Layla Moran: I almost left the Lib Dems over tuition fees

Yesterday, Layla Moran talked to Julia Hartley-Brewer about that difficult issue of tuition fees.

Referring to the Lib Dem nightmare on the subject, she said that it was horrible and that she had almost left the party over the failure of our MPs to keep the pledge not to vote for any increase in tuition fees that they had signed during the 2010 election.

Looking to the future, Layla spoke of the importance of maintenance grants for poorer students in improving social mobility.

You can listen to her whole interview on the Talk Radio website here.

She added that the system is “broken” but the idea that university should be free for everyone – and that tuition fees should be abolished, an idea propounded by Jeremy Corbyn – is unsustainable.

When asked by Julia why it is sustainable in other countries, Moran said that those countries cap the number of students who go to university, a comment which brought agreement from Julia, who said the idea that 50% of students are suitable for university education is “laughable.”

In terms of specific ways to improve the education system, Moran says we must restore maintenance grants, the means-tested funding provided to poorer students to cover living costs. She also said that we must take greater care of the 50% who don’t go to university, and offer children more information to help them choose their GCSEs.

If universities are administered correctly, Moran said, they can be real engines of social mobility for Britain’s future.

She also spoke of the importance of putting money into the Further Education sector and into schools to drive that improvement in social mobility.

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  • Useful frankness from Layla, one of our best new MPs. I considered leaving the party myself, however as I’d just been elected to the council and our group were happy to express our opposition I didn’t come anywhere near to doing anything.

    Not often I agree with Julia Hartley-Brewer, but surely it is time to address the 50% target for university students? It’s a figure Tony Blair plucked out of thin air and there’s little objective justification for it. Germany has managed to abolish tuition fees as they weren’t working for the economy. Students can study for many more years there, however there is a deep-seated culture of attending your local university, staying with family longer so incurring fewer living costs, and having the right students for the economy with academic qualifications held in much higher regard there (any serious national politician is expected to have a doctorate – Dr Merkel’s is in organic chemistry!)

    Feels we could learn something there.

  • As a former voter and supporter, it is with great sadness that I have concluded that the Lid-Dems are viewed as untrustworthy by the great majority of the electorate. The Party allowed itself to be run like a personal fiefdom by Clegg ( I have respect for him as an individual) so after the Coalition, the student fees, the Local Housing Allowance, the evil Welfare Cuts, the Healthcare Act and all the other crimes against vulnerable persons that the Lib-Dems were instrumental in enacting, sadly I say, NEVER LIB-DEM. At the very least with the Tories you know where you stand. The Lib-Dems have many honourable members and I genuinely feel sad for them.

  • Lorenzo Cherin 20th Feb '18 - 12:57pm


    Why not get the facts before the judgement.

    The acts you describe were varied.

    Evil is a word could be applied to anything we dislike. The governments of all parties have done things we can say are very wrong.

    The cuts were in certain areas , not every one. We now are free to secure policies that would be more humanitarian than any party. The specific policies this party signed up to were not terrible, none of the lousy things were in the agreement, they were battles during a divided government kept together with a need to prove stability.

    The agenda was pushed by New Labour and the Conservatives for years. Too many claimants taking advantage, gaming the system, that was the false but potent narration of the story of many years.

    Judge after the facts and see the many things done well and many bad things prevented.

    If we had been a majority Liberal Democrat dominated coalition, we could say yes to the description guilty as charged, as it is, no, the blame lies throughout our polity , media, all parties.

    Advise and involve yourself, do not push a view that is based on history not the future, and a view of history not the only one and not the history of the whole trajectory.

  • I am afraid that Layla is wrong to say that free university tuition is unsustainable. If Germany and indeed Scotland can have free university tuition then so can we.

    This is a debt that is owed by the people of the country which is an investment for the future. It could be simply on the Government’s books rather than individuals.

    There should be the development of “technical degrees” and we should have a individual lifelong learning fund that could either be put towards degrees or other training.

  • John Marriott 20th Feb '18 - 1:40pm

    Fortunately I wasn’t a parliamentary candidate in 2010. Had I been there is no way I would have signed that NUS ‘pledge’. Mind you, the fact that the Lib Dems’ popularity tanked after the Coalition decided to keep tuition fees and even increased them shows a) just how brittle Lib Dem support can be and b) how out of touch many voters are as to what it actually costs to maintain the university sector.
    I’m bound to annoy the PC brigade but, in my humble opinion, we encourage far too many young people to, as they say today, “go to uni” to study for degrees with precious little surrender value. If only Labour had implemented the major proposals of the Tomlinson Report. We might now have far more institutions in this country offering vocational degree courses that would stand us in good stead when the GB lifeboat parts company with the mother ship (named, according to Mr Hannan and his Brexit buddies, the SS Titanic).
    Here’s a suggestion for us to ponder. If you want to ‘study’ a subject that might gain you entry into the world of employment (engineering, nursing, medicine, teaching etc) we’ll offer you a bursary to pay your tuition fees. If you want to ‘study’ something just because it appeals to you without necessarily using it in a future career then you’ll have to take out a loan.
    I’m sure many LDV contributors’ blood pressure will be rising at the moment; but, as ‘a liberal’ (which some of you will undoubtedly dispute) i’m Used to being in a minority.

  • @ Sakia There is profound truth in what you say. You are not alone to feel as you do. There is anger and disillusion amongst many who have devoted a lifetime of effort and support to the party.

    My only hope – not a strong one – is that the present leadership, and the ‘high heid yins’ manning the multifarious party committees, are in listening mode, can see the need to acknowledge what you say, and get out of their comfort zones with radical policies appealing to a much wider section of the electorate .

    Lorenzo, Saskia stated the facts as the vast majority of the electorate (93%) see it. The welfare cuts and changes were, and still are, evil at a time when billionaires are allowed to run off with billions from pension funds and offshore tax arrangements.

  • @John Marriott

    It wasn’t just a “NUS pledge” but party policy and a costed reduction to tuition fees was in the 2010 manifesto.

    I think Andrew Adonis makes an interesting point as to why university tuition should be twice the cost of secondary education when many degree courses have a considerably fewer teaching hours.

    I would suggest that it is relatively rare for a degree course that does not have a strong element that prepares people for work in that field – although many may go and work in a different field. A large part of the “employment value” of course comes from general analytical and other skills that get developed in a degree.

  • @Saskia @David Raw

    I appreciate your sentiments. We don’t get to experience alternative histories – well probably not depending on your view of quantum mechanics!

    But it is worth thinking how Labour would have plugged the £100 billion a year hole and they said that they would do so at roughly the same rate. Either spending cuts or tax rises and you can’t in fact raise much (more) in total from the very wealthy. If they had been in power after 2010, you might well be speaking in the same terms about Labour.

    Or what would have happened if the Tories had got an outright majority.

    In either case no pupil premium – which is transforming the chances of disadvantaged kids. No increase in the personal allowance which really helped low earners. No detailed work from Steve Webb which gave all pensioners a decent minimum state pension. No equal marriage.

    Perfect? No of course not. It is easier to have a “land of milk and honey” when there is plenty of money around. But equally I would urge people not to believe all the demonising of the coalition that goes on.

