ONS decision imminent on student loan treatment

Published by Anonymous (not verified) on Tue, 04/12/2018 - 1:10am in

Here are my slides from my recent talk at wonkfest.

wonkhe nov 2018 fiscal illusions & ONS review

The talk was given on the day that the Office for National Statistics announced that Monday 17 December would be the day when it announces its decision on the new treatment of student loans in the national accounts. All indications are that we will get a new system and we might therefore be able to wave goodbye to “fiscal illusions”. ONS has alerted us to the fact that it expects to take a year to implement the new convention. As I joked on the day, this shortens the odds on a 2019 General Election, since the Chancellor will get to use his current deficit figures until the new convention comes in – and then they are likely to be exploded.

The slides include some assessment by the Office for Budgetary Responsibility for the deficit impacts of different alternatives. They do not though assess “Option 2” – treating loan repayments first as repayments of principal, rather than interest. My penultimate slides offer an assessment of Option 2 using OBR figures.

Option 2 has less impact on the deficit in 2023-24 than the OBR’s other alternatives, but it still comes in at £8billion. By 2023-24, that adds nearly 50% to the deficit.

The accounting treatment doesn’t change the cost of student loans, only the presentation of that cost. But the government’s fiscal mandate targets such headline figures to the detriment of sound economic policy.

If you do find the slides helpful, please consider donating.

More detail on fiscal illusions can be found here.


Published by Anonymous (not verified) on Mon, 03/12/2018 - 2:24am in

Aerial view of students wearing mortar boards at a graduation ceremonyAnd in the news this week…




Last week the Public Accounts Committee published its findings on the sale of the student loan book.  The government was criticised for having sold yet another public asset for half its face value, but it explained that net government debt would fall as a result, enabling it to borrow more. The PAC, in its turn, said in its report that it had expected the Treasury to get the best possible deal on behalf of the taxpayer and achieve its aim of reducing the public sector net debt.  And then according to the Office for Budget Responsibility, in its Student Loans and Fiscal Illusions working paper published earlier this year, the sale was also a ‘perverse incentive’ to make it appear that the public finances had improved. It then went on to estimate that the government’s plans would, in addition, deprive the Treasury of billions in repayments over the lifetime of the loans thus making the country poorer in the long term.

The fiscal language of government and its institutions cited above is instructive, and demonstrates how government’s success or failure is being measured in household accounting terms rather than the effects of its spending policies on environmental, economic and social well-being of the nation.  A good deal for taxpayers, reducing public deficit and debt, depriving government of revenue, borrowing from the future and debt burden are all examples of recurrent tropes which are fed into the public arena daily by politicians, journalists and institutions. So, it is no surprise that people are led to believe that the state finances resemble their own household budgets and they judge a government by how much it reduces or increases the deficit or debt. The vocabulary of income, spending, borrowing and debt however does not apply to a government which issues its own currency and the term fiscal responsibility should be confined to measuring how such a government balances the economy by ensuring that money creation does not exceed the productive capacity of the nation.


And in more news on education


“Privatisation, marketisation, neo-liberalism and austerity are beams of the same sun.”

Steve Watson, Faculty of Education (Cambridge University).


While the government focuses on accounting gymnastics to balance its accounts, the dire state of higher education has been in the public spotlight this month as it was revealed that the universities watchdog was forced to give a struggling institution an injection of cash so that it could remain afloat. This followed news earlier this month that three universities were on the verge of bankruptcy and having to rely on bridging loans to keep going.  The financial uncertainty was said to be linked to falling numbers of 18 year olds applying to go to university, increased competition for students and more stringent immigration controls on foreign students who, in the absence of adequate government funding, bring much needed revenue to university coffers.  The University funding policy and funding report published in 2016 noted that given limited government funding and the fact that not all universities can borrow more over the long term, they will need to maintain and grow their student numbers, including those from outside the EU, to fund increased investment.  As governments fights over allowing foreign students to access higher education and adequate funding streams from government a train crash would seem inevitable.

How have we come to this pass? The process started in the 1990s with the first steps towards the marketisation of higher education.  New Labour followed the Tories lead and gave universities the right to charge tuition fees, thus changing the very basis upon which universities were funded. Private debt instead of government spending became a primary mechanism to finance higher education. As Steven Watson who lectures in the Faculty of Education at Cambridge University notes:

“The introduction of student loans, tuition fees and subsequent increases are all part of the commodification and privatisation of higher education. The Higher Education and Research Bill that was hurried through before the general election in 2017 further embeds the consumerization of higher education, with the creation of the Office for Students and providing opportunities to establish challenger institutions to increase competition in the sector.”

