economic justice

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Tax is not essential: public services are. It’s time that election debates shifted their focus

Published by Anonymous (not verified) on Thu, 13/06/2024 - 4:29pm in

I have to admit that last night’s Sky Televisi9n debate with Keir Starmer and Rishi Sunak was, overall, disappointing and uninspiring.

Beth Rigby did her best to bring to life two boring candidates to be Prime Minister, but at the end of the day, she had to work with the material that she got. When the most interesting thing that Rishi Sunak could say about himself to increase his appeal to voters was that he ate a lot of Twix, the scale of her task was apparent.

That said, she fell into the trap into which so many journalists appear to be falling at this election. She pushed the question of tax time after time, after time. That was a mistake. What was clear from the audience reaction was that what people wanted to talk about were public services, their quality, and the quantity of their supply.

Like, it seems all journalists, Beth Rigby has not realised that taxes are not an essential part of life. They are only the corollary of the supply of public services.

They are not even a precondition of the supply of those services because government always pays for everything it sorbs upon with money newly created on its behalf by the Bank of England.

The quantum tax required from the economy is, then, always the balancing figure within the fiscal equation, seeking to find the appropriate compromise between controlling inflation and providing economic stimulus.

All this nuance was lost when focusing upon tax alone, without ever discussing why that tax might not be at an appropriate level given the demand for public services in the country.

I can only hope that during the remainder of this election campaign there might be an improvement in the quality of debate on this issue. It is clear that both our leading political parties are talking nonsense about tax, with neither presenting any honesty about what levels of tax might be required given their wholly unrealistic appraisals of the scale of costs that they will have to incur to supply the services that the country will undoubtedly need.

As a result I just hope that debate might now be focused on issues like the health service, social care, education, environmental change and other critical matters. What level of tax is then required to balance the required level of spending becomes an appropriate issue for debate. Putting tax first is, however, wrong. That is not what happens within the economic operations of government. That is not what happens within the actual priorities of any sensible government. And that is not what the public are most interested in.

it is time that journalists, and politicians, got this right.

Tax the bads

Published by Anonymous (not verified) on Thu, 13/06/2024 - 4:06pm in

In this morning's video, I argue that we all know what the ‘bads’ in our economy are -  tobacco, alcohol, sugar, carbon, plastics, and more. Some of them we tax heavily because we know they they are ‘bad’. But sugar, plastics and even carbon are still getting an easy ride. It’s time we tackled them properly

The audio version is here:

The transcript is:

If there is one tax policy that every politician in the UK should adopt, it's that we should tax bads.

Now, that of course needs some explanation. What is a bad? Well, of course it's something that is bad for us. That's why I give it the name.

What is bad for us? Well, tobacco is bad for us.

Very clearly, alcohol, at least in excess, is bad for us.

We now know that sugar is very bad for us because that is the basis of the ultra-processed food crisis that we have that is fuelling obesity in this country, reducing our productivity and creating a massive demand on the NHS, not least because of the significant rise in type 2 diabetes that it is causing.

And there are other bads as well. There's carbon. We know the consequence of the overuse of carbon. It is global warming.

And there are knock-ons from the carbon crisis as well. We know that cars are actually potentially bad for us. Not because of the fact they use carbon fuels, because they might actually not. They could be electric. But their tyres cause massive problems in terms of pollution as well. So large cars are a bad.

So, too, are plastics, of course. We know they are massively damaging to the environment as a whole, and especially to things like the sea.

These are all bads, things that ultimately undermine our well-being and cost us as a society a great deal of money.

Now we're used to the idea of taxing some of these bads.

Tobacco is very obviously heavily taxed, vaping not so much so, by the way, and it too is a bad.

Alcohol is very heavily taxed, but it doesn't appear to be stopping abuse by some, although Scotland is having a good go at addressing this issue.

