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Poorest Households Could Face Flat Or Decreasing Incomes

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Terrace by Les Chatfield via flickr

Resetting policy in the Autumn Statement could resolve this dismal outlook for living standards.

A tough economic inheritance of weaker wage growth, higher inflation and £12bn of planned social security cuts mean that the poorest half of households face flat or falling incomes over the parliament – unless the new Chancellor takes action in his Autumn Statement.

This is according to a new report published today by the Resolution Foundation.

Under New Management includes the first comprehensive assessment of the outlook for living standards that Theresa May’s new government has inherited.

It finds that the return to strong shared income growth enjoyed in recent years – led by surging employment and historically low inflation – is unlikely to be repeated in the coming years. The UK’s chronic productivity growth means that a return to widespread wage-led income growth is unlikely, despite large and welcome increases in the minimum wage.

Using the average outlook of independent economic forecasts, the Foundation finds that lower wage growth and higher inflation could reduce typical earnings by around £1,000 a year by 2020, relative to pre-referendum projections. Such forecasts carry huge uncertainty however, with much depending on the manner in which the UK exits the EU, and the labour market response to that process.

This already challenging outlook for living standards will be worsened further still by the £12bn social security cuts scheduled for this parliament, which will bear down most heavily on low and middle income working families.

The report shows that gains from the National Living Wage, income tax cuts and the offer of 30 hours free childcare do not come close to offsetting significant income losses from welfare cuts, with a net average takeaway of £500 (or 3 per cent of income) for families across the poorest third of households when all cuts are fully in place.

Together, the economic inheritance of the new government means that the poorest half of households are set to experience flat or falling living standards over the remainder of the parliament, unless action is taken. Income growth for higher income households is positive, but at less than 0.5 per cent a year is still weak by historic standards.

The Foundation says that the future of Britain’s trading relationships and wider productivity growth will be key to boosting living standards in the long run. But with the process of delivering Brexit likely to take at least until the end of the parliament, it notes that the Chancellor has the chance to make a more immediate impact on the living standards of ‘just managing families’ by revisiting some key policies in his upcoming Autumn Statement.

The report highlights four key welfare reforms that will bear down most heavily on living standards including:

• Cuts to work allowances in Universal Credit (UC). Reductions in the amount families can earn before their benefits are tapered away reduces incomes for working families significantly and weakens incentives to work, saving almost £3bn by 2020. The measure will reduce incomes in the poorest half by an average of 0.8 per cent when fully rolled out. The losses vary from family to family – a working single parent could lose as much as £2,800 from this measure alone.
• Four-year freeze in working age benefits. This freeze was expected to save £3.6bn by 2020 when first announced in Summer Budget 2015. However, the outlook for higher inflation means it is now expected to save £4.6bn, and reduce incomes in the poorest half by an average of 1 per cent.
• Removing the family element in UC. A straight £545 cut to all new families in the benefit system, saving around £0.6bn in 2020.
• Two-child policy. Limiting in-work support to two children and removing the family element of UC to all families will save £1.6bn by 2020.

With recent Resolution Foundation analysis showing that the Treasury is likely to face an £84bn borrowing black hole in his Autumn Statement, the Chancellor clearly faces difficult trade-offs between fiscal credibility and revisiting such significant benefit cuts.

However, the Foundation says that boosting work allowances in UC – at a cost of around £3bn – offers the most targeted way to support just managing families by boosting their incomes and restoring their incentives to find work. Support is particularly needed to boost the work incentives of single parents and second earners in couples.

Action to soften the impact of the four-year freeze – for example by increasing benefits in line with inflation next year – would help families in and out of work as it affects all working age recipients. It will also compensate for the fact that inflation is now forecast to be higher than when the policy was first announced.

Extra revenues to fund these policy changes could come from abandoning further cuts in corporation tax, saving £2bn, and scrapping above inflation increases in the personal tax allowance and higher rate threshold to save a further £2bn. With four-fifths of the gains from these income tax cuts going to the richest half of households – and the UK’s five million lowest paid workers seeing no benefit at all – the Foundation argues that there are far more cost-effective ways to support just managing families.

David Finch, Senior Economic Analyst at the Resolution Foundation, said:

“The Prime Minister has rightly identified just managing families as a key priority for her new government. The first big test of this rhetoric comes in just a few weeks’ time when the Chancellor sets out the new government’s economic direction of travel in his Autumn Statement.

