tax

The time has come to talk of many things; of taxing and spending and an economic system that needs mending. 

Protest placard with a picture of the Earth in space and the slogan "One World"Photo by Markus Spiske on Unsplash

In the news, the Prime Minister tells millions of  WASPI women affected by the changes to the state pension age that he couldn’t promise to magic up the money for them despite having found lots in the magic money pot for Tory manifesto pledges; the Home Secretary, Priti Patel, whilst visiting a food bank, claims that the Tory government was not to blame for poverty in the UK and, shifting the blame onto local councils, forgets to mention that central government funding has been cut by nearly 50% since 2010/11.

After 9 years of austerity, the consequences couldn’t be starker for our public and local government services, however, it is UK citizens, families and their children who have borne the distressing costs of cuts to social security benefits, both on their health and financial well-being. It cannot be clearer that the steep cuts to tax credits, child and disability benefits, ESA and Incapacity benefit and housing along with the introduction of Universal Credit have been behind the increases in child malnutrition, food bank use, homelessness and suicide.

The IPPR this week published its report ‘Divided and Connected’ which reveals that the UK is more regionally divided than any comparable advanced economy.

In the same week, the Resolution Foundation published its report ‘The Shifting Shape of Social Security’ It notes in its analysis of the manifestos of the main parties that child poverty is set to continue rising under the Conservative Party’s social security plans, whilst Labour’s £9bn of extra spending would mean 550,000 fewer children in poverty, it would not reverse the effects of the £5bn benefits freeze and could still see more children living in poverty in 2023 than do today. It noted that major policy changes have reduced support for working-age households since 2010 resulting in overall spending in 2023-24 being around £34bn a year lower on current plans than if the 2010 benefit system had remained in place, and that the cuts in support had fallen almost entirely on low-to-middle income working age families. It also noted that the Conservatives’ 2019 manifesto makes no changes to existing policy and as a result child poverty risks reaching a 60-year high of 34%.

Although the conservatives are promising more spending on health and education, it seems clear that they intend to carry along the same policy paths they have followed since they came to power in 2010 which have involved cuts to benefits, conditionality, sanctions and welfare to work. Clearly, they have no intention either of reversing the already implemented cuts or reforms which have done so much damage and left a trail of devastation in many people’s lives. Priti Patel’s remark about who is to blame for poverty is indicative of Tory neoliberal credentials of denying governmental responsibility and passing the buck along to others, whether local government who have been firefighting for lack of funds or indeed shifting the blame onto citizens themselves. Her position has not changed much since 2015 when she said, ‘There is no robust evidence that directly links sanctions and food bank use.”

In the light of the very real consequences on people’s lives of government spending decisions and policies, it is all the more depressing to read the two analyses of the party manifestos by the Resolution Foundation and the IFS which instead of looking at the real effects of government spending policies on the lives of real people, examine them in purely financial terms and arbitrary fiscal rules which as we may now be realising bear no relationship with how money really works.

Hunkered down in household budget explanations, the IFS, rather than considering the spending promises of all three parties from the perspective of potential outcomes for the economy and its citizens, examines them in relation to the prospect of raising taxes or borrowing and the likely impact on the deficit and national debt.  As usual, the question, if not asked directly, is how will the parties pay for their spending plans? When, instead, they should be acknowledging that the real question is how will a future government manage existing resources to meet government goals? This will be the real constraint that any future government will face, however progressive that government may be. The resource balancing act will be key to maintaining spending within the productive capacity of the nation to deliver public purpose.

The Resolution Foundation summed it up depressingly in its conclusion in saying that:

‘The priority that both main parties have placed on credible fiscal frameworks in this campaign is laudable. Such rules are hugely important for the government’s overall economic priorities. In setting out new fiscal rules, it is vital that they provide a clear framework for sustainable public finances, constraining the temptation for policy makers to promise unfunded giveaways.’

Such institutions unsurprisingly have focused on the notion that it is the role of government to balance its budget rather than serving citizens and improving their economic and social well-being. It is regrettable that a recent poll has suggested that many people doubt whether such spending plans are affordable and yet given the reality of the consequences of not spending adequately how could we possibly afford not to?

The nation is now paying the price for politicians pedalling the lie of the last forty years that money is scarce, that there is no such thing as public money and that good government is about fiscal discipline. Even if changing that notion in the public consciousness will take time, in the light of the urgency of the challenges to address climate change and social inequality we need an urgent step change in economic thought on a planetary scale since it is our survival on this planet which is at stake.

This is not, however, a time to make compromises with an economic system which has already done such huge damage. The seeds of an alternative model are already being hijacked by companies cynically promoting their green credentials with one aim in mind: to create more growth to keep the profits rolling. Reducing our plastic use and buying electric cars will scarcely make a dent in the scale of the changes we need to implement. We may have a broad vision, but that now needs to be developed into concrete realities. It may be still a work in progress, but it is a vital one we must not ignore.

This is a time to reimagine the world. A fairer and more sustainable approach to replace the one of endless growth which currently defines our capitalist economic system and puts profit before people and the planet.

Progressives on the left are beginning to initiate a much-needed conversation about what we need to do to reverse the decades of social injustice and challenge the idea that we can maintain the engine of growth on a finite planet.

However, and most regrettably, politicians on the left are still trying to have that conversation stuck in old economic paradigms of how money works. When they are asked how they will pay for these vital programmes the response is always one of tax and spend or borrowing to invest. Raising corporation tax, bringing back the magic money tree from the Cayman Islands, taxing the rich until the pips squeak or borrowing on the markets because interest rates are low. Instead of talking about taxing the wealthy to redistribute wealth by removing their colossal purchasing power and ability to influence politicians, they talk about funding our public services with the proceeds.

Again, on the left some politicians are suggesting that the government is akin to a business and that renationalising transport, our utilities, mail and the NHS will allow the government to plough back the profits back into public services. Yes, we need to end the rip-off of privatisation which has not benefited citizens and has allowed public money to flow into private pockets for profit motives, but let’s not buy into the idea that the government resembles a large corporation with a profit and loss sheet. It doesn’t.

The government is the currency issuer and neither needs to tax nor borrow in order to spend and nor does it need the profits of renationalised industries for us to have public services.  It just needs the political will to deliver them.

The role of government is to create the framework for markets to exist and dictate through legislation how they will function and in whose benefit. It taxes the populace, not to fund its spending but to manage its economic policies, from the redistribution of wealth to expressing public policy and is one of the key tools it can use to manage inflationary or deflationary pressures.

Government not only has the power of the public purse to improve the lives of its citizens it also has the power to legislate to drive its political agenda. All a question of choices which are not dependent on the state of the public accounts. Indeed, not only does it have the power to spend for the public purpose, it has the power to change the rules of the game. For example, it might regulate the financial sector to ensure that when people’s savings of whatever kind are put to work it is done to shift our negative and damaging behaviours towards creating a positive impact on society and our environment instead.

Outcomes are the measure of any government’s success. With the political will it could:

  • create the framework for good quality universal public services provide a social security system which is both not punitive in its functioning but also ensures a decent standard of living for those unable to work through disability, sickness or old age,
  • pay for a just Green transition,
  • offer a Job Guarantee as standard to create price stability and act as an automatic stabiliser for the economy to give people the dignity of proper, well-paid employment when needed.

All of these things are fundamental to the good functioning of society.

What are we so afraid of? A better future for our children? A more sustainable and fairer economy for all? Indeed, a planet for us to live and breathe on? What is not to like? So, when you hear interviewers berating left-wing politicians (who have not quite made the leap into monetary realities) about how they will pay for their progressive agenda ignore those questions and remember instead that a government’s economic record will be defined by how it serves the nation’s economy as a whole, improves the lives of its citizens and how it uses the resources it has at its disposal to achieve its agenda – not whether it balanced the budget.