Sugar? There is no such thing as a sugar tax in the UK. Instead, we have a big sugar lobby who are arguing against everything that the government is trying to do to prevent the abuse of sugar which is so addictive and so harmful to so many. So, I'm afraid to say we need a sugar tax to reduce the amount of it that is consumed.

And carbon? Look, we have certain degrees of carbon tax. Of course, we do. There are fuel duties and various things. But there's been an enormous reluctance to increase those. The car lobby is so powerful.

And talking about cars themselves, whilst there are taxes on cars, they are not progressive. In other words, they are not providing sufficient support to low-polluting and low tyre burning cars.

And they're supporting the use of SUVs, the rise in number of which has more than compensated for any savings from fuel efficiency over the last decade or so.

Plastics? Scotland has tried to do a returnable bottle scheme, and it's been killed. Why? Because the industry doesn't like it, because the government doesn't like it in London.

We are not taxing bads enough.

There are problems. These taxes on bads tend to be regressive. In other words, they are paid in higher proportion compared to income by those on lower income than they are by people on higher income. So, clearly, we need to compensate for that in the rest of the tax system.

But we know how to do that, and in the Taxing Wealth Report that I have written  I have explained that there are plenty of ways to tackle that problem and reallocate income to those who are on lowest earnings to make sure that they can continue to actually live despite these additional taxes. So, we can tackle that issue, but what we can't tackle are the long-term consequences of not addressing these issues.

Because if we don't tackle those, well it may just be too late in the case of carbon and plastics and other things because we won't be able to solve the mess we create.

And it may also be late for some of the other issues as well. In particular, when we look at type 2 diabetes, from which so many people now suffer. That's a deadly disease, and I want to see it solved. And it can be cured by reducing sugar consumption.

So why aren't we taxing the bads?

When asked who to favour, banks or children in poverty, Rachel Reeves chose banks

Published by Anonymous (not verified) on Wed, 12/06/2024 - 5:30pm in

As the FT has reported this morning:

So, given a choice, Rachel Reeves has chosen to favour banks when there is near universal agreement now that some saving could be made in the payment of interest on central bank reserve accounts with the effectiveness of monetary policy (if that is necessary) being maintained.

Her choice favours banks, while she claims there are no funds available to end child poverty. She could do this for maybe a million children hit by the two-child benefit cap at a cost of less than £2 billion a year, which could be provided many times over by just limiting these interest payments.

Reeves would rather favour banks than. children in poverty. That's what we need to know about the forthcoming Labour government.

But that is also why it will fail.

The Tories, ‘fully-costed’ plans and the back of fag packets

Published by Anonymous (not verified) on Wed, 12/06/2024 - 4:51pm in

The Tories have delivered their 'fully costed' manifesto. It is, like the Liberal Democrats' plan before it, far from an adequate explanation of what they intend to do in government. In fact, it's worse. This one was written on the back of a fag packet.

The funding is supposedly:

Those are random numbers picked to make their exercise balance. There is no way on earth anyone might believe them, even if I know I could deliver those tax savings - but only if more was spent on HMRC, which figure is not included in the plan. The social security savings are simply a measure of cruel heartlessness. I did check to make sure I could find no reference to workhouses in the manifesto, and could not, but the mentality is present throughout it.

Meanwhile, the savings are specified in absurd detail:

Does anyone really think that the Tories have worked out quango savings in. that detail?

Or that they know the precise cost of the exact 5,000 managers they are going to be rid of in the NHS, which is already under-managed, albeit that too many managers are working on the internal market and not in supporting healthcare?

Come to that, do they really know how to index the farming budget in that detail? I like their claim of clairvoyance, but I really do not believe it, so all of this is nonsense as well. The same can be said for most of it.

And then there is tax:

NI cuts give the most significant benefit to the well-off - so that number might be reasonably stated.

The plan for the self-employed is simply about encouraging lax labour standards and tax abuse - whilst the claim that the self-employed will get a credit for an old age pension based on not contributing makes a mockery of the whole system that is surely designed to pave the way for the abolition of the pension itself, as was discussed on Channel 4 News last night by an incredulous Krishan Guru-Murthy.

