ERC Chart: Asset Class Performance

Historical Asset Class Performance
Summary:
This chart shows a snapshot of the performance of different asset classes: UK commercial property, global government bonds and global equity since 2003. Overall, commercial property has yielded the highest percentage return on investment for half the years shown. Equity has yielded the highest returns in 5 out of the 14 years shown, displaying its sensitivity to the overall economic climate. This sensitivity can be seen following the 2008 financial crash, when equity suffered a fairly catastrophic drop to -39.2% returns, some 15% worse than property, the next worse-performing class. This was followed by a steep climb to 30% returns in equity in 2009 and a rapid fall to -6% in 2011; the effects of the double dip recession. Gilts have only been the most profitable asset class for 2 of the years shown, specifically 2007 and 2008, the years of the financial crash, reflecting their traditional reputation as a relatively low-risk, reliable-return investment in the falling interest rate environment. However, government bonds have shown negative returns since 2013, something that Baroness Altmann, in a recent speech to the ERC, attributed to the continued use of quantitative easing. This, she claimed, had turned gilts ‘from risk-free returns into return-free risk’.
What does the chart show?
The chart shows the percentage return on investment in three asset classes from the years 2003 – 2016: global equity, global government bonds and commercial property in the UK. The grey line represents commercial property in the UK; the orange line represents global government bonds and the blue line represents global equity. The return on investment ranges from -39.2% to 30%.
Why is the chart interesting?
Global equity returns have been diminishing since 2013, which is attributable to a range of factors, not least widespread geopolitical uncertainty. The drop in oil price, which has been disastrous for oil companies as well as the effect of low interest rates are two further drivers in this downward trend. All commodities suffered in the global crash, but prices have begun to climb in 2016, following commitments from the US and Chinese governments toward large-scale infrastructure projects.
Returns from investment in commercial property in the UK climbed from 2003 to 2004, and remained above 18% until the financial crash. Although equity return recovered swiftly at the start of 2009, this increase was considerably more cautious in commercial property. Indeed, it was only in 2014 that returns on commercial property investment recovered to pre-crisis levels.
Compared to asset returns in cash, commodities and credit, the three assets compared in the graph yielded the highest returns over the last decade. An investment of £100 in equity in 2003 would have seen a return of £307, the same into property would have yielded £271 and into government bonds, £168. With volatility indices at an all-time low, the chart shows the increasing merit of a diversified portfolio in the years since the crash.

ERC Chart: Corporate Tax Rates

Corporate Tax Rates v.s. Receipts
Summary:
The chart shows that, despite consistent reductions in the taxation rate, yearly receipts of corporation tax have remained relatively stable over the last decade. The exception to this is the two years following the 2008 global crash where revenues dipped to a decade low of £29.6m. Receipts have risen in 2016/17 exceeding for the first time pre-crisis levels, rising over £47m to £55.1m where they are projected to stay. This is likely due to the drop in sterling value following the Brexit referendum and the related reduction in export costs. Formerly, revenue collected from offshore corporation tax constituted a high proportion of receipts overall averaging at around 15% of the total in the first six years shown here. However offshore receipts are now dwindling, with the reduction in revenue of likely related to the dramatic fall in oil prices, which has impacted North Sea oil and gas companies’ profits considerably.
What does the chart show?
This chart uses figures from the government’s Public Sector Finance report to display the absolute receipt of tax revenue from private corporations. This is split into revenue generated from taxation of domestic activities, shown in blue bars, and revenue collected from offshore activities shown in orange. The data is yearly in millions of pounds, not seasonally adjusted and measured against the left hand axis. Overlayed and displayed by the yellow line is the corporation tax rate, which is measured in percent against the right hand axis. The figures for the financial years beginning in 2017 are OBR projections that are based on the current rate of corporation tax and do not reflect any of the parties’ planned changes.
Why is the chart interesting?
One of the policy areas in which the two main political parties diverge significantly is corporation tax rates, with Labour pledging to raise the rate 26% and the Conservatives promising a further cut to 17% in line with their policy throughout the last two parliaments. UK corporation tax is currently the lowest of the G7 and among the lowest in OECD countries. Labour’s proposed rise would maintain the UK’s position in the G7 but take the UK 2% above the OECD average corporation tax rate. Should the tax rate be raised there are fears it would result in a reduction in private investment, and therefor economic growth. Business investment in the UK has been subdued since the 2008 recession and indeed dropped in 2016, despite the seven cuts in tax rate in the last decade. Following the Brexit referendum and our potential departure from the single market, there is apprehension that companies will be compelled to leave the UK altogether, leading some to believe that they must be incentivised by further tax reductions to stay. However critics of this perspective point to numerous other developed nations, for example Germany and the US, whose corporate tax rates are far higher and whose economies enjoy growth at similar or higher rates to the UK.

