Keir Starmer says we need more defence spending.
He also says that, despite that, Rachel Reeves' fiscal rules must be complied with.
As a result, he, and she, will be proposing:
- Insignificant increases in defence spending.
- Austerity elsewhere, and in particular:
- Cuts to benefits.
- Cuts across all other spending budgets, excluding maybe, the NHS.
- Environmental,programmes.
What is your opinion on this issue? I am curious to know:
Should the UK increase its defence spending?
- Yes (53%, 211 Votes)
- No (28%, 112 Votes)
- It should cut it (9%, 36 Votes)
- I don't know (9%, 36 Votes)
Total Voters: 395
Loading ...You have one vote in the above poll.
This question logically follows on, and you have three votes:
Should new defence spending be funded by:
- New taxes on the income and gains of those with wealth? (31%, 338 Votes)
- Ending the £100bn a year Bank of England quantitative tightening programme? (29%, 309 Votes)
- Increasing Bank of England money creation? (22%, 233 Votes)
- A wealth tax? (11%, 118 Votes)
- Government borrowing? (5%, 55 Votes)
- Cuts to benefits? (1%, 8 Votes)
- Other spending cuts? (1%, 6 Votes)
- Increased taxes on those on lower pay? (0%, 4 Votes)
- I do not know (0%, 3 Votes)
Total Voters: 421
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In view of what I have voted for, I would like to see appropriate taxation used to cool any inflationary effects – if that is on the rich – who can afford it – given their more recent gains, I find that appropriate.
I’m all in favour of progressive taxes on the rich to reduce inequality. Bring them on.
However, I’m not sure that taxes on the rich are an effective way to cool inflationary pressures. The reason I say that is that the rich have a low propensity to spend. If they receive more money most of it is saved. Conversely, when they receive less money they simply save less. The money they save does not circulate in the real economy. For example they may buy stocks and shares which has a limited effect on the real economy. So when they save less it, likewise, has little effect on the real economy. Specifically, rich people saving less may not significantly reduce demand for real goods and services. Hence reducing their savings through increased taxation may not cool inflationary pressure.
It seems to me there is something of a paradox here. When increased expenditure is desired, e.g. for defence, but also public services, many people feel that the wealthy should pay for it (and I agree). But taxing the wealthy does not seem to proportionately reduce real consumption. If you need to reduce real consumption, so that the government can spend on other things, then you need to tax those who have a high propensity to spend. That is not the rich and is disproportionately the poor. 🙁
I most certainly am not suggesting that we should tax the poor more!
Fortunately, at the moment, I suggest that there is plenty of scope for growth within the economy, without the need to tax those who are not wealthy to prevent inflation.
The government can spend money by creating it, stopping sucking it out of the economy via Quantatitive Tightening, or by taxing the wealthy. Any of these have the potential to produce inflation. But that will only happen to a damaging extent if the economy has reached the limit of it’s capacity to grow.
Doubtless someone will correct me (please) if I have misunderstood and got this wrong.
The wealthy have excess consumption, so we need to tax them more.
They may not spend all their incomes on consumption – but they still consume vast amounts.
What is hard to udnerstand about that Tim?
You’d rather tax the poor to punish what little consumption they have?
Tell me why?
Richard – your reply to Tim Kent seems unfair. He said “I most certainly am not suggesting that we should tax the poor more!”
I know
But he also said taxing the rich would not work
You misunderstand me Richard. I most definitely would not rather tax the poor. That would be appallingly immoral. I hoped I had made clear that I am in favour of taxing the wealthy. And they most definitely should bear the brunt of increased spending. After all, they benefit most by the state protecting their wealth.
I was querying what seemed to me to be a slightly simplistic interpretation of “tax the wealthy”. I may have this wrong so please do correct me if so.