Universities have become businesses with a product to sell and students have become customers with choices. University management elites command huge salaries whilst lecturers increasingly face the prospect of insecure contracts and low pay. According to an analysis by UCU published in 2016 university teaching is now dominated by zero-hours contracts, temp agencies and other precarious work.  It also noted that the richest Russell Group institutions rely heavily on insecure academic workers.

Instead of higher education being about learning, exploration and creativity, it is increasingly becoming commodified; serving the interests of capital rather than the development of the individual for life and the benefit of society. Already, as Steve Watson notes, there is the potential for subjects that do not have a direct link to the world of work to disappear or be reconfigured for employability.  And while universities struggle for funding and try to cut costs, students face the prospect of a lifetime of education debt without even the certainty of finding a good, well paying job at the end of it.

The public is fed a daily diet of the benefits of choice, competition and private-sector efficiency and innovation, whether we are talking about education, the NHS, or the energy, rail and water sectors, when the reality is that it has more to do with accruing capital, than providing high quality public services. We are also fed the daily lie that the government has no other alternative as it has no money of its own and must seek to balance its accounts to prove its financial competence.

BUT the national economy is not one great big household, and a government which issues its own currency could, by making a political choice, spend on our public services tomorrow. Why would it not do so?  Education is an investment which is not just about economics. It gives people the skills they need for life, enables them to ask questions and seek solutions as well as confront the challenges of our times from social issues to environmental ones. Getting with monetary realities is a first step in challenging the neoliberal, market driven status quo.





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The UN report

Published by Anonymous (not verified) on Sat, 24/11/2018 - 4:10am in

Mother and child washing hands in kitchen sinkAs reported in last week’s MMT Lens Philip Alston’s report on extreme poverty and human rights is truly shocking. Far from austerity being based on the need for financial prudence, as claimed by the government, it is a deliberate assault on some of the poorest and most vulnerable citizens in the country driven by a pernicious ideology which divides people and tears down communities. Such ideology values the individual over cooperation and places personal responsibility for an individual’s fate in their own hands.  

One of the areas where Philip Alston expressed considerable concern was the cuts to local authority budgets. In  his interviews with local authority leaders, he reported that they are increasingly reduced to emergency provision. Such cuts to central funding have been destroying the fabric of public infrastructure and services across the UK, ripping the heart out of local communities. As his report so brutally revealed it has brought about unnecessary hardship and suffering and lives blighted or cut short by unnecessary austerity.

Alston’s criticism comes after several councils in England including Northamptonshire, East Sussex, Somerset and Surrey have reported financial difficulties. Councils are being forced to plunder their reserves to keep essential services going and make cuts to spending to other essential services.  Staff have been sacked, pay frozen and libraries and other services closed or reduced to voluntary manning. Some councils are even facing the prospect of defaulting on their statutory duties to public health and social care or restricting services to the most vulnerable citizens.  David Cameron’s ‘Big Society’ is increasingly being expected to take responsibility for supporting its elders and vulnerablefriends and neighbours, paid for with goodwill.

The figures from the National Audit Office 2018 Report on Financial Sustainability of local authorities make for stark reading. There has been a:

49.1% real-terms reduction in government funding for local authorities between 2010-11 and 2017-18

28.6% real-terms reduction in local authorities’ spending power (government funding plus council tax) between 2010-11 and 2017-18

66.2% percentage of local authorities with social care responsibilities that drew down their financial reserves in 2016-17

Alongside reductions in funding local authorities have had to deal with growth in demand for key services as cuts to public spending have kicked in. Dealing with growing homelessness and coping with the extra demand for adult and children’s social care have all put huge pressures on local government. Eight years of austerity have increased demand for local government services associated with precarious employment, poverty, homelessness and rising crime.

The local charity sector has always played a significant role in supporting the needs of local communities and grants from local government have been its lifeblood. When David Cameron launched his big society drive to empower communities, he was less clear about how such work would be funded. Over the last eight years of central government-imposed austerity the charitable sector, which relied on local government grants for part of its funding flow, has been hard hit too.

One of the hardest hit services have been Sure Start Centres, a flagship New Labour policy, which was a local area–based programme delivering services and support to families with young children. Its aim was to reduce inequality whilst acting also as a gateway to more specialised service provision. Figures suggest that more than 1000 centres might have closed nationally in response to local authority funding pressures with a change of focus moving from a universal service to one targeting high need families.

Philip Alston referred in his press conference to the ‘mechanical economic analysis’ by government officials that ignores the damage being done to the fabric of British Society. Political choices are cloaked in the idea that there is no alternative to financial prudence. ‘Prudence’ in this context is seen simply in terms of the money-in, money-out of tax and spend and whether it ‘balances the books’. 

