The FT features a headline this morning that says:
This refers to a new Institute for Fiscal Studies report on the likely fiscal inheritance of a new government whenever it might be elected this year.
The premise of the IFS report is threefold. First, it notes this Institute of Government report that audited the state of key UK public services in 2023 and concluded in this grid:
In summary, things are bad or very bad and there is little sign of improvement in the horizon. In other words, there is a lot more for government to do.
Then, the IFS notes:
Taxes are at record levels for the UK (though remain lowto-middling by European standards).
It then noted that whilst tax design in the UK is dire, changing taxes when times are tough is very hard (which is nonsense, as the Taxing Wealth Report 2024 shows).
After that, they said:
The next government is likely to face some of the most difficult economic and fiscal choices the UK has faced outside of pandemics and major crises.
So why did they say that? Because they suggested:
Further tax rises and further cuts for most public services are built into current plans. But on official forecasts, this is only just enough to stabilise government debt as a fraction of national income.
This will be a thorny inheritance for whoever is in office after this year's general election. Both Labour and the Conservatives have promised to reduce debt as a fraction of national income.
In other words, assuming we must stabilise debt then everything else must be sacrificed to that goal.
And therein lies the whole problem of the IFS.
Did it ask why we must stabilise debt? No, of course not.
Did it suggest why there is a problem with people wanting to save with the government? No, not once.
Did it accept interest rates as a given and not within government control? Of course, it did.
And did it suggest that if rates fell - as they not only could but should - much of the problem it has noted would disappear? No, of course not.
So, this is a report intended to make clear that the priorities of neoliberal capitalism that demand a small state and much higher tax on those more lowly paid than is charged upon those with high pay, in proportionate terms, should continue.
As an analysis, this paper is useless because its prior assumption is that the government must fail - which is, of course, the whole objective of neoliberal thinking. It will, however, get massive coverage. And so the debacle goes on.
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The only rational response to the IFS is they’re suffering from SAD (Selective Amnesia Disorder) and ideally put down although ignoring will suffice!
I just wanted to say thank you.
After avidly reading this blog every morning for the last twelve months, I immediately saw the same problem with the IFS report. Without the knowledge I have gained from you, I would have been nodding along with the rest of the population.
With reference to another of your posts this morning, we have the perfect teaching resource right here.
Thank you
I have been reading this blog for well over ten years and I’m still learning. I even make a very minor contribution from time to time.
I think the blog and Richard’s other activities have influenced a growing number of people. We have reason to be grateful.
Thanks
Reliable organisations reason well from sound premises: unreliable organisations reason plausibly from unsound premises and omissions
(From Austin O’Malley)
Well noted
Who would want to save with the Govt if interest rates are cut to near zero like you suggest? Money is flowing into bonds because they offer real rates of return. If they offered negative real rates no sane person would buy them.
Total nonsense
Amounts saved with the government rose continuously during the zero interest rate era
But facts never trouble a neoliberal
If I may, one buys gilts not so much for the return but as a save haven for capital you don’t otherwise know how to keep safe. Invest in Any PLC and in a generation or two it might have gone down taking your capital with it. Not so with Govt UK, which is pretty much guaranteed to still be around in some form or other.
The decline of the UK is in plain sight. The contrast with many countries in Europe is immediately evident at first hand. I visited my local town yesterday. It has become progressively more run down in recent years. I have family members who work in the NHS and continue to work tirelessly to provide a service.This has become increasingly difficult in the face of underfunding, understaffing and organisational ineffectiveness. I have had to fund two surgical procedures to be treated for painful debilitating conditions that the NHS has been unable to treat in a timely way due to underfunding. I have engaged with my Tory MP with regard to the crisis in social care about which she admits not enough has been done.One of my sons who is at the mercy of private landlords which the Government have failed to regulate.And so it goes on.In response the Government uses the classic fascist intervention of restricting protest and attacking union collectivism. The first hand evidence is overwhelmingly supported by the data led evidence.The second long term Tory government, harnessed to neoliberal dogma, has hollowed the country out to the advantage of a small self serving minority. The diagnosis is straightforward and there are remedies that could quickly secure improvement. Will Labour come to power later this year and if they do,which seems very likely ,will they take decisive remedial action ? The signs aren’t encouraging.