  • John Marriott 20th Feb '18 - 2:35pm

    In case anyone thinks I’m ‘anti uni’, and therefore would not wish to see more young people continue studies Into the tertiary period, I’m not. When I was fortunate enough to go to university back in the early 1960s I was one of a very small cohort of young people who managed it, a cohort that could be financed via things like County grants and whose tuition fees were paid by the tax payer.
    My argument is that universities need to maintain an expansion, much of which has been self induced and needs a steady supply of students with loans to make this possible. I am afraid that self indulgence, whether from students or university administration bodies, needs to be reined in. What we need are loads more vocational courses leading to degree level. Germany has been quoted. Look at the status of engineers over there. Indeed, look at the board of directors of most German manufacturing organisations and invariably the top people will all have the initials ‘Dip.Ing’ (Diplomingenieur) after their names. Hauptschulen and Realschulen have direct links with local firms and apprenticeships last a significant number of years, where strong links are maintained to Technische Hochschulen. Yes there are no tuition fees in Germany; but just take a look at that country’s balance of payments. It can simply afford it; but could we?
    So, what do we do with the money we have? We pile into into the academic university sector and starve the tertiary technical and vocational sector. Isn’t about time british firms followed the example of firms like Rolls Royce and Siemens and helped to finance more technical institutions. Clearly the tax paper can’t do it alone. Are you listening, Mr Corbyn?

  • @ Sakia @David Raw
    I knocked on hundreds of doors last year and I can honestly say ‘Yup’.
    Especially among the Labour voters we needed to unseat a Tory MP.
    I keep thinking the leadership of this party must have something up it’s sleeve but more and more I think they are just hoping that people will forget. Well people have long memories and whilst they don’t necessarily remember the precise facts, they feel the emotional scar for a long time. I feel very sad for the ordinary, good hearted members of this party but I am not optimistic at the moment.

  • @ Michael1 Sorry, Michael. The people vote with their feet as well as their ballot papers.

    As to the deficit, Alistair Darling had a perfectly reasonable plan which would have avoided the worst aspects of the Coalition/Osborne/Alexander Austerity.

    I suggest you read and dowload the PDF of the following :

    Robert Skidelsky – Sheffield Political Economy Research Institute…/SPERIPaper23-the-failure-of-austerity.pdf
    1. SPERI Paper No. 23 – The Failure of Austerity. Foreword. This Paper is drawn from the Annual SPERI Lecture given by Lord Robert. Skidelsky in The Octagon at the University of Sheffield on 19th May 2015. References have been added as appropriate, but the text remains as delivered on the occasion.

    Skidelsky’s lecture is also on video.

  • Catherine Jane Crosland 20th Feb '18 - 3:40pm

    Sad that Layla seems to have come to believe that free university education is “unsustainable”. After all, we take for granted, (I hope), that education up to the age of eighteen should be free. So why not university education?
    Higher education is not a luxury. For many, it is a necessity, without which it will be impossible to enter their chosen career. Far more careers require a degree than was the case a generation ago.
    Not that University education is only about qualifying for a job. As a society, we should value education for its own sake. Education is, or should be, about enabling every individual to achieve their full potential, and live life to the full. This should be regarded as a basic right.
    We should reject the argument that free education – or free healthcare – is unsustainable. It is a question of what we as a society value and make a priority.
    Mysteriously, the money seems to be found easily enough to renew Trident.

  • Why are degrees over 3 years. 2 years would radically reduce the cost to students. Many of us studied part time whilst in full time work. I obtained an LLb and a Masters that way, far cheaper and your career maintained. The whole system needs a radical overhaul, not least the appalling length of holiday for both students and staff, as well the nature and type of courses now offerred.. I would suggest many of the staff do not live in the real world which the rest of us inherit.
    As for Tuition Fees, I did not renew my membership in 2011, rejoined once Clegg resigned!

  • David Becket 20th Feb '18 - 4:16pm

    Well done Layla for bringing this up. Tuition Fees are headline news at the moment, but what do we have, a botched review from May and an unaffordable promise from Comrade Corbyn. This should be our opportunity to repair some damage, and Vince’s ideas for a grant for education is not a bad start. However where is our leader on this – silent, where is our PR team.- silent, where are representatives from our policy committees – silent, where is the post on our Web Site, nowhere to be seen. No wonder we are 7% in the polls and likely to stay there unless those in power wake up

  • paul holmes 20th Feb '18 - 4:17pm

    We seem to have to keep repeating this debate but: We had opposed Tuition Fees for 13 years it was not some quick electoral gimmick. For my part I opposed them in the 1980’s when the Tories first considered them and I was a Head of Sixth Form in Comprehensive School.

    Not increasing Fees in 2010-2015 would have been entirely cost neutral.

    Osborne assumed it would be one of our Red Lines but Clegg and Co were happy to not only not freeze Fees but to introduce just about the highest ones in the World instead.

    Unnecessary self destructive folly of the highest order and still vedy damaging to us in 2018.

  • David Evans 20th Feb '18 - 4:47pm

    Tuition Fees are simply a touchstone issue for those who used to vote for us. We promised, our leaders broke their promise and destroyed most of our future chances. However, thinking about resignation is simply not enough. Apology and putting it right is the only options.

    Sadly, I have come to the conclusion that P.J. is right. Our leaders (then and now) will do anything to avoid the issue and are prepared to stand by doing nothing while we continue to decline towards inconsequentiality rather than own up to their failure. Newbies get sucked into the same failing approach out of misguided loyalty and the cycle of decline continues. Ultimately it is not what you nearly did seven years ago when nobody noticed, it is what you do now that counts.

  • I share many of the views expressed above and my sentiments are not meant to derogatory towards the party. In 2010 I was one of the young voters that were taken in by Clegg, it was the first time in my life when I felt hope that things would change for the better. Then the Coalition came and hope turned to anger which gave way to disappointment and disillusionment. A once great party is reduced to a former shadow of itself.

  • Lorenzo Cherin 20th Feb '18 - 5:47pm


    You misunderstand, I am on the same page as you and Saskia , I am blaming New Labour and the Tories as they ran the agenda!

    I favour radical change.

    I agree with Catherine.

    David,Saskia, say how we progress, do we join Labour and be Liberal socialists ?

    A genuine question , I was more years in that party than here, unlike all above herein !

  • More self loathing. I’m not saying that we didn’t make mistakes during the coalition years but both labour and the conservatives have done the most diabolical, duplicitous things over the years and that doesn’t prevent millions voting for them. Is it that we are held to a higher standard because we don’t have a large enough core vote, that is to say people who still consider themselves Liberals, even when we mess up ?

  • Steve Trevethan 20th Feb '18 - 6:25pm

    “A nation will only prosper when its young people thrive.” [Xi Jinping]
    What is there not to be afforded in making your most important resource, your people, more valuable and less expensively behaved over a life time?
    Why is there not, free at point of delivery, tertiary education, particularly high quality accessible apprenticeships, for all?
    Enable your people to earn more through greater skills and you have a wider and deeper “tax pool”.
    It is a strategic error to classify education as other than a public good.

  • Laurence Cox 20th Feb '18 - 7:15pm

    @Michael 1

    “But it is worth thinking how Labour would have plugged the £100 billion a year hole and they said that they would do so at roughly the same rate.”

    If you are going to quote costs, at least get your figures right and don’t confuse the total amount owed on tuition fees with the added cost of tuition fees per year.

    This is an analysis from last year:

    There is also an older analysis from the IFS in 2014:

    From the 2017 blog, the cost of tuition fees per year for each cohort is £3.092 bn, so £9.276 bn for a typical three-year degree. Maintenance loans and the HEFCE teaching grant increase the total cost for the Government to £5.741 bn per cohort.

