According to the Guardian:
Keir Starmer vows to ‘embrace harsh light of fiscal reality' ahead of budget
They are referring to a speech he is to make today.
Yesterday, Rachel Reeves was telling the Observer:
'My budget will match greatest economic moments in Labour history'
Today, the Guardian thinks that:
Reeves will cut the day-to-day spending budgets for departments including the Ministry of Justice, the transport department and the housing department.
Failing to deliver justice or housing whilst not tackling the cause of climate emissions is not a great economic moment; it is a recipe for political disaster.
And as the Guardian notes in its editorial today:
Any chancellor can unleash a barrage of numbers and forecasts, tarmac an A-road or scrap a tax relief – or discover both a huge black hole in funding alongside a handy new measurement of government debt. But the most consequential governments have also offered a big political narrative.
So, what is Rachel Reeves' story?
It embraces the existence and continuation of child poverty.
It thinks austerity is necessary.
Both are apparently required to 'balance the books' - although no one can explain why that is required.
She talks about investment but abandoned Labour's Green New Deal.
She has demanded that the private sector deliver this investment, and only in the last few days has she suggested that she might, after all, fund some spending by changing her so-called fiscal rules, which she need never have adopted as far back in history as July.
If there is a master plan behind the investment, it is not clear what it is unless the commitment to unproven carbon capture and storage indicates that it is the perpetuation of the old economy that delivered climate change.
Might a historic budget emerge out of this mess of messaging? It is hard to believe it could. To deliver change, you have to know what you are trying to achieve. Rachel Reeves does not, and nor does Labour, based on the fact that no one has yet explained what Starmer thinks his government is for, and he has dismally failed to do so.
What is more, in recent times, few Chancellors have delivered anything of consequence that has changed the economy or people's lives for the better, but many have managed to deliver political cock-ups. Osborne and Hammond turned that into an art form. I think it is much more likely that Reeves will follow in their footsteps than deliver anything momentous, except, maybe, the first step towards Labour's loss of the general election in 2029.
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Thanks Richard we are being Gaslighted again the OBR saying it will be publishing the Black Hole. Before the Budget do they think we are Stupid
A good post. Yes I agree the government has no understanding of issues and no ideas. It all sounds like a rehashed Liz Truss approach but with taxes going up! A complete mess. I suspect apart from the tribalists, Labours support base will crumble but with our medieval voting system they have won lots of seats. Will Labour MPs get the message that they have a mess and ask Starmer to go?
It’s difficult to see how balancing the books, spending cuts, and so on are going to promote growth.
The more likely outcome is more austerity and the real risk of a prolonged recession.
What is the point of the Labour party?
I can’t be the only person to think the Starmer/Reeves regime (and their unelected advisers) must be removed long before 2029. I hope there are MPs plotting to force them out just as Mrs Thatcher was made to go.
The abuse of Labour’s history – when it was a real Labour party – is well below the belt.
You know, it is pretty disgusting that most of our economic problems that have been caused by Thatcherite thinking have led to ordinary people suffering because of greed. It is most cruel but there does seem to be a section of the population who do see though this and that is worth some hope.
The guardian really are running scared. They’ve simply stopped opening comments on any article featuring Reeves or Starmer’s fiscal (un)policy.
Cowards.
This tells you what kind of comments are being made, of course. People cannot be allowed to know that other people have similar thoughts to them. They might realise they are not alone in rejecting what is on offer.
They’re like this with most financial articles these days. It stems, I believe, from a period when one could learn far more about economic reality by reading the comments than the articles. The Guardian now appears so desperate to maintain economic fictions it simply can’t allow criticism.
A key question is will it help us reach the SDGs – so recently affirmed by Dame Barbara Woodward at the UN (https://www.gov.uk/government/speeches/the-uks-commitment-to-the-sustainable-development-goals-is-unwavering-uk-national-statement-at-hlpf-2024) – and so implement the 2030 Agenda in full and on time, as agreed in the Pact for the Future, at the Summit of the Future (https://summitofthefutureun.org/pact/?_gl=1*1j9h88r*_ga*MTE2NDQ2MDE3OS4xNzMwMDk2Mzgz*_ga_TK9BQL5X7Z*MTczMDA5NjM4My4xLjAuMTczMDA5NjM4My4wLjAuMA..)
The Daily Heil’s front page today runs with claims from Mervyn King that increased government spending would “spook” the City and push up mortgage rates.
@ Matthew T Hoare
Is anybody listening to Mervyn King? I don’t think even the late Queen thought his excuses credible.
The more expansive the build-up, the more convinced I become that the budget is going nowhere. Words like “momentous” and “historic” should really be saved for use by others, and only after the event. When they occur in Labour comms & speeches carefully co-ordinated for release BEFORE the budget, then my suspicion dial goes up to 11.
All she has for us, is austerity, disguised with some vague plans about promises of visions for future capital spending (by someone else other than the Treasury, sometime, maybe, in the future).
