Growth is totally dependent upon people having enough money to spend. Without the redistribution of wealth in the UK, that is not going to happen.
This is the audio version:
This is the transcript:
The UK economy is stagnant, as the data shows.
If we want it to grow, we have to do one thing, and that is to redistribute the wealth of those who live in our society. In my opinion, that is about as close to a statement of economic fact as anyone can offer, because there are no such things as economic facts, but the likelihood that such a policy will work is so high that I can almost call it one.
Let me explain. If we are sitting in a situation which the data shows the UK is in, where nothing that is happening is producing any degree of growth at all, and we think that growth continues to be important in the sense that it might indicate an increase in the wellbeing of most people in the country, then there is only one thing that we can do to literally increase that growth.
It isn't to promote more private sector activity, as such, by encouraging inward investment, which is the route down which Starmer and Reeves are going, because people will not invest in the private sector economy in the UK if there is no reason for them to do so, and an absence of customers is why there is no reason for them to invest at present.
The government isn't spending more, so they're not acting as a good customer right now.
And people who are worried about their financial wellbeing, as vast numbers of the people in the UK are, are not spending.
In fact, the Office for Budget Responsibility has, in its own forecast for the UK economy for the next five years, shown that the only way in which consumer spending in the UK might increase over the years to come is by the level of savings in this country falling. And I think that there is a clue in there as to what we need to do to make the UK economy work better, and that is to redistribute the wealth of the wealthy.
The wealthiest save. That is why they are wealthy. They are sitting on pots of money. That's the literal definition of being wealthy.
And the pots of money that they put aside, whether it be in cash, whether it be in property, whether it be in stocks and shares, all of that money is actually stagnant as far as the economy is concerned.
It is money put aside that has been spent on something that is no longer active in promoting the well-being of the economy as a whole because it is not fueling current economic activity. It's dormant as far as current economic activity is concerned, and that's the best understanding of savings that you can have.
Just to deal with savings in their simplest form, which is money put in a bank account, the whole point of money put into a bank account and stored there is to put it aside for later use. It's doing nothing now.
And do not let anyone tell you that banks will then lend that money to somebody else because that never happens - and every single central bank in Europe and in Canada and in Australia and elsewhere now agrees that banks do not lend out depositors' money. That model of banking, which was taught for a long time and is still widely believed by the banking community and by most MPs, including our dear chancellor, it would seem, is wrong.
Banks create new money when they lend, and the money that they lend is redeposited with them as new savings. It may go around a few times before it reaches that status, but that's what always happens. Bank lending creates bank deposits. Bank deposits are not lent, so the consequence is that savings are quite literally dead money.
But if we want more money to circulate in the economy – and you get growth when more money goes around the economy because more people are doing things and working and spending and buying, and therefore giving reason for investment - if you want all of those things to happen, you have to pump prime the system.
There are two ways to pump prime the system. One is that the government runs a deficit, and I strongly urge the current government to run a deficit for precisely that reason, because it is essential that they do to signal to the economy that they believe in it, and they're going to invest in it by undertaking additional spending.
But, we also need to have a tax policy that redistributes the wealth of the wealthiest to those who might spend it. In other words, to drag it out of the savings accounts of the richest, to put it into use by those who are poorer.
All these things are relative terms, but those people who are less well-off do, as a matter of fact, have what economists call a higher marginal propensity to consume.
Let me just put that into layperson's terms. If you're very wealthy and you earn an extra pound, you probably put it aside in your savings because you've already got everything you need.
If, however, you are a person who is on £25,000 a year and you get another £100, it is highly likely that you will spend every penny of it.
You won't pay off your debts; you will just go out and literally feel better as a consequence of having some money to spend.
And that is the benefit of redistribution.
If we take money from the wealthiest and give it to those who are likely to spend it, we will boost the economic activity of the UK in a more effective manner than anything else that humankind can do.
Now we have to ask the question whether we can do this forever, because we do have to recognise the limits to growth, which exists because of climate change. But if in the short term we want to break this cycle of stagnation that we are in, there are only two ways to do it, as I've already said. One is for the government to spend more, and the other is for the government to redistribute the wealth of the wealthiest to those who are in need so that they have more to spend.
And as a result, the government's policy of taking away benefits from those who are in greatest need in our society, whether they be pensioners, most of whom do have high marginal propensities to consume because they have relatively little income on which to live, or from those who are claimants inside the benefit system, and in particular, those with disabilities who have very high demands on their spending capacity.
If you take money away from them, you increase the scale of economic stagnation in the economy.