  • One point i noticed in the aftermath of the of the rise is that education became a bought product rather than a learning experience. The upside of this was that students became more vocal about what they wanted me focussed on learning because it cost so much but the downside was that it could mean forgetting their role in the process, giving some unrealistic expectations – university became a restaurant where student would complain and send back something they didn’t like which made it a negative environment for learning and overly stressed our academics.

  • @ Chris Cory “more self loathing”.

    ‘Fraid not. The loathing is for the 2010-15 outcomes, broken pledges and the persons who perpetrated them…. most of whom have now departed into the sunset clutching their knighthoods, peerages, and gongs as a reward for failure. I think you’ll find 93% of the electorate happen to agree with me.

    I obviously exempt Layla from all that and wish her well in trying to put some of it right.

  • Barry Lofty 20th Feb '18 - 8:42pm

    Chris Cory said it all , why don’t Lib Dem supporters wake up and get a sense of perspective on the Coalition years.

  • Just to add more balance and perspective on the Coalition years Education policies, as well as the Pupil Premium policy the Lib Dems managed to deliver Universal Free School Meals for infants in England. This policy was delivered by a Lib Dem Schools Minister in 2014. Thousands of primary schools had to have their kitchen/catering facilities upgraded within 12 months, amazingly this was achieved. Theresa May’s manifesto commitment to scrap them was hugely unpopular in last years GE. Given how popular this policy was and is I am amazed Lib Dems rarely mention it.

  • @David Raw

    Thanks for highlighting Skidelsky’s paper.

    Lets be clear the coalition was the biggest period of Keynesian economics EVER in Britain’s history. The biggest annual deficits and the biggest Government spending – 16% higher every year than under Labour in 2008.

    Skidelsky says in the paper/speech you quoted “Keynesians like myself predicted that Osborne’s Ricardian austerity policy would fail to revive the British economy”. That seems wrong on three counts – it was Keynesian, it was not austerity and it didn’t “fail” – with good if not spectacular GDP growth between 2010 and 2015 after the big dip in 2009.

    There is, of course, an argument that it should have been more Keynesian. We of course don’t know – we can’t re-run alternative realities. What is clear is that was not Labour’s position as Skidelsky notes in passing in his paper. They introduced a law, repealed by the coalition to reduce the deficit in half by 2014. And there was this from the Guardian in 2012: “George Osborne is on course to miss Alistair Darling’s deficit reduction plan,”

    And let’s be clear what deficit reduction means – it means borrowing every year but it means yearly borrowing at slightly less than record rates.

    There is an argument on borrowing during times of full employment/full capacity in the economy. Whether this “crowds out” private investment. And taxation (and therefore borrowing) is a drag on the economy – a negative multiplier – without taxation prices would be lower, more would be produced and so on. There is therefore an argument that as the economy improves you should cut borrowing back from record rates.

    People felt it was “austerity” as it was like going into a room that you EXPECT to be warmer than the one you are in and it isn’t – it seems cold. Clearly also there are cost pressures on many aspects of Government spending – the NHS needs an above inflation increase just to stand still.

  • Tristan Ward 21st Feb '18 - 8:08am

    Let’s not forget the whole point if all of us pouring time energy and money into our membership of the Liberal Democrats is to gain and exercise power, both to implement our (good) agenda and keep others from implementing their (bad) ones. We had a chance to be in government and took it. It’s understandable and I for one thought it was the right thing to do.

    That said, dropping the tuition fees pledge was political stupidity of the highest order and (in my view) indefensible. Those MPs who refused to support the government line were right to do so.

    But again, if I am rightly informed, the party bodies that considered the coalition agreement overwhelmingly endorsed it. There will be others here who know better but I understand David Rendell was very much a lone voice in opposing the coalition. With hindsight he was right but I certainly did not think so at the time (with the exception of the paragraph about tuition fees which I knew would cause trouble as soon as I saw it.

    The lesson I draw from this is that we need to rethink our willingness to join a coalition government since the repercussions at the ballot box are just too great. (I do not blame the broken pledge for the 2015 election result (we clearly and wrongly believed Lib Dem voters were more committed to us that they were) but it provided a clear and justifiable reason for voters to desert us).

    The exception to becoming involved in coalition is where PR is part of the deal from the start. We might study the lessons of Labour’s historic unwillingness to enter coalition.

  • Peter Watson 21st Feb '18 - 9:36am

    @Mike Read “Just to add more balance and perspective on the Coalition years Education policies …”
    For even more balance and perspective …

    A “pupil premium” was in both the Labour and Conservative manifestos in 2010.

    Universal free school meals was never a Lib Dem policy. Indeed, it had consistently been opposed by the party. It was trialled by Labour when Ed Balls was Education Secretary and Michael Gove was reported to be “supportive” when a report into this was delivered. Later, Clegg surprised everybody when he announced this out of the blue at his party conference. The policy looked like a bribe to middle-class voters who were not already entitled to free school meals and quid pro quo for allowing the Tories to spend £500 million on a tax allowance for married couples which Lib Dems had also opposed. Furthermore, research at the time showed that other investments of £500 million could deliver better educational returns (but perhaps not the hoped-for middle-class votes!).

  • John Marriott 21st Feb '18 - 9:40am

    David Raw, in his comment about knighthoods etc., makes a valid point. My wife’s favourite ‘observation’ was how much the Lib Dem ministers appeared to enjoy their government limos!

    David’s comments on the SDP thread about the SDP Constituency Chair’s suggestion to play the race card is as revealing as David Evans was in another thread about the Lib Dems being ‘betrayed’ by so called Tory coalition friends over the AV Referendum (or, at least, that’s what I now think he meant).

    Both gentlemen are clearly dedicated dyed in the wool Liberals of the old school, who view all other parties with suspicion which, I must admit, is largely justified. HOWEVER, as people who think differently (and I would like to include myself here) despite their missionary zeal, Liberals may always have to be prepared to work with other larger parties, certainly at national level, to nudge them towards accepting some of their policies. As has already been mentioned, quite a bit of the 2010 Lib Dem Manifesto became law during the Coalition, especially the raising of the threshold for Income Tax, for which the Tories continue to claim credit!

    From my experience, albeit in local government, with a few notable exceptions, if you want to remain pure then you will invariably be outside the tent looking in. If you are prepared to compromise and make the kind of tough decisions being ‘in control’ often requires, then there may be room inside. The choice is yours. Having your cake and eating it is not just a problem with Brexit!

  • Peter Watson 21st Feb '18 - 9:56am

    @Tristan Ward “The lesson I draw from this is that we need to rethink our willingness to join a coalition government since the repercussions at the ballot box are just too great.”
    I think that a minor party – particularly one that seeks electoral reform to make representation proportional – should always be willing to consider coalition with almost any other party, whether with a single partner or in a rainbow.
    I think the Lib Dems were right to go into Government with the Tories but I think they were wrong to subsume their identity into an overwhelmingly Tory Coalition, making it look like a meeting of hearts and minds. And ironically, given the party’s pre-disposition towards coalitions and its experience at different levels, Lib Dems looked woefully unprepared. Parliamentary arithmetic meant that there was not the “balance of power” that Clegg et al seemed to have assumed a hung parliament would always deliver, so with “influence” rather than “power”, the party should have tried harder to look like an independent voice within government: the Tory right did a better job of that!

