As the Guardian reports this morning:
Rachel Reeves will announce at the International Monetary Fund a plan to change Britain's debt rules that will open the door for the government to spend up to £50bn extra on infrastructure projects.
After weeks of speculation, the chancellor will confirm at the fund's annual meetings in Washington on Thursday that next week's budget will include a new method for assessing the UK's debt position – a move that will permit the Treasury to borrow more for long-term capital investment.
They add:
Reeves will not specify while in Washington which of the various debt measures under consideration has been chosen, but the Guardian has been told by a senior government source that she will target public sector net financial liabilities (PSNFL).
So, the worst kept secret in Westminster, which is that Reeves was always intent on changing the rules by which her performance should be appraised, has been confirmed.
She could, of course, have decided to make this change as long ago as 2022. The need for more investment was obvious then. She could have made up her mind back then that the reason that it was not happening was the deliberate choice of Tory Chancellors. She could have attacked them on that basis.
She could also have saved herself the massive embarrassment of having to abandon Labour's £28 billion Green New Deal commitment if only she had made up her mind on this issue before giving up that policy, which was the only credible economic policy she ever came up with.
But she waited, dithered, prevaricated and finally did what everyone knew she would, albeit she could not then wait to tell the House of Commons (because that would show too much respect to parliament for her to bear) and is instead telling the International Monetary Fund because it is to such institutions of power that her loyalty lies.
What does this mean? Let's be quite clear about that. It means precisely nothing at all. Reeves has abandoned one totally nonsensical rule that was adopted by Jeremy Hunt to constrain his own behaviour and replaced it with another of her own choosing to achieve the same goal.
The only difference is she wishes to invest more than he did. But rather than be explicit about the merits of doing so, she claims to have changed the fiscal rule instead, all in the interest of obfuscating and denying the fact that she always had the power to make such an investment if she wanted to do so.
This is economic management at its worst.
It is about pretending that the government is constrained by a lack of funding to make investments when it is not.
It is about denying the power of the government to decide when that power rests with it alone.
It is about denial of responsibility by pretending there are rules to be complied with when, in reality, there are none because Chancellors write their own rules.
So, this is all about being Chancellor whilst simultaneously pretending that the power to govern rests somewhere else that is unspecified but presumably is in the City of London, even though that is not true.
It is, therefore, about a lack of self-belief, an absence of a belief in democracy, and a lack of belief in the role of government itself. None of these are characteristics anyone would want to see in their Chancellor. But we have Rachel Reeves, and she has got them all.
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Regardless of the ‘reasoning’ for modification of the ‘fiscal rule’, it’s no surprise to see that the politics of this have been completely inept. Months of hand-wringing, talking down the economy at every opportunity, warning of ‘tough times ahead’ before, all of a sudden, a screeching handbrake turn to ‘find’ £50 billion down the back of the sofa for investment.
I suppose the alternative narrative is that LINO were just being deeply cynical, to allow them cover to make cuts demanded by the City with one hand, before promising a handout with the other. How much of the £50 billion will find itself passing through the hands of the financial institutions, I wonder?
How will this rule change affect Reeves’ rumoured interest in private finance initiatives/PPP/all the other acronyms for the same daft policies? On first inspection, any such arrangement ought to be included in calculations of PSNFL. Including, of course, all existing such contracts.
I won’t hold my breath.
My hope is it makes the need for them less likely
The Markets react to Rachel Reeve’s plan: https://www.theguardian.com/business/2024/oct/24/uks-borrowing-costs-rise-on-news-that-reeve-is-changing-fiscal-rules
Oh come on, it was 0.06%
The IMF announcement is the method used to turn the Duck Soup, Marx Brothers farce of Neoliberal folly when it reaches the low point; so low that the only way out is to rewrite the rules (again) that they had claimed are written in stone, but are actually written in invisible ink (make up your own to suit); and into something that is equally silly but has to look serious. In order to reach the punch line in this Whitehall farce. The custard pie folly in this utter mess has to be conducted with sober, but equally silly pomp in an international IMF setting; or nobody in backward, unthinking Freedonia would believe the obvious farcical nature of the whole undertaking.
My only problem is that Rachel Reeves does not fit as the sharp, smart Rufus T Firefly; and neither does Margaret Dumont, and she was just Groucho’s comic stooge.
Perfect summation, John. The total lack of any political nous in Labour is staggering at the moment. They urgently need someone of Firefly’s abilities to advise them.
Prior to the election I thought that Rachel Reeves was not up to the job. Everything since then has just highlighted that she is totally out of her depth, unable to actually understand economics, politically incompetent and incapable of learning. The population will live to regret her holding the office of Chancellor!