 

For more in-depth information about how money really works, you can find all you need on our GIMMS website.

https://gimms.org.uk/

 

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The post The time has come to talk of many things; of taxing and spending and an economic system that needs mending.  appeared first on The Gower Initiative for Modern Money Studies.

Who’s Credible on Tax?

Published by Anonymous (not verified) on Fri, 29/11/2019 - 8:00pm in

We now have the manifestos for the election. We know what
the parties now say about tax, even if we cannot know what they will actually
do.

The differences in opinion are stark. Addressing, due to
space, those parties standing in most seats, it is clear that none of the
parties come close to understanding the true role of tax in the economy as yet.
All are fixated on the idea that current spending must be covered by tax and
only investment may be financed by borrowing. The household analogy within
macroeconomics is alive and well and living in the UK, and it’s wrong. The role
of tax in delivering social and economic policy in its own right is still being
ignored by all the parties, excepting the Greens, with their proposal for a
Universal Basic Income, and that will not be happening any time soon. This
misunderstanding is a massive contributor to economic mismanagement.

Within that framework there is enormous difference in tax
policy on display. In particular, Labour’s recognises a threefold need. One is
to address poverty. The second is to end austerity. The two are, of course,
related. And third, it wants to promote a Green New Deal. And it will spend to
achieve all three.

The IFS have said this plan from Labour is not credible.
I disagree. The plan for investment is largely in small projects that can be
ratcheted up quickly as skills become available. And the social plans will
achieve their goal, including of increasing incomes. This is a plan for the
moment.

The tax dimension of it (and it’s always an aspect) also
makes sense. To the extend that tax is needed the aim is threefold. Wealth is
taxed more, as it is dramatically undertaxed now. Labour is right to tax it
more. The same is true of corporation tax, where Labour’s proposed unitary tax
base for international taxation will lead the world, whilst the increase in
rates will simply bring the UK back into line with the world. No one is actually
going to change their behaviour as a result of either reform. And nor, when it
comes down to it, will almost any one those who are well off enough to earn
more than £80,000 a year flee the country, or even work less, as a result.
First, most of those people are on contracts that do not vary pay with tax
rates. Second, most people have no clue how much tax they pay. And third, most
people work harder when they earn less if (as is true of many of those on high
pay) they have fixed and very expensive commitments. The plan does, then, make
sense. Inelastic behaviour will result in the higher taxes being settled with
little issue arising.

The Tories on the other hand are locked into the belief
that tax sells election victory, and so are committed to maintaining the status
quo. But in so doing, a very small change to national insurance apart, they
also lock in the existing social infrastructure and with it the income and
wealth inequality that even organisations like the OECD and IMF say is harmful.
Not only are the Tories not using spending to break austerity and defeat
inequality, they’re refusing to do anything at the top end either, meaning that
all the divisions in society that have been so destructive of our well-being
will be maintained. In this sense the Tories are really being true to form
conservatives.

And in the meantime the LibDems are so far out in the tax
cold that they think hypothecated taxes for the NHS might work with the
electorate and in practice. But that is not how tax works, and even given the
terribly low level of understanding of tax that pervades the UK I suspect
enough of the electorate realise that is the case to be indifferent to the
promise. The LibDems do really need to try harder.

As for the Greens, carbon tax dominates their agenda. It worries me. They are almost always regressive. The Greens proposal would be, I fear. And I am not wholly convinced a universal basic income makes up for that. The Green manifesto is only of interest on tax because it is a place where ideas can be explored. I suggest that this one still needs a lot more exploration.

Overall? Labour has a good offering that makes economic
and social sense. It has, thankfully, abandoned its fiscal rule. But like the
other parties it still shackles itself unnecessarily on tax by adopting an
inappropriate and discredited macroeconomic view of tax. The Tories do the same
to reinforce division in society that will cost millions a great deal
financially and even more in their wellbeing. And the rest took part, but without
serious intent.

All of which leaves only one rational choice when it comes to tax, and that is Labour.

The views in this piece do not necessarily represent the collective views of PEF, but those of the author.

Photo credit: Flickr/_SiD_.

The post Who’s Credible on Tax? appeared first on The Progressive Economy Forum.

We don’t need a perfect world; we need a fairer and more equitable one. Understanding how money works is the first step.

Published by Anonymous (not verified) on Sun, 24/11/2019 - 12:02am in

Person at the bottom of stairs climbing from darkness into the lightPhoto by Free To Use Sounds on Unsplash

As the election campaign rolls on and party leaders battle it out on our television screens, the Liberal Democrats commit themselves to more austerity and Paul Mason, left-wing journalist and former music teacher, indulges in some fantasy explanations of how money works. More on that later….

In yet another indication of how the austerity has not only done grave damage to those who least deserve it, but also to the economy, two more reports have been published to add to the already long list exposing the consequences of cuts to public spending.

The Scottish based Poverty Alliance organisation which published its report Righting the Wrongs: A manifesto to tackle poverty is urging the next Government to ‘put solving poverty at the heart of all that it does, including by creating a more compassionate social security system, [and] building a labour market that works for everyone….’

When confronted with the realities of people’s lives through their stories we can see the real tragedy behind the policy decisions and cuts to public spending of the current Conservative government.

Jamie from Glasgow struggling to raise a family on a low income described it as ‘like being stuck in the middle of a spider’s web with no escape route’ and Jackie, a community activist commenting for the Poverty Alliance report, said that ‘more and more people are being locked into poverty by jobs that are low paid and insecure. When people can barely afford to put food on the table and when parents working full-time are struggling to cope, there is something very wrong that we have to put right.

An analysis published by the TUC, also this week, has revealed that the number of children growing up in poverty in working households has risen by 38% over the last decade, bringing it to 800,000 since 2010.

The study also showed that government policies account for the majority of rises in child poverty, with more than 485,000 children (in working households) having been pushed below the breadline, not only as a direct result of the government’s in-work benefit cuts but also as a consequence of other major factors which include weak wage growth and insecure work. The report also noted that over the past decade workers have suffered the most severe wage squeeze in two centuries and although wages have just started to grow, weekly wages are still £14 below pre-crisis levels.

Frances O’Grady, the TUC General Secretary, commented about the report that no child in Britain should be growing up in poverty and cuts to in-work benefits have come at a terrible human cost.

Overall the poverty figures are shocking. As GIMMS reported earlier this year following a report by the Social Metrics Commission, there are now around 14.3 million people living in poverty, of which 8.3 million are working-age adults, 4.6 million children (of which around 2.9 million are in working households as identified in the later TUC report) and 1.3 million pension age adults.

Aside from these shocking statistics which represent avoidable and unnecessary human degradation, the combined effects of government policies and cuts to spending on public services have had a damaging effect not only on the lives of those caught in the austerity crossfire but also on the economy as a whole. A decaying public and social infrastructure and toxic welfare reforms have had a significant impact on poverty and inequality and show clearly in whose interests the government has been acting. The promotion of individualism and self-reliance, along with decreasing state intervention to replace our public infrastructure with private, profit-motivated services has been a long-standing agenda of successive neoliberally inspired governments.

Access to high-quality health and social care, education and training, well-paid secure work and good quality, affordable housing all play a vital role in the health of the nation and its economy. When people are denied those basic support systems it can only, in the end, lead to more deprivation, ill health, hunger, homelessness and increased crime, the consequences of which ripple into every part of society burdening it with both additional financial costs and societal breakdown.

