The unfolding economic disaster that is Andy Burnham's new government continues to expose the already failed logic in its political thinking this morning.
As The Guardian has reported:
Single bus fares across England will be capped at £2 from January, the prime minister, Andy Burnham, has announced.
I welcome that. It is positive and necessary, although some investment in rural bus services, in particular, might make it much more useful.
What worries me is in the paragraphs that follow:
The measure, which will apply across England except London, is backed by £454m of funding, including money to allow devolved governments to take similar action.
About £400m of that funding will come from switching investment in international climate finance to loans, with the rest from savings in the Department for Energy Security and Net Zero budget.
This is, yet again, the Treasury view in action. Instead of asking whether the policy will make the economy function better, ministers have immediately framed it in terms of where they have “found the money”. That is the wrong question.
As a matter of fact, the UK government does not need to "find" £454 million before it can cap bus fares. Parliament authorises spending, the Treasury instructs the Bank of England to make the payments, and the money is created. That is the entirety of the funding process. The relevant questions around this issue are not financial. They are whether the buses, drivers, maintenance facilities and administrative capacity exist to deliver the service, and whether the resulting demand would create inflationary pressure. Those are the real constraints on government spending, but none of those appears to have entered the discussion.
Instead, ministers have chosen to present cheaper bus travel as something that can only happen if something else is sacrificed. That reinforces the entirely false belief that government finances resemble a household budget. It is precisely the narrative Labour claimed it wanted to escape. Instead, the household analogy is alive and well and living in Numbers 10 and 11 Downing Street.
The political consequences are very unfortunate. Instead of celebrating cheaper public transport as an unambiguously good policy, the government has invited supporters of climate finance and clean energy investment to see themselves as the losers. Politics becomes a competition between worthwhile causes when government should be asking how it can deploy society's resources to achieve several worthwhile objectives simultaneously, when there is no economic necessity that requires this trade-off.
Bus subsidies, climate investment (whether here or overseas) and energy security all have one thing in common. They expand the productive capacity and resilience of the economy. Better transport improves labour mobility and access to jobs. Climate investment reduces future damage and protects livelihoods. Investment in energy security reduces dependence on volatile fossil fuel markets. These are complementary investments, not competing claims on a mythical pot of money.
However, the Treasury's accounting framework cannot see that because it reduces every decision to balancing financial numbers instead of asking how best to use the nation's people, skills, technology and natural resources.
But there is another problem that deserves much greater attention. The government says it will replace international climate grants with loans to fund these cuts to bus fares. That immediately raises questions, all inspired by the failed Washington Consensus that demonstrated how disastrous international loan finance for development can be.
Will those loans be denominated in sterling, in US dollars, or in the local currencies of the countries receiving them? If they are not denominated in local currency, the borrowing countries will bear exchange-rate risks over which the countries to whom funds are loaned will have no control. A depreciation of their currency could dramatically increase the real burden of repayment, even if they have managed their own economies well.
And what interest rate will these loans carry? Will they be genuinely concessional loans, with interest rates close to zero and repayment terms reflecting the long-term nature of climate investment? Or will they be commercial loans that simply increase the debt burdens of countries already struggling to finance adaptation to climate change?
These are not technical details. They go to the heart of whether this is climate assistance or simply another financial transaction.
The government appears not to have noticed that it is in danger of recreating many of the conditions associated with the Washington Consensus (follow the link for the glossary entry on this issue, which describes all its failings).
For decades, developing countries were encouraged, and often required, to borrow in foreign currencies, liberalise their economies, privatise public assets and pursue fiscal austerity in order to satisfy international lenders. The results were frequently disastrous:
- Exchange-rate movements increased debt burdens overnight.
- Rising interest rates made repayment more difficult.
- Public investment was cut.
- Growth slowed.
- Poverty increased.
- Many countries spent years trapped in debt crises from which they struggled to escape.
Surely we have learnt something from that experience? Are we to repeat it now when climate finance exists because the richest countries have contributed disproportionately to climate change while many poorer countries face its greatest consequences? Why should support for dealing with that injustice become another source of indebtedness?