Redistribution is not, therefore, an act that the right wing would like to claim is the politics of envy. It's a simple, straightforward necessity to bring money into use in a way that fuels growth, from which the biggest beneficiaries will always be the wealthiest.
If only they realised this, if only they appreciated that the redistribution of their funds into the economy would actually be the best source of the increase in the growth of their own wealth, they would stand up for this. But economics isn't telling them that. In this video, I am telling them that and providing the simple, straightforward, logical reason why redistribution can work.
It's time that they realised that they can help society by letting the money that they have generated over time be redistributed to those who need it, because without that happening the growth in their wealth is going to stop, and that's the one thing that worries them.
Most of all, this is a policy that will benefit everyone as a result.
So please, please Labour, understand this and deliver a policy of wealth redistribution of the sort that I've laid out in the Taxing Wealth Report, which would be easy to implement, would not be unfair, but would instead deliver wellbeing for quite literally everyone in the UK.
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We already do a lot of redistribution, possibly a record amount, you can check this, and we’re not getting growth. Doubling down on this is unlikely to work therefore. Peace, liberal planning, and a tolerable administration of justice is what the boffins say is needed
I’m a boffin.
I disagree.
And you name no sources, so very politely, this is nonsense.
What you actually mean is the far right say this. Not the same thing at all.
Data. There is a lot of redistribution, and still much residual inequality. The inequalities of both original incomes (before taxers and benefits) and final incomes (after all taxes and benefits) are at their lowest levels for many years.
https://www.ons.gov.uk/peoplepopulationandcommunity/personalandhouseholdfinances/incomeandwealth/bulletins/theeffectsoftaxesandbenefitsonhouseholdincome/financialyearending2023/pdf
You entirely miss the point of the post.
Was that entirely deliberate?
Agreed.
If you truly believe in capitalism, you must also believe in redistribution as far as I am concerned as consumption of essentials (never mind the nice to haves) drives markets, profits, taxes, investment. Redistribution increases the money flow.
The problem as I see it as, is with money as a concept. Rather than the blood that runs through the economy its is seen as what can only be described as an exclusive vanity project, a form of virtue signalling celebrating the rich, and exclusive to them who are considered to be desirable condition for the rest of us to aspire to be. You can’t have money unless we think you are worthy of it!
As ‘Mr Pitchfork’ himself Nick Hanauer said, just because he is rich does not mean he buys more pillows or jeans so that he props up the economy single handedly (this is a man who is rich but also invests in companies that makes stuff – like pillows).
To oppose money redistribution is quite simply anti-capitalist and stupid. It undermines how an economy actually works. Capitalism is not necessarily about greed. But Neo-liberalism – harking back to the U.S. Southern states where it was born – has made it so because there – with slavery – you could see that their type of capitalism was a one way street – it was about exploitation. That is in my view NOT capitalism.
All human endeavours should benefit as many people as possible, and yes, some will get more – but not all. That (getting all) is slavery, and that it seems to me is what Labour are about now and it will simply not see that. Because of course, they benefit as a party from donations from those who take more than their fair share.
Spot on. I think it is obviously true – indeed, if one looks back a few years there is empirical evidence of this sort of behaviour, too.
You may recall the PPP selling scandal where banks were getting credit card (and other) borrowers to pay a fee as insurance against the risk of being unable to make the repayments. It was a scam because for many (eg. the self employed) there was absolutely no protection. Eventually banks were called to pay compensation – lump sums to fairly poor people (the wealthy do not borrow on credit cards or consumer loans).
For a couple of years, as this process ground on, City Economists found their growth forecasts consistently undershot reality until eventually they realised that these PPP refund payments were driving growth through increased consumption and second round effects… and they payers (the banks, the owners of shares getting reduced dividends) did not alter behaviour. Relatively small (in a whole economy sense) amounts of money in direct payments to poor people would have significant impact on growth.
So, it is not just theory.
Thanks, Clive.
I do recall that.
Reading through the blog I wondered if there was a way to “have ones cake & eat it”?
In the blog “the battle for the rule of law” I posted underneath your comment responding to Mr “G” & observed that his comment on community and municipal banks was worthy of further consideration (I’m thinking of the film “The Bank fo Dave” btw). Obvs, new banks get licenses to operate but need some capital to start with. Suggestion: wealth redistribution (some) could take the form of supporting local/municipal banks. Rich people still keep their money but it is used on something socially useful (local banks) that could disintermendiate the loan sharks. Naturally, the same banks could lend for a range of socially useful activities. Such an approach shuts the rich up (they keep their money) whilst delivering a social good. This could be the carrot, but a stick could still be used (taxes). It also addresses this point: “the whole point of money put into a bank account and stored there is to put it aside for later use. It’s doing nothing now”…..I agree – but the rich funding local banks would not be “put into a bank account”……it would be put into a bank. Just an idea.
