In Full: Ed Davey’s speech on the economy

Today, Ed Davey made a keynote speech on the economy.

He talked about his plans here:

Here is his speech in full:

For too long, Britain has not had the economy it deserves.

Under this Conservative Government, too many people can’t live a secure, happy and fulfilling life. Too many businesses face crippling uncertainty over their future. And too many of us feel vulnerable in the face of technological change.

The fact is, the Conservatives have made our economy weaker – much weaker.
People might be in work, but more and more struggle to make ends meet.
Businesses have been hit, with investment down significantly since the 2016 referendum.

Productivity has been grimly weak – with no growth at all in the last 12 months.
The Office of National Statistics confirmed only this week, that Britain’s economic growth in the last year has been the lowest for a decade.

And this Government has ignored all our long-term economic problems. We have alarming skill shortages. A persistent trade deficit. And inequality that’s both socially and economically damaging.

Yet so far, the debate in this election on our economy – on our future – has been a debate between fantasies.

Fantasies born of nostalgia for a British Imperial past. Competing with fantasies from a failed 1970s ideology.

Fantasies competing to bankrupt Britain.

Boris Johnson has snuck into Jeremy Corbyn’s allotment and stolen his magic money tree.

The British people deserve better than fantasy economics.

So my job today – as the Liberal Democrat candidate for Chancellor of the Exchequer – is to offer you a better option: our optimistic, practical vision for the future. And to expose the other two fantasies for what they are.

And their economic fantasies begin with Brexit. Brexit is not the answer to any of Britain’s economic challenges.

In fact, Brexit is precisely the wrong answer to all of Britain’s economic problems – and will make them all worse. A calm, honest analysis of how best to tackle every single economic problem facing Britain today, would conclude remaining in the European Union will help, not hinder.

Take trade. The world has entered a period of dangerous protectionism. Led by Trump’s trade war with China. And with a US Presidential election less than a year away, expect this US-China trade war to escalate.

Yet in Javid’s and Johnson’s fantasy Brexit world – it somehow makes sense, in response to growing global trade protectionism, to ditch Britain’s best trade agreement ever, with our closest and nearest economic partners.

To pull out of the many trade deals the EU already has around the world. People should be deeply troubled by this madness. It’s not global Britain, it’s little Britain. And just think about the practicalities and the costs, and making trade with 27 European countries more difficult.

The Government’s own figures show that filling in the customs forms at newly erected border controls will alone cost importers and exporters a massive £15 billion a year in red tape.

This will strangle business and cost people their jobs. This is regulation gone made. This will put back the war on red tape several decades.

The conclusion can only be this: the Conservatives are no longer the party of business, they are the party of red tape regulation.

And then we come to the fantasy economics of Corbyn and McDonnell. Led by re-nationalisation, and state theft of private savings. They say this will somehow boost business investment. It would be laughable, if it wasn’t so deeply dangerous.

And Lexit, Corbyn’s Labour Brexit, is at least 4 decades out-of-date. Before the UK joined the Common Market, we were the sick man of Europe.

Bizarrely, Labour has forgotten that the best way to take back control from global multinationals, from the tech giants, is a European-wide response.

With strong competition powers for Europe, which New Labour used to champion.

Instead Labour now dreams of costly new capital controls to defend Fortress Corbyn.

Fantasy Island may have been a great TV show – but it’s going to be a horror film.

Our great country must not become a fantasy island – whether it’s the 1870s Imperial fantasy of Jacob and Johnson or the 1970s socialist fantasy of Jeremy and John.
In rejecting Brexit, in wanting to build a brighter future, not return to a less than rosy past, Liberal Democrats have a detailed plan for a successful, sustainable economy.

The first part of our economy plan is clear and unequivocal: Stop Brexit.

Any economic plan that involves Brexit is a weaker plan than ours.

According to the respected Institute for Fiscal Studies, Brexit has already cost our national economy over £1 billion a week in lost output.

How can the parties of Brexit claim they would have money for schools – when Brexit would be costing the Exchequer billions into the future?

How would they afford any rise in public spending, when the government’s own analysis shows that our economy would be 6.7% poorer in the coming years, if Brexit were to happen?

By contrast, the Liberal Democrat public finance plan is backed by our commitment to stay in the European Union.

We calculate that the extra growth from staying in the EU would yield a Remain Bonus – a £50 billion Remain Bonus. For our investments in schools and our policies to tackle inequality.

Now I am today prepared to accept the criticism by the independent Institute for Fiscal Studies of our Remain Bonus. The IFS are probably right when they say that our £50 billion figure is “cautious” and “reasonable”.

That’s yet more evidence that the Liberal Democrats are now the only party of sound finance.

Just look at the contrast with the other two parties. The spending competition between the Brexit parties, the Labour and Conservative fantasists, has made Santa Claus seem like Scrooge.

So while the Conservatives may attack Labour on spending – the truth is both the old parties are now fiscally incontinent.

The hard economic fact is this: Brexit will hit growth – short term, medium term and long term. And that means a Tory or Labour Brexit will hit our public finances, our schools, police and NHS, now and in the future.

The second part of the Liberal Democrat economic plan focuses on climate change, and our environment.

For Brexit is far from the only big challenge of our time. The climate emergency has to be the urgent priority.

