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True consequences of government policy are far worse than a waste of taxpayers’ money

Published by Anonymous (not verified) on Sun, 12/06/2022 - 1:06am in

Rishi Sunak holding a £1 coin while making a speechImage by HM Treasury on Flickr. Creative Commons 2.0 licence

“Real generosity towards the future lies in giving all to the present.”

Albert Camus, Notebooks 1935-1942

 

The Debt Doomsters are back (did they ever go away?). Rishi Sunak is accused this week of wasting billions of taxpayers’ money servicing government debt. In yet another smoke and mirrors exercise to keep the household budget model of Exchequer Accounting alive and well, Professor Jagjit Chadha of NIESR (The National Institute of Economic and Social Research) claimed in a BBC article that Sunak’s actions had left the country with ‘an enormous bill and heavy continuing exposure to interest rate risk’. While neoliberal think tanks like the NIESR continue to focus their attention on the false model of how the government spends, the actual consequences of years of government policies which are colliding with geopolitical events and the continuing effects of the pandemic on global supply, means that the economic crisis will not be solved any time soon, unless the government chooses to actively work to solve it with an understanding of monetary reality and the real constraints to its spending.

As many thousands of households face further pain, adding to the already existing misery, the cumulative consequences of a decade and more of Conservative policies which have put balanced books and a toxic, market-dominated ideology over public well-being, are plain to see. We are a country in crisis, not because the government failed to get the public finances under control, but because the government has chosen that route, through its spending and other policies.

As the academic Prem Sikka tweeted, responding to a BBC article which reported that people in receipt of tax rebate cheques were queuing to cash them at pawnbrokers because they couldn’t wait for the money:

‘Government measures don’t deal with poverty or corporate profiteering. There is no long-term respite. Cost of living crisis is systemic’.

The consequences are stark. Statistics translate into real people and their lived experience arising out of years of government policies. The exponential growth in food banks across the UK is a telling aspect of that failure which GIMMS reports on regularly, as is the hunger which forces people through their doors. When mothers can’t afford to buy baby milk formula as was reported by ITV News on Friday, or have to skip meals to feed their children, it is indicative of a society in deep trouble as the gulf between the haves and have-nots becomes ever wider.

This is not happenstance, and what is worse is that government ministers don’t recognise their own hand in this unacceptable situation. Last week, when asked to comment on Radio 4’s Today programme about the plight of a mother who was skipping breakfasts and whose son was concerned, the government minister Dominic Raab said, ‘I read that story – it just breaks your heart and melts your heart.’

Faux compassion. His own children will never have to face that realisation.

Raab’s voting record tells, in fact, quite another story and shows that he has consistently voted for reductions, like many of his colleagues, in spending on welfare and against raising welfare benefits in line with prices. So, it was not surprising to learn in the same BBC interview that he ruled out an expansion of free school meals, despite calls from teaching unions and charities to widen it out to all families in receipt of Universal Credit. According to figures published by the Food Foundation, around 1.7 million children are eligible for free school meals, but it is estimated that 2.6 million live in households that miss meals or cannot access adequate nutrition because they can’t afford to. The impact on the health of those families cannot be underestimated, nor on the economy itself.

The ONS noted in its reporting last month that wages were failing to keep up with inflationary pressures. As a result, credit card borrowing is rising at its fastest rate in 17 years, according to the Bank of England, despite its ill-advised interest rate increases. Increases that will do nothing to address the external supply issues which lie at the heart of the current inflation and can only add to the nation’s financial woes. Growing numbers of households are facing rising personal debt to pay bills, put food on the table and keep the lights on. People who are quite simply trying to keep their heads above the water are, however, not only victims of these current inflationary pressures, but also victims of decades of policies which have ensured that the share of the rewards of productivity has gone into ever fewer hands. Impoverishing many and enriching the few. We are now reaping the consequences.

Functioning economies don’t just happen. They are created by governments through their spending and legislative decisions. For too long, the public has been hoodwinked by politicians, and the mainstream media which repeats the mantra, into believing that a healthy economy demands balanced public accounts. It is unaware for the most part that the government, as the currency issuer, has the capacity to spend without tax collection, or indeed that taxation or bond issuance (incorrectly referred to as borrowing) can only happen once the government has spent the money into existence, which it does through its central bank on a daily basis in vast quantities, from paying pensions and benefits, to the salaries of public sector workers, and its contracts with the private sector.