This is not just about our libraries or other local services closing. This is an attack on the fundamental belief in the value of public service and public services to deliver public and social purpose for the health and well-being of the nation. The increasing focus on individual consumer desires instead of cooperation to bring about vital social cohesion is fracturing society. The government’s digital strategy will also disenfranchise many people whilst at the same time removing their access to IT by closing public libraries which also often provide safe meeting places for local organisations and charities such as Home Start and Sure Start.

The government, whilst claiming that there is no money, is the only entity able to secure funding for our public services.  It has the currency issuing powers to ensure that funds are available to purchase the goods and services required to meet the needs of our local communities. By not investing today we are storing up, not a financial burden, but the burden of decaying infrastructure and the knowledge capital and know–how built up over decades at local level.  The government is denying the power of the public purse to support a network of ready to go services with staff skilled and experienced in tailoring services to meet their own community needs.

Our local communities, high streets and businesses are the backbone of the economy they provide the glue that holds the nation together. As local government struggles to provide even its statutory duties, cuts ever more vital services and slashes staffing levels the consequences for local economies become ever clearer both in financial and social terms. Furthermore, the Big Society dream that the voluntary sector can fill the gaps left by lack of local government provision is an ideologically inspired Conservative fantasy.

Alston’s report is a wake-up call to the real alternative to cutting public spending. Failure to do so will cause further privation and distress which will have long term effects on the health and well-being of citizens and the economy.





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Put the Planet and the People First and the Fiscal Deficit Will Look After Itself

Published by Anonymous (not verified) on Sat, 03/11/2018 - 4:50am in

Gold coins with £ sign on each oneImage: © Chrisharvey – Dreamstime

The Chancellor of the Exchequer, Philip Hammond, delivered his Autumn Budget on Monday. Hammond took an upbeat tone, congratulating the public for its hard work and sacrifice which were now paying off, he said, allowing the economy to recover. Reassuring the House that austerity had always been about necessity and never ideology, ‘Spreadsheet Phil’ indulged himself at length in his introductory words in the classic but false framing of household budget economics focusing on tax windfalls, borrowing, deficit and debt narratives.

It was a budget that had no connection with the real world. Conveniently, the targets to eliminate the deficit (which have faded repeatedly into the distance and national debt has ballooned) were set aside. After eight years of punishing cuts and service closures which has caused economic and social distress to so many, the narrative is stuck in the myth where money for investment in the common wealth of the nation is still limited. It must be cautiously doled out, as gifts or rewards for good behaviour, not as the necessary spending of a government taking proper responsibility for the nation’s security and wellbeing.

Austerity is not over by any means.

Tax and Pay

Wealthy earners have benefited disproportionately from the income tax threshold increase. Hidden in the small print and left unmentioned in the Chancellor’s speech was an increase in National Insurance which diminished the income tax gains. Nonetheless, The Resolution Foundation has calculated that 84% of the gains related to the income tax cut will still flow to the top half of the income distribution and 37% to the top 10%.
There is substantial evidence that inequalities in income distribution have a direct relationship with inequalities to access essential services. There is a wealth of evidence that Universal Credit is having a seriously damaging impact on people’s lives and that people with disabilities are suffering disproportionately in cuts to their income and from cuts in services.
This budget does nothing at a time when wealth disparities are at their highest and people with low incomes and employment insecurity are already struggling to make ends meet. It would make far better economic and business sense to improve living standards of the lowest income section of society as they are the people who spend their additional income, unlike the richer sections of society who have a greater tendency to save.

Universal Credit and Social Security

The Conservative flagship policy Universal Credit has been coming under increasing pressure over recent months because of the suffering and hardship that has been caused. In 2017 The Resolution Foundation called the current design of Universal Credit ‘not fit for purpose’ in 21st century Britain. The UN rapporteur on extreme poverty and human rights is due to come to Britain in November to examine the impact of austerity, including Universal Credit.
The Chancellor has responded by allocating an additional £1bn to ‘smooth’ its roll out. He has made it clear, however, that Universal Credit won’t be slowed or stopped, and the cash injection will do little to deal with the inherent structural problems causing suffering and hardship often rendering people homeless and hungry.
The Treasury purse may have opened a crack but it will do nothing to make up or restore the losses of the last eight years of austerity. This is window dressing of the worst kind.


