Borrowing figures: The Government have no economic competence left

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The Office for National Statistics has announced that “Public sector borrowing in December 2022 was £27.4 billion, the highest December figure since monthly records began in January 1993”.

Responding to the new, Liberal Democrat Treasury Spokesperson Sarah Olney MP said:

A toxic combination of Conservative incompetence and reckless decision making at the top of Government have blown a hole in the country’s finances, and now ministers are making British families pay for it.

A long-list of Conservative Chancellors have hiked taxes, added hundreds of pounds a month to mortgages and left the country with unnecessarily high borrowing costs. The British public will never trust the Conservative party again with the economy. This Conservative Government doesn’t have a shred of economic competence left after months of chaos.

* News Meerkat - keeping a look-out for Liberal Democrat news. Meerkat photo by Paul Walter

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  • Can we please not push the reflex response “raising taxes = bad!”. Taxes need to rise to repair public services and repair the economy. The ground for battle is which taxes should rise, not which party can repair the Tory damage whilst avoiding any tax rises.

    We need a proper assessment of what constitutes “a living wage” and to have that be the level at which income taxes start; a progressive income tax so anyone earning five or more times that living wage is paying over 50% income tax and anyone earning ten or more times is paying 75%; and to turn on the lights in the tax havens under UK jurisdiction so the £trillions (yes, £trillions, that’s not a typo) that has been hidden by the super-wealthy from tax gets confiscated or pays a penalty level of tax. Then we can start to talk about introducuing a graduated wealth tax.

    There is plenty of potential revenue to cover the country’s needs – we just need to construct a fair tax system to harvest it.

  • nigel hunter 24th Jan '23 - 12:02pm

    John Leach is correct.

  • Nonconformistradical 24th Jan '23 - 12:27pm

    “There is plenty of potential revenue to cover the country’s needs – we just need to construct a fair tax system to harvest it.”
    Absolutely. And that includes in some way fair contributions to cover social care – which, when the NHS was created, wasn’t a big issue given the short lifespan many retired people had.

  • Steve Trevethan 24th Jan '23 - 12:30pm

    Is our party doing anything to reduce/eliminate our fellow citizens’ lack of accurate information concerning the necessity of tax and the current misinformation peddled by H. M. G. and the mainstream media?

  • Simon McGrath 24th Jan '23 - 12:36pm

    Leaving aside the usual suspects who can always find a reason to tax people more, one of the reasons borrowing is going up is the enormous costs of energy subsidies -something our party has rightly supported and indeed called for more to be spent on.

  • If anything the figure might need to be higher before it goes lower. The Truss tax cuts were wrong but that was partly because they were aimed at the wealthy.

    I would like to see tax thresholds raised further for lower earners (or a 10p tax rate reintroduced) and a repeal of “sin taxes” e.g the sugar tax as well as a reduction in alcohol taxes to help pubs survive. For the rich, tax assets rather than incomes.

  • Lorenzo Cherin 24th Jan '23 - 1:45pm

    John Leach is both right and wrong. Progressive though tax ought to be, 75% is communism!

    We ought to tax all work and wealth at moderate levels. We now only tax those who are within a fair system, while others, legally avoid it or, ilegally, with huge wealth.

    Let’s tax everyone, moderately. That includes abolishing tax havens, non doms, all of it.

  • It’s clear to me that the tories have trashed their reputation for good economic governance but less clear that they’ve trashed the economy (Brexit excepted). Outside anyone refinancing during the 3 weeks the mini budget existed I can’t see where any significant damage to the economy has been done given sterling and gilts reverted to their pre mini budget levels.

  • Peter Martin 24th Jan '23 - 3:39pm

    We’ve made good progress in recent years in getting a better understanding of what Government debt actually is but it looks like we still have some work to do. There might be an inflation problem but there isn’t a debt problem any more than Barclay’s bank has a debt problem when customers want to make deposits.

    If the Government wants to dissuade anyone buying government bonds, and so saving their money, they should be lowering interest rates rather than increasing them!

    Sarah might want to ask herself the question, and maybe answer it too, of where money comes from in the first place before it is available to be “borrowed back” or collected in taxation.

