Inflation question

RobM99

Back to the OP's question - profit limits would do similar damage. Why isn't there a wage cap in the Premier League? Presumably because the top players would disappear to other countries.

On this point I'm guessing that FIFA (Federation of International Football Associations) could impose a global maximum.
Slightly different point, if a player (or anyone else) has an income of say £200,000 a week, they're paying huge amounts of income tax (PAYE), NI and VAT on stuff they buy. Most big clubs are foreign owned and sponsored so doesn't that bring in massive amounts of foreign money?

Sorry if it's off-topic.

booneruk

RobM99 said:

Back to the OP's question - profit limits would do similar damage. Why isn't there a wage cap in the Premier League? Presumably because the top players would disappear to other countries.

On this point I'm guessing that FIFA (Federation of International Football Associations) could impose a global maximum.
Slightly different point, if a player (or anyone else) has an income of say £200,000 a week, they're paying huge amounts of income tax (PAYE), NI and VAT on stuff they buy. Most big clubs are foreign owned and sponsored so doesn't that bring in massive amounts of foreign money?

Sorry if it's off-topic.

I guess if the whole world came together to limit profits companies could make it would stop the flight of firms to more favourable countries should any single country attempt such a cap or regular, broad "windfall taxes".

Although there would be startup companies that would think "I can't make serious profit from taking all this risk, so I just won't bother"

And yes indeed, football players pay a lot of tax - a lot of that money does come from the fans though, in terms of tv subscription packages, stadium visits, merchandise etc.

jamesmorgan

FArchergirl said:

I don't know where this belongs, it's a question............I left school at 15 so not as clever as you lot so I have a question.....

Don't apologize, there is no such thing as a stupid question.  Often the most seemingly obvious questions have a high degree of complexity in the reply.

Periods of high inflation often go through a similar set of events.  Each generation likes to believe they are different, and as the cycle often takes many years to play out, there will be many deniers early in the cycle..

a) an external shock happens - often a spike in energy costs
b) if this happens in a period of high employment, then employees have high degree of power and can force higher wages
c) as employee wage costs are a high element in prices for all goods, we enter an inflation spiral, where prices and salaries try to catch each other up
d) governments/central banks try to break this cycle by putting up interest rates.  This takes a long time to become effective and only works when the majority of the population experience real pain and change their spending habits
e) companies react to this by reducing prices (and inflation starts to ease), however, the reduction in purchasing of goods/services mean that companies need to downsize and lay off staff.  We then enter a recession

If we can avoid entering step b), then the external shock is self-contained and things would return to normal fairly quickly.  However, this is difficult - especially in a global economy, where the actions of one government won't work in isolation.

Comerical companies can only exist if they attract external investment.  In order to do this, they need to make higher post-tax profits than lower risk asset classes (eg bonds, savings accounts).  Typically most commercial companies need to make 5-10% post-tax profit to be viable.  If I can make 4% in a savings account, why would I invest my money in much riskier supermarket if it was only making 4% after-tax profits.  Energy companies like Shell are at the upper end of acceptable margins but still not excessive.  The only companies that can consistently make excessive profits are companies like Apple where their excellent marketing can encourage consumers to over-pay for their products.  However, these companies often sell discretionary products which are most impacted when we enter a recession.

All of the above are driven by market forces.  It is very difficult for governments to break these market forces, and when they try you usually end up with a whole set of undesired consequences.  We can see at the moment that the Bank of England is trying to slow down wage demands - this is almost certainly not going to work.  If we were on a roller coaster, we have just gone over the highest point - there is no way off now, we are just going to have to hang on for the rest of the journey.

Albermarle

I heard on the news that supermarkets profits have gone up from millions to billions

Not sure what news you were listening to, but it is simply not true.

Tesco profits dive 50% as inflation bites - Retail Gazette

More of an issue is some of the supermarkets big suppliers have been a bit overkeen to raise prices  ( Heinz, Unilever etc ) Supermarkets have in some cases refused to accept excessive price increases and  actually fallen out with some suppliers over them 

RobM99

booneruk said:

RobM99 said:

Back to the OP's question - profit limits would do similar damage. Why isn't there a wage cap in the Premier League? Presumably because the top players would disappear to other countries.