As was reported by the BBC only this week more than 2 million adults are unable to see a dentist either because they can’t afford treatment, find an NHS dentist or get care where they live as a result of underfunding and recruitment problems. It is claimed that many people are being reduced to practising self-dentistry to alleviate the pain of rotten teeth which can cause all sorts of other problems like periodontal disease which can, in turn, lead to an increased risk of heart disease.

After nine years of cutting NHS spending in real terms, creating a pressured working environment for staff, capping their pay, stopping nursing bursaries and driving people away because of stress, senior NHS leaders are warning this week that hospitals are so understaffed lacking sufficient doctors, nurses and other health professionals to provide services that the ‘safety and quality of care are under threat.’ The latest figures show that the performance against key waiting times for A&E, cancer treatment and planned operations have fallen to their worst-ever level and that this could deteriorate even further as winter approaches.

NHS mental health services which have borne the brunt of cuts have become little more than a firefighting service to deal with the ever-growing numbers of people needing support.

Earlier this month the organisation State of Hunger published its report, drawn up in conjunction with Heriot-Watt University and the Trussell Trust. It revealed that more than half of households referred to foodbanks were affected by poor mental health, predominantly anxiety or depression, while 23% of people referred to foodbanks were homeless. The report gives a voice to those people who have paid the price for austerity and welfare reform – the worry about paying bills, keeping a roof over one’s head or having a job which pays enough.

“If I don’t pay my bills, then I’ll get the house taken off me. After paying arrears, I’ve got £8 a fortnight and that’s to pay for gas, electric, water. It’s just impossible, it really is. I go to bed at night wishing I won’t wake up in the morning.”

 

“I’ve used the food bank because I was on such a low income before I got my disability benefit… I had a mental breakdown because basically the amount they give me doesn’t cover the costs of my rent.”

 

Education joins health in forming the backbone of a functioning economy and societal well-being and yet, it too has suffered from crippling cuts to spending. Kevin Courtney, the joint general secretary of the NEU said this week that ‘The future of education hangs in the balance’.  Despite government promises of more money, the School Cuts Coalition made it clear only last week that four in five state schools will be financially worse off next year than they were in 2015 and this will affect schools in areas where there are already high levels of deprivation.

Even with the additional funding promised by government, there will still be a shortfall of £2.5bn in the year ahead after years of already damaging cuts. The consequences for schools are grim. More pupils per class, fewer teachers and support staff and reduced curriculums with subjects like music, language, art and design being cut as a result of the pressure, not to mention the reduction in capital expenditure on schools’ estate which has left it in a bad state of repair and not fit for purpose.

Our children represent the future and yet they are the ones that will bear the brunt of lack of adequate government spending and planning for an education and training system to meet the challenges they will face in the future.

A healthy economy demands a healthy and educated nation as a prerequisite. It demands quality housing, good secure jobs and pay. The last nine years of austerity and forty years of the pursuit of neoliberal dogma have pulled that rug from under people’s feet, leaving them in a world of increasing uncertainty.

It is regrettable in this respect that the notion that the state has a responsibility to ensure the health and well-being of all its citizens through the provision of universal services and other state-provided interventions is being mistaken for a ‘nanny state’ rather than acknowledging the value of such investment in society and its economy.

Whilst government has pursued its handbag economic strategy and ignored monetary realities for the lie of balanced budgets, it has failed in its duty as an elected body to serve the interests of citizens and the economy as a whole.

Whilst pursuing austerity, it has ignored the fundamentals of macroeconomics which it won’t hurt to repeat. Spending, wherever it comes from, creates income for someone else, whether that’s government which starts the ball rolling by creating the money into existence to pay for its needs which flows in turn right down to businesses, working people or even those having the misfortune to be involuntarily unemployed or coping with a disability or illness which prevents them from working. Through its obsession with austerity and lowering deficits at a time when it should have been spending more, it has weakened the economy and wilfully left people without the means to provide themselves with sufficient income to meet their daily needs.

As data from last year shows, it has left British households collectively supporting their spending through reducing savings (if indeed they had any) and taking on more debt. Quite simply government austerity has transferred the burden onto households which as private debt levels rise will prove unsustainable.

The fragile house of cards which represents the economy after nine years of government folly will either stagger on or fall into another recession unless the next government deficit spends sufficiently to promote full employment and serve the public purpose.

In the light of this, it is all the more incredible to note that after Ed Davey, deputy leader of the Lib Dems said earlier this month that Labour and the Tories were ‘writing promises on cheques that will bounce’ they have decided to make austerity their USP (unique selling point) for their election campaign. Yes, you read that right!

In his recent speech he positioned the Liberal Democrats as the ‘party of fiscal rectitude’ and the Conservatives and Labour as the ‘parties of fiscal incontinence’. Davey is proposing to adopt a fiscal rule for day to day spending aiming for current account surpluses in every year of their five-year costings.

With yet more household budget accounting and to meet its objective will require tax rises and yet more spending cuts. Furthermore, on the basis that achieving a surplus is not a saving and removes money from the economy and if our trading partners don’t spend all they earn thus taking even more out of our economy the net result will be a severe recession (as if we weren’t already heading in that direction). A bit of an own goal and a very foolish one at that!

And yet depressingly it has to be said another own goal was scored this week by the journalist and self-styled economist Paul Mason who presented a short promotional video for Novara Media explaining the deficit and debt in the language narrative of overdrafts, loans and mortgages along with that old ‘canard’ about paying for public services by taxing the very rich.

This is indeed ‘fantasy economics’ of the most damaging kind.

In response, the economist Professor Bill Mitchell explains it very succinctly and it is worth printing it here in its entirety:

‘This is the classic ‘soft’ mainstream macroeconomics that assumes the government is financially constrained and is thus not dissimilar to a household.

It is ‘soft’ because, unlike the hard-mainstream positions, it allows for deficits (‘funded’ by debt) to occur in a non-government downturn but proposes them to be offset by surpluses in an upturn, irrespective of the overall saving position of the non-government sector.

None of this framing or language is what I would call ‘progressive’.

It has the hallmarks of the way neoliberals construct the concepts and the narrative.

The inferences are also plainly false when applied to the British government.

  1. It is not financially constrained in its spending.

The constraints relate to real resource availability.

In terms of restaffing the NHS, for example, are there qualified labour resources available? What training would be required? Would this mean that British Labour is also going to be advocating open borders to ensure the staffing is available? [….]

  1. There is no meaningful knowledge that be gained by comparing a household with a home mortgage and a currency-issuing government spending its own currency.

The household is the currency user and the government is the currency issuer.

Totally different constraints apply.

  1. It is false to claim that it is virtuous to ‘tax the rich’ in order to fund essential health and welfare services.

This is one of the worst frames that the progressives now deploy.

The British government might want to tax the rich to reduce their power and influence (exercised via their spending habits) but it never has to do that in order to fund essential services.

The only constraint that exercise involves is the availability of real resources.’

  1. The British government does not have to issue debt to ‘fund’ its deficits. The capacity of the non-government sector to purchase the debt derives from past deficits that have not been taxed away yet.

Even if the government issues debt to match its investment in essential infrastructure to deliver better housing, transport health care, and engage in climate action etc, this investment is not linked at all to the current interest rates in place.

 

There is no meaning to the term “cheap” finance, when the spending does not need to be financed (in the currency the government issues).

The issuing of risk-free debt from a currency-issuing government really amounts to the provision of corporate welfare and no progressive should advocate its continuance.

  1. There is no meaning in saying the recurrent deficit is like an overdraft or the capital deficit is like a mortgage. Those terms gain meaning when applied to units that are financially constrained.