Three weeks on from the publication of the IPPC report the Chancellor did not mention climate change once in the budget. Caroline Lucas has challenged this inadequacy pointing out that it is in complete denial of the reality facing the country in our immediate future. Compare this to the Spanish Government’s recent announcement that they are closing coal mines and retraining the miners to develop sustainable energy.
Philip Hammond, by contrast, tinkered around the edges announcing a new tax on the manufacture of plastic packaging. For the ninth year running there is no increase in fuel duty but an allocation of £30bn for roads. This demonstrates a preference for cars over a strategic plan for developing an ecologically sound public transport system. Fossil fuel subsidies will continue. The Chancellor has allocated £60bn for tree planting, but environmentalists have questioned the value of this in the face of government support for environmentally damaging fracking over renewable energy.


The NHS continues to suffer as it not only faces the continued real squeeze on its finances but also on-going privatisation. The Chancellor’s award of extra money for mental health services by 2023-24 is not extra funding and will come from the £20.5bn announced by the government in June this year. This is too little and too late. The crisis in mental health is happening now.
Furthermore, funding for public health services, training doctors and nurses, buying equipment and building new infrastructure will be cut by £1bn next year. The NHS is under increasing pressure in real terms as it tries to cope with picking up the slack after eight years of cuts to social care. The £650m increase to the budget for social care is only a sticking plaster.
There is an extraordinary piece of double-speak in the budget as the Chancellor announced he would abolish the Private Finance Initiative. However, he pledged that existing PFI contracts would continue to be honoured thus locking the hospitals into repaying their substantial debts until 2050. The future direction of who runs public services is also sealed as he indicated that he was firmly ‘committed to the [continued] use of public-private partnership.’ PFI is dead, long live PFI.


The Institute for Fiscal Studies has warned that as a result of the Budget the public finances could deteriorate and that an increase in spending could push the national debt higher.
The current reality in the UK is that we have both unmet need in terms of provision of services and unused resources in the number of people who are currently in low paid work which does not sustain them, or have given up looking in despair. A respectable and responsible budget should address those needs first and foremost if we are to have a successful economy.
This budget continues to frame government debt as a burden which must be dealt with. What is more it makes it the overriding concern well ahead of any real life public purpose such as addressing human suffering or the urgent need to combat the effects of climate breakdown.
A political illusion has been created that government has to finance its spending through borrowing or that it needs tax before it can spend. On the contrary it is the government’s duty as an elected body to assess the real resources that it requires to deliver its public and social purpose policy.
The Chancellor prefers to couch his budget in the narrative of fiscal discipline because it enables him to present spending as a kindly act and careful budgeting as a prudent one. This enables the continued dismantling of the NHS and the welfare state. Indeed, it reframes spending as an act of Victorian philanthropy rather than as the creation of common wealth for the benefit of people and a sustainable planet.





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Budget Day 2018: The Gower Initiative Rules for a Successful Public Purpose Budget

Published by Anonymous (not verified) on Mon, 29/10/2018 - 6:00pm in

Scales balancing inflation on one side and unemployment on the otherSeen through the MMT lens, the success of the Chancellor’s Budget would be measured against a set of criteria agreed through the democratic process in the interests of the nation’s economic and social well-being. 2018’s Budget should address ecological concerns, inequality and access to essential services first and foremost. This means addressing which resources are available, not whether the use of those resources will ‘cost too much’ or upset the balance-sheet.

Philip Hammond has announced that this budget will increase spending in some areas. But in the event of a no-deal break with the EU, he said he would be forced to tear up his plans and institute an emergency budget, while setting the economy on a “new direction”. We think a new direction is needed right now to tackle all the major problems that we are facing from climate change to the devastation wrought by austerity. The government’s combination of penny-pinching and ideological objection to using the state’s machinery to deliver good public services will have an impact that will last for generations. It’s time for a change of direction. Brexit or no Brexit, the state of the nation depends first and foremost on the government’s actions.

Will the Budget fulfil all or any of the following criteria?

• Facilitate the best use of real and available resources either goods or services both in the private and public sector to meet the government’s public purpose objectives. Has the government got the balance right between the two?

• Meet the goals set for reductions in poverty, homelessness, improving nutrition and reducing infant and maternal mortality? And if not, what real resources might have to be freed up by government through taxation to achieve them?

• Meet the needs of citizens for well-paid employment either in the private or public sector, or when necessary through a government funded, locally delivered, Job Guarantee scheme? Does that employment give them the wherewithal to live a decent life and spare income to save?

• Enable the construction of sufficient numbers of good quality and truly affordable homes to meet the housing needs of all citizens?

• Enable the development of a strategic plan to develop a top-quality education service with adequate infrastructure including schools, teachers, support staff, equipment and school canteens to provide an engaging, happy and healthy environment for children to learn?

• Ensure that our universities and colleges are fostering the skills essential to deliver public purpose – research, engineering, education and health?

• Guarantee the health of the nation from cradle to grave through a well-funded, publicly managed and delivered health and social care service?