And our radical climate message is clear – we will decarbonise capitalism.

A Liberal Democrat Government will jump-start an economy-wide programme
to tackle the climate emergency.

And I can announce today that across a 5 year Parliament, Liberal Democrats would spend and invest an extra £100 billion of public finance on climate action and environmental preservation.

Now I must confess – I get excited about these climate economy plans.
Partly because I led stage 1 of Britain’s decarbonisation – when, thanks to Liberal Democrat Ministers, Britain’s renewable power more than trebled.

I’ve seen what we did in Government. And I know what we can do in Government again.

Liberal Democrats made Britain the world leader in offshore wind power.

Liberal Democrats encouraged Siemens to invest in Hull, to regenerate that city and bring new, well-paid green jobs.

And Liberal Democrat climate policies have seen coastal community after coastal community benefit from renewable electricity investments – from Grimsby to Lowestoft.

I want to build on that world-beating climate industry record.

A Liberal Democrat Government would intervene again to create the new industries and the new markets we need to tackle the climate emergency.

Our climate investment plan includes a new £10 billion Renewable Power Fund.

It alone would leverage in over £100 billion of extra private climate investment.

Not a new subsidy, but state climate finance, to fast-track clean power deployment and give a healthy profit to the taxpayer. Payback as we clean up.

This fund will confirm Britain as the world leader in offshore wind, and make
Britain the global number one in tidal power too.

From Swansea Bay Tidal Lagoon to a whole suite of tidal power stations round our coast. Creating another new climate industry.

And we will invest £15 billion more to make every building in the country greener, with an emergency ten-year programme to save energy, end fuel poverty and cut heating bills. Cutting the average household’s energy bill by a whopping £550 a year.

In Government before, the Liberal Democrats showed that an activist, well-designed climate policy could kick-start a new industry. With subsidies that then got competed away, in the green power auctions I Iegislated for as Secretary of State.

And in Government again, we will build on our great climate record. With floating offshore wind. With tidal power. With carbon capture and storage. And hydrogen technologies.

And we will regulate the City for climate.

From pension funds to banks, from the debt markets to the Stock Exchange.
Mandatory disclosure on fossil fuel investments, to expose investors to their
climate risks.

New laws to require a financial institution or large corporate to publish their multi-year strategy to move to net zero.

New accounting standards and laws, to write down climate damaging assets to a zero value by 2045.

Under Liberal Democrats, the UK can become the gold standard of climate capitalism for the world.

And our responsible reformed capitalism can be the key to the fastest possible decarbonisation.

Contrast Lib Dem climate economics, with Boris Johnson’s backfiring clean taxi boast. Made on the day that Elon Musk – thanks to Brexit – chose Germany over Britain for massive investment in clean transport.

Contrast Lib Dem climate capitalism, with Labour’s renationalisation of energy – set to cost billions, set to hit private investment and set to delay action. It’s hard to think of a more climate-damaging distraction.

So the third part of our Liberal Democrat economic plan: people. And opportunity.

The most important capital a country has, is its human capital. Yet we don’t even measure it. And when you don’t measure something, guess what happens? You undervalue it.

So we need economic metrics and economic policies that nurture and develop our country’s most precious capital.

That’s why Jo Swinson has been so right to lead the debate for a different approach to budgeting and planning our financial priorities – where Well-being economics matters for budget choices.

What does Well-Being budgeting mean? Well, go check out the early experiments in New Zealand – where investment in mental health services has gone up.

And then think what a Well-Being approach to human capital would mean for investment in education and training.

I can confirm today, that investment in infants, children, young people and adults – their education, their training, their wellbeing – this would be the top day-to-day spending priority for the Liberal Democrats.

A Liberal Democrat government will invest in our country’s human capital, by an extra £120 billion, in capital and revenue, over a 5 year Parliament.

From childcare to colleges, from primary schools to lifelong education – this will represent a step change in life chances for all people, everywhere in our country.

This is a huge investment – but it is fully costed. And paid for.

Using the Liberal Democrat Remain Bonus. And using receipts from our corporation and capital gains tax policies.

And when we publish our manifesto costings, this will all be fully set out.

For unlike the proponents of fantasy economics, we will publish our manifesto costings.

That’s what voters deserve. And what the business community should expect.

Which brings me to the fourth part of the Liberal Democrats’ economic plan.

Business.

Our country is blessed by tens of thousands of brilliant businesses. It’s time we celebrated the contribution business makes to our economy and society – jobs, incomes, prosperity.

Yes we want business to be responsible – and when it comes to looking after employees and the environment, we need laws to ensure responsible businesses aren’t undercut.

But most businesses today are responsible.

And that’s why my message to British business today is this: Liberal Democrats are now the party of business. And we will be the Government of Business.

Not just because we would stop Brexit – the central demand of so many business people up and down the country.

But in our economic plan, we want to back business – with tax reform. With digital networks. With strong competition policy.

So we will replace the analogue tax of business rates that is hitting our high streets, with a Commercial Landowner’s Levy that will revitalise communities spur on development, and cut tax for so many struggling high street retailers.

And we won’t just invest significant new capital into broadband but we will also intervene to change the regulatory approach.

