I was asked yesterday how much of the government deficit in the last financial year was funded by government borrowing, and how much by quantitative easing.
There is no definitive answer to this as yet: I used the Office for Budget Responsibility year-end projections for 2020/21 when doing so, plus QE data from the Bank of England. I know the ONS has issued slightly differing borrowing data now, suggesting the outcome a bit better than the data I used, but ONS data tends to be revised so I stuck with the OBR.
Doing so I got this data:
The spend figure covers current spending and investment.
Tax data should be obvious as to its meaning.
Most people are surprised by the amount of other income the government gets. It includes the refund to the government by the Bank of England of the interest paid on QE debt.
The apparent deficit was forecast to be £355 billion. It may have turned out to be slightly less.
The QE figures are reliable. The Bank of England injected £336bn into the economy in the year. That could be, and was, used to buy UK government debt. The fact that repurchases might have been at current rather than issue prices does not matter. The fact is the Bank supplied £336bn so that new issue government bonds could be purchased by those in the financial markets at no real net cost to themselves once the sale of their existing gilt holdings to the government was taken into account.
The consequence is clear. The deficit was, maybe, £19bn at most. It is likely that it was smaller. There was then almost no net new, or real, government borrowing in the 2020/21 year at all.
The fact is that we went through this crisis and did not borrow. New money was created. A creative use for it is required. Inequality grew because of it. But the government did not increase its real debt. And the cost of servicing that debt remains wholly under its control.
So where is the government economic crisis that time and again has prevented it locking down to tackle Covid and which has, consequently, been the cause of so many unnecessary early deaths? It is nowhere to be seen. There is no crisis. There is just a false dogma of borrowing, based on false accounting, that seeks a smaller state at all costs, including the lives of so many that have died.
And yes, that makes me very angry.
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This leaves the open question: how to turn some simple and interesting numbers into a narrative that the populace can both understand and, maybe, agree with. One would have thought that Labour would seize on these numbers. Apparently not. Is it a matter of time before infantilism such as “maxed out credit cards” rises again?
It also calls into question the uses of the expenditure of the government.
Considering how Sunak, specifically, escaped censure from the scattergun slagging of Cummings, one thing that could stick on him, should he be seen imminently as ‘heir apparent’, is the disastrous ‘Eat Out to Help Out’ he flogged for his cringe-inducing branding and self-aggrandizing exercises.
It seems this scheme did nothing to help anything, except spreading a relatively contained virus once more and pointlessly subsidising meals using QE. Wasteful, idiotic, and the cause of more unnecessary infections and deaths.
And the only reason we were given for this scheme was to ‘revive’ the economy. When QE is funding meals for those who can already afford the bill and not to feed undernourished school children, you know you live in a country whose political class has its priorities all wrong.
You’re angry then?
Good – so may I be able to get away with saying then that last night the increasingly corpulent Ian Dumbo-Smith turned up like that unflushable turd he is on CH4 news extolling the virtues of ending lock down ‘because that is what the experts told us could happen if we started vaccinating people’ and also said that taxes would have to go up if we didn’t.
And Cathy N just let him say it all without hardly batting any of her false eyelashes.
Great eh?
Two of us yelled at the television here
And she has gone right off the boil since joining Times Radio
I see a connection
Cathy has always been a brand manager first of herself and a news anchor second and this does seem to have got worse.
So as a non economist, am I correct in thinking that as Full Fact states around 5% of government spending goes on servicing the debt incurred through issuance of guilts, only £57 billion was paid to service government debt?
And 40% of that comes back to the government
Through Corporate taxation?
No, because the government owns its own debt
Of course.
“New money was created”
“But the government did not increase its real debt”
yet on February 9th you said:
“There is no such thing as debt free money”
‘Real’ debt
There is debt, but it’s base money debt, hence my qualification
I wonder how soon it will be before the mainstream media, the bankers, the majority of economists, lecturers in universities, the tax payes and civil society will all pull together and accept that we can “borrow” as much as need to do the things we desperately need to do, adding trillions more to the national “debt” but accept much of it isn’t “real” debt, and it isn’t the proverbial millstone that they have spent their lives & careers believing it to be.