ERC Chart: Support for Nationalisation

Public Support for Nationalisation
by Sector and Age Group
Summary:
With the topic of nationalisation forming a significant part of current debate in the run up to the general election, a survey that gathered information regarding support for nationalisation has formed the basis of this week’s chart. Recent figures have shown a surge in the registration of around 2 million voters aged 18-24 year olds, so this age group’s views are particularly interesting. When all displayed sectors are averaged, 57.3% of the sample wish the services shown to be nationalised or to remain in public control. Although opinion polls cannot be treated as a source of conclusive data, they may highlight slightly more contentious sectors by certain age groups based on their own experiences and needs.
What does the chart show?
This chart uses figures from the results of an opinion poll carried out by YouGov on the 17th and 18th May 2017 with just under 2000 representative respondents. They gathered information regarding support for nationalisation by age group. Each bar represents the percentage of the given age group who support the public management of each sector, which are detailed along the horizontal axis. The blue bars represent 18-24 year olds, the youngest voters; the red bars represent 25-49 year olds who are most likely to be in employment; the green bars represent 50-64 year olds and the purple bars, those aged 65+, probable retirees and pensioners who nonetheless have the highest voter turnout.
Why is the chart interesting?
As has been well established over many electoral cycles, public support for the NHS to remain in full public control is very high (well over 80%), making policy changes in this area a politically hazardous move for any party. The area with the least support for nationalisation is banking, and may be due to the electorate’s distaste for public money flowing into the banking system post-bailout. The transport sector, broken down here into separate sections for rail and bus companies, sees high support for nationalisation. Perhaps this is in response to particularly poor service in recent years and no doubt has inspired the Labour pledge to nationalise the rail service. Support for nationalised rail services is highest among the youngest voters, more likely to be supporters of the Labour party. High fuel prices and a lowered appetite for car ownership may also play into the attitudes of the young towards increased government control of the rail and bus network. Older people are more likely to support the nationalisation of energy companies, maybe due to their increased likelihood of suffering from fuel poverty and a belief that, under government control, prices stand a greater chance of coming down.

ERC Chart: Receipts vs Spending

Public Sector Receipts vs Spending
Summary:
As the general election approaches, these charts provide some information on the current state of taxation receipts and public spending in the UK. The UK government has run a budget deficit as a norm over the last 60 plus years, as expenditure is higher than tax revenue, regardless of which party occupies Downing Street. The budget was last balanced in 2001/2 and has been so in only 8 of the years since 1955. The OBR forecasts debt to be equivalent to 86.6% of national income in 2016/17, equating to around £1,730 billion or £62k per household. They also forecast total tax revenue of £721.1 billion, again falling short of planned expenditure of £772.8 billion.
What do the charts show?
Representing the fiscal year from April 2016 to March 2017, the figures presented in this chart compare projections of public sector of spending with receipts. The stacked bars represent the projected total and the breakdown by category of public sector spending and the sources of public sector tax receipts. Although each component is labelled with the absolute amount it represents, along the horizontal axes, the percentages of the total are shown.
Why are the charts interesting?
The taxes that contribute most to the public purse are income tax including National Insurance Contributions and VAT, which are anticipated to raise a combined £421bn. One sizeable contribution comes from corporation tax which represents 7.4% of the total. Business rates, Council and Capital Taxes and Fuel Duty each currently contribute around 4% of the total. Among the ‘other’ tax revenue is income from interest on assets for example FX reserves or student loans alongside income from corporations that remain in public hands.
Expected public spending per household will total £28k or 39.3% of household income this year. Unsurprisingly, spending on health is the largest in a single sector, an estimated 15% of the total. It is noteworthy that the NHS employs over 1.5 million people, and sits among the US Department of Defence, McDonalds and Walmart in the top five largest global workforces. Similarly, education demands a sizeable government expenditure, thought to account for 7.7% of total spend at £59.6 billion. Other expenditure covers day-to-day running costs of the machinery of the state including public services, grants and administration- around some 40% overall.