Under us, unlike the Tories, UK PLC won’t waste so much money in duplication and triplication of digital infrastructure in our richer, urban areas – whilst leaving untouched poorer communities and rural areas.

And unlike Labour, we won’t put Big Brother in charge of your digital broadband. Lib Dems won’t waste your taxes and scare of private investment with a nonsense return back to state-owned telecoms – where long delays and low quality were the order of the day.

Our approach to 5G and beyond isn’t just as ambitious as the other parties. It’s also far more practical and cost-effective than our political competitors.

And our competition policy will be tougher and stronger too.

As the Minister for Competition for 2 years, I established the policy which saw the last major reform of Britain’s competition law and authorities.

But in Government, I didn’t get my way on everything.

David Cameron stopped me reforming anti-trust law. I wanted to change our system so it became more akin to that in the US and that in Germany – where businesses and executives who conspire, who form cartels, end up in court.

It’s called the Prosecutorial model.

And the main beneficiaries from this approach? Smaller firms. Entrepreneurs. Innovators. Businesses who currently lose out so much because the big corporates exploit their market power.

And for business, beyond tax, digital and competition, we will renew and embolden a new industrial strategy linked to our regional prosperity strategy.

Lib Dems will say to business, loud and clear:

if you invest in the UK’s nations, regions and communities that have been left behind. If you create the jobs we need and treat your employees and the environment responsibly, we will get behind you.

So we will regionalise the British Business Bank – so it backs enterprise in the places where it’s needed the most in the regions.

We will re-boot the Regional Growth Fund that Vince Cable developed so successfully as Business Minister.

And we will rebalance our economy – not least with a low carbon energy and transport revolution focused in the Midlands and the North.

So to part 5 of our economy plan. Infrastructure.

Liberal Democrats will invest big in infrastructure. Later in this campaign, we will publish full details of our infrastructure plans – for transport, for energy, for digital, for housing, for the regions.

But here in Leeds today I can announce we will invest in plans for a public transport revolution across this great northern city. Leeds is the largest city in Western Europe without a mass transit network. Under Liberal Democrats, we will build one.

And I can also tell you today that on top of our climate change, environment and transport capital spending, we will invest £45 billion of capital in community development, taking our total infrastructure portfolio to £130 billion over a five year parliament.

This includes an extra £7 billion for school and college buildings – both to repair them from the terrible neglect of the Conservatives and to build new ones.

Plus we have allocated an extra £10 billion for investment in hospitals, to ensure our NHS can provide the best care possible.

And let me put that investment in context. This would be a level of infrastructure investment not seen in many, many years.

And compared to Conservative plans, it would be an additional annual average of £6 billion.

But here’s the challenge – for any party’s infrastructure investment plans: can they be delivered?

Because to deliver them you need the people. You need the skills. You need the plans, the permissions and the projects.

We believe only our infrastructure plans are truly deliverable. For two reasons.

Firstly, our plan is “back-loaded” – so we would ramp up over 5 years.

Second, under a Liberal Democrat government we will be in the European Union. Able to enjoy the benefits of freedom of movement, ensuring we have access to skills, that are in short supply in the UK. Able to enjoy the benefits of cost effective frictionless trade. Able to access cash from the European Investment Bank.

But let’s focus on the people you need for infrastructure projects.

Everyone knows our economy benefits from free movement of labour. But that’s doubly so when it comes to the construction industry. Across the UK, big infrastructure projects have depended on skilled European workers, working side-by-side with skilled British workers.

Take free movement of labour away. Depreciate the pound even more with Brexit. So you make the UK a less attractive place to work. And our construction industry gets hit.

And that’s one reason why both the Conservative and Labour infrastructure plans just don’t add up.

Unless there are significant numbers of European workers involved, it is once again pure fantasy to believe the Conservatives could spend the £100 billion they promise – let alone Labour’s £400 billion illusion.

Which brings me to the final point in the Lib Dem economic plan – our fiscal rules.

To be the party of fiscal responsibility – whilst making significant investment in the climate, in schools and in our NHS – it’s not enough to produce the costed manifesto which we will.

You have to restore credibility to the United Kingdom’s fiscal rules. Over the last 3 decades, the one common feature of the fiscal rules set by Chancellors is – they’ve all been broken.

We’ve desperately needed a deeper, more intelligent review of fiscal rules – and this has just been done – brilliantly – by the Resolution Foundation.

They have put forward new analysis and new ideas for a fresh set of rules. And Liberal Democrats have embraced their thinking.

And arguably their most relevant fiscal rule for this election’s economy debate is the rule about current spending.

How you ensure that your day-to-day spending on things like salaries and benefits, is covered by your revenue, primarily tax receipts.

The Resolution Foundation have proposed a new fiscal rule for day-to-day spending – that a Government should target a structural surplus in current spending equal to 1% of national income over a Parliament.

And their rule retains sensible flexibility, allowing spending up to minus 1% of national income – if there’s a downturn and forecasts turn out wide of the mark.

Liberal Democrats will adopt that fiscal rule – and our spending plans meet it, with current account surpluses in every year of our five year costings.

We embrace fiscal responsibility.

The others opt for fiscal risk.

The Conservatives are targeting only to balance the current account – and then in three years.