The rest is again very largely biased to the well-off. Of all the major flaws in the tax system, it seems that none will be tackled.

The Tories should have saved themselves some time, effort and embarrassment. This is not a plan. It does not add up. And most especially, the savings it suggests might happen are ridiculous and undeliverable.

If they are going to present documents like this they have to show their detailed workings. As it is, they are just opening themselves to ridicule for presenting documents that are so obviously meaningless and as far from a 'fully-costed' plan as it is possible to get.

There is no black hole in government funding

Published by Anonymous (not verified) on Wed, 12/06/2024 - 4:23pm in

I published this video this morning. In it, I argue that while politicians might talk endlessly about black holes in government funding, in reality, there can never be any such thing. All that actually exists are choices about how the government might fund its spending—some of which options those same politicians are refusing to consider, at a cost to us all.

The audio version is:

This is the transcript:

There is no black hole in government funding.

I know that our politicians like to claim that there is.

I know that they are obsessed with trying to avoid it.

I know that they claim they are presenting 'fully-costed’ manifestos at the forthcoming general election.

And all of that is utterly unnecessary.

Why? Because there can never be a black hole in our government's finances.

Let's be clear how our government is funded. There are only three options available.

One is taxation, and we know about that.

The second one is borrowing, and they are obsessed about eliminating that, but for no good reason, because there are hordes of people queuing up who would like to save their money with the government, if only they had the opportunity to do so, but the government doesn't want to welcome their cash.

And thirdly, there is government money creation.

What is government money creation? Well, we used to call it turning on the printing presses, but that's an absurd analogy now because turning on the printing presses is almost irrelevant when the usage of cash is falling in the economy. So, what this really means is that the government creates more electronic money, as it did in 2008 to bail us out after the global financial crisis, and as it did in 2020 to bail us out during the course of the COVID crisis when they created, between those two events, something like £900 billion pounds of new government created money.

So, all of those three options are available, but for reasons of their very own, and utterly unnecessarily, the government has decided that government expenditure must be balanced by taxation and they are as a result, ignoring the opportunities that borrowing and money creation provide.

Now I'm not an advocate of money creation for its own sake. It is a reserve tool, but we should never forget that it's available to us, whenever we need it.

But borrowing? No, borrowing is really powerful. Borrowing is what we all do if we ever want to buy, well, very often a car or a house or other major items.

Why wouldn't the government want to do that?

But more than that, why wouldn't it sometimes want to borrow to stimulate the whole of the economy by taking less tax back than it injects into the economy by way of cash? Because that's what delivers growth. So why wouldn't it do that?

I don't know. It's acting against your economic well-being by having this obsession with balancing the books and claiming that otherwise there's a black hole in government funding.

That's nonsense. It's untrue. What other words can I use to express how badly I disagree with those politicians who claim this?

There is no black hole.

There are just choices to be made about the right thing to do at the right time.

And when we have, as we do in the UK at present, serious under-employment of people in our economy, people who could therefore be put to - it's a rather crude way of putting it, but - better use at better pay to produce better outcomes for us all, then of course there is the opportunity for the government to spend to create an increase in well-being, not just for those people, but all of us, by running a deficit.

And that could be funded by borrowing, or if necessary, by money creation, and we'd all be better off. And there would be no inflation as a result because we would be using unused resources that are available in our economy at present and putting them to use for mutual well-being.

That's why there's no black hole.

There's only opportunity, and our politicians aren't reaching out to grab it.

20 miles per hour is what government should be all about

Published by Anonymous (not verified) on Wed, 12/06/2024 - 4:15pm in

I noticed a report in the Guardian this week that suggested that insurance companies providing policies for drivers in Wales have noted that the cost of car repairs in that country have fallen by 20 per cent since the introduction of a mandatory 20 mph speed limit in urban areas.

