Dear Philip Hammond, Chancellor of the Exchequer

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A letter to the Chancellor of the Exchequer from Prue Plumridge

I feel I must write to you in response to your speech at the Conservative Conference in which you referred to the medium-term challenge of dealing with the public finances so as not to burden future generations.

Aside from the fact that your government has been promising to deal with the public finances for the past seven years whilst regularly moving the goal posts for achieving it, failed Tory promises show astonishing ignorance about how the state finances work in practice.

Or, is it, perhaps, that you do know but prefer to keep the public in the dark with fake messages about household budgets, living within our financial means, paying down our debts and saving for a rainy day.

You (and George Osborne before you) have abused the trust of the public with your myths and lies about maxing out the credit card and going broke.  Neither of which can happen in a sovereign currency issuing state.  I’m sure you know that really.  In truth, this has suited the pernicious ideology of the Tory government which claimed that Labour overspent and austerity was unavoidable.  Neither was true.  But, as a result, seven years of cuts to public spending have led to rising poverty and inequality through the redrawing of welfare provision and the decimation of public services not to mention the on-going attacks on employment rights and the rise of insecure working and the gig economy.

And, all the time, while you tell us that there is no money for those services upon which we all depend from the NHS, to public infrastructure and services and local government we are witnessing the ongoing transfer of wealth into ever fewer hands and public money being poured into corporate pockets.

Admit it, Chancellor, this exercise has never been about necessity.  It has always been about ideology which can be best expressed in the words of the former head of John Lewis who said recently ‘the only way to provide good public services is to ensure a vibrant business economy’ …… which is not only neoliberal bunkum trading on the lie of discredited ‘trickle down’ but shows how this false narrative dominates the mainstream and infects public understanding.  To quote Richard Murphy from Tax Research on the NHS  (and whilst he doesn’t mention it, public services too)

there is no reason why we should not have health care in thirty years’ time, whatever that care might be…… All we have to do is decide we want it. Then we can pay for it. It will not be a matter of not affording it. It’s just a matter of setting priorities. “

Moving on to your claim that borrowing takes money from the pockets of future tax payers is plain wrong to put it bluntly.

As the economist Professor Bill Mitchell notes “Each generation chooses its own tax rates and that means that the mix of public and private sector involvement in the economy is a political choice”

In this case yours.  Government spending in the form of deficits (assuming of course a government that takes seriously its responsibility for the well-being of the nation) can work on behalf of citizens to create a healthy economy and a fairer distribution of wealth.  This not only helps today’s citizens but also creates investment in public education, public health and other infrastructure which benefits both current and future generations.  Or, of course, it can, as in the case of the Tories and already noted, represent wealth transfer to the already rich and public money leaching into private corporate pockets.  And just to be clear as I can hear you whispering but what about the printing presses, inflation and Zimbabwe I am not suggesting that deficits don’t matter – they do but not in the way you tell us they do.  The fact is that whilst governments are never revenue constrained spending will always be limited by available productive capacity and resources.  And that is what has to be managed.  It should never be about balanced budgets rather it should be about creating a balanced economy.

So, Chancellor, in conclusion, I will finish by saying that a time is coming when you will no longer be able to fool the public into believing your household budget version of the state finances which has claimed that we can’t afford public services, the NHS and the welfare safety net.  They will then understand that you made a choice to deny them the public infrastructure that ensures a healthy economy and the well-being of their families.  They will understand that you played with their lives and their survival.

It is to be hoped that in the near future you will indeed have plenty of time as a shadow minister in her majesty’s government to reflect on where the Tory party went wrong but then again you probably won’t.

Regards

Prue Plumridge

It’s all a game of Monopoly really

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It’s all a game of Monopoly really by Prue Plumridge

When Labour left office in 2010, Liam Byrne left a very unfortunate message saying there was no money left. The Tories have dined out on this lie ever since. We were compared to Greece and next in line to be affected by a sovereign debt crisis, and in 2010 Osborne claimed that the Tories had taken the country back from the brink of bankruptcy. The Tories have used the household budget narrative of deficit reduction, balanced books and surplus to justify the need for austerity when, in fact, it is not just the wrong recipe to return our economy to health but also a deliberate deception about how our state finances and economy actually work.

