Labour ministers have been talking about ‘black holes' in the government's finances ever since they got into office, but technically such a thing is an impossibility. Isn't the most basic thing we should expect of them is that they be competent? So, why aren't they?
The audio version of this video is here:
This is the transcript;
Governments can't have black holes.
Now, there is a provocative statement for you because every single Labour politician who has been put up in front of a camera since July 5th has claimed that the Labour government has got just such a thing. But what they show as a consequence is their own ignorance.
A government can't have a black hole because what they claim exists as a black hole is a spending commitment which they have no means of funding, and that is nonsense because the government can never have a spending commitment which it has no means of paying for because all its spending commitments are paid for by the Bank of England creating new money to make settlement of the liability owing that has been approved by the government for payment.
In other words, precisely because the Bank of England is always able to create new money on behalf of the government it can't have a ‘black hole'. It is a technical impossibility. They do know how they can fund these payments. They can ask the Bank of England to settle the liabilities owing, and the sum in question could be left outstanding on what I call an overdraft, but which is just a loan facility in effect between the Bank of England and the government. And that's it. That's how the ‘black hole' that the Labour Party says it has got could be solved.
Now, what Labour really mean is something quite different. What they mean is at present they haven't identified how they could raise tax revenues to cover this sum, or that they couldn't cover this sum without having to resort to borrowing from the City of London and they haven't set out a plan to do that. But that is something quite different. Not having a current plan as to how to raise the money from the Bank of England doesn't mean you've got a black hole. It just means you haven't done your thinking yet about how you're going to borrow the money when you require it, if you do think you do need to borrow from the City of London to cover the spend that you're going to make.
And not having a plan for taxation to cover your future expenditure costs simply means you need a budget. And that's it.
But there's never been a ‘black hole'. There always has been the ability to make payment.
So what does it tell us about the thinking of government ministers who, I presume, genuinely believe that there is such a thing as a ‘black hole' in the government's funding?
Well, first of all, it says they're ignorant, and I'm not being rude about them by saying that. They simply don't know, is what I mean by calling them ignorant. Nobody has explained to them that the deficit in question can be covered by the Bank of England, and for the Bank of England to do so is completely legal. So, they go round as a result, talking utter nonsense, maybe in good faith, because they haven't bothered to find out how the government works.
Now, as far as I'm concerned, that's quite worrying because they are, as they're all very proud to note, the right honourable this and the right honourable that, and member for whatever constituency they represent, and they are the government.
But the truth is, they still don't know how it works. And that leads you to doubt their ability on almost anything.
Shouldn't we have training schemes for ministers that require that they do know the basics of government finance?
Shouldn't this be something that every new MP is required to undertake when they enter parliament? And remember, most people who become ministers have been MPs for a while before they do so.
Wouldn't we call this continuing professional development - and let's be honest, as a member of a profession for over 40 years, I was completely familiar with the requirement that as a chartered accountant during that time, I was required to complete continuing professional development every single year of my professional career in that role - but apparently that isn't expected of a minister. They don't need to do that. They can just move into whatever job they are assigned to and know nothing about it.
And this evidence that they're talking about black holes when there are no such things confirms that they really do not know what government does, how it is funded, how it works, how their revenue cycle is managed, and how they need to communicate on all those issues to the members of the public because they're pretending that there's a crisis. And the truth is, there is no crisis. The government's books will balance. They will just balance with a loan from the Bank of England on this occasion. An increase in the money supply of £22 billion - an insignificant amount in the context of the total money supply because it amounts to about 1 per cent of the total sum, and that is not going to have any inflationary impact whatsoever.
So, therefore, there is nothing for them to worry about. They are just making up stories to create a mythology about the reasons why they can't spend, which is untrue.
Now, if they do really understand government finances - which I doubt - but if they did, and they're there making up that mythology, well then things are just as bad, because blatantly they're lying to us.
So we have a choice. What are government ministers? Ignorant or liars? Whichever one it is, this story about the ‘black holes' makes those ministers look, well, bluntly really incompetent. And I would like ministers who could talk to me in what we might politely call grown-up terms about the true situation that we face, and the true choices that they have to make, and the true facts about the government's own funding. Because then I could believe in them. But right now, this lot look as though they have no idea what they're doing.
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Richard, you have a typo in the heading ‘block’ holes instead of ‘black’ holes!
Corrected
Thanks
Great piece, thanks Richard. Just to note you have a typo in the title: “block hole”.
Than ks
I wish I could see my own mistakes – and spell check does not work on WordPress headings…
Just a thought: copy your posts from wordpress into text editor (like word) that has a spell check function for a final pre-publishing check?
Or write the list in the text editor and copy to word press once you’re satisfied?
