As The Guardian has noted this morning:
Britain's economy faces a long haul back from the third coronavirus lockdown as new figures show that businesses took on debt at more than twice the normal average growth rate since the crisis began. The total borrowed is set to reach £61bn by the end of the year.
They go in to note a wide range of concerns amongst business, but I want to concentrate on this debt issue alone, adding whist doing so that we also know that large numbers of households are also facing growing debt at this moment, even as some save.
There are three issues of concern here. One is growing inequality. I worry about this most with regard to personal wealth, where we know the impact on wellbeing is pernicious for those who suffer from the stress that this causes.
But I also worry about this inequality from a business viewpoint now. Many businesses that met many of our real needs, including those for social activity and the arts, have suffered horrendously during this lockdown. Many of them might also have low carbon impact.
I very firmly believe that we need to address coronavirus induced inequality for both people and business. The case for working out how to now not just get those affected to survive, but to thrive, is strong and so far it seems to me to be wholly unaddressed by government, who continue to believe that, against all the evidence, the market will solve this.
The second issue is that this inequality will become very apparent when any recovery begins. I do not share the view of the government and Bank of England that there will be a wild consumer boom when the crisis is really over (which is very unlikely to mean 2021, in my view). There will instead be a demand to eat out, to socialise and to holiday. But beyond this desperate need to reacquaint again I do not see that boom in spending, as yet. People living in fear do not spend that way. Nonetheless, what will become very apparent as 2022 progresses (when I think, or rather hope, that vaccines will really have made progress) that this stress from inequality will become more apparent in society. The haves, and the have nots, will become horribly clear.
That will be true amongst households. But it will also be true for businesses too. Remember that the borrowing that they are taking on is not for investment, but simply to cover losses. What that means is that those who have suffered those losses - and not all have - are now at a massive competitive disadvantage. They will have to work hard for years to simply generate the cash to repay loans, before they have any chance to invest at all. Many will not manage that. As I have suggested from the outset of this crisis, cash flow will eventually kill many businesses that were in a good position when all this started. But worse, a lack of investment will be a massive drag in business fur a long time to come, just adding to the woes that Brexit is also creating for other businesses right now.
So, third, the reality is that I very strongly suspect that the UK is simply not ready for the boom that the Chancellor and Bank of England think will happen, even though evidence from earlier crises is that recovery of confidence takes a lot longer than they are presuming.
Where does all this lead to? Simply to the need for strong government action to tackle personal inequality, and the crisis in business as well. It is the job of government to tackle the unforeseen, or to provide freedom from fear, as I (and others) have put it. There is real fear of private debt now. There need be none about government debt. That is wholly under control. But there is real reason to fear personal and business debt.
The word Jubilee is important when it comes to debt. It refers to debt forgiveness. I wonder when we might need to discuss it as part of the post-Covid recovery? I am not sure that will happen now unless we do.
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[…] of course, agree with this. I read it after writing another post this morning, in which I suggest that the risk of downturn after the pandemic itself is over is very real […]
Richard,
I suggest rather than a ‘Jubilee’ which will only benefit those in debt rather than say those who have had to use up their savings, or not manage to make provision for their ‘capital burn’ some sort of lump sum payout per head might be an idea or a credit into every Council Tax account and/or electricity and water bill?
At least then everyone gets to benefit.
But then there are questioins as to why all need to benefit
And yes, I know about UBI
There might be questions as to why those who ran up debt get it written off when those in the same situation that didnt get nothing?
Accepted
Richard,
Firstly thank you for accepting my point.
Its worth pointing out that the US has sent cheques to every tax payer.
Depends on what you are trying to achieve, my suggestion might be a credit to every Council Tax account, those who get Council Tax support would get any credit returned, many arrears would be cleared while the rest of us would get reduced payments. I suggest that the programme could be announced to run for say two years.
It might be possible to do the same with Electricity and Water accounts, and or certain means tested benefits.
It clearly wont help the ‘Non Householders’ which may be an issue but its quick, if a bit dirty.
Debt restructuring probably better than a jubilee. If someone goes into arrears at the moment the normal course taken by the lender is to apply compound interest to the amount of the arrears – that seems to me to be a
debt restructure in the wrong direction.
If we had a state backed credit risk insurance fund (CRIF) which compensates lenders in the event of default, the CRIF could oversee debt restructuring – in the event of a default regardless of such a debt restructure, then the lender recovers the loss and the CRIF takes over the collateral – this is a possible mechanism for transferring assets to public ownership – not nationalisation but to worker co-operatives, for example, or if it is a sports club that defaults the assets could be transferred to a supporters’ organisation….of course such a transfer of assets would have to be to an enterprise with a viable business plan….otherwise it would just produce another potential credit default.
What would a “jubilee” mean today? What, when originally written down about 3,000 years ago in the Bible, was it’s purpose?
First, Thomas Piketty was not the first to observe that capital grows faster than the economy and that, without redistribution, inequalities grow until eventually things blow up. Jubilee meant that how ever low you had fallen there was a way back and it maintained social cohesion.
Second, it means that one couldn’t live off “rents” – debts were forgiven and land was returned to the original families that owned it. Those most able in society could not sit back and do nothing.
I suspect that these two elements will be attractive to many readers of this blog.
However, there are some features that are more problematical – the feckless indebted are “rewarded” and the frugal with no debt are not. The Bible suggests that ALL we have is “undeserved” and that we should not begrudge the “good luck” of those that have their debts forgiven…… but I am not sure how this would go down today. Indeed, one of the difficult features of COVID financial support is the jealousy that it has promoted between the furloughed and unfurloughed etc..