  • Peter Watson 21st Feb '18 - 10:17am

    @John Marriott “Fortunately I wasn’t a parliamentary candidate in 2010. Had I been there is no way I would have signed that NUS ‘pledge’.”
    Was it ever revealed why so many (all of them?) did sign it?
    Did they do so independently or was there a diktat from the leadership to make such a big deal of it in targeting the student vote?
    The pledge was broadly consistent with the policy of the party, and if Lib Dems expected to be in Opposition it could have been considered harmless.
    But in combination with “no more broken promises” and the attacks during the election campaign over what Labour and the Tories would do with tuition fees and what Labour had previously done, the damage this did to trust in the party’s honesty and competence undermined everything else the party did.

  • @Michael1 You say that “Lets be clear the coalition was the biggest period of Keynesian economics EVER in Britain’s history.”. This claim is not true and frankly, it makes me doubt your intellectual honesty.

    Thank you to everyone that has given me their opinions.There were a few posts whose jist was ” you do not fully understand the facts…..enough self-loathing….we did it for the good of the country.”. Respectfully I disagree.

    1We had to do it for the good of the country. This statement is patently false, on so many levels, and I am frankly amazed at the number of persons that readily accept it.The Lib-Dems could and should have explored all options before committing to anything. Instead, they swallowed the Tory line about having to form a government ASAP. A perfunctory look at European politics shows that Coalition goverments take many weeks to negotiate, sometimes even months ( Germany at the moment, Belgium in the past, Italy, Spain etc). We could have pressed the Tories and Labour much more and for longer. To claim that the UK would have somehow melted down and descended into anarchy unless the Coalition had been formed ASAP is just plain wrong and very convenient for the Tories, may I add.

  • Some posters in here seem to think that it is wrong for political parties to take account of the interests of their core voters. The argument goes something like this ” Yes, many of our voters are students and promised not to raise the tuition fees but we need to balance the budget and we have to do this for the good of the country”. On the face of it, this seems to be a reasonable argument and one that the Tories effectively deployed against us. However,it is plainly false. Every party looks after the interests of their core vote, it may not be pretty or fair, but that is how it is. Would the Tories ever consider or sanction increased taxation on the sections of society that vote for them ? If the roles were reversed, is anyone under any illusions that the Tories would have hammered their core vote by trebling fees? Never, not in a million years.To them, party survival is more important than anything else.

  • I was never happy about the coalition and my doubts were fully justified. A small party should not enter a coalition with a bigger party, particularly the one which has been the traditional opposition. It is not much use serving the National Interest if that means killing your own party as a National Force which is what has happened for the moment.

    The taxpayers rightly pay for primary and secondary education as it is compulsory. As regards university tuition fees until that is also made compulsory those people who do not wish to go to university should be fully compensated when tuition fees become free. This could either be by a tax rebate or better still by some other form of training appropriate to the individual.

  • David Marriott (21st Feb ’18 9:40am) : I’m not sure if I have ever read a post that misrepresents my views so comprehensively. I can only assume you never read any of my posts where I pointed out that generations of Liberals and Lib Dems had fought to build up the party so that our MPs would have the chance to show the British electorate what we could do in government, and that the problem was that our leadership made such a mess of coalition (negotiations, agreement and actions once in government) that over 90% of the British people (and over 60% of our voters) decided that they didn’t want the Lib Dems anywhere near government again.

    The problem wasn’t that we weren’t pure, it was that we weren’t even prepared to believe that the Conservatives were fighting dirty.

  • @saskia

    “@Michael1 You say that “Lets be clear the coalition was the biggest period of Keynesian economics EVER in Britain’s history.”. This claim is not true and frankly, it makes me doubt your intellectual honesty.”

    Well it’s true!

    The figures show that during peacetime – there has not been a higher level of Government borrowing or government spending.

    Looking at the figures from it shows that in 2005 pounds per head of population government spending per year was between £11542.21p and £11820.56p

    The next highest was £11083.93p in 2009 and it was a miserly “austere” £9459.72p in 2008.

    As a percentage of GDP the average Government spending during the coalition was 44%. This equalled the 1974-79 Labour Government and the 1980-83 Tory Government.

    On borrowing the coalition borrowed an extra £6180.66p per person (current budget deficit) over the 5 years of the coalition. The next biggest 5 year period in peacetime was 1992-97 when we borrowed an extra £3418.77p per person. As a percentage of GDP the coalition borrowed an extra 5% of GDP each year on average – no other period gets close to this.

    I think the facts do show that the Coalition was the highest spending and borrowing peacetime government.

  • Andrew McCaig 21st Feb '18 - 12:50pm

    Well, I will trump Theakes: I proactively resigned from the Party in 2010 after some correspondence with Simon Hughes and David Ward made it clear that many of our MPs were going to break the Pledge. I rejoined as soon as Nick Clegg was no longer leader. It is a big disappointment to me that we have a pledge-breaker as Leader again and believe that will hold us back, but I have put the past behind me and am working hard for the Liberal Democrats again.

    On the issue of University funding, I still believe a graduate tax is the only fair solution. You set it so that someone who stays on average income till they retire just pays off whatever cost you decide (key subjects should be subsidised anyway, as science engineering and medicine still are even today). People who earn more would pay more, and people who earn less would pay less than the cost. The big advantage in fairness is that people who do not go to university are not expected to pay for those that do, and those who benefit the most pay the most.
    I would also make it retrospective, so that all graduates who did not pay any fees would start paying it from now on. That would give many MPs the chance to say “we are all in it together”
    Finally, I declare an interest: I am a lecturer and will be on strike tomorrow over disastrous pension changes. Universities have made a lot out of tuition fees but have used the money to hire more staff not reward existing ones. All is not well already in Higher Education, and any big reduction in University funding or reduction in student numbers as suggested by some here will cause a crisis which may see several Universities close.

  • Peter Martin 21st Feb '18 - 1:57pm

    @ Micheal1

    No it is not true that the Coalition followed Keynesian principles. Except, it is possibly true to say that there was an element of neo-Keynesian thought there. In other words the idea that interest rates can be adjusted to fine tune the economy was still prevalent. NK should, though, stand for Not Keynesian, IMO. It’s not the case that standard Keynesian economics is all about running large govt deficits and neoliberal/monetarist economics is about trimming them! Although that is the way it might first appear!

    If a neoliberal/monetarist Government tries to reduce its deficit by cutting spending and raising taxes it is unlikely to be successful. It will simply depress the economy and reduce its own tax take as unemployment rises. Firms and individuals who might otherwise be inclined to invest their profits and earnings are more likely to just save them as cash piles.

    It is self evident that the Government’s deficit is the same as everyone else’s surplus. So if everyone else is saving more, if those cash piles (some of which are held by the central banks of the big exporters) are larger, then the Govt’s deficit has to be larger too.

  • John Marriott 21st Feb '18 - 2:02pm

    @David Evans

    It’s JOHN Marriott, by the way. I can only go on what you appear to be saying. Like you presumably, I would like to think that I did my bit in a part of the country that has in modern times usually been unfruitful territory for Liberalism. Sorry if you think I have misinterpreted your views; but I would hope that you would allow me the right to hold an opinion as I do you.

    You would seem to wish to disassociate yourself from the Coalition, or have I got that wrong as well? Not me. It certainly wasn’t perfect; but I admired the way that the party stepped up to the plate when things were tough. It’s easy to be wise after the event or say “I told you so”, as some appear to be doing. People should reflect just what a mess the country was in eight years or so ago.

    I am fully aware of what can happen to the junior partner in any coalition. It’s happened at least twice to the Liberal Party after WW1. I’m sure that Clegg and co knew their history. The problem was that many of our electorate, having been brought up largely on FPTP with ‘winner take’s all’ and expecting the system to deliver as usual, didn’t really seem to understand how coalitions work in practice. The fact is that, despite having a voting system designed to deliver parliamentary majorities, the system has now failed to do so twice in recent years. Time for a change?

