Anyone who lives in the South West can argue that they get a raw deal. Not only are the average salaries in this region lower than in the rest of the United Kingdom, but their water bills are 40% higher than those elsewhere in England and Wales. South West Water is the only provider of water in the South West and hence there are no other competitors that households or businesses can switch to, despite the extortionate prices.
Many households and businesses in the region are struggling to cope with the unfair bills, as people are forced to sacrifice other things in order to find the money. Furthermore, it can be argued that these higher bills are actually used for the benefit of everyone else in the United Kingdom. Since privatisation, South West Water are responsible for cleaning and maintaining over one third of the UK’s beaches and the prices they are charged by SW Water reflect this £2 billion cost. Moreover, with a relatively low population, this large cost cannot be spread across many people. Instead, the small population has to pay larger bills. A hairdresser, who does use a lot of water, is finding herself crippled by water bills of some £2,500. And this bill will pay to clean the beaches in the South West so that people living elsewhere can benefit from the beautiful surroundings.
There is now wide recognition of how unfair this scenario is and proposals have been suggested, ranging from a government grant (hardly likely given the state of public finances) to a levy on other regions’ bills to compensate SW Water for their clean-up costs. However, no decision has been made about how to progress and so for now, residents of the region must just simply grin and bear it, while sacrificing expenditure on other areas and seeing residents from across the UK benefit from their sacrifice.
P.S. If you hadn’t guessed it, yes I do live in the South West!
Why is water so expensive in the South West? BBC News (13/7/10)
North Devon MP Nick Harvey tackles unfair South West Water charges Barnstaple People (14/7/10)
Questions
- What is privatisation? Assess the advantages and disadvantages of the privatisation of water some 20 years ago.
- Does South West Water have a monopoly?
- Which of the 3 proposals is the most beneficial to those a) living in the South West, b) businesses in the South West c) the government and d) the rest of the country?
- Which proposal would you recommend and why?
- Is it fair that those in the South West should pay disproportionately more to clean and maintain beaches, which are used by everyone?
- Is the concept of market failure relevant in this case? Explain your answer.
House prices are on the rise again and at the fastest rate since June 2007, according to the Nationwide. In June 2007, the average house price was £184,070, which did prevent many first-time buyers from getting on to the property ladder. Enter the recession. Over the past two and a half years, house prices have fluctuated considerably. Land Registry data shows that the average house price in April 2009 had fallen to £152,657, which gave first time buyers more of a chance, but at the same time mortgage lending fell and many lenders required a 25% deposit, which again ruled out many purchasers. Gradual increases in the latter part of 2009 and the beginning of 2010 have seen the average price rise to £164,455 (£167,802 according to Nationwide) and the trend looks unlikely to reverse, although it should stabilise.
Behind these changing prices is a story of demand and supply and the importance of expectations. As the credit crunch began and house prices began to fall, those looking to sell wanted to do so before prices fell further, while those looking to buy were expecting prices to fall further and so had an incentive to delay their purchase. In recent months, however, the demand for houses has out-stripped supply and it is this that has contributed to rising prices. At the same time, the stamp duty holiday that ended in December 2009 was re-introduced in the 2010 Budget and mortgage approvals have begun to increase. All of this has led to annual house price inflation of 10.5% by April 2010.
Articles
House price inflation hits 10.5%, says the Nationwide BBC News (29/4/10)
House price rise reaches double digits, finds Nationwide Telegraph, Myra Butterworth (29/4/10)
House price growth hits three-year high Times Online (29/4/10)
Taylor Wimpey says house prices rise 9pc Telegraph (29/4/10)
Bringing down the house price Guardian (27/4/10)
Data
House Price Data Nationwide
April 2010 Press release Nationwide
Halifax House Price Index site Lloyds Banking Group
(see especially the link to historical house price data)
House Price Index site Land Registry
Questions
- Using a diagram, explain why house prices fell towards the end of 2008 and the beginning of 2009.
- Using your diagram above, now illustrate why house prices have begun to increase.
- Is the demand and supply of houses likely to be price elastic or inelastic? How does this affect your diagrams from questions 1 and 2?
