As Sky News has reported:
Rachel Reeves has told Sky News she is looking at both tax rises and spending cuts in the budget, in her first interview since being briefed on the scale of the fiscal black hole she faces.
"Of course, we're looking at tax and spending as well," the chancellor said when asked how she would deal with the country's economic challenges in her 26 November statement.
Both of these are admissions.
And both are, of course, unnecessary. There is no blackhole in Reeves' budget. Instead, she might break her own utterly meaningless fiscal rule. As a result, it is likely that she will:
- Reduce the spending power of people with average and lower incomes, which will shrink the economy.
- Cut government spending, which will shrink the economy.
- Reduce the impact of multiplier effects, which will shrink the economy.
- Leave the impacts of wealth and savings in the economy almost untouched, meaning she will not address the means available to grow the economy.
The sense that Labour's sole goal is to make everything as bad as possible so that Reform can deliver a home run in the next election grows by the day.
What is clear is that there is, at present, nothing that Rachel Reeves is planning that might in any way address the real black holes we have in and surrounding our economy, including issues such as:
- Lower income spending power
- Child poverty
- Inequality
- Job creation in essential sectors
- Lack of investment in:
- Housing
- Green energy
- Flood defences
- Hospitals and schools that are falling down
- Sustainability
The consequence? I am anticipating dismal failure and worst outcomes.
It takes staggering incompetence to get as much wrong as Reeves is doing as Chancellor, but you have to give her full marks for effort in her endeavours: she really is doing her best to fail.
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It’s the main line to economic failure, familiar from years of neoliberal economics. RR can’t see the buffers at the terminus, let alone any alternative route.
Shovel all the coal in, gotta keep it rollin’ , never understanding that MMT…
🙂
This needs considering alongside Reform UK Ltd’s abandonment of their 2024 entire economic policy leaving them policy-free, to promise anything, criticise anything anyone else says, and blame immigration for everything, and giving Fa***e a letout from awkward economic questions (not that journalists ever ask him any).
I think every challenge to Reeves has to include a blast at Farage at the same time exposing his hypocrisy, his incompetence, his corrupt attachments, and his lack of any coherent economic plan.
My main concern is that if/when Reform form a government (which at this moment seems almost inevitable), through sheer incompetence they will enact the same sort of budget that Liz Truss attempted, and through sheer pigheadedness successfully push it through.
When they realise that the sky doesn’t fall despite the massive budget deficit blowout, they will have stumbled upon elements of MMT by chance and be hailed as economic geniuses. They will of course take completely the wrong lessons, but they might buy themselves enough time and goodwill to do some terrible things.
Mr Far-right-rage is an economic see-saw and sees weakness. Swings from tax cuts above else one week to sound budget discipline the next. No clear strategy, no strategy at all. Walk right on by.
Does ‘Rachel from accounts’ actually know that this fiscal rule is meaningless and made up? Or does she actually think it is a genuine economic rule? If it’s the former then she is being misleading (maybe lying to use a stronger word). If it’s the latter then she is incompetent.
Neither is a good look.
And to mention this again, why is it when tough decisions have to be made that it is those who are in the worse position to withstand those tough decisions who are made to do so?
Craig
P.S. GOGS (Grumpy Old Git Syndrome) kicking in early today 🙂
Love the GOGS acronym. We must form a new pressure group!
As a 68 year old GOG it seems to me that Rachel Reeves is just repeating the same tired and false message that we have had imposed on us each and every year since 1979 by the political class. It’s time to change this broken record. On my travels yesterday I reflected on a simple point – the likes of Rachel Reeves like to boast that we are the sixth richest economy in the world so how come we cannot find the money to fill in our potholes? I say this a one who had to fork out £200 for a new spring on one of my rear wheels.
Why is this being allowed to happen. Like you say giving reform a clear home run. Even Martin this morning on GMB indicated that the rate of inflation is not eased by the knowledge that next year it will fall. He gave two reasons one that its because they are making a forecast based on assumptions. Secondly, that drop in inflation will be added to the 3.4 this year. Not that prices will fall but will increase.
