Politicians love to talk about “taxpayers' money” - but that's a myth. In this video, I explain why your taxes do not fund government spending, how government money is actually created, and why the taxpayer's money myth exists to serve an agenda of austerity. It's time we talked about what money really is - and what tax really does.
This is the transcript:
There is no such thing as taxpayers' money.
I know politicians love to talk about it as if every time they spend a single pound of government money, which is what there really is, they were spending your money, but they don't, and there are two reasons for that.
First of all, the government creates every single pound it spends by telling the Bank of England to literally mark it up on its overdraft. And every time the government issues an instruction to the Bank of England to pay somebody - and they do before, for example, your old age pension arrives in your bank account, or if you are a doctor or nurse, your salary turns up in your account, or whatever else it might be they spend - every time they do that, the money is created for the government by the Bank of England.
It is never, ever funded by a taxpayer. That is technically impossible.
But that doesn't mean to say there isn't a role for tax; there is.
Tax is used to ensure that the money that the government creates is reclaimed by it and then cancelled, because otherwise we would have inflation, and nobody wants too much of that.
So why do they talk about taxpayers' money?
That's because they want to create a myth.
They want you to believe that they are spending your money because you would say, "Please don't spend too much of it", and they're doing that to justify their programmes of austerity.
For the last 25 years or so, and most definitely in the last 15 years, every single person who's been in the Treasury has been there because they hate government.
They hate government spending.
They hate what the government can do for you.
They hate the NHS.
They hate education.
They hate the fact that you are claiming a pension.
They hate people who claim benefits.
They hate the fact that they have to spend to support the armed services, and everything else, because they hate government, and the way they can shrink the government is by saying they're spending your money.
But the truth is they're not. They're not because they made all that money.
And the truth is that even when they demand money from you, what they're demanding back is the money that they spent into the economy in the first place. Because remember, if they hadn't spent money into the economy, there would be no money available to you to make payment to them to settle the tax bill that they raise.
So what they're asking for is their money back. And they're doing it under a form of contract, and when you pay somebody to whom you owe money, the money is no longer yours; it's theirs. And so for that second reason, the government also does not spend taxpayers' money.
So, the claim that there's such a thing as taxpayers' money is a total myth. It's being said to simply argue for the fact that the government shouldn't have money for public purposes when that is what it should be creating to benefit us all.
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It’s amazing how so many of us believed the lie, with such toxic consequences.
This cannot be said enough.
This cannot be said enough.
This cannot be said enough.
This cannot be said enough.
This cannot be said enough.
This cannot be said enough.
This cannot be said enough.
This cannot be said enough.
This cannot be said enough.
This cannot be said enough.
There. I’ve said it.
Thanks
Yeah, but not enough!
The questions to ask people who challenge this, are:
1 Did taxpayers bail out the banks in 2008?
2. Did taxpayers fund the furlough payments during covid?
3. Did taxpayers pay energy bills during the energy crisis?
4.If we were in a war situation, can we buy armaments straight away or do we have to wait until taxes are collected?
Of course, the answers are all ‘no’.
We can then ask for any instance where theUK gov have to collect taxes before they can spend money.
I cannot think of any because there aren’t any.
Correct
It would make for an odd poll though
I’m going to filch some of that for the omnibus version of TWR, which I have now started!
Very blunt, very truthful, very easy to grasp.
Thanks
“They hate people “……sorted.
The tories & LINO (and Deform) despise people – you, me everybody. The tax n spend myth is a form of mental control – “maxed out credit card” (mental control by Cam-moron & Gidiot) all these tropes designed to convince people that governments and corner shops are just the same – it has been going on since ghastly-Thatcher lied & got into power (“Labour’s not working” – 1 mill unempolyed 1979, 1982 – 3 million unemployed). The problem is that most people (such as the grunts in Epping Forest demoing against immigrants) are too busy surviving to learn. They have not understood that the uppers have always exploited the lowers. This has been going on – forever. With some disruption: Wat Tyler – 14th century, civil war, 17th century, Each time, the uppers were able to regain control & keep the narratives that keep them in power, going. Time to change the narratives.