If these loans are to avoid repeating the mistakes of the past, they should, wherever possible, be denominated in local currencies, carry very low interest rates, and have repayment terms designed to support development rather than maximise financial returns. If they do not, ministers need to explain why they believe the outcome will be any different from that produced by the Washington Consensus.
There is a depressing irony here. At home, the government remains trapped by the Treasury fiction that every new policy must be paid for by cutting another. Abroad, it appears willing to revive one of the most discredited models of international development finance of the last half century, and neither approach starts from the real question.
What this government should be asking is how available resources can best be used to create a more prosperous, more resilient and more sustainable society, here and across the planet. Instead, it obviously believes money is the scarce resource, when it is not. Ideas are.
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This does rather undermine the role of devolved authorities in England.
Kim McGuinness (North East) has capped bus fares at £2.50 and Ben Houchen (Teesside) has left the £3 cap in place presumably thinking he could use the funding better elsewhere. That might not be true but he can be voted out by the electors of Teesside at the next election.
A long comes Andy Burnham PM saying he will devolve more power to the regions and in fact he’s just centralised the decision on this one and taken one of their powers away. What’s the word for someone who says local democracy and devolution but then supports acts to centralise? Kartoffelism perhaps.
Our bus service was decimated over a year ago. It’s now so poor that no one with an alternative would use it and a retired friend who previously used it had to buy a car to reliably get to her disabled daughters in under 2 hours. I have no choice but to drive, walking and cycling are not safe options.
Labour under Kier Starmer striped Devon of it’s rural premium and last week announced a local government reorganisation that wholly benefits the urban areas and leaves the poorer rural areas in a massive poorly funded authority that will result in an even greater urban/rural divide. No one seems to recognise that rural does not always equal rich and that the South West contains significant poverty and deprivation. It’s good to actually hear the cost of living mentioned, but local government reorganisation and devolution will only work if done properly with decisions made by people who understand local issues.
Much to agree with
I recommend an e-bike for Devon hills. Since the highway code changes in 2022 establishing a principle of protecting more vulnerable road users, I have noticed a lot more drivers cutting cyclists some slack, holding back more, giving more room when passing. But hills are a struggle on a conventional bike so don’t be afraid to press the cheat switch and get battery assistance.
There are still risks to cycling but many an article on cycling fora says that they are outweighed by the healthy benefits.
Are the (not so very) “great and good” really unaware of the U K shortening of healthy life expectancy by some 2 years since the 2010 introduction of Austerity?
With the Treasury’s obsession with numbers instead of prosocial outcomes, why have its members not publicised the financial costs of this cruelty/stupidity?
Thanks for this Richard – was hoping you would bring this up after hearing Nick Robinsons unusually robust handling of a Tory spokesperson this morning – accusing them of ‘years of over spending and taxing’. Not ‘austerity’. This in context of whether or not Burnham’s reduced VAT on energy was or was not ‘fully funded’ . They just love that phrase. ‘Everything now has to be fully funded'<p>
The Big Brother Broadcasting Corporation has really got the household analogy between its teeth and is intent on running with it.<p>
All the BBC’s invited politicians, and ‘experts’ just intone -‘ it has to be taxed or spending has to be cut, or borrowing has to increase’. That is simply a lie. But they know damn well the more they repeat it the more it will believed.<p>
There are very many economists – yourself included, who would expose the lie, but they will get no air time .<p>
If that isn’t brutal censorship, if that isn’t 1984, what is?
A statement of the Obvious:
Since Cameron became PM all those years ago, the economic policies have followed a fixed set of ideas, neoliberal ideas. Irrespective of who has been Chancellor and PM, the delivery of change to meet the needs of the British people has been woefully inadequate. The time has come to recognise that those neoliberal ideas are at the root of what is wrong with the UK economy. Better outcomes are possible but not under the aegis of neoliberalism.
Thus, there is a need for change to different ideas that go against those failed nostrums. To that end, the Bank Of England will return to the Treasury; the OBR will be reabsorbed into the Treasury, thus making the Treasury fully responsible for all fiscal and monetary decisions. This means that, via Parliament, the Chancellor will be fully answerable for the direction and performance of the economy. The voting public will be able to hold their MP to account.