• Provide sufficient investment in the provision of a low-cost and efficient public transport network and ensure that the road network is kept in good repair to facilitate both the needs of the public and business?

• Provide for the restoration of strategic industries to remain in the control of government?

• Ensure that the nation meets its climate targets through reducing its carbon footprint using new technologies and investing in renewable energy?

• Support agriculture by developing a plan for national food security and encourage local food production to serve the needs of all income groups?

• Deliver sufficient deficit spending in the economy to meet the government’s economic and employment targets through a Job Guarantee as well as a Basic Income (for those unable to work due to illness or disability) to meet the needs of citizens to lead a comfortable and decent life and support a healthy economy?

• Is the banking system adequately regulated to avoid a repeat of the Global Financial Crash in 2008, are levels of private debt within serviceable limits and do businesses have access to sufficient bank credit to support their investment plans?

• Deliver the tax policies needed to ensure a balanced economy that matches the productive capacity of the nation without inflation, that wealth is redistributed fairly through progressive taxation and express the government’s social and environmental goals?





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Move over TINA, here comes TARA. There Are Real Alternatives!

Published by Anonymous (not verified) on Sat, 27/10/2018 - 5:14am in

 Two Red £ Pound signs with one man sitting on top of one and one man standing next to the other

The ‘Autumn Budget’ is just around the corner. The pomp and ceremony, the Chancellor’s Red Box held aloft outside Number 11, the cheers from the government benches as the Chancellor delivers his speech, and boos from the opposition are a piece of annual parliamentary theatre.


Austerity or not?

When George Osborne made his budget speech in 2015, he boasted of the changes since 2010 under Conservative leadership. By 2010 the country had ‘collapsed’, he said, the deficit was out of control and we were bailing out the banks. But under the Conservatives there would be no ‘unfunded spending’, no ‘irresponsible’ extra borrowing, no short term ‘giveaways’. His budget, he said, made difficult decisions for economic security. Deficit elimination and debt reduction were the goals. Austerity was the name of the game. Challenges to this view have been countered with ‘TINA’ – There Is No Alternative.

In the run up to budget day the media treats the public to a daily diet of analysis and comment about what the Chancellor may or may not do. Now, in 2018, the question is still whether the Tory love affair with austerity is over as Theresa May pledged in her Conference speech or whether her Chancellor, Philip Hammond, will prevail in his quest to balance the books.

What issues should a responsible 2018 Budget address above all?

While politicians and think tanks like the IFS talk about fiscal responsibility in terms of book balancing, the country faces the very real consequences of the last 8 years of austerity and the decades of free market dogma. A responsible budget should deal with the most pressing real issues of the day. And there are significant issues facing the UK economy. How responsible will a Budget be that does not deal with the truly shocking warnings this month about Universal Credit failure pushing families into poverty and homelessness whilst global news centred on the UN report into devastating acceleration of climate change? In one of the saddest reports to be published since the start of the austerity agenda, the Royal College of Paediatrics and Child Health warn that infant mortality is on the rise and set to rise even further. The United Nations’ estimates of infant mortality indicate that only about six other countries have had increases over the past two or three years. Ironically, given the comparisons which are always brought into play when we talk about increasing public spending, with this grim statistic we really are keeping company with Venezuela.

There is plenty of evidence to show that the last 8 years of emphasis on deficits and debt above all else have had hugely damaging consequences. Wealth has grown by £274 billion of which £66 billion is in the past year alone, but this is not reflected across the population as a whole. The Director of The Equality Trust, Dr Wanda Wyporska, noted earlier this year.

“…. a vast amount of the nation’s wealth has been captured by a tiny number of people. This is economically illiterate, socially poisonous and politically dangerous […].
“The UK’s appalling wealth inequality is a gross injustice and a dire threat to our economy and social cohesion. If wealth continues to gush upwards, then opportunity and hope for future generations will steadily be strangled. This is a recipe for resentment, social division and, potentially, disaster.
“This fawning over obscene wealth is downright scandalous in a society where foodbank use, child poverty and inequality are damaging lives on a daily basis.”

What could it look like if the Chancellor of the Exchequer was operating with monetary realities and how could they determine the options and policies open to a government?

Unfortunately the government response to the climate change report did not offer any hope that this might be an option. Claire Perry is the government’s climate minister. She commented to the BBC on the UN climate change report, “Now we know what the goal is and we know what some of the levers are” she said, “But for me, the constant question is what is the cost and who’s going to bear that, both in the UK and in the global economy.”

It is extraordinary that we are still at a point that when faced with climate change on an unprecedented scale a government minister has to stop and ask ‘what is the cost and who’s going to bear that’ when stark reality is that we will all bear the real cost of environmental degradation – sooner rather than later, unless the government takes action. Governments have whichever resources the country provides at their disposal, if they choose to use them. Creating the money to pay for those resources is the one thing that they are NOT constrained by.