Time to regain control, of the money narrative and the political economy. Somebody needs to educate Sultana & the 240k that have signed up.
What are you suggesting Sultana does not understand that makes you say she needs educating?
Indeed. I would be amazed if she could explain e.g. MMT, how governments are (actually) funded, the role of the central bank, BoE control vis a vis UK gov etc.
I am very happy to be amazed (= she has a good understanding) but given the problems with Corbyn & MacDonald (2016 – 2019) & their lack of understanding I prefer to take a more pessimistic view. Hopefully, Sultana et al are open minded. We will see.
PS: The bar I set for politicians is – I EXPECT them to understand the political economy as explained at length by RM over what amounts to a bit under 2 decades. If they don’t, then they don’t get my vote.
Thanks
Hi Richard,
So who wins?
How do the proponents of austerity benefit?
Longtime lurker and first time commenter.
Thanks for all that you do.
Paul.
They increase inequality – and that is their goal. It makes them feel superior.
The object of austerity is to defund public services,
eventually the public services break,
then offer the public the change to privatise those services (claiming “efficiency”, cheaper to run, etc),
profit from those private services (the water companies have given out about £85-billion in dividends to shareholders),
which has been a great success for shareholders and the CEOs of the private companies.
But it has been a disaster for the rest of the country.
Sewage in rivers, little investment in infrastructure, public services wages down 20% on 2010.
More extreme laws to control the population.
Who wins? Well less state capacity = eg. PFI for infrastructure, off the official books but you receive less for more. Less for more, sounds inflationary. Privatised care homes/prisons/water, profits go to shareholders, not reinvestment in services. Short term profit and gives everyone else short/medium/long term problems.
H, you ask “who wins” …. And that is something I just don’t get.
Let’s say we keep going along this path of concentrating wealth for fewer and fewer people, denying opportunity, health, education, happiness for more and more …….
Where do we get to? A society where the wealthy barricade themselves in guilded palaces/prisons … But do the rich want to live like Mad Max? I was briefly in S.Africa …. Inequality like that isn’t just morally wrong …. It doesn’t work for anyone.
Can anyone explain what I just don’t get?
You get it. Let me assure you. You also understand their chosen destination.
Paul
You need to read Clara Mattei’s ‘The Capital Order’ (2022).
There is a lot going on here, but chiefly a way of looking at austerity is to see it as the destabilising of competing and valid claims on the money supply/economic output by economic sectors of society (owners and workers/labour).
Austerity is aimed at labour – working people – and helps to destabilize their ability to self organise and obtain their reasonable claims on the economic output of their labour. So, we see wages dropped, redundancies, unions undermined, public services cut, interest rates rise etc., and as workers are plunged into chaos, their claims on output are also deleteriously affected. They are left just having to survive.
Contrast that with what happens to capital – lower wages’higher interest rates means more profit, the capital running businesses that are closed down returns to them, assets are liquidated (turned into cash) as means of production fail. Enabled by already generous tax concessions, capital benefits enormously from austerity.
What we see is an enormous transfer of wealth from one economic level of humanity to another in countries calling themselves ‘democracies’. It is like putting working people in their place.
The other thing I think austerity does is turn money into a vanity project for the capital and the rich – as Richard suggests, as money is a resource for everyone really but is reduced to being used to point out to people how successful and clever some people are in order to justify what is a forced reallocation of wealth.
Additionally, the inequality created that is part of the vanity project and celebrated even (just go and watch your TV) also means that society is less stable because of lacking a means by which to self organise and perceptions about who is getting what – poorer people competing with each other now for what they have left, not with the rich.
