your GP is going to cost you. Along with dentists, opticians, and GPs even more surgical procedures will need to shift on to the private sector provision as the NHS struggles to deal with old-age related conditions such as dementia.
As a worst case scenario a possible trend by the 2030s of old-age pensioners committing crimes so as to get into a safer, warmer prison hospital bed as the NHS is floundering to cope and a pensions system hobbled by debt repayment to foreign investors with savings either taxed or depleted by rising nursing costs. Think of the infamous Ronnie Biggs of the Great Train Robbery as a forerunner of being looked after at Her Majesty’s pleasure in his old age he couldn’t afford.
- UK housing and salaries- excluding London as it’s a market on its own- property in the UK compared to average incomes depending on where you live vary from expensive to acceptable if a multiple of 8-3.5 times an average income, say in parts of Edinburgh or Newcastle, is considered prudent. However, interest rates are poised to move higher at some time in the future causing further stress to stretched incomes rising slower than the cost of living generally. This will lead to either inflationary wage/salary demands or lower economic growth thus taxes for government to spend on services like healthcare. The remedy is to borrow and build public sector houses again in large numbers in areas of high prices now using low interest rates to provide affordable homes for key workers, families and pensioners (More on this in part.2). By the 2030s there will be a more expansive and equitable housing market rather than housing shortages and prices hikes on the back of a congested planning system and misplaced help to buy schemes.
Defence, infrastructure and immigration, the EU will be covered in part.2 of this blog in December. Along with how a private investor like myself might make of investment opportunities that come along with the risks associated and shorter term -what about 2014?
Finishing on a political note I mentioned above the old left/right wing arguments are out-dated and that any future government of any stripe needs to be adaptive, flexible and help maintain a mixed economy. The political classes of today and their influences reflected in institutions like the BBC or Guardian newspaper will still be ascendant in the critical next few years ahead therefore the provision of welfare is unlikely to be lost through reforms to pensions and healthcare. The provision of infrastructure like HS2 or power stations of various types must happen regardless of what self-interested pressure groups such as Unite or Campaign to Protect Rural England wish to prevent. If a troubled 2030s like the 1930s is to be avoided all- government, business and individuals are going to have to earn a better future.
LDC