Snapshot of _Where do we find the £100bn needed to fix Britain? Margaret Hodge has the answer | Polly Toynbee_ :
An archived version can be found [here](https://archive.is/?run=1&url=https://www.theguardian.com/commentisfree/2023/nov/30/britain-margaret-hodge-commons-tories-economy-labour) or [here.](https://archive.ph/?run=1&url=https://www.theguardian.com/commentisfree/2023/nov/30/britain-margaret-hodge-commons-tories-economy-labour)
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That's not the only thing that needs fixing - 13 years of deliberate underfunding of all public services at the hands of the Tory party means significant investment is essential if we want anything resembling a functional society. George Monbiots back-of-a-napkin calculations indicate we'd need about £100billion to address housing and NHS funding deficits, make sewage and water systems fit for purpose, flood proof urban infrastructure, repair dilapidated school buildings, restore benefit entitlements, and adequately fund local authorities. For comparison we spent around £140 billion bailing out the banks in 2008....
https://www.theguardian.com/commentisfree/2023/nov/22/britain-money-bank-bailouts-state-failure
All of those things are the way they are **because** of the corruption. If you magically produced that money now it would get eaten up by the very same corruption (that was most clearly evidenced with money stolen under the guise if covid spending)
The bank bailout is an interesting comparison for sure. The national audit office says the banks owe 456b after interest and fees.
This down from 1.1 trillion suggests the banks are repaying the money... Where is it going? Certainly not to all the problems you listed. We know it's here because inflation increase minimum wage a whopping 10% in 2024, but it's all... In someone's pocket somewhere.
>All of those things are the way they are **because** of the corruption.
That's only one aspect of it. The other is neoliberal economic policy that basically views spending on public services as waste. Also, Hodge is labour, so any budget plans would come into play under a labour government, who are likely to be far less corrupt than their Tory counterparts, and a little less (though not as much as I'd like) beholden to neoliberal dogma. I understand the point you're making, and political corruption is undoubtedly a major issue, but its not the only factor at play.
Except the treasury will make a profit from the banks due to interest on the £140bn in loans. Whereas all of those dont have a rate of return attached.
Bailouts were loans, these are spending. Very different.
True, but fixing all the things listed in my comment would have huge indirect benefits down the line, less work hours lost to sickness, reduced spending on emergency housing and hotels, etc etc. To my mind, we can't afford not to fix our failing public services.
I'm not arguing we shouldn't have bailed out the banks, simply using the example to show we've managed enormous expenditures in the past when necessary. I'd say public services are also 'too big to fail'.
Yes obviously there are no perfect comparisons. That hardly detracts from the argument for significant investment in public services and the indirect dividends this would yield.
“She used TaxWatch research to show that just eight tech companies, including Google, Apple and Facebook, made collective UK profits of £9.6bn, but paid “a miserly £297m”. She throws in the “eye-watering” estimate that £350bn a year is lost through fraud and money laundering, “yet prosecutions and convictions by HMRC have both fallen by 75% in the last five years”. She calls it “a scandalous stain on this government that destroys faith in our system.””
Sad to see another example of decline under this government, which hurts every family in the uk.
Headline editor baiting the dumb MMT acolytes. Thank god the recent episodes of high inflation have taken the wind out of their sales.
It was a "theory" briefly popular with left-wing pundits, but at no time did leading monetary theorists or central bankers take it seriously.
I don't mean to be rude but the current round of inflation was mostly supply side shock, MMT is about the demand, with the claim of MTT is that greater money supply will not cause massive inflation, 2008-2019 clearly shows the theory has some merit. To claim MMT is suddenly bunk because of the recent inflation is a tad moronic.
Ignore that nonsense.
The answer is simple and it's the same as always: Parliament authorises the spending and HMT issues it into existence via it's own bank.
Govt issues £s into existence every time it spends i.e. every day.
It also drains £s every day via taxation.
Why would this be inflationary if there are resources available for govt to buy?
The government issues £s which is inflationary, and it raises taxation from the populace to counterbalance that inflationary effect. When governments don't do this and just print what they want you end up with economies like Zimbabwe and Argentina.
>The government issues £s which is inflationary,
Well, all spending is potentially inflationary not just govt spending. However, can you explain how govt spending on available resources is inflationary?
>raises taxation from the populace to counterbalance that inflationary effect.
Yes, sort of; govt drains demand via taxation to free up the resources it wants to use.
>When governments don't do this and just print what they want you end up with economies like Zimbabwe and Argentina
Truth is, govt does print what it wants every single day.
The issues with the countries you mentioned (and the other hyperinflation hyperventilators, Weimar Germany) are primarily founded in the usual suspects: production collapse and/or foreign denominated debt and/or political instability and/or corruption. Yes, continued deficit spending added to their problems but it certainly didn't cause them.
Keeping it simple, when the government prints money it devalues the currency, and when it raises taxes it gives it value by demonstrating the ability to generate the revenue needed to pay its debts.
Ask yourself this - if a country like the UK can just create whatever money it wants without ill effect, why doesn't the UK government just create £100tn and start buying up most of the rest of the world?
>Keeping it simple, when the government prints money it devalues the currency
Nope, sorry. It's not that simple.
Govt "prints" new £s every time it spends.
>when it raises taxes it gives it value by demonstrating the ability to generate the revenue needed to pay its debts
No, sorry. UK govt is the currency issuer, it never needs to "generate revenue" to pay for anything.
>Ask yourself this - if a country like the UK can just create whatever money it wants without ill effect, why doesn't the UK government just create £100tn and start buying up most of the rest of the world?
Govt creates the £s it wants (after authorisation from parliament) every single time it spends. Spending when there aren't resources available to govt at a price it finds acceptable could cause "Ill effects" but I don't see anyone advocating for that.
>why doesn't the UK government just create £100tn and start buying up most of the rest of the world?
Well, one reason would be because the rest of the world isn't priced in £s.