This deception has allowed the Tories to funnel more and more money into ever fewer hands and make the claim that we cannot afford public services or the NHS. The mantra of ‘there is no money’ has been used to justify the dismantlement of the safety net for when we are at our most vulnerable, and worse still the selling off of every aspect of our publicly provided services to the private sector. This government is making a political choice and people across the country are paying the price for it.

Most of us will identify with Dicken’s character Micawber in David Copperfield who wrote:

“Annual income twenty pounds, annual expenditure nineteen [pounds] nineteen [shillings] and six [pence], result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.”

So it is easy to understand how we buy into the idea that we have to pay our national debt down and balance our books. However, one cannot, in any way whatsoever, compare our own household budgets with the state money system.

And this is why:

A sovereign government:

  • Issues fiat money which is not backed by gold or anything else. (The gold standard ended in 1971 with the oil crisis)

 

  • Is not like a household. It doesn’t have to balance its budget (even though George Osborne says we do). In fact, reducing the deficit or going into surplus will remove money from the non-government/private sector.

 

  • Doesn’t tax first then spend later which means it doesn’t have to rely on raising taxes to spend. It doesn’t save its tax revenue – it destroys it.

 

To explain this strange concept think of a game of monopoly. You appoint a banker but he doesn’t collect taxes to get the game going because no-one has any money yet. The banker has to issue the money before it can collect anything back or the game can’t even begin. The issuing of the currency comes first. The bank can never go broke. If it runs out of money it can issue as much as is needed to keep the game going. So, you move about the board and you draw a card from the Community Chest or Chance – so you pay £50 – there goes a leakage. You play another hand and tax is due. The game will end very quickly if there isn’t a replacement for the money that is leaking out. Which is why every time you pass GO you collect £200. This keeps the game going. The banker always has to spend out more than he collects otherwise the game will quickly come to an end.  Which is to say that in this instance if the banker aka government is not deficit spending the game will end much sooner. (From Angry Birds by Dr Stephanie Kelton)

So to be clear taxes are not paying for anything not even your pensions!

However, they do have a function to:

control inflation or otherwise by raising or lowering taxes

redistribute wealth and income through progressive taxation

express public policy by subsidising or penalising certain industries or economic groups – for example railways for the first and polluting industries for the second.

To continue, a sovereign government:

  • Doesn’t spend money like we do – it isn’t the user of the currency. It is an issuer of the currency and creates money as it needs it.

 

  • Can’t ever run out of money and it definitely can’t go bankrupt. (Unless it is a European government and a member of the Eurozone. In that case a country becomes a user of the Euro and not the issuer. Then it is perfectly possible for it to go bankrupt as it is using what is, in effect, a foreign currency).

 

  • Can’t borrow its own money through selling bonds or treasuries to fund deficits and doesn’t’ ever have to worry about selling bonds to do so. When such bonds or treasuries are issued it is not about financing government spending it is a mechanism for controlling the interbank lending rate and the money supply. These treasuries/bonds are a bit like our bank accounts where we have a current account and a deposit/savings account where we park spare money we don’t need to get some interest. This is what the private sector does – pension funds for example – stash their money in a risk free place to earn some interest. Some call this corporate welfare and it is completely unnecessary. To follow the logic to its natural conclusion. If a government can issue the money it needs, it doesn’t have to borrow a bean from anyone at all. Indeed, why would it borrow money it had issued in the first place?
  • Can’t save up its own currency for a rainy day. Last year George Osborne announced that he would attempt to bind future governments to maintain a budget surplus when the economy is growing saying ‘we must act now to fix the roof while the sun is shining’. Budget surpluses do not represent ‘public saving’ which can be used to fund future public expenditure or a cache of money that can be spent later. A budget surplus only exists because private income or wealth is reduced so when there is a budget surplus private wealth is destroyed.

