There are those who, it seems, think that Rory Stewart is indication that there is still sense in the Conservative Party. I wish to assure them that they are wrong.
Stewart has written on tax, fiscal rules and related issues in the FT this morning. He criticised the spending and tax plans of all his leadership rivals and had this to say:
I am both a Conservative and a fiscal conservative. If I am lucky enough to be chosen as the next UK prime minister, my priority will be to secure the long-term sustainability of Britain's public finances.
It was a portent of what was to follow. Like this:
So, although I have made my priorities clear – above all in education, productivity and broadband and infrastructure in the north of the country – I am not committing any money until it is clear that there is money is available. And I am not promising tax cuts.
So, the household economy analogy prevails then. And it gets worse when it comes to fiscal rules:
I will set clear rules to maintain discipline in spending. The current UK fiscal rule is far too complicated: it incorporates commitments to hit four overlapping targets over three different timeframes.
Ultimately, the stability of the public finances rests on one thing: a sustainable path for public-sector net debt. I will, therefore, introduce a new and simpler fiscal rule: that public-sector net debt as a percentage of GDP will decline each year over the three years of the next spending review.
This new rule will be more easily monitored by investors, taxpayers, and the Office for Budget Responsibility. It will allow for more appropriate flexibility in the underlying budgets. It will also establish a clear and disciplined framework allowing us to put to work the results of the work the UK has done to reduce the deficit and debt since 2010 without jeopardising fiscal stability.
With a growing economy, debt reduction is the minimum the electorate should expect from a Conservative government, and I challenge the other contenders to meet this promise.
This rule is, to be polite, economically illiterate. For example, it can be achieved by letting inflation run away: this always reduces debt as a proportion of GDP. I suspect that is not the plan.
And the goal can also be achieved by growth: increase GDP and on this basis the debt need not fall. Again, I suspect that is not the Stewart plan.
More worryingly, the reverse is also true: when GDP stagnates, inflation struggles to be much and the economy is in the doldrums this plan demands harsh austerity. There is no room for compromise.
I criticise Labour's fiscal rule, but it is a paragon of virtue compared to this rule which is intended to impose severe cuts on the economy whenever a stimulus is needed. This is an economic rule from the 1920s and 1930s, designed to deliver depressions and not recessions, and to impose misery on ordinary people through no fault of their own and solely because of the economic illiteracy of those who might rule them.
Rory Stewart is very definitely a fiscal conservative. And that makes him a threat to the well-being of everyone in this country.
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I think Rory Stewart is a threat no matter what is intended fiscal policies are. So are Johnson, Hunt, Hancock, Gove, Leadsom et al. They’re all terrifyingly incompetent, both economically, politically and socially. There’s not one able politician in the Tory leadership “race”. They’re all terrifyingly inept & unqualified for such responsibility. Time for a GE!
I do not believe that this rule promotes austerity. Austerity increases the debt to gdp ratio by stunting growth and reducing tax revenues. Investment that is productive reduces the debt to gdp ratio.
If you aim for 4-5pc nominal gdp growth then this rule allows a budget deficit of about the same size (with interest rates on the floor as they will continue to be). In normal times this should allow the slack to be taken out of the economy where needed-and in times of economic or financial crisis it will be clear that new investment reduces the debt to gdp ratio by preventing the economy from tanking.
Is there a better rule that shows a better understanding of capacity in the economy? Yes. Is this better than the fiscal charter, budget balance and the welfare cap? Hell yes.
I am struggling to understand what you are saying
And I think nominal gdp of the scale you suggest is optimistic
Nominal growth has been only just below 4pc since 2010-and that’s with austerity.
I am saying that growth means you can have a primary budget deficit of a roughly similar level.
And that productive investment reduces the real debt burden.
To say that this rule prevents an active fiscal policy is then untrue. It is true that it is not flexible to remove slack, but that doesn’t stop it being a massive improvement on the last 7 years.
And in a downturn we do not have thatbrate of growth
So this is pro-cyclical, as I said
When Rory Stewart announced his candidacy I thought ‘ ah a fresh face, I know something about him having read his book ‘ The Places in Between ‘ but I haven’t paid him much attention since he became an MP . And then he sets out his stall on the money front and what do we get ; the same old imbecilic Tory nonsense and no attempt to allay the fears of the wider population who have had to endure all these years of the failed policy of Austerity. And then we have Simon Wren-Lewis ( heaven preserve us ! ) attempting and failing to explain MMT yet again . Do any of these people ever ask themselves ‘ where do you think money comes from in the first place ? ‘ In 2010 when the Tories came to power ( yes I know we were supposed to think of it as a Coalition ) they said ‘ we’ve run out of money . Labour have spent it all ‘ . That was the justification for introducing Austerity ( which Wren-Lewis omits to say ) . What they didn’t say was ‘ Labour created £500 billion out of thin air to bail out the banks and we will do something similar to bail out everyone else ‘ . No banker went to jail or even lost his bonus, but everyone else was squeezed . And Wren-Lewis goes further and tells all of us ordinary mortals not to bother our pretty little heads with this nonsense ( having not ( sic ) tried to explain it because it should be left to economists like him to decipher. I am going to lay down !
You get it….
I actually wondered if Stewart was too decent to be a Tory. He is not your usual Tory.
But then he mentioned one word that all Tories use (including their misled supporters) in his hustings: ‘Prudence’. It’s code for ‘illiteracy surrounding the origin of money’.
But ignorance and even an unquestioning attitude towards personal and private debt levels is OK apparently!!
Oh well…………..
PSL, yes his mention of prudence was the giveaway. Funny how non of the pundits mention that was Browns magic word first!
As mentioned above the economic illeteracy of the handbagger is deeply ingrained in the national psyche.
Lastnight I was having to explain to a small businessman that all money is created by government, not by entreupeners. I explained about the ‘promise to pay’ on the notes; That there is no artisan or farmer that makes or grows the money then takes it to the market to barter with a pig farmer and a wheat farmer. Only the government makes or allows the creation of the money which insists the tax deemed on these wealth creators, like him, is only paid with that govt issued currency; That the govt regularly has a standing army and unlimited spending on weaponry without worrying that they don’t have enough tax to cover it.
Anyway… It is going to take a while to raise that literacy.
Agreed
The origin of this new rule looks to be the report for the rightwing thinktank Onward by Tory MP Neil O’Brien from two weeks ago:
https://www.ukonward.com/wp-content/uploads/2019/05/ONWJ7142-Firing-on-all-cylinders-report-190530-WEB-1.pdf
It appears as though there are two competing forces. Firstly, they want to carry on with austerity because they still believe in it, and if they were to stop that would be admitting they were wrong for the last nine years, and because they want to use it to criticise Labour. Secondly, however, they can just about see how unpopular and damaging austerity is and worry they have gone too far for the electorate, and so want to find a way to spend some more money while still not admitting that austerity is wrong, so we end up with this new rule.
It’s not just Stewart – several of the other leadership candidates have praised the report, as seen on the Onward website link below, so the next election could be Labour’s fiscal rule vs the Tory fiscal rule
https://www.ukonward.com/firingonallcylinders/
Thanks for the link
I have read some of this and scanned the rest.
How can a ‘serious’ paper putting forward how to deal with poverty not even mention housing – as a problem (too expensive to rent or buy) and also how government money is needed to produce more of it?
Who does Neil O’Brien think he is?
I suppose that with all the BREXIT palaver, none of us should be surprised at this sort of tosh being produced because really, the shit-fest that is the Tory mind set has never really stopped.
And look at what happened in Parliament today? Good grief.
Indeed…