I posted this thread on Twitter this morning:
Will Hutton has an article in The Observer this morning saying that Britain is bust.
It isn't. The UK has total wealth of more than £15 trillion.
The problem is not that the UK is bust. The problem is that the UK will not share its wealth in a way that produces well-being for everyone.
As the Office for National Statistics shows, wealth distribution is the problem in the UK:
Without wealth, people are being systemically denied hope and opportunity. They're not even being given a chance.
The problem the UK has is that some in it have a deeply held belief on the virtues of inequality.
We are all suffering for that belief.
I agree with Will that unless we act soon Britain loses its chance to recover: it will fall too far off a cliff unless we act.
We have to start by tackling inequality - because that is the single issue that denies most people any chance of taking any significant part in that recovery.
That is why I am working on a new series of tax reforms to tackle inequality.
Those proposals will not, as such, be about raising money.
Nor will they be about envy, although some will say so, which will say a great deal about them, but not me.
They will instead be all about delivering the chance this county needs and which increased equality - and everything that flows from it - can offer.
I should, however, warn that there aren't three steps to this heaven. Something like twenty five reforms might be needed.
The question will be, which political party is willing to step up and do this? Who will really tackle the unspoken real crisis that we face in this country, which is inequality?
And if the answer is none then we will know that no current politician is serious about saving the UK from its current dismal-looking future.
That in turn might finally be the catalyst for real change in this country because we can no longer afford the politics of failure that has tolerated the gross inequality from which we suffer.
That's why laying down the challenge is worthwhile. Politicians of all parties need to now tackle inequality or move on to let those who will address the issue take over. Our future depends on that.
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
I was reading Will Hutton many years before I ever heard of you, and was struck by the divergence of views here. However, he picked up on angle that I don’t think I have seen you address. The international balance of assets and liabilities. As a country that imports a lot of everything, it seems to me, not that I am any great expert, that we could become functionally broke at that level, and it would be catastrophic. Perhaps a topic you could explore in an article or two?
But we are nit functionally broke at that level. The floating exchange rate ensures that, so the claim at that level is meaningless. Brexit reduced the rate. We did not go bust though. It might reduce again. We still won’t go bust. We can’t. We can pay our debts.
I always find it curious that only one half of the transaction (the import) is highlighted in this sort of post. Despite our multiple problems the UK is still one of the largest economies in the world. We are a key export market for Korean, Chinese and European goods among others and none of their manufacturers will want to lose these sales.
The fly in the ointment of course is energy, which is why any sane and sensible government would be aggressively pursuing a Green New Deal and investing heavily in renewables and energy efficiency, utilising its currency issuing power and taxation to direct the necessary resources to maximise energy independence
Amen to that!
I am reassured that you don’t see a problem. However , I still think it would be nice to see an article explaining why chronic deficits are harmless, sometime when you are wondering what to write about next
OK!
“why chronic deficits are harmless”
Every chronic deficit has a corresponding investment in the economy. It represents our infrastructure, military, health service, judiciary, homes, and our savings. We have earnt our savings, we do not need to repay them. Redistribution of wealth is another matter.
In the dark days of world war two a ‘social economist’ ( as described by the Gov website) was commissioned to write a report on ‘Social Insurance and Allied Services’. It was, of course, Sir William Beveridge.
He drew on existing ideas but put them together in a report which would transform Britain and prevent a repeat of the aftermath of the First World War with its broken promises , the Geddes Axe and high unemployment.
It was implemented because a political party was courageous enough to embrace it (even though Beveridge was a Liberal) and implement it.
I expect when he wrote it, few expected it to happen but it met the needs of the time. If no one tries to change things, they will remain.
We owe you our thanks for this and let us be hopeful that things can be better.
https://www.gov.ie/en/publication/fbc41-residential-zoned-land-tax-guidelines-for-planning-authorities/
While you’re not specifically addressing Land Taxation issues in this article, Richard, I’d be grateful for your views on how Ireland has introduced a new Tax Policy, aimed at incentivising delivery of housing land.
The UK Planning Officers Society (representing Public Planning Authorities) are proposing it should be introduced here.
I think it would be a major boost to our housing land supply problems.
That has to primarily be solved by regulation, not tax.
Politicians frequently recommend house building program. They refer to a ‘housing crisis’. There is a ‘homes crisis’, but in many areas, it is not a housing crisis. There are more bedrooms per person in Britain than there have ever been. At the same time there are more wealthy people who own more than one home. Often they possess large homes. Whenever more houses are built, it seems that the rich acquire even more of them
Towards the end of WW1, Prime Minister David Lloyd George promised that returning soldiers would have ‘homes fit for heroes’.