ERC Chart: Households by Tenure

Households of 25-34 year-olds by Tenure
(Households by Tenure)
Summary:
The chart shows that 2011/12 marked the point that home-owning 25-34 year olds were no longer in the majority, surpassed by those that rent privately. In 2005/06, homeowners represented 56% of all households headed by 25-34 year olds, and renters, both private and social accounted for 44%. This picture has changed dramatically in the decade shown, with home ownership in this age bracket falling fairly steadily to 38.2% in 2015/16. Social renting has remained relatively stable in this period, but has reduced from 19.8% in 2005/06, to its lowest in 2015/16 of 15.7%. A large increase in the number of 25-34 year olds who rent privately is evident, almost doubling from 24.2% in 2005/06 to 46.1% in 2015/16. Home ownership began to increase again in 2013/14 rising by 2.4% in 2 years.

What does the chart show?
The graph represents a breakdown of all household where the chief householder is aged between 25-34, with their name on the either the rental contract or the ownership deeds. The blue line shows the percentage of such homes that are privately rented, the pink shows social renters in receipt of housing benefit. The black line represents the percentage of home owners. The data runs from 2005/06 until 2015/16 and originates from the government’s annual English Housing Survey. As such it covers the whole of England, including data from London where there is a disproportionately large number of renters.
Why is the chart interesting?
There has been much coverage of the decline in home ownership across the board, with particular focus on the plight of millennials, who have suffered from a range of economic disadvantages following the financial crash. Indeed record numbers of individuals in this age range remain living in their parents’ homes for far longer than in previous years. A recent study by an insurance company showed that in 2005, 27% of 25 year olds still lived with parents, whereas this figure rose to 33% in 2016. Recent reports indicate that the scale of lending from ‘Bank of Mum and Dad’ or ‘BOMAD’, has increased dramatically with parents projected to finance 26% of all mortgages in 2017, an estimated contribution of £6.7bn towards sales totaling £77bn. This is a growing trend that reflects the different economic circumstances between the generations: wage stagnation, the cost of university, the reduction in defined benefit pensions as well as the dearth of affordable housing (a product of both the promotion of buy-to-let as well as lack of supply).

ERC Chart: US Car Loan Delinquency

US Car Loan Delinquency
Summary:
The charts show the nominal value of car loans issued in the US, which peaked at $1.157 trillion in 2016, representing a 65% increase since 2004. Between 2004 and 2008, the value of loans remained fairly stable, whilst delinquency grew steadily. However, following the global crash in 2008, one can see a clear drop in the value of loans issued, as well as a spike in delinquency, which reflects the efforts of US financial institutions to clean up their balance sheets. This prudence only lasted until 2010, when the value of car finance loans began to steadily increase once again. The value of delinquent loans has grown from $17 billion in 2004 to $43 billion in 2016, an increase of nearly 155%.

What does the chart show?
The blue bars in the first chart display the total, nominal value of all loans issued against cars on the road in the US in trillions of US dollars. The data runs from 2004 to year-end 2016 and is measured against the left hand axis. The orange line represents the percentage of these loans which are considered ‘delinquent’, i.e. four missed payments or unpaid 90 days after the due date. This is measured against the right hand axis. The second chart displays the real nominal value of these delinquent loans over the same period, in billions of US dollars.
Why is the chart interesting?
The increase in delinquency reflects the growing use of in-house financing by US car manufacturers; which, due to the incentive of growing their sales, are increasingly being issued to clients of poorer credit quality. The Federal Reserve Bank of New York estimates that manufacturer-underwritten loans account for 75% of all loan delinquency and contrasts this to loans issued by banks and credit unions, who have experienced reductions in bad loans since the financial crash. The ready availability of new car finance has encouraged consumers to not only opt for new cars over used ones, but also to choose more expensive models, with longer financing periods, as the difference in monthly payments can seem insignificant. Loans are based on the resale value of the used model, however many automotive experts predict the second-hand car market to be in decline, largely due to the increase in new-car incentives offered by manufacturers and the resultant influx of younger used cars onto the market. Although delinquency is rising on car loans it still lags behind delinquency on both student and credit card debt in the US.

