What is really depressing about today, the Autumn Statement that Jeremy Hunt will deliver, and the response we will get from Rachel Reeves, is the fact that all of them believe in the wholly artificial constraints that they impose on themselves so that government might fail to meet the needs of the people of this country.
In. no particular order these are:
The Bank of England must be independent
It is assumed that the Bank of England has the right to set interest rates and, if necessary drive the economy into a recession, as it is doing right now, and there is nothing that the government can do about that. This is simply untrue. We can get rid of an independent central bank and lead the world away from this madness.
There is no money
The old Liam Byrne claim that there is no money lives on as if it was true. The assumption is that all money is created by the private sector and taxpayers when the opposite is true. As a consequence no government really thinks it is permitted to run a deficit.
We are beholden to financial markets
It is assumed that governments must borrow at whatever rate markets will charge. That is not true. Firstly, interest rates are set by the government, via the Bank of England. Second, if markets do not want to deposit money with the government QE proved that governments can spend anyway. But that has been deliberately forgotten so that bankers can still blackmail us.
The books must balance
There is nothing in economic or accounting theory that requires this. In fact, a growing economy will always pay tax late to the government that runs it meaning that government income will always lag behind either real or nominal growth, meaning that growth makes deficits inevitable, and that eliminating them makes no sense. But still the myth, or untruth, is perpetuated.
GDP growth is the goal of society
Given the massive deficiencies in GDP measurement, and the resulting harm and bias it permits, this is one of the most stupid economic ideas ever.
ONS and OBR forecasts are a useful basis for decision making
The Office for National Statistics and Office for Budget Responsibility produce between them terrible data on what has happened in the UK economy and what might happen. The ONS makes up GDP, and estimates national debt without considering any of the basic rules of accounting, which means the data they produce are completely rubbish approximations to the truth (CRAp). The OBR are always wildly optimistic to keep the Treasury happy.
Existing divisions in society are fixed
Apparently there is nothing we can or should do about inequality in the UK including imposing tax to reduce it. Instead we must celebrate and encourage it. Even Labour now agrees. So, the biggest cause of our economic failure continues, unabated.
We must have a bias to the rich
Related to the previous assumption, but different in emphasis. It is assumed that the rich are very clever and drive the economy. I am not a eugenicist, know that rich got where they are by exploiting others, and that they are deeply risk averse now they have arrived and so will not invest for growth or entrepreneurship. Nothing about the rich adds value to our society, and trickle down emphatically does not happen.
Those claiming benefits are scroungers
Being ill, infirm, unskilled through no fault of your own, or living in an area where the work has gone is clearly the fault of those suffering such situations. Of course they should be punished for it. I am being ironic, of course, but it seems that our politicians think this.
People must not be allowed to save with the government
The so called national debt is actually made up of savings by people, pension funds, life assurance companies, banks and foreigners. They want to save with the government. The government wants them to save elsewhere and will guarantee their totally unproductive saving in private banks rather than take their money and use it for public benefit. This is absurd.
Government spending makes no difference - private spending does
The assumption is the consumer always spends money more wisely than government. And so we end up with the public services, which everyone wants to work, in a mess.
Taxes must never rise
This is, apparently, the word of the economic gods.
There are more false assumptions than this: take these for starters and realise everything said today is based on these false premises that are bound to result in economic nonsense being said.
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I disagree with your position on HS2, but so much of what you say is spot on and this is another great article.
Is there any chance some of these misconceptions are being address in the education system, or are they juet perpetuated as established wisdom?
Education perpetuates myths, especially economic education
Not in my classroom, Prof!
On benefits in particular, but I think it applies to Tory thinking in general, it seems to me fairly pointless seeking to persuade to any moral argument.
For example, were I to propose a replacement of unemployment, disability, and other benefits, I would make the argument for a Universal Basic Income thus:
1. Saves money by removing assessment and having to monitor continuing recalculations, simplifying payment processes, and requiring fewer departments and staff.
2. Proportionally rewards those who wish to pursue work in order to supplement their UBI, while protecting all – generating clear room for aspirational attitudes and growth.
Then the argument would be simply about where to set the rate of UBI – which right now I might propose is suggested at, say, £11.44 per hour…
Those would be my discussion starting points – what do you say, folks?
