Recession & The UK Economy

27th June 2008

Managing Director, Worldwide Financial Planning, writes:

I can’t remember who said it, but it wasn’t me:

‘If inflation continues the two-car garage will be replaced by the two-family garage’. 

This is a stark reminder as the impact of inflation makes its way back through to the picket line.

I was most amused by the rationale offered from the Shell tankers union, explaining why I wasn’t able to buy any diesel, as all the forecourts around me dried up.

I bumped into one of the carers for my mother in law who asked what she could do with no fuel. How could she get to look after people who were effectively bed ridden and couldn’t be transferred without her? The feeling of discontent grows and grows, and I wonder how the government will score themselves against their target of managing an economy.

In the meantime the poor shell drivers asked for a minimum wage of £36,000. Really. I suspect there would be a queue outside their picket line for jobs! They were offered a 6% rise on all elements of pay and yet they still decided to strike. Amazing. 

The reason given was that Shell made lots of money and they should see some of it. What a pile of nonsense. If Shell made a loss, would the staff remortgage and inject the capital into Shell with no chance of capital return?

They should be paid what they are due (which may or may not be more than 6%) and what Shell makes is irrelevant. The national officer carried on with his view that they deserved extra money because of the extra cost of food and fuel in the world. What a barrel of laughter he is. So in return he cuts off supply, thereby driving up demand and catapulting prices.

World inflation is not Shell’s problem, it’s the problem of mismanaged economies from borrowing too much, a weakening dollar and as last week’s column pointed out, a 1900% increase in the buying of commodities by large financial institutions over the last five years. This has catapulted the cost of food and fuel through the roof. To blame Shell, is at best irresponsible.

We all need to remember that oil companies are under as much pressure to make money as others and they have a responsibility to run their business and be accountable to shareholders.

If you look closely at the price of fuel, you may see that in April alone 58% of the price of fuel is down to government taxation. Without tax, the total cost of a litre would be 48.8p.

Let’s also remember it is conservatively estimated that 60% of the price of oil today is the fault of commodity traders. If that’s the case, petrol would have come down to c46.4p and if the government took its tax off we could be down to 19.49p. Aaaah what a simple life it would be without governments and capitalists.

Interestingly for the benefit of the Union’s national officer, pre tax cost of fuel in the UK is the 3rd lowest in all EU states. When you add the UK’s tax onto it, it’s the 19th lowest. Food for thought.

This scenario is likely to continue whilst nothing is done about the commodity traders who have hoarded these assets over the last five years. Remember the total amount allocated to commodity index trading strategies in 2003 was a mere $13 billion. It’s $260 billion now. Once this disappears, the inflation risk will disappear and with it the threat on interest rates and normality will resume. In the meantime many will dine on it driving up their wage demands for reasons that have as much to do with Shell as knitting jelly.

Expect more of the same in the way of strikes though. People have been allowed to believe their house was a never ending ATM and this debt will make its way through to many more wage related inflationary demands. It’s all a great game. 


If you have a financial query call Peter on 0800 0112825, e-mail info@wwfp.net 


Source:
Guardian


Peter McGahan is an Independent Financial Adviser and the Managing Director of Worldwide Financial Planning Ltd who are authorised and regulated by the Financial Services Authority. 'The FSA does not regulate Credit Cards, Will Writing and some forms of mortgage and Inheritance Tax Planning.'
Information given is for general guidance only, and specific advice should be taken before acting on any suggestions made.
The above represents the personal opinions of Peter McGahan.
All information is based on our understanding of current tax practices, which are subject to change.
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