My old friend, Prem (Lord) Sikka said this in the House of Lords yesterday when discussing the Autumn Statement. I think the whole section of his speech is worth sharing but I highlight one section deliberately:
I have some specific questions for the Minister about the public debt, which she referred to in her speech. Nearly £1 trillion of quantitative easing has pushed up asset prices and enriched a few. One study has shown that QE boosted the wealth of the richest 10% of households by between £128,000 and £322,000 per household. Instead of squeezing the poor and public services, the Government could have clawed back this gift to the richest. Can the Minister explain why the gains arising from QE have not been clawed back?
Public debt under the Conservatives has soared from around £1 trillion, or 65% of GDP, in May 2010 to £1.79 trillion, or 79% of GDP, just before the pandemic. The latest figure is £2.64 trillion, or 97.8% of GDP. What does this public debt actually consist of? Ministers have never explained. I can see no rationale whatever for treating quantitative easing balance as part of the public debt, especially as the Government hold equivalent gilts and bonds. In any case, QE is an intrastate transaction between the Bank of England and the Treasury, and the consolidated effect is zero. Can the Minister explain how much of the QE is included in the public debt amount, and why?
Through the QE, the Government have enriched speculators by pushing up the price of gilts and corporate bonds, but they are now selling them at a loss. Can the Minister explain why, as part of quantitative tightening, the Government are selling securities at a loss, how much has been lost, and why the public purse is being held responsible for that loss? The Government are also paying interest to commercial banks on what are called central bank reserves, which are created as a result of QE. Can the Minister explain why this interest is being paid on the money that has been created by the state and given away freely? How much has been paid so far, and when will the Government stop this practice? It is akin to a farmer growing carrots and giving them away, then when he wishes to have one or two carrots back he offers interest to those who will return a carrot. That is exactly what the Government are doing, and it is a crazy policy. I hope the Minister will be able to give a detailed reply to each of my questions.
These are, of course, themes long discussed here. I am delighted that Prem has raised them.
Prem did not get detailed answers to his questions. He was instead told that the Minister (Baroness Vere of Norbiton) would write to him. I have asked him to share the reply with me and he has assured me that he will.
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:
Buy me a coffee!
Not surprised that Prem got nothing much by way of a response to his (excellent) questions, as I doubt Baroness Vere understands them. But the written response will certainly be worth sharing as the Treasury are certainly going to have to tie themselves in knots explaining the rationale for a set of actions which cannot rationally be explained in any way whatsoever. That said, they can, of course, explain all of these things by simply admitting this is all about making rich people, and the banking and finance industry that actually runs this country, even richer. In other words, they do, and have for many years, promoted a policy of ‘trickle up’ and they have no intention of stopping now.
It will be interesting ……
Finally! Thank you both.
It is a deficit not a debt.
All arranged by banksters, toryZ, CoL to give them the profits and to maximise the lie that taxes pay for public services. None of these arrangements have the slighest democratic approval from ‘The People’.
G Brown did that, saying ‘I saved the banks’. By protecting private bank profit, which is not taxed properly.
And thus hugely inflationary causing UK house prices continue to rise.
Banking, money creation, #newmoney must be democratically controlled by the people. Or private will continue to take the piss. As it has done since 1695.
Nationalise the lot.
At last
Somebody has the bottle to ask the important questions
Why aren’t the Opposition parties bringing this up in the HoC, either in Question Time and/or preferably as an Emergency Question directly to the Chancellor of the Exchequer. This should be followed up by a Public Inquiry where the likes of Prem and your good self can have the opportunity to grill the Treasury, BoE, etc. to find out what the hell is going on and hold people to account, and if check if any suspicious activity has arisen. Hopefully resulting in prison sentences for those involved
Note, nobody has been taken to task over the original banking crisis which started this financial cock up ..
Prem undertsands this
Very few in parliament do
Richard wrote “Prem understands this….very few in parliament do”. All the more reason for it to be raised in the Commons where politicans’ and the media’s lack of understanding of how these matters actually work in the real world would be exposed. This in turn would result in media reportage and, inevitably, debate with people like Prem and Richard representing reality. On reflection, this might be the quickest way to spread awareness of the mass deception carried out by politicians and the media and, by extension make the public more aware of MMT.
I am just not sure who could do this.
Yoy can be quite sure the flat-earther economists, Starmer and Reeves, have zero grasp of this. Having them “manage” the economy would be to turn your business accounts over to a kindergarten Reception Class.
I am someone with only modest intelligenve, sadly declining with age, and I have never worked in Finance.
I wished to understand what “Open Market Operations” meant, so I googled it and found this “https://www.elibrary.imf.org/display/book/9781557755988/ch006.xml”
I am little wiser, except to realise that I am never going to understand the smoke and mirrors expressed in the piece.
What is evident is that there is not a snowflakes chance in hell of getting the general public, perhaps including MPs, to understand the way the countries finances work. It is no wonder that politicians try to get people to believe that it is similar to personal budgeting.