    I know that you have taken me to task before when I stated that ‘Liberals’, by their very nature, will probably always be in a minority. Having been a councillor for thirty years, working with and against political opponents has taught me that, in the words of the song that the Trump campaign recently highjacked, “You can’t always get what you want….Sometimes you get what you need”. I presume you have not had that experience. Sorry again if I am wrong.

  • Chris Burden 21st Feb '18 - 2:59pm

    tpfkar 20th Feb ’18 – 11:21am “. . . . Dr Merkel’s [doctorate] is in organic chemistry”
    Merkel was educated at Karl Marx University, Leipzig, where she studied Physics from 1973 to 1978. She has a Doctorate in Quantum Chemistry, more Physics than Chemistry.

  • OnceALibDem 21st Feb '18 - 3:06pm

    “any big reduction in University funding or reduction in student numbers as suggested by some here will cause a crisis which may see several Universities close.”

    It is possible to then ask the question , “And?”

    Vince has talked about apprenticeships as an alternative to University education as have other people. That seems to imply a reduction in student numbers.

    There is also a growing body of evidence that a University education doesn’t lead to a a passport to better jobs. I’m sitting in a office doing a job which doesn’t require a degree surrounded by people with degrees (I, my manager and one of my colleagues all have firsts BTW).

    A liberal education system should be all about helping people achieve their full potential Universities existing is part of doing that, not the end in itself so University closures may be an inevitiable, even necessary part of that.

  • @saskia
    Firstly, can I thank you for your candid comments, which I know are offered with the best of intent.
    If I can pick up on your comment ‘Every party looks after the interests of their core vote,’
    Part of the tragedy of ‘Pledgegate’ was that the young vote was probably not LibDem core vote at the time. It did however have the potential to be the core vote of the future. A core vote with energy and vibrancy.
    IMO the real tragedy was not the betrayal of the core vote however you want to define it. It was the betrayal of this.
    ‘The Liberal Democrats exist to build and safeguard a fair, free and open society, in which we seek to balance the fundamental values of liberty, equality and community, and in which no-one shall be enslaved by poverty, ignorance or conformity. We champion the freedom, dignity and well-being of individuals, we acknowledge and respect their right to freedom of conscience and their right to
    develop their talents to the full.’
    Unfortunately we cannot change the past but IMO it must be dealt with and the first step is to recognise the problem. If this is not the problem and it is just us ‘indulging in self loathing’ than please explain why we our poling is struggling to get above 10%. The gap in the center of British Politics is a mile wide at the moment but the electorate seems to have barred us from it.

  • @Michael 1. Please stop being disingenuous. You state ” Lets be clear the coalition was the biggest period of Keynesian economics EVER in Britain’s history.” and subsequently you provide no definition of what you mean by “Keynesian economics”. When challenged to provide some more detail you reply by adding Government spending and borrowing, and presenting this figure as proof of ” Keynesian economics”. As if this was the only or deciding factor. Going by your logic we should have a real terms increase in funding for public services, since as you say, the government has spent more per capita. Either you misunderstand the concept or you are being willfully obtuse. Keynesian economics concerns itself with HOW the money is spent, it is not just with the amounts.

  • Andrew McCaig 21st Feb '18 - 6:07pm

    And? And universities are major public sector employers. Government has taken the decision to expand universities over the years. They also do a great deal of research in vital areas where industry no longer does its own. Abrupt reduction in funding will involve a lot of collateral damage, and no doubt lots of Lib Dems will be complaining about it.
    As a matter of fact I agree with the view that universities have expanded too far, and too many young people get degrees. Allowing the polytechnics, which were doing a very good job in vocational areas, to become universities was very foolish in my view. Still, we are where we are, paying as usual for the overambitious Blair government, which started so many projects it was not prepared to pay for…

  • @ Saskia I share your scepticism of Michael 1’s interpretation of Skidelsky. It was David Law’s who wanted public expenditure at 35% of GDP, and Danny Alexander who took a scythe to public sector pay and pensions (Andrew McCaig please note) : “Liberal Democrat David Laws pushes for deeper tax and spending cuts” Daily Telegraph, May 2012.

    I judged Laws/Alexander to be more extreme than many Tories.

    @ John Marriott I’m not a purist on coalitions, John. I held a cabinet post for social work in a Tory-Lib Dem Council coalition. I did my own thing, rubbing in the issues of demography and the need for NHS and local government to cooperate on social care for the elderly – whilst smiling and nodding at the Tories. It was a bonus Scotland was more enlightened (and still is) on such things. By 2012, major surgery plus disillusion with Westminster neo-liberals meant I didn’t stand again (elected five times on different authorities post 1972 and never losing my seat).

    The trouble at Westminster was they didn’t do their own thing – and ignored Charlie Kennedy and Andrew George. They had wobbly leadership which wasn’t sure what it believed in but wasn’t in listening mode – I’ll never forget Clegg attacking The Guardian in Edinburgh.

    Outcome ? Two local Westminster seats here held continuously since 1965 and 1973 now a wasteland represented by right wing Tory MP’s – Lib Dems third and fourth. Today, nothing else raised except Brexit and (rightly) gender issues – but nothing of substance about inequality and the lack of social justice and powerlessness affecting the hopes and aspirations of the wider population.

    The public aren’t daft. They drew their own conclusions about the capability and relevance of Lib Dems in 2015. It will take years, if ever, to live it down. If the party leadership and some parts of the membership don’t get it, then it’s Kaput time and follow UKIP down the disappearing Alice in Wonderland rabbit hole.

    Me ? at the Food Bank trying to unravel the mess and consequences of (Lib Dem supported) Universal Credit.

  • @P.J. Completely agree with the points that you have raised. The point about ” self loathing” is not something that I believe or subscribe to. I only mentioned it because other posters raised it in relation to some of my posts.
    I mentioned the core vote because during the Coalition years some Lib-Dem ministers seemed to go out of their way to insult people that had previously voted for them.Also, I am pretty sure that had Clegg and his team been subjected to proper scrutiny the Coalition agreement would have been very different. So yes, I am suggesting that the members of the Parliamentary party failed to represent the interest of the people that voted for us.
    As to why the public does not want to listen. There is no credibility left after the Coalition.

  • @David Raw. Completely agree with your assessment.

  • Katerina Porter 21st Feb '18 - 6:42pm

    Just two notes:
    Charles Kennedy voted against the coalition (or abstained?) and was very critical of it.
    In France Polytechnics have a higher status than Universities. In Finland -one of the best
    education systems in the world- school -comprehensive- starts at 7, like other Scandinavian countries, after preschool where children learn through play and to play together. No league tables, no outside testing till tough exams at 18, either vocational/technical or academic.
    It has been pointed out that in the coming electronic world creativity will be what will needed. Our schools are abandoning subjects that would encourage it

  • Peter Watson 21st Feb '18 - 7:06pm

    @John Marriott “It’s easy to be wise after the event or say “I told you so”, as some appear to be doing.”
    Going back over the threads on this site one sees the same people being wise before and during the event!
    As for “I told you so”, one only has to look at the way that the LibDems4Change attempt was treated so dismissively on this site to see how those who fought to rescue their party rather than abandon it were wilfully ignored, so perhaps the party should be listening to them now.

