There's a persistent myth that our government is somehow at the mercy of the financial markets and that it has to dance to their tune. This is most definitely doing the rounds this week, mainly as a result of Labour's mismanagement of its own party, and Rachel Reeves' subsequent very public tears.
It's a myth I have been challenging for years, so let me summarise why.
1. The government creates the money
The UK government is the monopoly issuer of the pound. It spends all of that money into existence. Every pound of government spending creates a matching financial asset for someone else. It is only afterwards that the government issues bonds, not because it needs the money, but to provide a safe place for savers to deposit their funds when banks cannot provide this service.
This point is critical. The government does not need the markets to ‘fund' its spending. It is simply swapping one form of money (reserves) for another (gilts). Bizarrely, it pays interest to those to whom it provides this service.
2. Gilts are a choice, not a necessity
The sale of government bonds, gilts in the UK, is presented as if the government is dependent on the markets to keep spending. This is nonsense. The government issues gilts largely because:
-
It wants to drain reserves from the banking system to help the Bank of England hit its (currently too high) interest rate target.
-
It wants to give pension funds and insurance companies a safe deposit facility to underpin their promises to those who use their services.
-
It believes it must maintain an outdated and now unnecessary City-based financial architecture.
None of this means it needs the markets to spend. If no one bought gilts, the government could continue to spend. In fact, as quantitative easing and now quantitative tightening prove, there is no relationship between bond issues and Bank of England market interventions and the capacity of the government to spend: the evidence is all there for anyone to see.
3. The central bank is always the buyer of last resort
When financial markets are in turmoil, as happened in the mini-budget fiasco under Liz Truss, the Bank of England steps in. Its role is to stabilise prices and yields. This is not optional. It is a fundamental part of having a sovereign currency and a central bank that acts as the lender of last resort. This means the financial markets are, in fact, dependent on the government and its central bank. Not the other way around.
4. Interest rates are a policy choice
People say, “but the markets set interest rates, and so they can discipline the government.” Again, this misunderstands monetary operations. The Bank of England sets the base rate. It can cap or control longer-term rates by buying or selling bonds as it chooses. The so-called market rates are policy-contingent.When push comes to shove, the central bank can always enforce the interest rate it wants.
5. What markets really influence is ideology
So why the obsession with ‘market confidence'? The reality is, politicians and economists often invoke markets to justify austerity. It is easier to say “the markets demand it” than to admit their own ideological choice, which would otherwise be unpalatable to the electorate. Financial markets do, in that case, play a political role, but they do not hold the government hostage. They operate within the monetary framework that the government and its central bank set. We could just as easily choose to run the economy with other priorities, but it does not suit neoliberal politicians to do so. That is because they view politics as the City does, at cost to us all.
Summary
I keep returning to this issue because it is so fundamental: the UK government is a currency creator, not a currency user. It is not like a household. It does not need to beg or borrow from the markets to spend. Financial markets are accommodated by the government, not the other way around.
Understanding this changes everything. It means that economic policy decisions — on public services, investment, climate action, and inequality — are political choices, not technical constraints imposed by bond traders. That is why misinformation on this issue matters so much, and the fact that it is so widespread shows just how strong are the forces that wish to deny that democratic choices can still be made in the UK.
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It is essential to keep repeating this, so well said. This is reality – Starmer and Reeves please note.
Richard,
I read this exchange with Prof John Hearn on X. He’s active on both X and LinkedIn. He knows Steve Keen:
“Tax is collected into the CF of day, at which point, its gone.
It reduces the balance in the NLF.”
“And there is an equal and opposite spending of that same quantity of money as it is redistributed. In the case of currency you can trace the individual unit being used again and again.
Your statement is fallacious and a big part of the fallacy MMT is built upon.”
“The mistake made by MMT is to say tax destroys the money and spending creates it when it is in fact just a redistribution”
Why share this?
It is an example of a fellow economist I think he taught at the London Business School, with different views also being very active. He has plenty of followers too.
I’m not saying avoid X I’m saying that this kind of active informed opposition is what you are up against.
Reasoned argument looks unproductive with John as he isn’t going to change his mind but as an enemy of MMT he does need taking on in some way so his followers can see his views are not the only ones to take notice of.
He is visiting prof somewhere of no substance, and in essence a troll. A total waste of time engaging with him.
Steve Keen told me he was a walking economic text book. Which on reflection didn’t seem that complimentary either.
