A socio-economic impert’s thoughts on the OBR’s report and the Autumn Statement

An impert is interested in a subject and tries to find out more about it. The writer aims to become a socio-economic impert because the writer considers it impossible, in reality, to separate “economics” from its inevitable social consequences.

The foundational OBR’s report is in error because it omits sectoral balances. Whenever a government has a debt, the non-government sectors of the domestic, the business and the foreign, must have a surplus. The valid question is the size of the difference between governmental expenditure and its tax gathering. Too much is harmful as is too little. Without this surplus of money, homes and businesses do not have enough money with which to function. As currently presented, “Balanced Books” are a disaster for regular people.

By extension, sectoral balances tell you where money has come from and where it goes, but not necessarily in that order!

Another hidden truth is that inflation is a year on year calculation. This year, pre-conflict inflation is used as the basis for this year’s conflict affected calculation and so is high. Next years will be based on conflict affected inflation figures and so is incredibly unlikely to be other than less.

The Autumn Statement does not differentiate between the causes of inflation. There are various internal and external causes. The current inflation has significant external causes, such as the Ukraine conflict and the opportunistic raising of prices by power companies. The latter are invalid profits because they are out of proportion to actual research and development, production and distribution costs. Again using the sectoral balance model, we  can see that these extractive “profits”  come not from worth or need, but from the exploitation of fellow human beings.

Alas, HMG seems to be presenting a classic/stereotypical general wage based inflation. Reality demonstrates that this is not so. Around 30% of families cannot afford to feed their children adequately and NHS workers are using food banks and some are being given sanitary equipment because they cannot afford to buy such. However the luxury car market is booming and prices are rising disproportionately.

As part of a well publicised campaign against a distorted inflation enemy, the Bank of England is raising the bank rate. Such removes money from borrowers, including mortgage holders and budding businesses. As HMG, in detailed reality, has the power to direct the Bank of England, this is policy must have governmental support, if not direction.

To whom does the money go?

It goes to the banking industry. Thus HMG accepts the extraction of money from regular people, some of whom cannot afford to properly feed, house and/or heat their families, to go to those who have not these health and welfare threats and dangers.

A valid policy is to make all inflation costs payable only to the public purse.

HMG also fails to mention that, at bottom, there are, despite camouflages, two types of money. One is debt money, as issued by commercial banks, and the other is debt-free money, which is issued directly into the economy by HMG, which just creates it.

When HMG puts too much money into society there is general inflation which we currently do not have. When HMG puts in too little, then infrastructures are weakened and start to die  and so society is deformed and becomes less and less productive, profitable, safe, secure and valid.

Why does HMG avoid differentiated inflation recognition, and its management through taxation, which is more precise, faster and puts the money raised into the public purse?




* Steve Trevathan is chairperson of Lyme Regis and Marshwood Vale Liberal Democrats.

Read more by or more about or .
This entry was posted in Op-eds.


  • Sectoral balances perform a similar function in government accounting to a cash flow statement, linking the government budget with the public sector balance sheet and public sector debt.
    In a growing economy the government should be increasing its borrowing to invest in housing and public infrastructure and meeting its day-to-day spending from tax receipts. The source of borrowing is domestic savings.
    In a declining economy government borrowing increases as tax receipts decline and expenditure is maintained. The source of borrowing is domestic and overseas savings.
    In an economy with a high level of imports relative to exports i.e. a persisent current account deficit), the deficit is financed by overseas borrowing and reliant on the attractiveness of investment in the UK to overseas investors.
    A growing economy can maintain deficit spending in perpetuity. A declining economy cannot without ever increasing interest rates that generate deflation. An economy with a persistent current account deficit is vulnerable to exchange rate depreciation and the associated inflation.
    The UK economy is in recession with a persistently high current account deficit and double-digit inflation. Inflation is a combination of domestic demand in excess of labour supply, domestic demand for imported energy/food and a decline in exchange rates against the US dollar.
    The macro-economic response should be an easing of immigration rules; Land Value Taxation of rents and mortgage interest income; import substitution of energy supplies via renewable energy sources and interest rates sufficient to attract overseas investment capital and comparable to those of the USA. Economic recovery will, in large part, be dictated by global conditions rather than by internal stimulus whether fiscal or monetary.

  • Peter Martin 24th Nov '22 - 7:20am

    It goes much deeper than the sectoral balances. The premises of the OBR are that a govt deficit is a bad thing and that governments have to raise money either from taxation or by borrowing.

    This ignores the question of where it comes from in the first place, before it is available to be ‘borrowed’ back or colllected in taxation. Answering the question doesn’t imply that we should just create extra money whenever we feel like it but it is a necessary step in correctly understanding how the economy works and why talk of black holes is largely nonsense except in an astrophysical context.

    Whatever Jeremy Hunt might say, his proposed fiscal squeeze only makes sense as a counterinflationary measure. If this is what he intends then he should say so.

  • Steve Trevethan 24th Nov '22 - 7:59am

    Thanks for the comments!
    Perhaps the piece has several indirect messages?
    1) In general, we thé citizenry, are Insufficiently knowledgeable of and too frightened of getting to grips with « Economics ».
    2) H.M.G is, too often, unclear to deceptive when using « Economics » as a reason/ excuse for what it does.
    3) 1 and 2 are sometimes just accepted/connived at by some of the mainstream media and some non-governmental politicians
    4) There is no excuse, « Economic » or otherwise, for basing an economy and/or society on the life wrecking « Economic » consequences of much of the governments’ policies
    P.. S. If you want an incisive view on Socio-Economics, please read Professor Richard Murphy in his « Tax Research U. K. » blog.