So capital – by funding political parties like Reform provides surrogate issues for working people to worry about like focussing on stuff like immigration, identity politics – anything – just as long as they are diverted away from what is really causing the problem – a deliberate policy to make ordinary people poorer by the rich.
I hope this helps – and don’t forget Mark Blyth’s ‘Austerity: The History of a Dangerous Idea’ (2012) which concludes that the economic reasons given to the public about austerity are lies and are unfounded.
Thanks, PSR
If the government taxes people merely to claw back money to prevent inflation then could we have an alternative system where taxation becomes redundant because the government only creates enough money to meet everyone’s basic needs? You could have a sort of WWII food rationing system to define what people’s food needs were etc.
I’m asking the question to help me understand your argument, nothing more.
No, of course not.
The money would still be in circualtion – and so it has ot be clawed back.
That’s just how it is.
And there will always be people how have more than basic needs met. So, of coruse we would need tax.
@ Alex
Reductio ad absurdum:
If taxation became redundant, and your needs were met through a rationing system, why then would the government need to create money? You work for an employer, the employer provides board and lodging in return – perhaps they could give you a token to spend at the company store on a small variety of “frivolous” goods?
Of course, national infrastructure wouldn’t be built – no hospitals, no schools, no roads, no sewers, no railroads, no airports, no armed forces, no police. How then can the government persuade you to give up your safe-but-limited “berth” to work for them in providing *those* necessities?
Simple answer: the government issues tokens usable at any company store as your wages, but it also demands that each year you, along with every other citizen, pay some of those tokens back. Company tokens are not acceptable, only government tokens. Jail awaits if you don’t pay. To get your tokens, you have to work for the government.
**Tax provides workers** for the government, not spending money.
Neat
I guess you’re right but I still don’t really understand why no infrastructure etc. could be built. The government tokens you mention could be given to engineers and labourers and so forth.
I assume you are right I just don’t understand why. (I’m also cognisant of the fact that Pol Pot and his bartering ambitions were a disaster).
The scheme you describe was associated with abuse and control. It really is not a good idea.
This web site is worth a look: https://answerthepublic.com
Enter your keyword or phrase (e.g. taxpayers money) and find out what questions the public are asking about it.
Then you can address the most popular questions.
One free try, sign in to get 3 tries per day, then £6.42/month
I have tried it several times and have never found it very useful.
I just put in tax and by far the biggest concern is car tax.
I’ve mentioned to you that I wrote to my MP with an idea. Here’s the letter. I suppose it’s a bit bonkers, but my MP has agreed to write to the Chancellor about it. She of course will dismiss it on the basis of orthodox economics and with the Treasury and the IMF snapping at her heels. But maybe it will provoke discussion about at least some adjustments to the status quo.
Subject: A Thought on Modernising UK Public Finance: Exploring Debt-Free Digital Money
Dear Ms. Sabine,
I am sorry to write to you again so soon after the letter I sent last month, but I’m afraid I’ve had another idea.
I retired some years ago after a long career, primarily in finance and commercial procurement within the UK civil service. While certainly not an expert in the complexities of government debt management, my interest in public finance has recently been rekindled by beginning to learn about Modern Monetary Theory (MMT) . I found myself exploring government finance in a new light. It was through this somewhat serendipitous process that I recently stumbled upon what I believe might be a novel and practical avenue for our country’s financial future.
I want to stress that I’m not looking to advance any personal interest; I’m simply making a suggestion that, as far as I can tell, no one has ever publicly proposed quite in this way before.
My understanding, informed by MMT, is that for a currency-issuing government like the UK, all public spending fundamentally involves the creation of new money by the Bank of England, regardless of whether it’s “funded” by taxation or bond issuance. Taxation and bond sales then serve primarily to manage inflation and interest rates, rather than to raise funds that the government supposedly “needs” to spend. Yet, despite this intrinsic capacity, our government continues to operate under the self-imposed constraint that it must “fund” spending through borrowing, leading to an ever-growing national debt and substantial interest payments to private holders – currently running at over £100 billion annually.