Plus, their target has no flexibility at all. Given Brexit will blow this new Tory fiscal rule away in months, that’s even more reckless.

So if Boris Johnson so much as promises a tax cut, you know you can’t trust him.
And Labour? Well, they are promising to get to current account balance in 5 years’ time. Or, in plain language, Labour’s on the never, never.

You may not be aware, but there was supposed to be a debate this Sunday – a Chancellors’ debate.

When the 2 fantasists could have competed with a realist.

But it looks like Sajid Javid is running scared of debating the economy with me.

As he refused to take part in that Chancellors’ debate.

So today I have two challenges for Sajid Javid.

First, stop running from reality and let the voters decide what is more credible: the fantasy economics of Brexit, or the brighter future on offer by the Liberal Democrats.

Come and debate me.

Second, agree to have all our election spending pledges, indeed our whole manifestos, independently costed by the Office for Budget Responsibility.

It’s clear the Conservatives aren’t keen. By pulling the Budget on 6th November, the Conservatives acted to prevent the nation’s fiscal watchdog, the Office for Budget Responsibility, from providing the voters with up-to-date and independent economic and fiscal facts.

So this is the new political economy.

Liberal Democrats as the party of fiscal rectitude.

Versus the Tories and Labour as the parties of fiscal incontinence.

Fact versus fantasy.

So we will continue to set out the Liberal Democrat fact-based priorities for our vision for Britain’s economy.

Priority one, stop Brexit. Ensure access to the single market and within the customs union – and stay cushioned from the American-Chinese trade wars. Invest the £50 billion Remain Bonus in schools and tackling inequality.

Priority two, the planet. Decarbonising capitalism and investing £100 billion in low carbon infrastructure and the environment.

Priority three, people. Transforming our skills, well-being and life chances, as never before.

Priority four, business. Responsible businesses that are supported with tax reform and superfast broadband, as well as an industrial and regional strategy that reaches country-wide.

And priority five: investment in infrastructure, not seen in far too long.
So the bottom line is this: if you really want credible, sensible, sustainable public spending plans, vote for a party that won’t damage our economy with Brexit.

Vote for a party that won’t hike up borrowing just to pay for ideology and Brexit.

Vote for a party that won’t waste billions preparing for leaving the EU, and £33 billion just on divorce costs.

If you want a greener, fairer, brighter future, vote for the Liberal Democrats.

* Caron Lindsay is Editor of Liberal Democrat Voice and blogs at Caron's Musings

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43 Comments

  • Colin Paine 15th Nov '19 - 4:46pm

    Very rare to agree with every word of a speech, brilliant stuff from Ed. Let’s hope he does get the chance to debate Mcdonnel and Javid!

  • Peter Martin 15th Nov '19 - 5:22pm

    “Liberal Democrats will adopt that fiscal rule – and our spending plans meet it, with current account surpluses in every year of our five year costings.”

    Sounds like you’ve become the Neoliberal Democrats!

    “We embrace fiscal responsibility.”

    Nonsense. A govt surplus takes money out of the economy. Our trading partners are taking more out of our economy when they don’t spend all they earn. The net result will be a severe recession as the money flows out but not back in.

    Fiscal responsibility is fining tuning the economy to strike a sensible balance between inflation and recession.

  • David Allen 15th Nov '19 - 5:33pm

    We have previously claimed that the “Remain Bonus” is £50bn. That seems disappointingly small. It’s only something like 6% of a single year’s tax receipts, and it isn’t very different from the “divorce bill”.

    Now Ed Davey has come up with figures like £1bn per week as the overall cost of Brexit, and £15bn per year as the cost of form-filling to the import-export industry. These are much higher figures – which intuitively sound more in line with the major economic dislocation which most pundits predict.

    Davey’s figures do look a good deal more authoritative than Tory and Labour figures. Could we do even better, if we had a clearer explanation of the discrepancies? Thus for example, is the “Remain Bonus” actually only a fairly small part of the overall impact, that which relates to tax receipts? Whereas the greater impact will be felt by private firms and individuals?

  • @David Allen, what needs to be understood, is that “Brexit Bonus” isn’t some extra.money, that UK gains if it doesn’t leave EU. It is money, that already exists in the UK economy, but.which.would be lost if UK left EU.

    OK, so Lib Dems are actually suggesting, is that instead of burning that money, they.would rather tax it from businesses and people, and use it to public services.

    However, even though the estimate of the money that would be burned in the case of Brexit (and it is always just an estimate, there are other factors that affect the economy than Brexit, as well) turns out to be too modest, that all the benefit of staying in the EU needs to be drained from businesses and people. Businesses need money to make new (carbon free) investments, and to pay salary for their employees. People need money to put bread on the table. If Brexit happens, many of these businesses will fall, and many of the people lose their jobs. If the Brexit doesn’t happen, all this benefit isn’t something “extra”, which could be happily spent to new things, it is just things not getting worse.

    It just isn’t obvious, because the promises of both Labour and the Conservatives are firmly detached from the reality.

  • Steve Trevethan 16th Nov '19 - 8:54am

    Policy on tax havens and lack of appropriate tax payments by “international” corporations?
    Effective regulation of the banks and other facets of the financial industry?
    Reductions of UK internal costs such as housing?