Perhaps what is needed is to find people who do understand the smoke and mirrors and get the general public to respect and follow these people and be happy to leave the machinations to them. How that could be done is not obvious!
I should try to do a glossary entry
I will be interested to see the response.
To be fair, this uncharted territory and it is unclear exactly what the correct solution is. What is clear is that the BoE is navigating with the same old instruments and does not see any need to change… because the current arrangements do achieve their policy objectives and, as a by product, enrich banks.
Of course, just because the banks are happy does not necessarily make it a great idea!
Historically, there has always been a shortage of Reserves and the BoE has typically had to add reserves through open market operations. The shortage is because a growing economy needs more money to oil the wheels (and also changes made some years ago in the way the payments system operates meaning that banks were/are required to hold more reserves as collateral).
So, in general, demand for Reserves meant that the BoE was typically supplying reserves and banks were borrowing and paying interest to do so. The issue of whether interest should be paid on reserves by the BoE was not important and many (most?) Central Banks did not.
Now wind forward to today and we have a completely different position where there are loads of excess reserves and the BoE is paying Base Rate on them and that amounts to tens of billions of pounds… so it is something that now matters in a way that it never used to. Of course, the Commercial banks pay interest to their customers so they do not trouser all the interest paid on Reserves but in practice they do not pass on that much so are making huge profits for essentially doing nothing that they were not already doing – operating bank accounts for people.
Now, the BoE could just stop paying interest but then (so the theory goes) the banks will stop paying interest to savers and they will look to lend elsewhere and lower interest rates will leak into the real economy and scupper their interest rate policy.
The challenge is to find a method of ensuring good transmission of interest rate policy into the real economy without paying huge amounts to commercial banks.
It can be done and I think Richard and I have outlined some thought in previous blogs but there will be no action on this until it becomes a political issue…. which, I hope, it now is thanks to Lord Prem Sikka
Let’s see…
“Historically, there has always been a shortage of Reserves”.
Historically reserves were notes and coin. When there was a shortage of them, reserves were free.
“Now wind forward to today and we have a completely different position where there are loads of excess reserves and the BoE is paying Base Rate on them and that amounts to tens of billions of pounds”.
Now they are merely a digital keyboard item, and there are loads of excess reserves, they are expensive.
I am still trying to work out that one.
Superb intervention from Lord Sikka. Top hat, hat tip to him!
John … Excellent point on the historic notion of reserves, and we could go back further and talk about gold. Both were useable by the public. Somehow the banks got us into a situation where reserves are only good for the banks. Bernanke bailed out the banks with CB reserves, digital money, but such money is not permitted to be used by the public, and non banks.
These Canadian links are a case in point in which the CB will not give the government a free lunch, but Bernanke bought toxic assets which ‘could’ have ended up worthless.
The paper asks
“Is the Bank financing the federal government’s debt?”
and answers
“Another important point is that QE does not release the government from its liabilities. We are not financing government spending at no cost, nor are we making the government’s debt disappear.
There is a big difference between financing the government and influencing the cost of government financing. Through QE, the Bank of Canada is doing the latter—we are lowering the cost of borrowing for the government. But most importantly, we are lowering the cost of borrowing for everyone in the economy.
To put it simply: we are not providing a free lunch for the government. The government will have to repay the bonds that we purchase through our QE program when they reach maturity”
If the government used digital dollars, CBDCs then it would finance government debt – it would be a free lunch. Instead it has been the banks getting the free lunch around the world wit this form of QE – interest on reserves!!!
from:https://www.bankofcanada.ca/2020/12/our-quantitative-easing-operations-looking-under-the-hood/
This paper explains settlement balances or reserves and makes the devastating line which makes banks the sovereign of money creation. Apparently it is ok to stop government from using money out of thin air for the people – as Friedman proposed, but it is ok for banks to print money out of thin air for their shareholders!!!
“It’s important for central banks to be independent from the government. Simply put, the power to create money should be kept separate from the power to spend money.”
https://www.bankofcanada.ca/2022/06/understanding-quantitative-easing/
Mr Parry,
“So, you need to find a way to encourage/force banks to hold reserves …”
I see the problem you present, but it is quite extraordinary. Historically (in England), notes and coin were reserves, and of course do not attract interest; they were ‘legal tender’, which made them distinctive, and quite different from deposits. For example, bank customers with deposits, withdrawing their money from a commercial bank expected to be paid in legal tender, not in deposits. In a crisis, even today depositors in a bank run would look for legal tender.
We know that commercial banks are prone to financial crises; and the mechanism to manage the risks they take now, is to keep Reserves which are determined by regulation, and held in the central bank. These Reserves are no longer legal tender.
