Today is, of course, Budget day. Although how much there will be left fo the Chancellor to say is hard to work out given the number of advance leaks that there have been.
Budget day has meant being in the Radio 2 studio for about the last decade for me. Today I will be at home. And I will be tweeting throughout the speech, with immediate reactions.
However, from about 1.30 I will be joining Jeremy Vine on Radio 2 thanks to Facetime. I will be live on air, in what is the most listened to budget reaction in the UK. As usual, I will be with Mark ('Comrade'', as I call him) Littlewood of the Institute for Economic Affairs.
I have interviewed scheduled after that. But, I do expect to get blogs out. And by late afternoon hope to have published a budget video.
It will be a busy day.
And my expectation? That Sunak will be too optimistic, will underestimate the need for support and will overestimate the recovery and will, as a result, be back at the Despatch Box well before the next scheduled budget in the autumn having to announce extensions to the plans he will put in place as Britain heads for another lockdown this summer.
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If there was a Truth fairy shouldn’t Budget Day be renamed Ignorance Day?
Given we know from the Bank of England the creation of a loan is based upon a future income stream with some collateral then it should be obvious by now that with the economic effects of the Covid pandemic the only agency that can maintain that income stream is government created money.
It should also be obvious that for the government to prematurely withdraw their income stream either on the basis there might be abnormal inflation just around the corner or the even more spurious notion the government must balance its books when there’s no legislative requirement whatsoever that it should is the act of an exceedingly ignorant government!
https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/money-creation-in-the-modern-economy
Budget day?
‘Bodge-it Day’ more like.
Even the very word “Budget” is wrong it ought to be National Economic Direction Day or something that gets away from the Household Budget conception.
If as I explain in my previous post the private sector creates currency on the basis of a future income stream and clearly when a large chunk of that sector is in a pandemic furloughed state then an income stream supplier of Last Resort is needed.
National Ignorance Day, however, refuses to recognise that what this supplier of Last resort is actually supplying is demand! Furthermore given that a sensible nation would want to optimise its productive capacity (on a Green basis of course) it makes sense that a nation’s government should use its capacity to create currency to help in the optimisation.
To actually be proposing on National Ignorance Day that the demand supplier of Last Resort should be aiming to suck out the demand it’s put in as quickly as possible reveals we’re in “One Flew Over The Cuckoo’s Nest” land! Of course, we ought to know that this insanity sort of makes sense for private sector bankers they want to get back to milking the populace with as much debt as possible at the highest possible interest rate they can get away with!
Three predictions.
1/ Corporation tax to rise in stages to 25%. It is a tax on profits, and even most companies support it. There was little support for a 19% rate or less. Perhaps mitigated by increased scope for loss relief. (The annual investment allowance has already been increased to £1m until the end of this year.)
2/ Continuation of furlough, but no steps to address the millions of people who fall between the gaps. Sunak could have done something last summer, or in the autumn, or in December, but failed each time.
3/ Dematerialisation / digitalization of stamp duty on shares – the Stamp Office has been operating by email without paper originals for the last year, and I expect it will become a self-assessment process so yet more of the compliance burden can be thrown back on taxpayers and their advisers.
His hands are tied by manifesto commitments on the rates of income tax, NICs and VAT, but he could expand the base by cutting allowance, or further limiting exemptions or reliefs, such as pensions relief. I doubt he will do much on inheritance tax or a new wealth tax, or align the rate of capital gains tax with income tax now, but he might push the CGT rate up to 30% (welcome back to 1965).
This is the time in the electoral cycle when political capital can be spent and important but difficult and initially unpopular changes can be made, with the cover of Brexit and COVID this year. He could grasp long-standing nettle of the “three person problem” or the obvious problems with council tax and business rates. Will the Chancellor be courageous? More likely some reviews to kick things into the long grass.
Let’s see
I listened to you on ‘Jeremy Vine’ (from about 1.38) with great admiration. You made strong points about govt money creation (or, issuance) having taken place for 150 years, the 1866 Act, the high deficits of the post-GFC years and in Japan without any inflationary resut, the fallacy of the Zimbabwe canard, the vital importance of all this for jobs, and dealing with Mark Littlewood’s attempts to distort the resources issue by reversing it. His apparent belief that the Private Sector can receive stimulus irrespective of the Govt sector was absurd. I like very much what Helen Schofield said above about the demand provider of last resort.
Thanks
I tried!