ERC Chart: UK Voter Sentiment

UK Voter Sentiment on Key Issues
Summary:
The chart shows that the Conservative Party enjoys the majority of support across 7 of 9 issues, with Labour support exceeding the Tories’ only on NHS and Housing. Echoing this pattern, when questioned on their preference Theresa May was chosen by 50% of the sample as the best Prime Minister, and Jeremy Corbyn only 14%. Those that opted for ‘Other’, ‘None’ and ‘Don’t Know’ consistently make up around 40% of votes; they are represented by the various grey sections. This uncertainty was lowest on the topic of immigration and asylum, where the conclusive party preferences made up 67% of the total. Unsurprisingly, UKIP secures its highest support (15% of votes) on Immigration and Asylum, coming in second only to the Conservatives at 29%. Education and schools draw up a close run between Conservative and Labour at 26% and 23% respectively, suggesting perhaps that the electorate isn’t decided on the issue of grammar school expansion. UKIP trails in the area of education with its lowest share of 2%. Interestingly, housing is where the largest proportion of those polled are undecided, a significantly greater number than those favouring the leading party in this area, Labour. The chart shows economic wellbeing to be Conservative’s strongest area, which may reflect both the ability to unify the party on messaging in this area and the relative calm so far following the turbulence anticipated in the wake of Brexit. On handling Britain’s exit from the EU, UKIP support exceeds Labour by 1%, but trust in the Conservatives is nearly four times as high. In the area of law & order, a traditionally Tory strong suit, almost triple the votes are in favour of the Conservatives compared to Labour. Unemployment is one of the Liberal Democrat’s weakest areas with only 5% support, one sixth of the Conservative support. Although 34% of people polled believed that leaving the EU will be bad for UK jobs, this did not translate to greater support in this area for the Lib Dems, despite their overt preference for a softer Brexit. The category of taxation generally shows a similar pattern as unemployment, but Lib Dems manage to secure slightly more trust at the expense of Labour.

What does the chart show?
The chart shows the results of an opinion poll on 12th/13th April. A representative sample of 2,069 respondents (who voted Leave and Remain proportionally), drawn and weighted across the UK, were asked which of the parties they would favour on a number of key issues. Each bar is split into sections represented by each Party’s traditional colours; Conservative in blue, Labour in red, Lib Dems in yellow, UKIP in purple. The data displayed is from a YouGov opinion poll. Following the erroneous polling results during the previous general election and in the US 2016 election, caution must be exercised with this type of data.
Why is the chart interesting?
The high proportion of undecided voters may encourage tactical voting efforts, such as the formal campaign launched by Gina Miller which is focussed on encouraging the tactical support of europhile MPs regardless of party affiliation. Following the announcement of the snap-election, there was initial mention of the prospect of what Mrs May terms a ‘coalition of chaos’; a potential alliance between Labour, Lib Dem and SNP. Despite the rejection of this idea by both Labour and the Lib Dems, the chart shows that even when the sum of all Lib Dem, Labour and ‘other’ support is compared to the Conservatives, this coalition would secure overall support in 4 out of the 9 categories, and not necessarily the categories which voters may choose to prioritise.

ERC Chart: Trends in Take-Home Pay

Trends in Take-Home Pay 
 
Summary:
The chart shows that take home wages for the 2nd and 9th decile of earners have been strongly correlated in the years since the financial crisis. Earners in the 20th percentile have seen their wages shrink compared to the preceding year in four out of past 9 years, whereas wages of those in the top bracket decreased in six. Following the crash, wages for the lowest earners initially fell more sharply than those at the top, but recovered more quickly comparatively.

What does the chart show?
The chart displays how the earners in the top and bottom income brackets have experienced changes in their take-home pay since 2008, adjusted for inflation. The chart shows the percentage annual change in take-home pay from the years 2008-2016 in real terms, as well as projections from 2017 through to 2020, shown by the dotted lines. The orange line shows the change for the 2nd decile of earners; the blue line for the 5thdecile (the median), and the green line represents earners in the 9th decile. The 1st decile was excluded because the lowest earning 10% of the population will generally be the national minimum wage earners, whose wages are not as exposed to changes in the market and whose income doesn’t fluctuate as much due to changes in fiscal policy.
Why is the chart interesting?
There is a marked jump in take-home pay between 2014 and 2015, which is likely attributable to the raising of the personal tax allowance, allowing workers at the lower end of the income distribution to take home a greater proportion of their wage packet. In 7 out of the 9 years from 2008-2016, top earners were below the median take-home wage growth rate, but are forecast to see increases that exceed the median growth rate in the coming 4 years. For the lowest 20% of earners, 5 out of the last 9 years’ wage growth exceeded the median rate, and indeed it is forecast to remain well above the median and also above the top 10% of earners between now and 2020.
According to Mark Carney in February, wage growth will be a key driver in the Bank of England’s willingness to tolerate post-Brexit inflation in excess of its 2% target- it remains to be seen whether the Bank will alter interest rates in the near future.

