Simon Jenkins is a perplexing, and confused man. He’s written a piece for the Guardian in which he strongly criticises, on Keynesian grounds, the rise in VAT. And he has also strongly recommend that if cash is to be raised it should come from big business and banks. All of which is just fine. But then he gets terribly confused:
The chancellor is right to reduce the deficit. Rising this winter to its highest peacetime level, its cost in interest is enormous and, if unchallenged, risks a confidence collapse on a par with Greece and Ireland. Osborne has also been right to reduce public spending that had become a bull in the Treasury china shop. Labour knows this, having put the bull there, but it lacks the guts to suggest how else to get it out. When it comes to the economy, Ed Miliband is still on paternity leave.
Well, there’s some truth the last point, but not the rest. That’s just wrong.
Let’s talk absolute cash – it’s value changes over time. In percentage terms our deficit is way below the level in the 50’s and 60’s. Interest rates are low. People want to lend us money. The cost is affordable. No one repays a mortgage in 4 years when 20 years makes sense. There is no need to tackle the deficit now. And as we will all find – the reason government spending is so high is that we wanted it that way and until 2008 we also paid for it, quite happily, deficits being tiny in percentage terms and almost entirely explained by investment. I’m not saying all was rosy and there were no issues to address – like PFI, for example – but to say things were out of control was just wrong. They weren’t. This crisis was caused by bankers – as Jenkins admits – and no one else – and he can’t have it both ways.
And in that case we need a Keynesian solution to this problem, not a neoliberal cutting agenda which Jenkins’ realises will not work.
There are numerous ways to do this. First, tackle the tax gap. I stress, that won’t solve the problem by itself. But spending on more staff at HMRC, new legislation to tackle tax abuse, the domicile rule, residence abuses and to restrict allowances and reliefs for the best off and new taxes on banks and the highest paid employees could between them raise £20bn from the tax gap and a great deal more from the banks. Since all will take time to introduce they won’t harm recovery now but will pay for costs when recovery is under way.
Second, we need a stimulus package. That could come from Green Quantitative Easing.
Third, we need to ensure that reform of pension funds so that at least 25% of all funds contributed is invested in new job creating industry in the UK is a condition of tax releif being given.
Add these up and we have a job creation programme, a boost for business, a crack down on those not paying their way that does not harm those who already are doing so, and better pension prospects as funds are invested in real economic activity and not inspeculation.
That’s what Jenkins and other should be talking about. Not least because it is possible, and deliverable now.