  • Sorry but this sounds spookily like the old orangista austerity agenda rather than the more traditional social liberal Keynesian agenda.

  • “It just isn’t obvious, because the promises of both Labour and the Conservatives are firmly detached from the reality.”

    This is only the case if you accept the – now discredited – idea that government spending is analogous to household spending (the myth of the Swabian housewife).

  • nvelope2003 16th Nov '19 - 4:42pm

    Katerina Porter: No railway lines belong to foreign states. Network Rail is wholly owned by the British Government but you are right in saying it is investing more money, probably because more people are using railways since private companies began operating the actual trains, although since the RMT began its campaign of strikes services have deteriorated, mainly because the British Government has forced the private operators to introduce controversial changes to working practices.

    Prisons and probation services should not have been privatised.
    It seems that foreign companies are ok as long as they are American owned like Starbucks. I guess drinking expensive coffee is more popular than travelling by train.

  • Paul Pettinger 16th Nov '19 - 5:38pm

    “Liberal Democrats will adopt that fiscal rule – and our spending plans meet it, with current account surpluses in every year of our five year costings.”

    This is a betrayal of liberal economics and an unhelpful invitation for Lab to attack us over the disaster of austerity. Madness

  • Innocent Bystander 16th Nov '19 - 6:19pm

    @Paul,
    Don’t worry, there is not the faintest chance, or sign, of any such turnaround at all. This economy is taking no steps to achieve any sort of surplus, ever. No amount of austerity or Keynes can cure the disease we have.
    The actions all parties are proposing can not be described as clutching at straws. More like grabbing at grains of pollen and praying for a miracle.

  • Peter Martin 17th Nov '19 - 8:39am

    @ Innocent Bystander

    “This economy is taking no steps to achieve any sort of surplus, ever.”

    For once, you’ve said something that sort of makes sense. You’re right that there won’t likely be a Govt surplus any time soon. Or even a much reduced deficit. If the government raises taxes or cuts back spending, the economy will slow and so will Govt income. The deficit won’t change. As previously said the Govt’s income is highly dependent on its spending. In the limit of no spending there would be no income.

    I say “sort of” because the economy itself does what it does. It doesn’t take steps. Also if the Government is in deficit then everyone else, penny for penny, has to be in surplus. In other words, someone will be in surplus.

  • Peter Martin 17th Nov '19 - 8:53am

    @ Paul @ Joseph,

    Paul is quite right. The adoption of these arbitrary fiscal rules is a sure sign of neoliberally inclined austerity economics. The Labour Party aren’t totally free of this themselves,but whoever advocates a commitment to always run a surplus, however you dress it up a current vs capital spending, is also advocating austerity/neoliberal economics.

    There would possibly be some justification if we were, like Germany, a significant net exporter and there was an influx of export money into the country which had to be taxed away to prevent inflation. But there isn’t! We all know that.

    Making this kind of pronouncement about what the Govt sector should be doing without any reference to what the other sectors either are, or should be, doing is indeed madness. Either that or economic illiteracy! The very slim possibility of the introduction of a LVT doesn’t change that in the slightest.

  • Innocent Bystander 17th Nov '19 - 9:25am

    @Peter
    “For once, you’ve said something that sort of makes sense. ”

    Thank you. Now perhaps you’ll follow my lead and try it out yourself.

  • Innocent Bystander 17th Nov '19 - 3:21pm

    Steve,
    I am sure the nationalisation agenda works with the younger generation but we fossils were there and know what it was really like. I too, resent the profits made by private owners from our utilities. But I remember the nationalised predecessors. The privateers have, at least brought, proper procedures, work ethic and customer focus. I remember British Rail. Their motto (unofficial of course) was “We could run a decent rail service if it wasn’t for the passengers”.
    I knew someone who worked in customer complaints at the GPO. They revelled in their stock of offensive replies they had for anyone who dared to complain. She said their favourite was in reply to a customer who moaned about having a party line. They sent a reply saying that if the customer didn’t want a party line they would disconnect them altogether! My, how they laughed!
    The only reason the East Coast rail went well was because they were still operating the systems installed by the private company before them.
    If they had been given a few years they would soon have turned it into the charity for the employees that all nationalised industries became.

  • nvelope2003 17th Nov '19 - 3:34pm

    Innocent Bystander: I can confirm that BR employees used the phrase about providing a decent service if it was not for the passengers and they also included the parcels and mail customers and freight users. It was a dreadful outfit. But hey ho the kids know best.

  • At the very least, the privatization of prisons and probation must be reversed completely and totally. For utilities like electricity and telecommunication, I would prefer establishing public entities that would take part in and bid in those sectors while keeping private competition, rather than renationalization. However, private competition must be true private competition, not competition from foreign SOEs.

  • Paul Pettinger 17th Nov '19 - 5:58pm

    @Joseph Bourke, you’ve followed closely what the Resolution Foundation have said, but not Ed Davey, who is advocating an even more fiscally conservative approach (aspiring to run a current account balance of + or – 1% over five years, vs having a surplus of 1% every year). Fiscal conservative fundamentalism is the medical equivalent of a GP who only ever prescribes their patients anti-biotics.