This observation led me to consider a fascinating, yet often overlooked, aspect of our current monetary system: metal coins. As you likely know, these are issued directly by HM Treasury, not the Bank of England. They are inherently debt-free, created under Royal Prerogative via the Coinage Act, and actually generate a profit (seigniorage) for the Treasury. This small, unencumbered part of our money supply seems to represent a pure instance of government-created money for the public good, free from the burdens of debt or the intermediation of private banks.
It occurred to me, perhaps rather simply, that maybe this principle could be extended. What if HM Treasury were to issue digital sovereign coins under the very same authority? These would be debt-free digital units, designed to support essential public purposes, such as:
* Enhancing universal basic services or providing targeted emergency relief.
* Investing in local regeneration and much-needed public housing projects.
* Accelerating our green energy transition initiatives.
* Offering direct support to individuals and families grappling with the cost-of-living crisis.
Such digital coins would, of course, be legal tender, spendable via secure digital wallets, and, critically, fully subject to taxation. The taxability of these coins is, I believe, a vital point, as it underscores their integration into our established economic system and provides a clear mechanism for macroeconomic management, including addressing any potential inflationary pressures. It helps to ensure that this isn’t seen as “magic money” but as real, taxable value within the economy.
Implementing this would require some legal adjustments. Parliament would primarily need to:
* Amend the Coinage Act 1971 or introduce a new Digital Coinage Act to permit Treasury-issued currency in electronic form.
* Extend legal tender status to digital coins.
* Establish a secure Treasury wallet system or authorise public partners for distribution and management.
What strikes me about these changes is their relative straightforwardness. They are much less complex than the far-reaching legislative and infrastructural overhauls that would typically be required to significantly reduce debt interest through other means (e.g., radical tax increases or deep, painful cuts to public services that often incur high social and economic costs). This proposal leverages an existing, often overlooked, legal precedent rather than inventing an entirely new financial architecture.
It’s also worth briefly comparing this proposal to the Bank of England’s exploration of a “digital pound” (a Central Bank Digital Currency or CBDC). While both involve digital money, they are fundamentally different. The Bank of England’s digital pound would have been issued by the Bank of England and would typically have been a liability on the Bank’s balance sheet, much like banknotes. Crucially, the Bank of England has stated it would not pay interest on holdings of the digital pound. My proposal for a Digital Treasury Coin, however, is simpler in its core funding mechanism: it’s debt-free money issued by the Treasury, analogous to existing physical coins, and does not carry the same complex liability structure as a central bank-issued digital currency.
I believe this approach offers several significant potential benefits:
* It could substantially reduce the perceived need for government borrowing, potentially freeing up tens of billions currently spent on interest payments on the national debt.
* More profoundly, it could enable expanded public investment in areas of critical national importance without the conventional “funding” constraints. This would allow the government to focus its resources on genuinely maximising the use of the country’s productive potential – its people, its infrastructure, and its capabilities – rather than being perpetually driven by a need to cut spending.
I understand that such a proposal challenges long-held financial orthodoxies and would likely encounter significant resistance. However, given its potential to fundamentally alter the government’s approach to fiscal policy and unlock greater societal benefit, I hope it might be worthy of serious consideration.
Indeed, given the scale of the paradigm shift it represents, I humbly suggest that for such an idea to gain traction, it would benefit immensely from being taken forward on a cross-party basis. A collaborative discussion, perhaps within an All-Party Parliamentary Group or a dedicated working group, could foster the necessary understanding and build the broad consensus required to explore innovative solutions for our nation’s future.
Thank you for your time and for considering these thoughts from a long-retired civil servant, simply hoping to contribute to a better future for our country.
Yours sincerely,
I will be interested to see the reply.
I’ve suggested a few other things to my MP’s office, like getting the House of Commons Library or POST to produce a paper, asking a PQ, etc, to try to push it along a bit.