There was a delicious snippet of information yesterday about the likely reduction in cash ISA allowances from 20k to 5k:
“the UK’s largest mortgage lenders – Yorkshire, Coventry and Skipton building societies – have said cutting the allowance will send mortgage costs soaring costs. Cash ISAs make up 39% of building societies’ retail savings balances, a major source of mortgage funding…”
It looks like they need the deposits, and now will get less of them.
Conventional building societies are not banks in this regard, although they are more like banks than the realise.
I agree 100%. & the points made are facts/objectove reality. This leaves the question – given these realities – why? Why don’t govs take advantage of these realities. If they did, there would be losers – the city because they would no longer “control the game” which they do via the assorted “safe pairs of hands” wrt the BoE & its various committees. Ditto, via the assorted gov propaganda outlets (remember a chairman of the BBC? ex-goldman sachs). Remember Col Smithers post – visiting the BoE and stuck behind a queue of Goldman sachs types – with Goldmans there for their MONTHLY heads-up meeting with the BoE (one wonders which other foreign banks get a monthly meeting?) . Who controls who? What is said at these meetings? Is there a revolving door – BoE, Finance Ministry, banks? We don’t know – it is all a black box.
But one can reverse engineer black boxes – & in turn understand the functions, how a given input leads to a given output & who benefits. The Uk finance system, as is, functionally benefits a small coterie in the city (& has done for – hazarding a guess 220 years). The city/its beneficiaries want to keep it that way. You want change? then there are two options: modification – which the system will resist (because its beneficiaries will resist with all their might), or destruction/elimination/annihilation – which, frankly I see as the only way. Reasoned discourse won’t work when you threaten lifestyles.
In my own field of expertise (elec market reform) – the gang of four (of which I am a member) face the same problem – howvere, I am fairly confident that system developments will lead to system collapse & I intend to use this to instill fear in poliicos for change.
Thank you for a most informatively helpful article.
With apologies for ignorance, might it be that, through government bonds, the government puts money into our economy via rentiers?
No, because bonds take money out of the economy. They do not put it in.
I just have had an idea If bonds take money out of the economy doses this mean it is included in the the government debt?
Bonds are government debt.
So is money, including notes.
And then the Guardian does this, from someone who claims to be economics editor.
How these people keep their jobs whilst writing such drivel is beyond me.
https://www.theguardian.com/business/2025/jul/03/rachel-reeves-balancing-backbenchers-and-bond-markets-analysis?CMP=Share_iOSApp_Other
That is total nonsense, but she did PPE at Oxford and her first job was in the Treasury.
Yes, and Richard Partington’s article is just as bad
He has never been good.
There is, however a difficulty. Not the budget deficit, but the trade deficit. Foreign currency to buy (say) machinery, pharmaceuticals, software and technology, even food. If you have a substantial trade surplus (not budget surplus), like China and the dynamic Asian markets there is a significant degree of security (although more volatile in the Trump era); but if you are running an endemic trade deficit; and here Britain is the stand-out chronic deficit funder (that Governments now pretend don’t matter …… only because they have no solution); then you have a problem. Here, the problem will become much, much worse because Britain is already over-dependent on international financial markets and the City of London, when Britain is shrinking fast as a significant international financial player. Note here the illustratively germane AstraZeneca, contemplating moving to the New York stock-market, because the LSE is shrinking in international financial significance so fast it doubts it can afford to stay here. Now that is the reality of trade. Little Britain’s little trade deals with Australia or the US or whomsoever – as supplicants, please note; they saw us coming, with our pockets inside out (the real cost of Brexit). Such deals just don’t ‘cut it’. Britain is too small, too weak.
The writing is on the wall for Britain; now in “Da Zi Bao” (Big Character Wall Posters), if I may use the metaphor with a little international irony. Starmer and Reeves Commons crises are just the homely blowback and side-effects of all this, given Britain’s beleaguered, rotten condition.
Mr Warren, well done for stressing this critical problem. The Government can spend money in to the economy but if it just ends up buying Kia, Hyundai, BMW etc motor cars, fast east made electronic goods it won’t help our economy much. Meanwhile we have a banking sector happy to create money to inflate house prices and other not productive assets. We need some engineers in Government. I just hope that Mariana Mazzucato and the Institute for Innovation and Public Purpose is motivating members of the Civil Service.
