“We can pretend that extending the status quo into the future, unchanged, is one of the options available to us. But that is a fantasy. Change is coming one way or another. Our choice is whether we try to shape that change to the maximum benefit of all or wait passively as the forces of climate disaster, scarcity, and fear of the “other” fundamentally reshape us.”
― Naomi Klein, On Fire: The Case for the Green New Deal
This week, the Telegraph reported on a new poll saying that Rishi Sunak’s push to rein in government finances was backed by Conservative voters who were concerned that the government was spending too much and must do more to cut expenditure. According to Andrew Neil, who interviewed the Chancellor on GB News, he did not deny that he had indicated to Johnson that ‘he might have to take his credit card away’, and confirmed his statement made earlier this month that it was right that he should be ‘responsible with other people’s money’. It would be interesting to be party to conversations between No. 10 and No.11 – Johnson promising the Earth without consulting his Chancellor – whatever next!
Whilst voters on the right worry about the state of the public accounts, on the left we have politicians supporting this narrative; Labour’s candidate for Batley and Spen stated in an interview with Owen Jones prior to election day that ‘People are … sick of thinking there’s a magic money tree, there isn’t, so we’ve got to be clear about that’.
You could not make it up! While the planet overheats, in some places literally, landscapes and oceans degrade, and biodiversity and the natural world is under threat as a direct result of human behaviour, the state of the public accounts takes precedence over addressing the vast man-made politically created poverty and inequality, and even human and planetary survival!
And while the toxic consequences of neoliberal economic dogma prevail, and people get poorer and less equal while the rich go on raking it in, balancing budgets is apparently far more important than advocating the creation of a fairer and more sustainable economy.
This ‘past its expiry date’ understanding of how the government spends spreads its noxious tentacles into every aspect of our lives, suggesting that government spending is constrained by a finite pot of money that depends on taxation and borrowing. And that is before the political pundits or orthodox economists even get started on fearmongering about the size of the national debt. And yet, as destructive as the narrative is, it forms part of public and political debate on a daily basis on the news and social media alike.
It is disappointing, to say the least, that the winning Labour candidate in Batley and Spen is happy to sign up to the right-wing narrative of fiscal discipline and to reinforce this to her electorate, a narrative so beloved by Margaret Thatcher, who claimed that there was no such thing as public money. Dealing with the key challenges of the day, including saving humanity is, according to that message, limited to the tax paid in by working people. By that token, we will have to save up for it, or not do it at all! But do not worry, it is only the planet at stake.
This week the Chancellor, in his Mansion House speech about the future of financial services, yet again reinforced the false taxation paradigm, by claiming that the financial sector contributed ‘£76bn in tax a year’, which he stated was enough ‘to pay for our entire police force and our entire state schools’ system.’ It must have made the chests of those present puff out with pride at their contribution. Of course, on paper, one can do those calculations or costings, but the truth is that government does not need their tax, or anyone’s tax, in order to spend.
The Chief Bean Counter, yet again, leads the public astray with his household budget descriptions of how the government spends, and later in his speech reinforced the lie that it needs to borrow to fund its programmes. He confirmed the ‘final part of his vision’ which would give the public, he said, an opportunity to invest in the government’s green initiatives through NS&I Green Savings Bonds. It seems after a bank bailout over a decade ago which failed to spill the beans on how the government really spends, combined with a year of government borrowing from itself to manage the economic fallout from the pandemic, it is choosing yet again to reinforce the message that government needs to borrow from people or institutions in order to spend to save the planet. However, gilt and bond sales, although presented as a borrowing mechanism, have a quite different role and do not equate with borrowing. For more information on that point, you can find out here.
The government does not have to issue bonds, green or otherwise, to fund its spending, any more than it needs to issue bonds to savers to fund infrastructure schemes and create green jobs. That is just the smoke and mirrors of paper accounting. The government is the currency issuer, and with that comes the capacity to invest in creating a sustainable economy and create jobs, both in the public and private sectors, or through the implementation of a Job Guarantee programme which would act as an automatic stabiliser to smooth out the ups and downs of the economic cycle. It is the only body that has the legislative power to do so, and it is the only body with the monetary firepower.
And again, this week, in yet another game of smoke and mirrors, it was reported that the Government had been in private talks to direct billions of pounds of pension money into infrastructure and start-up companies to boost the economy. Industry sources have apparently been discussing how a portion of workplace pension schemes – those which staff have to join – would go into a fund which will launch this year. Yet again we are faced with the same government-sponsored tall tale, but the government does not need to raid pension funds to boost an economic bounce back, or indeed pay for a green agenda.