Seen through the MMT lens, the success of the government’s fiscal mission would be measured against a set of criteria agreed through the democratic process in the interests of the nation’s economic and social well-being. 2018’s budget should address ecological concerns, inequality and access to essential services first and foremost. This means addressing which resources are available, not whether the use of those resources will ‘cost too much’ or upset the balance-sheet. How is the death of a child or the destruction of an irreplaceable eco-system accounted for in those figures?

There are real alternatives and we are in urgent need of a blueprint for government which puts public purpose ahead of imaginary fiscal constraints or credibility rules to deliver national economic and social well-being now and for future generations. TARA can’t come into our political discourse soon enough.





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Babbling budget: clearing ground for more austerity

Published by Anonymous (not verified) on Thu, 11/10/2018 - 1:52am in

Babbling budget: Clearing ground for more austerity


PEF Council member John Weeks writes on the IMF’s ideological project to treat government finances as if they were corporate finances, and attacks the Financial Times for its uncritical coverage of the IMF’s most recent pronouncements on the UK economy.

Drugs and much of the food we eat are required to carry health warnings.  It is unfortunate that the authorities do not set a similar requirement for economic journalism.  In today’s Financial Times (10 October), the reader encounters an article with the title “UK public finances near bottom of IMF league table”.  Taken literally this title would cause alarm, since the membership of the IMF currently stands at 189, implying that our country would be found below at least 95 others.

Delving into the article, though, the reader discovers that this putative league table is not a triple digits list, but rather features only 12 contestants (with the top two countries, Norway and Russia, both being petroleum rich).   A second surprise would come upon encountering the “public finances” addressed in the article.  A reasonably informed reader would assume that this term carried its usual meaning of public spending, taxation, the balance between them and the public debt.

Had the article referred to these, it might have shown the following diagram.  It would have caused some puzzlement, because it shows that the fiscal balance has declined continuously since 2009/10 and, as a result, the net public debt levelled off, then began fall after 2014/15.  By these, the common measures, the UK numbers would have been found close to the top of the same 12 country “league table”.

Public Sector Net Debt (left axis) and Public Sector Net Borrowing (right axis) as a percentage share of GDP.
Fiscal years 2009/10-2017/18

Note: Public sector net debt excludes debt owed by Bank of England and RBS.
Source: Office of National Statistics.

The reader would have suffered more surprise, because the “public finances” in question involved quite unfamiliar concepts – “national assets”, “national liabilities” and “national net worth”.  The first table in the article informs the reader that “the UK’s long term fiscal position is weak by international standards”, a somewhat sweeping generalization for a selection of 12 countries, especially since the table shows the net worth measure for the German government is hardly different from the British and inferior to French.

These measures are central to a long term ideological project of the IMF, going back at least to the Asian Financial Crisis 20 years ago, to treat government finances as if they were corporate finances. (I discuss this in Chapter 7 of Confronting Global Neoliberalism (2009)).  While not as obviously ideological as the household budget analogy of Thatcher and Merkel, it is equally pernicious.  The FT article blandly states the central conclusion of the government-as-corporation approach: “Countries with deep negative net worth are likely to have to tax more heavily and run budget surpluses to bring assets back into line with liabilities.”

We would find it difficult to find a more all-purpose justification for perpetual fiscal austerity, one that the current and future Tory Chancellors will have at hand should anyone argue that near zero borrowing and a falling debt ratio make austerity unnecessary.  The reactionary reply comes quickly – “the IMF shows that our national balance sheet is extremely weak”.

The inquiring and sceptical reader would search the article in vain for a link to the putative IMF study or to an explanation of national assets and liabilities (the closest it would be able find is an article on the IMF blog).  The essence of the government-as-corporation approach is to treat every outstanding public spending commitment and every publicly guaranteed loan as if must be repaid immediately.  Two examples demonstrate he absurdity of this approach: 1) public pension commitments are treated as liabilities to the end of their actuarial calculation, but only current contributions enter the asset flow; and 2) all government-guaranteed investment borrowing (including 100% of public-private partnership investments) enters as a liability, but the asset that borrowing will create does not enter the other side of the balance sheet.

It is possible that the FT article on the IMF “league table” arrives by accident in the run-up to the autumn budget statement.  If so it is quite convenient, laying the ground for further Tory austerity.  More importantly, unless rejected at the outset, it could serve as a fresh ideological cliché to carry the austerity message. Out with the decreasingly credible “governments are like households” and in with a new version – “governments, like corporations, must maintain their net worth”.  Be confident that the same forces that brought us austerity will use the new cliché to constrain any progressive Chancellor who replaces the current Tory resident of #11 Downing Street.