Thank you John. I will risk it and suggest that MMT can have a blind spot when it comes to international trade and exchange rates. The Bank of England cannot print $USDs or €EURs. There are interesting things going on, especially with the $USD exchange rate. One possibility is that exchange rates depend far more on the financial markets than on trade in goods and services. Which could mean that indirectly the financial markets exert far more pressure than suggested by one-currency MMT.
You do know that MMT does know that, don’t you? And it has a comprehensive explanation of this?
Such a load of nonsense.
Try and see what happens to inflation in your fictional world where the government isn’t able to borrow from financial markets.
Try and see what happens to the value of the currency in your fictional world where the government isn’t able to borrow from financial markets.
Try and see what happens to the quality of life and cost of living in your fictional world where the government isn’t able to borrow from financial markets.
You criticise main stream economics for its simplifying assumptions, and yet you come up with this absolute tosh. In the global market we live in, where we are reliant on imports for energy, food and goods, the world is very different than you try and portray.
Very politely, you are talking drivel.
Have you listened to or understood a word I said?
And do you understand QE and QT have totally shattered your myths?
QE introduced temporary liquidity into the market during a time of stress. It was implemented in precisely the way it was, so that it could be unwound (through QT), to ensure that the money supply was managed and hence control inflation.
The banking world understood this, the financial markets understood this, but you didn’t, which is why you repeatedly claimed it would never be unwound, and on which you have been proved wrong.
But feel free to keep pretending that you know more than seasoned practitioners who have been in the market for 20+ years!
Only one country has tried to unwind it – partially at best- as we have. It’s been disastrous. I was right. No one should have tried it. I assumed people were rational.
And if you think it was just about liquidity you really are very stupid, politely.
Don’t call again.
Government borrowing from financial markets is taught in most mainstream universities, along with the idea that alternatives cause inflation. So-called classical economics has been dominant over the last 40 years, and the results today show that it has been an utter disaster.
The quality of life and cost of living today is at its worst in 40 years. Millions using food banks, highest energy costs in Europe, unaffordable housing, sewage in our rivers, too many potholes to count, crumbling school, poor infrastructure… and so it goes on, and life is literally sucked out of the economy (thousands of deaths due to austerity).
Main stream economics is criticised because it is a failure.
I needed some light entertainment – thanks.
I can see why you wish to resort to a pseudonym. See my comment on trade and foreign currency above; but you are conflating money creation and budget deficit financing, with the trade deficit.
What complete bollix this is?
Were you asleep then when the private banking sector was bailed out by the government in 2007/8 with its sovereign money? The governments borrowed did they from the bankrupt private banks that had nothing nothing to lend did they? Yeah – my arse, your face mate.
Where did the bailout money come from then Candy -boy? Scotch mist?
All that hard cash printed by state central banks was pissed into the sand over over valued assets and nothing but bets on the performance of what were fantasies.
Go back to sleep Candy-boy – and remember here is a grown up world, not the fantasy world you inhabit.
Well said
Candyman’s been at the Kool Aid again. ‘Cept it’s been switched with screen wash.
Thank you Richard for the explainer.
Perhaps you can forward it this lady who has written this disgusting article in the times in the past 24 hours.
https://www.thetimes.com/comment/columnists/article/britain-cant-afford-this-sense-of-entitlement-jzdl2l9zm
Might you?
If I thought Id make any impact, I would.
Besides, I dont bother with Trolls.
The myth is cultivated by the Telegraph and others like some cultivate roses for flower shows.
It was Thatcher who began championing neoliberal nonsense, when she claimed:
“There is no such thing as public money; there is only taxpayers’ money.”
— Margaret Thatcher (Speech to Conservative Party Conference, 14 Oct 1983)
Her comment was designed to begin the defunding of public services in order to break them, privatise them, and enable the wealthy to profit from them. Water is the best example of extracting £50+ billion from the public, resulting in the highest water charges in Europe in return for sewage pumped into our rivers.
Who else says that taxes are not required for public spending?
1944: British economist William Beveridge: “There is no financial limit to spending by the State within its own borders, as there is a financial limit, set by their resources and their credit, to spending by private citizens.”
1946: Beardsley Ruml, the Chairman of the Federal Reserve Bank of New York: “Taxes for revenue are obsolete.” While taxes might be important for other purposes [..], government doesn’t need “revenue” in order to spend.”