Thank you, Werner.
It has been since the 1980s. It could be that due to work and having family overseas, one notices the decline more. I would add the contrast with some developing countries, including Mauritius whence my family hails.
I advise the young and those older and able to afford it to think about leaving.
At the meeting with the shadow Treasury team, I noticed the Labour In The City network, virtually all “folletted” (for those old enough to remember what that means) and Blairite, streetingites even. They have the ear of the leadership. There was not one mention of unions, civil society and, until the banksters mentioned it, Brexit. Net zero got one, brief mention, i.e. how can Labour get the City to fund it. It feels terminal for Blighty and Labour.
I recall Follett
Your conclusion resonates
Thank you, Richard.
It was depressing having to listen and observe.
I had to look it up. How interesting that they were called Ken and Barbara and it explains a lot!
“this paper is useless because its prior assumption is that the”…. LINO ………..”government must fail”
which in turn will usher in some nice people with simple solutions called…..fascists.
Thus, IFS could stand for “Implenting Fascism Soon”.
It also begs the question: does anybody at the IFS believe the guff they produce?
This is a serious question & based on my own experiences talking to people in institutions that in private moments admit they disagree profoundly with what their institutions say publicly. Private candour, public hypocrisy.
I would say that people in the IFS and similar believe their own ideology, to the extent that any guff they produce in support of the ideology is justified.
Thank you, Richard.
I need to send you a read-out from the meeting with Reeves and Strathern.
I thought of you often, especially when I heard that “every day, every month and every year of a Labour government, Labour will maintain its credibility with the markets and relationship with the City”.
Other than an implied, but not explicit, mention of an increase in funding for nurseries and apprenticeships, there was no commitment to increase public spending. Labour’s definition of an active state is political and financial stability, joined up measures (“making sure all the policy levers pull in the same direction”, incentivising private capital (at national and local levels) and partnering with private firms (at national and local levels).
Thank you
Truly desperate
‘Partnering’ is code for ‘privatisation’ – I bet you.
Thank you and well said, Richard and PSR.
May I add here John Weeks critical deconstruction of the IFS in 2019, here: https://www.opendemocracy.net/en/oureconomy/we-need-talk-about-institute-fiscal-studies/
Weeks trenchant analysis provides a ‘nod’ to your work, Richard.
John was a good guy
We didn’t always agree but PEF was worthwhile whilst he was there
IFS =
Institutional
Fiscal
Stupidity
Your critique of the IFS has been included in the Wikipedia entry. Progess!
🙂
I too struggle with their work as it implies an economy that operates within rigid structures, but they themselves make drastic changes in projections when these ‘rigid structures’ move!
Whats really frightening is that BBC tends to use them as the only ‘independent’ economic commentator/analysts- when there are many other economists, not just Richard, who question their self limiting self defeating assumptions.
BBC is under challenge from the right for ‘bias’ – even though they have long ago abandoned their Reithian mission to ‘inform’ in favour of ‘balance’ / ‘impartiality’ between fact and opinion.
IFS is endowed by the BBC as the fount of wisdom – terrifying. We live in some kind of ‘ propaganda state’
The IFS writes this in its paper:
“The UK finds itself in an unfortunate economic and fiscal bind. Living standards have endured an unprecedentedly long stagnation. Taxes are at record levels for the UK (though remain low-to-middling by European standards). Public services are showing visible signs of strain and are, in many cases, performing less well than they were in 2010. Further tax rises and further cuts for most public services are built into current plans. But on official forecasts, this is only just enough to stabilise government debt as a fraction of national income.