The British government is not a household, even less a corporation.  It is fundamentally different, the collective expression of a democratic society.  Its analysis and management should reflect that fundamental difference.  The night before the FT article, Will Hutton in the second PEF sponsored public lecture cut to the core of that difference in his conclusion, telling his audience that our new government, free of austerity, can act aggressively to “change Britain” through bold public investment.

Photo credit: Flickr / International Monetary Fund

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Accounting for loans – the plot thickens!

Published by Anonymous (not verified) on Sat, 30/06/2018 - 12:48am in



After an unexpectedly busy term teaching maths, philosophy, coding and chess (including stints in primary and secondary schools as well as a young offenders institute), I am returning to student loans before next Tuesday’s big wonkhe event on HE financing and value for money.

There have been some significant behind-the-scenes developments in the last month or so to do with both the government HE review and the separate ONS review into accounting for student loans. As this blog has long argued, accounting for loans matters insofar as costs are obscured and alternative policies regarding financing study are sidelined because of presentational disadvantages.

The government recognises that it subsidises the student loan scheme – with full-time undergraduate study costing an estimated 45% of loan outlay in net present value terms. The government lent £15billion last year and expects to get the equivalent of £8.25billion back (discounting is done using the financial reporting rate of RPI plus 0.7%). But the national accounting convention it uses means that it can recognise interest accruing as income (even though it might not be paid) and only recognises losses when it writes off loans (in c.35 years’ time for the majority of loans).

This practice flatters the deficit for years (interest as income is a benefit!) until write-offs occur and reveal the net position.

I want to stress that this is a presentational matter – a ‘fiscal illusion’ according to the Office for Budgetary responsibility. But, when the government presents its macroeconomic competence to the public through a mandate that targets “eliminating the deficit”, such presentational issues are very important politically.

Unlike company accounts (under IFRS), the government does not have to record its expected loss when it makes a loan; it does so when the loan account is closed.

It’s easy to get confused here and mistake when the cost is recognised with when a bill falls due. The government lent the money today and repayments come back over the next three decades and more; the government has not asked someone else to lend the money with the promise that a future government will cover the losses in 35 years’ time.

This mistake is frequently made and can be see in the recent House of Lords Economic Affairs Committee report on tertiary education.

Paragraph 379 reads:

Future governments will have to adjust spending plans to recognise historic student loan losses: in today’s money, that would mean the 2047/48 government having to find an extra £8.4 billion to cover expected losses on the 2017/18 student loans. Alternatively, a future government may attempt to abandon the use of public sector net borrowing as a measure of the strength of the economy. It is unacceptable to expect future taxpayers to bear the brunt for funding today’s students.

No future government will have to find any cash to cover expected losses. Loans are one of those cases where the deficit does not drive cash requirement. As I’ve said the cash flows will already have occurred and all that happens in 2047/48 is that the loss is formally recognised.  (It’s another matter if repayments are lower than expected, but the normal horizon for worrying about that is much shorter. )

Here’s how Eurostat explain it:

The write off has no impact on government debt or government financial requirement (cash outflow has already been recorded when the loan has been disbursed).

The cash flows have already happened – what’s at issue is when and how the associated loss is recorded. (If you have some familiarity with company accounts, we are discussing the equivalent of reconciling the cash statement with the income/expenditure statement.)

The Economic Affairs Committee, like the Treasury Committee, earlier in the year has called for the Office for National Statistics to review the national accounting treatment of student loans.

Intriguingly, the ONS rebuffed both committees in January when it insisted that:

ONS is firmly of the view that the economic nature of student loans closely matches the definition of a loan in National Accounts and should be recorded as such in both the National Accounts and the UK fiscal aggregates.

It suggested that the only alternative was the equally bad option of treating loans like a graduate tax.

On 2 February, Eurostat wrote to the Economic Affairs Committee expressing a difference of opinion with ONS suggesting that there was another third alternative that ONS should be utilising where there are significant losses expected against issued loans. The Committee does not seem to have realised the importance of that written submission. I will turn to that third alternative in a subsequent follow-up post this weekend. At the very least, Eurostat seems to have prompted a volte face from ONS, which announced a review into loan accounting at the end of April.

The Deficit Hysterics Have no Case

Published by Anonymous (not verified) on Fri, 30/07/2010 - 12:00am in

Much of the argument for deficit reduction is economically illiterate, but even an expert like Ken Rogoff can be wrong on fiscal austerity

In much of the world, including the United States and Europe, a debate is taking place about whether the government's first responsibility should be to reduce unemployment – which is at elevated levels – or to reduce government deficits and debt. Many of the arguments for deficit reduction are simplistic, based on ignorance or derived from ideology.