2020: Prof. Stephanie Kelton: “Taxes are critically important, but there’s no reason to assume the government must raise taxes whenever it wants to invest in our economy. [..] Your taxes don’t actually pay for anything”
2022: The UCL Institute for Innovation and Public Purpose writes: “the UK Government creates new money and purchasing power when it undertakes expenditure, rather than spending being financed by taxation”
2024: German economist Dirk Ehnts writes: “The new perspective also debunks as a myth the notion that “the taxpayer” finances government spending. Since the government is always creating new money as it spends, tax payments do not serve to finance it.
Sources
Berkeley, A., Ryan-Collins, J., Tye, R., Voldsgaard, A. and Wilson, N. (2022). “The self-financing state: An institutional analysis of government expenditure, revenue collection and debt issuance operations in the United Kingdom“. UCL Institute for Innovation and Public Purpose, Working Paper Series (IIPP WP 2022-08). https://www.ucl.ac.uk/bartlett/public-purpose/publications/working-papers/wp2022-08
Lord Beveridge, Full Employment In A Free Society, Publ. 1944 Bradford and Dickens. https://archive.org/details/in.ernet.dli.2015.228995/page/n3/mode/2up?q=%22financial+limit%22
Beardsley Ruml, “Taxes for Revenue Are Obsolete,” American Affairs, vol. 8, no. 1 (January 1946), pp. 35–9. https://cdn.mises.org/AA1946_VIII_1_2.pdf
Dirk Ehnts, Modern Money Theory: A Simple Guide to the Monetary System (Professional Practice in Governance and Public Organizations), 2024, Springer. https://www.amazon.co.uk/Modern-Money-Theory-Professional-Organizations/dp/3031535367/
Thanks
Sorry for the slight mis-thread – I wrote to my MP in April about why the Bank of England pays at cost to the UK government more than £20 billion a year on the Central Bank Reserve Accounts.
To her credit, she wrote to HM Treasury on my behalf and the reply from the Treasury to my question is reproduced in full as follows:
Inflation reduces real incomes, creates uncertainty, and threatens growth. Low and
stable inflation is an essential pre-requisite for economic growth and improving living
standards, which is why the independent Monetary Policy Committee at the Bank of
England is taking action to keep inflation at target sustainably in the medium-term.
The Bank of England has operational independence from the Government to carry out
its statutory responsibilities for monetary policy and financial stability. Monetary Policy
decisions, including quantitative easing (QE), are made by the independent Monetary
Policy Committee (MPC) at the Bank of England (‘the Bank’).
QE is a form of monetary policy, designed to boost the level of spending and
investment in the economy by purchasing assets to lower interest rates. Under this
policy, the Bank purchases assets, primarily UK government bonds known as gilts,
from the private sector, financing this from the creation of central bank reserves.
The Bank implements monetary policy by paying interest on reserves held at the Bank
by the banking sector. Paying interest on reserves is an important part of the
transmission of monetary policy to the real economy, which is crucial for achieving
price stability. By paying interest on reserves, it allows the Bank to control short-term
market interest rates in the expectation that these market rates transmit through to
borrowing and savings rates for firms and households, and subsequently impact the
real economy, and aim to keep inflation at the 2% target.
The Bank transferred £124bn in excess cash to HM Treasury between 2012 and
2022. Cashflows have now reversed, following the increase in interest rates and the
MPC decision to sell back its QE assets to the market. This process is called
quantitative tightening (QT).
Many central banks that undertook QE are now incurring losses, including the US
Federal Reserve and the European Central Bank. Different arrangements exist for
sharing QE-related profits and losses between central banks and national treasuries.
While this will impact how losses are recorded, ultimately, they will end up on the
books of national governments who are the central banks’ beneficial owners.
There are no plans to change the way reserves are remunerated at the Bank of
England. The government continues to support the Bank to bring inflation in line with
its target, including by managing the public finances responsibly.
I’m proud that the government is already tackling the drivers of people being out of
work and supporting people into good jobs. We’re investing an additional £26 billion in
the NHS to drive down waiting lists, making work pay with our landmark Employment
Rights Bill, and introducing the biggest reforms to employment support in a
generation, with our £240 million Get Britain Working Plan.
The Secretary of State for Work and Pensions has announced that we’re going even
further, investing £1 billion into employment support. This is one of the largest ever
investments in support to increase opportunities to work for sick and disabled people,
guaranteeing high quality, tailored support to get people on a Pathway to Work.