How would you force their money into these banks?
Not sure. make a link between pay tax (lots of it = stick) or put money into local bank as capital (= carrot) ?
It could be done…
I high incentive VCT
Hold our collective noses and give them a tax incentive? (One of the purposes of tax being attending to social costs/benefits through the “repricing of goods and services”- Joy of Tax” pp63-64 – see, we DO read your books!)
I saw “Bank of Dave” too on Ch4, and in the end he wasn’t able to get his “bank” in Burnley, he had to slide round the banking licence £10m reserve rules with a savings & loans product using peer to peer crowdfunding.
While we don’t mind relaxing banking rules to allow a global financial crash (and then bailing out the banks with austerity, and we are going to repeat the process if Rachel Reeves gets her way) which was what started Dave F off on his crusades in the first place in 2008, we hedge credit unions and people like Dave F with rules that make it v hard for them to operate for the benefitof local communities. I have experience volunteering in and marketing a small credit union during the same period and after 2 mergers with larger CUs, even the large merged one failed, so understand the frustrations.
I am not opposed to rules
I favour intelligent rules.
I wonder what impact the ending of the winter fuel payment had?
My suggestion might be
In addition to the Winter Fuel Payment which had never been uprated there was also the £10 ‘Christmas Bonus’ which dated from the days when the State Pension was £6.50pw so what about a ‘winter payment ‘equivalent to two weeks New State Pension for all State Pensioners in December.
Disability benefits ditto and some ‘lump sums’ across the year say Christmas, & Summer Holidays for child benefit.
I suggest that these would all get spent
Richard, well explained. Easy to understand for everyone, who wants to hear the message.
Now the UK economy is not a closed system. I would be interested on your take on international wealth distribution.
IMHO it is a prerequisite to even attempt to reconcile a situation which might well be described as somewhat lopsided in terms of consumption of physical wealth (raw materials, ecosystem services).
I am under no illusion that a simple wealth transfer would allow the truly materially poor of the world to spend more on existential necessities because they have, as do we, a fairly uneven wealth distribution within their respective countries.
This is not one for the comments but maybe you have some thoughts on that?
Best
On my list to address now
Well, in some senses, the UK is a closed economy. Our currency the pound, unlike the dollar, only circulates and is spent in the UK.
I hear a lot of talk about the wealthy taking their assets abroad. This can’t happen on a macro scale. That is obviously for fixed assets such as houses. If they wish to sell up and go abroad, someone else has to buy the house, using pounds. Net result is that the house remains in the UK, obviously. Cash and financial assets are less obvious. But if someone has a UK asset, or sterling cash, the only way that they can take it abroad is for someone else to buy the asset or cash. Again the net result is that the total assets in the UK remains the same. So, individuals may choose to leave but net assets do not hemorrhage from the UK.
This is not the case in the EU where someone can simply move from one EU country to another because they use the same currency. On the other hand, for the same reason as the UK, the EU as a whole cannot lose assets.
I frequently hear that the UK needs inward investment to create growth. I don’t think this is true either. Perhaps, yesteryear, when the world operated on the gold standard (a common currency), it would have been possible for a foreign investor to ship gold to the UK. But not now when the world operates on fiat currency.
If a foreign investor wishes to invest in the UK, say to build a factory, they have to spend in pounds sterling. They can only get those ponds from someone in the UK who has them. So it doesn’t add to the total currency in the country. That money was here all along. No new pounds came with the foreign investor.
There are second order effects such as changes to the exchange rate. But these do not undermine the key point that UK assets, including money, stay within the UK.
You are right, Tim
And few people get this
The fact is the banking system can create the capital we need. It doesn’t have to be lent by the top 1%.
As I understand it, we might to have to import skills and specialist technology but we don’t need their money as such.
We have this narrative that to even maintain our standard of living we have to placate or bribe a small number of very rich people. It convinces a lot of people. And is dangerous. It is placing ourselves back into the feudal system.
I usually read your blog rather than watch the corresponding Youtube video, but this morning I went down the vid route for a change. Judging by the high number of ignorant comments left by viewers under the video, your YT work is going well beyond the mostly like-minded bubble on the blog and is successfully breaking through into the mainstream. Even if your message falls on many deaf ears for now, this must surely contribute towards changing the overall narrative.