  • Peter Martin 17th Nov '19 - 8:33pm

    @ Paul Pettinger,

    “Fiscal conservative fundamentalism is the medical equivalent of a GP who only ever prescribes their patients anti-biotics.”

    You’re far too polite. It’s more like an early 19th century GP who only ever prescribes blood letting. The ideas aren’t that dissimilar. The idea then was that the body required less blood to help it overcome illness.

    Running a govt surplus means the government removes money from the economy. Supposedly to help it grow! And how does that work?

  • Joseph Bourke 18th Nov '19 - 1:10am

    Paul Pettinger,

    Ed Davey in his speech has said:
    ” I can announce today that across a 5 year Parliament, Liberal Democrats would spend and invest an extra £100 billion of public finance on climate action and environmental preservation.”
    “…we will invest £15 billion more to make every building in the country greener, with an emergency ten-year programme to save energy, end fuel poverty and cut heating bills.”
    “I can confirm today, that investment in infants, children, young people and adults – their education, their training, their wellbeing – this would be the top day-to-day spending priority for the Liberal Democrats.
    “A Liberal Democrat government will invest in our country’s human capital, by an extra £120 billion, in capital and revenue, over a 5 year Parliament.From childcare to colleges, from primary schools to lifelong education – this will represent a step change in life chances for all people, everywhere in our country.”
    Liberal Democrats will invest big in infrastructure. …on top of our climate change, environment and transport capital spending, we will invest £45 billion of capital in community development, taking our total infrastructure portfolio to £130 billion over a five year parliament.
    This includes an extra £7 billion for school and college buildings – both to repair them from the terrible neglect of the Conservatives and to build new ones.
    Plus we have allocated an extra £10 billion for investment in hospitals, to ensure our NHS can provide the best care possible.
    And let me put that investment in context. This would be a level of infrastructure investment not seen in many, many years.
    “The Resolution Foundation have proposed a new fiscal rule for day-to-day spending – that a Government should target a structural surplus in current spending equal to 1% of national income over a Parliament.
    And their rule retains sensible flexibility, allowing spending up to minus 1% of national income – if there’s a downturn and forecasts turn out wide of the mark.
    Liberal Democrats will adopt that fiscal rule – and our spending plans meet it, with current account surpluses in every year of our five year costings.”

  • Peter Martin 18th Nov '19 - 7:34am

    @ Joe,

    “their rule retains sensible flexibility, allowing spending up to minus 1% of national income – if there’s a downturn “

    What evidence is there that minus 1% will be enough? Previous experience has shown that much larger deficits have been necessary to kick start the economy during previous downturns.

    “our spending plans meet it (the fiscal rule), with current account surpluses in every year of our five year costings.”

    Your costings determine what you are prepared to spend which is fair enough. But they don’t determine what govt income will be. You can’t assume that will be constant, but that seems to be what you’ve done. If everyone else is freely spending your income will be higher. If everyone else is cutting back, they’ll be spending less and your income will fall. Government can’t easily control what everyone else wants to do. However, in that situation, the government will have to cut back its spending too, to try to maintain the “fiscal rule”.

    That, in turn, will mean the economy will slow even more. Government revenue will again fall and to maintain the “fiscal rule”……..

  • Peter Martin 18th Nov '19 - 8:01am

    @ frankie,

    I meant to reply to your earlier claim (I forget which thread it was on now) that countries like Argentina, Russia, Mexico and Iceland had gone bankrupt. As far as I know they are still alive and kicking. Iceland for one is doing OK.

    If Iceland (the supermarket) had gone bankrupt like , say, Woolworth it wouldn’t be around any longer. That’s what going bankrupt means. This isn’t to say that these countries have made economic mistakes, mainly by borrowing too much in a foreign currency, but they aren’t bankrupt.

  • nvelope2003 18th Nov '19 - 5:16pm

    Steve Trevethan: In the 1950s and 60s British Railways was divided into Regions similar to the Big Four private railway companies that existed befor 1st January 1948, There was some “rationalisation” but the previous competing routes mostly remained until 1964 when further “rationalisation” took place such as the destruction of Southern Region Express services from Waterloo to the West of England which competed with those from Paddington to Plymouth etc which involved the singling of the Southern line from Waterloo between Salisbury and Exeter and the removal of miles of recently laid high speed track, which cost millions of pounds in today’s money and relaying it on the Paddington route which at the time was comparatively slower and did not pass through any important places so they could claim it was quicker as they did not need to stop. Fortunately the old Southern route survived despite the damage and is doing well but at a tremedous cost at the time because of political and personality issues. Almost all the branch lines were closed .
    I understand that the start of the new trains purchased by the South Western Railway at the instigation of the Government despite the previous operator having only recently acquired new trains has had to be delayed due to problems with the driver operated doors which are required by the Government. However, the strikes planned for next month when the trains were due to start in service will still go ahead. The South Western is now run by the owners of the Great Western at the insistence of the Government. I guess they like making the same mistake twice. Government control has been such a wonderful thing !

  • Peter Martin 18th Nov '19 - 9:18pm

    @ Joseph,

    Ed Davey, in common with many other neoliberals are fond of phrases like:

    “Fantasies competing to bankrupt Britain.”

