I note an article in the FT this morning that says:
The National Health Service cannot survive as a purely taxpayer-funded service and will have to look for other forms of revenue, such as co-payments and top-up insurance, if it is to meet future demand, one of its most influential figures has said.
David Bennett, until just over a week ago head of Monitor, the hospitals regulator, said Britons were “close to the limit” of what they were prepared to pay in tax.
And another that reports:
Politicians and investors agree: there is an “infrastructure gap”, it is global, and it approaches $1tn each year. From the US through Europe to the emerging world, there is a backlog of projects that are needed to drive growth, while institutional investors are desperate to find investments – like infrastructure – that offer them a return that is not related to the volatility of the stock and bond markets.
Yet the deficit remains. “The challenges are as much on the side of projects as on supply of capital,” said Bertrand Badré, the World Bank's managing director, at its annual meeting in Lima last month . “There are simply not enough viable projects out there.”
And in case you think I only read the FT in the morning the Guardian has this:
George Osborne's decade-long redesign of the British state will result in 44% of state spending going on health and elderly people, the highest proportion since comparable records began in the 1990s.
Meanwhile, the share of overall state spending that goes on education and economic development, including house building, is set to fall by around one fifth over the same period to 19% — its lowest share since comparable data began in 1997.
In case you are wondering by now what the connection is, it is the poverty of thinking. David Bennett thinks that however great the healthcare needs of the country, and however great our capacity to supply them might be there is some immutable limit that suggests we reach a point where we say enough is enough and we refuse to produce any more health unless we can also produce handbags, holidays and gladrags that are the supposed precondition of paying for the NHS. The assumption is that the provision of healthcare by the state is a mere byproduct of the meeting a private need by the market.
George Osborne clearly buys them logic: it is very obvious that he intends to ration the supply of many public services over the course of the next few years on the basis that we would rather shrink the state than pay for those things that we really need and want. In the process he will, whether he intends to or not, seek to alienate younger generations from the state to the greatest degree possible by ensuring that they pay more, relatively, for a service from which they will see ever reducing benefit.
In the meantime, as the FT article on infrastructure hints, the world's capital will offer no redress to all this because it can find no real investing opportunities worth pursuing in the private sector and at the same time it refuses to make itself available, either at reasonable cost or by way of tax payment, to meet public need.
We are stuck in a crisis created by an extraordinary mindset. The world's capital is desperate to invest in infrastructure because it can think of nothing else to do, such is the worldwide poverty of entrepreneurial thinking, but at the very same time those politicians chosen by the world capital are refusing to provide a use for that wealth because they will not create the new debt that it wants to buy, whether it be issued by National Investment Banks or in the simple form of gilts, because they believe that if the state undertakes such activity it will crowd out the private sector even though the owners that private sector are, in effect, crying out for state leadership on this issue.
And, at the same time, because in the world's wealthier economies the wealthiest are realising that there is little else that they can consume they are beginning to save more with a threefold result. First, they are not fuelling growth, with the result that there is a steady decline in the overall rate of growth of government income where the trajectory which was, for so long, steadily upwards, now looks to be remarkably flatline.
Second, their saving is having a remarkably distortionary effect upon society because, since they know that they aren't spending they also know that there is no point in saving by buying the shares of the companies whose products they're not interested in acquiring, so they are instead buying property, but are in the process making the lives of the middle and lower earners in the societies in which they live considerably harder.
Third then, unsurprisingly those on middle and low incomes are feeling worse off, but not because of taxation, but because of the rewards that they are paying to the already wealthy who are then not making their cash available to the state to meet the needs of the majority of the population. Those under pressure to pay back student debt, mortgages, provide for pensions that they might never be able to take and simply keep a family fed whilst also paying for the educational support for their children when the state is no longer able to meet it are inevitably going to have limited additional resources to pay tax, although George Osborne does, in his July 2015 forecast, presume that they will in fact be making significant additional payments despite that fact.
So, we have reached crisis point. Capital has given up the game of growth, but we have not learned how to manage that fact. It has instead taken up the game of wealth extraction, but yet again, and despite the enormous consequences of this, we have not adjusted to this new reality. And, because we do not tax wealth in any effective way the consequence is that significant sums are being moved beyond the effective reach of taxation whilst the need for services in society is continuing to grow at the rate it did prior to 2008, when government was not profligate but simply met need which (it should be stressed) it was apparent that we as a society had the ability to fulfil if only the cash was available for that purpose, just as we could now meet the need if only the right mechanisms were put in place to fund it.