For example, there are inappropriate comparisons of government to household debt, a fixation on absolute numbers without any comparison to national income, or just rightwing opposition to government in general. Although these are the most commonly propagated views through the media, it is worth taking a moment to examine the (ostensibly) more sophisticated and economics-based arguments to see whether they hold water.

Kenneth Rogoff is professor of economics at Harvard University and a former chief economist at the International Monetary Fund (IMF). This week, he responded to some of the pro-stimulus arguments:


"Some portray Japan, with nearly a 200% government debt to income ratio, as a poster child for extremely indebted countries with low interest rates. Japan's 'success', of course, has a lot to do with its government's ability to sell debt domestically. How the country will handle its finances as saving by retirees shrinks, and as its labour force rapidly shrinks, remains to be seen."


Some background: Japan has a gross debt-to-GDP ratio of about 227% of GDP. This is more than three times the level of the United States. But more than 100 percentage points (of GDP) of this debt is owed to the Japanese central bank. This means that the interest payments on this debt go to the government of Japan, so there is no interest burden added by this part of the debt. In fact, Japan's net interest payments are less than 2% of GDP, which is a modest amount.

It also means something else that most of the economists in this debate are not eager to talk about: that Japan has financed nearly half of its public debt by creating money. In other words, instead of the government borrowing money from investors, the central bank created money and lent it to the government. In the popular imagination, this creation of trillions of dollars (in yen) to finance government deficits has to cause serious inflation. However, the Japanese experience has been the opposite: over the last 20 years, Japan's consumer price index has risen about 5% – that's the 20-year total, not annual inflation.

Rogoff is correct to say that the domestic ownership of Japan's debt is key to its success. But this is just an additional argument for the United States, or Europe, to finance deficit spending through money creation at this time. Such financing is, by definition, domestic ownership – ie, ownership by the central bank. In the eurozone, the ECB would have to agree to refund the interest payments on the debt to the borrowing countries, so as to duplicate what Japan (and the United States) has done with its own central bank.

Of course, Japan's debt that is held by the public is also held mostly by domestic investors. So this part of Rogoff's argument is really making the case for avoiding the chronic trade deficits that the United States has run for decades. It is the overvalued dollar, and the resulting trade deficits, that drive foreign borrowing in the United States.

As for the warnings about what might happen when savings and the labour force shrink, we have heard this rhetoric for decades from deficit hawks in the United States and Europe. Suffice it to say that there are many options open to rich countries should they ever face the problem of a "labour shortage". But unfortunately, our problem for the foreseeable future is the opposite. It is a shortage of jobs, not labour.

Rogoff cites his own work, with Carmen Reinhart, in arguing that debt-to-GDP ratios of more than 100% are "above the threshold where growth might be affected". But their paper really doesn't show much at all, especially for economies like the United States and the eurozone that can borrow in their own currencies. Countries that end up with debt greater than 100% of GDP are likely to have other problems that got them there. As others have also noted, without controlling for these other factors – which this paper decidedly does not do – there is no way of establishing causality. In fact, the authors do not even control for changes in population growth, since they look only at GDP growth, rather than per capita GDP.

Rogoff adds another self-defeating argument:


"Importantly, governments that emphasize long-term fiscal sustainability are likely to have an easier time inducing their central banks to maintain highly supportive monetary conditions."


In other words, central banks might react to expansionary fiscal policy in the present situation by tightening monetary policy. But this just means that the central bank should be subordinated to national economic policy, instead of the other way around. He is taking for granted that central banks must be "independent". But as experience has demonstrated – as when, for example, the US Federal Reserve somehow missed the two biggest asset bubbles in world history – this doesn't necessarily mean independent of Wall Street; it meansindependent of the public interest. So yes, a government that wants to use expansionary fiscal policy will need the cooperation of its central bank. And should have it.

Rogoff argues that "anemic growth with sustained high unemployment is par for the course in post-financial-crisis recoveries." Par for whose course? If past governments made stupid mistakes and/or didn't care about condemning a generation of low-income young people to years of unemployment, does that mean we should do the same?

At the end of the day, Rogoff provides no convincing economic argument why either the United States or Europe cannot, or should not, finance the necessary stimulus until unemployment approaches more normal levels.


Mark Weisbrot is Co-Director and co-founder of the Center for Economic and Policy Research. He received his Ph.D. in economics from the University of Michigan. He is co-author, with Dean Baker, of Social Security: The Phony Crisis (University of Chicago Press, 2000), and has written numerous research papers on economic policy. He is also president of Just Foreign Policy.