Inflation to be highest rate for 3 years

This article here highlights that inflation CPI is expected, by city forecasters, to hit 4.9% or even as high as 5.1%. Please read the whole article as it contains information about that rate of pensions increases and past inflation, which is very beneficial to know for the exam!

Word of the Day

Laffer curve

The Laffer Curve shows how a government’s tax revenue changes with changes in the average tax rate.

·       When the average tax rate is 0%, tax revenues are 0.

·       Tax revenues are also 0 when the average tax rate is 100%.

·       Tax revenues are maximised at the highest point on the curve, in this case it’s at a 50% average tax rate.

·       As the average tax rate increases, tax revenues rise until a certain point whereby after, there is no longer an incentive to produce output and people work less or do more to avoid paying the tax which reduces total revenue because the opportunity cost of paying the tax rises.

·       The Laffer Curve suggests that total tax revenues will increase at a lower tax rate, therefore cutting taxes will increase total tax revenues and create a virtuous cycle.

·       Reducing the tax rate creates incentives to work and produce output, stimulating economic growth, thus increasing total tax revenues.

Many students will "never pay back loans"

An article published this morning warns that many students will not be able to pay back their student loan regardless of whether you are being charged £6000 or £9000 for your university course. If you think you will be worse off having fees of £9000 rather than £6000 per year, then you may be wrong. This is because after 30 years your debt is written off and you still would not have finished repaying your full debt by this time.

Martin Lewis, from MoneySavingExpert, calculated that if a graduate starts earning £30,000, then the debt of fees of £6000 per year will remain unpaid. If a graduate starts earning £40,000 after graduation, the graduate will pay back their fees of £6000 per year in 24 years. This means that students that start earning £30,000 will never pay back their debt, no matter what their fees. And the likelihood of graduates paying back fees of £9000 is very low.

Whether you have to pay your £6000 fees or £9000 fees, the monthly repayments remain the same. You will have to pay 9% of everything over £21,000 and this increases as you begin to earn more. In some ways, I suppose it is a good thing that you are not debt burdened for the rest of your life (with your student loan fees that is!) and there is a chance that you never have to pay back all the money you owe. But unfortunately, you still have to pay more than the preceding years.

This article can provide thought for the law of unintended consequences. Ask yourself though, how can the government not have calculated how many debts will remain unpaid?