- Why is the upward trend expected to stabilise during the latter part of 2010?
- To what extent has the stamp duty holiday affected house prices?
- Has the recession had an impact on equality in the UK economy?
- Will rising house prices contribute to economic recovery. Explain why or why not.
The Labour government’s investment in education has been widely publicised since its rise to power in 1997 and there has been a significant increase in funding to match its ‘50% participation in higher education’ target. However, at the university level, this looks set to change. More than 100 universities face a drop in their government grants as a consequence of £450 million worth of cuts. 69 universities face cuts in cash terms and another 37 have rises below 2 per cent. Furthermore, increased funding is now going to those departments where research is of the highest quality, which means that whilst some universities will not see a cut in funding, they will see a reallocation of their funds.
Sir Alan Langlands, Chief Executive of Hefce, said: “These are very modest reductions. I think it is quite likely that universities will be able to cope with these without in any way undermining the student experience.” Despite this reassurance, there are concerns that, with these spending cuts and growing student numbers, class sizes will have to increase, the quality of the education may fall and ultimately, it may mean a reduction in the number of places offered. The Conservatives have estimated that 275,000 students will miss out on a place. UCAS applications have grown by 23% – or 106,389 – so far this year, but the number of places has been reduced by 6000. This policy of cutting places is clearly contrary to the government’s target of 50% participation.
With the average degree costing students over £9000, it is hardly surprising that students are unhappy with these spending cuts and the fact that it could lead to a lower quality education. With the possibility of rising fees (in particular, as advocated by Lord Patten, who has called for the abolition of a “preposterous” £3,200 cap on student tuition fees) and a lower quality degree, this means that students could end up paying a very high price for a university education.
Articles
Universities fear research funding cuts Financial Times (18/3/10)
More students but who will pay? BBC News, Sean Coughlan (18/3/10)
University cuts announced as recession bites Reuters (18/3/10)
How about $200,000 dollars for a degree? BBC News, Sean Coughlan (18/3/10)
Liberate our universities Telegraph (17/3/10)
Universities should set own fees, say Oxford Chancellor Patten Independent, Richard Garner (17/3/10)
University budgets to be slashed by up to 14% Guardian, Jessica Shepherd (18/3/10)
Universities face cuts as Hefce deals with first funding drop in years RSC, Chemistry World (17/3/10)
University cuts spell campus turmoil BBC News, Hannah Richardson (18/3/10)
Universities told of funding cuts Press Association (18/3/10)
100 universities suffer as government announces £450 million of cuts Times Online, Greg Hurst (18/3/10)
Data
HEFCE announces funding of £7.3 billion for universities and colleges in England HEFCE News (18/3/10)
Questions
- Why is there justification for government intervention in higher education? Think about the issues of efficiency and equity and why the market for education fails.
- What are the arguments (a) for and (b) against allowing universities to set their own tuition fees?
- Why is the government planning these substantial cuts to university funding, when it is still trying to increase the number of students getting places at university?
- Is the ‘50% participation in higher education’ a good policy?
- What are the benefits of education? Think about those accruing to the individual and those gained by society. Can you use this to explain why the government has role in intervening in the market for higher education?
- Is it right that more spending should go to those departments with higher quality research? What are the arguments for and against this policy?
- What are the costs to a student of a university education and how will they change with funding cuts and possibly higher tuition fees?
In 2008, the UK government set up a National Equality Panel to investigate inequality. “The Panel was asked to investigate the relationships between the distributions of various kinds of economic outcome on the one hand and people’s characteristics and circumstances on the other.” The panel delivered its report, An Anatomy of Economic Inequality in the UK, in January 2010. It “addresses questions such as how far up or down do people from different backgrounds typically come in the distributions of earnings, income or wealth?”
The aspects of inequality examined include: educational outcomes, employment status, wages and other sources of income (such as benefits) both for the individual and the household, and wealth. “In our main report, we present information on the distributions of these outcomes for the population as a whole. Where possible we indicate how they have changed in the last decade or more, and how the UK compares with other industrialised countries. But our main focus is on the position of different social groups within the distributions of each outcome.”