While left-wing progressive parties continue to frame their election campaigns in neoliberal terms and thus erect unnecessary financial barriers to spending that will prevent them from achieving their goals, the public will also remain in the dark about a subject which is of vital importance; how to answer the question about how government really spends, how its policies can be paid for and what  the real constraints are.

That said and despite the deliberate misleading of the public by Paul Mason, the UK needs a progressive government prepared to act in the public interest through investment in our public and social infrastructure and ready to take action to tackle social injustice, ensure a more equitable distribution of wealth and address the biggest challenge we face – climate change.

 

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Writing millions out of our pensions system will hit the poorest hardest

Published by Anonymous (not verified) on Sat, 23/11/2019 - 7:00pm in

News has leaked that Boris Johnson is to write millions of people out of making national insurance contributions. This would be the result of increasing the minimum contribution threshold to the weekly equivalent of £12,500 a year, which Sajid Javid has stated that is an ‘ambition’ which would ‘not necessarily’ be reached by the end of a parliament.

The gains to those making payments will be small. I am not
saying nearly £500 a year is insignificant when you’re earning £12,500 a year:
it very clearly is. But let’s be clear, it’s not only they who will gain. This
benefit will, unless compensated for, go right up the income order to those who
clearly have nothing to do with reducing a charge on those least well off in
our society. It’s certain that most gains will, then, go to those not in
greatest need.

And what matters at least as much as any gain to those on
the lowest incomes is the state pension and other benefit consequences of this.
These are massive, and all at cost to those who Johnson says should gain from
this proposal.

Our state pension entitlement is still based on the number
of years of earned income a person has national insurance contribution made.
Technically this is not quite the same as making national insurance
contributions, but the limits used for appraisal are closely linked to the
national insurance system. And whilst I know there are compensatory benefits
such as pension credit, but that’s not the point. Such benefits come and go. So
far no one has been trying to get rid of the state old age pension, even if its
value has been eroded. And now large numbers of people might have their
entitlement substantially curtailed if, as I would expect, the pension
entitlement threshold increase along with those for national insurance
contributions. How convenient is that for a government wishing to curtail
benefits and shrink what they think to be the welfare state?

And this is not the only issue. It now seems that many
entitlements are based on being able to prove work has been done. Even the
right to stay in the UK can now be based on this. And now many people will not
need to be on payrolls, at least as far as their employers are concerned,
 and may well not have contribution records as a result and so will have
no recourse to this evidence in the event of disputes on such issues. Where
does that leave the vulnerable? More vulnerable is the very least of the
answers to be provided.

I do not have a problem with reducing NIC on those on the
lowest pay. But I mean reducing it and not eliminating it until such time as
dependence on a payment record is also removed and proof that a person has
worked as a measure of a contribution to society is eliminated.

And I do have a problem with this being lauded when very
large tracts of income – from investment sources – attract no national
insurance at all and so provide ample opportunities for tax avoidance for those
recategorising their earnings.

There is a fundamental flaw in Johnson’s plan and that is it
is designed to attack those most vulnerable in our society. That’s typical. It
also needs to be said. This plan stinks of privilege with an indifference to
need. That’s why I oppose it as he’s presented, and as he’s likely to present
it.

Photo credit: Flickr/George Grinsted.

The post Writing millions out of our pensions system will hit the poorest hardest appeared first on The Progressive Economy Forum.

It’s not balanced budgets that will save us. It’s the power of the public purse and our human values.

Person at a demonstration holding a placard with slogan "What lessens one of us lessens all of us"Photo by Micheile Henderson on Unsplash

Charles Dickens began his novel ‘Hard Times’ thus:

“NOW, what I want is, Facts. […]. Facts alone are wanted in life. Plant nothing else and root out everything else. You can only form the minds of reasoning animals upon Facts: nothing else will ever be of any service to them. [….] Stick to Facts, sir!”

Whilst one might dispute Dicken’s character Gradgrind with his miserable vision of human existence, facts can be very useful. They can trace the human misery caused by 9 years of austerity and the last forty years of a pernicious market-oriented ideology which has led to vast disparities in wealth distribution and caused huge damage to society by encouraging the pursuit of self-interest.  And yet it has to be said as the election campaign gears up, that in terms of monetary reality, of facts there seem to be very few to be had.

As political and economic commentators, not to mention politicians on all sides, emphasise daily their claims that the government finances are like a household budget, the public has largely remained stuck in the quagmire which is presented as monetary reality and distrustful of a political system which has failed them.

Looking at newspaper front pages this week you could be forgiven for thinking that we are headed for bankruptcy if Labour were to win the election or that their spending plans would cost UK households £43,000 each. A ‘reckless spendathon’ is in the offing according to a government spokesperson in a recent BBC television interview.

Aside from such narratives being a fallacy, they are designed to put the frighteners on people who are already suffering financial hardship caused by years of austerity and ideologically driven government policies. Those with a political agenda shore up those false beliefs that borrowing too much will lead to government insolvency. They cynically and callously terrify people that they will be asked to pay for those spending programmes when they will not. This is an establishment that is running scared that their reign of power is coming to an end. The means justify the ends!

It cannot be denied that if we are to escape the worst effects of a coming global downturn, an incoming government of whatever variety will need to implement adequate spending programmes and increasingly fiscal policy is becoming the ‘mot du jour’. However, the message is reinforced daily by all sides of the political spectrum that there are still financial limits to that spending.

Last week Ed Davey, deputy leader of the LibDems said of Labour and the Tories spending plans that they are ‘writing promises on cheques that will bounce’. The very same party that joined in with Tory austerity during the Coalition and voted for public spending cuts and welfare reforms.

In the same week, the Greens promised welcome public investment of £1trillion over 10 years to fight climate change, the money for which it said would come from ‘borrowing’ and ‘tax’ changes.

Then the Chancellor of the Exchequer in a ‘give with one hand take back with another’ message promised to increase borrowing to fund billions of pounds to pay for new infrastructure but then announced three new fiscal rules to ‘control borrowing, to control debt and to control debt interest’.

Stuck in household budget la-la land he said without a hint of jest:

‘like anyone who budgets whether it’s a household, or small business or large business, I know that we must keep track of what we are spending and what we bring in…. We can’t run an overdraft forever on day to day spending, so I can confirm that our first rule will be to have a balanced current budget. What we spend cannot exceed what we bring in.

Never mind that you can build as many hospitals as you like as part of an infrastructure spending programme but if you make up foolish rules about day to day spending those hospitals will remain empty of nurses and doctors and other health professionals to staff them.  And let’s not forget the bailing out of the banks or successive wars funded without a taxpayer in sight.

The same tired old tropes abound about taking advantage of ‘historically low borrowing rates’ and ‘living within our means’ remain the context for Conservative spending plans and figure in one way or another in the language narrative of other parties too.

In a similar vein this week, the shadow chancellor reinforced that same story when he tweeted:

‘The Tories can’t invest in the public services we need because unlike Labour they won’t raise taxes on the super-rich and take on the international tax dodgers’.

The implication being here that he will bring back the magic money tree from the Cayman Islands to pay for our public and social infrastructure.

Even the Leader of the Opposition has suggested that if they don’t tax the very rich, then Labour won’t be able to pay for public services.

As Professor Bill Mitchell commented in a blog in response:

‘The British government does not need to tax the rich to pay for first-class public services. It can do that at any time it can muster the real resources to accomplish that aspiration. It issues its own currency.

It might want to tax the rich because they have too much power but that is quite separate from justifying such an action because the government needs their ‘money’.