 

  • Can’t live beyond its means. Wait I hear you say won’t the magic money tree lead to inflation like it did in Germany or Zimbawe? Whilst it is the issuer of the currency that doesn’t mean that it can carry on spending ad infinitum as this would be inflationary. The only thing that will restrict government spending is access to resources. So, assuming there are idle physical resources including labour a government can continue to spend without concern for inflationary pressures.

Just before I go a word about that scary national debt. The online debt clock is designed to have us shaking in our boots at our financial recklessness! The national debt, however, is not like a mortgage or a car loan that has to be repaid. Paul Segal in an article describes it thus:

‘It is the money the government owes to us – not money we owe to anyone else. That’s right 80% of our government debt is owed to the British people. What is called the national debt is our own savings looked at from the other side of the balance sheet.’

Banks, businesses, people or countries may choose to invest their money in bonds as they earn some interest – they are in effect non-risk places to park money. This is our ‘National Debt’. To explain: you have a current account receiving no interest at all. So you put some of the money you don’t need into a deposit account like a Bond for example. The bank debits your current account and credits your new savings account. When it matures the bank debits your bond account and credits your current account with a little bit of interest to boot. You are always in the same financial position plus you get a little bit of interest. Nobody ever says that the bank is ‘in debt’ because you moved money from your current account to your savings account. So saying that the UK government is ‘in debt’ because people, institutions or corporations have exchanged their pounds for government bonds is just as misleading. Government bonds are basically £ equivalents and the government creates them both from thin air.

The “National Debt” is not by any measure a debt, but a measure of saved pounds.

And since that pile of saved £ never gets any smaller, you can consider those £ to be “retired.” Government bonds, in a net sense, don’t ever get cashed in and spent (although they could). They just sit there, unused, and once in a while a small bit of interest is added to the pile. And that pile has no discernable effect on the economy.

So there you have it – we are not in debt up to our ears – George Osborne and the media just want you to think we are.

Finally, on the subject of the burden of debt on future generations. Only today, the Chancellor shamelessly used yet another scare tactic in response to his plans for more public spending cuts by saying “We need to act today now so we don’t pay later”.

To quote the economist Professor Bill Mitchell:

“The fact is that a government has as much ‘money’ now as it had yesterday and the same amount it will have tomorrow. That is, it has whatever it wants to spend. It has no more or less capacity to spend today because there were surpluses in the past than it would have if there have been deficits in the past. The idea that fiscal surpluses (as indicated above) provide more spending capacity in the future or lower tax rates is just plain false. Every generation will choose its own tax rates. That is, a mix of public and private sector involvement in the economy is a political choice. Currency issuing governments do not draw down on the savings provided by previous government’s surpluses. It is a nonsensical notion to think that a sovereign government would ‘save’ in its own currency.”

However, this is not to say that we shouldn’t be concerned about the direction in which the country is travelling in. Reducing the deficit and aiming for surplus simply removes money from the private sector which means that people have to take on debt. There has, over the last few decades, been a huge increase in private debt and the trade deficit (that is the difference between our exports and imports) is at worrying levels. But that’s another story.

 

Links and credits:

http://ineteconomics.org/ideas-papers/interviews-talks/demystifying-modern-monetary-theory

https://petermartin2001.wordpress.com/2014/01/27/the-earth-is-not-flat/

https://www.youtube.com/watch?v=bTZGU9s0idM

https://www.youtube.com/watch?v=d57M6ATPZIE

https://alittleecon.wordpress.com/2014/08/06/government-debt-is-not-a-burden-on-future-generations/

http://www.theguardian.com/commentisfree/2010/jun/17/fiscal-deficit-threat

http://theaimn.com/its-all-just-numbers-in-a-computer/

http://www.theguardian.com/commentisfree/video/2015/feb/04/another-economic-crash-is-coming-how-did-this-happen-video

http://www.3spoken.co.uk/2015/07/taxes-for-revenue-are-obsolete-precis.html

http://hubpages.com/politics/The-US-National-Debt-explained-MMT-style

 

Note: These articles whilst written for largely for a US and Australian audience you just need to replace $ for £. It’s all the same!