This will come alongside a package of reform to support people into jobs and make
the broken system fairer and more sustainable. I’d like to highlight a few of these
measures that I believe will make a significant difference to our country and people’s
life chances.
• First, we are addressing the perverse financial incentives that hold people back
from work under the current system by rebalancing the payments in Universal
Credit. This means that we are increasing the standard allowance above
inflation for the first time ever, with a £775 cash increase per year by 2029/30
for existing and new claimants, while reducing the health top up for new claims
from April 2026, alongside active support to help people back to health and
work.
• Alongside this, we will remove barriers by ensuring that going back to work in
and of itself will never lead to a reassessment. This ‘right to try’ will give people
the confidence to take on a job knowing that if it doesn’t work out, they won’t
have to start from scratch.
• In addition, we are consulting on a new unemployment insurance that will help
people quickly get back on track if they fall out of work, giving them a higher
rate of benefit.
It’s also important to point out the measures we have announced to protect those who
are most in need. We will protect existing Universal Credit claimants by holding their
health top-up steady in cash terms while they benefit from the higher standard
allowance.
Please pass on my thanks to your constituent for taking the trouble to make me aware
of these concerns.
EMMA REYNOLDS MP ECONOMIC SECRETARY TO THE TREASURY
Thanks, but that is standard Treasury gobbledygook and total nonsense. She must wonder why she is wasting her life signing stuff like this.
Treasury gobbledygook aka “technical stuff written by expert bankers entrusted by the government to implement monetary policy that I, Richard Murphy, a former accountant with zero banking experience or expertise, do not agree with, despite this being consistent across all developed countries.
Remind us which Central bank is asking you to advise them on monetary policy?
You are right, of course. Without you having offered any explanation for your expertise, or your qualification to comment, you have told me that I am terrible at what I do. I am, of course, necessarily obliged as a result to agree that is the case.
After all, that is why I am a Fellow of the Academy of Social Sciences, one of only 10 accountants to have ever been elected to that body.
It is also why I was ranked as high as seventh in the world in taxation by the International Tax Review over a period of more than 12 years, over which period they included me in their world top 50.
That is also why I was described as social media accountant of the year for five years in a row by the Institute of Chartered Accountants in England and Wales.
In addition, precisely because I am so bad, two universities have appointed me to full professorships, and a third has done so to a visiting professorship, whilst three others have appointed me as a visiting fellow.
It’s also why I have a Google Scholar research ranking that lists more than 3,400 people referencing my research work.
But let’s ignore all of that. You, without any apparent qualifications at all, say that I am completely rubbish at what I do and ask that everyone accept that you are right. So, why on earth wouldn’t we? All those others must be wrong in that case.
Two questions to follow up with Reynolds:
Q1. Are the “losses” claimed from QE real losses, or paper losses; i.e, unrealised losses that will never arise if the assets are held to maturity; which is at the discretion of BoE.
Q2. How much interest over five years would the BoE save if it operated the same “tiered reserve” system that is carried out by major central banks, including the ECB? The BoE is an outlier in refusing the orthodoxy of tiered reserves. The New Economic Foundation has estimate a saving of up to £55Bn.
It would be great if those questions could be sent back…
I did the same to my MP Liz Twist (my one time-boss). I think she must be one of Starmer’s aides as she sits immediately behind him at PMQs with a ring binder full of indexed pieces of paper, presumably in case he forgets something.
I got the identical answer. When I replied that it completely missed the point there was a deathly silence.
Thanks for saying so
This one is obviously sufficiently troublesome for them to have developed a standard reply.
Completely agree that these points are worth reiterating time and time again
Is it the case that as long as the velocity of money doesn’t change, any growth in GDP can only come about by an increase in government created miney ie absolute govt debt levels will always grow in the short term to enable GDP growth?
Basically, yes, if there are resources to be out to use – and that is critical.
Awesome
Thank you. 🙂
So the government not only acts as fund manager for the rich, they give their overlords their ‘feudal dues’ too!
‘ Bizarrely, it pays interest to those to whom it provides this service.’
It’s just completely outrageous!
No wonder they peddle lies.
Keep going Prof, daylight is a great disinfectant !
Thanks
Said it before, if we had a good state pension the argument above regarding pensions is irrelevant.