Although without doubt the proposals on the progressive left to tackle social inequality, rebuild public infrastructure and address climate change are laudable and indeed vital, it is to be regretted that the arguments for public spending programmes are being reduced to household budget frameworks of monetary affordability, where the money will come from and economic credibility. We have become fixated by the single idea that the country’s economic ‘health’ hangs on whether or not we run a deficit.

GIMMS will say it again. In reality, the only analysis that really counts when deciding which way to vote in any election is not a judgement based on a government’s financial record or whether it balanced the public accounts but what its economic record was.

We as citizens should be examining where the money was spent and who benefited. Did that spending ensure that its citizens were in secure employment and fairly paid, had decent housing and sufficient food in their bellies? Did it create a healthy and more equitable economy in which wealth was more fairly distributed? Did it ensure that the vital public and social infrastructure such as the NHS, social care, education and local government were adequately funded to serve the public purpose and not fill the coffers of private profit? Or was that public money sucked up by the private sector in a big free for all in which the state serves the interests of the corporations rather than the interests of its citizens?

And what about government policies on health, education, welfare spending and the environment? Did they create stable lives by improving the material, financial, physical and mental health of citizens? Did they ensure adequate investment to ensure that the nation can be as productive as possible through good education and training both for present and future generations? And finally, the environment – what actions did they take to address the climate crisis?

In other words, we should be examining what the real economic outcomes were.

After nine years of telling the public that there was no alternative to austerity and cuts to public spending because the coffers were bare, it’s amazing what the prospect of an election can do to turn the spending taps on. And yet the smoke and mirrors, lies and deception about how government spends just carries on relentlessly.

But now it’s all OK (for the moment) the Conservatives have found the magic money tree, cutting the deficit has apparently given them some savings and the fiscal ‘headroom’ to spend. For those that know, this narrative is a fairy tale of epic proportions. For those that don’t, it should be enough to arouse a cynical response by a public which has been at the sharp end of those tax and spend myths which have formed the basis for its policies.

Indeed, only this week the following headlines should serve as the wakeup call for the public about Conservative economic credibility.

‘UK suffers biggest fall in jobs in four years’

‘UK avoids recession but annual growth slowest in almost a decade.’

‘Wage growth slows’

We can blame it in part on the uncertainty caused by Brexit, but the reality is that behind the faceless employment figures published by the Office of National Statistics are the lives of real people who have been affected by the government’s policies and spending decisions over the last 9 years.

To put it in basic economic terms, when a government spends it creates income for the private sector which is then spent into the economy. When it imposes spending cuts it is removing money from people’s pockets leaving them with only three options: Use their savings if they have any, take out credit or go without.

All spending, whether from government or the private sector, equals income for someone. What happens when you take that away? That’s people who lost their jobs in the public sector as local government, the NHS and schools were forced to pare down their budgets as a consequence of public spending cuts. That’s people constrained by public sector pay caps and pay cuts. That’s people who ended up working two or three jobs on low pay to keep a roof over their head and food on the table. That’s people working in precarious employment in the zero-hours or gig economy with no guaranteed decent income or sick or holiday pay. That’s people affected by the reforms to welfare and the introduction of Universal Credit, from those who are unemployed left with insufficient financial resources to make ends meet and those in work but not earning enough to keep their heads above the water to those left struggling to cope because of chronic sickness or terminal illness.

In seeking the nirvana of balanced budgets by cutting spending the Conservative government has not created a healthy economy it has done the very opposite. The statistics are the proof.  Without adequate spending, the economy suffers, and people pay the price.

And yet as political parties present their spending plans and worry about how they will demonstrate their economic credibility the elephant in the room is crashing about trying to make itself noticed. On one note it is pathetic to see the Conservative party take issue with the opposition’s spending plans calling them reckless and unaffordable whilst promoting its own as being fiscally responsible. On another, in their rush to spend, neither party seems to have considered the real resource factor and how that will be managed.

The IFS for all its neoliberal sins ‘gets’ the elephant in the room and recognises that whoever wins on December 12th their spending plans will be dependent on whether they have the right resources at their disposal to deliver.

After 9 years of insufficient spending into the economy to prepare for the future, will there be sufficient people with the right skills to meet the government’s needs? Whether that’s engineers and construction workers to design and build the proposed infrastructure or homegrown nurses and doctors already trained up to service the planned spending on the NHS? Or in these days of climate crisis we might also be talking about the resources needed to deliver the Green New Deal and ensure a just transition not just for those in the rich west but those in the global south whose countries have already been plundered of raw materials and impoverished so that we can maintain our standard of living.

For progressive parties like Labour and the Green Party who wish to deliver a left-wing agenda what they have to do is decide their key priorities, consider the availability of resources and how they could be freed up to deliver a future government’s objectives efficiently and effectively. A case in point this week is Labour’s plan for free broadband which has much to recommend it in terms of bringing communities together in an inclusive and connected society. Journalists and others predictably have asked the question where will the money come from? They have missed the point entirely and should be asking instead how many workers would we need to deliver it?

Ultimately, all sovereign currency-issuing governments don’t need to match their plans to tax revenue or determine whether the markets can lend them the money. The role of government in this respect is not to balance the budget but to balance the economy.

The public needs to understand that it isn’t the government’s ability to tax the rich but its power to run a deficit which determines the health of an economy. As the sovereign currency issuer, the UK government has the power of the public purse to fund the public works necessary to tackle social and wealth inequalities, deal with the current global economic uncertainty, and fund the Green New Deal, should it choose to do so.

However, at home, our public and social infrastructure is in a shocking state of decay caused by 9 years of cuts to public spending and lack of planning. Reversing that decline is not something that just promising to spend can solve in the short term.  There are important issues to consider for the long term which may not fit the short-termism of the political five-year framework and many politicians who have become used to serving other interests.  That is the scale of the challenges we face.

When all is said and done even though the Labour party persists with the household budget myths John McDonnell has it right in terms of what is required not just to reverse the social injustices heaped upon global populations because of pernicious ‘free’ market ideology or the threat to the human species at our own hand. As he said not only must the scale of investment match the scale of the crises we face both in ecological and social terms, but also if we don’t make these investments our future generations will never forgive us.

Let’s leave the final words to Professor Bill Mitchell who wrote a while back:

“My ideological disposition tells me that the pursuit of human values is the only sustainable way of organising and running a world. The neoliberal era has severely undermined that pursuit.

That’s what we must change and urgently if we want half a chance to save ourselves and our children’s children from disaster.

 

Note: GIMMS has a very good resource section on our website which takes you through how money works. From FAQS to resources sheets and external websites, videos and academic papers for those who want to take it further. For an introduction to how money really works follow the link here.

 

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The post It’s not balanced budgets that will save us. It’s the power of the public purse and our human values. appeared first on The Gower Initiative for Modern Money Studies.

Should we abolish inheritance tax?

Published by Anonymous (not verified) on Tue, 12/11/2019 - 3:30am in

Tags 

Uncategorized, tax

The Brexit Party has suggested that inheritance tax should be abolished.

Inheritance tax is charged almost entirely on death. It is usually charged at 40% on the value of the estates of deceased people that exceed £325,000. However there are generous allowances. All gifts made seven years before death are exempted, as are gifts to souses and civil partners. Much business property is exempt, as is most agricultural property and gifts to charity[i]. Arrangements for trust are complex but can still be beneficial. The result is that the £325,000 limit is decidedly flexible, and latest data says 4.6% of UK estates, or 28,100 cases a year,  pay inheritance tax[ii]. The tax collects about £5.4 billion a year[iii].