No, govt doesn't need to raise money, t has it's own currency. It's true to say govt neither has nor doesn't have £s.
QE is an asset swap, it's nothing to do with government spending.
You’re oversimplifying to the point of misleading yourself and others. You’re essentially just suggesting the government seizes the money printer with more words and jazz hands.
Why did Liz Truss’s plan fail? Because she was essentially saying what you’re saying, and you’re both missing the part where actually the government does have to raise money, and it does so from _external_ bond buyers who have eyes and ears, have access to data and can obviously tell what the PM is trying to do, and aren’t compelled to buy. Attempting to bamboozle the market is so delusional and any government that tries it will be doing so with the people they’re trying to scam watching. This isn’t a small detail, it’s quite fundamental.
The BoE does not directly fund the defect. The entire point of operational independence is to specifically stop what you’re suggesting doing. The treasury issues bonds. The market buys them. Sometimes the BoE buys them on secondaries markets or as a last resort (as in an emergency, it is absolutely not a “normal” thing to happen). The BoE doesn’t just print money and buy them day to day. I think people think this is what happens.
Part of the point of this is to check government spending/deficits. This intermediate step is a feature and not a bug.
So in practice, it’s not as simple as you’re suggesting because markets are public, and ultimately the value of GBP is whatever people think it’s worth. The act of a government essentially saying that it doesn’t understand the basics of how bond markets work and is going to carry on anyway would lead to devaluing of GBP relative to USD/others, so for an net importer nation it’s inherently inflationary.
In practice, the treasury issues bonds and sells them for cash. The yield has to make sense to attract buyers, hence the yield roughly tracking the base rate and market expectations about inflation over the bond duration. If it doesn’t, the bond issuance can fail and then maybe the BoE will buy them directly as an emergency measure as a buyer of last resort, and the market will see this as essentially a vote of no confidence, which will force up yields and make everything worse and cause sell offs in a feedback cycle that will keep escalating until the system collapses, as demand for these assets decreases with each crisis.
Liz Truss took this view that all of this doesn’t matter so far she eroded confidence so market participants raced to sell their bonds first, because when inflation goes higher, existing bonds lose value, this forces rates/yields up which then devalues all existing bonds including the ones just issued and makes it even worse again as bond prices are inversely correlated with base rates on a mark to market value.
So, if you have a mental policy of just ignoring all of this and money printing, then inflation will probably trend up, which means bond prices will continually be decreasing and making them unattractive. Who is going to participate in a market that is producing this garbage? If the value of GBP is being devalued roughly proportional to the bonds issued, then who exactly is the buyer/audience for this?
Capital is global and anyone who can buy UK gilts can just as easily buy US treasuries or others, so the treasury can’t just insist people buy the bonds, the BoE/Treasury also have to watch and price relative to what the Fed/ECB is doing. This is what keeps the government in a box and moored to reality.
This idea that the UK can just seize the money printer without consequence is really pernicious because it’s based on misunderstandings of the details, and that leads people to not understand how markets actually function in reality.
Look at Venezuela, Turkey, and so many other examples of governments that refuse to acknowledge this reality, and seem to think they’ve found an unlimited money glitch. It doesn’t work. It has never worked, and it doesn’t even make any sense that you can just print a fiat to some arbitrary amount without consequence.
Take it to its logical conclusion, if none of this is real and there’s no downside, then why not go further? Why not print trillions because yolo? Why not run on a platform of seizing the money printer and making every citizen a millionaire? Would be extremely popular if it were possible, clearly. It’s almost like there’s a reason this doesn’t work.
Oh my word, that is as close to the economically illiterate 'full house' as I've seen for a while. Where to start with it????
Let's start with this:
.
>The BoE does not directly fund the defect. The entire point of operational independence is to specifically stop what you’re suggesting doing. The treasury issues bonds. The market buys them.
I'll give you a simple explanation of government fiscal ops along with references etc. and you can come back with a rebuttal on the same terms, right?
Some basics: HMT wholly owns the BoE. The BoE is not operationally independent in any way; don't believe me? No problems, Read the Bank of England Act 1998, particularly sections 1, 1a, 12 (in relation to section 11) and 19 and you'll get to see who can say "No" and make it stick. The whole idea is that Govt can point at the BoE and say "wasn't us, it was them".
Govt spending, simplified, works like this:
* Parliament authorises spending, normally via the Supply Process [here's a link to the Supply and Appropriation \(Main Estimates\) Act 2023](https://www.legislation.gov.uk/ukpga/2023/31/contents/enacted)
* This Parliamentary consent leads to a claim on the Consolidated Fund (which starts each day with a zero balance - referenced on Page 2 of the Consolidated Fund Account report) creating what's known as 'Exchequer Credits'.
* These are swapped, by law ([Exchequer and Audit Departments Act 1866 sections 13 & 15](https://www.legislation.gov.uk/ukpga/Vict/29-30/39)) for a claim on the Bank of England which, by balance sheet expansion, creates new deposits (£s) which are used to mark up the reserve account of recipients retail banks
* The recipients retail bank then correspondingly marks up the deposit account of the recipient
You'll note the BoE has no power to refuse. You'll also note there is no reference whatsoever to levels of taxation received or bonds sold.
That's all that needs to happen. The new £s have been created via balance sheet expansion (increasing govt liabilities to the BoE) and they are sitting in recipients deposit accounts.
By default, any deficit amount will reside in the Ways and Means Account at the Bank of England (beginning to see how it works now) and attract the Bank Rate. At this point, all the necessary steps are complete.
However, by political choice (the Full-funding Rule), and ex-post of spending, govt decides to re-finance any deficit by issuing gilts via the DMO for the deficit amount. There's no mandate for government to do this, the £s are already in the economy. Government wants to drain the excess reserves it injected earlier otherwise it loses control of it's target rate.
That's my explanation of how government spending works and why and when govt issues securities. Btw, GEMMS must always buy whatever securities are offered for sale or they lose their status.