The crisis has arisen because of government and banking policies over decades. Limits need to be imposed in some way.
It is an issue I will address in my tax series
It’s a Sunday and seeing “….there aren’t three steps to this heaven” in your piece reminded me of Luke Chapter 12 verses 13-21.
What good does all this stored wealth do for you? Even worse, the fear of losing it will eat away at you doing real damage.
Agreed
‘Britain is bust’ is catchy but not really clear what Will means. He presumably includes the £300bn (or whatever it is) Britain owes to itself after Quantitative Easing within the £2.5 trillion ‘debt’.
He says our ‘liabilities to foreigners’ exceed “our assets ” by 30% of GDP – it would be nice to see the data table. He says Britain has sold its overseas assets to keep itself going – but his cited reference suggests other countries are no better.
Quite a bit of what he says is indeed about inequality – pension reform and people going without food etc. so he may not be as far away from you as first appears.
Will mean’s internationally, and I think that is meaningless in an era of floating exchange rates. Will is sometimes not able to get over 1970s concepts.
I feel that under this and previous Conservative governments we are definitely going morally bust.
Dear Willie Hutton has been arguing that Great Britain is broken and for a better, bolder, and bigger government since at least 2011, probably much earlier.
It would be helpful if such occasional Guardian writers knew what they were talking about.
Actually, Hutton was active before 2011 in 1995’s ‘The State We’re In’ which got my attention and opened up a whole new world of short-termism and and stupidity in the way we run the economy – I’ll always be grateful to him for that.
The things is, Hutton I think took such a lot stick for it, that I think he caved in and he’s never been as good since. My view is that he is very much Stymied Labour in response to our challenges these days – he thinks tinkering will level out the creases in the markets but its going to take lot more than that.
That’s because the Right has convinced everyone that anything more radical and aimed only at wealth is an existential threat to us all – they have popularised/socialised the potential losses of the rich through equality who have been getting richer since 2008. That’s quite a feat in my view, but that’s what they have done.
He also uses left/right wing fascist tropes like ‘broken Britain’ which just get on my nerves to be honest and don’t really help.
Both parties use that phrase and its just redolent of party-political manipulation of the electorate and its got to stop.
The only people breaking this country are stupid politicians and their rich backers.
Much to agree with
Phillip Inman has a nice little catchy headline in the Guardian to highlight the moral corruption in the Bank of England (hardly surprising under right-wing governments like the Tories and Labour). Here it is:-
“Biased Bank of England blames pay for inflation, never profit”
https://www.theguardian.com/business/2023/aug/12/biased-bank-of-england-blames-pay-for-inflation-never-profit
He’s right
They are doing class warfare
Yep absolutely and courtesy of the Labour Party (Gordon Brown), a party which was originally formed to fight class privilege! Has anybody heard Sir Keep Samer propose the cancellation of the BoE’s independence? It doesn’t really matter if you have he’ll u-turn on it sooner rather than later!
It is perhaps a little off-topic but the thing that really grabs my attention is how illiquid most of the wealth is.
My second thought is that some forms of wealth are taxed quite a lot, but others are taxed very little, if at all.
I think it was Voltaire who wrote: The comfort of the rich depends on an abundant supply of the poor.
Noam Chomsky observed: The United States somehow finds it difficult to appeal to the poor with its doctrine that the rich should plunder the poor.
I think we have seen over the last year, that this is exactly what happens. High-interest rates being the prime example, followed by raw sewage dumped into our rivers while water companies bleat that they will need government help, despite paying their shareholders some £80 billion since privatisation. Then there are bankers’ bonuses, and £40bn government interest payments on central bank reserve accounts.
That Voltaire statement is a keeper. Never heard it before but it goes straight to the heart of what morality is about!
Why would the Guardian’s economic team describe Paul Johnson as a “top economist”? Answers on a the back of a postage stamp! Ever felt you’re being brain-washed yet again? 0.2% growth and Johnson comes up with this crap!
“Tax cuts would put ‘scary’ UK finances in greater danger, warns top economist”
https://www.theguardian.com/politics/2023/aug/13/tax-cuts-scary-uk-finances-greater-danger-warns-ifs-paul-johnson
What does “Private Pension” mean in the chart at the top of the post? (In the U.S. context, I don’t know what private pension would mean as a component of wealth.)
It means pension funds….
The trouble is that Richard and Will are both right. The UK is becoming increasingly unequal but also increasingly bust.
For a nation’s currency to be sovereign and offer full MMT, the country needs to be self-sufficient in one way or another. If we need to buy $s or €s for essential imports, then we need other countries to buy £s. All things being equal (I must be turning into a neoclassical economist) “printing” more £s will only make them less valuable. Of course, all things are not equal, But everything the Government and BoE are doing is a temporary fix, that will make things worse in the long term.