Now the proposition seems to be that the only way to enforce the commercial banks to hold Reserves, is to pay for them to be held. I am struggling to understand the sleight of hand that moved us from Reserves being non-interest bearing, to interest bearing, without consideration of whether interest bearing Reserves could really be considered Reserves? When interest rates are around the lower bound the point may seem an academic one, but interest rates are contingent; and the status of Reserves is not. Reserves, it seems to me are in banking terms more precisely to be considered items of custodial collateral, rather than a deposit, from the perspective of the Central Bank and the State seeking the collateral. The collateral is held for the de facto open-ended risk the State is already taking, in reality that risk may be far beyond the collateral offered; paying for the collateral to be held, under these risks would be unsustainable in a real commercial setting. It therefore seems to me quite wrong.
Paying interest on Reserves in effect makes them now an active, and potentially profitable form of deposit with and income stream for the commercial banks, but in a specially privileged position, an income stream being subsidised by the State, outside the conventional commercial (supposedly competitive) banking system.
I am not claiming that I have the answer to this problem. I don’t.
I am musing on it
Mr Parry,
“The challenge is to find a method of ensuring good transmission of interest rate policy into the real economy without paying huge amounts to commercial banks”.
The challenge is surely not beginning with nothing, a ‘tabula rasa’ requiring revolutionary thinking; there are well established ideas for a tiered monetary system there to be explored.
Tiered systems are easy to imagine
The New Economics Foundation has done good work on this
Agreed…. and some of them have been outlined in this blog.
First, assume that interest rate policy is still to be transmitted to the real economy by open market operations. (There are other ways – eg. just tell the banks what rate they can lend at – but these methods would (probably rightly) not get a hearing).
The question is “what interest rate on what quantity of reserves and to whom?”. Although this appears to be a fairly simple technical issue easily solved it is, in fact, quite tricky. It depends on quite a lot of factors where Central Bank Open Market Managers have little experience and virtually no empirical evidence.
Having said that, “the best is the enemy of the good”. A certain level of reserves is required by all banks to ensure smooth running of the payments system; no interest should be paid on this amount. Next, slowly raise this amount of unremunerated reserves and see what happens.
Yes, billions will still be paid in interest on reserves but it will be fewer billions and, with further tweaks, it can become still fewer billions over time.
It needs to be done gently because we don’t know how banks will respond (well, we know one response – they will squeal) and it is important that credit finds its way to the real economy in the correct amounts at the correct price.
It is not perfect (by a looooong way) but it is a start that could be made within the existing frameworks.
The differentiation is actually easier than you suggest, I think.
We keep calling these sums liabilities. But they are not. They should properly be described as capital. Then the return is determined by the government at its will. They are also not repayable then.
The scale of the commercial bank reserves held at the central bank are a function of the degree to which the central bank, representing the sovereign currency issuer is able to trust the commercial banks.
We all know from bitter experience, the nature of commercial banking makes it difficult to trust, save when tightly regulated. The idea that the central bank effectively require to pay commercial banks to act responsibly is hard to justify.
The ECB introduced a two-tier monetary reserve system in October, 2019. I recognise the circumstances in rates then were quite different to conditions now; but the general principle is established by a major central bank. Doesn’t the Bank of Japan have a three-tier system?
Japan dies do tiers
You are right
As mentioned, I am working on ideas on this…..
I fully accept that interest does not have to be paid. There is no obligation to do so. Full stop.
But if no interest is paid on Reserve balances what rates will prevail in the real economy? It is the issue of transmission of policy that is tricky.
This is why reserves and capital need to be differentiated
I do not have profound insight into this. As a banking outsider, I am always cautious about pontificating (given I am dependent on theory, sources or distant observation), given the somewhat opaque manoeuvres of central banks. These are matters to which insiders bring insight and illumination I do not possess. Here is my thought. Doesn’t the Bank of Japan possess both a tiering system, and control the rate through control of long-term bonds (10 year+), by determining the yield through direct intervention?
I think that is a Japanese peculiarity
There are cultural factors presumably here (which cannot be dismissed), that may be peculiar to Japan. I do, however think that when a major central bank demonstrates that a system of tiering and intervention demonstrably works in principle; it would be insufficient to argue it is all too difficult to do, and rely on the ‘outlier’ argument (which logically was never very convincing as a generalisation; and always looked glib), and just dismiss the Japan experience as the conventional wisdom in economics and banking seems to do.
I agree entirely
I just think we might need a different system
In Japan, rates are zero so remuneration of reserves is neither here nor there. What they will do if rates get above zero in a world of excess reserves remains to be seen as it has never happened before. Their policy of “yield curve control” has a lot to recommend it (in my view) but this is not really linked to the issue of paying interest on reserves.
In the UK, imagine no interest was paid on reserve balances. Banks would just buy gilts… and keep buying until gilt yields were driven down to very low levels. Corporate bonds and loans that trade at spreads relative to gilts would then be priced at levels that were not appropriate for the real economy.
So, you need to find a way to encourage/force banks to hold reserves rather than gilts and that is not so easy. You can’t forecast how banks will behave and you run the risk of creating great interest rate volatility (as the Fed found out in 2018) if you get it wrong. So, as I said, it is not quite as straight forward as it seems.