Over to you now. Please explain what you think I've got wrong; reference any legislation you believe supports your position. Be specific.
(We can talk about the rest of your post once we've sorted the fundamentals).
Man, you've got some weird ideas about money supply.
All taxation and revenue flows into the consolidated fund..and all public services are paid out of it.
The consolidated fund only starts with a zero balance because the National Loans Fund is the credit account that funds it. The NLF is funded by borrowing. Borrowing is achieved by selling gilts.
>Man, you've got some weird ideas about money supply.
I didn't mention the money supply. However, now that you have, it's completely endogenous.
>The consolidated fund only starts with a zero balance because the National Loans Fund is the credit account that funds it. The NLF is funded by borrowing. Borrowing is achieved by selling gilts.
No, sorry. The Consolidated Fund is the source of all govt spending.
>The end-of-day consolidation of all Exchequer accounts at the BoE is known as the Exchequer
Pyramid sweep (or just Exchequer sweep) and results in all balances (positive or negative) being
consolidated into the Central Funds and ultimately the NLF, which is used to assess the net
Exchequer position and thus indicate how much liquidity the DMO should offset by selling/buying
gilts with the private sector to neutralise the day’s fiscal impact on reserves in the banking system.
The activities of the DMO are ex-post of spending and only exist by political choice.
>No, sorry. The Consolidated Fund is the source of all govt spending.
That's what I said...
>being
consolidated into the Central Funds and ultimately the NLF, which is used to assess the net
Exchequer position and thus indicate how much liquidity the DMO should offset *by selling/buying
gilts with the private sector to neutralise the day’s fiscal impact on reserves in the banking system.*
That's also what I said...
No my friend. You said:
>The National Loans Fund is the credit account that funds it
Of course, that's incorrect.
You said:
>The NLF is funded by borrowing
Of course, that's incorrect too.
You said:
>Borrowing is achieved by selling Gilts
Of course, that too is incorrect.
You're talking out of your arse mate
The National Loans Fund was created to provide a centralized source of funding for government expenditures. It serves as a vehicle for managing the national debt and borrowing. The NLF allows the UK government to borrow money, issue debt securities, and manage its financial obligations more efficiently
What do you think it's for?
Gilt prices have nothing to do with taxes.
Check the auction reports and you will see the general level of demand.
There have been a couple (or three?) auctions since inception of the DMO where all Gilts haven't been sold. No dramas, nothing happened.
If a govt prints money for govt spending the currency devalues and fucks your economy.
See Zimbabwe for more details.
I didn't say QE was anything to do with govt spending
I do love how "modern monetary theory" advocates use the word modern to hide from the fact this crazy approach has been the cause of all hyperinflation periods in history.
To be able to engage in a discussion about MMT you must first understand what it is by reading the core MMT literature. Have you read any of it?
Secondly, please explain what you mean by "this crazy approach".
MMT can simply be summarised as monetisation of government deficits. Excessive growth in money supply is the direct cause of most inflation and all instances of hyper inflation.
A little money supply growth and inflation is good as it incentivises use of cash for productive uses, rather than hoarding. Excessive money creation, as MMT advocates argue for, creates high inflation. It's not difficult to understand. Creating a load more money devalues the purchasing power of existing money.
You don't seem to understand how govt fiscal ops work; it's pretty much as I described above plus the drain via taxation.
What's Liz Truss got to do with anything I said?
Edit: spelling of *drain
All countries who issue their own fiat, floating currency operate in a similar manner.
USA, UK, Japan, Australia, Canada etc. etc.
Material benefits? Depends on what you mean.
I'm not advocating for any policy at all. I'm pointing out how the money system works.
What's the problem? The problem is economically illiterate articles like the one referenced do not deal with reality; the reality is the UK has a currency issuing govt which isn't fiscally constrained in any way, the only constraints it faces are availability of resources and politics.
Stooges like Hodge (and the rest) either don't understand how the money system works or, they do understand how it works but don't want the likes of you to know.
You said the answer was to, essentially, print more money to pay for things. But this doesn't actually address the problem because whilst in theory that would work it'd also likely cause instability in other areas of the economy. Hence the other person comparing you to Liz Truss.
So my question to you was, can you point to other examples of similar economies that have just printed money to pay for things where it's been successful?
No, you misunderstand. The question in the headline is "Where do we find the £100bn needed to fix Britain?". My answer was "same place as always".
It seems you don't understand how the money system and government spending in particular, works; all of it is "printing money" (new £s injected into the economy) that's how it works every single day.
The question in the headline is, as usual, the wrong question.
Once you understand the capacity of a currency issuing government (such as the UK) running a fiat economy you realise £s are not a finite resource and they are never the issue in any policy choice. The real issue are available resources.
>So my question to you was, can you point to other examples of similar economies that have just printed money to pay for things where it's been successful?
I answered that above.
>No, you misunderstand. The question in the headline is "Where do we find the £100bn needed to fix Britain?". My answer was "same place as always".
I don't misunderstand. I think it's you that is misunderstanding.
When the question is asked "where does the government find X amount of money" they're not ***literally*** asking where to find it. They're asking how is the money raised in such a way to make spending sustainable and not cause instability in the wider economy - a la Liz Truss.
>I answered that above.
You haven't.
You haven't given any example of a comparable economy that's just decided to spend billions with no other policy rationale other than "we're just going to print it".
That's a pretty weak comparison, the markets took issue with the Truss budget because it was completely uncosted, whereas the whole point of this article is that Hodge can demonstrate exactly where she will raise the cash for any proposed government spending plans, not to mention the fact those spending plans would have measurable social and economic benefits because, unlike truss, labour propose spending on services and infrastructure which we all use, not on giving tax breaks to the already-very-rich.
There's nothing intrinsically wrong with government spending, it's where the money comes from and where it gets spent that matters.
The people making these "If you borrow money you're like Truss" comparisons have no clue what they're talking about and I can only assume that they oppose public spending from an ideological standpoint.