On this point I'm guessing that FIFA (Federation of International Football Associations) could impose a global maximum.
Slightly different point, if a player (or anyone else) has an income of say £200,000 a week, they're paying huge amounts of income tax (PAYE), NI and VAT on stuff they buy. Most big clubs are foreign owned and sponsored so doesn't that bring in massive amounts of foreign money?

Sorry if it's off-topic.

And yes indeed, football players pay a lot of tax - a lot of that money does come from the fans though, in terms of tv subscription packages, stadium visits, merchandise etc.

Indeed so. just goes to show that money goes round and round and....

lincroft1710

booneruk said:

El_Torro said:

Should their share price be taken into account when deciding how much windfall tax they should (or should not) pay? I think the company’s profitability is more relevant. 

Why isn't there a wage cap in the Premier League? Presumably because the top players would disappear to other countries.

Actually there was a wage cap in the English Football League. It was eventually £20 per week, lasted for many decades, but was finally abolished in 1961.

TripleH

A number of 'evil' shareholders are pension schemes providing for us in retirement as well. The media etc do miss that part out quite a bit.

RobM99

As an aside, here's what I got for £10 (just under) in 2014!

1/2 Pineapple 40p

4 pints milk 95p

500g red lentils 95p

2 x tins sardines total 80p

2 peppers £1.08

200 tin salmon £1.09

500g penne pasta 29p

Large jar pasta sauce 75p

500g porridge 39p

5lb red potatoes £1.20

Bag bean sprouts 49p

Bag salad leaves £1

Exodi

Archergirl said:

There is a cost of living crisis because everything is going up so the government is going to raise the interest rate to try to control it.

Just to be clear, the cost of goods is going up because of a multitude of factors. One of the biggest recently being the surge in energy prices due to Russia's invasion of Ukraine. The government also does not set interest rates, the Bank of England does so independently. 

Archergirl said:

But it's going up because the makers of stuff (or the owners or whatever) are charging more for it.

I think we all know where this is heading. Many companies (I am the director of a manufacturer myself) have seen double digit increases to their costs each year for the past couple of years. In 2021, manufacturers and retailers saw a dramatic surge in container prices (due to demand from the re-opening of economies and government stimulus measures), which saw the price of a container raise as much as tenfold. Not long after it declined, we saw a war in Ukraine that sent everyone (including businesses) energy bills through the roof (among countless other factors).

While businesses might opt to absorb a few percent increase, very few have the room to fully absorb the double digit cost increases of the past two years, so they had to raise their prices and pass on some of these increases to the consumer, or risk going out of business. Many businesses did not pass on the full impact of these increases.

Archergirl said:

I heard on the news that supermarkets profits have gone up from millions to billions, as have the energy companies and fuel companies.
The prices for all of these things has gone through the roof (thus I guess causing inflation)

Sigh, it is unfortunate that the public's typical reaction is that the greedy businesses are just raising prices to extort profit.

Without even needing to look into it, I can categorically tell you that supermarket profits have not gone up from 'millions to billions' (i.e. increased 1000x), that is totally ludicrous.

But just to drive the point home, you can see Tesco's financials here: https://www.tescoplc.com/investors/reports-results-and-presentations/financial-performance/five-year-record/

Tesco is currently operating at the same profitability level, as that of 2019 and 2020.

Prices going up doesn't cause inflation - prices going up is inflation. Inflation is a measure of the change in price of specific things.

Archergirl said:

Now surely if the government put a cap on profit to millions instead of billions (they were ticking along nicely making millions before the cost of living crisis) prices could come back down, and inflation would be gone....

I mean I'll get it out the way and say anti-capitalist measures like profit caps would quickly prove terminal for the economy.

Plus practically speaking, it would be illogical to implement. You want business to make profit, so they can reinvest their profits and grow. The obvious reaction to an oppressive measure like this would be companies moving their company somewhere else.

Plus that's based on the assumption that all companies are currently making more money than they know what to do with, which is certainly not the case.

However, I agree oil companies are an exception to this, and the UK has responded with windfall measures (though I'm sure some would disagree that they didn't go far enough).

Archergirl said:

I know I am simplistic but please tell me why this can't be done.( I bet all the shareholders come and tell me this.).............

Respectfully, you need to lose this media-infused notion that big companies and shareholders are all automatically evil blood sucking villains (you are probably indirectly a shareholder of some supermarkets through your pension provider). Your last bit saying "I bet all the shareholders come and tell me this (why it wouldn't work)." just sounds daft.