As The Independent has reported:
Labour leader Keir Starmer has announced plans for a new British Recovery Bond to allow people to invest billions of pounds savings built up during the pandemic in local communities, jobs and businesses.
Sir Keir said the Bond would provide financial security for millions of people as well as raising funds for investment in the science, skills, technology and manufacturing of the future.
Alongside a call for start-up loans for 100,000 new businesses across every region of the UK, it was the most eye-catching new policy in a speech setting out how Labour would approach the 3 March Budget.
Where did the idea come from? Try this, published on this blog in December 2019 and shared with Labour a number of times since then:
Funding the Green New Deal
How we could Save for the Planet
____________
Funding the £100 billion a year needed for the Green New Deal from UK ISA and pension savers
____________
Almost everyone now realises that we need a Green New Deal if we are to tackle the climate crisis. And almost without exception politicians now realise that this will require that we borrow to fund the investment in the future of our society that the Green New Deal represents. But there has, to date, been a big unanswered question about this borrowing. No one has actually said who it is that will buy the bonds that will have to be sold to fund the Green New Deal.
In a new report entitled 'Funding the Green New Deal: How we could Save for the Planet', Richard Murphy and Colin Hines, who are both members of the Group that wrote the first Green New Deal report in 2008, seek to answer that question. As they show, over 80% of UK financial wealth is held in tax incentivised accounts, whether they be pensions or ISAs. As a result it is to these sources that they look for the funding. What they suggest is that by simple changes to the tax reliefs applicable on both types of account up to £100 billion of funds can be directed towards the Green New Deal each year. This is as much funding as anyone suggests might be needed at present.
The changes are simple. With regard to ISAs it is suggested that the government should back the issue of Green New Deal bonds paying interest at an average rate of 1.85%, which is the average UK government cost of borrowing at present, and it is only these that should be available to ISA savers in the future. This could raise up to £70 billion a year in funds.
With regard to pensions, in exchange for the tax relief given on pension contributions, which currently cost £54 billion a year, the requirement would be that 25% of all new pension contributions would be invested in Green New Deal related activity.
Taken together the measures would ensure that tax reliefs are aligned to society's need for a Green New Deal.
Caroline Lucas, who has been the Green Party MP for Brighton Pavilion since 2010 and who is standing again in the current election, has written a foreword to the report. In it she says:
"As Murphy and Hines remind us, people investing in pensions and savings will largely be from older generations who can thus play a vital part in the Green New Deal. They can save for their own benefit and at the same time benefit all of us, and in particular, younger generations. This inter-generational rebalancing could be another key element of the Green New Deal, and merits further investigation. Working together, we can create a better future. For all of us, and for the planet we share."
The report is available here.
The latest version was published here, in January, where the economic justification for this was provided.
And for those familiar with MMT, this is not of course what a pure MMT approach would suggest. It would say that there could be funding without bonds, and I agree. But, there is good reason for this alternative now.
The first such reason is that QE has created the savings pool I referred to recently, which is deeply destabilising to the economy and MMT has no answer to that. Second, that money has to be withdrawn from the economy without tax right now, and savings can do that. Third, the savings need to be non-speculative and locked down. The bond idea achieves that. These bonds address an issue we have. And that is justification enough for me.
Now Labour has to flesh out how they would work. I believe that some work is being done on that and so I hope there is delivery, soon.
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Great to see Starmer picking up your idea.
Recent BoE QE has pumped massive amount of money into our economy. Much of it now sitting in banks accounts. The owners of this money will be looking for a better return than the ludicrous 0.1% available for income bonds or under 0.5 % in a savings account. Inflation was 0.7% last month and likely to increase a bit in my view. So savers are losing money now. Most likely then this money will go into the stock or property markets(or Bitcoin for some very bizarre reason) to seek better gains. That will be a disaster and only create a stock market property bubble which never ends well.
This bond plan is thus a good idea.
“ Where did the idea come from? ”
So the first action of the Great Knight Hope (Tm) brave new world agenda is … plagiarism!
The only part of their plan that is guaranteed to happen is lots of new LOANS and not at 2% , which will transfer more wealth away from the borrowers to the bankers.
Please let us not be enamoured by the lying cheating words of the GKH.
What Labour should be doing is having its now new normal confirmatory re-election of the Leader so that he/she can increase their vote amongst the membership as vindication of their choice last year … not holding my breath.
Congratulations. It would be nice to be acknowledged but that is often the fate of pioneers.
I hope the idea gets support and Starmer will find the courage to go further. Annaliese Dodds had “modernising money’on her bookshelf, I noticed. I live in hope.
Hmmm – a glimmer.
Sounds interesting but one question.
If the savings have to be withdrawn from the economy right now and buying bonds provides that withdrawal mechanism, what happens when the bond proceeds are spent into the economy ?
