“The political class in Westminster have failed us. They inoculate themselves against the pain that we suffer. We will not forgive them, and no, we will not be patient with their political ideology – a belief system which sees exploitation, grotesque levels of inequality, the constant threat of war and destitution as a fair price for the protection of a system which serves them and the richest so well. We have run out of patience with their destruction.
They wilfully look away at the crisis in housing, at poverty pay, they have encouraged a system of privatisation and fragmentation of our NHS, taking away more and more of our services, they stoke a despicable nationalistic racism and cultivate culture wars to distract us, to divert our attention and to obscure the truth. The truth is they refuse to serve our interests and they have disdain for our lives.”
This week, the debt doomsters have been out in force! The media and politicians alike have yet again been trying to pull the wool over our eyes with warnings about public debt, handily reinforced by the publication of the Office for Budget Responsibility’s (OBR) Fiscal Risks Report.
Whilst Labour’s Rachel Reeves commits to a cosy conversation with the public about how we can pay for social care, saying that the party would be willing to put up taxes to do so, the OBR’s report has set off a spate of media articles designed to prepare the public for some ‘hard choices’, as Rishi Sunak has previously described it.
We are being primed for the government to abandon its commitment to the pension ‘triple lock’ with scaremongering about its cost, as Sunak claims that concerns about the 8% rise to the state pension due this year under the policy are ‘completely legitimate’, and that any decision will be ‘fair for pensioners and taxpayers.’ And thus, yet again, we see politicians creating and reinforcing societal and intergenerational division for a political agenda, based on the lie that taxes fund state pensions. By claiming that there is a limited pot of ‘taxpayers’ money’, they imply that the triple-lock for pensioners will deprive young people of a stable life and burden them with higher taxes in the future, leading to the conclusion that pension costs must be controlled to be fair to the young. At the same time, it ignores the ongoing reality of decades of government created pensioner poverty and the mess of government-encouraged private pensions that rely on a corrupt and unstable financial sector. Yet again, we see the government creating conflict and absolving its responsibility for its citizens on the false premise of monetary unaffordability.
Then, this week, it was announced that the government would be withdrawing the £20 a week Universal Credit uplift which gave people a lifeline during this difficult time, and went some way to repair the damage caused by 10 years of cuts to public and social security spending.
What sort of perverted logic claims that reducing weekly payments will contribute to getting people ‘back into work’? What sort of perverted logic suggests that people already in work and existing on low incomes and in precarious employment, and for whom the uplift represented an improvement in their living standards, should now be denied it?
Apart from lacking moral compass, such a decision is also macroeconomically bonkers, as it removes money that was being spent into the economy by both those unfortunate enough to have been made unemployed or indeed those receiving in-work benefits because of low incomes. In this respect, the government’s preoccupation with the economy is laughable, since it fails to recognise the role of private spending. It also fails to recognise that it is the government that is actually responsible for creating an environment conducive to the good functioning of the economy.
When asked how a cut would help people to find work, Sunak’s response was that the government was ‘making sure that people are funded by the government to get new qualifications and skills.’ However, as the parable about the 100 dogs and 95 bones (told by Warren Mosler, below) and the economist Bill Mitchell make clear, ‘training does not equal jobs.’
And as for job creation, we can look to the government’s Kickstart scheme which allows employers to offer a six-month work placement funded by the government. It was revealed this week by the work and pensions secretary, Therese Coffey, that just over 40,000 young job seekers had started work on the scheme out of a planned 250,000. A scheme that expires at the end of the year, and we are already halfway through. Not exactly a roaring success.
Those in government suggesting that reducing the current payments is a solution and would contribute to getting people back into work, presumably because then they will accept a low wage and insecure employment, clearly have never had a day of living with government-created want in their lives. Even former Tory work and pensions secretaries have asked that the government rethink, as government ministers have admitted that they have made no studies on how many more children the withdrawal of the Universal Credit uplift will push into poverty, with figures being suggested of over 400,000.
In that light, a report published this week by Loughborough University revealed that even before the pandemic arrived 4.3 million children were living in poverty, up 200,000 on the previous year – and up 500,000 over the past five years. It also noted that 75% of children living in poverty in 2019/20 were in households with at least one working adult, which was up 67% on 2014/15.
Anna Feuchtwang, Chair of the End Child Poverty Coalition said:
“The figures speak for themselves – the situation for children couldn’t be starker. We all want to live in a society where children are supported to be the best they can be, but the reality is very different for too many.
“The UK Government can be in no doubt about the challenge it faces if it is serious about ‘levelling up’ parts of the country hardest hit by poverty. After the year we’ve all had, they owe it to our children to come up with a plan to tackle child poverty that includes a boost to children’s benefits. And they need to scrap plans to cut Universal Credit given parents and children are having a tough enough time as it is.”