The gender of the Chancellor is the only thing that makes this budget historic. The content is just the same old, same old monetarist theory failing to meet the incredibly urgent environmental and economic challenges of our day.
If the budget was going to be “momentous”, then we would not need to be told this, but would recognise it when it was delivered. The fact that we are having to be directed to think this, suggests it it will be anything but.
Replying to myself (sorry Richard) to correct the newspaper: it was the Daily Express, not the Daily Mail.
Some of what he says is ok actually (says me) but former BoE Guv’nor King regrettably does go on to lean into the myth we have to tread in fear of the markets; “He told Sky News it was “possible” that changes to debt rules to free up cash for investment would push up mortgage rates in the long term. City analysts reportedly have concerns that the markets “beat up” on the weakest link among advanced economies and warned that after a rise in borrowing costs last week, Ms Reeves “is playing with fire, because if they want to bet against the UK, she is in big trouble”.”
https://www.express.co.uk/news/politics/1967886/budget-taxes-rachel-reeves-mervyn-king
Mervyn King is an old economic dinosaur
He talks us much nonsense now as he did when at the BoE
The Labour government has already wrecked its political reputation by turning the basic delivery of a Budget into a soap opera. Not only are they floundering with the economics; but they can’t even do the politics. But the problem is much deeper, and part of the problem is intractable. Bridget Phillipson, Education Secretary was interviewed on Sky News yesterday by Trevor Phillips. Both floundered. Phillips criticised Labour for the fiscal rule change, which was unanswerable (quoting Rachel Reeves saying she wouldn’t ‘fiddle the figures’, then did). Phillips, however has a poor track record in challenging the illusory nature of the whole fiscal rule nonsense (we have had ten different rules in the last twenty years, and they have changed). The question he should be asking is – who are the fiscal rules produced for? It isn’t the public (it is too recondite), and it isn’t government (they will claim it is, but it isn’t). Mervyn King gave the game away in his criticism of the fiscal rule change: “Pretending that the stability of public finances are changed by the definition of debt, deficits or the fiscal rule is an illusion. Financial markets know that higher borrowing means higher borrowing” (Sky News). The crucial issue here is not the borrowing; it is the fact that financial markets are effectively the dominant determinants of Government policy.
The question that should be asked is, rather why has the British economy been structured for so long in a way that inevitably allows financial markets almost wholly to determine economic policy in their own interests; and effectively run the country. Britain has deep structural problems in its economy (which have caused this problem to overwhelm us); but we do not even discuss the issues. This has real effects, and it is a direct effect of gross over-reliance on financial markets. We allow this to go on perpetually, unconsidered and unchecked, and making matters more volatile and dangerous to stability. The profound inadequacy of our political elite has led us into a grossly irresponsible economic predicament.
I return to the forensic research of Schularick and TaYlor, ‘Credit Booms Gone Bust’ (2012), and their sobering and cautionary words: “Thus, what happens in financial markets—borrowing conditions, liquidity, market confidence—starts to matter more than ever for credit creation and financial stability, possibly amplifying the cyclicality of financing in a major way (Adrian and Shin 2008). The consequences for macroeconomic stability are powerful, since the conventional transmission mechanisms can now be buffeted by large financial shocks. Last but not least, the increasing dependence of the banking system on access to funding from financial markets could also mean that central banks are forced to underwrite the entire funding market in times of distress in order to avoid the collapse of the banking system as witnessed in 2008–09. This “mission creep” follows from the fact that banking stability can no longer rest on the foundations of deposit insurance alone, with the Lender of Last Resort now having to confront wholesale (i.e., nondeposit) bank runs” (p.11).
Unfortunately our hopeless political class either do not care, or do not understand; and the public is held in perpetual ignorance.
A Jeremy Corbyn budget would have been “momentous” and “historic”.
For the many, not the few.
Except, sadly, he and McDonnell do not seem to have acceptedthe concepts of MMT. And I say “sadly” because I was a Corbyn supporter (and still am).
I was also a Corbyn supporter, but I could never decide whether their insistence on the fully costed manifesto was based on pragmatism (they would have been marmalised by the media if they had NOT fully costed their manifesto) or their failure to understand & argue for MMT. I now believe it was both. A mild social democrat such as Corbyn getting so close to power (2,000 votes in marginals) was never going to be allowed near 10 Downing St. and if he HAD made it there, I am convinced he would soon have been removed, probably by the “markets” crashing the “economy” or if necessary by a full blown smear operation, as described in A Very British Coup (no tanks necessary).
Instead, to save us from a mild dose of democratic socialism, we got trolley Johnson, & his incompetent Brexit, Tufton St. ideologue Truss, elected-by-no-one-Sunak, and now, thanks to Central Control in the Labour Party, we have the grim-faced bespectacled forensic crusader Starmer and his BoE-programmed Chancellor Reeves instead. What was it they used to scare us with? “The chaos of a Corbyn coalition”?