Probably a bit of a dirty solution but hey ho!
On the WordPress text I use Grammarly. That works fine. It is all I use it for.
Since 2019 it tells me it has checked more than 6 million words by me.
All “Spill Chuckers” are just a low life form of AI and are not infallible by any stretch of the imagination.
Indedd (sic)
And welcome back!
Change the background/foreground colours after you’ve written the piece and reread it then. It’s like seeing it for the first time and errors leap out.
That won’t work on headings….
On the text, Grammarly picks up most stuff
And my wife is my main editor – she finds most of the rest soon after they go live
And a spellchecker would not have picked up “block hole” anyway, wherever it was!
A great post but all I would say is that the government has been corrupted and they know what they are doing because they have been bought with clothes, glasses, football match tickets, concerts and god knows what else.
And – in the tradition of high finance – when they fall because of the chaos they have created – they will be very well looked after to keep quiet about it.
I’m not being egotistical here.
I am telling the truth.
I have in my less August way been saying for yonks that MPs should be required to learn this stuff. In fact, not only CPD but an entrance exam for all parliamentary candidates to demonstrate they know about constitution and macroeconomics – including #MMT .
Richard,
Your spling issues are as nothing compared to politicians economic ones
🙂
[…] I asked elsewhere this morning, isn't it reasonable to expect that we have competent politicians? Ones capable of making errors as […]
The government’s ministers are blockheads.
The majority of UK and USA government’s ministers are “blockheads” because all they care about is getting their masters reelected.
Judge them by what they do, not by what they say to soften us up for their decisions to come.
Excellent post, Richard, but I have one pedantic comment.
“So we have a choice. What are government ministers? Ignorant or liars? ”
I agree that, on the evidence presented they cannot be neither, but they could be, indeed I think they are, both ignorant and liars.
If ministers believe in black holes ref gov funding – they are too ignorant to be ministers. Bus since when has that stopped “governments of all the imbeciles”.
Or………it is just a narrative to keep Uk serfs/peasants “informed” as to why things can’t change.
I favour a combo – some know what they are doing – others don’t. Ultimately the rabble in gov tend to go with the flow – as defined by the dear leader and the financial incompetant that is finance minister. Thus one sticks to the party line if one values ones careeer, chauffered limo, invites to nice parties & deference etc.
I suspect that many politicians know they are spinning a falsehood, but not all. Many parrot what they are taught.
And the same applies to journalists who should not only know better, but make the politicians accountable.
We see ample evidence of this fundamental lack of understanding every day of the week. I’m talking about the majority of politicians and journalists. No less a figure than Nick Robinson, on the Today programme this morning at around 8.35, was discussing how to fund colonial reparations. He was interviewing the Foreign Minister of the Bahamas. At the end of the piece we were treated to this gem: “The govt only has money from the taxpayer, as you well know – as the Foreign Minister of the Bahamas. That’s where the money comes from!” And the reply from the FM of the Bahamas was… “INDEED!” I take it from that response that he believed Nick Robinson’s assertion absolutely.
Nick has been around for many years. He was the BBC Chief Political Editor, if my memory serves me right, for a very long time. I’ve crossed swords with him at least once on Twitter. He’s a stickler for detail and often tries to seek out the truth – despite having been involved in the Tory Party in the past. So I’m inclined to believe that he, in his mind, is not lying to listeners or trying to deceive them, when he says things like this. It’s my belief that all of his colleagues on the programme see the world in this way. I’ve listened carefully for many years and have not detected a single instance where they have shown any real insight into how FIAT currencies actually work. I’m open to being corrected on this. Indeed, I’d be happy to hear evidence that I’m wrong.
To repeat a well-known quote: “Houston, we have a problem!”
We do, indeed, have a problem
Yes, I agree they should be trained, but who by and using what information. I can see them employing someone who spouts the old, out of date nonsense we hear all the time from the MSM and various commentators. I also suggest the problem is far wider than the politicians wonder if the Treasury are ignorant of the truth too.
But there is one place where the truth is surely known and that is the BoE. Do they just say nothing? They could explain the system. But seemingly they don’t, which if true, is almost unbelievable. So I look for other, more devious reasons and wonder who benefits from all these mythical tales. They are the ones who need to be challenged.
They know the truth
They are in denial of it
That is what is so worrying
This is your best post ever! The reality is we don’t have a House of Commons we have a House of Children who like children believing in the myth of Father Christmas believe in the myth of “a fixed pot of money.” Never for a moment does it occur to these “grown-up” children to ask the following three questions of this myth:-
How much money is in the “pot”?
Where is the “pot” located?
How did the money get into the “pot” in the first place?