Surely that is not withdrawing the savings from the economy ?
No that provides exactly the stimulus we need
The point is they are already withdrawn from the economy
This is an excellent step forward and I am sure that you must take some satisfaction from it… given your work on this idea over some considerable time. How long before the Tories adopt it?
There still needs to be flesh on the bones and from a political perspective it may be too early in the electoral cycle to get too detailed. Nevertheless, some thought is needed to make sure that this policy “ready to go”.
First, NS&I is, I think the correct vehicle – there is no point in selling/pushing this product through other channels (banks and brokers). They already do ISAs and have infrastructure in place to offer a variety of products (instant withdrawal, fixed rate term bonds, inflation linked bonds etc.).
Second, there needs to be more clarity surrounding hypothecation. How granular? How accountable? etc.. Not sure here but my first instinct is to work with existing institutions and allow the Treasury to be in charge and that hypothecation should be broad. So, for example, a health bond rather than a particular hospital bond but with the new hospital having a plaque identifying the fact that it exists financed by the Recovery Bond. Too much granularity and it becomes a lottery as to which projects get financed, too little and the question will be “why not issue regular gilts?”. There is still plenty of time to finesse this inresponse to public feedback.
Third, there will be resistance. I really like the idea of taking the savings tax subsidy that is already in place and ask “is this the right way to spend this money?” and talk about the “higher than market rates” as another way of delivering that subsidy. I also think we need to pick one or two emblematic projects and then turn the question around. So, you think that (say) flood defences are not required?” When they say “yes, of course we need them” the next question is “how do you plan to do it?”.
Finally, we need a succinct way to dismiss the “how will we pay it back?” – something along the lines…. the present middle- aged/older generation are gagging to save with this product. Would you deny their children and grandchildren the opportunity to save, too? If you insist on paying it back you will be denying your children the opportunity that you have had.
I agree with pretty much all that as a direction of travel
And because it all makes sense your question ‘How long before the Tories adopt it?’ is not long. Autumn budget, I suspect.
I very much like the answer re higher rates – spot on
Bonds maybe aren’t a great idea.
We have to consider the interaction between these sort of government bonds and the stock market bubble.
The real purpose of QE was to insulate the wealth of the 1% from reality.
In the wake of 2008, it was a way to have Austerity and not see a collapse in stock prices (a 1%er win/win !)
During Covid, this “wealth protection” mechanism has had to go into overdrive to bolster asset prices.
However, this behaviour comes at a price and that price is…. the government can’t sell bonds.
OK, yes… it can sell bonds but that would crater the stock market.
To Summarise:
We’re going to sell bonds for money we don’t need and we’re going to collapse the stock market.
Nrrrr….. yesssss…. best of luck with that.
This is an exact case in point why no one can afford to pick & choose the bits of MMT they like.
You either mentally get it all or you don’t.
Bond sales do not serve a fiscal purpose. They control the interest rate & that controls the yield spread & that controls asset prices.
Economics is a system and you have to understand the ruling framework to see all the interactions.
And that framework is MMT.
I do not accept your claim as to the motivation for QE
Actually, I would suggest it wholly incorrect
So I do not accept the rest either
Not am I wholly correct, I think you’ll find the BOE agrees with me and the stats back me up.
The ostensible purpose of QE is , according to the BOE:
“QE works by making it cheaper for households and businesses to borrow money — encouraging spending.
In addition, QE can stimulate the economy by boosting a wide range of financial asset prices.”
Alrighty, then… interest has been 0.5% since 2009 and the economy has been… flatlining.
The BOE enjoying their favourite pastime of pushing on a string.
So we can agree that QE neither encourages borrowing nor spending.
Lets move on to claim 2…. are a wide range of financial asset prices stimulated?
Stimulated? They’re positively priapic!
Its really, really, simple. You’ve got a safe interest bearing asset, someone buys it off you, you don’t want cash, you want a safe interest bearing asset.
What do you buy? Stocks or property.
What does that do? Puts up the price of stocks & property.
But its a bubble, inflated by the BOE. Inflated by undoing what Treasury has done.
Inflated by buying bonds & returning depositors money to them.
Why do you think they resurrected the W&MF? They can’t sell bonds or they’ll increase the interest rate and if they do that people will sell out of the stock market into bonds & if that happens there will be a rout.
Basically, welcome to ZIRP. The BOE can’t increase the interest rate without cratering the FTSE.
And you’re not getting permission to sell bonds. That I can guarantee.
You said that was the aim
It was not
The BoE never said it was
And it isn’t
The aim was to stimulate activity by pushing people i9ntpo risker assets which they think are linked to investments – which they are not, but that is not the point. The aim was to increase economic activity to boost inflation – and you cannot say that the aim was to boost asset prices when it was not – that was collateral damage
The second reason was to provide the economy with liquidity
But in the last year despite the pretence, the actual reason has to be to fund the government – and everyone knows it
I know the consequences, but to impute them as the aim is wrong
Sorry – but on this p0ccassion conspiracy theories do not stack
Nor am I asking permission to sell bonds. Politely, you clearly have not understood I word I have written. These bonds a5e guaranteed savings accounts.