My point then is a relatively simple one: we do not need a spending review right now, unless it is to increase the level of supply of services to those who are in need. What we need instead is an income review, which looks at how the capacity of our economy to meet public need can be best met from the resources available to it at this time. And what would that spending review conclude? I suggest that three things are possible.
First it include the deficit funding at this point of time is entirely logical. We have no risk of inflation. We have under-used resources in the economy. We have low effective wages. We have capital crying out to lend money to the government at almost no interest rate. And we now know that quantitative easing can cancel debt if it proves to be necessary to stabilise markets without any apparent repercussions of consequence, as Japan continues to prove. There is, despite the claims of right wing politicians, a mechanism to provide the money that we need to make the economy work if we have to use it and only fools would deny us the chance for better well-being on the basis of outdated theories and paranoia about the Weimar Republic.
Second, we need to tax wealth. Let's not beat around the bush: if the world is awash with wealth that is largely untaxed, which wealth appears to have little productive use, then the obvious thing to do is tax it. And, since we will in the next few years have effective automatic information exchange from tax havens the opportunity to tax wealth has, for the first time, been created as a consequence of the tax campaigning by those in the Tax Justice Network, development agencies and others who have put this topic onto the international agenda. It is time to tax those who can afford to pay.
And third? We really do need to release capital for investment. I mentioned a way to do this via pension funds the other day. But a National Investment Bank is the obvious route to use to co-ordinate such activity. And PQE is the back up (and I stress, the bank up) here.
Put simply, another world is possible, but to get to it we need a paradigm shift in thinking. Until it happens we are all going to suffer from wholly unnecessary and counter-productive cuts in spending.
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It seems to me that certainly the UK, and probably the US, needs to, follow the Canadian example, where Trudeau and the Liberal Party have “read the runes” and come up exactly with both the conclusions, AND the policy proposals, based on the reasoning you have set out.
See this excellent piece on that Election (and I hope the Labour Party – today’s Party, and not the neo-liberal New Labour Party!) is studying this example closely.
http://gemelitolaluna.com/2015/10/25/justin-trudeaus-victory-in-canada-and-its-lesson-for-center-left-parties-worldwide-win-by-going-progressive-keynesian-bold-and-ditching-third-ways-austere-fiscal-conservatism/
Very good
We need to emulate it
I am waiting patiently for Jeremy Corbyn and John McDonnell to raise the profile on the economy, and take on the establishment shibboleths in the same way they are confronting the nonsense that is Trident.
The Corbyn Labour Party is experiencing extraordinary growth and energy at the moment, and must take this opportunity (historic opportunity) to throw wide that Overton Window and let in some light. In 1997 Tony Blair (albeit in government) tragically missed the opportunity to shift the paradigm, and we can’t afford to lose momentum this time.
The link to the Canadian experience is very informative, and heartening for those of us who want change. I quote the last paragraph:
“…the lesson of Trudeau and the Liberals’ victory for the center-left is this: it’s time to bury the losing, timid and uninspired ways of austere third way economics and embrace the winning path of bold, optimistic and progressive (pro-growth) Keynesianism. At their best, for center-left parties, embracing progressive economics is not just a laundry list of sound, constructive policies that will do much to economically lift up the many rather than just the few, but it also goes to heart of the social liberal and social-democratic project: fighting for a hopeful and just vision of society where–to borrow the memorable words from the election victory speech of Prime Minister-designate Justin Trudeau–it means rejecting “good enough is good enough and that better just isn’t possible” and fighting for a future where the “better is always possible.” “
The Corbyn Labour Party is experiencing extraordinary growth and energy at the moment, and must take this opportunity (historic opportunity) to throw wide that Overton Window and let in some light. In 1997 Tony Blair (albeit in government) tragically missed the opportunity to shift the paradigm, and we can’t afford to lose momentum this time.
Absolutely, so why aren’t they?
They are not just taking on the ‘establishment shibboleths’, they are taking on the Labour Party. At conference, the current Trident policy was reinforced by the party. Corbyn completely undermined that by saying he’d never use Trident, thereby stripping it of its use (however useful you think it is) entirely and forcing the party to conform to his position. How’s that for internal democracy?!
No leader would use Trident
Corbyn just told the truth
I am aware that is not what we expect
Thanks for posting the link, Andrew. Just read the whole piece and a lot of the links (The Escalator video is spot on). Superb.
This should be required reading for all those right leaning Labour MPs and austerity fetishists who have no comprehension or willingness to recognise anything other than the failed “third way”, and also think the British public to dim to grasp anything other than the trope of austerity past, present and future (ie. the politics of punishment, suffering and lack of hope for the money, and plenty and more for the few).
Chris Leslie in particular take note.
