Society is indeed a contract. It is a partnership … not only between those who are living, but those who are dead and those who are to be born.
Edmund Burke
Reflections on the French Revolution – 1870
In the news this week the government did yet another turnabout following Marcus Rashford’s campaign and public pressure by announcing a £170m winter grant scheme to support low-income families. During the same week, the Trussell Trust reported that there had been a 47% rise in the number of parcels distributed via its networks in the 6 months to September 2020 compared to the previous year; that more than 1.2 million parcels were distributed, of which 470,000 were to children. And this was, it suggested, just the tip of the iceberg as these figures did not include the number of people helped by the numerous local organisations, independent food banks and local authorities who have stepped in to support their communities.
Whilst the Trust attributed some of these increases to the pandemic, which has had a devastating, effect the Trust was clear as to the underlying reasons why people need support. The key issues were related it said to a fundamental lack of income which has left people struggling to afford the essentials. As Emmie Revie, the Chief Executive of the Trust commented to the Guardian:
‘We have to find better ways of supporting one another as a society than leaving people to rely on food charity. It’s not just about ending food banks, it’s about finding an alternative to the need for mass distribution of charity food in the fifth wealthiest country in the world.’
The threads of poverty lie in adherence to a failed market-focused economic ideology and the government policies and spending decisions that result from it. Child hunger is just one of many interlinked consequences and research published this week by the Living Wage Foundation showed that during 2019/20 nearly three-quarters of independent care workers in England were paid less than the real living wage. They are, it said, among the 5.2 million workers in low paid, insecure jobs – 1.3 million of whom are key workers. The analysis noted that care workers earn an average of £8.50 per hour and 24% are on zero-hours contracts. It, like the Trussell Trust, highlighted the existing inequalities in our society which has hit the lowest earners the hardest and that was before the pandemic struck. Whilst the nation clapped with Boris Johnson Tabitha, a care worker, said:
‘I feel like a Roman Gladiator going into the ring on a night shift. Everyone is clapping for you, but you’re pitting yourself against a deadly disease without the proper pay and protection.’
As the government has increasingly ceded its responsibilities for its citizens through cuts to spending on public infrastructure both local and national, which in turn has led to an ideological and financial response at local level as private profit-seeking companies were invited to tender for contracts to deliver social care services, the consequences have been devastating. For those being cared for as much as those doing the vital work of caring for others.
As the government lauded its financial acumen in managing its accounts, its decisions have led to a vicious cycle of deprivation and poverty and public infrastructure decay. The connections are irrefutable. Surely it must dawn on the nation soon, as government and other institutions begin to wind up and reinforce the household budget narrative in support of action to get the public finances ‘back in order’ after all this spending, that its health and economic well-being is being reduced to one of balanced budgets and unaffordability.
At the same time as Rishi Sunak suggested that he may increase capital gains tax to pay for billions borrowed and the COVID-19 debt which is supposedly racking up, the Resolution Foundation published its report entitled Unhealthy Finances: How to support the economy today and repair the public finances tomorrow. In its report, it focused specifically on the dual challenge it believes the government is facing ‘to ensure that there is sufficient fiscal support through the crisis and recovery, and setting fiscal policy on a sustainable path.’
Even though it said that the government should commit not to start such consolidation until the economy had recovered, it still claimed that the government must do what is required to ensure that the public finances are sustainable and adopt a balanced current budget rule.
In the report, it suggested continuing to use low interest rates as a tool for supporting the economy and noted the fiscal damage being caused by lower tax receipts and higher spending. It proposed, amongst other things, reforming the tax system to raise revenue and imposing a health and social care levy to provide any additional revenue required.
Here we have all the usual implied but false language narratives about government spending – taxing to spend, borrowing and unsustainable public debt, repairing the public finances, financial sustainability, balanced budgets.
We’ve been here many times before and clearly the establishment is determined not to lose control of that narrative. The fightback is in full swing. The deficit and debt worrywarts are working overtime to keep the public in line. Heaven forbid that people should learn the truth about how the government really spends!
However, as that knowledge is going more mainstream, questions are being asked as it is becoming ever clearer that human and planetary well-being lies with government choice, i.e. who gets the money. It is therefore intolerable to think, in the light of this growing understanding of the spending capacity of government, that government and think tanks are suggesting that taxes be increased to pay for this imaginary round of borrowing and the subsequent imaginary national debt which has arisen from it.
Whilst one could certainly make a case for reforming the whole tax system to ensure a fairer distribution of wealth, the justification by the Resolution Foundation or the Chancellor for increasing taxes does not stack up for the following two reasons:
- That such action would quite simply take money out of the economy at a time when it would still be recovering from the economic effects of the current crisis compounded by previous cuts to public spending which have had a cumulative effect on the economy. Private debt levels prior to the pandemic were already high but have soared by 66% since May to £10.3bn. The number of people in serious debt has doubled since March rising to 1.2m with a further 3 million at risk of falling into arrears. Raising taxes with this scenario in mind would seem self-defeating and destructive.
- That taxes don’t fund government spending and cannot be used to reduce public debt
Quite simply the ‘taxes fund spending’ story is just a lot of accounting smoke and mirrors to suit an agenda which aims to keep people downtrodden and accepting their fate. The trope of financial unaffordability is deep within our own household budget psyches and shifting such narratives can be hard work. Much depends on loosening our attachment to them through knowledge and more importantly the desire for something better.