Say the government wishes to spend £100billion, but it doesn’t want to cause inflation. So it seeks to reduce the consumption of the wealthy by a corresponding £100billion. Say, for the sake of argument, that it wants to tax the very wealthy, who, because they have lots of resources, only have a marginal propensity to spend of 10%. That is, for each additional pound they receive then only spend 10p and save the rest. Correspondingly if they are taxed an additional pound they only reduce their consumption by 10p. So if you wish to reduce their consumption by £100billion, you would actually have to tax them £1trillion!
Now it may be quite reasonable to tax them £1trillion. But I can see all sorts of political problems if the government tried to do that.
What I was trying to point out was that it’s not simply a question of the government creating £100billion or taxing the wealthy £100billion. The former allows the government to spend £100billion, the latter much less.
I think it is important to point these issues out so that people start to understand. That seemed to me to be one of the purposes of your blog and I am trying to contribute to that. But, as I said, if I have this wrong please do clarify.
Tim
First, you are being far too logical. If the wealthy are taxed more they will feel worse off. That is their greatest fear. So they will reduce spending to preserve wealth – which is what matters most to them.
Second, we are not talking about £100 bn. We are talking a few billion immediately. There may be no case for more tax at all.
Third, inequality demands the wealthy be taxed, come what may.
But what I am questioning is the rationality of your use of a multiplier. The wealthy are not rational about tax.
Richard
Apologies for typos….
Tim
May I suggest that you are over-simplifying ‘the rich’. I agree that most of them can be taxed at a much higher rate without affecting their abilty to behave in the way they behave now, however you are, perhaps, ignoring psychology.
I am poor. If I receive extra money I will spend it, possibly some of it on reducing debt, but primarily on essentials and, if possible, little luxuries rthat are currently out of reach. I think most, if not all, of ‘the poor’ would behave in a similar way and, I agree, that expenditure has the propensity to increase inflation. But, I cannot see anything in these proposals that would bring me extra money.
However I don’t believe ‘the rich’ behave in a uniform way. Many whose income reduces will insist on maintaining their savings and investment behaviour, so will, perhaps, delay replacing their car by six months, or won’t buy another racehorse, or will go to a less expensive luxury holiday destination. None of those reductions in spending has an immediate, direct effect on inflation, but they will affect people further down the line – the car manufacturers’ income will reduce, their purchase of materials will reduce, and those down the line effects will affect inflation.
And even if I am wrong about this, basic fairness requires that ‘the rich’ pay more.
You will see from an earlier reply to Tim, Cyndy, that I agree with you.
Richard,
I’m flattered (I think), I’m seldom accused of being too logical. 🙂
I completely agree that inequality demands the wealthy be taxed, come what may. I said, “bring it on”.
You are right, the UK defence budget is of the order of £80billion, so we’re talking about 10s not 100s of billions of pounds.
Following my previous reply I did a little more research. It is quite hard to find information about marginal propensity to consume (spend) as it relates to wealth. But I did find:
“The Distribution of Wealth and the Marginal Propensity to Consume”, https://www.rba.gov.au/publications/workshops/research/2017/pdf/rba-workshop-2017-christopher-carroll.pdf
The key points are:
1.) Wealth Inequality: The paper highlights the stark disparity in wealth distribution, with the top 1% of households holding a significant portion of total wealth, while the bottom 60% own very little.
2.) MPC Variability: It demonstrates that MPC is much higher for low-wealth households compared to high-wealth households. For instance, low-wealth households often have an MPC close to 1 (or 100%), while high-wealth households may have an MPC as low as 0.04 (or 4%).
So I don’t think I’m too far out with my estimate of marginal propensity to spend.
We certainly do need to tax the wealthy. What I was trying to point out is that if we need to reduce consumption elsewhere to pay for something, to mitigate the risk of inflation, we cannot simply tax that amount of money from the wealthy. We would have to tax much more. Taxing the wealthy tends to produce a disproportionate political backlash, which makes it difficult. A recent example is one of Rachel Reeves better ideas to reduce the inheritance tax allowance on agricultural land.