The solutions lie in a much broader and radical approach to unemployment which puts government at the heart of policy, rather than leaving the market to dictate unpalatable responses which are about maintaining a competitive environment to keep profits rolling in, but which are at the expense of working people. People who have been exploited and manipulated to serve an economic system that depends on keeping some of them unemployed to control inflation and benefit employers, by keeping wages low and jobs insecure, whilst at the same time blaming those very same people for being unemployed.
Given the huge environmental challenges ahead, we need a policy mix which includes expanding the public sector to restore its efficiency and effectiveness. We need to enable a shift in what we consider to be a healthy economy by moving away from endless growth and consumption of stuff to keep the profit wheels oiled, towards one which values human well-being and planetary sustainability as key to success.
This policy mix should be underpinned by the implementation of a permanent Job Guarantee to provide economic and price stability when the next recession hits, as most surely it will, along with a fit for purpose benefit system for those who are unable to work for any reason.
And yet while the very real challenges which will define our future remain, with respect to the consequences of climate change, the continuing exploitation of human beings, land and oceans for profit motives, we are being coached daily and relentlessly to accept the likelihood of increased taxes and more public sector austerity to pay for public debt, as the OBR’s report shows. Someone, somewhere, will have to pay in financial terms on this model.
The BBC, The Telegraph and The Financial Times, like many other news outlets covering the OBR’s report, focus yet again on debt piles and the so-called ‘eye watering’ record levels of borrowing. The Telegraph, quoting from the report, claimed that soaring costs would threaten to make Britain’s debt unsustainable, should interest rates rise to curb inflation. It painted a picture of a chancellor ‘battling to steady the public finances’, as if he is a captain straining to keep control of his ship in a raging storm. It suggested that addressing the spending pressures could require both cuts to the budgets of government departments and tax rises. It cautioned that the fiscal impact of achieving net-zero could add 21% of GDP to public sector net debt in 2050-51, that lost fuel duty due to the move towards electric vehicles would impact on the government’s fiscal position, and that investment in zero-carbon technologies would add to costs as it would only be partly offset by higher carbon tax revenues. The report also warned of the potential rising costs of servicing government debt in the event of what it called the ‘future shocks’ of higher inflation or interest rates.
The classic household budget narrative of how governments spend rules the roost, and acts to prepare the public for an unpalatable solution to rising debt.
Of course, this narrative does not reflect monetary reality, however hard the orthodoxy tries to suggest it does. The government doesn’t have a debt pile and the Chancellor doesn’t have to tackle it with tax rises or cuts to public spending in any government departments. There is no finite pot of money to share out. The government is the financial and legislative ‘controller’.
The concerns about dealing with public debt and the potential ‘threat’ of the rising cost of borrowing, which would, according to the orthodoxy, place future burdens on taxpayers, are continuing headline themes on the right of the political spectrum. Whilst on the left, the message is that we must sting the rich to pay for public services, and that politicians must have supposedly ‘sensible’ conversations with the public about paying more tax to provide social care, or being able to borrow at low interest rates to spend on public infrastructure.
However, whilst the monetary orthodoxy prevails, it is becoming more and more difficult to believe that Rishi Sunak, at least, or his Treasury staff really don’t know how the government spends. One can only draw the conclusion that denying monetary reality allows them to continue delivering their political agenda by claiming that money is scarce. It is quite simply all part of the ongoing smoke and mirrors of how the government spends, which gives them power over the public purse and who benefits from it and who loses out.
At this point, it would be useful to revise the facts of monetary reality. It is not difficult to understand and doesn’t require the services of an economist to decipher. Such general knowledge could make a huge difference to how people view politics, which would allow them to examine the connection between government policies and spending decisions and who benefited and lost out as a result. Neither politics nor the economy exist in a vacuum; they both determine how well society functions or not as the case may be. Without that understanding, such narratives will always, in the end, put the brakes on government action, on the false count of unaffordability, and threaten the implementation of policies to deal with the climate crisis and rising poverty and inequality.
Firstly, the government is the currency issuer. It spends money into existence. That is where the story of how the government spends begins.
Secondly, as the currency issuer, the government neither needs to tax in order to spend, nor to borrow to cover its spending over and above its tax revenue. The government’s deficit, which sounds quite scary to ordinary people who compare it to a shortfall in their own household budgets, is everyone else’s surplus. That is the money in our savings and circulating in the economy, in our pockets. The use of the tax, deficit, debt and borrowing frameworks are just accounting conventions that bear no relation to the monetary reality of how the government spends.
Thirdly, by asking where the ‘money’ in our pockets and bank accounts comes from, we find that logically speaking the government must spend before any of us can pay our tax, and by extension before it can ‘borrow’, which is just another smoke and mirrors illusion.
The act of spending is the primary step, and on that basis, why would any government want to borrow money it had spent in the first place? However, the term ‘borrowing’, which is often accompanied by the phrase ‘living beyond our means’, serves to keep the public on board with the idea of the need for fiscal discipline. Relating those concepts to people’s own budgets keeps people accepting the prospect of tax rises and cuts to public services.