For example
Raising interest rates should encourage overseas investors to buy £s and purchase UK bonds. In the short term this will make £s more valuable, reducing the cost of imports and thus inflation. But in the long term more £s will need to be sold to repay the overseas investors, making inflation worse.
By cutting funding to “balance the books”, the government is forcing the sale of public assets (all stuff we own) to their friends. I expect everything that isn’t nailed down to be sold off next year, to create a fake boom.
We see how Brexit has caused businesses to relocate to Europe, gradually increasing inflation by increasing the imbalance between imports and exports.
More pernicious, temporarily reducing import duties on essential goods lowers prices in the short term, but cripples UK businesses and increases the trade gap in the future.
Richard has discussed some of these things in other posts, but even more than the true nature of debt (and angels on pins) they are important.
I think of UK plc as a failing company, and the government as its dishonest and incompetent directors. Before buying shares, you have to ask where the company will be in one or five year’s time. Thinking like this, £s do not look a good investment.
A new government will not find it hard to convince investors that existing policies are wrong, it will be harder to convince them that moving to a sustainable economy is “affordable”
MMT does not require self sufficiency.
Sorry – but I have to challenge nonsense abd that is nonsense. MMT allows for and requires floating exchange rates. Problem solved.
Your arguments are not MMT consistent.
‘MMT allows for and requires floating exchange rates. Problem solved’.
In 1971, the United Kingdom allowed the British pound to float freely, allowing market forces to determine its value.
That went well. Roll on more relentless devaluation.
Tell me what your problem is?
The problem is not floating exchange rates, but sinking exchange rates.
To be fair, since floating exchange rates, the exchange rate has gone from $2.4:£1 to $1.27:£1, without the sky falling in.
But I still can’t see how a country can spend more than it earns indefinitely.
One possibility is that a permanent trade imbalance is disguised by the gradual selling off of the UK.
Another is that deficits can be made good by profitable money laundering.
Just puzzled
This is a scenario where the market does equate the risk, shocks like Brexit apart
Exchange rates are simply measures of relative value.
“I still can’t see how a country can spend more than it earns indefinitely.”
Because the population is growing? Because savings are increasing? Because inequality is increasing? Because the government can tax indefinitely?
Isn’t it similar to what Amazon did in the early days, where it lost money for the first 20 years as the company revenues grew?
What do you think of Universal Basic Income?
Also, how do we redistribute wealth via tax, without driving the mega rich out of the UK to even more offshore accounts and investments?
UBI has massive tax problems attach3d is my honest answer – required rates are very high.
And, there is very little evidence many rich people move because of sensible tax rates. To achieve that I am writing many reforms, not one big one.
I think that a jobs’ guarantee is better than a universal basic income. The former is productive and gives people self worth. Any costs are offset by whatever is produced, albeit infrastructure, homes, local projects, etc. See for example:
Online articles
➡️ Pavlina Tcherneva on MMT and the Jobs Guarantee, https://www.currentaffairs.org/2021/05/pavlina-tcherneva-on-mmt-and-the-jobs-guarantee
➡️ The Centre of Full Employment and Equity, http://www.fullemployment.net/
Book
➡️ The Job Guarantee and Modern Money Theory by Michael J. Murray and Mathew Forstater (2017) https://www.amazon.co.uk/Job-Guarantee-Modern-Money-Theory/dp/3319464418
➡️ The Case for a Job Guarantee by Pavlina R. Tcherneva (2020) https://www.amazon.co.uk/Case-Job-Guarantee-Pavlina-Tcherneva-ebook/dp/B089RS8QTV/
I assume Richard is referring to the following Guardian link. There is nothing of substance in this column. It is based on the household fallacy. There is no recognition of many of the specific critiques made by Richard which must be addressed, for example paying interest on reserves.
https://www.theguardian.com/commentisfree/2023/aug/13/uk-stop-kidding-ourselves-rich-nation-gone-bust
That a the link – sorry to have not included it
Hutton’s comparisons with the USA ignore the fact that US ‘wealth’ is on borrowed money. The power of the dollar insulates them and allows an inflated standard of living. But any Fed QE simply ends up being spent on Chinese imports and inflating the Chinese economy. It also ignores the catastrophic economic and social effects of obesity, opioid and homicide deaths in the US. Chicago has more murders in a week than we have in a year.
Just go and read Richard Vague and stop talking nonsense
Steve Keen did a great review of Vague’s new book
https://profstevekeen.substack.com/p/the-paradox-of-debt-by-the-tycho