    If she would like to send me an email I can arrange for her to have my slightly used copy of Stephanie Kelton’s excellent book “The Deficit Myth”

  • Steve Trevethan 24th Jan '23 - 4:57pm

    Here is another book which explains money creation and the necessity for a well understood tax system in a complex society such as ours.

  • Mick Taylor 24th Jan '23 - 5:58pm

    I don’t often agree with Peter Martin, but it really is about time that the Lib dems started to realise that the continued talk about a deficit merely shows ignorance of the true nature of government debt, because much of government debt is actually a deficit shown on the government’s account with the Bank of England, a bank owned by the government since nationalisation in the 1040s. In other words, it’s money we owe ourselves!
    Also, I must disagree strongly with Lorenzo Chevin. Communism is a state of government where there is a one party state and the means of production, distribution and exchange are owned by the state. When the UK was at its most prosperous and when Harold MacMillan won an election on the slogan ‘You’ve never had it so good, don’t let Labour spoil it’, income tax rates were significantly higher than they are now with a supertax rate in the high 90s% and basic rate was around 33% and that was under the Tories. Call it what you like but it wasn’t communism.

  • John Littler 24th Jan '23 - 7:09pm

    Government debt is a part of Keynesian Demand Management. So government spends more than it has, which drives the economy harder. The multiplier effect is about 3.5 times, where the money is spent over and over until saved or spent overseas. This drives tax revenues so you get an awful lot of it back.

    But even the genius liberal Keynes realised that you can have too much of a good thing. If the economy is at full employment ( a technical term), basically maxed out, extra debt spending would mainly create inflation. So there are times when the government debt should be paid down, mostly in better times. If Politicians never pay the debt down it will eventually hit the buffers.

    There’s also the attitude of speculators. They smelt something bad when Truss’s mini budget attempted to use borrowed money to cut taxes mainly for the rich and they withdrew funds, crashed the pound and the BoE had to step in with £60bn of QE to stop pension funds collapsing. It was a repeat of the Barber “Dash for growth” budget which also failed.

  • John Littler 24th Jan '23 - 7:10pm

    There was also a different kind of speculation that the mini budget was another means to depress the pound to enable currency traders to short sell it and make more millions, which worked for them, but we just don’t know if that was the intended effect.

    The present attempt to repeal hundreds of laws based into English Law during our membership of the EEC/EU would remove regulatory certainty to companies and international trading. This would also cause instability in various indexes and enable more shorting of the pound. It’s Disaster Capitalism in action, or very likely so.

  • One month’s borrowing figures is not of itself a trend. January’s borrowing should be much less with self-assessment receipts boosting the treasuries coffers. In the first nine months of the 2022/23 financial year the public sector actually borrowed less than OBR had initially forecast – at £128.1billion the total came in £2.7billion less than planned.
    The Treasury collected a total of £74.6billion in December 2022, of which £56.1billion came from taxation – an increase of £3.4 billion on December 2021. The income tax take grew by 9.7 per cent on the year.
    However, Government day-to-day expenditure rose by 20.8 per cent relative to last December to hit £91.2 billion this year – primarily driven by the cost of servicing public debt doubling.
    It is this interest element that is the cause of concern. Interest rates are influenced by both domestic and International factors. The UK has to be able to attract sufficient investment in sterling assets to finance its widening balance of payments gap. In normal times those rates need to be sufficient to cover inflation and/or any expected or actual sterling devaluation relative to the US Dollar and Euro.

  • Peter Martin 25th Jan '23 - 9:34am

    @ Joe,

    There isn’t a “balance of payments gap” and there cannot be if the pound is allowed to freely float. Money comes in and out of the currency, the pound sterling, in both our current and capital accounts and which have to balance, or sum to zero. Any tendency for imbalance will cause the pound to shift in value.

    We may want more money to come in on the capital account, and less to go out on both accounts, to raise the value of the currency. This will, at least in the short term, have a downward effect on inflation for everyone other than those who have substantial loans to repay. It can therefore make sense to raise interest rates to increase bond sales which are included in the capital account.

    It doesn’t make any sense to say that we have to do this. It’s a free choice to be made by any Government. If the Treasury wants money from the BoE it can get it any time it likes interest free, but the pound will probably fall in value as a consequence. Our exporters may see even this as a good thing! However the rest of us probably wouldn’t. Unlike many exporting nations we have a higher-the-better mentality on the pound’s Forex value.