That last sentence should have been ‘for the many’, of course.
And Liam Byrne
And Yvette Cooper
And Chuka Umunna
And……
Richard, regarding your second point to tax wealth, are you suggesting taxing it for funding purposes or to stop wealth being used for unproductive or harmful purposes? I am still very much confused regarding your stand on whether taxation is used by central/federal governments for funding purposes or not, considering they can create their own money?
There is no confusion
Governments can create money and do to pay for services
And they HAVE to tax in reality to prevent inflation
How they tax is dependent upon social and economic priorities
Taxing wealth is a social and economic priority to ensure we do not have inflation as a result of the level of government spending we need
What is hard about that?
The problem is your muddled thinking Richard.
You say Governments tax to prevent inflation. A defensible point of view ( even if I do think MMT is more fitting the facts the to theory, rather than the other way round ).
But then you say “already wealthy who are then not making their cash available to the state to meet the needs of the majority of the population”.
Why do they need to be taxed to make their cash available to the state if the state creates the money it needs and taxes simply to prevent inflation caused by the created money?
Also, “Let’s not beat around the bush: if the world is awash with wealth that is largely untaxed, which wealth appears to have little productive use, then the obvious thing to do is tax it.”
Why tax it, if as you say, there is no risk of inflation and the money isn’t needed for spending? Again, as you say
“Taxing wealth is a social and economic priority to ensure we do not have inflation as a result of the level of government spending we need”, and “We have no risk of inflation”
You can’t have it both ways Richard.
Yes I can
I am arguing for redistribution
That is a social function fulfilled through the necessary process of taxation
The claims are wholly compatible – whether MMT says so, or not
When the state creates money everyone (including the wealthy) will see at least some indirect benefit. If you don’t tax wealth then this benefit gets locked in untaxed assets whilst still providing a supply of income, so I guess you’d get inflation, which would prevent the government from creating more money.
I’m no economic expert but it looks like a likely result of printing money without sufficient taxation of wealth.
Superb review, Richard. I can’t add anything to that.
But I would like to make clear to everyone that David Bennett, former head of Monitor is one of a cabal of people who have spent years in various capacities in government promoting the privatisation of the NHS – often through policies dressed up as something else (a hallmark of health policy through the later Blair years). But then what would one expect when he spent 20 years working for that arch adviser on privatisation and anything else of neoliberal bent, MkKinsey and Co.
Private Eye has documented Bennett’s role within government/the NHS over many years. He was at one point the highest paid person in the NHS. I’d also add that a mark of the man might be this:
In July 2014, Bennett’s roles at Monitor were criticised by the Public Accounts Committee of the House of Commons (PAC), which noted: “It is wholly inappropriate that the same person acted as both Chair and Chief Executive of Monitor between March 2011 and January 2014. This was contrary to corporate governance good practice and Monitor’s own guidance to NHS foundation trusts”.
Ultimately though, Bennett and his sidekicks (many of whom still reside within the myriad sections and empires across the NHS and Health department), their political cheerleaders and corporate puppet masters have got their way. They’ve created a perfect storm within the NHS which has led us to a situation where the ideas you quote him spouting are one solution – and I’ve no doubt whatsoever they’ll be the solution Hunt and this government follow.
Neo feudalism at work Ivan
Indeed, Richard. And if I have time after producing my latest PG module for the OU by next spring (by which time I’ll be owed about six months study leave) I might actually try to draw all the thinking on this (much of it via you, Andrew and others on this blog) into a book.
I have just been asked to write another, on austerity….
Not surprised about the austerity book, given your new found fame 🙂
If you’re not starting it until next spring (or later) and you’re looking for a collaborator I’d be interested. Not that you’re without access to some academic luminaries at City, of course.
They want it asap…..I am data collecting…..but I may not accept the current offer so watch this space….
That those private contractors and banks who made vast profits from PFI deals, selling,flipping and such from our hospitals and schools is just so scandalous you could not make it up. They need to be reversed, but there is not the will. Reverse the internal market from the NHS, not a chance. So the Bilderberg view and plan for the world is evolving. Well done Canada, there is hope. Mr Corbyn, are you a man for all seasons, at least you have caused a shift. As for wages and trying to buy food for a growing family, not simple filling carbs, quality, it is what gives them vitality and good health after all. This governments mindset is of course to have a parallel universe for themselves whilst the piece of the pie for us is forever juggled and jiggled quite cleverly. Consummate politicians.
Maybe we should be asking why there is this seemingly disgusting theft occurring at the upper-echelons of the public sector, particularly at NHS, ripping off the nation with their inflated pay, benefits, pension pots and pseudo-retirement/retrenchments, independent contractors or ill health resignations.