“The Chancellor inherits a tough legacy on living standards. The combination of long-term productivity failings, higher inflation, lower than expected wage growth and more immediate welfare cuts mean that millions of low and middle income households could face a parliament of flat or falling living standards.

“While making a success of Brexit goes well beyond the scope of the Autumn Statement, there is still plenty the Chancellor can do to make his mark on living standards. And by resetting fiscal policy he has created some crucial spending leeway that could be used to raise investment and boost household incomes.

“Reversing the damaging cuts to work allowances will boost incomes and increase work incentives, with women in particular benefiting from the extra returns to work. As millions of working families are set to move onto Universal Credit over the course of the parliament, this offers the best route to boosting the incomes and work incentives of just managing families.

“A new government gives the new Chancellor an opportunity to look ahead at the worrying prospect for just managing families’ living standards and do something about it by delivering a significant boost to living standards over the parliament.”

Economy

Will Self-Driving Cars Be Better for the Environment?

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self-driving cars for green environment
Shutterstock Licensed Photo - By Zapp2Photo | https://www.shutterstock.com/g/zapp2photo

Technologists, engineers, lawmakers, and the general public have been excitedly debating about the merits of self-driving cars for the past several years, as companies like Waymo and Uber race to get the first fully autonomous vehicles on the market. Largely, the concerns have been about safety and ethics; is a self-driving car really capable of eliminating the human errors responsible for the majority of vehicular accidents? And if so, who’s responsible for programming life-or-death decisions, and who’s held liable in the event of an accident?

But while these questions continue being debated, protecting people on an individual level, it’s worth posing a different question: how will self-driving cars impact the environment?

The Big Picture

The Department of Energy attempted to answer this question in clear terms, using scientific research and existing data sets to project the short-term and long-term environmental impact that self-driving vehicles could have. Its findings? The emergence of self-driving vehicles could essentially go either way; it could reduce energy consumption in transportation by as much as 90 percent, or increase it by more than 200 percent.

That’s a margin of error so wide it might as well be a total guess, but there are too many unknown variables to form a solid conclusion. There are many ways autonomous vehicles could influence our energy consumption and environmental impact, and they could go well or poorly, depending on how they’re adopted.

Driver Reduction?

One of the big selling points of autonomous vehicles is their capacity to reduce the total number of vehicles—and human drivers—on the road. If you’re able to carpool to work in a self-driving vehicle, or rely on autonomous public transportation, you’ll spend far less time, money, and energy on your own car. The convenience and efficiency of autonomous vehicles would therefore reduce the total miles driven, and significantly reduce carbon emissions.

There’s a flip side to this argument, however. If autonomous vehicles are far more convenient and less expensive than previous means of travel, it could be an incentive for people to travel more frequently, or drive to more destinations they’d otherwise avoid. In this case, the total miles driven could actually increase with the rise of self-driving cars.

As an added consideration, the increase or decrease in drivers on the road could result in more or fewer vehicle collisions, respectively—especially in the early days of autonomous vehicle adoption, when so many human drivers are still on the road. Car accident injury cases, therefore, would become far more complicated, and the roads could be temporarily less safe.

Deadheading

Deadheading is a term used in trucking and ridesharing to refer to miles driven with an empty load. Assume for a moment that there’s a fleet of self-driving vehicles available to pick people up and carry them to their destinations. It’s a convenient service, but by necessity, these vehicles will spend at least some of their time driving without passengers, whether it’s spent waiting to pick someone up or en route to their location. The increase in miles from deadheading could nullify the potential benefits of people driving fewer total miles, or add to the damage done by their increased mileage.

Make and Model of Car

Much will also depend on the types of cars equipped to be self-driving. For example, Waymo recently launched a wave of self-driving hybrid minivans, capable of getting far better mileage than a gas-only vehicle. If the majority of self-driving cars are electric or hybrids, the environmental impact will be much lower than if they’re converted from existing vehicles. Good emissions ratings are also important here.

On the other hand, the increased demand for autonomous vehicles could put more pressure on factory production, and make older cars obsolete. In that case, the gas mileage savings could be counteracted by the increased environmental impact of factory production.

