According to the FT:
Rishi Sunak is drawing up plans for deferred tax rises and cuts to public spending in his Autumn Budget after he delivers a further fiscal stimulus for the UK economy in the weeks ahead.
The Treasury is first considering a temporary cut to value added tax and specific reductions in the rate for some sectors, according to those close to the chancellor, following significant pressure from industry and Tory MPs. A lower VAT rate for the tourism sector – including pubs, restaurants and hotels – is one option being discussed.
This is deeply worrying. It reveals that the Treasury, and Tory, mindset has not been altered by coronavirus. Their dedication to austerity remains intact. Because that is exactly what such a plan would represent. And we know at least three fundamental problems with this.
Firstly, cuts in government spending and increases in tax have the same result: they take money out of the economy. That means that demand is reduced, and unemployment follows. But, what we now also know is that there will be a massive increase in unemployment in the UK this autumn. It therefore follows that the government is planning to exacerbate this crisis with spending cuts.
Secondly, the only objective of this policy is to balance the government's books. A decade of austerity has proved that this does not happen. If that is the objective of government policy then the only way to achieve it is full employment on a living wage, and so far this government has never tried that.
Thirdly, people now know that austerity does not work and, at the same time they realise that we are all now heavily dependent upon the services that the government supplies. This is not just with regard to the NHS. Millions of people also now appreciate education a lot more than they ever did. And, at the same time they now realise that their security is dependent upon the government underpinning their well-being. And yet, Sunak appears to be planning cuts. And there is a massive political risk in that.
There are a number of possibilities in this plan. One is that he is not intending to do this at all: he is instead simply trailing the possibility so that when he does not do it people feel better than they otherwise might. Such things have been done before. On this occasion I wish it was the case, but I doubt it.
Alternatively, Sunak really is willing to say that balancing the government's books is more important than the well-being of millions of people. This time, though, he will have to understand that people realise that this is the trade-off he is making, and that he will be making the claim when millions will be facing financial destitution.
And, whereas in 2010 it is fair to say that there was little coherent anti-austerity narrative within economics available for opposition parties to use, this time there is. I am only too well aware that many left of centre economists have a loathing of modern monetary theory, almost entirely based on the fact that they appear not to have read it: it's either that, or they have no trust in the state. But, the fact is, that in 2020 MMT is a ‘shovel ready' economic explanation as to how to manage the economy without austerity. How it is possible to expand government spending without risking inflation can now be explained. In that case there is no reason for any opposition political party to go along with austerity, unless they really are the slaves of some defunct economist.
The choice that will face UK politics now will be a very simple one. It will be a choice between people or book balancing as the priority for government policy. There is, of course, only one acceptable answer. But will the opposition have the courage to oppose? That will require major intellectual shifts for many of them. That's necessary, but will it happen?
And I stress, our very future hangs on the answer to this question because if we lose this then we lose on climate change as well, which will never get funded if balanced budgets remain the plan. This fight is then, literally, to the death in that case.
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… it’s more likely to be about narrative control… after 40 years the Tories cannot now admit that Thatchers free market Neoliberal dogma was based on the lie that government have no money of their own and that taxes fund public spending…
“Secondly, the only objective of this policy is to balance the government’s books… the only way to achieve it is full employment on a living wage”
Could you elaborate on what you mean here?
Can an economy with full employment of labour and resources be achieved without deficit spending (especially in a country like the UK, with a large trade deficit)?
The argument is that the economy is in balance at full employment i.e. all resources are used
At that point then government income should equal taxes as anything else is inflationary – i.e. the government would be trying to overstimulate the economy
The trade deficit has nothing as such to do with this and is eventually managed via floating exchange rates
Stupid, stupid stupid.
Also, I think that sub-text maybe BREXIT. Which is why I will add a fourth ‘stupid’ if I may.
He was a banker. Nothing more to add. When my father worked for the Savings Bank of Glasgow, from 1947, he was sometimes late back from work, having spend hours “trying to find a ‘balance’ ” – even if they were only a few pennies out.
But that was different….
What staggers me most is that when you write “This fight is then, literally, to the death in that case”, it’s not hyperbole, or an exaggeration, but the truth for possibly most life on earth. The disconnect between the needs of people and other life on earth, and what governments routinely enact is vast and morally grotesque.
Thatcher and Lawson (et al) believed unemployment was a ‘price worth paying’ to fight inflation and were praised for it by their fans. Somebody else’s unemployment does not seem a high price and I suspect even after a decade of austerity, which has been utterly ineffective in balancing the government books, the same constituency of the blithe and complacent will regard massive unemployment as inevitable and worth the pain (that others have to bear).
Sunak knows where his constituents are. I see no reason for any optimism that we will get sensible policies in the near future because the focus will remain on looking after the monied interests. I’ll be very surprised to see any progressive policies being advanced and I’m not expecting to hear wails of protest from the Opposition benches because there’s too few members who understand there is more than one way to run an economy.