Such false narratives strengthen the false idea, which has been drummed into the public consciousness over decades, that the financial sector and markets hold the key to economic health, and that the government relies on their expertise and ‘talent, energy and imagination’, as Sunak explained in his speech, to revitalise the economy, which, according to him, matters more for this industry’s success than any government policy.
Is that the same financial sector that crashed the economy in 2007/8? The same financial sector that operated like a casino whilst believing it was invincible, and, in doing so, ruined the lives of hundreds of thousands of people; destroying jobs, depriving people of their homes and contributing to huge economic instability, which in the end led to the poison of damaging austerity.
It calls to mind the words of another Chancellor, Gordon Brown who, addressing the City of London just two months before the run on Northern Rock said:
‘Over the ten years that I have had the privilege of addressing you as Chancellor, I have been able year after year to record how the City of London has risen by your efforts, ingenuity and creativity to become a new world leader… I congratulate you Lord Mayor and the City of London on these remarkable achievements, an era that history will record as the beginning of a new golden age for the City of London.’
No sooner had he said it than the financial edifice came crashing down. Clearly, the beginning of this new age was put on hold!
Like governments before, even in the light of the great financial crash politicians such as Sunak are following the same path, bowing to markets and the financial sector as if they are the authors of economic well-being.
And like governments before, it is relinquishing its responsibility for the state of the economy and the health of the nation or the planet, with the implication that the state’s role is a limited one. Even though its vast power has been demonstrated clearly over the last year and more and has prevented an economic meltdown.
It is government policies and legislation that make the rules by which private companies operate, and it is shameful that for decades successive governments have given the financial sector free rein to do as it pleases, with dire consequences. It is also shameful that the government suggests that it needs the money of private savers, the financial sector, or other institutions in order to spend. It is equally shocking that successive Chancellors have pulled the wool over the eyes of the public about how the government spends, by continuing to bow down to the gods of the market and the financial sector.
Wherever you look, the household budget paradigm rules, to the detriment of the biggest challenge we have ever faced. The future of humanity. And still, in the face of rising temperatures and seas, the question on everyone’s lips is: ‘who will pay for it?
This week, an article in the Guardian put the oil industry on the spot over the decades of denying the effect of their business on the climate. It suggested that whilst we cannot get back the 40 years lost to the oil industry’s climate lies, that it should now pay for those deceptions with higher taxes to fund the green agenda. Of course, again, the household paradigm rules in the same way as the left clings to the idea that we should get the excessively rich to pay more tax to pay for the radical environmental programmes that will be needed.
Again, the bottom line is that tax does not fund government spending; the only body with the real monetary capacity as the currency issuer to pay for what we must do is the State. That does not mean to say, however, that they should not be made to bear the burden of their lies, indeed they should – through legislation and taxes designed to drive a move away from damaging carbon-based energy towards developing sustainable technologies harnessing wind, water, and the sun. That is the power of the state, assuming it chooses to use it, rather than deferring to the market for solutions. So far, this government’s record on environmental action has been lukewarm and as changeable as the weather.
Again, this week, in another article commenting on the appointment of Sajid Javid to the position of Secretary of State for Health, the author focused on the problem of MONEY, or rather lack of it, writing:
‘But in every battle Javid fights from now on there will be another familiar problem: money. How to fund a reshaped, modernised health service from Treasury coffers already run bare by the pandemic. How to modernise social care without blowing another hole in the public finances, or putting up taxes, or slashing pensions’
Putting aside the idea that this government has any intention of reshaping the health service or social care as publicly paid for, managed, and delivered services and has, in fact, been working for the very opposite, once again the ‘state coffers are bare’ message predominates. It reflects the strategies of successive governments for decades, on both the left and right, who have introduced the private healthcare sector into the mix, in the belief that the private sector is more efficient and uses public money wisely, regardless of the fact that public money is going into private profit and results often in poorer quality and restricted services. Corporate welfare has been the aim of the government game, influenced by those very same corporations advising on policy.
However, the idea that the government has to make choices between putting the finances straight and people’s lives, is not only cruel in its conception but also incorrect. The government does not have to blow any holes in the public finances, put up taxes or slash state pensions. Quite simply, all the government has to do is authorise its central bank to spend.
The question, as someone noted this week on social media, is not how are we going to pay for it, but how are we going to resource it? Do we have the nurses, doctors, other health professionals, hospitals, and other facilities, not to mention social care workers, to provide good health and social care? And if not, why not? Who has failed to make provision through its policies and spending decisions? Where does the blame lie? At the feet of the government, of course.