Could it be that like Trump (now) & Putin (2022), Reeves is being fed info that fits with her orthodoxy? (prejudices/muscle twitch). What passes for the UK’s economic system (as defined in the environs of wezzie) does what it does independent of what party is in power (e.g. austerity 2010 – 2015 under LyingDems & Tories). I rather doubt that the system can be reformed and as per yesterdays blog on flooding – I rather doubt it is capable of reform even when faced with e.g. most of London’s South bank underwater or Deform winning the next election. “The System” is beyond reform & attempts to reform it will be met with resistance. The politicos are not the only problem (indeed the minor one), it is the UKs FinMin, BoE & the penumbra of bank parasites that surround these three “nodes”. Let’s say you have a reforming gov? FinMIn & BoE & banks gang up and slow/stop reform. I am not sure what the solution is, but the problem looks pretty intractable – given the line up of players.
A paradigm shift is coming, and overdue. In science, this happens when problems with the old system of ideas build up, and suddenly many see that a different organisation of ideas is possible and fits the evidence better. Think of the change from static continents to plate tectonics, from “coming Ice Age” to global warming, from mechanistic ideas of organisms to system view. And, of course, changes to quantum mechanics, changes towards relativistic thinking. This change is coming to economic thinking. We should get from arguments about country/household, to “Do you still think THAT? So out of date, out of touch.” Many prefer to be fashionable, rather than look at evidence.
Smart thinking on the ‘old hat’ argument and I hope you’re right on timing of paradigm shift.
Surely Reform’s next manifesto will include a bonfire of the “establishment” and the civil service.
Trump hears what he wants because he appoints people to tell him that and just lambasts those who don’t agree, such as Jerome Powell at the Federal Reserve, where Trump also “fired” governor Lisa Cook. Trump doesn’t like the Fed’s failure to cut interest rates in the way he thinks they should (putting it mildly) and if it were up to him he’d presumably dictate every decision.
Farage will follow the same playbook and will presumably dispense with the “independence” of the BoE so that he can call all the shots. In the absence of a constituion like the US, he’d be free to do that, and critics be damned…
Apparently Reeves has said the UK is a “beacon of economic stability”. If the Chancellor said it surely it must be true?
She should know, shouldn’t she?
🙂
By ‘stability’ – that is coded language / virtue signalling to the markets for ‘I’m not changing anything and keeping the money rolling in for vulture capitalism like the Tories did’.
And as we know in quantum terms courtesy of the Murphy household, stability like this is death.
What does this say about thinking within HM Treasury, who are presumably among RR’s advisers?
This latest HMT Department Overview dropped this morning:
https://www.nao.org.uk/overviews/hm-treasury-2024-25/
I will read – but it looks like a whitewash to me at first glance
I saw on another blog (sorry can’t remember the link now), someone saying that since we know that Commercial Banks create new money each time they make a loan, at the cost of just pressing a few keys on a computer, why are they allowed to charge interest?
Even if the person taking a loan defaults, there is not really a cost to the Bank – indeed a little more money exists in the economy as a whole over the long term, since it will not have been removed by paying back the loan.
There is a little admin cost – why shouldn’t banks making loans just be allowed at best, to only charge a flat one-off fee?
Because by convention we do
Massess of it
Much more than the bad debt risk.
Why? Because the wealthy want it that way?
No. When a bank lends it automatically creates a deposit (from said lender). Once the lender goes and buys something with that money then the bank needs to borrow – and the rate it has to pay to borrow is a “market rate” that will be closely linked to the base rate. If the lender defaults then the bank loses the money as it is still obliged to repay the depositor.
The “fair” rate should be Base Rate plus a some extra to cover the risk of default, admin and other costs (eg meeting LCR and NSFR etc.).
Now, we can quibble about what base Rate should be; we can argue about what “extra” should be charged…. but the idea that no interest should be charged is nonsense.
But, let’s just look in aggregate here – who do they borrow from?
Each other?
Who else?
The BoE?
Or are you saying depositors?
You argument seems to come down to we pay interest because bankers want us to. So the right question remains, why do we need to, which is not the same thing.
Of course, in aggregate, it is a closed system – except for government transactions. So, in aggregate, banks are lenders to the BoE (and remunerated at the Base Rate).