Either join the debate or don’t bother is my suggestion
And the Ways and Means has biot been used…
I said that the aim was to to insulate the wealth of the 1% from reality.
And the BOE said:
“In addition, QE can stimulate the economy by boosting a wide range of financial asset prices.”
That’s BOE speak for “we’re going to pump asset prices”.
And they did.
“The second reason was to provide the economy with liquidity”
Right… the white hot UK economy that’s starved of liquidity?
Well, someone miscalculated because the “liquidity” found its way into the stock market.
“These bonds a5e guaranteed savings accounts.”
Jesus… all Treasury bonds are “guaranteed savings accounts.” That’s literally what a Gilt is.
Its a savings account at the BOE.
I’m sorry Richard, you know way, way more than I will ever know about tax but you really need to get a grip with Government finance.
I think your efforts are superb. The amount of your own time you spend doing blogs & videos, its clear you are dedicated to the betterment of us all & I thank you.
Very, very few people would do what you have done & will do.
And I say this in the utmost humility but, please, please engage with the UK MMT community.
No man is an island… I know this from bitter personal experience.
Thanks
I note what you say
I do engage with the UK MMT community
What you are saying is I must trust Bill Mitchell is right
Fir good reason I don’t
Precisely because I wholly get MMT (including the assets swap in QE, which almost entirely undermines your argument from a pure MMT perspective because pure MMT says QE does not alter the guantum of private wealth, and only deficits do, with which I agree, but with the consequence of which I deal in a way pure MMT does not) I am not willing to agree with Bill in many issues or Warren Mosler on tax.
The problem is yours, not mine.
I don’t agree with Warren on Tax.
Tax does not drive a currency. Utility and its role as a monopoly settlement instrument do. If tax drove currency then neither Monaco nor Saudi Arabia could have had a currency.
QE has shifted savings (as gilts) into savings (as stocks & property). This cannot be denied. It is literally one of the two mechanisms by which QE is supposed to ‘work’.
The entire Western world is in what the Bank of America calls “the mother-of-all asset bubbles”.
The point is… bond issuance is the reverse of bond purchases.
It doesn’t matter what the bonds are named, if they’re issued by government then this is the reverse of bond purchases.
Which would push the interest rate up & pop the “mother-of-all asset bubbles”.
So its not going to happen unless someone can come up with a safe way to deflate the asset bubble & not cause a rout.
Monaco and Saudi do not have meaningful currencies as far as I am aware
They are pegged to those of other countries
And you really have not read what I have proposed
The Monégasque Franc existed for more than a century before the Euro.
The Riyal is nearly a century old and was a currency before the meeting at Bitter Lake.
I appear not to be alone in anti-bond land…
https://gimms.org.uk/2021/02/21/recovery-bonds/
My problem is that a) If you do enough bonds you’ll crash the stock market
b) It perpetuates the “pay for” myth.
I don’t think a) is likely, b) is the real problem.
Labour really, really don’t get MMT and they need to.
You can’t give them places to hide and pretend that we need to “balance the budget” & “pay down the debt” or “find the money”.
They definitely DO NOT want to hear the truth because the truth is dangerous.
Once you’ve acknowledged the reality of MMT, you need to actually act on it.
Your policies need to be guided by it and that’s properly dangerous.
UK politics is gatekeepered to keep people who will change things away from the levers of power.
If you think Corbyn got a hard time, wait till you see what happens to the first major politician to espouse MMT views.
I read it.
It’s the usual Mitchell and Neil Wilson inspired nonsense.
They forget that tax controls inflation, which is something of an omission.
They forget there is such a thing as private capital – and that it needs direction and control – not least because MMT policies significantly increase its value, which they overlook but then bemoan inequality – and they cannot imagine private capital ever solving a problem. They do not even realise that is what I am suggesting be done.
So if you want a far left fantasy, delivered with taxes that create a right wing market dream, buy their ideas and go for the Bill Mitchell view, which has no answer for the issues I am tackling. I reread his text book at the weekend.I’d call that the black and white world view
Now if you want to live in the real world and tackle real world issues in ways the real world will accommodate I am happy to supply ideas
But let me be blunt on this one. I have opposed left wing idiocy since I was a student whilst always seeking social justice. I can smell it a mile off. And I will call it out
GIMMS and some others in MMT are peddling left wing idiocy that delivers right wing nirvana
I will call them out
But that’s because I am actually bothering to work out how MMT might work rather than, like most economists do, making my assumptions easy to get to a solution that looks good on paper
Only one of those options is useful. I know which one it is