It is all the more concerning that Javid, a former chancellor who promised an end to austerity and then broke his pre-election pledges by ordering his ministers to identify savage departmental cuts, on the basis that they had been ‘elected with a clear fiscal mandate to keep control of day-to-day spending’, and who said that ‘this means there will need to be savings made across government to free up money to invest in our priorities’, is now in charge of the Department of Health and Social Care. The public should at least know what his priorities might be.
We now have a truly clear idea, based on previous and current experience, that it means pouring public money into big corporations and the pockets of relatives, friends, and mates of mates, whilst depriving the public sector of the means to function efficiently and effectively. Misusing their spending capacity for their own agenda at the expense of serving the public purpose.
The government does not need to examine the state of its finances or whether it can raise taxes or borrow to fund its spending or if it should cut back its expenditure, its role should instead be to look at the bigger picture of resource availability and decide what its priorities should be. What it does need to explore is how can it release the resources it needs to deliver those public priorities by reshaping the balance between private and public sector employment? And as the currency issuer, it certainly does not need to rob Peter’s department to pay Paul’s, or even make savings.
While the Chancellor considers his potentially cost-cutting or tax-raising moves, as a result the Prime Minister’s levelling up and other promised spending plans could be in jeopardy, if indeed they were ever intended to be more than hot air to make him look good.
Restoring fiscal discipline would put paid to those plans. You cannot do both. Government has the tools to improve people’s lives if it chooses to use them. Instead, it prefers to defer to market solutions again and again with damaging consequences.
Successive neoliberal governments have relied on the view that a light-touch regulatory environment is what is needed, and that letting the rich get richer will allow wealth to trickle down. All government has to do, apparently, is wait, and bingo! Poverty will be a thing of the past and public services affordable. And yet the evidence is now, and has been for some time, that doing so has led to the lives of the poorest continuing to deteriorate along with public and social infrastructure.
A paper from the London School of Economics (published in December 2020) which compared 18 developed countries that cut taxes in 1982, (when Ronald Reagan cut taxes on the wealthy) with those that did not, found (surprise, surprise), that instead of wealth trickling down to boost jobs and incomes, such tax cuts only helped one group – the already rich.
Over the last few years, the reality of the consequences of government spending and other policy decisions which have led to rising poverty and inequality, have continued to make media headlines. Along with the decaying public and social infrastructure facilitated by austerity-driven, neoliberally inspired government, we have seen, over the last decade, a continuing deterioration in living standards. Rising homelessness and food bank use, housing unfit for human habitation, compounded by unaffordable rents and insufficient housing stock, inadequate access to health care and good education, not to mention the hardship caused by low incomes and precarious employment.
A study carried out by an All-Party Parliamentary Group (APPG) has found that England’s poorest neighbourhoods have the biggest shortages of social infrastructure such as parks, playgrounds, pubs, shops and sports facilities. It also showed that such neighbourhoods are least likely to get government funding to support their communities and found that they were less than half as likely to have charities and community groups in their local area. These ‘left behind neighbourhoods’ as they have been called were, it noted, overwhelmingly concentrated in the post-industrial towns and cities of the north of England and the Midlands, as well as coastal areas of the south-east.
Whilst Sunak continues to tell the public that he has to be ‘careful with other people’s money’, alluding to the increasingly discredited view of Margaret Thatcher about state money, he is reinforcing in their mind that, at some point, there will be a price to pay in higher taxes or more public sector cuts, however damaging that would be to an economy still struggling to get back on its feet. He is reinforcing the idea that dealing with the key issues of our time is financially unaffordable, whether that is addressing the consequences of the climate crisis or the decades of neoliberally created poverty and inequality.
Neoliberalism is not dead, as some on the left seem to think. It is morphing into something else even less wholesome, and we still have major political parties signed up to the corporate charter of planetary destruction, whilst talking in the misleading language of green growth and the lie that we can continue as we are.
We must keep pushing back on these false ideas, which have already done vast damage to the planet and all life that depends on it being healthy to survive. We must acknowledge our connection to the natural world which sustains us and recognise our interdependence.
There are choices. We just have to decide on which path we prefer to stride. Balancing public budgets and allowing corporate control over the green agenda and the demise of our democratic values, such as they are, or accepting that an understanding of the reality of how money works must be the baseline for what comes next, and that such an understanding offers real opportunities to create the sustainable, steady-state economy that we seek.
Join our mailing list
If you would like GIMMS to let you know about news and events, please click to sign up here
Support us
The Gower Initiative for Money Studies is run by volunteers and relies on donations to continue its work. If you would like to donate, please see our donations page here