Individual banks will borrow from depositors (individuals/institutions, at call and term), other banks (rarely these days) and the BoE (again, very rarely these days)
The BoE can fix the Base Rate… and they do – all other rates follow from this. Banks pay and receive interest at rates closely connected to it.
Now, the government could instruct the BoE to cut rates to zero. Indeed, not paying interest on any Reserves would do the same thing. Banks would then lend at rates close to zero……. but it would not end well. Sterling would collapse for a start, speculators would borrow to buy real assets and inflation would follow.
Now, you know that I think rates are too high but zero? Definitely not.
So, we would need credit controls to limit borrowing.
What you haven’t explained, Clive, is why we need to suffer this rent extraction. And let’s be clear, a fall in the value of sterling would mist likely be good news for the real economy, ending the finance curse of the City of London . But I would argue for an orderly descent.
My original comment was to challenge the idea that banks don’t need to charge interest because they create the money out of thin air and that defaults were not a problem for banks. That idea is wrong.
Are current rates too high? Yes, you know I think that – I am no fan of rent extraction either.
But we do need Central banks and we do need them to control the supply and price of money.
A base Rate that averages the inflation rate over time makes sense and would not be excessively “rent seeking”.
Real zero then.
A position I have long said I would be happy with, or very slightly undershoot.
Dusting off my legendary PhD in the Bleeding Obvious if Rachel from Accounts doesn’t spend a certain amount next year on what I would loosely call ‘the public estate’ roads, schools, hospitals etc then they will continue to deteriorate as there won’t be enough money to maintain them
Simples
But I bet she won’t
You need to be advising her
No one else is pointing out the bleedin’ obvious
I shan’t add any more on Reeves (she’s a lost cause). But I will add some points which are going to have a very negative impact on the likelihood that Reform get anywhere at the next general election, because they concern Fartrage and co who have fully aligning themselves with: Trumpism, which is about to explode – big time.
For example, the impact of tariffs on Soybean farmers: who are about to be wiped out because their biggest market – China – has bought NO soybeans this year. To make matters even worse, yesterday Trump hosted the mad libertarian, authoritarian who now runs Argentina, and the US “lent” him $20 billion (he’d already had a similar size loan from the IMF) to (try) to stop the Argentinian economy from collapsing, while at the same time Argentina (and Brazil) took over supplying soybeans to China (that previously came from the US). This HAS NOT escaped Republican supporting US farmers (see Chris Hayes, the top segment: https://www.msnbc.com/all)
Additionally, an analysis of the impact of tariffs published on Monday (by a “pro” Trump US bank) shows that US importers and consumer are paying 80%+ of the cost of tariffs. This includes John Deere tractors, who expect to “lose” $600 million in costs, and Ford, who are on the hook for a similar amount. So much for the tariff policy, which now has nowhere to go, except to keep lying that black is white when everyone can see – and, worse still for Trump – experience, the truth.
Second, this weekend sees “No Kings” rallies all across the US, with crowds expected to exceed those back in June (5 million) by a sizeable margin. Meanwhile, Josh Rogan (a Trumpist blooger with a huge following), and Marjorie Taylor Greene, have both spoken out publicly against what ICE is doing. So, the MAGA dam on dissent has been breached. See this report on MSNBC by Nicole Wallace https://www.msnbc.com/deadline-white-house
Finally, yesterday Politico published emails between “Young Republicans”, at least one of which is in Trump’s government, and numerous others at state level, that demonstrate what emerges when people on the right are enabled to voice their true opinions on many topics, but particularly race and religion: they are racist and anti-semitic to the core.
See here for the full story: https://www.msnbc.com/the-last-word/watch/lawrence-trump-admin-staffer-reportedly-in-an-i-love-hitler-chat-hasn-t-been-fired-by-trump-yet-249911365730
Yiu guve me hopoe, Ivan.
I mentioned the soya bean issue here some time ago.
The reality of this is going to hit Trump very hard. The MidWest will not forget.
I was going to conclude (but ran out of words) by saying the Trump(ist) project is doomed, I’m pretty sure. And that will reflect very badly on Farage and Reform.