  • Peter Watson 21st Feb '18 - 7:22pm

    @P.J. “the young vote was probably not LibDem core vote at the time. It did however have the potential to be the core vote of the future.”
    The parents of those young people (myself included!) were probably slap bang in the middle of the party’s core vote at the time though.
    And the issue of tuition fees reached far beyond those who had any interest in how university education was paid for as it left the party looking incompetent because of its original position or dishonest because of its reversal or both. The damage to the party’s reputation contaminated everything that it and its leaders did or said. One only has to look at the AV referendum which had no link to tuition fees other than Nick Clegg who became his opponents’ greatest weapon. But despite that and subsequent polling and election results, the party refused to reconsider its strategy.

  • Katharine Pindar 21st Feb '18 - 8:59pm

    Amid all the gloom expressed above about the effect of the tuition-fees broken pledge, it should be noted that all is not lost for us with young voters. As the YouGov analysis of the votes at the 2017 General Election reveals, the highest proportion of voters for us were the 18-24 year-olds. O.k. it was still only 9% of the voters, but among other age groups we gained only 7 or 8%. And among full-time students, rather remarkably, we got 10% of the vote. The other relatively high groups for us were Class AB, 10%, and people educated to degree-level or above, 11%, but that might perhaps be easily understood, as tying in with analysis of our core vote. We should surely be focusing now on winning back a much larger proportion of the young voters who flocked to Labour, for instance by repeating our pledge to restore the Educational Maintenance Grants for poorer students, as well as by showing the enormous cost of Labour’s pledges to students.

  • Nonconformistradical 21st Feb '18 - 10:47pm

    John Marriott says:
    “When I was fortunate enough to go to university back in the early 1960s I was one of a very small cohort of young people who managed it, a cohort that could be financed via things like County grants and whose tuition fees were paid by the tax payer.”

    Andrew McCaig on a graduate tax says:
    “I would also make it retrospective, so that all graduates who did not pay any fees would start paying it from now on. That would give many MPs the chance to say “we are all in it together”

    Andrew- how are you going to trace the ones who were in that very small cohort of young people who had County grants and tuition fees paid for them? Some may have died, many women will have married and use a different surname, some may be abroad, some may have common names etc. and some of the local authorities who paid maintenance grants no longer exist.

    Also income tax rates were very much higher in those days than they are now. From :-
    “In 1971. the top-rate of income tax on earned income was cut to 75 percent. A surcharge of 15 percent on investment income kept the top rate on that income at 90 percent. In 1974 this cut was partly reversed, and the top rate on earned income raised to 83 percent. With the investment income surcharge this raised the top rate on investment income to 98 percent, the highest permanent rate since the war. This applied to incomes over £20,000 (equivalent to £191,279 in 2016 terms),[3]. In 1974, as many as 750,000 people were liable to pay the top-rate of income tax.[8] Margaret Thatcher, who favoured indirect taxation, reduced personal income tax rates during the 1980s.[9] In the first budget after her election victory in 1979, the top rate was reduced from 83 percent to 60 percent and the basic rate from 33 percent to 30 percent.[10] The basic rate was also cut for three successive budgets, to 29 percent in the 1986 budget, 27 percent in 1987 and to 25 percent in 1988.[11] The top rate of income tax was cut to 40 percent in the 1988 budget.The investment income surcharge was abolished in 1985……”

    Like John Marriott I attended university during the 1960s – and I recall paying income tax rates of over 30% when I started working

  • @saskia

    Thanks for your further comment

    Obviously it depends on your definition of Keynesism. Unfortunately the man himself is not alive to adjudicate. But it is usually thought of as high Government borrowing and indeed associated high Government spending (rather than tax cuts) during a recession to provide a fiscal stimulus (and indeed the countercyclical opposite when the economy “overheats”).

    Keynes himself was not particularly concerned with WHAT the money was spent on – just that it was spent (or more accurately borrowed) – viz this quote from Keynes from his General Theory of Employment, Interest and Money:

    “If the Treasury were to fill old bottles with bank-notes, bury them at suitable depths in disused coal-mines which are then filled up to the surface with town rubbish, and leave it to private enterprise on well-tried principles of laissez-faire to dig the notes up again (the right to do so being obtained, of course, by tendering for leases of the note-bearing territory), there need be no more unemployment and, with the help of repercussions, the real income of the community, and its capital wealth, would probably become a good deal greater than it actually is.”

    Keynesians (and indeed other economists) may highlight spending on infrastrucrure as more desirable than other spending as being more as labour intensive and possibly boosting the productivity of the eoconomy – but I would suggest that their overarching point is for a fiscal stimulus . Today other forms of spending are as labour intensive or more and investment in human infrastructure (through education, health etc) may be as or more productivity boosting. In addition many infrastructure projects are not “turnkey” and take time to get started – viz HS2 etc.

    But if spending on burying banknotes is Keynesian and the man himself says it is then virtually any form of borrowing financed government spending is.

  • Peter Martin 22nd Feb '18 - 9:07am

    @ Michael1,

    You are either unaware of what Keynes wrote or you are deliberately misquoting:

    For example if you were to continue, you’d have added:

    “It would, indeed, be more sensible to build houses and the like; but if there are political and practical difficulties in the way of this, the above would be better than nothing.

    It’s the neoliberals of the world who do create the “political and practical difficulties” of course.

    You say that Keynesianism is ” usually thought of as high Government borrowing and indeed associated high Government spending”. And we can’t have that, can we? That just increases the National Debt. However the National Debt in the 19th century was high. Were the politicians of the time Keynesian too?

  • @Peter Martin

    Well I think we are in agreement!

    In that we are both saying that the overarching viewpoint of Keynes was that money should be spent and there should be borrowing for a fiscal stimulus. We are both saying that Keynes and others highlighted some spending as better than others – and frankly probably anything is better than burying banknotes in the ground! I am pretty sure that Keynes would have seen spending on health, education etc. as better than burying banknotes as well.

  • Peter Martin 22nd Feb '18 - 9:35am

    Lib Dems made the decision to go into coalition so naturally there was bound to be some compromise. But, Lib Dems were highly neoliberal in 2010 before the result of the election was known. This is from the manifesto:

    “The health of the economy depends on the health of the country’s finances.
    Public borrowing has reached unsustainable levels, and needs to be brought
    under control to protect the country’s economic future……

    ……..We must ensure the timing is right. If spending is cut too soon, it would
    undermine the much-needed recovery and cost jobs. We will base the timing
    of cuts on an objective assessment of economic conditions, not political
    dogma. Our working assumption is that the economy will be in a stable
    enough condition to bear cuts from the beginning of 2011–12. ”

    You won’t find any economists, anywhere, who would agree that this was Keynesian. Public borrowing obviously hadn’t reached “unsustainable levels”. It was sustained. The idea that there was any possibility that the economy would have been in any condition to “bear cuts” in the very near future was economically illiterate. A neoliberal fantasy.

    No doubt Vince Cable would argue that some progress was made on controlling the deficit. All that happened was that the burden was shifted from Government to the Private sector as interest rates were lowered to further inflate the bubble in the property market. The total net borrowing in the UK has to equal the external deficit. The deficit in the current account caused by our trade imbalance. Nothing was done to address that. The pound was kept deliberately much too high and therefore our exports suffered as a consequence at the same time as we were importing far too much.

