Repeat after us…there is no social care funding gap and no tax burden on future generations

Last week the House of Lords Committee on intergenerational fairness said that it was time to rebalance government policies to favour young people, or risk further shattering of the ‘social bonds’ between generations. It suggested that free TV licences should be scrapped, the threshold for free bus passes raised and the triple lock on pensions abolished. This was followed a few days later by a proposal drawn up by the Conservative Damian Green that over 50s pay more in National Insurance to help fund a fairer social care system which would ‘raise’ he said £2.4 billion.  Green also argued that the state pension should entitle everyone to a basic safety net and individuals should be encouraged to top-up that provision from their own savings or housing wealth.

Such ideas have been rumbling on for years, reflecting both the dominance of neoliberal ideology (which promotes the maximisation of personal interest over collective action) and incorrect notions of how a modern monetary system works in practice. How can we address perceived intergenerational unfairness and more importantly how, with an ageing population and falling birth-rate, can we pay for social care both today and in the future as tax revenues fall?

A two-year study by the Resolution Foundation led by David Willetts in 2018 suggested that every person in the UK should receive a cash handout of £10,000 when they turn 25 to help ‘redress the balance between millennials and baby-boomers’.  To fund this proposal a policy paper published by the IPPR suggested setting up a ‘Citizens Wealth Fund’ to help address growing wealth inequality. According to the IPPR, the objective of such a fund would be to give young people a stake in the economy to help them to invest in their futures ‘by buying property, investing in education or starting a business.’   It also suggested that the fund could be capitalised by selling public assets including the government’s stake in the Royal Bank of Scotland.

Even academics from City University weighed into the debate around the same time presenting a report arguing for a collectively owned social wealth fund to tackle key issues such as poverty, housing, the NHS and social care. “Remodelling Capitalism: how social wealth funds could transform Britain” focused on both creating a mutually owned financial fund and an Urban Land Trust to ensure that public land assets would be used to meet local community goals and help solve the social housing shortage.  The proposals were to fund it via borrowing, taxation, setting up a National Insurance Tax – a compulsory saving scheme – and wealth and corporation taxes. Such a fund, they suggested, could also be used to pay for a Universal Basic Income.

The MP John Penrose published a report in 2016 entitled ‘The Great Rebalancing: A sovereign wealth fund to make the UKs economy the strongest in the G20’, which focused on investing in economic infrastructure. He suggested that it was the only kind of spending that could be justified being paid for with long term debt, even though that meant eliminating the deficit and achieving a balanced budget would take longer. Penrose also stressed that we needed to address the generational burden of debt claiming that it is ‘unfair to saddle our children and grandchildren with the costs of our current spending’. A wealth fund would, he said, eventually supersede the taxpayer liability on state pensions and benefits.

Going back to 2014 Lord Hodgeson suggested a wealth fund with the proceeds from fracking which could invest money to help future generations. It was suggested at the time that the total reserves of oil and gas fracking could be worth over £1 trillion, raising the prospect of a massive tax boom the proceeds of which could be invested in a sovereign wealth fund. Lord Hodgeson said of it that it would be ‘akin to an everlasting pension fund for the UK’ and ‘might improve our financial stability in the short run’. (As an aside how ironic it was to suggest that fracking could help future generations!)

It doesn’t take an expert to detect the common themes.

All these proposals are based on the erroneous idea that money is a scarce commodity. They are littered either directly or indirectly with economic orthodoxy and misunderstandings of how a fiat monetary system works in practice. Increasing tax to pay for public services; eliminating the government deficit to achieve a balanced budget; balancing the budget over the economic cycle; reducing the deficit and repaying borrowing; debt reduction to avoid burdening future generations; selling off publicly owned land to invest in social projects – the list is endless and represents the common misunderstandings which pervade public and political consciousness.

The question of funding social care or indeed social security including pensions or public services is one which politicians and think tanks have been ‘wrestling’ with for years. On the assumption that they are not affordable their solutions range from welfare reform to taxing people more or indeed creating sovereign wealth funds. It is therefore unsurprising that yet again the question is being asked about how we can address the crisis in social care and fill the funding gaps to avoid a debt burden for future generations. Inherent in these beliefs is that government spending is dependent on raising revenue in the form of general or other types of taxation such as National Insurance.