In 2019 Jonathan Reynolds wrote: “in my view, MMT is both deeply flawed and a dangerous distraction for people on the left.”
Then we get the explanation: “Advocates of MMT instead claim governments with sovereign currencies like the UK can simply spend whatever they like,”
So Labour did not understand MMT.
Source: https://labourlist.org/2019/06/why-labour-doesnt-support-modern-monetary-theory/
Precisely
Adrian and Shin, ‘Liquidity and Leverage’, (IMF, 2009). They were reviewing and explicating financial intermediaries’ balance sheets post-crash; but it provides insight into the real world that cannot easily be glossed by the ex-post adjustments of central banks (who have generally returned to a smug are of urbane confidence their knowledge and wisdom does not deserve).
Here are Adrian and Shin’s concluding remarks, because in principle, they still apply in our dangerously volatile neoliberal world – financial intermediaries take risks, we know that because the casualties and wreckage is easy to find, if you look at the history, or we just open our eyes:
“Aggregate liquidity can be understood as the rate of growth of aggregate balance sheets. When nancial intermediaries’ balance sheets are generally strong, their leverage is too low. The financial intermediaries hold surplus capital, and they will attempt to find ways in which they can employ their surplus capital. In a loose analogy with manufacturing firms, we may see the financial system as having ‘surplus capacity’. For such surplus capacity to be utilized, the intermediaries must expand their balance sheets. On the liabilities side, they take on more short-term debt. On the asset side, they search for potential borrowers that they can lend to. Aggregate liquidity is intimately tied to how hard the nancial intermediaries search for borrowers. In the sub-prime mortgage market in the United States we have seen that when balance sheets are expanding fast enough, even borrowers that do not have the means to repay are granted credit – so intense is the urge to employ surplus capital. The seeds of the subsequent downturn in the credit cycle are thus sown.”
Thanksx, and agreed.
It will be interesting to see how the “harsh light of fiscal reality“ lands with the electorate. And indeed how long this “there is no alternative / there is no money / the market must provide because the state can do nothing” austerity can continue. When exactly might things get any better?
Labour’s landslide was based on a split right wing and some “get the Tories out” tactical voting. Those circumstances are unlikely to pertain in four years. How can Labour expect to win another election with such a downbeat message?
Added to which we might have four years of Trump; four more years of conflict (perhaps not Russia/Ukraine or Israel/Palestine, but others will see that violence can achieve strategic aims); four more years of economic stagnation as the UK remains economically isolated from its nearest neighbours in the EU; and four more years of progress towards what is now estimated as 3.1 degrees of temperature rise, which is towards catastrophic end of the spectrum.
As I look ahead, I am filled with foreboding.
Me too
I suspect I will be saying so over the next day or so
Just six days ago, Richard, you commented on the insane remoteness of the “financial markjets” from any awareness of multiple impending crises in the real world. I agreed and posted as an additional example the Grauniad’s shocking report on the parlous state of Sellafield the biggest nuclear dump in Europe and the biggest plutonium store in the world. Now we learn that Sellafield’s management company is afraid that Reeve’s Budget may be about to cut their inadequate funding. https://www.theguardian.com/business/2024/oct/28/sellafield-work-accidents-reeves-budget
Yet according to both her AND to her critics on the right, the markets are most concerned with the cutting of the pensioners’ Winter Fuel Allowance and retaining the Two Child benefit cut off.
Insane is indeed the right word. But what word do we use now when we factor in that her government wants to build MORE nuclear reactors and MORE plutonium filled missiles – AND the dangerously inadequate safety funding may be CUT to keep these ‘markets’ – actually hugely greedy ‘investors’ – happy?
Isn’t Labour the party that can’t see the wood for the trees as far as how modern money really works but always has its hand out for surreptitious bribes of the stuff? Doesn’t that about sum it up as far as the Starmer leadership of the party is concerned?
A sectoral balance approach tells us that if Reeves reduces the fiscal deficit (aka increases withdrawals from national income) in the very mistaken belief the national debt needs to be reduced while the UK simultaneously operates a trade deficit (another withdrawal from national income) then the only way this can be balanced is by reducing the savings balances of households and firms. The longer this austerity persists the greater the risk of debt deflation. I would have expected someone who dines out on her 2 years working for the Bank of England to grasp this basic macroeconomic principle. Quite what her and Starmer are trying to achieve, except avoiding upsetting the corporate and financial sectors, seems to be a secret they have no desire to share with others.
Richard makes a telling comment that Reeves budget is in the mould of previous budgets from the Conservative era.
This implies she makes small political tweaks in something prepared for her by the Treasury.
She is a victim of Treasury othodoxy without an evident basis of being able to think for herself. Except in terms framed by her time in the Bank of England.
We’ll find out soon enough but it looks like a continuity budget rather than something that will change much.