I can live in hope.
But note the number of likes- they are very high.
The commentators are not typical.
Instead of the UK’s political future being Reform UK, how much better if it were Redist UK?
But how might that come about?
I like it
I recently sent an e-mail to Sir Stephen Timms – Minister of State for Social Security and Disability of the United Kingdom and this is his response;
“Your email raises many points. Just to pick on one: I don’t agree that that Governments can simply spend what they like. The damaging impact of Liz Truss’s mini-budget, arising because Liz Truss failed to work out how the proposed tax cuts were to be paid for, showed the problems”.
Very happy to meet to discuss.
Best wishes,
Stephen Timms
MP for East Ham
Would you be willing to discuss further with Sir Stephen Timms? You could host him as a guest on a podcast and/or on on YT channel.
As am I one of his constituents I strongly feel he owes me and needs to offer a much better and detailed explanation about his beliefs regarding government expenditure.
I have added him to my list.
We do know each other of old.
Spot on again. Thanks. 🙂
George Osborne tried austerity. Every time he cut spending he made matters worse (and we live with that legacy today). Eventually even he had to ease off, though he never admitted it. So, if austerity makes matters worse, do the opposite!
Can increased spending, through taxing the wealthy ( or otherwise) continue forever? Post war, until the seventies, growth was consistently higher (despite higher rates of tax, but with lower inequality). I suggest that spending and growth can happen again for prolonged periods. I don’t believe that growth necessarily has to use more non-renewable resources, we can do more with less by being smart, so that is not a limit.
A lot of money was created by the government (quantitative easing) post GFC and the pandemic. It flowed up to the wealthy (e.g. through higher asset prices). They didn’t do anything meritorious to justify the increase in their wealth and inequality. That money now sits, amongst other things, as bank reserves (on which the government foolishly pays interest). The government now needs to tax this windfall money back from the wealthy to get the economy growing again and reduce pernicious inequality. I’m in favour of further government money creation, indeed it is necessary longer term. But it is hard to justify that at the moment when they haven’t taxed back the, currently unproductive, money they created previously.
Yes, redistribution will help – but there will always be a place for private almsgiving. So please, all of you, consider giving generously in response to this charity appeal:
https://www.youtube.com/shorts/JaTKsP9ZPgw?feature=share
Before midday
Yes! No time to waste!!
Consider it done dear boy. Although the violin I’ve donated is very, very small…..
We have credit unions in Ireland (North & South).
Did they never catch on in Great Britain?
In nothing like the same way
Meet my friend Tina.
She’s a £10 note.
She started life in a central bank (computer).
She has friends called
Fiona (£5)
Tweenie (£20)
& Fifi (£50)
and their life stories are absolutely fascinating.
At the moment most of them are doing absolutely nothing because they’ve trickled up to where all money eventually retires to, but it wasn’t always like that. When Tina first left Threadneedle Street to venture out into the wide world, she was with lots of other £10 notes and was collected by a DWP Security van as part of a PIP payment, to help an Army veteran called Craig, who lost his legs in Afghanistan, travel to work. Tina was glad about that, and soon she was in the wallet of a Motability employee called Shabibi, taking a trip to the shop to buy groceries. On the way Shabibi had used some other notes like Tina to pay some of her income tax, VAT, rent, petrol and energy bills….. etc. etc with Tina eventually ending up in Jeff Bezos’ savings account because Jeff had so much money he didn’t know what to do with it, and he certainly didn’t need it to pay taxes because he avoided them like the plague. So Tina sat doing nothing in Jeff’s savings account. Meanwhile, Rachel, the Wicked Witch of Westminster and Liz, the Wicked Witch of the DWP, had stopped Craig getting PIP because their evil uncle Fiscal Rules said PIP was unbalancing the OBR forecasts, so Craig had to give up his car,and he lost his job, ran out of money, got evicted and died one cold night in the winter.
Shabibi had also lost her job because her SME employer wasn’t making big enough margins to afford her increased NI employer contributions. So Shabibi stopped buying things too.
Rachel was very pleased about this because NOW HER BOOKS BALANCED!
And Rachel, Liz, and Jeff lived happily ever after.
Okay, it’s pathetic but with a better script and animation, Tina and friends could be superstars! Any rich creatives want to make it?
Love it!
The BBC online today is full of front page headlines of the seven bills going up from April. And no, it is not an April Fools’ joke — if only it was.
They say.