🙂
Tim
I repeat, all I disagree with is your assumption that the wealthy treat wealth as a residual: I think they are much more likely to treat consumption as that as maintaining wealth is absurdly important to them, in my experience of dealing with them, which I have.
Richard
🙂
Seemingly contradictory things can be true at the same time. The UK can have the highest tax burden since wartime, and also be paying less in taxes than many of its European neighbours. The 1% can be bearing a large burden of income tax, and they can also be undertaxed on their capital and wealth. The UK can be spending enormous sums on health and welfare, and still be failing to meet need. The UK can be one of the wealthiest counties in the world, and also have growing inequality (a few with excessive wealth and many in grinding poverty).
In short, we don’t have to rob overseas aid to pay for defence. But we do need to think about whether our self-imposed fiscal rules are good for the country. No just for politicians (who can claim credit if they are met) or markets (if they constrain political choice to do things the City of London doesn’t want) but for people.
All to agree with.
It’s becoming Increasingly clear that Starmer and co have no idea how the economy actually works. This is almost worse than Tory mismanagement (and we can’t even say “it’s a relief there’s no corruption and bribery going on”). At least the Tories knew why they were mismanaging the economy and whom they were benefiting.
Given that defence effectively protects the assets of the rich while the poor do the fighting and dying I suggest a tax on wealth or the income and gains it produces is quite appropriate
Ukraine has challenged a lifetime of my thinking about defence so, yes, more resources need to be allocated to defence. However, two questions emerge.
First, can we defend our country with sick, uneducated soldiers? No, we need to sort out health and education (plus other things) as well as spending more on defence.
Second, what am I actually asking my fellow citizens (because I am too old) to defend? A country where their parents can’t get healthcare etc.? No. Spending on all the things that make our country a decent place to live must be maintained as well.
Now, we can’t “have it all” – some non-essentials will have to go…. poets will have to become warriors… but what is more essential than defence/health/education? Given that these three things are almost exclusively delivered by the State then State spending must rise (and, let’s be honest, private consumption fall).
Only now should we talk tax and borrowing…. after all, when we say something is “essential” we have no choice but to spend to achieve it and it should not depend “whether we can afford it” under some absurd made up fiscal rule.
We should certainly implement (almost) all suggestions in the Wealth Report. We should should then look at financing through a combination of gilt issuance and money creation that keeps interest rates at a sensible level… but that should be flexible.
Thanks, Clive
Much to agree with
“Can we defend our country with sick uneducated soldiers?”. Of course we can; that’s been the case for at least 300 years. Remember that at the start of WWI many volunteers had to be turned away because they were unfit; those taken weren’t much better. And how appropriate is it to be talking about soldiers — boots on the ground –when remote fighting is more effective? Probably more expensive, though.
No judgement made about “boots on the ground” (or any other specific military policy)…. merely that good public services are part of an effective defence policy.
I hear you about “sick soldiers” in WW1. My grandfather volunteered in August 1914 but his parents were unconcerned as they assumed he would be deemed unfit… but he was accepted and served until the end of the war as a sapper. He returned a pacifist and refused to join the Home Guard in WW2. My instinct is pacifist, I was in favour of unilateral disarmament….. but the facts have changed and I have changed my mind.
Thanks
My instincts are pacifist
But I make an exception for fascism
It was the creation and administration of huge military forces during the First World War that finally persuaded the more enlightened elements of the Establishment to begin the slow process of creating the welfare state as we know it should be.
It has taken the selfish, unenlightened and fundamentally corrupt neoliberals to start the process of returning us to the Dickensian society that is rapidly approaching us, unless something serious is done.
I do not hold my breath.
Looks like proposals (ref Reeves/Starmer) that Tories would make = make the poor pay & lets do a “let’s pretend” on defense spending – without taking a hard look at the Uk’s defense needs. The UK pisses money @ defence – without ever considering – seriously – what it needs – whilst at the same time being functionally incapable of doing so due to an array of vested interests.
