Election

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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.

The Greens: overly optimistic, but at least without the gloom that dominates elsewhere

Published by Anonymous (not verified) on Thu, 13/06/2024 - 3:25pm in

I have already done one commentary on the Green Party's manifesto. But, having looked at the costings of other parties, I feel duty-bound to do so with regard to the Greens.

As I noted in the video yesterday, the Greens are doing something that no other party seems willing to do at this election, and that is to be bold.

They know, of course, that they are not going to be in government. However, that is precisely why they should be bold, and that is also why other parties also sharing that certainty should have risen to the challenge in a way that they have not.

That said, like all other parties, so far, the sums presented by the Greens do lack detail. I think that is a shame. The opportunity to present much more fully costed plans was available to them, and would, if they had grabbed the chance, have suggested that they are willing to tackle the issues facing this country in a way that others appear unwilling to do.

The Green spending commitments are, in many ways, more relevant than their revenue-raising proposals. This is what they say they plan:

Spending at this level going to be optimistic. I do not know that the resources to deliver this scale of transformation in the economy exist. In fairness, the footnotes to the plan indicate that they are aware of that risk, making reference to supply side constraints.

The priorities are, however, right. My question is, do we have the people to deliver on these promises? And is the training budget big enough in that case? Aspire by all means, but these questions need answering.

The revenue-raising commitments are summarised by the Greens like this:

As is well-known, I have reservations about a wealth tax, on which the Greens are relying, and I will not be changing my mind about that because the Greens are proposing one. Not only are they politically difficult, they are also practically difficult when there are so many easier ways of raising revenue from those with wealth. I have hesitation about their suggested revenues from this source, in that case. However, are total additional taxes from personal income and wealth of the scale that they suggest deliverable? As the Taxing Wealth Report 2024 suggests, they might be, but the suggestions are at the decidedly optimistic end of the ranges that I have suggested for the taxes that they propose.

Can, in addition, a £90 billion carbon tax be laid over that? I am really not sure. My fear with all carbon taxes is that they are regressive. If this is the plan then the planned increases in income support in this proposal look to be seriously understated to me if those most vulnerable are to be protected. I hope they are to be protected, but I really cannot be sure about it, and an additional tax on this scale looks to be decidedly optimistic to me in the timescale planned.

Finally, can the noted borrowing be secured? Yes, in my opinion. That's the easy bit in here. Use my scheme for ISA and pension reform and that borrowing can be delivered without any difficulty at all. That part of the plan is where I am most comfortable, by far.

Comparisons are always a little unfair in politics. Political parties choose, quite deliberately, to compete on different playing fields. That said, and given the points that I have already made about my desire that the Greens should have presented more data, they have shown up both the Liberal Democrats and the Tories, not so much with the quality of their presentation, but with the boldness of their thinking that underpins it. I want more detail, by far, and doubt there are the resources in our current economy to deliver spending at the level the Greens plan, but this is better than what I’m getting elsewhere, so far. In particular, I prefer their optimism to the overwise prevailing air of gloom.

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.

In England’s green and pleasant – or is it grubby and dying? – land

Published by Anonymous (not verified) on Wed, 12/06/2024 - 4:27pm in

My short video this morning laments the lack of green policy from our major political parties at this election. In it, I argue that William Blake might have written about England’s green and pleasant land, but it seems that most English politicians are intent on ignoring green issues during this election. That’s going to leave us with a whole pile of problems - and a grubby, unpleasant, and even uninhabitable land in time to come.

You can see the video here.

This is the transcript:

Most people watching this video will be familiar with the hymn, ‘Jerusalem’ and Blake's poem all about England's green and pleasant land.

So why haven't the Liberal Democrats put anything in their manifesto costings about green policy?

Why has Labour dropped green policy from its agenda?

Why are the Reform Party so opposed to Green policy that they attack it?

And where are the Tories? Well, nowhere as usual. 

What is it about this ‘green and pleasant land’ that we hate so much that we won't actually try to preserve it?

When we make it our second national anthem, in England at least, what is it that then inspires us to loathe the very thing we aspire to?

I wish I knew, because I can't answer that question, but what I do know is that we definitely need green policy, or we are all in very deep trouble.

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.

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.

Politicians need convictions

Published by Anonymous (not verified) on Tue, 11/06/2024 - 4:45pm in

In my main YouTube video for this morning, I argue that neoliberalism has killed conviction-based politics.