‘Bills are rising, so how does government expect the economy to grow?’ We answer your questions.
https://www.bbc.co.uk/news/live/c1wdnj81qw4t
I don’t think they answer them very well.
One reply they gave.
“Some bill increases are always scheduled for this time of year, to match the rate of rising prices – inflation.”
Really? Which rate of inflation? None of the bills going up today are in line with CPI. They are all well above it. It’s not just the poor getting poorer. The system fails because there is no protection against profiteering for those things we need.
I can’t be the only one who is sick and tired of the shocking level of price increase in things we need just to exist. It is a treadmill, that just leaves more and more people behind.
I know it is a controversial subject, but I do feel that there needs to be some level of price control over the levels of increase in things we need like housing costs – rent, water, gas, electricity, etc. I can’t see any reason why these cannot be linked to CPI. Every year they go up by a lot more than that. One of the major reasons why the rest of the economy — mostly providing non-need items, that we don’t have to buy, suffers. It’s fairly obvious to me. People are forced to spend more on what they need, they have less to spend elsewhere. What is it that politicians don’t seem to understand about this?
Labour’s obsession with growth doesn’t address the basic problem that wealth is being redistributed – from the poor and less well off to the rich.
What worries me is that CPI + is now built into so many increases
This is extortion from those least able to pay
I agree.
The telecoms companies have been doing this for a few years now. The standard price rise being CPI + 3.6%. Virgin Media, RPI + 3.6%. The only way you can get a reduced rate with them, once your introductory offer has run out, is to phone them up and haggle. They are basically running a cartel and getting away with it, as the regulator is powerless to stop them.
At the last election that Corbyn led Labour, they offered free broadband. It was a nice idea, but the tory media attacked it on the usual grounds of who would pay for it. What I think he should have done was offer a basic service for say £10 a month, price rises no more than CPI, and it would have been a winner. It might also have forced the private companies to finally offer an affordable option.
I can’t see any reason why the telecoms companies should not be required by law to provide a basic broadband and telephone package with a price increase no more than cpi. After all, it is a modern need. If you don’t have access to the internet or phone services, you will miss out on many things today.
MarP: there is, in fact, at least one price-hike control in the housing sector – rents charged to social housing tenants, limited to an annual increase of CPI . . . plus one per cent.
However, many social housing associations impose service charges in addition to rents – and increases in these are much more loosely regulated. Government guidance is that ‘registered providers should endeavour to keep increases for service charges within the limit on rent changes, of CPI (as at September in the previous year) + 1 percentage point, to help keep charges affordable.’ (https://www.gov.uk/government/publications/direction-on-the-rent-standard-from-1-april-2020/policy-statement-on-rents-for-social-housing#chapter-2-social-rent, section 2.37).
But, to quote from the same section, ‘Service charges are not governed by the same factors as rent,’ and tenants who take social housing associations to first-tier property tribunals for excessive increases in service charges are not guaranteed a favourable judgement even if the increase is well above CPI + 1 per cent.
To take an example not wholly at random – my own social housing association – they intend to impose a 110 per cent increase in my service charge which, combined with the CPI + 1 per cent rise in my rent, will raise my total charge by more than 15 per cent.
I am not taking this lying down, incidentally.
There are about 28 million households (68 million people) in the top 10% of household wealth in the UK (ONS), which includes pensions, savings, and investments of £1.2 million or more, and own their own home. A flat £2.000 tax (technalities, technicalities) on those households would raise about three billion. I am a bear of little brain but £5 per rich person per day does not seem much to ask or to pay. That’s one posh coffee.
I’m sorry – but fiat taxation is really an atrocious way to deliver tax justice.
And you completely ignore the problem of valuing assets.
This is a ridiculous proposal.
@George Roberts
“There are about 28 million households (68 million people) in the top 10% of household wealth in the UK (ONS)…”
No wonder it’s feeling a bit crowded here in old Blighty. The population just exploded to 680 million? Don’t tell Fa***e, he’d choke on his beer.
No, on reflection, DO tell him, but make sure he’s just supped some beer first.
These claims were rather bizarre
Apologies wrong decimal place.
68 million people
29 million households.
2.9 million in the top 10%
I don’t advocate for a flat tax. Just illustratively, seems like £2,000 a year from those households is not a lot to ask.
But it felt like a fiat tax.
And in tax, that does not work.
Although it has a slight US bias, this video from Robert Reich is worth watching:
“12 Myths About Taxing the Rich”
https://www.youtube.com/watch?v=pnoLAMHwf2I
Thanks
He is good