But they could not buy gilts with their CBRAs Clive, so I am not sure I follow your logic.
They would have to buy with their own funds. Why would they do that?
Or am I missing something?
Yes, they can buy gilts with reserves – why not?
So, RBS buys a gilt yielding 5% from (say) Lloyds. From RBS’s view their Reserves fall by £1 (but with no loss of interest) and they have a gilt paying 5%; happy days. Lloyds, on the other hand, has lost an asset paying 5% and has got another £1 in its reserves paying zero. So, Lloyds goes out and buys a gilt yielding 4% (from RBS) who does out and buys at 3%…. etc.
This downward spiral of gilt yields can only be stopped by either….
(a) the government sells more and more gilts at 5% (this is quantitative tightening, in effect)
b) rules are but in place to force banks to hold bigger reserve balances (so can’t buy gilts). But what, exactly, would those rules look like – this has to be done carefully to avoid unintended consequences. Should the level of reserves balances be a function of balance sheet size? Importance to the payments system? Etc..
Hence my suggestion to go slowly to start with to see what happens.
I am not convinced
Can they use their reserves for second hand purchases on their own account? I genuinely don’t know. But I could see how it would be easy to prevent it.
Banks certainly can and do buy gilts and (sometimes) in very large quantities without undue capital or liquidity concerns (from a regulatory perspective)….. and they would do so if reserves paid zero. I am sure this would happen unless they were constrained in some other way.
I am intrigued to know how you would regulate this….. and the devil is in the detail.
I do not dispute they do – but if the dealing is in the secondary market how does that impact net CBRAs?
Aggregate CBRA balances are not altered by secondary market gilt trades…. but interest rates are. That is the issue.
The gilt yield curve, to a considerable degree, reflects market expectations of how overnight rates will evolve over time. Given that there are excess reserves in the system then the rate that the BoE pays on reserves is the key overnight rate from which all others are derived.
To make this work the “excess” needs to be removed/ring fenced/something else…. and this needs careful thought.
Accepted
But I am still wondering about the crossover mechanism. I am nit convinced it is that strong, but readily accept I need to work out why.
Your comments are helping.
I think Mr Parry has now presented us with where we are: Catch-22, and no way out. Somehow I do not feel comforted.
It seems the ‘fix’ made post-Financial Crash by BoE, Treasury and Regulators has not turned out well, and without much reflection on the consequences, or a clear idea where we are bound. It looks a little to me, as if the commercial banks are effectively attempting to de-monetise the banking system (whether consciously or not); and have successfully tied the BoE into an open-ended facility not just of last resort, but first resort, generously supported and high security interest bearing reserves.
Of course the commercial banks are not lavishing their hard pressed depositors with such levels of service or return, or much return at all in many cases.
Or maybe I am just rendered in a state of shock by Mr Parry’s neat presentation of a monetary circularity. Unlike Hancock, he has presented us with an unbreakable circle – of banking immunity from substantive control.
I intend to break that circle
Mr Clive Parry,
Please could you re-phrase this comment, because it has confused me. And thank you and Richard Murphy for these analyses.
“So, in general, demand for Reserves meant that the BoE was typically supplying reserves and banks were borrowing and paying interest to do so. The issue of whether interest should be paid on reserves by the BoE was not important and many (most?) Central Banks did not.”
Only if you have time Clive
On 14th December Prem is giving a talk to Fuel Poverty Action called Plenty of Money.
It’s on at 18.30, for anyone who wants to watch.
Prem “will speak to how/what taxpayer’s money is actually spent on in the UK and how/what he thinks this money should be spent on instead, especially in order to effectively tackle the multiple crises we are facing today. Plus, what money could and should be coming in from taxes that is lost because of tax failures, loopholes, and lack of oversight on existing tax policies.”
The aim of this as far as I am concerned is to give people the impression that the government is in debt and is paying interest charges to an external provider of money or credit.
And this means that the actual and real role the government and is currency is further obsfusicated.
It is simply false evidence.
Having said that, many of our frankly very untalented politicians may actually think that this how things actually work.
“Can the Minister explain why this interest is being paid on the money that has been created by the state and given away freely? “………..to amongst others, foreign owned banks such as Santander – to the extent that these gifts of money from the BoE account for more than 50% of Uk profits. In the final analysis given the outrageous situation one has to resort to art:
If I were a banker
Ya ba dibba dibba dibba dibba dibba dibba dum
All day long I’d count the money up
If I were a banker man
I wouldn’t have to work hard
Ya ba dibba dibba dibba dibba dibba dibba dum
If I were a banky banky man
I’d build a big tall house with rooms by the dozen
Right in the middle of the town
A fine swimming pool several floors below
There would be one long staircase just going up
And one even longer coming down
And one more leading nowhere, just for show
etc
The benefits of being a banker seem to know no limnits
This is a rather long comment on Matt Hancock’s testimony 30th November (today) to the Covid Inquiry. It is intruded here, and Richard and the readership may feel I am testing the limits of everyone’s patience with these interventions. The reason I am exercised by Module 2 is that I only too vividly remember the period under review, and cannot reconcile my understanding of the period from the descriptions offered by Cabinet Minsters at the time. I had no special insight, nor access to the range of information available to Ministers; and while I confess I was not subject to the enormous pressures they were under grappling with an unknown virus, the political response (specifically) was inadequate. Through Austerity the politicians began from the wrong place, and one they could never recover in time; but I feel that instead of taking command of a drastic situation, and working for the best outcomes, independent of the politics; I believe Hancock, and indeed Gove’s testimonies suggest politicians looking to the public to provide leadership to the politicians; before taking the crucial and decisive actions required. This came too late; the public cannot provide political leadership in a crisis.