ERC Chart: Risk of Automation

Workers at Risk of Automation vs Employment Share by Sector 
 
Summary:
This analysis suggest that up to 30% of UK jobs are considered to be at high risk of automation by the early 2030s. This places fewer UK workers at risk than in the US and Germany where the figures are 38% and 35% respectively, but the UK fares worse than Japan (21%). The sector with the highest risk is manufacturing where the report estimates that 46.4% of workers could be at risk. When considering the share of total employment within manufacturing, this translates to 1.22 million jobs. Although wholesale and retail trade enjoys a lower percentage of workers at risk, as it represents nearly 15% of total employment, the number of workers at risk is nearly double those in manufacturing, at 2.25million. In the health, care and education sectors, there is a markedly lower risk to workers, and is projected to affect less than 1 million workers.

What does the chart show?
The blue bars represent the percentage of workers from each sector whose jobs are at high risk of automation by the early 2030s, measured against the left hand axis. This data has been drawn from a report by a consultancy who used previous studies and data from the OECD’s  Programme for the International Assessment of Adult Competencies (PIAAC) to estimate whether or not jobs were automatable. It is worth considering that other studies in this area have found quite divergent results; notably Frey and Osborne in 2013, whose estimates are slightly higher as well as a 2016 study by the OECD whose estimates are far lower. This study, unlike the two prior, attempts to take into account potential job creation through automation as well as accounting for limits of job automation that are separate to what technology permits. The orange dots show the percentage of total employment in the UK in each sector. It is measured against the right hand axis and uses ONS data for 2016.
Why is the chart interesting?
There has been much talk of automation as a solution to labour market shortages. One example came in February 2017, when Secretary of State for Environment, Food and Rural Affairs, Andrea Leadsom, addressed the National Farmers Union annual conference, stating that the solution to concerns about the potential exodus of EU workers lay in new technology and automation that would ‘complement the workforce’. However the data on automation displayed here suggests that only 18.7% of jobs in the category of agriculture, forestry and fishing have a high probability of becoming automated (which translates to 130,000 actual workers). EU workers make up some 90% of all seasonal agricultural workers according to the Association of Labour Providers, which also reported that there had been a dramatic dip in applicants for these seasonal positions in 2016. They attributed this to several factors; the post-referendum devaluation of the pound, which negated the introduction of National Living Wage for migrant workers, and the reported rise in anti-immigrant sentiment, both of which make other countries increasingly attractive to low-wage migrant workers.
Education is a significant differentiator in the risk to workers from computerisation. Those working in jobs that require only GCSE level qualification are at almost four times higher probability of losing out to automation compared to university graduates.
Two important caveats to this data exist: though possible, not every job that can be replaced through computerisation will be as other regulatory and legal factors may come into play; and should some level of automation occur, there would likely be wealth-generating productivity gains which could support job expansion in less automatable areas.

ERC Chart: Eurozone Companies

Eurozone Companies’ Reaction to Political Risk
 
Summary:
While 2017 will see a number of different political risks coming to the fore, what is clear is that uncertainty about both Britain’s new relationship with Europe and the future policies of the Trump administration are perceived to pose the biggest risk to Eurozone businesses (27% and 28% of respondents respectively).

What does the chart show?
The chart reflects research undertaken between 10th January and 13th February, in which 600 Eurozone-based firms were polled on their attitudes to 2017 political risks. 74% of companies polled had UK investments and the companies were all based in either Germany, France, Italy or Spain. The respondents (from 150 firms per country listed) all had decision-making responsibility or understanding of their companies’ investment strategy. The data shows the percentage of respondents against the right hand axis citing the political risks detailed. The report authors noted that firms were likely to rate risks in their own countries more highly than abroad.
Why is the chart interesting?
Ahead of the triggering of Article 50 on 29th March, the poll results suggest that businesses are exercising caution where UK domestic exposure is concerned. Only 14% of those surveyed cited France’s election as a significant concern, despite staunch Eurosceptic Marine le Pen’s vows to renegotiate the country’s relationship with the EU. Whether this fearfulness about Brexit among Eurozone businesses will have any substantive effect is unclear, as 54% of respondents stated that Brexit was unlikely to affect their investment strategy.