In the Times this week in the light of the OBR’s fiscal risk report, the paper reported that Sunak had been warned by the OBR that the £10bn ‘deficit’ (which is the money in our savings and pockets) can be fixed only by taxation and yet more spending cuts, as apparently ‘there is no longer any easy way of cutting Britain’s debt.’
Referring to the ongoing challenges of clearing hospital backlogs, maintaining the test and trace and vaccination programmes, catch-up funding for schools and making up lost rail fare income would, it said, ‘add around £10bn a year on average in the next three years.’
What can one say? Good luck with that Rishi! Thinking caps need to be at the ready! How will taking money out of an uncertain economy with a virus still raging and furlough unwinding help? The idea that the government needs any tax to reduce the deficit or pay down debt is quite simply yet more deliberately sowed confusion. Worse, to suggest more austerity when we are living the consequences of 10 years of public sector spending cuts, is, without doubt, absurd and would continue to damage an already fragile public infrastructure.
By extension, the false logic must surely follow that we cannot then afford to deal with the planetary emergency that threatens our existence, because there will always be a burden of debt hanging over us and a shortfall in revenues, which will require the government to make difficult decisions by increasing taxes, cutting its spending, or divvying up a finite money pot to serve its agenda. In the end, such narratives will always lead to the government putting on the spending brakes to balance the public accounts, regardless of the impact of such decisions.
The same false logic suggests that we cannot afford to rebuild our public and social infrastructure, even if we had a government with the political will to do so, rather than one that spent 10 years dismantling it. That we cannot address the growing poverty and inequality that has arisen over a decade, due to politically motivated austerity by a government which over the last year has shown its true colours, using its spending capacity as the currency issuer to benefit corporations with little or no accountability or transparency. Corporate welfare at the expense of public purpose.
By that false logic, abandon all hope ye who enter here because, apparently, we’ve spent too much and need to attend to the public finances. The deficit spending in itself, however, does not represent the material risk to the public spending outlook that is being suggested. In fact, we need to turn this argument right on its head and ask a different question.
Instead of worrying about the public finances and the size of the deficit, we would do better to consider first what the deficit represents, and who has benefited from the government spending and who has not. Secondly, rather than seeing the deficit as a problem, we need to examine how we can best address the future challenges before us through government policy and spending decisions. And thirdly, if finance is not the constraint, then what is?
If spending is always reduced to the concept of fiscal discipline to keep the public accounts in order – how much tax is collected and how much has been borrowed -then the future will most certainly be bleak. The cutting spending and increasing taxes recipe that the Chancellor will most certainly trot out on budget review day later in the year, will satisfy the Treasury bookkeepers tallying their modern computer-driven version of the public accounts, thus giving the government an opportunity to promote itself as a safe pair of fiscal hands in future elections. However, such thinking will fail at the first hurdle by creating yet more economic pain for a nation that has already had a bellyful, as delivering public purpose is relegated yet again to being unaffordable.
The real constraints we face are, as we are finding out, resource-driven, and the potential that creates for inflationary pressures. Early on in the pandemic, we experienced such pressures on the NHS when trying to source PPE and other equipment, not to mention the pressures on a service which was and remains short of over 40,000 nurses as a result of government policy and cuts to spending.
In recent weeks, the lack of HGV drivers has put increasing pressure on supermarket delivery networks. The construction industry is experiencing shortages of building materials and transport capacity and is being affected by long lead times for items coming from abroad. And then there is also a shortage of the semiconductor chips which form the basis for the technologically driven world in which we live, from TVs, PCs and cars to hospital and other vital equipment that drive our energy and water networks.
Even though the Bank of England has said that it expects these current price pressures to be temporary as economies start to open up, the inflation doom merchants continue to rattle their warnings about high levels of public debt and future financial burdens. They should instead turn their attention to the real issues related to continuing economic uncertainty and raised levels of unemployment, the all too real threat of climate change and managing our finite resources to create a stable and sustainable economy. That is the real role of the government, not balancing the books. Future shocks will have nothing to do with the rising costs of borrowing, but will be related to any government decision to cut spending or impose more austerity at the expense of people and the planet.
We have a government which must know about monetary reality by now, advocating fiscal discipline on the backs of human existence and abdicating its role in spending and legislation to drive public purpose aims. At the same time, it promotes killer growth and the role of the profit-motivated private sector as the mechanism for human betterment. A contradiction in terms. We have a government wielding the power of life and death for the supposed sake of balanced budgets and the maintenance of the status quo.
In the words of Naomi Klein:
“Our economic system and our planetary system are now at war. Or, more accurately, our economy is at war with many forms of life on earth, including human life. What the climate needs to avoid collapse is a contraction in humanity’s use of resources; what our economic model demands to avoid collapse is unfettered expansion. Only one of these sets of rules can be changed, and it’s not the laws of nature.”
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