 

Len McCluskey: Labour Right must stop scheming and start fighting the Tories

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Len’s speech lasts 25 minutes then a Q&A

Len McCluskey | Jeremy Corbyn: Blast From The Past Or Leader Of Tomorrow? | Oxford Union

Published on Feb 25, 2016

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In his address to the Oxford Union tonight (20:00 hours, Tuesday 9 February), McCluskey will say that last summer’s Labour leadership election saw an exhausted New Labour collide with rising public discontent about the inability of business-as-usual politics to tackle growing inequality.  Against this backdrop, an electrifying campaign based on the promise of real political change propelled Jeremy Corbyn to Labour leader.

McCluskey, the first modern day trade union leader to address the Oxford Union, speaking on the subject Jeremy Corbyn: Blast from the past or leader of tomorrow? will say:

“Some have sought to excuse their disloyalty to Corbyn by pointing to his own rebellious past on the backbenches. But who can seriously argue that his votes in parliament against the Iraq war, identity cards or university tuition fees now diminish his ability to lead the Labour party today? On all these issues he was not only right, I believe, he was giving voice to the views of most Labour supporters.

“I’m not saying that any Labour MP should have to abandon his or her own views, or cease to articulate them within the party’s democratic structures. But I am saying that this continual war of attrition is achieving nothing beyond taking the pressure off the government.

“So my clear message to the plotters is – stop the sniping, stop the scheming, get behind Jeremy Corbyn and start taking the fight to the Tories.”

The leader of the 1.4 million-strong union will remind those undermining Jeremy Corbyn that they have failed to grasp why their brand of politics was roundly rejected by the Labour electorate – and dismiss the term ‘moderate’ as  wholly inappropriate for MPs advancing further foreign wars or versions of austerity:

“These MPs, who refuse to accept the overwhelming mandate Jeremy Corbyn got from Labour’s membership, are generously described as the “moderates” in the party.  It’s an abuse of language – there is nothing “moderate” about voting to bomb Syria or agreeing more public spending cuts, anything more than it’s “extreme” to vote for peace or for an end to eye-watering austerity.

“Such labelling simply obstructs the debate we need to have which is what went wrong with New Labour, what lessons can we learn, and how can we craft an appealing electoral pitch for the reality of 2020, not 1997?

“Their analysis of Labour’s defeat in 2015 was unconvincing, their proposals stale, minimalist and uninspiring – and for the most part they have still not shaped up after Corbyn’s victory. Until they can do that, they are a plot without a programme; a cabal without a critique.

“Labour cannot simply go back to where  it left off in 1997, 2007 or 2010.  Jeremy Corbyn’s message, his authenticity, his radical challenge to the status quo is part of an international movement against business-as-usual politics.”

McCluskey will further say that that the efforts of some in the parliamentary Labour party (PLP) to present the May elections as a referendum on the leader should be thoroughly dismissed:

“This is a sensitive issue and I am not a supporter of going  back to mandatory re-selection or other changes designed to intimidate or undermine Labour MPs. But I also believe that we need to issue a clear warning to those who are advocating the PLP being used as a lever to force Jeremy Corbyn out.

“The bizarre plans outlined by Joe Haines and pollster Peter Kellner, the call to arms by Damian McBride in his Times article and the ludicrous 99 days’ notice given by Michael Dugher to the arch-Tory Mail on Sunday – all have to be dismissed with distain by any real Labour supporter.