Soon, I hope
I had a depressing conversation with my father-in-law about this the other day; we were discussing prison abolition and I was saying that what we needed was a well funded education, health, and social care system that alleviated inequality, focusing in prevention rather than punishment.
He was saying that he didn’t think the state could afford to do that anymore and nobody would want taxes to rise to pay for stuff and I explained the basics of MMT and how taxes don’t fund gov spending (I pointed him your way).
He then said that even if that’s how gov spending works, he didn’t see how you could convince the public of that and when I pointed out that pandemic spending was a prime example of how it could work, he said people would dismiss that as behaviour in exceptional circumstances.
So how do we convince people like him, who agree on the outcomes but just don’t believe that it’s possible to achieve?
I wish I knew the answer to that…
I confess that as yet I do not
Get him to read Money for Nothing
Jason Matthews says:
I wonder how soon it will be before the mainstream media, the bankers, the majority of economists, lecturers in universities, the tax payes and civil society will all pull together and accept that we can “borrow” as much as need to do the things we desperately need to do, adding trillions more to the national “debt” but accept much of it isn’t “real” debt, and it isn’t the proverbial millstone that they have spent their lives & careers believing it to be.
Richard Murphy says:
Soon, I hope
Rahnuma says: So how do we convince people like him, who agree on the outcomes but just don’t believe that it’s possible to achieve?
Richard Murphy says: I wish I knew the answer to that…I confess that as yet I do not. Get him to read Money for Nothing.
Seriously, that’s the plan? You want to the politicians, the Treasury and the Bank of England (and the previously mentioned, economists, lecturers in universities, the tax payers, civil society) all convinced that MMT is the big fix? And it doesn’t solve rentier “capitalism”, savers being robbed, the GDP fixation when we actually need degrowth and the super rich being the worst offenders in plundering the planet. Or the potential motherload of future high interest rates when the market corrects decades of banking cartel price fixing. Nor the unsustainable household debt that the private banks feast on at our collective expense. It wont stop the tens of billions a year in seigniorage going to private banks and the unsustainble corporate and private debts. Even if MMT is embraced can we really expect in this world of peak inequality, fake news and a totally fake democracy to right the wrongs of this world? Or will it instead become a blank cheque for more money printing, more debt, private, public and corporate, to enrich the 1% even more?
Politics, broken down into its smallest essense, for me, is a seven word sentence is this:
Who gets what slice of the pie?
But the pie has been completely taken away from us, when private banks control the money supply, and countries have to “borrow” their own money.
MMT. Is this really going to turn around the shipping tanker of the have nots and the have yachts?
Is this the hill you want to die on to attain the “People’s Economy”?
I wish I had a clue what you were actully arguing
I have never said MMT is the answer to everything: it clearly is not
But realising money is. not a constraint is an answer to a great deal
Your problem with that is?
Richard Murphy says:
“I have never said MMT is the answer to everything: it clearly is not.”
I said “big fix”. Fom your blog, MMT seems to be the key policy change your advocating. Is this not correct? I didn’t claim you said “MMT is the answer to everything” and I agree it isn’t.
Richard Murphy says:
“But realising money is not a constraint is an answer to a great deal. Your problem with that is?”
For way too many reasons, I believe money IS a huge constraint as it has clear opportunities for positive AND negative but that is all too obvious. Those in charge have pushed the negative for decades and I can’t see that changing.
Richard Murphy says:
“I wish I had a clue what you were actully arguing.”
I want fundamental economic reform and that means exposing the current system and its egregious sophistry and negatitivity and rewriting the system, not tweaking it.
If you think I think MMT is the answer to everything then you have not read what I write about in enough detail
I see it as a useful and maybe critical part of the understanding of how the system works but nit what the system aims to achieve
It’s a tool, not a policy and I wrote vast amounts in policy as well