However, I’ve also absolutely no doubt that what’s going on in the US is not going to end at all well. As we’ve agreed in the past, there’s no way Trump and his minions can allow the mid terms to take place in a free and fair way. They’ll lose the House, and most likely the Senate too, and so regardless of Trump’s “immunity”, my understanding is he can still be impeached, as will others in his cabinet. And the House will also take back control of government expenditure, and so on.
To avoid this, my thinking is that Trump will invoke the Insurrection Act (I know many in the US think this, including Governor J.B. Pritzker), and then try to use the military to pressure/scare voters in Democrat areas. If this fails, it’s already become DoJ policy to call in all election results for “checking and validating”, which basically means, rigging. And there’s also plenty of time for more gerrymandering/redistricting as has happened in Texas.
But in the meantime – and despite claims to the contrary – federal expenditure is pretty much out of control, which will mean the deficit (which, as here, as treated as a matter of life and death) will have ballooned, with very little to show for it, apart from worse public services – which hit red states particularly hard.
The response from Trump is going to be to double down on the authoritarian turn. More and worse of what we already see. And more and more obvious, lies. more utterly unhinged statements from Trump. And so on.
So what are the majority US citizens willing to do about this ever worsening situation? Nobody knows. But I think we can say with some certainty that to the rest of the world watching the destruction of US democracy it won’t in any way want to vote for a political party, or persons, who are “Trumpists”. In short, even if Trump succeeds in his project to turn the US into a totalitarian state, that’s not going to be an attractive “look” to promote for any political party in a democracy anywhere else.
Much to agree with
Thanks for the link Mr Horrocks (to the Politico commentary). The discussion amongst Young Republicans (ref “I love Hitler”) reflects a growing (?) concern over the influence of Israel on US politics. Charles Kirk before he was assasinated had expressed just such a concern. On the “other side of the fence” people such as Chomsky have claimed that the stance of the USA vis-a-vis Israel was mostly related to weapon sales (i.e. it was US weapons producers that were the main influence regarding the US political stance towards Israel). It is possible that that younger Republicans are (increasingly) unhappy with the (political) influence (power) that Israel appears to wield. This could be used to attack Democrats, who might be positioned (by Republicans) as being overly influenced by Israel (ref Harris). Be interesting to see where this goes.
For the last 45 years we have had successive governments of whatever political hue pursue policies of cutting tax for some, increasing taxes on the majority, deregulation and slashing public spending and investment (apart from one or two political vanity projects or ill judged military escapades). And each year productivity shrinks and the public finances supposedly suffer resulting in yet another round of spending cuts and tax rises. Now Rachel from Accounts wants to implement more of the same in her pursuit of the economic unicorn called “growth”. Isn’t the definition of insanity the repeated pursuit of the same experiment in the hope that this time around the outcome will be different?
It has become so desperate that Rachel from Accounts has had to state the bleeding obvious I.e. that part of the UK’s problem is the result of Brexit. Perhaps we can now have a full and honest debate on how the political class dragged us into this mess and also to shame those behind it e.g. Johnson, Gove and the idiots who sucked up to them.
None of this will, however, save neoliberalism. It’s demise is long overdue.
Why not just start talks about going back?
Wouldn’t that be the obvious thing to do?
I am not sure that the EU will want to open negotiations for the UK to rejoin
I understand that they would be looking for at least 60 per cent support for rejoining for several years
While Farage and his ilk are active that’s unlikely
Noted
Richard, are you suggesting that we go back to a neoliberal ideal with regards to the EU?
Personally I believe we can achieve so much more, however we are stuck in the same disenfranchised being.
The bureaucracy is evident and it’s failing as a democratic state, as an autocratic minefield in its structure.
Is this what Europe really wants?
Yes we can ask such questions and there is a lot to answer.
Maybe we start at the beginning in those answers.
The EU is going to have to change
We could change it
It’s still difficult to get my head around this talk of a ‘home run’ for Reform / F…ge.
The now proven charge of Russian bribery of F…ge’s close colleague Nathan Gill, and the multiple examples of pro-Russian speeches by Farage, and apparent Russian funding of Brexit campaign, and the funding of Reform by murky right wing US billionaires , and Johnson’s secret meetings with Russian oligarchs while PM – seems to amount to treason. Treason would mean Reform should be banned?