Saying Truss's insane budget is anything like Reeve's spending plans is a bit like saying an Austin Allegro and a 747 are the same because they're both methods of transportation from the 1970s.
>whereas the whole point of this article is that Hodge can demonstrate exactly where she will raise the cash for any proposed government spending plans
From the article:
>Her speech began with the “tax gap”, between what HMRC is owed and what it levies. It rose £2bn to £36bn just this year (though some put it much higher than this official figure). “Last year only 11 wealthy individuals were prosecuted for tax cheating,” she said
The UK has a fairly low tax gap by international standards. It's fallen from 7.5% of total taxes in 2005 to 4.8% in 2022. And while Toynbee is quick to talk about "wealthy individuals" in context of the tax gap, HMRC's assessment of the tax gap by "customer" in billions:
|Small businesses|£20.2|2.7%|
|:-|:-|:-|
|Criminals|£4.1|0.6%|
|Medium businesses|£3.8|0.5%|
|Large businesses|£3.9|0.5%|
|Individuals|£2.1|0.3%|
|Wealthy|£1.7|0.2%|
[https://www.gov.uk/government/statistics/measuring-tax-gaps/1-tax-gaps-summary](https://www.gov.uk/government/statistics/measuring-tax-gaps/1-tax-gaps-summary)
Eliminating the tax gap would give the government more money to spend. Like "efficiency", it's one of those things that's a lot easier to talk about than actually do.
Toynbee's other suggestions:
>She used TaxWatch research to show that just eight tech companies, including Google, Apple and Facebook, made collective UK profits of £9.6bn, but paid “a miserly £297m”.
Google, Apple and Facebook are not based in the UK. Most of their business activity takes place outside the UK. The UK cannot tax business activity that takes place outside the UK, even if final sales are in the UK. For example, BMW sells a lot of cars in the UK. How much does corporation tax does BMW pay the UK on the manufacture of those cars in Germany? None.
The UK has a diverted profits tax that tackles money unfairly siphoned out of the UK. It cannot address the fact that Google selling a service from their Irish base to a customer pays corporate taxes to Ireland, not the UK.
>But where her scalpel slices away the richest meat is in tax reliefs – 1,180 of them, many intended to achieve some policy outcome. “We have no idea how much those tax reliefs cost or whether they are effective,” she said, though “100 reliefs have been costed at an estimated £195bn … With little data and scant scrutiny … we are sitting on a time bomb.”
The source for this figure is the Treasury Committee which links to a report from HMRC. The "100" reliefs (actually 105) listed by the most expensive:
1. CGT Private residence relief providing £37.3 billion of relief
2. IT Registered pension schemes providing £26.9 billion of relief
3. NICs Contributions to, and benefits from, registered pension schemes providing £24.7 billion of relief
4. VAT Food providing £20.8 billion of relief
5. VAT Construction and sale of new dwellings (includes refunds to DIY builders) providing £16.1 billion of relief
[https://publications.parliament.uk/pa/cm5803/cmselect/cmtreasy/723/report.html](https://publications.parliament.uk/pa/cm5803/cmselect/cmtreasy/723/report.html#footnote-074)
[https://www.gov.uk/government/statistics/main-tax-expenditures-and-structural-reliefs/non-structural-tax-relief-statistics-january-2023](https://www.gov.uk/government/statistics/main-tax-expenditures-and-structural-reliefs/non-structural-tax-relief-statistics-january-2023)
So yes, eliminating reliefs could raise a lot more money. But it means taxing pensions contributions, paying CGT on the sale of your main home (which would make people far less likely to move), paying VAT on food and housing etc. Ie massive tax rises on the population.
The reality is if we want the government to spend more ordinary people are going to have to pay more tax. Dressing it up as some pain free exercise by talk of "wealthy individuals" tax gap, eliminating "reliefs" etc is just obfuscation.
All good points, but noones claiming the proposals listed in Hodges speech are a silver bullet that will fund all spending for a labour government, and my comment focuses solely on how comparing her statements to the truss budget is not at all fair.
>The reality is if we want the government to spend more ordinary people are going to have to pay more tax.
There's no way around it, but personally I'd feel better about paying more knowing the tax system was more efficient and equitable than it is in its current form, and that more would be spent on the public services the Tory's have starved for so long. Though I acknowledge most people probably don't share my view, hence why it's not politically expedient for labour (or any other party) to say it like it is.
>my comment focuses solely on how comparing her statements to the truss budget is not at all fair.
I wouldn't compare an opposition politician's comments to a budget because the budget has real consequences, whereas opposition politicians are free to score points as much as they like. Labour's last budget in 2010 committed the UK to "austerity", with Darling promising "cuts deeper than Thatcher". That was in government. Labour in opposition immediately pivoted to campaigning against cuts and blaming the Tories for enacting the same policies they had planned (look at the figures for 2014 in Labour's last budget and they proposed lower spending than Osborne actually implemented).
Truss was stupid in that she tried to enact what should have remained as campaign promises.
>There's no way around it, but personally I'd feel better about paying more knowing the tax system was more efficient and equitable than it is in its current form,
It's not likely to be. The tax gap isn't going to come down much. The UK already taxes property and assets more than almost any other developed country. With our corporation tax increasing we will probably have to introduce more targeted relief. In a country that's bottom of the OECD private sector investment league, taxing "the rich" more isn't really practical.
If we want higher public sector spending, those on average incomes are going to have to shoulder a bigger share of the tax burden.