Here, it is incumbent on me to explain why I draw that conclusion from what I have heard. I have extracted this quotation from a piece I wrote for Bella Caledonia, 2nd May, 2020 ; in the middle of the pandemic, titled ‘How Not to run an Country’:
“Exercise Cygnus, a dry-run in 2016 [by the Government] provided an illumination of the problem, and what was required; especially investment. It didn’t happen. ‘Don’t get it done’ became the Conservative government’s alternative solution. The required investment was not made; desk exercise buck-passing was preferred. It was a Conservative Health Minister of the time who blew the whistle on that failure; he was astonished to discover four years later that nothing had been done to plug the gaping hole in our pandemic defences. Dr Philip Lee was a Conservative Health Minister who attended the Operation Cygnus dry-run in 2016. He understood the shortcomings that were revealed by the Cygnus operation, and is horrified at what has unfolded now, leading him to believe the real action and investment required of the Government by the failures exposed by Cygnus was never undertaken. He said as recently as 19th April that the government was advised to: “strengthen the surge capability and capacity in operational resources in certain areas. If demand outstrips local supply, there will be a need to scale up the response, for example to regional level. This was particularly true for excess deaths, social care and the NHS” (The Observer)”.
Dr Lee went on to say: “The question I would very much like to ask the health secretary, Matt Hancock, and Michael Gove, who has responsibility in the Cabinet Office, is when did they read the Cygnus report that has not been published and, having read that report, why did they conclude not to increase testing, PPE and ventilator capacity in January?” (Quotation from an earlier Bella Caledonia piece I wrote on the same theme, of 20th April, 2020). These problems that so severely hampered Britain’s capacity to respond to a pandemic crisis, without much doubt were caused by the draconian Austerity policy exacted on Britain by the Conservatives from 2010 and unrelentingly from that date, and to catastrophic effect on the country, its economy, and most of all the lives and wellbeing of its people. I
It is quite extraordinary, therefore that Hancock should actually seek to buttress his desperate attempts to defend his pronouncements on his references to ‘planning’ in his Covid Inquiry testimony to the earlier planning – specifically identifying Cygnus. Cygnus revealed the inadequacy of pandemic preparation, but did not recognise in its proposals that the pandemic may be of a quite different kind to influenza; and even more crucially did not ensure the serious shortfall in investment and resources to correct the exposure of weaknesses that it identified, from 2016 until the pandemic.
On 7th May, 2020 Channel 4 News, in ‘Revealed: PPE stockpile was out-of-date when coronavirus hit UK’ (https://www.channel4.com/news/revealed-ppe-stockpile-was-out-of-date-when-coronavirus-hit-uk) reported that 49k pallets of 500m items worth £500m+, built up and stockpiled to 2009 in a huge central warehouse; was out of date, had been allowed to decay and shrink in size, lacked key components and was ill distributed. These are the “facts”; rather than the too often politically driven responses of Hancock, Gove and the rest of the politicians and Spads.
In answer to an observation by a commenter to my Bella Caledonia piece, ‘How Not to run an Country’ I replied with this summation of the state of play in May, 2020:
“Without the huge support of the public, the lockdown may not have happened; or happened even later. Indeed, I suspect the public led the Government into the lockdown, and not the other way round. I suspect the Government in early March did not believe the British public would accept a lockdown (as many Conservatives believed the public supported the Conservative ideology of a lockdown being an intolerable burden on individual, neoliberal liberty and too costly in terms of economic self-interest, with only a low requirement for civic responsibility), and were therefore reluctant to commit themselves to it, because even this government couldn’t hide from a failed lockdown.
Once the Government realised that the public were actually receptive; even mindful that there should be a lockdown, because they could work out what responsible leadership required, the Conservatives simply changed their tune. The public not only led the government by example, but ensured the lockdown could be made to work, even with no equipment or adequate organisation to help everyone on the frontline (from the NHS to supermarkets and the postal services); hindered only by a hapless and incompetent government, which over many years had left Britain stark naked of the vital resources, indeed stripped them out of the system so there was nothing left; from resilience planning, through testing to PPE; when the blizzard struck. The public responded as if there was no government worth the name there, at all: which there wasn’t. They just made of it the best they could. At the ‘coalface’ they reconfigured the NHS, did without vital necessities and have worked miracles with nothing.