    People go bankrupt all the time. Companies do, too. But sovereign countries? Even small ones like Iceland? No. Not really providing they understand the power they have as a currency issuer. There was a lot of nonsense talked about Iceland having to abandon the krone and move to some other currency like the euro at the worse point in their crisis. That was the worse thing they could have done. They’d have made the same mistake as Greece and become entrapped with a total reliance on someone else’s currency.

    Yes, the Icelandic government made mistakes, primarily over borrowing in someone else’s currency, and, yes, there was a financial crisis, but they were’t bankrupt as a country, even though nearly all of their banks were.

    http://bilbo.economicoutlook.net/blog/?p=18609

  • Peter Martin 18th Nov '19 - 9:37pm

    @ Joseph,

    Ed Davey’s speech is neoliberal nonsense and you know it. He is making exactly the same mistakes as were made by the coalition government in 2010 when they panicked about the size of the deficit. They raised taxes in a deflationary manner when they should have been lowering them. The USA couldn’t recover from the 2008 GFC and stick to the kind of fiscal rules you mention. ie “current spending budget of +/- 1% of GDP and a capital spending or borrowing budget of circa 4%/3% of GDP”. Their fiscal position was nowhere near.

    The EU was into “fiscal rules”. Big time. The result? A very patchy recovery, if there was any recovery at all, from the GFC. The recovery in the USA, which was where the GFC started, was much smoother. Thanks to having no rules! And why should they? Why should we in the UK? Let’s just go with what we see works and reject what we see doesn’t work.

  • Peter,

    An idiots guide to what happens if you try your solution

    As Bad Loans Explode in Turkey, Government Tries to Recreate Debt-Fueled Boom that Led to its Financial & Currency Crisis

    https://wolfstreet.com/2019/11/17/as-bad-loans-explode-in-turkey-government-tries-to-recreate-debt-fueled-boom-that-let-to-its-financial-currency-crisis/

    Now we shall keep an eye on Turkey Peter and see how it goes. I’d keep an eye on the UK but with the Tories likely to be back in power well we know after all the promises they ain’t going to try printing they’ll try austerity and you will have the Brexit you voted for.

  • Joseph Bourke 19th Nov '19 - 12:01am

    Peter Martin,

    it is worth reading this Resolution foundation article https://www.resolutionfoundation.org/publications/rewriting-the-rules/ It concludes:

    …Britain is currently operating without any fiscal framework and history teaches us that doing so can be very costly in terms of the deficit bias inherent in democratic politics. The next generation of rules needs to be fit for the challenges and opportunities facing 21st century Britain.
    …parties have rightly opted for rules which require tax revenues to cover day-to-day spending…we’re almost certainly nearer the next recession than the last. On that note, neither fiscal framework does enough to build in current budget headroom that ensures fiscal policy can sustainably do more to support the economy in downturns in the years ahead.
    …parties have also chosen rules that allow the government to take advantage of historically low interest rates to borrow for investment. These new approaches are welcome, given the need for such spending on priorities from housing to tackling climate change…parties have moved away from the too-narrow focus on debt, to a welcome limit on the actual costs of that debt.
    … it is important to learn from the tendency to run fiscal policy too close to the wire, which has limited the shelf life of past fiscal frameworks. Building flexibility into the rules – in the form of target ranges for the current balance and time-limited escape clauses – is crucial to allowing fiscal policy to play an active role in stabilising the economy without undermining the rules themselves.
    Fiscal rules …are important for government’s running of our public finances, and for having a sense of where we are heading as a country.
    …the country is mainly heading for much higher investment spending – and higher borrowing as a result. This is necessary, but not sufficient – we also need a much more serious debate about ensuring it’s spent on the right priorities and in the right ways. That is the task whoever wins the coming election.

  • Peter Martin 19th Nov '19 - 6:28am

    @ Joseph,

    The Rowntree foundation was established by a billionaire businessman and is currently run by an ex-Tory MP so we shouldn’t consider them an unbiased source of information. Of course, what they are saying all sounds superficially plausible. Just like you and I have to tailor our spending to suit our income and apply our own personal rules, then so should government.

    Let’s suppose, just for the sake of example, that the UK and/or the USA were to adopt the eurozone’s rule that Governmnet deficits shouldn’t exceed 3% of GDP. It really doesn’t matter in the slightest how you want to slice that up into capital and current spending. If there’s one good thing to be said about that rule, it’s that the EU doesn’t make the distinction.

    And it all sounds quite reasonable in a microeconomic context. But what does it mean in a macroeconomic context? If the Govt is N% of GDP is deficit then everyone else is N% in surplus. This works penny for penny. Therefore, if the Government is ‘borrowing’ 1.23456789% of GDP then everyone else, including our overseas trading partners is saving 1.23456789% of GDP. If we are saying that under no circumstances will Govt ‘borrow’ more than 3% of GDP we are also saying that we won’t allow everyone else to save more than 3% of GDP.

    You’re supposed to be Liberals! You can’t dictate to everyone else what they should and shouldn’t save. It’s not that easy anyway. You can reduce interest rates to almost zero. That works to some extent. You can depress the living standards of everyone so they can’t afford to save and that works to some extent too but is this really how you want to run your economy?