Taxes will not pay off the national debt any more than they will boost financially a failing social care system. Our public services including social care and the NHS are in crisis as a result of government choices, not a lack of tax money the government can collect. Privatisation and the profit motive, along with public spending cuts have both played a role in destroying what could and should have been funded publicly.
The deceitful image of money scarcity, with government reliant on taxes and borrowing to spend, has no place in our society as children go unnecessarily hungry and our young people face a gloomy future.
In this week’s Guardian, Patrick Collinson wrote that the COVID-19 crisis could have a lasting impact on young people’s pensions: indeed, the lives of young people have been turned upside down with future employment prospects damaged and life opportunities curtailed. However, future private pensions are the least of the worries of young people as they start out in life. It is the government’s role now to ensure, through its policies, that young people can thrive and build themselves a future and decent state pension provision should be a significant part of that.
We need to expose the con of private pensions which are reliant on fickle markets and a stable economy. Margaret Thatcher’s economic vision which was inspired by Friedrich Hayek and Milton Friedman reflected her belief in the superiority of the market. The idea implicit in this dogma was that the welfare state deprived people of the opportunity to make their own provision for old age. Thus, we witnessed the opening up of the market for private pensions in an attempt to weaken the state’s own pension provision. The current crisis is exposing their weakness which even before the pandemic was becoming clear and invites us to question the state’s ideological reliance on the private pension sector.
The solutions are to provide decent state pensions to give retired people financial security and ensure a decent standard of living and to reduce the pension age. The current round of retirement age increases is based on the lie that state pensions will become increasingly unaffordable as the birth rate falls and tax take reduces which will, it is claimed, cause an unacceptable burden on future taxpayers. We need to break the false connection between the payment of tax and receiving a pension.
The question of how it can be paid for doesn’t arise if we understand how the government spends. It would be paid for in the same way the government always pays for things; by creating the money out of nowhere. A simple transfer with a few computer keystrokes authorised by the Treasury and carried out by the Central Bank. We need to knock on the head the idea that a portion of our tax is being collected somewhere in a savings pot to be divvied out at retirement or indeed that taxes serve to pay for public services.
Assuming that government has invested through sufficient spending on public and social infrastructure including education, training, new technologies and by embracing full employment policies, then an earlier retirement and a good state pension is possible. Such investment will not put a financial burden on the lives of future generations, it will enhance them and those of retirees. We just have to decide as a nation how we want the real, but finite, resources we have at our disposal to create a better life to be shared out.
Earlier this week, there was an interesting exchange of views on a Facebook labour group when someone posted the following:
‘You do realise the Bank of England are printing new notes by the million. All we will get from Johnson is a bankrupt country.’
It is disappointing to observe in that post and the thread that followed that some individuals on the left seem to get pleasure from continually shooting themselves in the foot. By excoriating what they see as a reckless Tory government because in their view it is spending too much and driving us towards bankruptcy or hyperinflation, adds a certain touch of irony to the criticism since it was the Conservatives who used similar arguments against Labour’s spending plans in the last election. It all boils down to where is the money going to come from and who is going to pay?!
This type of scaremongering is damaging to a left-wing agenda and is borne of lack of knowledge. It is regrettable that, even when presented with the facts about how the government spends, many still choose to persist in reinforcing the myths and ignore the fact that it is impossible for the UK government to go bankrupt or run out of money and that government does not need our taxes to pay for public services not even the taxes of the rich. Ultimately, that is to deny monetary reality and what that knowledge could mean for any future progressive government’s spending plans if such a government were to exist although that is currently quite another story!
If we are going to debate, let’s do it from a position of knowledge rather than making exaggerated and untrue statements about how we are all going to hell in a hand cart because the Tories have spent too much. Let’s remember that in 2010 the same arguments were being levelled at Labour following the Global Financial Crash; another era of suffering and hardship for many. And that it was the Tories who said in 2010 that there was no alternative to cuts to public spending to get the public finances back in order and yet have suddenly without a problem found the monetary wherewithal to save the economy from the worst effects of the crisis. For the left to use this argument against the Conservatives is counter-productive to future progressive agendas.
The household budget ping pong played by successive governments at election time, which examines critically the fiscal record of a government or asks how its spending plans will be paid for, has done great damage to society and the economy. Such arguments overlook the real measures of economic health relating to how government serves its citizens in real social improvements from the provision of health and social care, education, policing, a social safety net and public transport networks to local service provision of libraries, municipal parks and refuse collection. All these things which previously were determined as the public good have been attacked by a governing elite serving its own interests and those of its financial donors.
As Peter Fleming, professor of business and society at City, University of London wrote: Austerity [redefined] these things as fiscal liabilities or deficits rather than shared investments in common decency’.
Let’s argue for a better, fairer and kinder society based on real knowledge of monetary reality and not baseless statements which only serve to promote continuing political inertia on the left in terms of understanding how money works and how that knowledge fundamentally changes how we can respond to today’s and tomorrow’s challenges.
Newly published
This week, we published a fact sheet on Negative Interest Rates
and a new paper by Phil Armstrong and Warren Mosler
Weimar Republic Hyperinflation through a Modern Monetary Theory Lens
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