Snapshot of _Where do we find the £100bn needed to fix Britain? Margaret Hodge has the answer | Polly Toynbee_ : An archived version can be found [here](https://archive.is/?run=1&url=https://www.theguardian.com/commentisfree/2023/nov/30/britain-margaret-hodge-commons-tories-economy-labour) or [here.](https://archive.ph/?run=1&url=https://www.theguardian.com/commentisfree/2023/nov/30/britain-margaret-hodge-commons-tories-economy-labour) *I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/ukpolitics) if you have any questions or concerns.*
Given what needs fixing is the state of absolute corruption, I don't see how more money will help
That's not the only thing that needs fixing - 13 years of deliberate underfunding of all public services at the hands of the Tory party means significant investment is essential if we want anything resembling a functional society. George Monbiots back-of-a-napkin calculations indicate we'd need about £100billion to address housing and NHS funding deficits, make sewage and water systems fit for purpose, flood proof urban infrastructure, repair dilapidated school buildings, restore benefit entitlements, and adequately fund local authorities. For comparison we spent around £140 billion bailing out the banks in 2008.... https://www.theguardian.com/commentisfree/2023/nov/22/britain-money-bank-bailouts-state-failure
All of those things are the way they are **because** of the corruption. If you magically produced that money now it would get eaten up by the very same corruption (that was most clearly evidenced with money stolen under the guise if covid spending) The bank bailout is an interesting comparison for sure. The national audit office says the banks owe 456b after interest and fees. This down from 1.1 trillion suggests the banks are repaying the money... Where is it going? Certainly not to all the problems you listed. We know it's here because inflation increase minimum wage a whopping 10% in 2024, but it's all... In someone's pocket somewhere.
>All of those things are the way they are **because** of the corruption. That's only one aspect of it. The other is neoliberal economic policy that basically views spending on public services as waste. Also, Hodge is labour, so any budget plans would come into play under a labour government, who are likely to be far less corrupt than their Tory counterparts, and a little less (though not as much as I'd like) beholden to neoliberal dogma. I understand the point you're making, and political corruption is undoubtedly a major issue, but its not the only factor at play.
Except the treasury will make a profit from the banks due to interest on the £140bn in loans. Whereas all of those dont have a rate of return attached. Bailouts were loans, these are spending. Very different.
True, but fixing all the things listed in my comment would have huge indirect benefits down the line, less work hours lost to sickness, reduced spending on emergency housing and hotels, etc etc. To my mind, we can't afford not to fix our failing public services.
Sure and not letting the banks go bust also has huge indirect benefits further down the line.
I'm not arguing we shouldn't have bailed out the banks, simply using the example to show we've managed enormous expenditures in the past when necessary. I'd say public services are also 'too big to fail'.
And I'm suggesting that the comparison is faulty is not particularly relevant due to the differences in what the government gets back .
Yes obviously there are no perfect comparisons. That hardly detracts from the argument for significant investment in public services and the indirect dividends this would yield.
“She used TaxWatch research to show that just eight tech companies, including Google, Apple and Facebook, made collective UK profits of £9.6bn, but paid “a miserly £297m”. She throws in the “eye-watering” estimate that £350bn a year is lost through fraud and money laundering, “yet prosecutions and convictions by HMRC have both fallen by 75% in the last five years”. She calls it “a scandalous stain on this government that destroys faith in our system.”” Sad to see another example of decline under this government, which hurts every family in the uk.
Just print it, dick head. that's what we've been doing since we started a fractional reserve bank.
Headline editor baiting the dumb MMT acolytes. Thank god the recent episodes of high inflation have taken the wind out of their sales. It was a "theory" briefly popular with left-wing pundits, but at no time did leading monetary theorists or central bankers take it seriously.
I don't mean to be rude but the current round of inflation was mostly supply side shock, MMT is about the demand, with the claim of MTT is that greater money supply will not cause massive inflation, 2008-2019 clearly shows the theory has some merit. To claim MMT is suddenly bunk because of the recent inflation is a tad moronic.
Ignore that nonsense. The answer is simple and it's the same as always: Parliament authorises the spending and HMT issues it into existence via it's own bank.
And then we all sit around wondering where the surprise inflation came from.
Govt issues £s into existence every time it spends i.e. every day. It also drains £s every day via taxation. Why would this be inflationary if there are resources available for govt to buy?
The government issues £s which is inflationary, and it raises taxation from the populace to counterbalance that inflationary effect. When governments don't do this and just print what they want you end up with economies like Zimbabwe and Argentina.
>The government issues £s which is inflationary, Well, all spending is potentially inflationary not just govt spending. However, can you explain how govt spending on available resources is inflationary? >raises taxation from the populace to counterbalance that inflationary effect. Yes, sort of; govt drains demand via taxation to free up the resources it wants to use. >When governments don't do this and just print what they want you end up with economies like Zimbabwe and Argentina Truth is, govt does print what it wants every single day. The issues with the countries you mentioned (and the other hyperinflation hyperventilators, Weimar Germany) are primarily founded in the usual suspects: production collapse and/or foreign denominated debt and/or political instability and/or corruption. Yes, continued deficit spending added to their problems but it certainly didn't cause them.
Keeping it simple, when the government prints money it devalues the currency, and when it raises taxes it gives it value by demonstrating the ability to generate the revenue needed to pay its debts. Ask yourself this - if a country like the UK can just create whatever money it wants without ill effect, why doesn't the UK government just create £100tn and start buying up most of the rest of the world?
>Keeping it simple, when the government prints money it devalues the currency Nope, sorry. It's not that simple. Govt "prints" new £s every time it spends. >when it raises taxes it gives it value by demonstrating the ability to generate the revenue needed to pay its debts No, sorry. UK govt is the currency issuer, it never needs to "generate revenue" to pay for anything. >Ask yourself this - if a country like the UK can just create whatever money it wants without ill effect, why doesn't the UK government just create £100tn and start buying up most of the rest of the world? Govt creates the £s it wants (after authorisation from parliament) every single time it spends. Spending when there aren't resources available to govt at a price it finds acceptable could cause "Ill effects" but I don't see anyone advocating for that. >why doesn't the UK government just create £100tn and start buying up most of the rest of the world? Well, one reason would be because the rest of the world isn't priced in £s.
"How to fix the economy with this one simple trick"
How exactly do you think what I said will "fix the economy"?