But the resulting tax rates would be nigh on impossible to manage
It’s not obvious to me that the resulting tax rates would be impossible to manage. That is an important argument against UBI.
Perhaps, when you get a moment, and I know you are extremely busy, you might explain why taxing UBI is a problem please.
Tim,
Start here https://openaccess.city.ac.uk/16544/1/2013_Policy_Paper_Financing%20the%20Social%20State-_Richard_Murphy__Howard_Reed_(Social_State_-_Idleness.pdf
Richard
They would argue that Universal credit has delivered what UBI has only ever promised.
The biggest hurdle to UBI is our perception of rights and entitlement. Whether we believe entitlements are ‘true’ depends on a whole load of factors.
“What property a person has a right to have?” is a moral question. And the quantity of money a person possesses and where it comes from is a moral question. A conservative would say that markets provide this answer and who are we to disagree.
We after all live in a world where people cite Adam Smith’s indivisible hand metaphor to mean that markets are always moral.
Smith did not think that
We published a paper this month that shows how we could deliver a full UBI in Ireland with minimal (2%) higher effective income taxes on those on higher incomes of +€100k. We factored in the replacement of tax credits and core social welfare payments as well as increases in Employer NI contributions. The total value of UBI payments of more than €10k per adult comes to €41bn and it is fully affordable within the Income tax funding structure without excessive tax rates.
See https://basicincome.ie/wp-content/uploads/2023/11/A-Model-Of-Basic-Income-For-Ireland-Quinn-Baker-November-2023-website-version.pdf
I will have to take a look, but I find that very hard to believe
I’ve seen councils go to P2P lenders for borrowing to fund certain things, which feels like it could be a bit of a goer, particularly as P2P in my experience tends to be project-focused meaning people can support the thing they think is useful, but so far it’s been relatively small cash values, and I do wonder how far this can be extended.
(I’m also 70% sure Gov’t bonds can be purchased by civilians, but doing so is an arcane art that will be too much mither for most)
Yes in theory a private individual can buy gilts, and my broker, A J Bell, do offer the facility. But it is far from simple and researching which ones to buy is very time consuming. They can also be bought as part of an investment platform in which the investment manager decides which ones to buy. In practice, also, pensions include gilts as part of their platforms unless you specify that you do not want them and depending on your stated level of risk.
All gilts can be bought on investment platforms such as AJ Bell and HL, it can be done online in seconds and dealing is very cheap… it is far easier to deal in gilts than it is national savings… whether it is a good investment is a separate thing all together. Buying long dated gilts a few years ago would see you sitting on a 50% capital loss.
But you don’t buy long term bonds for the short term
Thus (given the long list of false assumptions etc) the Autumn Statement falls into the category of “East Ham”
(i.e. one stop short of barking).
I think it’s more “Upney”: one stop past Barking. 🙂
Another excellent blog Richard! Add to this your Taxing wealth reports coupled with George Monbiot’s article in the Guardian today (https://www.theguardian.com/commentisfree/2023/nov/22/britain-money-bank-bailouts-state-failure) means so more than the sticking plaster politics coming from Westminster. Good luck with getting your message across on radio this afternoon.
Important to state these underlying (and widely accepted) fallacies.
We may see an NI cut and tax relief in Business Investment which, broadly, I have no problems with….. but it is rather “rearranging the deckchairs on the Titanic”… which is particularly galling when the iceberg is in full view and been brought to the attention of Captain and crew.
At 10:31, BBC News on Channel 2, Economics Correspondent Andy Verity blurted out the economic true facts that support everything that you have told us! He said: “There’s two things here Ben, there’s on the one hand the Chancellor’s freedom to do what he can, objectively, economically, which is great. There’s huge scope to move things around, to cut or raise taxes, to cut or raise spending and then there’s what his room for manoeuvre is within his self-imposed targets.” Yes he really did say “self-imposed targets!”
It all sounded pretty routine until those last few words, when he really started spilling the beans. Verity said: “we need to be clear on this, a Government’s finances are completely unlike a household’s finances. There is no national credit card limit, there is no national overdraft. We live in a fiat currency, where the Government effectively issues currency. You and I can’t do that, firms can’t do that; we’re currency users. The Government issues currency and has a lot more freedom than us; not many of us have a money printing press in our front rooms.”