We are caught in a decades old narrative which has created ignorance about how a modern monetary system actually works. Margaret Thatcher’s ‘there is no money but taxpayers’ money’ has become the overriding mantra which dictates policy and spending decisions.

With politicians talking about taxing more to fund social care or even promoting citizen or social wealth funds to resolve these long-term issues there is a systemic failure to recognise that no government (unless in the Eurozone or a country pegged to a foreign currency) is revenue constrained.  Collecting tax of any sort or setting up sovereign wealth funds do not give a government any more or less capacity to spend. As Bill Mitchell, Professor of Economics at the University of Newcastle New South Wales, points out referencing the Norwegian sovereign wealth fund scenario.

“The excellent public services that the Norwegian population enjoys are the result of political choices and a sense of collective will among its population. They have chosen this level of public provision.”

And that is the crux of the matter. It is a question of collective will and political choice. The power lies in the hands of the electorate to choose a government which puts public and social purpose at the heart of its policy making and spending choices. The electorate can only do that if it understands that monetary affordability is not the issue.

The alternative paradigm represents the current monetary reality and does not include raising tax from ordinary people, bringing back the magic money tree from the Cayman Islands or setting up sovereign or citizen wealth funds. Recognising the government’s fiscal powers to fund public services and make health and social care provision is crucial.  Such an understanding makes it clear that the arguments for taxing the rich more or saving through a National Insurance Scheme are irrelevant and ignore the economic realities of how our money system operates. Governments can’t ‘save’ and spending is not constrained by its tax revenues. Equally, such a government does not need to borrow to fund its deficits. Likewise, the implication that government debt will increase the burden on tomorrow’s tax payers is yet another myth designed to increase, quite unnecessarily, generational conflict. Again, Professor Bill Mitchell makes it clear:

“The idea that borrowing ‘takes money from the pockets of future taxpayers’ is nonsensical. The funds to pay for the bonds originate in the government net spending in the first place.

Clearly, deficits now are in part helping the current generation with income transfers and the like. But they also facilitate public education, public health and other infrastructure which provide massive benefits into the future for the current generation and their children.

Once you understand that, then the idea that there is a future burden will make you laugh.”

There is absolutely no need to sell the dwindling stock of public assets to invest in future infrastructure, and central government neither needs to tax nor borrow to fund health and social care or public services whether delivered nationally or locally. With political will and, on the assumption that we have the physical and people resources to provide better public infrastructure, it is deliverable tomorrow.

The value that public services provide cannot be measured in money terms of affordability. They are to be measured in terms of the health and security they bring to citizens which in turn generate well-being and a more productive nation.

We are caught in an age of manufactured ignorance. Just as the tobacco industry fabricated doubt about the dangers of smoking and the oil industry created distrust in the science of climate change the public’s understanding of how the economy and money system works has been clouded by fake household budget narratives which restrict government spending to tax or borrowing and raise the spectre of a public debt burden on future generations.

On the right, those narratives are being used to to deliver a specific agenda to diminish the role of the state and welfare provision whilst at the same time lining the pockets of corporations with public money that we are told is unavailable for the provision of publicly paid for and delivered services. The left, with its radical, progressive agenda, maintains the same fake narrative with which it says it will deliver a radical, progressive agenda aimed at bringing about environmental, social and economic justice. The contradictions must be obvious to all and yet those promoting modern monetary realities are criticised and ridiculed by those that should be welcoming the mechanism by which a real political difference can be made in order to address social injustice and environmental collapse.

The Overton window is shifting and as Gramsci noted about another era the ‘old world is dying and a new one struggles to be borne’. But as he also observed:

“What comes to pass does so not so much because a few people want it to happen, as because the mass of citizens abdicate their responsibility and let things be.”  

It is up to us to keep on PUSHing until something happens!

Events

Bill Mitchell, Warren Mosler and Martin J Watts to speak at GIMMS Seminar – Birmingham