These people are no better than the bankers – except this is no bailout, just a normal working day
This is not theft
And it is ludicrous to suggest it is
First, these salaries are properly authorised
Second they are vastly lower than equivalent private sector salaries
Third, the responsibilities are usually a lot higher
But you just offer abuse
“Maybe we should be asking why there is this seemingly disgusting theft occurring at the upper-echelons of the public sector, particularly at NHS, ripping off the nation with their inflated pay, benefits, pension pots and pseudo-retirement/retrenchments, independent contractors or ill health resignations.
These people are no better than the bankers — except this is no bailout, just a normal working day”
Most public sector pay has been held down at 1%. Where is the inflated pay you mention? Or these massive pension pots?
Or are you just indulging in massively ill-informed, right-wing trolling?
Yes…yes,you are indulging in the latter.
If I had my way everyone in the public sector would see their pay increased, starting with care workers and nurses. Why can we not as a society value those who care for us?
The comparison with bankers, hedge fund managers and ex-prime ministers is shameful.
Do you have the same problem with the astronomical salaries paid to corporate CEOs, made possible by avoiding as much tax as possible and paying their employees poverty wages topped up by tax credits – both viewable as ripping off the nation? No, I’m sure in those cases, you’ll use faux arguments such as “their remuneration is dictated by market forces”, “their pay is justified by the work they do” or “they are not paid with taxpayers’ money” (though by your logic, they surely are, by denying the Government the tax due or their employees a real, sustainable living wage!
Note also the cuts to energy sustainability:
1) an end to subsidies for onshore wind;
2)onerous planning requirements for onshore wind
3)the failure to raise the ‘subsidy cap’ for renewable energy
4)last year’s cuts to large scale solar farms;
5)today’s cuts to medium scale solar farms;
6)the deliberate undermining of investor confidence in renewables;
7)the scrapping of the requirement for new homes to be ‘zero carbon from April 2016;
8)the withdrawal of the Climate Change Levy exemption for renewables;
9)huge cuts in support for solar power;
10)and most recently, the removal of EIS tax relief for investors in community renewable energy projects.
From:http://www.theecologist.org/News/news_analysis/2986190/leaked_letter_rudd_admits_25_green_energy_undershoot_misled_parliament.html
The private sector needs it’s stagnant (or rent extracting ) money taxed away and replaced by spending for social purpose and create real (as opposed to ‘crap’) jobs for the sake of all of us.
It is ironic that for a philosphy that fetishises aspiration, its own aspirations are limited, blinkered and rigid. It means it is destined to fail. But if those that follow it have the reins of power then unfortunately the rest of us have to look forward to being the collateral damage when it does fail – again. The best hope currently is that Osborne’s austerity rhetoric turns out to be mostly a sham.
“I have just been asked to write another, on austerity…”
Does that mean austerity will be remunerative?
(Best to get the jokes out of the way first)
“The National Health Service cannot survive as a purely taxpayer-funded service and will have to look for other forms of revenue, such as co-payments and top-up insurance, if it is to meet future demand, one of its most influential figures has said.
David Bennett, until just over a week ago head of Monitor, the hospitals regulator, said Britons were “close to the limit” of what they were prepared to pay in tax.”
Errmmm…aren’t we paying less, in income tax at any rate, less than we have paid for some considerable time?
I know Gordon Brown cut the basic rate of income tax at least once, if not twice. I believe the basic rate was nearer 25%. reduced to 23%, then down to the 20% it is now.
NI rates have gone up slightly, not by a large amount by any means. Higher income tax payers are enjoying much lower ta rates than previous decades, particularly the 1960s and ’70s.
Avoidance and evasion of tax point to a figure of £120 billion. Though it is highly unlikely all of this will ever be recovered, even if only 10% of it was recovered, it could make a significant difference.
Of course, though, the idea of co-pays and top-up insurance planted in the minds of the populace as the only way to keep the NHS going is the whole idea. Break the NHS by closing doctor’s surgeries, A&E’s and hospital wards which will put huge pressure on the one’s that are left, along with the financial pressures of PFI to wear the NHS to such a state that the politicians can come out and say: “WI am afraid it is going to cost for too much money to resolve the NHS’ problems. The only way we can keep it going is to look for alternative ways of funding it.” Then along come the vultures to cash an and goodbye NHS…..if we are daft enough to let it happen.
Overall taxes are rising and are set to do so: a little known feature of George’s plans
Taxes other than income tax, though? Though I don’t know much of the names of these hidden taxes, I am aware they exist.