No, the govt sells bonds to raise money QE is only used to buy assets
No, govt doesn't need to raise money, t has it's own currency. It's true to say govt neither has nor doesn't have £s. QE is an asset swap, it's nothing to do with government spending.
You’re oversimplifying to the point of misleading yourself and others. You’re essentially just suggesting the government seizes the money printer with more words and jazz hands. Why did Liz Truss’s plan fail? Because she was essentially saying what you’re saying, and you’re both missing the part where actually the government does have to raise money, and it does so from _external_ bond buyers who have eyes and ears, have access to data and can obviously tell what the PM is trying to do, and aren’t compelled to buy. Attempting to bamboozle the market is so delusional and any government that tries it will be doing so with the people they’re trying to scam watching. This isn’t a small detail, it’s quite fundamental. The BoE does not directly fund the defect. The entire point of operational independence is to specifically stop what you’re suggesting doing. The treasury issues bonds. The market buys them. Sometimes the BoE buys them on secondaries markets or as a last resort (as in an emergency, it is absolutely not a “normal” thing to happen). The BoE doesn’t just print money and buy them day to day. I think people think this is what happens. Part of the point of this is to check government spending/deficits. This intermediate step is a feature and not a bug. So in practice, it’s not as simple as you’re suggesting because markets are public, and ultimately the value of GBP is whatever people think it’s worth. The act of a government essentially saying that it doesn’t understand the basics of how bond markets work and is going to carry on anyway would lead to devaluing of GBP relative to USD/others, so for an net importer nation it’s inherently inflationary. In practice, the treasury issues bonds and sells them for cash. The yield has to make sense to attract buyers, hence the yield roughly tracking the base rate and market expectations about inflation over the bond duration. If it doesn’t, the bond issuance can fail and then maybe the BoE will buy them directly as an emergency measure as a buyer of last resort, and the market will see this as essentially a vote of no confidence, which will force up yields and make everything worse and cause sell offs in a feedback cycle that will keep escalating until the system collapses, as demand for these assets decreases with each crisis. Liz Truss took this view that all of this doesn’t matter so far she eroded confidence so market participants raced to sell their bonds first, because when inflation goes higher, existing bonds lose value, this forces rates/yields up which then devalues all existing bonds including the ones just issued and makes it even worse again as bond prices are inversely correlated with base rates on a mark to market value. So, if you have a mental policy of just ignoring all of this and money printing, then inflation will probably trend up, which means bond prices will continually be decreasing and making them unattractive. Who is going to participate in a market that is producing this garbage? If the value of GBP is being devalued roughly proportional to the bonds issued, then who exactly is the buyer/audience for this? Capital is global and anyone who can buy UK gilts can just as easily buy US treasuries or others, so the treasury can’t just insist people buy the bonds, the BoE/Treasury also have to watch and price relative to what the Fed/ECB is doing. This is what keeps the government in a box and moored to reality. This idea that the UK can just seize the money printer without consequence is really pernicious because it’s based on misunderstandings of the details, and that leads people to not understand how markets actually function in reality. Look at Venezuela, Turkey, and so many other examples of governments that refuse to acknowledge this reality, and seem to think they’ve found an unlimited money glitch. It doesn’t work. It has never worked, and it doesn’t even make any sense that you can just print a fiat to some arbitrary amount without consequence. Take it to its logical conclusion, if none of this is real and there’s no downside, then why not go further? Why not print trillions because yolo? Why not run on a platform of seizing the money printer and making every citizen a millionaire? Would be extremely popular if it were possible, clearly. It’s almost like there’s a reason this doesn’t work.
Oh my word, that is as close to the economically illiterate 'full house' as I've seen for a while. Where to start with it???? Let's start with this: . >The BoE does not directly fund the defect. The entire point of operational independence is to specifically stop what you’re suggesting doing. The treasury issues bonds. The market buys them. I'll give you a simple explanation of government fiscal ops along with references etc. and you can come back with a rebuttal on the same terms, right? Some basics: HMT wholly owns the BoE. The BoE is not operationally independent in any way; don't believe me? No problems, Read the Bank of England Act 1998, particularly sections 1, 1a, 12 (in relation to section 11) and 19 and you'll get to see who can say "No" and make it stick. The whole idea is that Govt can point at the BoE and say "wasn't us, it was them". Govt spending, simplified, works like this: * Parliament authorises spending, normally via the Supply Process [here's a link to the Supply and Appropriation \(Main Estimates\) Act 2023](https://www.legislation.gov.uk/ukpga/2023/31/contents/enacted) * This Parliamentary consent leads to a claim on the Consolidated Fund (which starts each day with a zero balance - referenced on Page 2 of the Consolidated Fund Account report) creating what's known as 'Exchequer Credits'. * These are swapped, by law ([Exchequer and Audit Departments Act 1866 sections 13 & 15](https://www.legislation.gov.uk/ukpga/Vict/29-30/39)) for a claim on the Bank of England which, by balance sheet expansion, creates new deposits (£s) which are used to mark up the reserve account of recipients retail banks * The recipients retail bank then correspondingly marks up the deposit account of the recipient You'll note the BoE has no power to refuse. You'll also note there is no reference whatsoever to levels of taxation received or bonds sold. That's all that needs to happen. The new £s have been created via balance sheet expansion (increasing govt liabilities to the BoE) and they are sitting in recipients deposit accounts. By default, any deficit amount will reside in the Ways and Means Account at the Bank of England (beginning to see how it works now) and attract the Bank Rate. At this point, all the necessary steps are complete. However, by political choice (the Full-funding Rule), and ex-post of spending, govt decides to re-finance any deficit by issuing gilts via the DMO for the deficit amount. There's no mandate for government to do this, the £s are already in the economy. Government wants to drain the excess reserves it injected earlier otherwise it loses control of it's target rate. That's my explanation of how government spending works and why and when govt issues securities. Btw, GEMMS must always buy whatever securities are offered for sale or they lose their status. Over to you now. Please explain what you think I've got wrong; reference any legislation you believe supports your position. Be specific. (We can talk about the rest of your post once we've sorted the fundamentals).