  • Saskia: The Labour Government introduced tuition fees in 1998 and then tripled them from £1,000 to £3,000 despite having promised not to do so and there being no financial crisis at the time. They also introduced many other unpopular measures but they did not lose most of their MPs. There has to be other reasons why the Liberal Democrats collapsed in 2015. Looking at the places which had Liberal Democrat MPs I would venture to suggest that many of their voters were people who felt disaffected from society and were protesting at those people who they considered to be the establishment – rich people, trade unionists, government officials etc who were making their lives unpleasant. When the Liberal Democrats went into Government they were horrified and said so to those prepared to listen. Support soon dropped to the core supporters. In 2010 opinion polls indicated that they would get 30% of the vote but in fact support was about 23% – similar to the previous election so how many people actually supported them because of the promise to abolish tuition fees. Most of the people who go on about this are committed socialists who would never have voted Liberal Democrat except possibly for tactical reasons and even then probably not.

    The disaffected moved to UKIP and having voted for Brexit they returned to one or other of the two big parties, especially Jeremy Corbyn’s Labour Party because they knew that would upset the establishment most. I expect that once Brexit has happened they will look for somewhere else to express their discontent, especially if it turns out to be a disappointment. I doubt if they will be anxious to support free tuition fees.

  • @ Michael 1
    “Lets be clear the coalition was the biggest period of Keynesian economics EVER in Britain’s history”

    This is completely wrong. I assume you have forgotten that the Coalition government produced a double dip recession at the end of 2012 and the beginning of 2013. I remember this being reported in the News very well. If they had been pursuing Keynesian economics they would have increased the deficit every year. Note increasing the deficit, that it the important thing. To stimulate the economy using Keynesian fiscal measures means increasing the deficit. If the deficit is decreased demand is being removed from the economic the opposite of a stimulus.

    According to the OBS the deficits were:
    Year ending April 2010 £158.3 billion
    2011 – 143.5 bn
    2012 – 124.1 bn
    2013 – 126.7 bn
    2014 – 104.1 bn
    2015 – 94.5 bn

    No way can this be seen as a government stimulating the economy every year.

    The amount spent by the government is not the important thing it is the size of the deficit which is important. So let us be clear it was austerity because the government was reducing the demand in the economy and it wasn’t Keynesian because the government was not stimulating the economy.

  • @ Peter Martin

    You are correct to point out that the Liberal Democrat manifesto embraced the neo-liberal financial orthodoxy of the need to reduce the deficit long term, stating they would cut government spending by £10 billion (net) per year. However on page 21 there was some Keynesian hope, “to boost the economy and create jobs for those who need them, we will begin our term of office with a one-year economic stimulus and job creation package.”

    This was dropped from day one of the negotiations with the Conservatives. David Laws supported making cuts in government spending from day one. And the first thing he did when he took office was to get each department to state how much they would cut.

    @ Nvelope2003

    We lost support by going into government with the Conservatives because a large number of our voters were really anti-Tory voters and not Lib Dem supporters. We ditched our economic policy on entering government and we were keen supporters of a spending revenue to cut huge amounts of government spending based on the Conservative manifesto. This turned even more of our voters away from us. A large group of our support traditionally came from public sector workers and we lost their support by limiting pay rises for them and reforming their pensions so they would get a worse pension on retirement.

    The breaking of our MP promise on student tuition fees after stating no more broken promises was the final straw that took our support to around the 7% level and all in the first year.

    If we had had a plan to destroy our major sources of support it would have included the policies we carried out in government.

  • @ Michael B-G Quite right.

    @ nvelop2003 “There has to be other reasons why the Liberal Democrats collapsed in 2015.” Yes, indeed. Try this for size.

    A gathering pace of knighthoods, peerages and gongs given out like confetti reminded one of Winnie the Pooh on the trail of honey. Enjoying the perks of office puts it mildly – and Seth Tevez’s disclosure of the donations/honours connection made a few eyebrows raise. A radical reforming party pursuing social justice ?

  • Laurence Cox 22nd Feb '18 - 1:58pm

    @Michael BG

    “This is completely wrong. I assume you have forgotten that the Coalition government produced a double dip recession at the end of 2012 and the beginning of 2013. ”

    More fake news, and by the way it was 2011-2012. The so-called ‘double-dip recession’ was an artefact of the way economic statistics are calculated. See: (25th April 2012)

    and (27th June 2013)

    The first round of economic figures are always subject to revision, often several times before they are finally regarded by the ONS as stable. In this case 2012Q1 was revised from -0.1% to 0%. The ‘noise’ in the graph shown on the second BBC page illustrates that variations of an odd 0.1% for quarterly figures are not significant.

    The ONS’ own report for May 2013 says:

    “Although there has been much talk of a ‘double dip’ recession, economic growth is most realistically described as being broadly flat, or at best rising very slowly, during the past two and a half years.”

    Opposition politicians always like to paint the Government in the worst light, and we should not be taken in by them any more than we should be taken in by the Government painting our economic conditions in the best light.

  • @Michael BG

    Thanks for the comment.

    Actually the “double dip” recession was revised

    I appreciate the point that you make that you will see an increase in growth – assuming all the Keynesian assumptions if you increase borrowing

    In two scenarios – a borrowing that starts at £100 billion and then decreases slightly is probably better than one that starts at £50 billion and increases slightly. Hopefully the start of £100 billion generates more growth that then has a multiplier effect.

    And in that context the borrowing at the end of Labour and beginning and through out the coalition was historically about double the maximum of what it has been in any other peacetime year.

    On a historical comparison basis – there have not been many years where borrowing has increased consecutive years. The only years this happened for more than 1 year I can find in peacetime since 1900 using the ukpublicspending figures are 92,93,94 and 31,32, 33 but with much, much lower levels of annual deficits.

    Keynes was also about counter-cyclical borrowing AIUI – going down as the economy recovers.

    Should the coalition have maintained borrowing? Well – this is the £1,800 billion question! Personally I would have had a higher level of borrowing but would have been decreasing it. On the other hand growth rates have been good if not spectacular –

  • Peter Martin 22nd Feb '18 - 2:33pm

    @ All,

    We seem to have lost sight of the original point that Layla made about tuition fees. There’s not a lot that can be done about that now except hope for forgiveness.

    This is something that can be done about general economic policy though. The lessons from the coalition period do need to be learned. Debt shouldn’t just be seen as Government debt. The level of private borrowing is much higher and is much more destabilising to the economy. The sum of private and government net borrowing has, as I mentioned previously, to equal the external deficit. So an ideal state of affairs would be to set the pound at whatever level it would take to make trade balance, or more accurately the current account balance.

    Then the Government’s deficit would be exactly what the Private Domestic sector would wish to net save. To the penny.

    It’s just not possible to have a high pound and low debt economy. It’s especially dangerous when the politicians don’t understand what’s going on and want to make exactly the same mistakes on debt reduction as previously.

    This would be an election winner, IMO, for any party prepared to explain it properly to the electorate. It’s always good in the long term to be truthful!

  • Peter Martin 22nd Feb '18 - 2:43pm

    @ Michael1

    “Personally I would have had a higher level of borrowing”

    You’ll never understand the economy if you don’t stop assuming that the Govt can control its borrowing. If I buy some Premium bonds or the Bundesbank buys some gilts then both myself and the Bundesbank are forcing the Government to borrow from us. The Government’s borrowings are much more like the borrowings of a commercial bank. Neither the bank nor the Govt can control those.

  • David Evans 22nd Feb '18 - 4:59pm

    Peter Martin, If you have to wait for forgiveness, you find it comes a lot quicker if you apologise (not the half baked apology for making a promise Nick tried), and Brexit is now 13 months away so we don’t have very long left.