Are they running down the state pension so we all become reliant on private pensions? It’s like a mafia system no one can escape.
Re your question, yes, I think so.
What’s really annoying about state pensions is that the government usually just mentions the new state pension, which is over £11,900. They rarely talk about the one for those who are still on the old state pension, the oldest pensioners, whose pension is just over £9000.
Agreed
To be fair, that is what pension credit is for – it increases those whos pension income is under the new state pension to the level of the state pension. Of course it is not available to people who have other income that already takes them above that level.
While responding to Ian, above I decided to ask question of AI. Would consolidation of BoE and Treasury accounts lead to cancellation of QE on consolidation? The answer I received, which referred to ‘Quantitative Easing’, a BoE paper, led to this explanation of BoE gobbledygook in that paper:
“No, consolidating the Bank of England (BoE) and Treasury accounts would not cancel out QE assets due to the BoE’s independent legal status and its role as an agent of the government rather than a direct department. While the Treasury owns the BoE, it does not dictate its day-to-day operations or monetary policy decisions. The BoE’s balance sheet reflects its specific function as a central bank, and consolidation would not negate the economic impact of QE, which is to increase the money supply and lower interest rates”.
Make sense of that.
It is completely wrong.
The Whole of Government Accounts show taht they do conolidate out. ChatGPT is completly wrong on this.
What strucK me was that in AI’s interpretation of the BoE paper; their argument depends on the BoE having “independent status”, in spite of being incontrovertibly wholly owned by the Treasury; just because the Treasury chooses to say it is independent, because that is what it wants, and commands at instant discretion, even when it manifestly isn’t independent of Treasury oversight and control, at will.
Parent companies of UK corporates could not operate on that principle with their subsidiaries. That the Treasury (really, the ‘State’, ir rather proof of what I proposed elsewhere; the State operates a form of sovereign immunity – the rules do not apply, and they can make them up, on the hoof, and as they will. Incoherence is not an obstacle). And thus are we governed ……….
Hence why the WGA are right and Chat GPT is wrong.
My point was not about AI (I can manage to have AI contradicting itself, be changing the wording of the question, without changing the question), but rather – how far the BoE actually believes the AI case?
I think it does
I think the Treasury does
I think the BoE may believe it; but I think it is more accurate to say the Treasury doesn’t care, or need to care – and knows it. The Treasury knows it has sovereign immunity; it confidently acts with impunity, and with indifference to facts, logic or challenge.
Thank you. I can only reiterate the comments of others that this needs repeating over and over again and to as wide an audience as possible
I’m economically illiterate, so I’m trying to educate myself through the writings here. One thing that confuses me is why we vote. If we vote for change and the party elected can’t change anything for fear of upsetting the “markets”, why did we just vote? It would appear that we’re not voting for the people who steer the ship.
We can have change.
We have politicians who do not want to change anything. That is something quite different.
No, you are voting for a political peculiar system that is not there to serve you, but confuse you and keep you voting as you always do, or better still give up (it suits government that fewer and fewer people vote in elections, and they are giving up, by the million); politicians thrive on political inertia, but pretend otherwise.
Meanwhile what really matters in government – is the Treasury, alone; and the orthodox principles of Treasury Government are set within a very narrow framework of conditions, that apply necessarily, whoever is in power: this framework of narrowly modulated regulations (in its modern iteration), is known best by the formulae known as the ‘Fiscal Rules’.
The ‘Fiscal Rules’ and the Treasury, however require a political framework that guarantees the rigorous application of the ‘Fiscal Rules’. Thus we necessarily operate a two-party FPTP electoral system in Britain in order that political change is narrowly confined to two main political parties, permanently. A Two Party cartel that will not deviate from a commitment to a Fiscal Rule regime that only allows very limited rule adjustment whichever Party is in power; General Elections (GEs) always oscillate between only two parties – Labour or Conservative (because of FPTP, its structure and the ownership and political purposes of the media, led politically by the print press, that nobody actually reads, but forms public opinion) – but whichever Party you vote for, and whichever wins a GE, I guarantee you will find you are operating within broadly the same, or closely similar, ‘Fiscal Rules’, no matter who you vote for.