The public is also largely unaware that the real challenge for any government is how it balances the economy, based on the real resources it has at its disposal, and what its political and economic priorities are. What the public hears instead is that the measure of good government is whether it has been fiscally responsible. The message is that deficits are bad, regardless of the economic circumstances. And heaven forbid that a government should incur public debt and create burdens for future generations.

In the UK’s case, the priorities, over a decade, have been less about the welfare of citizens and more about keeping a toxic economic ideology alive, and big business (who dictate the rules) on top, through adherence to this false accounting model. And yet, while public infrastructure decays, public money has been poured into corporate welfare, whether in bank or corporate bailouts, or favourable tax regimes that benefit those same business interests.

Whilst NIESR extolled the virtues of sound finance and berated Rishi Sunak, Boris Johnson suggested in a speech in Blackpool after his confidence vote win that the current tax burden was an ‘aberration’, that more state spending was not the answer to every problem, and that instead, we should focus on cutting regulation to unleash growth.

Haven’t we been here before? And look how that ended! The 2008 Global Financial Crash and the terrible loss of life that resulted from the fire at the Grenfell Tower revealed the consequences of allowing the financial sector to be a casino and businesses to do as they please. That is the real cost of deregulation.

Despite Sunak unleashing the power of the public purse, even if one notes that distribution was inequitable, favouring big business over supporting citizens adequately to navigate the current crisis, Margaret Thatcher’s ideas clearly still hold sway in the corridors of Conservative power. Perhaps, one might contend, not because they actually believe it, but because it suits their agenda.

Whether it’s Thatcher’s pronouncement that ‘It is your tax which pays for public spending’, or her insistence that ‘there is no alternative’ to the discredited notion of free markets, Will Hutton’s article in the Guardian last month, which claimed that Sunak is ‘dumping ‘Thatcher’s verities’, is clearly a little premature. As his neighbour in Number 10, playing to his audience in the re-constituted lobbying group Conservative Way Forward, founded by Thatcher and promoting free-market policies, demonstrates. Well, when you’re in a sticky corner you have to get support from somewhere to keep you in Number 10, don’t you?

In the same vein, at the end of last month, it was reported that Johnson had written to civil servants to justify his plans to cut 91,000 jobs, claiming that government must reduce its costs ‘just as many families are doing’. Arguing that since the UK had left the European Union and the threats posed by the pandemic were diminishing, he said that ‘we no longer require the state to have the same colossal presence in people’s lives’ [therefore] ‘we must ensure the cost of government is no greater than absolutely necessary.’

The notion being promoted yet again is that the government spends like the budgets of the families he refers to, and therefore it must show fiscal responsibility and cut its cloth to what is affordable.

The neoliberal narrative of the small state also predominates in this message, along with the story that the function of government is solely to facilitate the needs of big business so they can keep the wheels of the economy turning, through deregulation and keeping state spending to a minimum to reduce the tax burden on the corporate body. According to this mantra, it allows corporations to ‘invest’ their profits in innovative new technologies which, in turn, it is claimed creates employment and facilitates wealth creation, which then trickles down.

The lies they tell.

Never mind that that actually hasn’t occurred as corporate profits and top dog salaries have grown exponentially over decades, while at the same time working people and their families have suffered the consequences of a low-wage economy, based on precarious employment and exploitation. It is not a recent phenomenon and not confined to the UK. Whilst this article is dealing specifically with the UK, we cannot ignore the impact of this toxic economic system on global citizens who have borne the brunt, particularly in the Global South, and who are suffering the fall-out of the current crisis.

As Oxfam reported last month, as food and energy prices rose to their highest level in decades, billionaires operating in those sectors have seen their fortunes rise by $453 billion in the last two years. That combined wealth stands at $12.7 trillion, representing a three-fold increase over the year 2000. According to Oxfam, the fortunes of the richest 20 billionaires are greater than the entire GDP of Sub-Saharan Africa.

Corporations and the excessively wealthy have, over decades, profited from pain, and governments around the world have complied through failure to act. That’s a sick system in operation.