    There is one fiscal rule we can all agree on and that is Government shouldn’t overdo its fiscal ability to spend and create too much inflation. That’s the only fiscal rule with any rational justification. I always say that but it doesn’t stop some half-wit always popping up and mentioning Venezuela or Turkey! Yes indeed, they have probably broken the only fiscal rule that matters!

  • Peter Martin 19th Nov '19 - 8:43am

    Sorry that should be the Resolution Foundation. Not the Rowntree foundation. They employ quite a few economists but I doubt that any of them would be of anything like a heterodox persuasion.

  • Joseph Bourke – you cannot really draw a clear line between capital spending and normal spending, because, say, capital equipment/structures… will require operational expenses (like staff costs for example) to function properly, and for maintenance as well. A far more flexible approach is to scrap balanced budget goal and instead managing debt-to-GDP ratio and interest payment expenses, which is currently being done in Canada.

  • Joseph Bourke 19th Nov '19 - 2:05pm

    Thomas,

    the difference with capital spending is you have more discretion around timing of borrowing and expenditure.
    Current spending on essential public services has to be maintained at a minimum level even if the rate of spending increases only in line with inflation.
    Balancing current spending over the economic cycle keeps inflation at relatively moderate levels and avoids the need for rapid and disruptive increases in interest rates to keep consumer price or asset price inflation in check.
    Balancing current spending is not a balanced budget goal. There will always be a budget deficit where capital spending exceeds depreciation of public assets included in the current spending budget.
    I would agree that managing debt-to-GDP ratio and interest payment expenses are the appropriate measures.
    Currently UK debt interest costs are around £40 billion (excluding payments to the BofE) https://fullfact.org/economy/does-government-spend-50-billion-debt-interest-payments/. This is with interest rates at an all-time low. Conservatives are targeting a 6% ceiling on this element of the UK budget costs and Labour 10% of government spending.
    Debt to GDP measures are a reasonable approach if they exclude borrowing for social housing, as the interest costs on this debt are largely funded via tenants rent payments and not general taxation.
    Some things don’t change. One of these is the necessity for governments to achieve value for money in delivering public services and making prudent investments; at all times avoiding the squandering of taxpayers money and unnecessarily impeding the economic progress of the private sector.

  • Peter Martin 20th Nov '19 - 8:24am

    @Steve,

    “……the apparent suggestion that government debt correlates with output recovery.”

    Yes. The Govt spends money into the economy and it starts to recover! The neoliberals don’t want anyone to know that!

    @ Thomas

    You’re right about the difficulty of separating current and capital spending. If the Govt were in the business of directly building houses it would be simple enough. They’d be able to sell the house on the open market to cover the cost. As it is, they are mainly involved with such infrastructure as roads, bridges, schools, and hospitals. There’s not many buyers for schools, and even if there were, the Govt would be unlikely to sell at the book value.

    Economists often understand the price of everything and the value of nothing. The value of schools and hospitals is in their use as teaching our children and healing the sick. There is no point in building them otherwise. But, somehow, many economists have convinced themselves that the spending on the laying of the bricks and mortar is economically more beneficial than the spending on the activities than take place inside these structures afterwards.

  • Peter Martin 20th Nov '19 - 8:55am

    @ Joe,

    “Currently UK debt interest costs are around £40 billion”

    Currently the interest on 5 year gilts is 0.52%. The inflation target is 2%. So the net cost to “the taxpayer”, assuming we meet target, is minus 1.48%. In other words the more we borrow the more money we make!

    Having said that, making money isn’t an problem for a currency issuing government. There are different considerations which apply. Namely the avoidance of inflation and the avoidance of recession in the economy. Interest payments aren’t a problem. They don’t normally come out of taxation revenue anyway. We shouldn’t begrudge what little interest the Govt does pay out on issued gilts.

    “This is with interest rates at an all-time low”.

    They are at an all time low because the Government wants them to be low. That’s what the QE program was all about. The neoliberals like to scare us all with scenarios of being caught out when they suddenly decide, all of their own accord to go back up again. They won’t. Unless the Govt wants them to.

  • Peter Martin 21st Nov '19 - 9:02am

    @ Joe,

    “Balancing current spending over the economic cycle keeps inflation at relatively moderate levels…..”

    Not necessarily.

    In the late 80’s, the Thatcher govt allowed a credit boom, sometimes known as the Lawson boom, to develop. Previously they had made good progress in getting inflation under control but at the end of the decade it jumped back into double figures at exactly the same time as the Govt was boasting of a surplus.

    It was no co-incidence. Both the govt surplus and and the high inflation was due to excessive borrowing and spending by the domestic private sector at the time.

    Theoretically, an export boom could produce the same effect.

    This is a big problem with the economic mainstream. They adopt these “rules of thumb” with no real understanding of how the different sectors of the economy interact with each other.

  • Richard Underhill 27th Nov '19 - 8:07pm

    Ed Davey features on page 47 of The Times of 27/11/2019 headlined
    “Self-employed switch sides after debate”
    “Sir Ed Davey was a convincing winner at a hustings in the City”
    He is pictured debating with Conservative Liz Truss.
    Entry poll% Exit poll% net %
    Con 36 24 -12
    Lab 21 11 -10
    LibDem 39 54 +15
    Green 2 7 +5
    Brxt 2 4 +2

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