I have printed his words verbatim as I fear they may disappear due to the political necessity to continue the current, ‘no money left’ charade. The BBC interviewer did not challenge this reality as he asked about the political choices the Government might take. I was totally gobsmacked, as Verity went on to expose how the Government had voluntarily constrained itself within an economic straightjacket. He said: “But, what the Chancellor has to calculate is his own self-imposed targets; the wiggle-room if you like is against those self-imposed targets and those as you say are a political judgement….”
Verity continued by saying that: “Based on what the Government thinks the market will wear, just like in the mini-budget we had last year, there’s simply no constraints on what the Government’s going to blow on tax cuts for example, then the markets will react badly so the real wiggle-room is against that judgement. So what we are likely to see is some kind of cut in National Insurance and also a downgrade to economic growth.”
Verity cautioned: “Well, one thing that’s good for him in a way is the amount of spending the office of budget responsibility thought the Government would be doing back in March. The last time it gave an assessment, turned out to be a lot less, apparently because energy bills came down so sharply. So the amount the Government was spending subsidising those bills was smaller than expected and also there’ll be slightly better economic growth this year than the Government was expecting which means more tax receipts coming in.”
Verity revealed that: “The other reason he’s able to offer some sort of tax cut or so much talk that he will cut National Insurance is partly because we’ve been paying so much of it. So in a way, if there is a cut to taxes or National Insurance, that we’re anticipating today, that will be our money he’s giving us back and that’s because of what I was explaining in that report earlier about fiscal drag.”
By way of explanation Verity laid bare another Tory austerity fact: “If you hold the threshold above which people start to pay tax, and you freeze that, and it doesn’t rise with inflation, but wages go up by nearly eight percent then obviously more of everyone’s wages are subject to tax and it is that windfall that the Government’s seen the benefit of over the last twelve months. Therefore the public finances are a lot less tight, even against the Chancellor’s self-imposed target, than he might have thought, say six months ago.”
Verity continued: “So the Office for Budget Responsibility will probably reflect that and it will seem like the Government has more scope within its targets, to do more, to boost the economy for example by handing some of what it’s taking off us back in the form of a cut in National Insurance. At the same time, if there is a downturn in economic growth in the coming year 2024, as it looks like there will be, obviously that means less tax money rolling in. If there’s less economic activity, less economic growth, that means less VAT coming in, less income tax coming in and that gives the Chancellor less scope.”
Verity admitted: “There will be some sort of moves though, we can expect that.to boost consumer confidence and perhaps even to boost the Government’s popularity in the twelve months ahead of where it has to hold another election.” It looks like the Chancellor will toss in a few sweeteners hoping we will ignore the toxic Tory medicine of the past 13 years. From my reading of your posts, any breaks like lowering National Insurance will offer money to the already well off, while continuing to punish those who need it the most.
I bet the BBC is hoping that very few people heard the most revealing portion of this broadcast. You’ve got to love Andy Verity’s honesty.
Good for Andy
He gets it
Totally agree about Andy Verity, however Andy is mistaken to have raised the spectre of ‘the markets’ constraining government ‘wiggle room’. Though this is THE ‘lesson’ of the Trussanomics disaster, it was very well debunked by Stephanie Kelton in a video interview last December with fellow MMT economist Steven Hail…https://www.youtube.com/watch?v=lADHLdjBESg …As I’m sure you would agree Richard, Stephanie states that it wasn’t ‘the markets’ that did for Truss/Kartweng, it was the BoE. Stephanie rightly concludes, Truss et al’s mistake was that they “blinked first”. If they hadn’t, the BoE would have been forced to follow government policy.
I entirely agree it was the BoE
Thanks for reporting this.
“You’ve got to love Andy Verity’s honesty.”
He certainly lives up to his name!
Listened to your interview yesterday morning on 5 live and found it really interesting.
Thanks
I personally think UBS is a better option than UBI
It just seems it would be easier to sell it to the public and would be harder for the right wing rags to criticise
It would be a nice idea if you would do a piece on the potential costs and benefits of both ideas Richard …but I doubt you have the time
You are right
You suggest we can ignore the power of the markets. Truss tried and lasted a few weeks. Remember The Prudential screaming around to the BofE and stating insolvency within hours.
Actualy, it was the announcement of £80 billion of QT by the Bank of England that destabilised markets, which was why QE could put it right.
It really does help to get your facts right.