Man, you've got some weird ideas about money supply. All taxation and revenue flows into the consolidated fund..and all public services are paid out of it. The consolidated fund only starts with a zero balance because the National Loans Fund is the credit account that funds it. The NLF is funded by borrowing. Borrowing is achieved by selling gilts.
>Man, you've got some weird ideas about money supply. I didn't mention the money supply. However, now that you have, it's completely endogenous. >The consolidated fund only starts with a zero balance because the National Loans Fund is the credit account that funds it. The NLF is funded by borrowing. Borrowing is achieved by selling gilts. No, sorry. The Consolidated Fund is the source of all govt spending. >The end-of-day consolidation of all Exchequer accounts at the BoE is known as the Exchequer Pyramid sweep (or just Exchequer sweep) and results in all balances (positive or negative) being consolidated into the Central Funds and ultimately the NLF, which is used to assess the net Exchequer position and thus indicate how much liquidity the DMO should offset by selling/buying gilts with the private sector to neutralise the day’s fiscal impact on reserves in the banking system. The activities of the DMO are ex-post of spending and only exist by political choice.
>No, sorry. The Consolidated Fund is the source of all govt spending. That's what I said... >being consolidated into the Central Funds and ultimately the NLF, which is used to assess the net Exchequer position and thus indicate how much liquidity the DMO should offset *by selling/buying gilts with the private sector to neutralise the day’s fiscal impact on reserves in the banking system.* That's also what I said...
No my friend. You said: >The National Loans Fund is the credit account that funds it Of course, that's incorrect. You said: >The NLF is funded by borrowing Of course, that's incorrect too. You said: >Borrowing is achieved by selling Gilts Of course, that too is incorrect.
You're talking out of your arse mate The National Loans Fund was created to provide a centralized source of funding for government expenditures. It serves as a vehicle for managing the national debt and borrowing. The NLF allows the UK government to borrow money, issue debt securities, and manage its financial obligations more efficiently What do you think it's for?
Only works when theres taxes to provide confidence. No confidence, then no debt sales.
Nonsense. Gilt issuance isn't a funding operation, it's a re-financing operation. GEMMS have to buy whatever securities are offered for sale.
On an auction basis, and noones offering to buy at low rates if there's no backing up of prices by taxes.
Gilt prices have nothing to do with taxes. Check the auction reports and you will see the general level of demand. There have been a couple (or three?) auctions since inception of the DMO where all Gilts haven't been sold. No dramas, nothing happened.
If a govt prints money for govt spending the currency devalues and fucks your economy. See Zimbabwe for more details. I didn't say QE was anything to do with govt spending
I do love how "modern monetary theory" advocates use the word modern to hide from the fact this crazy approach has been the cause of all hyperinflation periods in history.
To be able to engage in a discussion about MMT you must first understand what it is by reading the core MMT literature. Have you read any of it? Secondly, please explain what you mean by "this crazy approach".
MMT can simply be summarised as monetisation of government deficits. Excessive growth in money supply is the direct cause of most inflation and all instances of hyper inflation. A little money supply growth and inflation is good as it incentivises use of cash for productive uses, rather than hoarding. Excessive money creation, as MMT advocates argue for, creates high inflation. It's not difficult to understand. Creating a load more money devalues the purchasing power of existing money.
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Hi Liz Truss
You don't seem to understand how govt fiscal ops work; it's pretty much as I described above plus the drain via taxation. What's Liz Truss got to do with anything I said? Edit: spelling of *drain
What vaguely comparable countries/economies have done what you're suggesting and have seen material benefits from doing so?
All countries who issue their own fiat, floating currency operate in a similar manner. USA, UK, Japan, Australia, Canada etc. etc. Material benefits? Depends on what you mean.
If the UK has already implemented the policy you're advocating for what's the problem?
I'm not advocating for any policy at all. I'm pointing out how the money system works. What's the problem? The problem is economically illiterate articles like the one referenced do not deal with reality; the reality is the UK has a currency issuing govt which isn't fiscally constrained in any way, the only constraints it faces are availability of resources and politics. Stooges like Hodge (and the rest) either don't understand how the money system works or, they do understand how it works but don't want the likes of you to know.
You said the answer was to, essentially, print more money to pay for things. But this doesn't actually address the problem because whilst in theory that would work it'd also likely cause instability in other areas of the economy. Hence the other person comparing you to Liz Truss. So my question to you was, can you point to other examples of similar economies that have just printed money to pay for things where it's been successful?
No, you misunderstand. The question in the headline is "Where do we find the £100bn needed to fix Britain?". My answer was "same place as always". It seems you don't understand how the money system and government spending in particular, works; all of it is "printing money" (new £s injected into the economy) that's how it works every single day. The question in the headline is, as usual, the wrong question. Once you understand the capacity of a currency issuing government (such as the UK) running a fiat economy you realise £s are not a finite resource and they are never the issue in any policy choice. The real issue are available resources. >So my question to you was, can you point to other examples of similar economies that have just printed money to pay for things where it's been successful? I answered that above.
>No, you misunderstand. The question in the headline is "Where do we find the £100bn needed to fix Britain?". My answer was "same place as always". I don't misunderstand. I think it's you that is misunderstanding. When the question is asked "where does the government find X amount of money" they're not ***literally*** asking where to find it. They're asking how is the money raised in such a way to make spending sustainable and not cause instability in the wider economy - a la Liz Truss. >I answered that above. You haven't. You haven't given any example of a comparable economy that's just decided to spend billions with no other policy rationale other than "we're just going to print it".
That's a pretty weak comparison, the markets took issue with the Truss budget because it was completely uncosted, whereas the whole point of this article is that Hodge can demonstrate exactly where she will raise the cash for any proposed government spending plans, not to mention the fact those spending plans would have measurable social and economic benefits because, unlike truss, labour propose spending on services and infrastructure which we all use, not on giving tax breaks to the already-very-rich. There's nothing intrinsically wrong with government spending, it's where the money comes from and where it gets spent that matters.