If they did it would lead onto the explanations you have provided in your post.
Thanks
Fiscal rule one: to fund current (I take this to be non capital) spending from taxation in order to reassure the “markets”. But we know that exceptions will be made for foreign policy decisions, pandemics, bank bailouts, other “key” bailouts, existential crises. The rebalancing of the North/South divide, the amelioration of social conditions etc.. will just have to wait.
Fiscal rule two: restrict borrowing to a speicified limit and use borrowed funds for investment (non current) purposes. But where are the assets subsequently created, whose balance sheet do they reside on? As we know capital spending does not reduce the net equity of an entity.
Why should public money be used to enrich venture capitalists (to produce growth in Rachel’s eyes) if the distribution of the national income produced continues to favour capital over labour?
Good questions
The only black-hole is the collective one between the members of the cabinet’s ears.
Why are you not advising the Government on financial matters and economic policy. And international affairs for that matter. The Country would be in a far better place that’s for sure.
They can read it all here for free
Today Starmer announces another five Freeport’s (low and zero tax zones subsidised by the government) to “increase jobs”, whilst Reeves announces increases in NI and taxes and the government whines on about a £22 billion black hole! These idiots have absolutely no idea what they’re doing?
None at all
Is Rachel Reeves a liar, stupid or both?
I’m reminded of this:
https://youtu.be/fhxQI8BfJbE?si=vHGFyI_7Ucb89Q6i
Here’s a particularly unpleasant, illegal consequence of believing the oft-peddled tripe about black holes and the public purse.
https://www.theguardian.com/politics/2024/oct/25/home-office-fees-language-tests-ecctis-ltd
Despite it never having been legal for the Home Office to charge fees for visa application language tests, they will continue to do so, because “suspension of charging for these services WOULD HAVE SIGNIFICANT IMPACTS ON THE PUBLIC PURSE”.
They know its unlawful, they know we know they know, but there are black holes to fill, so Salheema Malhotra, Labour Minister at the Home Office, says they will continue to charge for them.
I just fell down Alice’s rabbit hole!
I know they have admitted that it is not legal to charge for these tests. But I’m not entirely sure they know what they are talking about (!). Is it specifically banned to charge for these tests, or is there no law that allows charges? If the latter I don’t think that makes it illegal.
Richard, I ran across this in a book I’ve been reading, and immediately thought of you, and MMT!
The book is by the Danish Arctic explorer, Peter Freuchen, entitled ‘Arctic Adventure.’ He was made governor of an area in the far north of Greenland circa the year 1912, and an agent for the fur trade. However, he encountered problems bartering with the Inuit natives for the pelts of fur they’d trapped. Normally these pelts were exchanged at an accepted rate for goods brought in by ship. But the ships were often late or didn’t turn up at all, so Freuchen could often give only promises in exchange for the pelts—which became a record-keeper’s nightmare. So he ‘invented’ a system. He describes it this way:
“…we introduced money to the tribe so that the natives might compute the value (of their fur pelts) themselves. We had little money ourselves, so we manufactured coins. It cost me only 120 kroner to manufacture 30,000 kroner out of aluminium. Perhaps there is the germ of an idea in that, for a number of hard-pressed governments today.” (From Part IV, Chapter 2.)
That final line made me laugh.
Indeed…..
Nothing could be clearer that democracy is not fully fledged when you have the Chief Executive Officer of National Westminster Bank, Paul Thwaite, declaring “the market” ( or in other words “the rich”) will be the arbiter of what a government can do:-
https://www.theguardian.com/business/2024/oct/25/natwest-urges-reeves-to-get-balance-right-when-changing-debt-rules
Of course the mainstream media including the Guardian goes along with this myth, so much for facts are sacred!
That’s the “bailed out/part publicly owned” Nat West? The one that had to be rescued by “the public purse”?
And the author, the Guardian’s “Banking Correspondent”, recycles the myth that it was Truss’s “unfunded tax cuts” that crashed the economy, rather than Andrew Bailey’s Quantitative Tightening the day before.
I do love hearing from these City economic experts…
Bill Mitchell shows up the IMF for what it really is a shill for the rich and simply composed of anti-democratic fascists in that they ignores the harm its policies can do particularly in regard to current spending even when it is are now doing a mea culpa on government capital spending:-
https://billmitchell.org/blog/?p=62085
I am not sure I would whol;ly rely on Bill for political judgement on anything
I think the government’s use of the term black hole is a metaphore deliberately intended to create fear. Science fiction is full of images of black holes swallowing up everything around them. The government would like us to believe that more spending will grow the black hole and swallow up the economy, presumably by hyperinflation. Metaphors are very dangerous weapons.