It is also clear that the limits of action imposed by neoliberalism need to be removed and Inflation should be the target of government fiscal and monetary policy. It is important to realise that worldwide inflation cannot be controlled solely by the UK. Price rises caused by worldwide issues will affect the UK population. Consequently, foreign policy and alignments will need to be prioritised to minimise imported inflation.
As a fully sovereign government issuing its own currency, all this is possible and needed to achieve the essential change the population demands.
Richard,
You need to grab Jeremy Vine, tie him to a chair, and banish the ‘there is no money’ or ‘how are you going to pay for it’ from his mind. Burnham will not be able to do anything meaning full with all that negativity blowing about.
I would have to be invited to do so.
I doubt Jeremy Vine would be able to understand. How can we pay for it has been his mantra for so long.
This is fiscal policy as rummaging around the back of the sofa for a few quid.
It is absolutely pathetic.
So we cap bus fares by turning climate grants for the global south into higher DEBTS for the poorest. I saw the news and wondered if you would comment.
Jubilee 2000/Cap The Debt etc. is quarter of a century away. It is indeed just book-keeping to Burnham/Healey.
We have our strong fiat sterling, the central bank and our sovereignty. The global south is burdened with OUR overseas debt, OUR wars and OUR climate catastrohe. So we load them with MORE foreign debt so we can keep our nonsensical fiscal rules.
What a load of callous immoral selfish (*%&#!@”s. If that’s “Northern Soul” then its been sold to the devil.
This, and Streeting/Shabana jokes about prisoner early release schemes, are not a good start. By their deeds you shall know them and these are wicked deeds.
Apolgies for a 2nd post, but see the last paragraph of this, by Larry Elliott
https://www.theguardian.com/commentisfree/2026/jul/22/treasury-andy-burnham-ambitions-john-healey
A specific unambiguous rebuttal of the household analogy. You are cutting through!
A good one from my old friend.
Can’t agree with you on this one, RobertJ. It seems to me that if you didn’t already know why it was wrong-headed to think that a government could go bust if it lived beyond its means in the same way that a household could, you’d have had no chance of learning it from Larry Elliott.
I understand your point, but I think Larry deserves a little more credit than that. He did challenge the household analogy, which is welcome and still all too rare in the mainstream media.
Where I would agree with you is that he did not fully explain why it is wrong. If you were already familiar with the argument, the article made sense. If you were not, I am not sure it gave enough detail to persuade a sceptical reader.
Perhaps that is inevitable in a newspaper article. There is only so much ground that can be covered. But I certainly welcome the fact that he challenged the analogy at all. That is a significant step forward.
Here’s the quote, judge for yourselves.
“Some things have changed since the long hot summer of 1976. One of the abiding legacies of Britain’s shift to the right in the 1970s was the idea that there was no difference between the government and a household when it comes to spending, with the implication that either can go bust if it lives beyond its means. That notion lives on today, with even the most modest of ministerial spending pledges met with the challenge: how are you going to pay for it? If Burnham is serious about rolling back neoliberalism, he needs to start by challenging this entirely wrong-headed idea.”
sadly our politicians have little understanding of of how to apply systems thinking and practice to policy and its implementation. Their linear thinking and that of the treasury means that they trade off other potentially positive policies to seek savings- this is the same austerity agenda that Cameron et al espoused- god help us!
Again this Government will die in the grips of the so called Fiscal Rules it has created. I am tired of our crass media’s first question, “how will this be paid for?” and the equally crass answers Government ministers/ spokespersons struggle to give. Never are the benefits to individuals and the Nation discussed on the investment decisions the Government has taken. This is also imbued in the eyes of the general public, i.e. that every Government expenditure is a cost to the taxpayer. I know that you Richard have a tremendous battle on your hands to convince people otherwise. I admire you for all your efforts and sincerely hope that one day we will see some Modern Monetary Enlightenment.
Thank you
If I was a cartoonist, my cartoon for today would show citizens of the global south laid out side by side, mostly women and children, to form a road, over which a Union flag emblazoned bus, driven by a grinning Andy Burnham was running. The bus would have “powered by global poverty” and “£2 fare cap” along the side. Behind the bus, a trail of broken bleeding crushed corpses.
Gruesome? Yes, but also true.
Agreed