When Boris Johnson realised he could just follow the public lead, in typical blustering Conservative mode, he sweeps forward to institute a lockdown; as if he really was a master of leadership. It is merely an illustration that Conservative Government is not a Government of action, but of spin, public relations and unvarnished propaganda – and nothing else: nothing.
What has the role of the Conservative Government been in all this? To pass the buck where they can, produce PR stunts and propaganda – and prove they have more brass neck than anyone less, to take all the credit for people working heroically in a government of chaos. This is no more than a Government of feckless political parasites”.
I have seen nothing in the Covid Inquiry testimony to date, to change my opinion.
I was struck by Hancock’s insistence on invoking a personal and peculiarly British exceptionalism in management approach; a determination on pressing forward with confidence with what he had to hand, and justified with his surprising dependence on international contemporary mainstream opinion on Britain’s general readiness for a global pandemic, rather than what he knew about his own direct area of responsibility, first hand; especially when he conceded that international opinion was clearly wrong. Ironically the two major interventions that changed his mind on fast and decisive action on a lockdown, appear to have come in March, 2020 from WHO prodding, and the strong advice of his Italian counterpart, from his own firsthand experience. The sense of Britain in the 21st century still being driven on the wings of British exceptionalism built and honed on nothing better than the braggadocio of 17th century pirates turned empire builders, is hard to resist.
You are welcome to pullish these here, John.
I appreciate the offer, Richard. I am not sure that quite long pieces, written in the middle of the pandemic, and with a lot of granular detail linked to contemporary events would be of interest to readers now.
Hancock’s carefully orchestrated defence took me back to my sense that the public at the time were well aware of what was coming down the track in February/March, 2020 (I turned to my old article because a contemporary quote might give some sense of public opinion and the issues as generally understood at the time); which is why, in spite of Johnson’s assumption that the libertarian neoliberalism of the voters would make lockdown difficult for the Conservative Government, when he had to move to ‘lockdown’ (a perhaps deliberately pejorative choice of terminology in this context, for a public health defence of life), that Johnson found, to his relief, that he was not just pushing on an open door; but the public were already ahead of the Government curve.
The question is, if the public could see the wisdom of decisive and drastic action (the precautionary principle that Hancock now wishes to claim for himself), why did the Government find it so difficult until so late in the day?
Very fine post Mr Warren.
Your comments on Hancock reminds me of General Haig and the Imperial War Staff of 1914 – 1918. Oh they learned – eventually – but the price being almost unumbered deaths & casualties. Given what we are hearing it would seem that, at least in the mindsets of the governing, not so much has changed. The UK is the lab (austerity?) and UK subjects the “lab rats” who are the resource for the governing to “learn by doing”.
My wife has been following this and would agree with the WW1 general analogy.
I t is a bit late to comment but I would argue the Generals did better. They knew they were not set up for a European war and tended to look to the French to start with.
I am, for my sins, chair of the Somerset branch of the Western Front Association and agree the Imperial staff did employ some horrendous tactics but they did create an integrated army from regulars and reserves, Territorials, New army volunteers and conscripts, which was able to integrate aircraft, mobile infantry tactics, using light machine guns, gas, artillery using maps derived from aerial photographs and tanks-none of which were in use four years before. The British Army started with a smaller force and , compared to Germany, a lack of quantity in artillery trained reserves and staff officers, necessary for a war involving the movement, billeting and feeding of millions of men. They also needed thousands of tons of shells over inadequate roads. Many of the staff officers were civilians in uniform. Other countries did no better in avoiding casualties.
In the pandemic we had the experience had the experience of previous pandemics and the more effective preventative measures used by the Far East. The WHO had some guidelines and the Italian experience gave us a clear indication of where we wolud be in a few weeks. The countries of Western Europe had a lower death rate -except Italy- than the UK. The East of Europe had worse numbers.
Indeed, Mike, and nothing will change as long as a class system (specifically the English caste system) continues to endow ‘entitlement’ to those at the top of the pile. It’s the root of an unhealthy English obsession which undermines so many aspects of civic life from educational opportunities to national governance.
Mr Stevenson,
I am not a military historian, but your comment reminded me how similar the Austerity Government preparations for a modern pandemic were to the British preparations for a modern war in 1914. The outstanding politician involved was Haldane, Minister for War, who struggled to introduce a General Staff and modern principles to the War Office and Army, against the stubborn resistance to his approach by the calculatedly nostalgic amateurism of the prevailing Army culture. Haldane was both practical and an intellectual, who had studied in Germany, and was alone in the Cabinet in being fluent in German. He had studied and chose to follow the most advanced German thought on the Reform of conducting war, and made Germany such a powerful opponent to both Britain and France together.
So bad was the resistance to Haldane and modern thinking in the War Office and especially the Army, by I think – off hand – 1915, they (press and political opponents) were able to turn their resistance into a political storm against Haldane’s personal knowledge and insight into Germany and its thinking, into a malevolent political danger; haldane was driven out of office.