I appreciate that Cummings is marmite to many – this was one of his recent emissions (below) and is interesting at a number of levels. Point 3 reflects my own experience enaging with the European Union and specifically mediocrities within the European Commission on energy (& indeed with Ofgem’s chief economist – me discovering that I knew more than he did on markets. & for the avoidance of doubt – I have at best enough knowledge to see what is going wrong and what needs to change – in broad terms – the ex-cheif economist could not even see that – now repeat with defense . (Again: read Deighton’s Fighter and you see identical pathologies played out in the middle of 1940s – identical).
Point 1
“They’ve let the nuclear enterprise rot as I’ve recounted many times since 2021. It now relies on vast Pentagon subsidies of money, materials and intellectual property. Which also gives DC vast leverage over a British PM. The nukes are already in an over £50B secret black hole. Having to recreate all the infrastructure without US support would be over 100B. The odds of Starmer facing this openly and explaining how taxes will have to rise by vast amounts so we can bounce more Ukraine rubble are close to zero. MPs and regime media do not understand how constrained a UK PM now is and what a disaster one phone call from the Pentagon to the Cabinet Secretary would be”..
Point 2
Catastrophically bad procurement. Massively expensive platforms that are not at the technological frontier and are unsuitable for mass production. Severe corruption of our civil service as officials go to the companies they negotiated contracts with, a system defended by the NPC class as ‘necessary to stop corruption’: they defend the old system as ‘necessary to stop corruption’ while it is the corruption. General rot of industrial production and opposition to domestic supply chains even after the covid disasters.
Point 3
Promotion of mediocrities to critical roles, top people leave — the general Whitehall anti-talent ratchet has applied here too. Brilliant talent leaves to business, the mediocrities with little moral courage get promoted. SNAFU.
I’d also like to know if the defence spending is on imports (from where?) or if it is largely in UK? I also want to know where the manpower increase in UK is coming from and roughly how it’s expected to be distributed across the defence sector.
Planning to buy US arms would seem dumb as Trump would simply have increased control over our weapon systems. He could cut us off, literally with a stroke of his executive pen. This makes me wonder about our existing dependency on US. Is there a realistic threat to its use as decided by us?
Although this is not defense related it shows how the UK is +/- a vassal state to the US (& thus extends your point):
https://www.theguardian.com/commentisfree/2025/mar/06/britain-us-uk-assets-economic-disaster-labour
The time has come to turf the Americans out of the Uk & indeed out of Europe. They are an infestation, parasites, virus – pick your metapohore. Largely neolibtards they have pauperised large numbers of UK citizens and indeed European citizens with their half-arsed ideologies and in the final analysis GREED. They want it all, always. Turf ’em out, all of them. Good 1st step, Goldman Sacks and McKinsey close them. Think of it as the dissolution of the monsteries – all those talented people doing bugger all working for USM(ango).
I am wondering why we have US forces here now
Living very near Mildenhall they are supposedly a realtiy of life – bit I almost nenerv interact with anyone with a US accent, at last who coimes from there.
They are a US enclave here and I am not sure they’re beneficial now.
We are having to re-evaluate the role or even the existence of NATO and the supposed alliance with the USA. In which case it is surely time to also ask if the long-standing military occupation of the UK by the USA should continue.
I would argue that spending does not require austerity, but it is a neoliberal ploy to “encourage” those with nothing to have something to fight for. The aftermaths of war have often resulted in increased spending and growth.
There has been the point about having the highest debt to GDP since war time, highest taxation, etc.
What all of this ignores is that in a real sense we can consider ourselves to be noticeable participants in a war that is at risk of becoming a wider war in Europe.
Any comparison to peace-time spending is rendered somewhat pointless if we agree the need to rapidly ramp up our military capability to participate in a European Defence Force, because THAT participation means are we really on more of a war-time footing – even if we hope that it heads of further escalation to stop it becoming WW3.
I should have said that they became aware of many working class problems, all stemming from widespread poverty, reflected in the condition of many recruits.