  • My reaction to Steve Trevehan is that money is, like economics, a human invention. The dollar is valuable if many people want to buy it. The same applies to the pound. So when trillions of roubles were being removed from the Soviet Union into private bank accounts then London was a good place to place money, at least until it could be put elsewhere. This would make the pound stronger and people living near London poorer, because some of the money would be used to buy up properties in London. This housing costs would be, and we’re, driven up.
    So the reality is that we need to control this type of money and perhaps find a way of separating it from the money in our pockets.

  • Steve Trevethan,

    You have provided a link to an article by Richard Murphy. He suggests that the government should create more money by spending it into the economy and so increase the deficit. He has also suggested that the Bank of England should lower the bank rate.

    The increase in interest rates following the 23rd September mini-budget has shown that the government can’t just increase the deficit without setting out how it will reduce the share of the national debt to GDP and this has to be evaluated by the OBR to provide confidence for the money markets.

    It is problematic for the Bank of England not to increase the bank rate when the US Fed is increasing their interest rates and so are other central banks. I agree that most of the UK inflation is not caused by internal factors but is being caused by international factors beyond the control of the UK economy and therefore increasing interest rates is not going to reduce inflationary pressures within the UK economy but will deflate our economy. If our interest rates don’t keep in line with international rates the value of the pound will fall and this is likely to increase inflation.

  • The increase in interest rates and inflation is reducing spending power in the economy and has driven us into recession. The government should be taking action to remove inflation from the economy by freezing the price of energy. It should also be providing the same level of energy bill payment support next year as this year. This should reduce inflation and by allowing households to spend next year as much as this year on non-energy items not deflate the economy so much, hopefully leading to a shallower recession which doesn’t last as long.

  • Steve Trevethan 24th Nov '22 - 2:27pm

    To whom is « The Deficit » payable and by when?

  • Tom Harney makes an important point regarding the impact of the influx of foreign capital to the UK on the housing market. The great bulk of household borrowing is for house purchases. The bulk of household savings are represented by contributions to Pension funds. The low interest rates prevalent since 2008 have seen momentous increases in the monetary value of both house prices and pension fund assets without a corresponding increase in household incomes or pension funds streams of investment income. The pension funds buy government debt at low yields while near zero interest rates and QE i(while it lasted) inflated the market value of those assets. Rising interest rates and quantitative tightening (QT) will have the opposite effect on the value of pension fund assets and the ability of pension funds to borrow foreign capital for investment in securities and government debt that service pension obligations.
    Inflation, interest rates and exchange rates are the corrective mechanisms that come into play when sectoral balances become out of kilter with the underlying fundamentals of economic growth and productivity leading to lower living standards across a broad swathe of the population. Stagflation is a difficult economic problem as Nouriel Roubini has been pointing out for some time stagflation and debt crisis

  • Peter Martin 25th Nov '22 - 6:56pm

    @ Tom

    The influx of capital money is simply the mirror image of the outflow of money due to our current account trade deficit. The two have to balance. Any tendency towards imbalance causes the pound to shift in value.

    If we want a lower capital inflow , one obvious measure is to lower the current account outflow. The other obvious measure is to introduce curbs on what capital inflows can be spent on.

  • Peter Martin 25th Nov '22 - 10:22pm

    “Stagflation is a difficult economic problem…..”

    It’s just about impossible the way everyone goes about it.

    If the price of energy rises due to a reduction in supply the price of nearly everything else will rise too. However, we still have to ask ourselves if this really is inflation. It certainly feels like it, but in principle it’s no different from when the price of fish rises due to supply problems caused by stormy weather preventing fishing boats from going out to sea. We don’t actually call that inflation.

    The impossible problem we have is that a rise in the price of energy sets of a class conflict just as we saw happen in the 70s. The workers don’t want to pay by having reduced real term wages and neither do their employers nor holders of capital who fret about the reduced purchasing power of that capital. We see strikes coupled to demands for higher pay on the one hand and the imposition of contractionary fiscal and monetary policies on the other.

  • According to the OBR forecasts, inflation will subside by 2024 and be negative by 2025 i.e. deflation. This is a somewhat different scenario from the 1970s where expectations of continuing high inflation drove a wage-price spiral reaching over 25% at its peak.
    As inflation subsides, recovery from recession can be supported by expansionary fiscal and monetary policy. What is important is that macroeconomic policy does not exacerbate inequality as QE did. Deflation can increase the real income of lower income earners if high levels of employment can be maintained. Wage rises at the lower levels of income are needed including in the public sector. The squeeze on disposable incomes of middle-income earners and private pensions can be mitigated to some extent by a brief period of deflation as we come out of recession in 2024-25 and allow for targeted fiscal stimulus at the right time.

Post a Comment

Lib Dem Voice welcomes comments from everyone but we ask you to be polite, to be on topic and to be who you say you are. You can read our comments policy in full here. Please respect it and all readers of the site.

To have your photo next to your comment please signup your email address with Gravatar.

Your email is never published. Required fields are marked *

Please complete the name of this site, Liberal Democrat ...?


Recent Comments

  • Ruth Bright
    I liked what Daisy Cooper did about the D-Day/Rishi controversy. Reading from her Grandpa's war diary was high risk because it is so easy to sound mawkish - but...
  • Jenny Barnes
    "Every member will have had many communications by now asking them to prioritise their efforts in a specific seat." No, I haven't had any, let alone many....
  • nvelope2003
    Whatever the reason for the move to the right in some states maybe the British have seen where this leads and will reverse the trend here. One can but hope....
  • expats
    The Conservative manifesto launch was far more like the funeral for an unpopular corpse than a christening... Little about past achievements much on 'future sna...
  • Alex Macfie
    @Simon R: Comments like these are populist right-wing tropes: "The liberal left has become a shill for a failed EU establishment…" ...