Is it conspiracy theory to think the ridiculous blanket coverage of the ‘China non spy trial’ is a convenient diversion ?
Dear Richard,
Re the black holes of despair
I don’t understand.
You have named all the issues that need to be addressed
we can all see them .
we all know there there.
Why can’t she?
It does not suit her personal agenda
I worry much, much more about Reeves’s and Labour’s errors than I do about Farage. Her blindness to basic economics has been well documented here and she shows no signs of seeing sense. Perhaps she’s just been nobbled ( i.e. taking a dive or a bribe to further her own career).
Farage is the ultimate man of straw who couldn’t run a gov of collectively responsible MPs any more than his buddy, Trump, who is making such a mess of the US economy. This mess has also been well documented here.
Surely, the endgame for these wretched people is gradually approaching. Sometimes they can end abruptly with no warning.
Your quantum posts are not always my first choice, but when I DO get to them they stimulate lateral thinking. So when I read about photons and then this Reeves/failure post, off I went at a tangent.
As I get older, and less active I need to eat less than 40 years ago when I was chasing cows across Salisbury Plain Army ranges in January. In my dotage, “Calories in” need to equal “calories out” otherwise new trousers become necessary, or else Mr Streeting’s Ozempic…
But with children it is different. They need MORE going in, than is coming out (in energy terms), and if we gave a child the same amount of calories/protein as I eat, on a bodyweight basis, that child would lose weight and become malnourished, possibly eventually dying or at least suffering some irreversible damage, especially in their brain.
(to see this happening in real time, visit Gaza)
Why? Because children need extra input to GROW. When I was working out animal diets there was “maintenance” plus the extra required for growth or pregnancy or milk or beef production.
Rachel Reeves wants her economy to GROW, but the useless Thatcherite “household” diet sheet she is using (with fiscal rules, tax rises and spending cuts all based on the household analogy) is “maintenance” only. (In fact its worse than that, because unlike adult animals, the economy needs maintenance+, or else it gets ill and goes into recession, but that’s the MMT bit I haven’t worked out how to neatly fit into my animal nutrition model (from the ’80s when I was working out pregnant sheep rations on a DOS green screen computer).
Back in the old days, I’d have reported her for a 1911 Protection of Animals offence or, if I was in a good mood, the lesser Agriculture Miscellaneous Provisions Order 1963, and prepared a Section 9 witness statement for the magistrates court, alleging that she caused “unnecessary suffering”. We had a very high conviction rate.
Does that analogy float anyone’s boat, and can I improve it?
The problem is with the calories in = calories out model. Calories are not the issue. This assumes we are closed systems with no other energy source. We have. We are open systems. Even the world is, and to prevent decay life requires we emit more energy than we take in. That is how we keep our energy low and survive. Even the Earth emits more energy to the Sun than it receives. The solar system is entropic. But the Earth isn’t because of life itself. And that blows the whole calorie based model apart. And, neoliberalism, which is akin to it, as well. Sorry…..this is mind bending stuff.
understand about open systems, and I know that what goes in is not just calories per os ( protein, minerals, vitamins, parasites, viruses, bactera, oxygen, environmental energy if it exceeds 37C, plus solar energy if we are in a sunny environment, magnetic energy, cosmic rays, neutrinos, x-rays etc) and what comes out includes dead cells, shed hair, heat, carbon dioxide, methane, and bright ideas – the latter not an issue with sheep, (apologies to anyone eating while reading) and even as we grow, bits of us are dying and shedding (esp skin & gut lining even in babies) but I think you lost me/?bent my mind with the sentence “Even the world is, and to prevent decay life requires we emit more energy than we take in” which seems to suggest the opposite of what I understand to happen when we die. Preventing decay surely requires the intake and then utilisation of energy, to stop us decaying, which is our natural state (danger -theological branch line starts here). Some of that gets built into replacement tissue, from mitochondria, ribosomes to acid-threatened stomach lining, some expended as heat, the maths is horribly complicated to account for it all. When that stops (ie: death, of either one cell or gradually, the whole organism) the tissues begin to consume themselves, the body loses heat and the living cells turn into less complex lifeless (but not unenergetic materials).