The strengths of the tax

It is the UK’s only really effective tax on wealth itself. Wealth inequality is increasing rapidly in the UK. Around the world it is seen as a major issue. Organisations such as the International Monetary Fund[iv], World Bank[v] and Organisation for Economic Cooperation and Development[vi], none of which are seen as hot beds of socialism, suggest that taxes are required to address this issue and create more equal societies.

More equal societies tend to be more socially and politically harmonious than unequal ones.

They also tend to be more prosperous and see more economic growth as those with lower wealth (and incomes) spend more of what they have, and so turn a given level of income into greater economic activity than do unequal ones.

Unequal societies also tend to take fewer risks. The wealthy tend to invest to preserve their wealth rather than take risk: there is little evidence that wealth supports real entrepreneurial activity or even investment. They prefer to save in cash, property and the share capital or already established companies.

Inheritance tax tackles these issues by redistributing wealth.

The weaknesses of the tax

Few estates pay the tax. The wealthiest tend not to because there are so many loopholes that they can exploit. Many who do pay do so because of the value of their family homes which the deceased have lived in until the time of death. As such the tax is not well targeted. That, however, is because reliefs may exempt 80% or more of the potential yield.

Why abolish the tax?

Inheritance tax seeks to do an essential job in the UK tax system by charging wealth to tax. The UK needs a wealth tax if the gross inequalities that our market system has given rise to, usually by chance, are to be addressed through the tax system as the organisations noted previously think essential.

The problem with the tax is that it is ineffective. It only collects £5.4 billion a year.

The best reason for abolishing the tax is that it is not good at what it is meant to do. Ineffective taxes are always unpopular, as are those that appear to have a random impact.

What could replace inheritance tax?

Because it collects relatively little money there are a great many options for replacing inheritance tax.

The most effective, and fairest, would be to tax all receipts of gifts during a person’s lifetime. This would discourage the concentration of wealth and instead of charging the dying – who could then give to whomsoever they wanted – would charge the living to reduce inequality. Few doubt that this is the best long term direction of ravel.

In the short term some simple changes would, however, also be very effective.

First, there could be bands of tax due: a single rate makes little sense. If the other changes noted below were enacted this would have little impact on yield and make the tax more acceptable.

Second, the exemptions for business and agricultural property could be restricted. At present they cover a very wide range of assets and are open to abuse.

Third, houses could be exempted but be subject to capital gains tax on death instead. This would require that tax only be due on the death of a second owner in the case of jointly owned property, and that gains during the whole of life and not just in the final property be taken into account, but this should present very few problems in the vast majority of cases.  This means only the gains arising on houses would be taxed, removing a major grievance.

Fourth, trust taxation need to be reviewed again to break up the concentration of wealth.

Should inheritance tax be replaced then?

In a word, no, it should not be.

But it does need significant reform to make it substantially fairer. That might even require that it be given a new name. But the UK needs a wealth tax and the Brexit Party is completely wrong to suggest we should do without one. Most especially that is because that is not in the interests of most of those who voted for Brexit, who will never pay this tax.

Photo credit: Flickr/ferret boy.

[i] These reliefs are together worth more than £4bn a year on average https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/832126/IHT_Commentary.pdf

[ii] https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/832126/IHT_Commentary.pdf

[iii] https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/832126/IHT_Commentary.pdf

[iv] https://blogs.imf.org/2017/12/07/chart-of-the-week-sharing-the-wealth-inequality-and-who-owns-what/

[v] https://www.worldbank.org/en/news/press-release/2018/01/30/world-bank-report-finds-rise-in-global-wealth-but-inequality-persists

[vi] https://www.oecd.org/officialdocuments/publicdisplaydocumentpdf/?cote=SDD/DOC(2018)1&docLanguage=En

The post Should we abolish inheritance tax? appeared first on The Progressive Economy Forum.

‘I’ Review of Movie About British Iraq War Whistleblower

One of the flicks coming to our cinemas, if it isn’t there already, is Official Secrets, the film about whistleblower Katharine Gun’s attempt to prevent Blair’s illegal and criminal invasion of Iraq by leaking government emails about it. The I printed a review of it by Demetrios Matheou in last Friday’s edition for the 18th October 2019. Entitled ‘Spies, lies and a drama that resonates’, this ran

Early in the political drama Official Secrets, Keira Knightley’s real-life whistle-blower Katharine Gun watches Tony Blair on television, giving his now-infamous justifcation for the impending Iraq War, namely the existence of weapons of mass destruction. “He keeps repeating the lie,” she cries. “Just because you’re the prime minister doesn’t mean you get to make up your own facts.”

There’s simply no escaping the resonance. The current occupant of No 10 isn’t the first to economical with the truth; the real shock is that we keep on putting up with it. And the power of the film resides in the fact that the idealistic, courageous Katharine Gun would not.

The film opens with Gun about to face trial for breaching the Official Secrets Act – Knightley’s face expressing the sheer terror of someone in that position – before winding back a year to explain how she got there.

Katharine is working as a Mandarin translator at the intelligence agency GCHQ in Cheltenham. One day, she and her colleagues receive a classified email from America’s National Security Agency, requesting that the Brits spy on delegates from the United Nations Security Council, with a view to blackmailing them to vote for the resolution in favour of war.

In the UK, the very idea of the war is historically unpopular with the public. And here is evidence of its illegality. Katharine secretly copies the memo and smuggles it out to a friend who is an anti-war activist, through whom it reaches Observer journalist Martin Bright (Matt Smith). 

Until now, the film has been operating on something of a whisper. Once Smith appears on screen – quickly followed by the equally energetic (nay, combustible) Rhys Ifans as fellow journalist Ed Vulliamy – there is a sonic boom. From her, the action switches urgently between the paper’s investigation of the memo’s authenticity and Katharine’s personal hell as the leak is revealed, which includes the threat of deportation from her Muslim husband, Yasar.

Gavin Hood is an intriguing director, alternating between mainstream fare (X-Men Origins: Wolverine) and issues-based dramas charting government malfeasance, such as rendition (Rendition) and the use of drone strikes (Eye in the Sky). He is on strong form here, with a film that’s gripping, righteous, relevant, moving – in short, a very good yarn that just happens to be true.

At the heart of it is Knightley, impressively commanding as a woman who is principled and defiant, but also deeply vulnerable as the government cranks up its intimidation. Around his star, Hood has assembled a comprehensively find cast, with a particularly lovely turn by Ralph Fiennes as the lawyer determined to defend Gun against the odds. 

This looks like a brilliant movie, and I’d like to see it if and when it comes to my neck of the woods. Over one million people marched against the invasion, not just Muslims, but also people of all races and religions and none. One of the marchers was a priest from my local church. I’ve reviewed a book on this site presenting a very strong case that Blair’s invasion constitutes a war crime, for which the slimy creature should be prosecuted along with Bush. According to the late William Blum, there were attempts to do just that, but they were stymied by the British and American governments. The demonstrators’ chant is exactly right: ‘Blair lied, people died’. But despite this and subsequent books exposing his venality and legal tax-dodging through a complex mass of holding companies and off-shore tax havens, he still seems to think that he’s somehow the great champion of British politics. He’s been one of the figures behind the attempts to create a new ‘centrist’ party, and every now and again he pushes his head up from wherever pit in which he’s been hiding to make some comment about contemporary politics. Usually about Jeremy Corbyn and the Labour party. 

Hopefully this picture will remind people that ‘Teflon Tony’ wasn’t some kind of visionary statesman. He was a butcher, who backed the illegal invasion of a country for no better reason than the multinationals’ desire to loot their oil wealth and state industries. Oh yes, and cut off Hussein’s occasional support for the Palestinians. Thanks to him and his master, Bush, hundreds of thousands of people in Iraq and the Middle East have died or been displaced, a country has been wrecked and its secular, welfare state dismantled and reduced to chaos and sectarian violence. This bloody, illegal war has also claimed the lives of good men and women in the forces and in the civilian organisations trying to rebuild the country.