I heard about this on R4 last night. Rather apt re Rachel Reeves. “The Dunning-Kruger effect occurs when a person’s lack of knowledge and skill in a certain area causes them to overestimate their own competence.”
So now that the ignorati thinks she’s cleverly created some money, will she use 1.5 of the 50 to give back the pensioners their extreme weather allowances?
To me, this is complete cowardice, complete capitulation to dogma but even worse – capitulation to lies.
So, the Neo-liberals have once again created their own reality. Now, this means the Government does NOT have its own money and this is now going to be received wisdom in the realm.
And all this will do is effect a huge transfer of wealth to capital – again.
This the old but new, levitated now to the IMF – the illegitimate made legitimate once again just when we needed something really new to steer us away from disaster.
There have been a lot of bad days on this blog – but this is the baddest of bad days for me yet.
As to making the announcement at the IMF instead of Parliament, I hope that Mr Speaker gives her a stand-up rollicking off. I know it won’t make an iota of difference to those intent on sticking up two fingers to Parliament, but it might help her successor understand their primary responsibilities when the current chancellor is fired for incompetence.
My dear Reverend
You have hit the nail on the head for me. You are right. What better away to get around the constituency MPs than to go somewhere else. What better way than to side-step democracy.
Going to the IMF is just as bad as Johnson proroguing Parliament.
We really are in trouble. This is a stage managed coup by Capital.
The stupidity and damage already done cannot be undone. She is in a hole… but at least she has stopped digging. Does she have the wit to clamber out?
Nope. (wit to clamber out). This is all performative/pantomime stuff.
“It is about pretending,……… It is about denying, ………….It is about denial of responsibility” …………….Richard could have stopped there.
Reeves is a doctrinaire fool – presiding over the further decline of the Uk & the further impoverishment of its serfs.
Talentless, brainless, useless.
Everyone here knew she would have to uturn somehow away from the Hunt fiscal rules.
As Richard says its not so much about the economic reality that she wants to invest more than Hunt, but the pretence that the ‘markets’ are in charge.
The worry is that she wont ‘invest’ in doctors and nurses sufficent to get waiting lists down and people back to work.
The box she is in is built by the Labour ‘donors ‘ – so there will be no restraint on junk food, oil extraction and use etc
It’s “about a lack of self-belief, an absence of a belief in democracy, and a lack of belief in the role of government itself”. Too true.
She might as well take that jacket off the shoogly peg, go home and find something more productive to do with her time. Maybe that well remunerated Mr Bailey, who seems to be running monetary policy for the benefit of the rich, can take over, or perhaps all those mega brains in the City, with oodles of (government created) money who won’t deign to “lend” it back to the Government unless they are well rewarded (above the “normal return” of course) can make all the fiscal decisions.
Who needs government with all those tiresome regulations and the rule of law when Markets have all the answers?
With the possibility of a fascist government in the US (and I think Trump may only be the “useful idiot”) and the mess we’re in it’s difficult to be optimistic about the next few years.
If anyone really wants to understand what is going on in the bowels of the fiscal rule farce (better known as the three card trick or – don’t laugh – “find the lady”), the place to start is the Student Loan Book (SLB). The SLB was a liability; now post-Reeves genius wave of the hand, it is an asset (there is the sleight of hand – every CFO wants to know how to do that trick). But of course the Government accounts are not Corporation, or a household; so it isn’t so difficult. But there is no reason to let them off the hook. They are still playing silly games.
The justification of moving £241Bn (the SLB) from liabilities to assets is that under the rules (they are made up, but please – follow the pretence) this frees up significantly the Government capacity to borrow. The problem, however is that if you are going to play this kind of accountancy game we are entitled to ask questions. The question to ask is; what is the market value of the SLB? If you are going to claim that the SLB is the basis to “borrow” money; then it is legitimate to ask what is the underlying realisable value of the Loan Book (“cost” just will not do if this is to stand comparison with a real corporate borrowing situation)
Here we actually have evidence, and it doesn’t look good. We know that paying back student loans is a already a ‘kick-the-can-down-the-road’ enterprise, because graduates are so heavily indebted on graduation paying back is a very long term proposition, and the prospect of write-offs must arise at some point in the cycle; so alarm bells should already be ringing everywhere in the Government’s Dept. of Education credit control office (if you are thinking of using this as a borrowable asset). But that is just the ‘amuse bouche’ on this menu. The evidence is elsewhere – here: https://www.nao.org.uk/wp-content/uploads/2018/07/The-sale-of-student-loans.pdf.
In 2017 the Government decided to sell off some of the SLB. The total then was £43Bn. £12Bn was sold. The Government had an “accounting loss” of £0.9Bn on the sale (7.5%). (NAO, Summary, p.4). The Loan Book is now almost sixtimes the sixe, and I would speculate the loss on realisation would be be far above 7.5% (in any case, this is how these things work; in 2017 the most saleable would be sold, and the bad debts will quite possibley still be haning around*). The real problem is less the Loan Book than the Government attempting to make Government accounts look like corporate accounts; but if they persist, we can ask the relevant questions.