This political system, and this outcome is quite deliberate, it is built in; because it suits the two parties, and secures the Treasury’s permanent hegemony. But because the Fiscal Rules only change within very narrow limits, whichever ‘Party’ wins a GE, this means there are not really two parties (that is an illusion); there is only one Party (different personnel, different political spin but curiously, always the same bad outcomes); and there is only one unchanging Government doing almost nothing that materially changes the lot of most people’s lives, especially the lower income quartiles; effectively Government operated by a Single Transferable Party, that appears binary, and uses different language, by different politicians in elections, to provide the illusion that there is an alternative being offered the public (there isn’t); but one largely unchanging Government which will always be in power, will Govern in exactly the same unchanging way and follow, broadly but rigorously in application the same Fiscal Rules.
The final Irony is that all the Fiscal Rule effort by Government has only one objective – to reduce the National Debt. The irony is, since 2010 when the Conservatives said that the Debt, after the financial crash was totally unsustainable: it was <£1Trn. We have had 15 years of austerity allegedly to reduce it, and still have austerity, and a cost of living crisis; and the National Debt in 2025? £2.7Trn. The fiscal Rules therefore demonstrably fail to deliver what is promised; and fails catastrophically. Every single time.
QED.
Austerity, no growth for fifteen years, all to reduce the Debt, and the National Debt has increased by almost 170%. That is catastrophic failure, in anyone's language. But it will go on, because that is how the whole system is designed. The Fiscal Rules are not there to work, or succeed; they are there to keep a politically inert public looking at the wrong problems, fixing nothing, and keeping the Single Transferable Party permanently in power.
The problem is less the Debt than the dysfunctional Government system, inadequate politicians, the Single Transferable Party itself, a sclerotic Government administration, an antiquated culture of government and an FPTP system transparently unfit for the 21st century.
Will that do, as a rough overview?
Thanks
It inspired this morning’s poster
BBC, Guardian and the rest only too quick to suggest the markets are in ultimate (or even in day to day) control.
But rarely remind us that they are only in control until they need bailing out with ‘our’ money. And now the goverment is dispensing with the post -2008 controls which were supposed to make sure they didnt risk the global financial system again.
Agreed
Shouldnt a “senior economics correspondent” be able to write something a bit more challenging than this drivel?
https://www.theguardian.com/business/2025/jul/04/how-to-balance-the-uk-books-six-options-open-to-rachel-reeves
Almost every conclusion Richard Partington draws is based on the mythical household analogy, along with a topping of “the markets won’t bear it”.
Does he get PAID to write such wimpish commentary, making no challenge to neoliberal orthodoxy? How do they get away with it?
That is very low 2:2 at best.
This is a brilliant article by Prem Sikka, which probably does not fit here, but shows ordinary people like me what the government does with the money it controls.
It makes me so angry.
https://leftfootforward.org/2025/06/corporate-vs-human-welfare-the-story-of-drax/
Thanks
[…] done so, I reposted yesterday's post on why the government is not dependent on financial markets on Twitter, in full. The entire blog is there, in one post. I have never done this […]
Co-Pilot summary… ‘Summarise and bullet in easy terms in 250 words’
The UK Government, Financial Markets, and Monetary Policy: A Simple Summary
• The UK creates its own money: Unlike households, the UK government does not rely on borrowing from markets to spend, since it is the issuer of its own currency.
• Bond markets don’t limit government spending: Even if no one bought government bonds (“gilts”), the government could still spend. Tools like quantitative easing show there’s no fixed link between selling bonds and spending capacity.
• The central bank backs the system: The Bank of England is always the ultimate buyer (“buyer of last resort”). If markets are unstable, the bank steps in to stabilise things, proving markets rely on the government, not the other way round.
• Interest rates are chosen, not dictated by markets: Despite what is often claimed, the Bank of England sets the main interest rate and can control longer-term rates by buying or selling bonds. The so-called “market” rates are ultimately a policy decision.
• Markets influence ideology, not government finances: Politicians often say “the markets demand it” to justify policies like austerity. In reality, markets operate according to the framework set by the government and the Bank of England — they do not control the government.
• The root issue is political: The real power is with elected officials and their choices, not the markets. But many politicians use market demands as an excuse to pursue their preferred economic ideology, often at public expense.
• Conclusion: The UK government is not financially constrained by markets. It sets the rules, creates the money, and ultimately controls the financial system — not the financial markets.
Thanks
[…] By Richard Murphy, Professor of Accounting Practice at Sheffield University Management School and a director of the Corporate Accountability Network. Originally published at Funding the Future. […]