I am aware that there are petrol-heads who are deeply opposed to this speed limit. I know this from my own, local experience, where  such a limit has been introduced after a local consultation which almost everybody in the local community ignored, except for those who seemed to wish for such a limit, me included.

What I hope is that three further pieces of data might now be provided.

The first would relate to the quality of urban air in Wales. We know that this has risen in London, which may be because many of its roads have 20 mph limits.

I would also be keen to see figures  for the  number of accident and emergency admissions as a result of road accidents. I very strongly suspect that these will have fallen. If cars are suffering reduced damage as a result of urban road accidents, I have little doubt that people are as well.

Finally, I would be interested in the road fatality data. If this policy can be shown to have saved lives, and I strongly suspect that it will have done, then I defy those who decry it to keep up their opposition.

One of the jobs of government is to counter the failure of markets. The externalities that are created by motoring are amongst the market failures that cars create. If a saving in car repair costs can be passed on to drivers by way of reduced insurance premiums in Wales this would be a very tangible indication that these failures can be addressed. However, that is the least important of the gains. The others I note would be even more significant.

The signs are good. Governments can do good things by changing speed limits, and I hope that this policy becomes universal throughout the UK.

The LibDems tax proposals needed a lot more thought. Good in parts, is the best that can be said.

Published by Anonymous (not verified) on Tue, 11/06/2024 - 5:30pm in

The LibDems have been the first to release their manifesto for this election.

To support it, they have published their 'full costing', because woe betide any politician who now suggests that they might use a penny of the funds people want to save with the government for any social purpose.

The spending is:

I will leave others to comment on that. I like some of it. The absence of any green spending is very worrying.

The revenue is:

And this is their explanation:

The paragraph numbers flow on from their explanation of their spending, if you are wondering if something is missing.

These are my responses:

  • Bank taxes, fine, but these were crude measures and something more sophisticated is needed now. They have not put enough thought into this.
  • Capital gains tax is good, but why not just equalise rates for everyone and be done with it and take £12 billion instead? This is a half-hearted measure that will be complicated. The Taxing Wealth Report 2024 version is better, I suggest.
  • Windfall tax, a fair suggestion. The current rules are absurd.
  • Digital services tax: why not commit to an international solution? Earlier iterations of this tax have been weak.
  • Buy-back tax is not an issue: most of these are already taxed. I cannot see this raising anything of consequence in the UK. It's based on a misunderstanding of how these buy-backs work here.
  • Sewage tax: better regulation and not tax is the answer. This proposal is counter-productive if anything, permitting them to keep polluting.
  • Tobacco tax: yes, please. But will it work?
  • Private jet and aviation taxes: definitely do them.
  • Tackle tax avoidance and evasion with £1 billion for HM Revenue & Customs. It looks like they have been reading the Taxing Wealth Report 2024. This could come from there.

So, good in parts, but it would have been so much easier to have made it much better and avoid some pitfalls they have walked into, not least on bank taxes, digital taxes and buy-back taxes, whilst the sewage tax is just wrong: the problem has to be solved and this assumes it continues.

One final thought: without workings that is not a full costing.

It is time to end the massive government subsidy that’s being paid to the UK’s commercial banks

Published by Anonymous (not verified) on Tue, 11/06/2024 - 4:28pm in

It is a strange moment when an idea that you have promoted suddenly moves towards the political centre stage, even if Nigel Farage is the person who is doing the pushing.

This happened yesterday when the Reform Party presented its idea to eliminate payments of interest to the UK’s commercial banks and other financial services organisations that enjoy the privilege of having a central bank reserve account balance with the Bank of England. As I have noted here many times, the payment of bank base rate on these accounts at one time cost in excess of £40 billion a year, and still costs in excess of £35 billion per annum now.

From 2009 until 2021 the payment of interest at bank base rate on these reserves was a matter of inconsequence because the base rate in question was 0.1%, and the cost was, as a result, immaterial.