* My search of the document was not thorough, but I couldn’t find a reference to bad debts, and the selection process discussed was on the securitisation process, but I couldn’t find reference to the Loan book sale selection method. It may however be there, and I have overlooked it in what wa sa very brief review of the NAO document; but you may understand the principles of decision making for which I was searching.
Including the SLB shows that the government will” dump debt on anyone.
Your analysis is sound John, but some of the ratios look odd.
Yes, Richard, the situation in 2017 was a great deal worse than my first cut at the figures. I followed the NAO reference to the government plan to sell£12Bn of Loans. In fact they sold £3.5Bn, so the loss was almost half the Loan Book sold. It makes my point “s fortiori”. The only evidence we have suggest the Loan book is badly overstated in realisation terms.
Here is the reference:
“7 The sale of student loans raised £1.7 billion. The government sold the loans of over 400,000 borrowers that became eligible for repayment between 2002 and 2006. These loans had an outstanding face value – total loans including accrued interest
and deducting repayments already made – of £3.5 billion repayable up to 2052 (paragraphs 1.13, 1.14 and Figure 4).
8 Government received less than half the outstanding value of the student loans. The government received 48p for every £1 of loans sold which exceeded its retention value. When issuing loans, government does not expect to receive all the
money back. It estimates that for loans issued before 2012, only 65%–70% by value will be repaid. Loans in the 2017 sale are expected to have even lower repayment rates because they are older loans and nearly half had been repaid in full by the time of the sale. Investors also require compensation for taking on risk over future payments due to changes in borrowers’ earnings (paragraphs 1.14, 1.15 and Figure 10).”
(NAO, Summary, p.6)
That sounds right
Or, at least that is my recollection
Thanks
PSR,
Richard is quite right, but actually it shows how much the Government talks nonsense, tells lies and loses money without caring a fig; then tells everybody the problem is there is no money so we can’t do anything. Then they use the misinformation they have given, turn it upside down an reuse it with more nonsense to “borrow” more money they will misuse and waste.
The government said it couldn’t afford student grants, so students have to borrow to study from the government (currently around £45,000); a burden that follows them through life. This allows government to waste money, ruin young people’s lives and play silly games misleading the public. The government treats that “borrowing” as a liability. Then it finds out that this makes it more difficult for government to make bad spendthrift and money-wasting decisions; so it changes the rules and sells off some of the student loans, but only by losing half the money they said they couldn’t afford to give as student grants. Then they find they are in such a mess with the misinformation and lies they have painted themselves into a corner of stupidity of their own making; so the big new wheeze is, the student loans aren’t a liability; they are an asset. So they can exploit them again, to raise more money to help make up for their own waste. They are exploiting students in debt to them, by the back door.
It is all complete nonsense, because they are defending a neoliberal ideaology that is incoherent rubbish.
Reflecting on my input and your responses, I think that I get what impact this has on students as my two children are students at University and you can see the impact it is going to have on them if you are a parent. The duplicity of whether the SLB was a debt or an asset was new angle for me however.
My biggest objection though is the selling of debt, particularly by our government but also the problems that has caused in the private sector.
But seeing a government behave like the private sector for its citizens but act as a proper central bank for the rich you must surely agree is rather sickening.
Much to agree with
I hate student debt.
As angry as I am about this, thank you John for pointing this out with this salient information – which actually adds to my ire.
Would I be right in thinking that the market reaction is the usual – hoovering up Govt assets at knock down prices, only for them to go up in value as they circulate in the the markets to increase profits?
The ‘Government received less than half value’ – it’s as though the Govt is acting like a loan shark or the City (is there a difference?), selling on its debt which is bad enough and then messing with NI rates, chasing small tax payers and putting women in prison for what – not paying their TV license?!!
‘Sick’ does not describe it for me.
This is not Government by the people.
This is Government done to the people, by rich people.
Get me out of here.
In truth, this reflects teh fact that most students will never repay all their loans bevause the system – and especially the interest charges – is designed to be penal.
Maybe at least some might start to question how all this is possible as they most likely think debt is debt and not really up for redefinition
In the 3rd paragraph, Richard links a Guardian piece entitled, ‘How Rachel Reeves could release billions more for investment in the budget’. One particularly hilarious paragraph made me chuckle:
‘This because the Maastricht Treaty’s definition of debt excludes publicly owned entities engaged in “corporate activity” or “market production”, definitions which include the liabilities of savings banks, public utilities and waste management operators.’
Should be taught at school. Daily.