“If the Labour MPs want something constructive to do, then start working out policies and ideas that might help attract voters back to Labour. The leadership election revealed just how much the New Labour faction had run out of political impetus.  They offered no answers to the big questions of inequality, economic management, and 21st century social justice. There were certainly no big ideas from what were dubbed the “mainstream candidates” during the last leadership election.”

Turning to the need for an alternative to austerity, McCluskey will advance that Corbyn represents the best chance the UK has to reverse Conservative policies that have rendered this the most unequal of the major western nations:

“The global political and economic problems are so stark that they can no longer be ignored. Politicians who are willing to talk frankly about them will be listened to.  Under Jeremy now, we have a clear message: one that rejects austerity economics and promises investment and growth instead.

“Fairness, tackling corporate greed, tax avoidance and tax evasion, and holding power and wealth to account – all popular proposals which are resonating on both sides of the Atlantic.

“What Jeremy Corbyn offers – like Bernie Sanders in the US – is a calling out of corporate corruption, a rejection of the austerity that has made the UK the most unequal economy in the G8 and the promise that politics and politicians can and will put things right for ordinary working people.”

– See more at: http://www.unitetheunion.org/news/len-mccluskey-to-labour-plotters-stop-the-scheming-back-corbyn-and-take-the-fight-to-the-tories/#sthash.xTOVqWw1.dpuf

Is the high level of Government debt a justification for austerity?

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In the piece posted below, Henry Stewart exposes Osborne’s sleight of hand by using the high level of government debt to justify his cuts – the debt that has grown under Osborne’s stewardship from £960 billion in April 2010, just before the coalition government was elected, to £1.5 trillion five years later.  Nevertheless…

UK government interest payments at lowest since war

By Henry Stewart : @happyhenry

Government debt was, in 2010 and 2015, a key element in the general election. The high level of debt is the justification for austerity. Politicians on the right and left have explained that the high cost of servicing the debt prevent spending on health, education and other areas.

The natural assumption is that this has been such a key issue in 2010 and 2015 because the cost of interest payments on the debts were particular high in those years. An analysis of government statistics reveals that the opposite is the case. The cost of interest payments were, proportionately, at their lowest levels since the war in the years 2010 and 2015.

UK Interest Payments lowest as % of government spending

There are two ways of comparing the cost of interest payments: as a percentage of overall government spending or a percentage of UK GDP. Interest payments were 4.3% of government spending in 2010 and 4.9% in 2015. As the graph below shows, the level was higher in all other post-war years. At the end of the previous Conservative government, in 1997, interest payments represented 9.7% of government spending.

Screen Shot 2015-12-16 at 22.05.25

UK Interest payments lowest as % of GDP

UK interest payments are also at their lowest in terms of proportion of GDP. In 2010 the figure was a post-war low of 1.7%. In 2015 the figure was 1.8%, equal lowest with the years 2003 and 2004. In this case the figure at the end of the last Conservative government in 1997 was 3.3%

A key reason for the low cost of interest payments is clearly the low interest rates at which money can currently be borrowed. However, as many economists have pointed out, the low interest rates make this the best time since the war to invest in the public infrastructure rather than cut back.

And if the main problem with debt is the cost of servicing it, why has this only become an issue when that cost is at a post-war low?

Screen Shot 2015-12-16 at 22.06.50

 

These figures are taken directly from the PSF (Public Sector Finances) aggregates databank: http://budgetresponsibility.independent.gov.uk/data/

Contact Details Henry Stewart can be contacted on henry@happy.co.uk,

or on Twitter: @happyhenry

Editor’s note:

William Keegan wrote in the Guardian, October 2015:

‘George Osborne is what is known in the trade as a “chancer”. Chancers often get found out. William Hill has made the chancellor hot favourite to succeed David Cameron. We shall see. The wider implications of his unnecessary policy of austerity are gradually being brought home to the middle classes and all those middle-England voters whom the new leaders of the Labour party are accused of ignoring. The “cuts” are affecting surgeons, GP surgeries, local authority social services for the old and the infirm, and reaching into many other corners of everyday life.’