Prior to 2009, the cost was immaterial because the balances on central bank reserve accounts were tiny, totalling only about £20 billion in all.

Before 2006, interest was not paid on these balances.

Andy it is important to note that these balances are not, in any significant sense, sums deposited by the banks in question with the Bank of England on a voluntary basis . The balances in question were instead created as a result of deliberate deficit funding of the economy by the government using newly created money that was spent to manage the consequences of the fallout from the global financial crisis between 2009 and 2016, and to cover the cost of the Covid crisis from 2020 to the end of 2021.

Ignore anything to do with quantitive easing, which was simply a disguise for the fact that the government had created money via the Bank to inject the economy during these periods: these central bank reserve account balances represent the total amount of money that the government did inject during these period to cover the cost of fulfilling its policies.

In total more than £900 billion was injected into the economy in this way, and these balances were recorded by the creation of what were, supposedly, deposits by the commercial bank with the Bank of England.

However, since the banks that benefited did not actually deposit any funds, but instead had these deposit balances created on their behalf by the Bank of England acting on behalf of the government, they represented a windfall to the banks in question.

That windfall turned out to be equivalent of the proverbial golden egg when the Bank of England then began to, quote unnecessarily, increased interest rates to supposedly tackle inflation from late 2021 onwards. From that time onwards, the good times began to roll for all of the banks as a result of these interest payments, enormously increasing their profits with no action on their part. I noted some of this impact here.

Let me also stress that these balances cannot be used by the banks, except to facilitate payments to each other or to the government. That is their sole purpose. This is what is called base money, and it does not circulate in the rest of the economy. It is, instead, the liquidity that has been provided by the government to ensure that the banking system can function properly by guaranteeing every bank should have sufficient funds to pay each other, come what may. This is, in effect, a practical reaction to the Northern Rock affair. This increase in bank liquidity might have been a side-effect of a necessary government policy to keep the economy going, but it has undoubtedly been beneficial in bailing out under-capitalised banks.

The downside has been it has been enormously costly to the government, and has promoted austerity economics because it has been necessary, over the last three years, to make payment of interest at inflated rates on these balances.

The Bank of England and others now argue that such payments are absolutely essential as a mechanism for the delivery of Bank of England monetary policy because, they claim, the Bank could not influence the rate of interest in the economy unless it had to pay bank base rate interest on these balances. There are numerous reasons for rejecting this argument.

The first of these is that since significant payment on these balances has only been happening for less than three years this claim is completely unsubstantiated. We do not know that this is true in the context of the British economy.

The second is that other central banks, including the European Central Bank and the Bank of Japan, do not make payment on all such balances. They pay interest on a tiered basis, making full payment on part of the balances, but by no means on all of them.

Third , there is the argument that this is a windfall profit if this interest rate needs to be paid, and that in practice it should be subject to a substantial excess profits tax to recover most of that sum paid so that the banks are not unduly enriched.

Fourth, the stench of avarice underpinning the arguments that the banks should be paid cannot be avoided.

As a consequence I have made it clear that I think that the current policy is inappropriate and should be reformed, and nothing has yet changed my mind about this.

That said, I recognise that there may be (and I stress the may) some merit to the argument that interest should be paid on a part of these balances to communicate Bank of England interest rate policy and have therefore accepted some cost might still be involved.

Alternatively, I would be quite happy with a windfall tax to cancel most or all of this gain.

Best of all, I would like a substantial cut in bank base rate, certainly to nothing more than 2% now, which would also significantly ease this problem .

But what I am not convinced by is Nigel Farage’s claim that the entire sum of £35 billion being paid at present can be recovered to fund other spending. That is largely because if this is pure profit to the banks, as it would seem to be, then they do already pay tax on it and so at least £9 billion is already returned to the government, undermining his logic.