Our best hope as regards climate change is that the effect of depressing the economy will sufficiently reduce emissions so as to ameliorate the problem. From David Cameron’s ‘greenest government ever’ (or words to that effect) more than a decade ago the Tory government has spoken only greenwash platitudes. The 2050 target on emissions is so far away as to be another world we can’t be expected to interpret that as serious intent.
The article is predicated on Sunak calling the finance shots. I’d suggest that he is just “following orders”. Since fatso is too thick/lazy to understand economic detail this leaves the likes of Dominic Goebels as the most likely driver of the Austerity-r-us proposals. There is no point in thinking of the current cabinet as anything othert than glove puppets, with enough neurons to independently open their mouths and speak to a script.
Unlike you, Richard, I am not surprised that “many left of centre economists have a loathing of modern monetary theory”. I put it down to their inability to have the courage to lose face. They would have to admit publicly that for years they had been talking keech (“ch” as in “loch” and it means crap), writing keech and — worse still — in many cases, teaching keech. Just think what would state we would be in if doctors had stubbornly stuck to erroneous medical thinking.
You are right
I call it losing their intellectual property, but it comes down to the same thing
The problem is that of an alcoholic, who can only recover by accepting that they have a drink problem. The current faith demands adherence to the view that the national budget is identical to the household budget. There is ample evidence that little if anything will change. There is no acceptance (other than lip service such as working groups, or more enquiries to provide the necessary fig leaf of “caring”) that ANYTHING is wrong. Time for a drink!
Some great points made, here. I think the “trailing” possibility is more likely than you. though. Hope so! On the question of the Opposition fighting a return to austerity, I have been wondering whether Starmer, mindful of Blair/Brown, took care to choose a Shadow Chancellor who would present nil risk of over-shadowing him. So selected one with zero charisma, and as far as we can tell, little grasp of macroeconomics, certainly of any modern understanding of the subject?
But according to the lazy and ignorant readers of right-wing newspapers letting toddlers like governments create money of their own means instant hyper-inflation like Zimbabwe or Argentina. This is endlessly repeated despite the fact they cannot produce a shred of evidence there’s been continuous hyper-inflation in the developed economy of the UK’s since 1694 (Establishment of the Bank of England). Quite frankly the UK is not an Informed Democracy it’s a Clown Democracy. Indeed it has its very own clown leader now hell bent on creating Zimbabwean type “hyper-deflation” by combining Corvid-19 bankruptcies with the ones they’ll create by pushing through a No-Deal Brexit!
Richard,
There you go again presuming that governments want what’s good for people. They don’t. In the short term they wish to keep their base happy enough so that they keep their seats every five years, in the medium term they want their crack at playing the “great game” that is, wars over resources and land the pomposity of power and all the perks that come with it. In the long term they seek to become Uber rich and enter into the elites play ground.
That is it. Absolutely no more and looking for more will eventually give you a busted gasket.
In Corbyn and McDonnel we had two politicians that cared more for people than book balancing and you saw what happened to that movement.
Now we have the idiotic Starmer a man so clueless that he needs to consult a focus group to know whether he needs to pee.
Expect no opposition from labour whatsoever, well that is unless it’s to demand even tougher austerity.
Why?
Because starmer is of the belief that labour must never again take the blame for collapsing the (world) economy as they did in 2010.
This of course isn’t starmer’s view – because he doesn’t have a view, only the desire to further his career at any cost and that cost will be the lives of others.
There is no hope and no future, prepare for civilisation to get particularly nasty and prepare for our ‘leaders’ to allow us to suffer enormously. That’s is how humans have behaved for most of our existence and the last 60 years have been little more than an aberration.
There were many moments when the ancient Romans could have saved their civilisation, but they didn’t, corruption reigned and the eventual collapse through Europe into the dark ages that lasted over 1500 years.
It must be really miserable having such a low view of life
Miserable doesn’t even come close to describing how I feel at the moment. Don’t worry you don’t have to publish this response.
Life hasn’t dealt me or my family much good of late and I think The aftermath of Covid Is just about going to finish us off.
Sorry for bumming out your blog.
Shatnersrug says:
“Miserable doesn’t even come close to describing how I feel at the moment….[…] Life hasn’t dealt me or my family much good of late and I think The aftermath of Covid Is just about going to finish us off.”
It probably won’t kill you, but yes, a lot of people are going to find what they have spent a long time building will fall to pieces around them particularly in the sphere of small businesses. It is not an easy thing to deal with and keep smiling through when you see what seemed a secure future becoming very precarious. I share much of your negative attitude towards our present government. I don’t think we’re alone in that respect. !!
There are political economic ways forward from the mess we’re in, but it will take a groundswell realisation and understanding of that if we are to have a government which will implement the right policy approaches. Hang-on in there. I’m gaining some strength at present from a trite little quote from the Best Marigold Hotel: It’ll be alright in the end. If it’s not alright it isn’t the end yet.
I like it