A major influence on people’s income was the income, wealth and class of their parents since these affected education, peer groups and a whole range of other life chances. This made it virtually impossible to achieve equality of opportunity.
The report also looks at policy implications. These include not just the redistribution of incomes, but also the more fundamental issue of how to create equality of opportunity. “The challenge that our report puts down to all political parties is how do you create a level playing field when there are such large differences between the resources that different people have available to them.”
So what has happened to inequality? What explanations can be offered? And what can be done to lessen inequality? The following articles look at the findings of the report and offer their own judgements and analysis.
Rich-poor divide ‘wider than 40 years ago’ BBC News (27/1/10)
The Big Question: Why has the equality gap widened even through the years of plenty? Independent, Sarah Cassidy (28/1/10)
UK is one of world’s most ‘unequal’ societies Irish Times, Mark Hennessy (28/1/10)
Unequal Britain: richest 10% are now 100 times better off than the poorest Guardian, Amelia Gentleman and Hélène Mulholland (27/1/10)
No equality in opportunity Guardian, Phillip Blond and John Milbank (27/1/10)
Has the wealth gap really widened? Guardian, Tom Clark (27/1/10)
Inequality in a meritocracy Financial Times, Christopher Caldwell (29/1/10)
Who wants equality if it means equal poverty? (including video) Times Online, Antonia Senior (29/1/10)
A Major miracle on equality Public Finance, Richard Reeves (29/1/10)
UK one of the worlds most unequal societies; report says The Sikh Times (29/1/10)
Only policies, not posturing, will bring down inequality Independent (28/1/10)
The Report
The full 457-page report can be accessed here.
A 44-page summary of the report can be accessed here.
A 6-page executive summary can be accessed here.
Click here for the charts and tables from the report.
Another good source of information on the distribution of income is the Annual Survey of Hours and Earnings published by the Office for National Statistics.
Questions
- How can we measure inequality?
- Outline the findings of the report.
- Why is inequality so high in the UK and why has it continued to deepen?
- Have tax credits helped to reduce inequality?
- To what extent are greater equality and faster economic growth compatible economic objectives? How are incentives relevant to your answer?
- What specific policies could be adopted to give greater equality of opportunity? Identify the opportunity costs of such policies.
In 2010/11, government funding for UK universities will be 7 per cent less (£518m) than in 2009/10. This has led to calls for substantial increases in student fees in order to stave off a serious funding crisis for many universities. One such call has come from David Blanchflower. As the first article below states:
“A leading economist has called for students from well-off families to be charged the ‘market rate’ of up to £30,000 a year to go to university. David ‘Danny’ Blanchflower, a former member of the Bank of England’s monetary policy committee, said the “poor have been subsidising the rich” for too many years.”
But just what are the arguments for and against a substantial rise in fees and who should pay any rise in fees? Should it be only students of very well-off parents or should it include middle-income parents too? Or if student loans are available to cover higher fees, why should not the same fees apply to all students? Then there is the question of who benefits from a university education? How much should external benefits be taken into account?
Call for universities to charge well-off students £30,000 a year Observer, Anushka Asthana and Ian Tucker (27/12/09)
A rise in fees would make university education fairer Observer (27/12/09)
Who wants a two-year degree? Independent on Sunday, Richard Garner (27/12/09)
Briefing: University funding Sunday Times, Georgia Warren (27/12/09)
Universities face £500m cut in funding Financial Times, Nicholas Timmins (22/12/09)
The nightmare before Christmas: grant letter announces £135m cut Times Higher Education, John Morgan (27/12/09)
Fast-track degrees proposed to cut higher education costs Guardian, Polly Curtis (22/12/09)
Questions
- Why is the government planning to make substantial cuts to university funding?
- What are the arguments for and against the university sector bearing a larger percentage cut than most other areas of government expenditure?
- Should any rise in fees be born by parents or by students from future income?
- Identify the external benefits from higher education? How does the existence of such externalities affect the arguments about the appropriate charges for higher education?
- What are the economic arguments for and against moving towards more two-year degrees.
- Discuss the case for and against increasing the participation rate in higher education to 50 per cent of young people.
- Is higher education a ‘merit good’ and, if so, what are the implications for charging for higher education?