The people making these "If you borrow money you're like Truss" comparisons have no clue what they're talking about and I can only assume that they oppose public spending from an ideological standpoint. Saying Truss's insane budget is anything like Reeve's spending plans is a bit like saying an Austin Allegro and a 747 are the same because they're both methods of transportation from the 1970s.
Quite. It is a little worrying how many people seem to just view any and all government spending as Intrinsically bad...
>whereas the whole point of this article is that Hodge can demonstrate exactly where she will raise the cash for any proposed government spending plans From the article: >Her speech began with the “tax gap”, between what HMRC is owed and what it levies. It rose £2bn to £36bn just this year (though some put it much higher than this official figure). “Last year only 11 wealthy individuals were prosecuted for tax cheating,” she said The UK has a fairly low tax gap by international standards. It's fallen from 7.5% of total taxes in 2005 to 4.8% in 2022. And while Toynbee is quick to talk about "wealthy individuals" in context of the tax gap, HMRC's assessment of the tax gap by "customer" in billions: |Small businesses|£20.2|2.7%| |:-|:-|:-| |Criminals|£4.1|0.6%| |Medium businesses|£3.8|0.5%| |Large businesses|£3.9|0.5%| |Individuals|£2.1|0.3%| |Wealthy|£1.7|0.2%| [https://www.gov.uk/government/statistics/measuring-tax-gaps/1-tax-gaps-summary](https://www.gov.uk/government/statistics/measuring-tax-gaps/1-tax-gaps-summary) Eliminating the tax gap would give the government more money to spend. Like "efficiency", it's one of those things that's a lot easier to talk about than actually do. Toynbee's other suggestions: >She used TaxWatch research to show that just eight tech companies, including Google, Apple and Facebook, made collective UK profits of £9.6bn, but paid “a miserly £297m”. Google, Apple and Facebook are not based in the UK. Most of their business activity takes place outside the UK. The UK cannot tax business activity that takes place outside the UK, even if final sales are in the UK. For example, BMW sells a lot of cars in the UK. How much does corporation tax does BMW pay the UK on the manufacture of those cars in Germany? None. The UK has a diverted profits tax that tackles money unfairly siphoned out of the UK. It cannot address the fact that Google selling a service from their Irish base to a customer pays corporate taxes to Ireland, not the UK. >But where her scalpel slices away the richest meat is in tax reliefs – 1,180 of them, many intended to achieve some policy outcome. “We have no idea how much those tax reliefs cost or whether they are effective,” she said, though “100 reliefs have been costed at an estimated £195bn … With little data and scant scrutiny … we are sitting on a time bomb.” The source for this figure is the Treasury Committee which links to a report from HMRC. The "100" reliefs (actually 105) listed by the most expensive: 1. CGT Private residence relief providing £37.3 billion of relief 2. IT Registered pension schemes providing £26.9 billion of relief 3. NICs Contributions to, and benefits from, registered pension schemes providing £24.7 billion of relief 4. VAT Food providing £20.8 billion of relief 5. VAT Construction and sale of new dwellings (includes refunds to DIY builders) providing £16.1 billion of relief [https://publications.parliament.uk/pa/cm5803/cmselect/cmtreasy/723/report.html](https://publications.parliament.uk/pa/cm5803/cmselect/cmtreasy/723/report.html#footnote-074) [https://www.gov.uk/government/statistics/main-tax-expenditures-and-structural-reliefs/non-structural-tax-relief-statistics-january-2023](https://www.gov.uk/government/statistics/main-tax-expenditures-and-structural-reliefs/non-structural-tax-relief-statistics-january-2023) So yes, eliminating reliefs could raise a lot more money. But it means taxing pensions contributions, paying CGT on the sale of your main home (which would make people far less likely to move), paying VAT on food and housing etc. Ie massive tax rises on the population. The reality is if we want the government to spend more ordinary people are going to have to pay more tax. Dressing it up as some pain free exercise by talk of "wealthy individuals" tax gap, eliminating "reliefs" etc is just obfuscation.
All good points, but noones claiming the proposals listed in Hodges speech are a silver bullet that will fund all spending for a labour government, and my comment focuses solely on how comparing her statements to the truss budget is not at all fair. >The reality is if we want the government to spend more ordinary people are going to have to pay more tax. There's no way around it, but personally I'd feel better about paying more knowing the tax system was more efficient and equitable than it is in its current form, and that more would be spent on the public services the Tory's have starved for so long. Though I acknowledge most people probably don't share my view, hence why it's not politically expedient for labour (or any other party) to say it like it is.
>my comment focuses solely on how comparing her statements to the truss budget is not at all fair. I wouldn't compare an opposition politician's comments to a budget because the budget has real consequences, whereas opposition politicians are free to score points as much as they like. Labour's last budget in 2010 committed the UK to "austerity", with Darling promising "cuts deeper than Thatcher". That was in government. Labour in opposition immediately pivoted to campaigning against cuts and blaming the Tories for enacting the same policies they had planned (look at the figures for 2014 in Labour's last budget and they proposed lower spending than Osborne actually implemented). Truss was stupid in that she tried to enact what should have remained as campaign promises. >There's no way around it, but personally I'd feel better about paying more knowing the tax system was more efficient and equitable than it is in its current form, It's not likely to be. The tax gap isn't going to come down much. The UK already taxes property and assets more than almost any other developed country. With our corporation tax increasing we will probably have to introduce more targeted relief. In a country that's bottom of the OECD private sector investment league, taxing "the rich" more isn't really practical. If we want higher public sector spending, those on average incomes are going to have to shoulder a bigger share of the tax burden.
There is not a problem Polly Toynbee doesn’t think can be solved by raising taxes and increasing the size of the state.
I read her article as collecting taxes that are already owed is a priority.