As for the reason why people like Blair keep getting elected – if government in this country had been genuinely accountable, they wouldn’t. It shows a flaw in our political system, a system in which the media must take its share of the blame. Warmongers like Blair get elected because they have the full support, with some exceptions, of the Thatcherite press and Murdoch papers. The same papers that are trying to bring down Jeremy Corbyn. 

 

 

The ‘I’ on Labour’s Manifesto Policies

Thursday’s edition of the I, for 10th October 2019, carried an article by Nigel outlining Labour’s election promises. The article ‘What will be in the Labour Party election manifesto’, stated that ‘Jeremy Corbyn aims to target areas for radical change’. These were itemised and described as follows

Brexit

The plicy issue likely to be at the heart of the election campaign. One in office, Labour would spend three months negotiating a new Brexit deal with Brussels to enable Britain to remain in customs union with the European Union and be closely aligned to the European single market.

It would then organise a referendum within six months, offering voters a choice between Labour’s deal and remaining in the EU. Labour would hold a special conference to decide which side it would endorse in the referendum.

Taxes

Labour says its tax-raising plans would only affect give per cent of taxpayers. It is currently committed to increase income tax rates to 45 per cent for salaries over £80,000 and to 50 per cent for salaries over £123,000.

Cuts to corporation tax would be reversed and the rate would be fixed at around 26 per cent. 

Infrastructure

Labour is pledging to spend £250bn on upgrading the UK’s transport, energy and broadband infrastructure. Another £250bn of capital would be provided for businesses and co-ops to “breathe new life into every community”.

Nationalisation

Labour would bring the railways, Royal Mail, the water companies and the National Grid into public ownership so “essential services we all rely on are run by and for the public, not for profit.”

Minimum Wage

Workers of all kinds would be legally entitled to a UK-wide minimum wage of £10 an hour. LOabour says the move will make the average 16- and 17-year-old in employment more than £2,500 a year better off.

Free Personal Care

A new National Care Service would help elderly people in England with daily tasks such as getting out of bed, bathing, washing and preparing meals in their own homes and residential care, and provide better training for carers. The £16bn annual cost would come out of general taxation.

Free Prescriptions

Prescription charges would be abolished in England. They are already free in Scotland, Wales and Northern Ireland. 

More than 80 per cent of English prescriptions are already issued free of charge, but in other cases patients pay £9 per item.

Boost Doctor Numbers

The number of GP trainees in England would rise by 50 per cent to tackle a recruitment crisis. Labour says it would mean an extra 27 million GP appointments per year.

Scrap Tuition Fees

One of the party’s most popular policies at the last election, Labour is committed to scrapping university tuition fees in England and Wales, which currently stand at a maximum of £9,250 a year.

It would also cancel existing student debt, which the party says has reached “unsustainable” levels.

End Rough Sleeping

Labour would end rough sleeping in five years by allocating thousands of extra homes to people with a history of living on the streets.

Outlaw Fracking/ Increase Renewables

Fracking would be banned “once and for all”, with Labour putting its emphasis on developing clean and renewable energy.

The party wants 60 per cent of UK energy from zero-carbon or renewable sources by 2030 and would build 37 state-owned offshore windfarms. it is pledging to create hundreds of thousands of jobs in a Green Industrial Revolution.

Scrap Ofsted

The schools inspectorate, which the party claims causes higher workload and stress for teachers, would be abolished and replaced with a two-stage inspection regime.

A Four-Day Working Week

Labour would cut the average working week to 32 hours within ten years, but with no loss of pay. It would end the opt-out from the European Working Time Directive, which lets firms sidestep EU rules on limiting hours to 48 a week. Zero hours contracts would be banned.

Overturn Union Legislation

Margaret Thatcher’s union legislation would be scrapped as a priority, and moves begun towards collective bargaining in different sectors of the economy.

Reverse Legal Aid Cut

Labour would expand legal aid as a priority with help focussed on housing cases and family law.

These are all policies that this country desperately needs, and so you can expect the Tories, the Lib Dems and the lamestream media, not to mention the Thatcherite entryists in the Labour Party itself, to scream ‘extremism!’ and do everything they can to stop them.

And you can trust that the party is absolutely serious about honouring these promises. Unlike David Cameron, Tweezer and Boris Johnson, all of whose promises about restoring the health service and reversing cuts, bringing down the deficit and ending austerity, have proven and will prove to be nothing but hollow lies.

We need to relearn the art of adequate spending for public purpose

Published by Anonymous (not verified) on Sat, 12/10/2019 - 9:30pm in

The GIMMS team have been away and had a very busy two weeks travelling between Brighton, London, Manchester, Leeds and Newport for a variety of events.  All in all, it has been very successful and well worth the effort. We’ve had the pleasure of meeting lots of enthusiastic and lovely people across the country and we hope that over time the interest can be carried forward into real action in local settings.

The recording of the Brighton Fringe Event at which Professor Bill Mitchell spoke is now available here and we are working on editing the training session in London and the recording of GIMMS event at the Green Party Conference.

So, from this week normal service is resumed for our MMT Lens with a round-up of the key events over the last two weeks.

 

Cardboard placard at a protest with the slogan "Fight today for a better tomorrow"Photo by Markus Spiske on Unsplash

Boris Johnson is spending. Well, not his own money, of course, but he has authorised a multibillion-pound government spending programme not to mention substantial tax cuts for the wealthiest. After nine years of unnecessary and harmful austerity politics a focus on fiscal rather than monetary policy, which is in a predictable dead end, is to be welcomed although strangely it seems to reflect many of Labour’s spending promises. They say that imitation is the sincerest form of flattery, don’t they?

As part of the spending review by Chancellor Sajid Javid some weeks back, Boris Johnson in his speech at Conference promised investment in the NHS and social care, education, transport and roads, local government, police and the environment. And again, strangely, all those things that it has been busily cutting over the last 9 years because it was claimed we couldn’t afford them are now back on the spending menu. It is tempting to ask the question but where will the money come from since it’s the one that the Conservatives have most often asked Labour when they have announced their policy and spending programmes.  It has also been tempting for some like Paul Johnson from the IFS to wonder whether Boris’s proposals for tax cuts were feasible given his public spending promises.  That is, of course, if like Paul Johnson you accept the too often trotted out household budget version of the state finances which says that government relies on tax and borrowing in order to spend which GIMMS readers surely must know by now they don’t in a country where the government is the sovereign currency issuer.

These spending promises and tax cuts drive a coach and horses through the notion that government spending is constrained by taxpayer revenue. It also tells us very clearly that some politicians know exactly how the money system works and let’s be honest it’s not been the first time that the Tories have opened the public purse to serve a specific political agenda! Those computer keys at the Bank of England will be red-hot if the promises are kept.

After having been told in no uncertain terms that there was no money and that we all had to pull in our horns to get the public accounts back into health suddenly there’s money but an equal question in people’s minds about how it will be paid for. And that cannot be surprising given that the household budget narrative reigns in the public consciousness.

As usual and in response to the government’s plans, some of which were announced prior to the Conservative conference, there have been alarm bells ringing in the usual quarters both political and institutional about the impact on the deficit and debt and borrowing levels.