It’s interesting that there are apparently no published data on the value of coins in circulation. I asked AI to do a bit of triangulation, and it came up with an estimate of £4 to £5 Billion. I reckon even the IMF shouldn’t get too twitchy if there was a trial run of the idea limited to £10 or maybe £20 Billion. But I suspect they will form the main opposition, and might not like even a minor trial.
The value is sorted by the BoE – and is in the range you note. Notes are around £80 billion.
Richard, you should be ashamed. Seems to be you are suggesting that we have tax to curb inflation. But surely, that’s the job of the Bank of England MPC and of interest rates. The BoE keep interest rates high to stamp on investment and consumption and reduce the need for taxes on the wealthy. If we were to increase tax progressively, interest rates would come down. That would hurt the wealthy who might have to sell a private jet or two. They might even have to work. We can’t have that, can we? What were you thinking?
If I am right, and to be serious, should we not widen the remit of the Governor of the Bank beyond just inflation and to include employment and investment levels? The salaries of the BoE Executive should all be performance related. Something tells me this would help put the UK in an entirely different place, economically speaking, with interest rates falling and helping ward off a recession.
Another brilliant post, Richard. Keep it coming!
Is it therefore safe to say the wealthy are partly responsible for inflation by not being taxed enough? Which in its self would mean we are all directly adversely affected by the wealthy.
To some degree, yes
That’s a good question. As an elderly person trying to get my head around MMT, I struggle at times. Richard and others here are way cleverer and younger than me and I will no doubt annoy with naive questions. Apologies. But that said, taking this question a step further, would we not have to tax the wealthy quite hard given that their marginal propensity to consume is less? The more money we have the lower our MPC. I think I read in one of Richard’s previous posts that we ought not go down the path of imposing a wealth tax, but should instead have taxes that are more progressive. I can’t find the post, but that makes sense to my atrophied brain at least. A broad range of taxes made more progressive would help head off any inflationary effects of increased government spending. One thought that does occur though is that there would be a, however slight, a movement of some to relocate the tax increase is too great and too sudden. But maybe I worry too much. A second thought or query I have is that are we not hemmed in to some extent by the national debt and interest repayments? If government expenditure was increased to include in some small part to pay down national debt, could the inflationary effects of this not also be offset by increasing not just tax but also the interest free deposits banks have to lodge with the BoE?
The answer is threefold.
Yes, there is a problem if we only focus on consumption.
So, second, we need to concentrate on redistribution to facilitate investment – and that creates jobs, with a very high multiplier effect.
And third, it leaves government space to support those in need.
The issue is not binary, in other words.
A reminder of a different approach from @AfricanHub_:
“In only 4 years in power in Burkina Faso (1983-87), Thomas Sankara:
-Built 350 schools, roads, railways without foreign aid
-Increased literacy rate by 60%
-Banned forced marriages
-Gave poor people land
-Vaccinated 2.5 million kids
-Planted 10 million trees
-Appointed females to high governmental positions, encouraged them to work, recruited them into the military, and granted pregnancy leave
-Sold off the government fleet of Mercedes cars and made the Renault 5 (the cheapest car sold in Burkina Faso at that time) the official service car of the ministers.
-He reduced the salaries of all public servants, including his own, and forbade the use of government chauffeurs and 1st class airline tickets.
-As President, he lowered his salary to $450 a month and limited his possessions to a car, four bikes, three guitars, a fridge and a broken freezer.
-He opposed foreign aid, saying that “he who feeds you, controls you.”
-Drove out French imperialism & withdrew Burkina Faso from IMF”
The UK is now part of the “Third World” subject to structural adjustment, etc.
I am not sure about your last claim.
This buggers up my adage that the taxpayer pays MPs wages but they work for plutocrats and lobbyists who fund them. lol
Hopefully the point still stands. Governments govern on behalf of their paymasters, not the people.