I think my analogy is maybe more newtonian than quantum but that’s biology and omnibuses for you – biology and omnibus conversations are much more Newtonian (at least Dawkins is!).
At school my biology teachers taught evolution as a system that worked by going from simple to complex, and I always had a problem with the 2nd law of thermodynamics that told me about entropy increasing unless there was external input, which then requied an “energy source of the gaps” to replace theism”s “God of the gaps” and it all got a bit mind bending once you left our own solar system. (No, I’m not a literal Creationist but I don’t buy Dawkins either).
As you say, mind-bending.
But we agree, any sheep farm using the Reeves Ration is “DOOMED, I SAY, DOOMED, Capt. Mainwaring!”?
You’re absolutely right to say this is mind-bending territory. The problem, I think, comes down to direction and perspective.
You’re quite right that to prevent decay a living system must take in usable energy and matter — that’s what metabolism is for. But the key word in my suggestion was “emit.” The paradox of negentropy (negative entropy) is that living systems maintain internal order precisely by exporting disorder to their surroundings.
Life is not a closed system. We sustain our internal order — the improbable persistence of complex molecules and organised cells — only by increasing disorder elsewhere. Every heartbeat, every thought, every act of digestion increases the entropy of the wider world. To stay alive, we must continuously transform concentrated, low-entropy energy (like glucose or sunlight) into diffuse, high-entropy waste (heat, CO₂, urea, etc.).
That’s what I meant by saying that to prevent decay life requires we emit more energy than we take in. The surplus is not useful energy, but dispersed energy — the cost of remaining organised. Death is simply the moment when that balancing act stops: when no further export of disorder is possible, and internal order dissolves into the universal drift toward equilibrium.
You’re also quite right that Dawkins remains stubbornly Newtonian — he has little time for the kind of open-system, energy-flow thinking that Schrödinger hinted at when he coined negentropy as the essence of life. I suspect economics has the same problem. It keeps pretending to be a closed system of perfect balance, when in reality survival — whether biological or economic — depends on sustaining ordered complexity by managing the constant export of disorder into the wider environment.
And yes — on your final point — any sheep farm running on the Reeves Ration really would be doomed!
She is a Bank of England would be banker out of her depth.
Everything she is doing is serving banking interests.
Sound money implies higher interest rates, restricting the money supply, cutting spending for public services, keeping a lid on working people’s wages and increasing profits.
She is planning on being promoted either upwards or outwards for her services.There is always a market for ex-chancellors.
What is surprising is how the Labour Party gains from this.
Ever since Ramsay McDonald Labour has served establishment interests but the establishment is failing.
At the moment Labour is likely to go down with it.
Richard, loving the videos and this blog. Many thanks. Hope you can try explain something for me.
I think I’m understanding (in principle at least) MMT. We (the UK) are ‘doing’ MMT. Create the money we need through government spending, destroy it via tax. I have to presume Reeves understands it too, given her position.
We’re told tax rises are coming this budget. The narrative we’re given is so we can pay for things and plug black holes and stuff. MMT says tax does not fund government spending. So why is Reeves pursuing this politically high-tariff move?
In other words, through an MMT lens what is it that is telling her to raise taxes? It must be something?
I get that the public-at-large are largely ignorant of how government finances “really works”. I get that media etc, even the political parties themselves use the household budget analogy to suit their purposes.
But Reeves and her department know how it works.. so why would they take the political hit of raising taxes?
Search me. Ask them.
Okay – not like I can just pick up the phone to Rach and ask her. I would (and still might) ask my (Lab) MP but I really wouldn’t expect a real answer on a question like this.
I was asking you since you live and breath this stuff. I’m interested in what MMT tells us about why Reeves is doing this.
Different question then: Is my question sensible and cogent?
Your question is sensible and cogent.
MMT can’t answer your qyestion.
There is no knonw answer to your question.
where did my comment go?
I moderate all comments.
And I was asleep.
Thanks, yes I know you do. Just my comment went from “awaiting moderation” to disappeared! I haughtily assumed it had been summarily deleted! apols.
No….but I need sleep!