The government’s spending plans sit contrary to the 2% of GDP limit which was set for the 2020-2021 fiscal year and suggests a rowing back from the traditional Tory mark of fiscal prudence. It remains to be seen how much of this is an electioneering ploy and whether it will translate into reality. However, interestingly, as government announced its spending plans there was trouble brewing in its own party as voices of dissent were being raised at a party fringe meeting where MPs, representatives from the Taxpayers’ Alliance and the Institute of Economic Affairs indicated that although they recognised that people had suffered through austerity they believed that the government had not gone far enough in cutting public spending. John O’Connell, Chief Executive of the TPA went as far as to reject the word austerity saying we should refer instead to ‘living within your means’.

It is shameful to note that there are people who, whilst acknowledging that austerity has caused suffering, want more of it. The household budget framework of taxing to spend and the resentment felt by some that ‘their tax’ is funding freebie public services for all lies at the heart of it and reflects the neoliberal ideology that the state should take a step back and abandon people as authors of their own fate. The idea that ‘living within one’s [financial] means’ is a better measure of economic success than pursuing public purpose to benefit people materially and in terms of well-being is an indication of how far we still have to go to challenge this narrative. Not only do we need to counter the notion of ‘taxing to spend’ with the correct description ‘spending to tax’ we need to correct the idea that living within one’s means relates to money. The only ‘living within our means’ we need to be doing relates to our resources whether that’s people or the materials used in the production of goods and services that we benefit from. The only balance we need to make is the one between spending and resources.

Predictably, news of the government’s spending and taxing plans brought out the debt sirens on the left who have been posting FB memes that the national debt has soared under the Tories to almost £1.8 trillion since 2010. It is disappointing to note in the face of the real consequences of austerity that the language narrative about how government spends is still dogged by household budget explanations, ‘rising deficits’, ‘increased borrowing’ and ‘mounting national debt’.

The Conservatives response has been that the government’s prudent management of the public accounts has given them the fiscal space to spend. In fact, the Prime Minister trotted out the usual nonsense that the Conservative Party had ‘tackled the debt and the deficit’ left by the last Labour government and suggested disingenuously that it has only been able to increase investment in schools and hospitals because it had ‘cleared up the wreckage they left’.

All these descriptions used by both the right and the left wing lie within a flawed mainstream paradigm. On the one hand, the Conservatives have used it to defend the need for austerity to deliver their own ideological agenda and claim fiscal superiority over their political rivals. On the other, Labour persists in the language of tax and spend and finding the magic money tree in the Cayman Islands to fund their laudable progressive programmes. Even John McDonnell could not resist saying that the proposed tax cuts would ‘rip out £10-£20bn a year from our already decimated public services’.  When clearly, they can’t and won’t!

It is regrettable that the public finds itself still caught in the headlights of a long deceased monetary narrative the consequences of which live with us now and will continue to do.

Instead of taking the debt sirens at face value in their criticism of the rising national debt under the Conservatives we should instead be evaluating their economic record. Who gained from their spending and taxing policies and who lost out?   Measuring success by the state of the public accounts from the size of the deficit/debt or whether the government has balanced the budget or achieved a surplus is quite simply incorrect and tells us nothing about the context of the state of the public accounts.

This can best be evaluated with a brief look at both the government’s spending plans, its policy agenda and the on-going consequences of cuts to public spending.

The government whilst it is planning to spend £25bn on improvements to the road network it has not been similarly generous to the bus network which amounts to only £220m. Combined with its already announced spending on the environment of around £432m which is a fraction of the amount needed to address the challenge of climate change demonstrates the Conservative’s complete disregard for the environmental challenges facing us. Apart from the fact that since 2010 government has cut spending on subsidies to bus companies which have forced the closure of 3000 bus routes (not to mention all the other consequences of cuts to public sector spending including the NHS, social care, education policing and local government) this would have been a good time for substantial investment in sustainable public transport instead of giving precedence to roads and cars.

Of course, as indicated earlier, it cannot be denied that a domestic spending programme is a good move at a time when the figures show that the world seems to be sinking towards recession. However, it should not be surprising, given who has authorised the spending, that it is still framed within a neoliberal framework of privatised public services and public money going into private profit whether that’s the NHS and social care or privatised transport networks. It does not suggest a reversal of neoliberally inspired agenda which the Conservatives have been pursuing under cover of austerity.

It also ignores the on-going consequences of public sector cuts, reforms to welfare and the introduction of Universal Credit on the well-being of citizens and indeed the economy.  The scandal of the huge rises in homelessness is bad enough (the Charity Crisis estimates some 24,000 people last year) but just last week figures published by the Office for National Statistics revealed that 726 homeless people died on our streets in 2018. The figures showed a 22% rise over 2017 which was the biggest increase since data was first collected in 2013

The Chief Executive of Crisis, Jon Sparkes, responding to the figures and at the same time putting a human face on the statistics said:

“It is heart-breaking that hundreds of people were forced to spend the last days of their lives without the dignity of a secure home. This is now the second year running where we have known the true scale of the human cost of homelessness, yet still the lessons from these tragic deaths go unlearnt.”

Add to this the record numbers of people, as reported by the Trussell Trust earlier this year, who are using foodbanks along with increasing food insecurity and the spectre of malnutrition, far from turning the page on austerity, the consequences of it remain with us and will do for some time to come unless we get a change in government.

Just a quick look at other news from the last couple of weeks emphasises that just the promise of spending is not going to fix the damage quickly. Behind just these few headlines lie the reality of the harm that has been caused by austerity and government policy choices.

“England sees ‘worst summer on record’ for A&E waits”,

“Alcohol tax cuts cause nearly 2000 extra deaths”,

“Severe obesity among children aged 10 to 11 at record high…. Figures highest among children from the most deprived communities”

 “Unprecedented’ rise in infant mortality linked to poverty”,

“Nursing vacancies hit record high leaving patient care at risk”

For the lie of balanced budgets our economy has slowed, people have got poorer and inequalities have risen, and our public and social infrastructure is cracking up. And all the while the rich have got richer and appropriated an immoral share of the country’s wealth – all with the helping hand of government.

But it doesn’t have to be like this. There is an alternative world and it is up to us to bring it about not just for our sakes but for our children who will bear the burden of our inaction if we turn away.

It starts by understanding these simple concepts:

“A sovereign government is never revenue constrained because it is the monopoly issuer of the currency. In other words, its public debt level is irrelevant in terms of its capacity to spend in the future, unless it deliberately constrains itself with voluntary fiscal rules.

Such a government is never financially constrained in its future choices by its past fiscal position. 

Fiscal Space is [not] about financial resources. It can only be about real resource availability in a modern monetary economy where the government issues its own currency.”

Bill Mitchell 2017

It is both encouraging and exciting that the orthodox narratives are being challenged now in the mainstream media as modern monetary realities get an airing even if sometimes critically. The debate is moving on. We just have to ensure it reaches a successful conclusion.

 

As we said in our introduction, the video of Professor Bill Mitchell’s talk on the Green New Deal has been published on our YouTube Channel.

 

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The post We need to relearn the art of adequate spending for public purpose appeared first on The Gower Initiative for Modern Money Studies.

Roosevelt Must-Reads: What’s Not Working

Published by Anonymous (not verified) on Sat, 12/10/2019 - 4:18am in

This week, Roosevelt Communications Manager Ariela Weinberger is reading an Axios article on how automation will negatively impact the racial wealth gap—especially for Black workers—and a New York Times op-ed from economists Emmanuel Saez and Gabriel Zucman on the future of tax justice and how absurd it is that “the working class is now paying higher tax rates than the richest people in America.” She’s also listening to a PitchFork Economics podcast episode that examines the origins of neoliberalism and how the economic theory took hold in the US.

The post Roosevelt Must-Reads: What’s Not Working appeared first on Roosevelt Institute.

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