Returning to the UK, never mind either that the public and social infrastructure which includes civil servants, form the backbone of a healthy economy, or that there will be economic consequences at such a critical time to reducing the workforce as people lose jobs and the salaries that would be spent into the economy. People who will in some cases join the already insecure and badly paid employment landscape, the sickening consequence of the government’s hands-off approach and its failure to create a functioning economy that is fair to all, and lines the pockets of its corporate friends instead. For a party that claims to want to grow the economy, it’s going the wrong way about it!

In this light it is both infuriating and disgusting that Johnson, in his Blackpool speech, said that the government intends to ‘look at how we can give our nation of aspiring homeowners better access to low deposit mortgages’ and ‘extend the right to buy’, as if that plan will help people already on the poverty line, struggling to feed their families and pay their energy bills. The man with a plan – not! No change there then.

It is equally shocking, as already mentioned previously, that he raised the ’spectre’ of a 1970’s style ‘wage-price spiral’ if workers, in response to the cost-of-living crisis, demand higher pay. Whilst CEOs continue to rake in vast salaries and bonuses as did the Sainsbury boss who it was reported, saw his pay triple to £3.8m last year, the average Sainsbury employee earns183 times less than their boss. Johnson by recommending pay restraint to working people who have for too long been the victims of government policies which have benefited employers, this surely should be the wakeup call for change? A call for a fairer distribution of the country’s wealth.

The nation has lived through the consequences of over a decade of government austerity policies which have decimated our public and social infrastructure and introduced public sector pay caps, on the lie of unaffordability. This combines with policies that have also promoted a generally low-wage economy and insecure working practices, with the claimed advantage that it supports businesses to be competitive. If Johnson gets his way, he seems to be proposing to follow that same route again.

When it was politically convenient, and Johnson needed the votes of the so-called Red Wall, he promoted his levelling up project promising funding and support. But Boris Johnson’s so-called ‘defining mission’ has so far been little more than a damp squib and has failed to even start dealing with the systemic problems caused by 30 and more years of the adherence to an economic ideology which has bred the pre-existing poverty and inequality that has added to the current economic difficulties.

Now with the growing crisis resulting from the pandemic and the continuing conflict in Ukraine, if the Chancellor chooses to continue to play the household budget game to keep his reputation as a safe pair of fiscal hands, it is probably only a matter of time before any talk about levelling up or investment in the nation’s public infrastructure goes by the wayside, As we know from past experience of Johnson at the Dispatch Box, fancy rhetoric is easy to spout but clearly not so easy to deliver without a clear strategy or foregoing the rhetoric of affordability.

The government can talk as much as it likes about levelling up through local investment, but without addressing the key causes of the failure of local communities to thrive, which include wage rates and employment legislation, both determined by national government, it will continue to fail. Businesses will be reluctant to invest if they have no confidence that that investment will bring a return. When infrastructure is in a state of decay and people’s lives a constant struggle, an economy cannot flourish.

Levelling up can only happen with a government that has the political will to use the power of the public purse and legislative capacity to distribute wealth more fairly and create the public and social infrastructure which underpins a fair and sustainable economy. It can only happen when the social determinants of a nation’s health and environmental sustainability sit at the heart of policy. It cannot be one based on growth for growth’s sake, to keep the profits high, and capitalism on a roll at the expense of people and the health of the planet which provides the means for human existence.

It can’t happen either in a government that still pretends that fiscal discipline comes before human security, health, and welfare, or indeed preservation of the planet. The idea that is promoted by politicians that those things are dependent on a healthy economy and the tax that derives from it is false. Thatcher’s faux model of the public finances is being used to serve the neoliberal agenda and keeps the public in a state of ignorance, fearful and therefore malleable to that agenda. It is time to challenge that economic agenda and the monetary model which drives it.

Let’s not be under any illusion. We are at a crossroads for humanity. We can choose the path of endless wars to fund a bloated arms industry that produces only death and destruction and continue with the harmful economic model which is driving poverty and inequality and making our planet a wasteland.

Or we can fix upon another path which respects the more productive human endeavour to create a fairer and more peaceful existence for all, to ensure that future generations can look back and thank us, not curse us. What we choose today will determine what happens tomorrow. As Albert Einstein noted: “The measure of intelligence is the ability to change.”

 

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The post True consequences of government policy are far worse than a waste of taxpayers’ money appeared first on The Gower Initiative for Modern Money Studies.