The FT reports this morning that:
Unpacking that, what Sunak is saying is:
- The Mail wants tax cuts and he will deliver them.
- To supposedly fund those cuts he will kick those on benefits even harder.
- This will be done by forcing those unable to work to look for work, and when they cannot find it he will then deny them benefits even if that work is manifestly obviously not available to them.
- He does not care about the consequences for those he harms. He only cares about the few extra votes he might get as a result.
- In the process, he does reveal that his concept of individualism is all about the individual as a functioning economic unit of production and that if they do not exist in that way, then as far as he is concerned, they are of no value in the society that he wants and represents.
The reality is that this is a terrible policy for the country and those it will harm.
The harm is obvious. But the other truth is that we do not need tax cuts. The UK government needs to spend more on:
- The NHS
- Education
- Social care
- The justice system
- The environment
- And on investing in:
- Schools and hospitals that are falling down
- Transport that is failing
- Flood defences
- Climate change measures
And that extra spending will require more tax to counter the inflationary impact it will create, which tax must be paid for by those with wealth, and no one else. Hence, the Taxing Wealth Report 2024.
That spending is entirely possible. We could have the country we need and want. We just have to be willing to tax those with the capacity to pay.
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I’m not an economist but I’ve been trying to follow your blog for a year or so and re-work it in my head into something I can understand and explain to other normal people. So:
1) Governments create money and spend it on things govt is responsible for; health, education, social care, defence, infrastructure, transport etc.
2) The money passes through the economy, eventually appearing as wages, bonuses, dividends and benefits.
3) Govt then taxes it. This partly to ensure there isn’t too much money which would just encourage price rises, but probably more important it allows them to redistribute the money to groups/individuals they favour. If govt thinks too much of the defence spending is ending up in contractors bonuses and dividends and not enough in military wages or with the workers that make the munitions it can use tax to correct that. Or the opposite of course if it thinks that’s desirable.
I’m sure this is a gross over-simplification but at the level of economics for dummies, is it about right?
I added the stage numbers to your post Phil
(1) and (2) are right
So is (3) broadly but the sweocnd sentence is too specific for tax to really deal with in isolation.
Otherwise, grossly simplified but not unfair.
Steve Richards in his most recent Rock & Roll Politics podcast, highlights the Tory bedrock ideal of tax cuts, mentioning that for Sunak to really make inroads into the Labour lead he would need to go with a big and bold ‘One Nation’ pitch – as Johnson did in 2019: ‘build 40 new hospitals, levelling up’. As Sunak is a Thatcherite small state Tory (and the One Nation element were purged in 2019), a big One Nation option seems unlikely.
People in the red wall are not going to believe Sunak, though, as we are still waiting for our hospitals to be built. Plans are in but no site and no money. We are not going to be taken in again, although I and my family never were.
The big arguments that have been happening here are why would any mad fool plan to build an incinerator next to a hospital. In the meantime the old hospital is still falling to bits. It’s the hospital where Simon Stevens, now Lord Simon Stevens for his help in privatising the NHS, started his NHS career as a porter.
Tax cut?
More like ‘tax rut’.
When are we going to wake up and try something new for a change?
Just look at this obscenity:
https://www.theguardian.com/business/2024/jan/08/billionaire-bet365-boss-pockets-further-270m-payday
The fundamental issue here, as ever, is that when Sunak (and other politicians in similar situations, such as Macron [1]), talks about tax cuts, they mean “less tax on high earners and on businesses”. People then (mis-)interpret that as “less tax on me”, which for the vast majority of people will be untrue.
What is really needed is reductions in regressive taxes, and increases in taxes on very high incomes and wealth increases, but those are vanishingly unlikely in the short to medium term.
[1] “What can I possibly do to stimulate the economy in the country with the highest tax burden in the world?” says Macron on a regular basis
I would have thought that even if Sunak / Hunt deliver a cut to welfare benefits that the amount of money thus released would not be sufficient to make a tax cut worth having. I am assuming they are not going to just abolish them all completely, but given their track record and the general descent into Victorian style poverty maybe this is what they have in mind.
If there is a single image that would help people understand why reducing government debt is bad, it’s the graph showing net lending and net borrowing by sector over time, and which makes very clear that shrinking government debt will shrink the private sector.
I have one for NZ on hand (link below), but I have seen one for the UK which covers a much longer time period.
https://postimg.cc/xXz7gcR7
I provide it here every budget day. Search for sectoral balances.
You say:
‘And that extra spending will require more tax to counter the inflationary impact it will create’
Yet Investopedia, and I thought you, have often said:
‘If the level of economic growth is equal to the level of money supply growth, prices traditionally remain stable’
I’m confused!
The art is to take out enough in tax to allow suficient money to fund growth and 2% inflation
That is done via tax and not interest rates
If done then money suypply growth = real growth = no inflation