Is it, however, true that his logic is fundamentally correct and that these payments are not necessary in total? On this, I have to agree with him. It is unfortunate that he is the person to raise this issue because of his other politics, but the reality is that commercial banks have been enriched in a way that is unjustified, and is unjustifiable, and the time for reform of this policy to radically reduce this cost has arrived. A policy of tiered rates and, most likely, an excess profits tax to recover much of the remaining sum paid would make a lot of sense. Commercial banks should not be enriched by central government money creation, which statement is the beginning and end of this argument.

Labour will not be taxing wealth

Published by Anonymous (not verified) on Mon, 10/06/2024 - 4:58pm in

As the FT reports this morning:

The Tories introduced the lifetime pension cap. Based on the value of a fund, and not just contributions, it has caused major difficulties for hospital consultants in particular. There was an obvious problem needing a solution.

The Tory solution was to abandon the cap.

That solved nothing but perpetuated a massive bias towards wealth in the pension system.

Now, Labour says it will maintain that bias.

It could have instead said it would abandon the cap and cut the rate of relief on contributions. That would have worked. But no, there is nothing like that. There's just another £800 million bung to the wealthy.

Ending the two-child benefit cap to take 1 million children out of poverty would cost £2,000 million (£2 billion). Apparently, that's not possible. If you can work out the logic of that and come to any answer that includes the terms 'economic sense' and 'empathy', I will be amazed.

If only politicians understood double entry

Published by Anonymous (not verified) on Sun, 09/06/2024 - 4:48pm in

I have published this video this morning. In it, I argue that every politician should understand double entry. If they did, then they might work out the consequences of their actions and the ridiculousness of many of the claims that they make about government spending.

The audio version is here:

The transcript is:

Double entry is the most incredibly powerful language that I know is available to explain economics.

Double entry is usually associated with the art of bookkeeping and that art is dying because it's largely being taken over by computers. People say that in the future AI will entirely eliminate it as a human skill and that would be a terrible thing to happen because this double entry bookkeeping is based on a very simple premise.

That premise is that every action has a reaction.

Now, science tells us that.

Physics is built on that idea.

And so is accounting.

You cannot, for example, spend money in a business or as a person without there being a consequence. Yes, you've got less money, but you did get something in exchange. You either bought something, or you owe somebody less than you did beforehand.

There is a reaction as a consequence of the first action.

And that's true throughout the business world. Nothing happens without there being two sides to every event.

This is an understanding that our politicians do not, however, seem to share. For example, they talk about public spending - government spending - as if it's pouring money into a black hole from which nothing will ever emerge.

That's obviously wrong. There is a quality to public spending that is important to appraise, because the spend is on something, and some things are quite simply more beneficial than others in terms of the impact that they have on the economy.

Spending money subsidising the pensions of the already wealthy does very little for the economy as a whole.

Spending money on relieving child poverty would have a massive impact upon the lives of a million children, and their parents or carers.

Spending money to improve education very obviously has a long-term benefit in terms of the outcomes that those children will deliver for us all in the future.

Spending money on health care gets people back to work.

And social care does the same thing because it frees the logjams in hospitals.

Understanding that the quality of public spending and what it is on, and that it's never wasted in the sense that there is never no recipient - which the idea of the black hole of public spending which politicians put forward implies - but is instead something that can stimulate economic activity of benefit within the economy - then if only our politicians understood that we would have a better quality of economic and political debate in this country.

But because they don't understand double entry, they don't understand the very building block on which business is built, and they don't understand the consequences of their own actions. They don't discuss, in a meaningful way, what they're actually going to be responsible for.

I genuinely believe every politician should be taught double entry. I actually think a lot of people should understand double entry as if it's a form of basic literacy about the way in which the world operates. Because if they did, you'd always have to think, I'm doing this, who am I impacting, and is that a useful outcome? And then the world would be a better place.

It's odd to suggest that something so basic could have such a big impact, but I genuinely believe it could.

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