“The National Health Service cannot survive as a purely taxpayer-funded service and will have to look for other forms of revenue, such as co-payments and top-up insurance, if it is to meet future demand, one of its most influential figures has said.
David Bennett, until just over a week ago head of Monitor, the hospitals regulator, said Britons were “close to the limit” of what they were prepared to pay in tax.”
I cannot work out whether Dr Bennett is a medical doctor or not. But if he is so influential why isn’t he trying to stop some of the problems at source – particularly obesity and diabetes – which is a chronic, and rising expense for the NHS – by taxing that purveyor of empty calories, the soft drink industry. That would both reduce expenditure and raise taxes. Or perhaps in language he might understand, the NHS should not be bailing out the soft drink industry. See for example http://www.theguardian.com/news/2015/nov/03/obese-soda-sugar-tax-mexico
….wholly unnecessary and counter-productive cuts in spending
I’d add economic crash inducing!
Neil Wilson does a good job in compiling the UK sectoral balances which show that private balances have reduced rapidly. They are now negative and still falling. They were low at the time of the 2008 GFC but not negative. The Government’s deficit is more than entirely accounted for in funded the net import bill.
This can’t last much longer.
http://www.3spoken.co.uk/2015/10/uk-sectoral-balances-q2-2015.html
The NHS survives by the well-known socialist expedient of “the queue”. In a market economy, you have the price mechanism. In planned economies you have “the queue”. The questions are are the queues too long and how much does it cost to shorten them. I suspect our professor of public practise has an easy answer. And Baxter…you should stick to punting.
Prof John Harvey has the same problem on the other side of the pond!
This is how he tries to get his message across.
“For the individual, having money is extremely important as it represents a claim on existing resources. The more money you have, the more you can claim. It’s a bit like having a winning raffle ticket. If you have three winning tickets, you get three prizes; if you have zero, you get none. To the organizers, however, the tickets are an afterthought. The scope of their event is limited by the number of prizes available, not how many claims exist. They would never say, “We can’t afford to do the raffle this year because we don’t have enough winning tickets!”
Yet this is precisely what many presidential candidates are arguing. When someone says, “We can’t afford to continue to fund Social Security,” they are saying that we lack sufficient winning tickets to hand out to seniors. Okay, print some more. If that’s the only problem, then solving it is trivial (notwithstanding any politics). On the other hand, if we lack the ability to produce sufficient goods and services for both the working and the retired, then we’re screwed.”
http://www.forbes.com/sites/johntharvey/2015/11/06/yes-there-is-a-free-lunch/
An excellent overview of the contradictions in the current paradigm.
As you have repeatedly demonstrated, taxation fulfils many roles, none of which is to fund government spending. However, I wanted to emphasise the point that a major reason for tackling tax avoidance and ‘tax havens’ is because of the distorting effects (and temptation to criminal behaviour) that results from the obscene wealth of the global elites.
The necessity to redistribute wealth is not just about natural justice but also to prevent the development of economic bubbles and crashes; and the ‘owning’ of the political process. A good example is the way in which the wealth of the fossil fuel industries has been deployed to effectively block mitigating climate change.
Agreed
Entirely
HMRC’s tax commissioner Edward Troup is reported as saying the UK tax gap of £34bn is broadly in line with other countries – but as HMRC continues to reduce its staff numbers it makes one think they are not serious about taking vigorous action to reduce the gap – or perhaps is it because the Government itself is not too concerned about the size of the tax gap ?
This was very bizarre, not least because the HMRC data suggests it is actually easily the best in the world ( which for the record is just not true) and so he didn’t even tell the truth when making an incorrect comparison
A “whole-system” approach is needed, with partners across a place establishing a shared vision for the outcomes they want to achieve, and keeping a firm focus on the impact they can deliver by working collaboratively.
This then would match the under used resources you refer to, with the unmet needs that exist in local areas.
That to me is a paradigm shift.
Can I found any other details about this subject in other languages?
Not here: apologies but I can only manage to do this in one language
Why this web site don’t have other languages support?
Because I only speak English
And don’t have the resources
I recently discovered Bernard Lonergan’s writings on economics. Published posthumously, they criticise the mainstream and propose an entirely new vision of political economy. This is a useful paper by Eileen de Neeve on the relevance of his thought today:
http://eileendeneeve.com/Lonergans%20Economic%20Ideas%20Today%20complete.pdf
Quote from page 12: “One has to place first human society, which is served by the economic process, and second the economic process, which is to be served by money . . . and not vice-versa.”
He also calls on people to “ “ridicule, explode, destroy” myths and illusions created by dominant economic and political elites ” (page 15).