The audio version is here:

This is the transcript:

Politicians need to be people with convictions.

Well, in my opinion, that's the case anyway. But we don't have people like that anymore. What we have are people who believe that politics should be kept out of society. Because their belief is that markets determine how we should allocate resources.

In other words, we should all be going into the marketplace, spending our money, and that, they say, produces an optimal outcome for us all. We should determine everything on the basis of our consumption choices. And this is the theory of neoliberalism. That's what it says we are. It says we're only consumers.

We have no other role in life.

But that's nonsense. Because what we know is that so many of the services on which we rely cannot be consumed through the marketplace. This has been known for centuries.

Try to buy fire insurance - in other words, the insurance that guarantees that a fire brigade will turn up at your house if you happen to have a fire - and you'll find it's virtually impossible to deliver on that basis because it was tried centuries ago because nobody could be sure who they needed to buy from and where the nearest suitable fire station was and on and on, it had to be provided collectively, and this was one of the first discoveries that was made about the need for government to intervene.

Defence is another obvious case in point. You can't consume defence. You have to have it collectively.

And again, this was true of the police. And once upon a time, we thought this was true of things like, well, the Post Office, and that was why the state supplied it from 1840. But apparently not anymore. We haven't even got that far with broadband these days either, which is the modern equivalent.

So, these politicians don't have a conviction as to what they should be doing in government. Their conviction is that government shouldn't be doing something.

And that's wrong. When I say wrong, I mean wrong. Because government has to be involved in making decisions about how resources are allocated to maximise the well-being, in particular, of those who can't participate in the market. Although economists assume everyone has an equal right to participate and those who don't have enough money are, well, actually by default in the political sense of neoliberalism failures - although they don't like to put it that way - the reality is that of course we know people do not have an equal right to participate in the market because they have different levels of wealth, either inherited or generated, they have different levels of ability to take part in the market, and I'm not just talking about intellectual here of course, I'm talking about the physical constraints that they might face as well, whether because of geography or some problem that they might personally have to address, which constrains their ability to earn, or they simply are unable for some other reason - like there are no jobs in their area - to partake in market-based activity.

So, therefore, they are discriminated against if politicians think that only consumption-based activity is permitted to determine their well-being. Well, that's obviously not true. It should be down to politicians to decide how these deficiencies in the market are made good. When we have politicians who think that their only job is to facilitate markets rather than to correct for market failure, we end up with conviction-free politicians.

And the big problem that we face in this country is that's exactly what Keir Starmer and Rishi Sunak and their respective party leaderships now all are. They're conviction-free politicians who don't think it's their job to make decisions but who want to hand over all decision-making to markets. And that's a disaster for us all, and most especially those who are dependent upon government to make sure that their well-being is made good and who are being denied that, as is so obvious in so many ways because of the failure of the UK government to support those who are vulnerable.

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.

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.

The BBC leaders’ debate: a sorry affair for the right wing of British politics

Published by Anonymous (not verified) on Sat, 08/06/2024 - 5:53pm in

Tags 

Election, Politics

I endured last night's television debate between the major political parties, largely by tweeting about it.

Part way through this was my summary:

Penny Mordaunt was desperate, rude, and way out of her depth.

Angela Rayner shut up whenever Mordaunt spoke over her. It was a bizarre performance from her. She left her wit at home. I was left wondering if she even believed in her party.

Farage was treated with contempt but, like Mordaunt, was given far too much time by BBC chair Mishal Husain, who seemed only vaguely in control most of the time.

Towards the end, I ranked the contributions:

Stephen Flynn was clear and precise and avoided almost all the traps into which he could have fallen.

Carla Denyer did much better than I expected based on her previous television outings. I was impressed and did not expect to be after some fairly lacklustre Question Time performances.

Daisy Cooper did not come over as sincere. Her earnestness was not convincing. Rhun ap Iorwerth for Plaid Cymru was. 

Mordaunt will deserve her P45 when she gets it. When she said she was worried about her constituents, my immediate reaction was that I was quite sure that was true since most of them were going to vote against her.

Farage was mocked by the audience and very effectively put down several times by Flynn, who was more than a master of him.

What did we learn? That the small parties have guts, personality and fire based on conviction, and that those parties on the right do not. That was it. But that was important, in itself.

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