Britain learned to modernise only at great cost, out of the chaos of disaster, lack of competent preparation, and through the death of tens of thousands of British men (and from the Empire), on every battlefield, before they learned any lessons.
I think I can see some similar parallels to the pandemic, notably in the inadequacy of leadership; stuffed with people who were out of their depth. The lesson from WWI was that Britain did not change sufficiently to conduct a government that could actually serve the people. They were fighting WWII within twenty years.
The great lesson from WWII was the European Union: a project to end war in Europe (not to trap the British – they had to persuade Europe they were sincere by 1973. The British were not sincere). We left the EU (Brexit) 2016, onwards. By 2022 there is a war in Europe; that is just a fact.
We learn nothing.
Agreed
I noticed Hancock was saying they relied not just on the Cygnus plan but also the 2011 flu pandemic plan when challenged about not having a plan by Keith. They knew the PPE was no good by the start of the Covid pandemic.
1st December. Hancock in testimony to the Covid Inquiry, has admitted as a UK Minister of Health that he may use the term ‘this country’ to refer both to Britain and England (effectively, from a Scottish perspective indiscriminately), and in explanation suggested this was exactly the same as a Scot using ‘this country’ to refer to both Scotland and Britain. The Scot casually using the terms indiscriminately is, of course not the Minister of Health – for Britain! But presumably Scots can just be expected to figure out any differences, because they have all the knowledge required to discern any differences already at their fingertips. The fact that there is a separate, legitimate devolved health responsibility, and structure in Scotland is neither here nor there to Hancock. He then criticised the FM for announcing, perhaps before England, health policy implications to the public in Scotland.
I do not know the detailed circumstances of these differences, but since it was the FM who was announcing health policy and information, on a daily basis to a Scottish public anxious to hear what would affect them, and when; it would be understandable to wish to announce policy in Scotland early, if the FM knew there were senior Ministers in Whitehall casually or routinely referring to England and Britain in health policy statements, as if they were interchangeable; when policy announcements for Scotland may have administrative differences for good reason, and which have life and death implications.
I despair, bth of the basic common sense of ideological Unionism, and the weakness of Hancock’s understanding of sound methods of clear and precise communications in critical public policy matters in a Britain that was operating an agreed ‘four nations approach’, but to which British Ministers could implement with casually indiscriminate regard to public understanding across the four nations. It is the Conservatives who have insouciantly politicised everything they touch; either with ideological neoliberalism, or ideological Unionism.
Mr Warren
You and I sometimes clash here but I find much of what you write compelling and well thought through, holistic even. So for the record please be assured that I for one am not at all perturbed by your contributions. And I wish to associate myself if I may with these analyses. Having the ability to Join things up these days is a much needed talent given the amount disinformation out here.
Having just returned from 10 days in Ireland I have seen a lot myself and have had plenty to reflect about, I can tell you.
Mr Warren,
A very nice analysis.
But, we don’t need to worry now. Of course a regime of testing has now been set up, and the stock-pile of PPE has been rationalised, modernised and is currently ready for the next Pandemic. Of course you can have confidence in a reeducated Tory leadership – can’t you?
Cynicism will get you everywhere……
What I noticed today was that Hancock was saying ‘I’ All the time, whereas Gove was saying ‘we’ so as not to take responsibility.
I completely agree with the sentiment of this post. Zero interest on reserves would be a good first step. However we need to reform the system to properly address the situation. Since reserves can only be spent by banks, the CB is only the lender of last resort to the banks. Other than banknotes, the central bank does not actually print the medium of exchange. The public cannot spend reserves.
We need to have digital pounds or dollars or euros which the CB’s could buy federal bonds with. The interest would be returned to the government and solve the question this post’s title poses.
Milton Friedman supported the conclusions of his free market mentors in his 1948 paper
“Under the proposal, government expenditures would be financed entirely by either tax revenues or the creation of money, that is, the issue of non-interest-bearing securities. Government would not issue interest-bearing securities to the public; the Federal Reserve System would not operate in the open market”
https://miltonfriedman.hoover.org/internal/media/dispatcher/214916/full
I am not convinced it is as simple as that
Well you must have something in mind 🙂 What change would you like to see?
The question of this post demands a change.
The banks will object to no interest on reserves – they say that would be like a tax on them. Though they do not see that collecting them is a tax on the people.
CBDCs, digital dollars/pounds/euros are the first first major financial change to be considered for a long time. The current system is rigged in favour of the banks. Only they are directly protected by central bank money.
I want us to rethink the whole issue
I am working on an academic paper n this right now
The plus is I am doing a lot of data
This minus is is it takes time
But the time us being used to develop my thinking
I am taking time to do that – but it means I will get back to you
As an aside here about covid. Inquiry. It will be interesting if govt players complicity is revealed in JCVI recommendations preventing use of the Novavax Nuvaxovid vaccine privately or publicly in U.K. even after MHRA whilst it was freely available publicly in all EU states around us. Not everyone here could reliably have mRNA vaccs. Vaccinations like Novavax and Valneva (canned by Johnson apparently in preference for other vaccs) utilising traditional vacc technology would seem to have been very actively discouraged.