This will be a thorny inheritance for whoever is in office after this year’s general election. Both Labour and the Conservatives have promised to reduce debt as a fraction of national income. Yet a combination of high debt interest payments and low growth is forecast to make this much more difficult to achieve than in the recent past. In fact, on one measure, it will be more difficult to reduce the debt-to-GDP ratio over the next parliament than in any other parliament since the 1950s”.
In 1950 Britain’s infrastructure had been wrecked by a world war; it had just set up the NHS, and the debt-to-GDP ratio was around 200%. In 2024 the debt-to-GDP ratio is 85% (and if you strip out QE it is circa 59%).
We are supposed, by an insidious portamento of IFS induced alarming ideas, to seduce ourselves into deciding that a 200% debt-to-GDP ratio, and an 85% debt-to-GDP ratio are more or less an equivalence, in policy terms. This is foolish.
Sovereign Debt levels are not end points; their significance is never the absolute fixed point; but rather they provide a measure of quantum, but always primarily exist to provide a resource of sovereign debt (typically when other sources of investment are failing), which may be used to change and transform current economic predicaments, or national crises. The national debt cannot be allowed to the master of our future. We do not stop fighting a war solely because the PM decides we have breached a debt target. The proposition need only be stated, to be seen to be absurd.
In peacetime it is bad policy to pick arbitrary fixed-point debt levels as a maximum, no matter the state of the economy or the nation’s predicament. The national debt is always a very, very long game; and never, ever is it an appropriate issue to turn into an election football. That is an invitation to make an extremely bad decision for short term political or ideological reasons, and make the future problem even worse; it is irresponsible, but one the IFS, it seems, is prepared to dabble in.
Much to agree with
https://leftfootforward.org/2024/01/the-uk-needs-to-break-with-neoliberalism-to-deliver-economic-growth/
This is why they won’t use Prem as an adviser.
True
Well said John S Warren.. please stop by more often
A parliamentary inquiry is currently accepting evidence on “How sustainable is our national debt?”. The deadline for submissions is 9 February 2024.
Perhaps Richard, your input may have an influence.
https://committees.parliament.uk/work/8090/how-sustainable-is-our-national-debt/
I will be submitting next week Ian
Related to this is a BBC article “How much money is the UK government borrowing, and does it matter?”
Their understanding appears to be wanting.
https://www.bbc.co.uk/news/business-50504151
I have been thinking about firing employees to save government money and reduce the debt. This was prompted by the government proposal to cut all the ticket office staff but also applies to all government employees (direct and indirect)
Cutting employees will cut government expenditure but has the following consequences that are not considered.
The fired workers will no longer pay employment tax.
The government will have to pay them unemployment benefit.
Because of the low unemployment pay their spending will go down so VAT collected will reduce..
I have no figures for the relevant tax loss or extra government expenditure but I believe it not reduce the government debt (Government expenditure minus taxes). Can this be quantified?
You are describing the multiplier effect
It’s in the glossary and will, in more detail be in the Taxing Wealth Report, soon
It is never possible to be precise on the effects, but your gut feeling that this process is aiming to shoring oneself in the foot seems spot on to me.
And now, we’ve got Ed flipping Balls sticking his oar in to try and push even the likes of Reeves to the right, proving that being wrong about the economy is his only apparent talent.
How can somebody with such an apparently impressive resume be so absolutely bloody clueless? The man’s a complete cretin.
I tried three times yesterday to post a link to this blog post on the Guardian’s daily politics blog. Three times it was deleted.
The first post made reference to a columnist, and the Guardian itself, so when it was deleted, I pruned it back to a simple comment on IFS, plus the link. That too was deleted.
Subsequently there was a rogue comment questioning the Guardian’s moderation policy, and I added a one liner, with your name alone. It survived.
But the one link link I then posted below to this blog post also disappeared.
What the hell is going on?
They don’t want people leaving their site…..