I was asked if I might write a glossary entry on taxpayers' money yesterday. This is my proposed entry. Comments are welcome:
There is no such thing as taxpayers' money when the term is used to describe the funds expended by a central government of the type found in the UK.
The UK government is the monopoly producer of sterling. It is government-created money that it spends, and we use.
That money is created for it by the Bank of England whenever the government spends.
The part of that spending not taxed back to ensure that it is cancelled and so taken out of use in the interests of controlling inflation - the so-called national debt - is the government-created money left in circulation that keeps our economy functioning. We cannot do without it. And we could not pay our taxes unless this money existed. It is government money that underpins our economy.
The idea implicit in the term 'taxpayers' money', which is that the government somehow spends money that we entrust to its care, is wrong. Not only is all government spending funded with newly created base money created on its behalf by the Bank of England every time that it spends, but any money paid by us to the government in exchange for tax debts owing is no more our money once that debt has been settled than is any other money that we might use settle a debt our money after we have made that payment.
For example, if a person makes a payment to a retailer for items that they have bought, the money used to make settlement of their resulting debt to the retailer is no longer theirs, and they have no right to direct how that retailer might then use those funds. To suggest otherwise would be ludicrous. It is just as ludicrous to suggest that money we pay to the government is something to which we have a continuing entitlement as if it were still our own, even if now in the possession of someone else.
Likewise, except to the extent that democracy permits, we have no right to instruct the government on how it might spend its money. The claim, popular amongst politicians, that they spend taxpayers' money is not just technically wrong in that case - because all taxes in an economy like that of the UK are paid to cancel money previously created by the central bank on the government's behalf - but also deeply politically misleading. The control of the government's money is their responsibility, and they should admit that fact and take responsibility for it, which few politicians seem willing to do.
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You are so polite. “Politicians routinely lie, or are grossly ignorant, in perpetuating the taxpayer myth for their personal and political advantage”. Fixed it!
William the Conqueror established the idea that tax had to be paid by money. We call this feudalism. Before then all taxes were collected by kind. That is you offered some possessions that were in surplus. These possessions were made by labour. You pay tax with labour. Government doesn’t create labour.
Adam Smith wins again.
Incisive and succinct, Richard. Spot on.
Perhaps the most telling post you’ve made that punctures so much of the economic nonsense by which we are misruled – and I hope you get this one shared very widely indeed.
Thanks
Scenario: Lucky person inherits a city house valued at, say, £2 million. Bank loans £1 million for the purchase of a country retreat. If this loan is government money created from nothing, why do the bankers benefit but the government doesn’t – at least not directly? Now with assets of £3 million, and meeting enthusiastic estate agents (who know what purchasers will pay) are there enough constraints on the bankers?
There is both bank and government created money in circualtion – but all under licence from the government and much of it guaranteed by it
Please publish into Glossary.
When can the Glossary be in a form, like a dictionary of economic terms, be published?
Perhaps us politicians, need a ‘Even Noddy could understand economics if they were actually interested in making the world a better place’ book. (It would need pictures that they would need to colour in…and a quiz at the bottom of each page!
I am not sure it will ever reach that stage unless someone volunteers to take on the task of truning it into publishable form…
We can perhaps blame Margaret Thatcher for taxpayers’ money. She said:
“There is no such thing as public money; there is only taxpayers’ money.” — Speech to Conservative Party Conference, 14 Oct 1983 Oct.
Was she just mistaken? I think the last 40 years shows that it was a deliberate misleading statement, designed to bolster a neoliberal agenda: to make it seem like money was restricted, and to begin the defunding of public services, with the view to privatise them. The evidence for this is all around us.
If I was being generous, I might suggest that some were just wrong in how the private sector can be a force for good with public services. If I was being cynical, I would suggest that this is just a deliberate ploy to divert public funds into private pockets, everyone else be damned.
Good post – it cannot be said often enough and will now set me off on a rant…………..
………….basically Margaret Hilda Thatcher’s assertion that there was no such thing as government money was basically a successful attempt to privatise the money supply.
This whole charade, these lies – are all aimed at denying sovereignty to a sovereign government to control its own sovereign produced currency and place it in the hands of the market – or should we say the rich.
So who was the real ‘enemy within’ Maggie eh? It was not the miners – it was the financial sector for whom Maggie was the poster girl. And what are about those arseholes talking about defending our borders and laws during BREXIT? The currency is everything, and it should used as a tool of democracy.
I don’t think even the private banks producing their own money under license can call this money ‘their’ or ‘our’ money when the government has their backs with a CBRA the size we have now. All the banks have done is borrow government money in my view because the government will keep its promise and pay next time their greed messes it up.
But the government won’t keep its post war promises to us. No, not at all.
Because it has been captured by capital through political funding, and the sovereign currency and it apparatus is nothing more than a convenient hole in the wall for the rich whilst the rest of us rot in the cesspit of indifference they have created for us.
It’s Obscene.
Good explanation, thanks; especially the comparison of paying a debt in all other situations where there’s an ‘obligation’ on the payer, which then simply ‘closes the contract’ and ends the obligation. The only disadvantage in using that analogy, perhaps, is that when the payer is a ‘purchaser of something’ in a market transaction it implies that the payment is ‘in return for getting something’; which can then lead to the (false) analogy that taxpayers are paying for what they’re getting from the government…
(I’ve recently had an email from the good people at the JustMoney movement, asking for responses to ‘letting our leaders know you’re thankful for what your taxes pay for’… Whilst I see that their main aim is to convince politicians that the public aren’t totally hateful of taxes and desperate to have tax cuts, it does seem rather to play into the ‘tax and spend’ narrative. I’ve actually tried to explain this to them in a comment on an earlier email from them in similar vein.)
It’s a bit of a ‘hard sell’ to say to ordinary taxpayers that the government isn’t actually giving them anything for their taxes, they’re simply taking money off them in order to destroy it so that the economy remains stable and non-inflationary. (For local government taxes, of course, the taxpayer is directly funding expenditure; although with a large amount also from central government. Local government has no money-creation power. Which perhaps doesn’t help clarify matters for the ‘ordinary voter’ – or politician?) The ‘lesson in monetary economics’ needs to be balanced with a strong message about democratic control and directing government to create the necessary money and spend whatever is necessary on the public goods society needs; and that limiting that (austerity) is a political choice. Your final paragraph deals with that; but maybe add a statement that ‘austerity policies are a political choice’ (and a link to the Glossary entry ‘austerity’)?
As a separate ‘reductio ad absurdam’ (?): since about 20% (my rough estimate based on corporation tax and employers’ NICs) of government tax take is from business rather than individuals/households, meaning that 20% of ‘taxpayers money’ is corporate… shouldn’t there be some way for business to direct government on how it should use that money which the corporate taxpayers have ‘given’ to the government? Perhaps some regular meetings, working lunches, panels of experts and advisers for various government departments etc etc…? That would bring some balance with the influence of the general population on the way government spends all the ‘taxpayers money’. Ah, hmm, yes…