It raises deep questions about how we think about and cope with the arbitrariness and randomness of so much in life.
Agreed
But there are no easy answers
This is quite interesting
From https://en.wikipedia.org/wiki/Jubilee_(biblical)
These Babylonian kings (to whom could be added Ammi-Saduqa[20]) occasionally issued decrees for the cancellation of debts and/or the return of the people to the lands they had sold. Such “clean slate” decrees were intended to redress the tendency of debtors, in ancient societies, to become hopelessly in debt to their creditors, thus accumulating most of the arable land into the control of a wealthy few.
This reasoning, as far as I understand it was also why there were bans on Usury in the Abrahamic faiths.
So the longer term need is to prevent the excessive accumulation of capital, and making money out of money.
This, I suggest, means wealth, capital gains and death/transfer taxes, as well as a financial structure that makes making money out of money less easy.
There may be no “easy answers” but there IS an answer — I suggested it in my previous comment above (Feb 8th 07.45 am). The “hard part” is how to deliver this politically.
First it is necessary to recognise that the government “bail out” of the banks in 2008 was an exercise in what I am proposing — the state stepped in and provided full blown, unconditional, credit risk insurance to the financial sector. The banks were bust but given the choice of what to do with the “collateral” the state just handed it back to the banks. The general population were outraged.
I have now reached Chapter 14 of Felix Martin’s book and for the first time in this book I think he has made a mistake. His mistake is to describe the bailout as a burden on taxpayers. That, of course, is how the commonly understood narrative frames it. But this is not what the fundamental reality is. Taxation is a financial expression of an obligation — the obligation of citizens to the sovereign. But this is a reciprocal obligation — the sovereign has obligations to its citizens. By bailing out the banks the state failed in its obligations to its citizens in order to satisfy the demands of the banks. This constitutes the first stage in the sovereign’s loss of legitimacy….the corollary of which is the eventual loss of legitimacy of its currency and a downward spiral and breakdown of the “social contract”.
By putting state credit risk insurance in place to manage risk in the interest of all citizens instead of drawing upon it as a reactive measure to deal with a crisis, the crisis is far less likely to ever happen at all. Leave things as they are and we are destined to lurch from one crisis to the next and to the complete annihilation of the sovereign state as we know it.
So, there is an answer — we all just have to realise it — and if my basic proposition is too “rough and ready”, not complete, then we need those with the expertise and insight to mould it into a form where it can function. I believe such minds are present amongst the contributors to this blog.
It is my privilege to introduce to The House the Coronavirus (No 1) Relief Bill.
All of us will either have paid or been credited with National Insurance Contributions, remember that name, National Insurance. The Government has collected those premiums and now, in these unprecedented times as the insurer it is Government’s duty to pay out.
It would clearly be possible to try and differentiate those losses that came about directly from Covid 19 and those that did not, however speed is of the essence. We may not be able to relieve the pain and suffering caused by Covid 19, we can however deal with the financial consequences for individuals and families.
Many lives have been lost due to Coronavirus from the start of 2020, sadly many before their time. We start by proposing a lump sum payment for the partners and dependant children of all those who have died from January 2020. Subsequent bills will provide for changes to benefits for widows and dependant children.
Many families are suffering financially as a result of Covid, therefore we propose to make a payment of £500 into every Council Tax, domestic Electricity and Water bill in the UK. It also reinstates a national Council Tax Benefit system providing rebates of up to 100%
In addition to this the bill increases Child Benefit by £10 per week and ends the Tax Liability for higher rate tax payers. We will also introduce an increase in all benefits, both means tested and contributory of 10%.
To provide families with security we will be imposing a freeze on rents for the next three years and give all private tenants with security of tenure.
Many families are currently experiencing problems with debt, with immediate effect a maximum interest rate of 10% is being applied to all existing loans for a period of 5 years to help those with debt problems.
It cannot be right that many in employment are still dependant on In Work’ benefits, this bill provides an immediate increase of £1 per hour on the National Minimum Wage, in addition it provides for a higher rate for non contractual hours, evening, Sunday and holiday working. The Bill also changes the rates for means tested Social Security Benefits to ensure that those on the Minimum Wage do not lose means tested benefits as a result of this increase.
The question that must be asked is ‘How will this be paid for?’ The Government will be introducing a Coronavirus Relief (Number 2) Bill that provides for a Wealth Tax and a Land Value Tax, in addition it provides a mechanism by which The Government will recover the costs of ‘In Work’ benefits from business’s that employ a large number of low paid workers as it is clearly not right that they should enjoy an unlimited subsidy from The Taxpayer.
I commend this bill to the house.
Tax does nit pay fir government spending
Your suggestion is wrong for this reason
Sorry, but this does not work
Steve Keen is a big advocate of debt Jubilees. Whilst I do like Steve Keen ,who is marvellous at explaining how ballooning private debts cause recessions I think his solution is rather Biblical. It was indeed a very old mechanism by which ancient rulers reset their economies. Usually this was required every 50 years or so.
However I cannot see it being popular now, we live in a world that would just not accept this as fair.
Citizens dividends seems a better solution. Small amounts, but large enough to help the less well off . To the rich it won’t make much difference, but it will remove many objections that a jubilee presents.
I was reminded of this study by the NEF a few years back to create a new currency for Scotland called the Scotpound. They proposed a £250 citizens dividend as well.
https://neweconomics.org/2015/09/scotpound-digital-currency-for-the-common-good/