Back to original subject, The response to Prem Sikhs Lords question will make fascinating (and embarrassingly awkward for some) reading. Am looking forward to results of it.
Typo, should have read …even after MHRA approval months earlier and whilst freely available publicly …. Apologies for typo
My son was working in Wuhan from 2013 through 2022.
We spoke on Whatsapp between Christmas and Hogmanay 2019 and he mentioned that there was concern about a pneumonia type virus which was infecting a few people. It’s origin was unclear but there was a lab doing research on SARS type viruses from which it could have leaked and there was a possible link to the fresh meat market in the city.
So, there was talk in the street as early as December 2019 about what became Covid 19. We now know that the Chinese Govt had informed the WHO of the virus, including the genome details by this time.
Nobody will convince me that our Govt was unaware, yet they did absolutely NOTHING until plane loads of possibly infected folk were flying freely into Britain from Italy in February/March 2020. Remember the fuss over “the last plane from Wuhan” into Brize Norton, the white suits, folk in isolation etc and yet still allowing unfettered access from Northern Italy, the centre of Italy’s fashion industry which had close links with Wuhan’s textile industry.
What were our leaders doing? For one, Boris was on a 3 week holiday freebie from one of his chums in the Caribbean whilst Matt Hancock, if his evidence to the Inquiry is true, was trying to warn the Cabinet of the danger.
Our leaders’ principal task is to protect citizens from harm, and our lot failed abysmally. Wilful negligence, I call it. They should be charged with, at a minimum, malfeasance in public office.
I do not think Covid 19 was man-made
Johnson and Hancock have been charged with misconduct in public office after the People’s Covid Inquiry.
This is very interesting from that inquiry.
https://36085122-5b58-481e-afa4-a0eb0aaf80ca.usrfiles.com/ugd/360851_e74763f6a4db4d43b30145f75daba5ae.pdf
Can I ask a question? We have the highest tax take since WWII but virtually every government service is failing. The interest paid on the central reserves is part of the problem at about 5% of total government revenues but where is the rest of the money disappearing?
To government services – but there is simply not enough being s0ent ands some undoubtedly is being misspent e.g. on creating totally artificial market structures.
“Highest Tax Burden since WW2” reflects what we, as a society, want to allocate our resources to and then how we marshal those resources to the ends we choose.
For example, with an aging population, improving technology and rising wealth it is not unreasonable to think that we should allocate an ever increasing share of resources to healthcare. In the UK we choose to deliver this through the NHS and finance it through general taxation so it is entirely reasonable that tax, as a share on National Income, will rise.
Now, if you wish, one could cut the level of tax dramatically. Just sell off the NHS, cut taxes by 10% of GDP and leave the population to sort out its own healthcare. Whether we pay through tax or at the A&E door or through insurance we will still pay.
Of course, there IS a discussion to be had about who pays, how they pay but, in aggregate, we will still pay…. just that we won’t call it tax.
An appropriate reframing
I like it
The binary choice; either the state pays or the individual pays is false, for three reasons.
1) It assumes the individual will pay. There is a reasonable probability that many individuals will simply not pay, and not be helped. Economic circumstances will drive most individual choices, for good or ill (as we found through Covid).
2) The consequences of individuals requiring to pay, in an aging population is declining health with its own adverse economic impacts.
3) Private funding does not share the burden. Private medicine cherry-picks. It is in a financialised business. Private medicine in a public-private environment is a niche market; and the response is quite likely to eschew a mass market, for becoming ever more expensive and rarefied; and cherry-picking both staff and users from the public service. This means the most difficult problems, and all the chronic problems end in the public sector. This makes it more difficult for everyone else to be served, no matter the new public-private choice.
Mr. Warren,
My illustration was merely meant to show that the “tax burden” on its own is a meaningless number and could be arbitrarily changed by switching delivery from State to private sector. Whether I pay £1 in tax or 80p in tax plus 20p in health insurance premiums does not make a financial difference to me.
Some may prefer the later based on some notions of “choice” or “efficiency” or other such ideas
Personally, I think those ideas are nonsense (for the reasons you outline and others). I prefer the NHS system – free at the point of use, centrally funded. However, I did not want my point to be “left/right political”.
Perhaps, more succinctly, I could say… Tax is not a burden if you get something for it. Some things are best delivered collectively through tax; the more we want of these things then the more tax we will pay.
Appropriate? Sounds just like the tories want, a privatised healthcare system where the elderly will die off.
Should have let them kill us off with covid. It would have been quicker.
Even Johnson couldn’t win an election if all the elderly, outside the financially immune no matter the circumstances, die off. The elderly are virtually the only Conservatives left.