The Bottom Line

Right now, there are too many unanswered questions to make a confident determination whether self-driving vehicles will help or harm the environment. Will we start driving more, or less? How will they handle dead time? What kind of models are going to be on the road?

Engineers and the general public are in complete control of how this develops in the near future. Hopefully, we’ll be able to see all the safety benefits of having autonomous vehicles on the road, but without any of the extra environmental impact to deal with.

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Economy

New Zealand to Switch to Fully Renewable Energy by 2035

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Shutterstock Licensed Photo - By Eviart / https://www.shutterstock.com/g/adrian825

New Zealand’s prime minister-elect Jacinda Ardern is already taking steps towards reducing the country’s carbon footprint. She signed a coalition deal with NZ First in October, aiming to generate 100% of the country’s energy from renewable sources by 2035.

New Zealand is already one of the greenest countries in the world, sourcing over 80% of its energy for its 4.7 million people from renewable resources like hydroelectric, geothermal and wind. The majority of its electricity comes from hydro-power, which generated 60% of the country’s energy in 2016. Last winter, renewable generation peaked at 93%.

Now, Ardern is taking on the challenge of eliminating New Zealand’s remaining use of fossil fuels. One of the biggest obstacles will be filling in the gap left by hydropower sources during dry conditions. When lake levels drop, the country relies on gas and coal to provide energy. Eliminating fossil fuels will require finding an alternative source to avoid spikes in energy costs during droughts.

Business NZ’s executive director John Carnegie told Bloomberg he believes Ardern needs to balance her goals with affordability, stating, “It’s completely appropriate to have a focus on reducing carbon emissions, but there needs to be an open and transparent public conversation about the policies and how they are delivered.”

The coalition deal outlined a few steps towards achieving this, including investing more in solar, which currently only provides 0.1% of the country’s energy. Ardern’s plans also include switching the electricity grid to renewable energy, investing more funds into rail transport, and switching all government vehicles to green fuel within a decade.

Zero net emissions by 2050

Beyond powering the country’s electricity grid with 100% green energy, Ardern also wants to reach zero net emissions by 2050. This ambitious goal is very much in line with her focus on climate change throughout the course of her campaign. Environmental issues were one of her top priorities from the start, which increased her appeal with young voters and helped her become one of the youngest world leaders at only 37.

Reaching zero net emissions would require overcoming challenging issues like eliminating fossil fuels in vehicles. Ardern hasn’t outlined a plan for reaching this goal, but has suggested creating an independent commission to aid in the transition to a lower carbon economy.

She also set a goal of doubling the number of trees the country plants per year to 100 million, a goal she says is “absolutely achievable” using land that is marginal for farming animals.

Greenpeace New Zealand climate and energy campaigner Amanda Larsson believes that phasing out fossil fuels should be a priority for the new prime minister. She says that in order to reach zero net emissions, Ardern “must prioritize closing down coal, putting a moratorium on new fossil fuel plants, building more wind infrastructure, and opening the playing field for household and community solar.”

A worldwide shift to renewable energy

Addressing climate change is becoming more of a priority around the world and many governments are assessing how they can reduce their reliance on fossil fuels and switch to environmentally-friendly energy sources. Sustainable energy is becoming an increasingly profitable industry, giving companies more of an incentive to invest.

Ardern isn’t alone in her climate concerns, as other prominent world leaders like Justin Trudeau and Emmanuel Macron have made renewable energy a focus of their campaigns. She isn’t the first to set ambitious goals, either. Sweden and Norway share New Zealand’s goal of net zero emissions by 2045 and 2030, respectively.

Scotland already sources more than half of its electricity from renewable sources and aims to fully transition by 2020, while France announced plans in September to stop fossil fuel production by 2040. This would make it the first country to do so, and the first to end the sale of gasoline and diesel vehicles.

Many parts of the world still rely heavily on coal, but if these countries are successful in phasing out fossil fuels and transitioning to renewable resources, it could serve as a turning point. As other world leaders see that switching to sustainable energy is possible – and profitable – it could be the start of a worldwide shift towards environmentally-friendly energy.

Sources: https://www.bloomberg.com/news/articles/2017-11-06/green-dream-risks-energy-security-as-kiwis-aim-for-zero-carbon

https://www.reuters.com/article/us-france-hydrocarbons/france-plans-to-end-oil-and-gas-production-by-2040-idUSKCN1BH1AQ

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