  • Perhaps it’s not so much a lack of Government competence as doing the reverse of what they profess to want e.g. “levelling up”. The delay in dealing with NZ’s tax avoidance serves to emphasise where Tory priorities really lie: i.e. enriching themselves and remaining in office.
    Regarding Marco’s comment about repealing taxes on sugar and alcohol, while we are suffering high incidence of obesity, diabetes and cardio-vascular disease, that would be a costly mistake in terms of general health and potentially create further load on NHS services. There is a good case however, for harmonising relative tax rates charged to pubs and restaurants and retailers that would be particularly welcomed by the struggling hospitality trade.

  • Jenny Barnes 25th Jan '23 - 2:00pm

    ” Unlike many exporting nations we have a higher-the-better mentality on the pound’s Forex value”
    Maybe because we import energy, which is priced in USDs, and which feeds into everything we do.

  • Peter Martin 25th Jan '23 - 2:29pm

    Jenny Barnes,

    So do many other net exporters. Germany, Taiwan, Korea etc.

    We shouldn’t try to be another Germany and run a huge export surplus but we do need to think about how to better balance our trade. This will require us to have at least a policy on the exchange rate. Letting it rise too high was a big factor in the demise of British manufacturing in the 00s and this in turn was a factor in the Brexit vote of the “Red Wall” constituencies.

  • Nigel Jones 25th Jan '23 - 3:16pm

    Mick Taylor reminds us how much higher taxes were in the 1950s under Tory governments. Following the war that helped to improve people’s lives; so following recent hits (international banking crisis, Covid and Ukraine war) do we need a similar period of high taxes ? These need to be fairer than they are and ensure a fairer distribution of the benefits from consequential national improvements rather than relying simplistically on growth in the ‘economy’ which so often is just an overall statistical measure unrelated to many people’s lives.

  • Peter Martin 25th Jan '23 - 10:53pm

    @ John Littler,

    ” If the economy is at full employment ( a technical term), basically maxed out, extra debt spending would mainly create inflation………”

    What do you mean by extra “debt spending”. You need to factor the difference between what everyone in the private domestic sector might earn in the economy and what they spend. Sometimes this is negative but usually it’s about 1-2% of GDP which is their surplus. In addition the overseas sector is also in surplus to a higher figure of something like 5% of GDP – looking at it from their POV. This means that money is leaving the economy.

    Therefore, if the other two sectors are in surplus to the extent of something like 7% of GDP then the Government will be in deficit to the extent of 7% of GDP. This is the law of sectoral balances.

    If it tries to run a higher deficit then you’re right it could be inflationary. On the other hand if it aims to run a lower deficit as we saw happen in the coalition years we have a recession with lower government spending leading to lower taxation returns.

    Is this what you mean?

  • Peter Martin,

    Theoretically, the BOP should be zero but in practice, this is rarely the case. Thus, the BOP can tell the observer if a country has a deficit or a surplus and from which part of the economy the discrepancies are stemming.
    There are three main categories of the BOP. The current account is used to mark the inflow and outflow of goods and services into a country. The capital account is where all international capital transfers are recorded. In the financial account, international monetary flows related to investment in business, real estate, bonds, and stocks are documented.
    The current account should be balanced versus the combined capital and financial accounts, leaving the BOP at zero, but this rarely occurs. With fluctuating exchange rates, the change in the value of money can add to BOP discrepancies.
    When a country has a current account deficit that is financed by the capital account, the country is actually foregoing capital assets for more goods and services. If a country is borrowing money to fund its current account deficit, this would appear as an inflow of foreign capital in the BOP.
    A persistently high current account deficit leads to an increasing proportion of the country’s capital base and hence the income derived from those investments in overseas hands. Those annually increasing outflows of domestically generated income exacerbate the current account deficit year by year devaluing the currency and ultimately the standard of living of the domestic population over time. The impacts on standards of living are not evenly distributed. Rather, they are felt at lower income levels most severely in terns of squeezed wage levels and hollowed out public services.

  • William Francis 28th Jan '23 - 5:46pm

    Taxmongering won’t achieve liberal objectives. Nor will preaching MMT.

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