  • According to the OBR £4 billion was cut from the 2010-11 deficit, so to discover what a Liberal Democrat government would have spent we can put that back. They gave no idea how much the stimulus would have been but as David Laws thought £4 billion would not affect the economy I think it would be safe to assume an economic stimulus would be at least £12 billion (about 1.1% of GDP) and I think we can spread it across the first two years and then it disappears.

    The Liberal Democrat deficits might have been:
    2010-11 £153.5 billion
    2011-12 £144.8 bn
    2012-13 £127.8 bn
    2013-14 £117.4 bn
    2014-15 £106.7 bn

    (£57.1 billion more national debt than happened)

    It is only in the year 2012-13 that the size of the deficits are close.

    @ Laurence Cox

    Thank you for the correction and the link. I will try to get the years right in future and use your link. I did know the figures were revised upwards, but it is the direction of travel which is important for this discussion.

    @ Michael 1

    As I said it is the deficit which is important the difference between government spending and income or in Keynesian theory T-G.

    An economy with a deficit of £100 billion would be a larger one than one with a deficit of £50 billion.

    For example

    C + G + I = C + T + S

    70 + 20 + 10 = 70 + 10 + 20 = 100

    With an increased deficit of 10 the economy is increased to 133.33 (multiplier of 3.33)

    93.33 + 30 + 10 = 93.33 + 10 + 30

    With a decrease of the deficit of 10 the economy is reduced by 33.33 (multiplier still 3.33)

    46.67 + 10 +10 = 46.67 + 10 + 10

    I hope this explains this aspect of Keynesian economics for you.

  • I’m sure this is all very worthy and erudite, but, in the flight away from Layla’s original comment about tuition fees, this thread has become about as exciting as an Algebra class when I was 16.

    I’m off to watch Drew Pritchard on telly.

  • Katharine Pindar 22nd Feb '18 - 8:58pm

    David, thank you for that! Our economists have had a field day, or rather several days, of discussing economic policies over several different threads, and though I have earnestly tried to follow the arguments, in each case it seemed as if the original excellent theme had sunk into a deep pool where you might discern one hand feebly waving from the depths if you looked hard enough.

    Here in Layla’s thread it would be good to have further discussion of what our best policy to have on tuition fees should be now. We don’t think they can be abolished, I take it. We might like to have a policy on the interest rates charged. We might want to insist on restoring Educational Maintenance Grants. We might also make a push to woo students and other young folk by reminding them that it’s their freedom to enjoy free movement in and out of EU countries for work and homes and meeting other like-minded Europeans and having all sorts of opportunities which we Lib Dems alone are battling for in whole-heartedly opposing Brexit.

  • Germany has managed to abolish tuition fees as they weren’t working for the economy.

    And they are also finding that having abolished them, that also isn’t helping the economy!
    To take a popular subject, medicine – one of the most expensive degree courses, students are graduating and discovering that they can earn more abroad in countries such as the UK and the US, they are doing this in such numbers that Germany has to effectively import Doctors from abroad. There is talk of changing the rules so that graduates only get their education free if they work in German for a minimum number of years postgrad.

    So I suggest from a UK perspective and where we are, getting rid of tuition fees isn’t necessarily a good idea; getting more creative about how those fees may be repaid in a way that encourages postgrads to work in the UK is. Which would seem to be a policy that is directly aligned to the aspirations of Brexiteers, namely investing in UK residents and the UK economy.

    On this, namely investing in UK education using LibDem policies, we can and should go further, because for the UK to succeed post-Brexit we will need long-term investment in UK education. So starting at the beginning, we have all the policies around preschool provision, we also have the successful policy of free school meals – which also plays to the here-and-now, given there are reports that the Conservatives are intending to undermine this policy with plans due to be implemented in April [ ].

    I’m sure with some dusting down and careful rewording/positioning, many LibDem policies can be promoted as enabling the bright future the Brexiteers and specifically those in government talk about: You want Brexit, show me your commitment and start making the investment necessary for it to be a long-term success.

  • Andrew McCaig 23rd Feb '18 - 12:27am


    I said “people who did not pay fees”. That is everyone who went to university before 1998. Lots of people. I did not say anything about grants (although I got a full grant in 1976 thanks to my father retiring, and that was plenty to live on..)

    And all you do is make it a declaration on the tax return. If people lie they get a big fine, and graduates are easily traced, partly because they tend to boast about it… The supposed difficulty of tracing graduates was one of the hugest red herrings put about by the opponents of graduate tax

  • Layla,
    as she so often does gets to the heart of the issue in saying ” the idea that university should be free for everyone – and that tuition fees should be abolished, is unsustainable.”
    Although crudely put, when Julia Hartley Brewer comments that ” the idea that 50% of students are suitable for university education is “laughable.” is perhaps unwittingly highlighting the crux of the matter. University is not good value for every student. Many being pushed in this direction would be much better served by institutions focused on delivering technical and vocational skills training.
    Layla also points to the way forward “we must restore maintenance grants, the means-tested funding provided to poorer students to cover living costs. She also said that we must take greater care of the 50% who don’t go to university, and put money into the Further Education sector and into schools to drive that improvement in social mobility.
    A University education is both a private and pubic good. So too is further education and vocational training as of course is primary and secondary education. All have to be resourced sustainably. This ultimately means higher taxes in one form or another. The issue is where to apply such taxes. The student loan system is a form of graduate tax .
    Last week the Economist carried an article on the OBR forecasts that project a fiscal hole of 80billon (about 4% of GDP)over the longer term. Spending cuts or tax rises of this magnitude will be needed. Let’s discount Tory ideas like scrapping the foreign aid budget and focus on how Liberal Democrats will finance this kind of shortfall compared with Labours plans for putting corporation tax back up to 26%, increasing income tax, bringing in a tobin tax and escalating borrowing levels.

  • Keynes did offer us some advice on how best to manage the public finances. To find out what is was it is best to go back to the original arguments made by Keynes himself. The authors of this 1995 journal article quote Keynes verbatim on this specific issue
    The conclusion notes “Keynes believed that aggregate real income would continue to increase as more and more capital is accumulated. This increase in income results in an increase in aggregate savings and an increase in the average propensity to save. This leakage required ever increasing amounts of injections in the form of investment to maintain a reasonably full level of employment and income. If such investment were not forthcoming, unemployment and slow economic growth would result. To achieve such ever increasing amounts of investment in capital would be difficult by relying on the profit motive and yields from ownership of capital as these yields would have to fall as capital became less scarce. In addition to long-term insufficient amounts of private investment, short-term fluctuations in investment were quite likely, causing periodic recessions and booms. He believed the answer to both of these problems was a planned program of social investment to be conducted on the basis of needed public services but the scale of which would depend (assuming urgent social needs had been met) on the level of expected private investment relative to the full-employment level of savings. Public investment could fill the gap left by insufficient private investment and public investment could be adjusted in its delivery to offset short-run fluctuations in private investment. Deficits in the current or ordinary budget were a symptom of insufficient private and public investment. They were not a cure for unemployment. Borrowing to finance public investment was justified on the grounds that the capital acquired provides a real return over time. Further, such borrowing was to be associated clearly with the cost of the particular services to be provided and amortized with scheduled payments from tax revenues.

  • As I’m interested in having a say in who the UK’s next PM is, does anyone know if I can join the Conservative Party? I am a member of the Libdems.

  • Peter Martin 23rd Feb '18 - 8:02am

    @ Katharine,

    Whether to have tuition fees has to be a political decision. If you think they are good idea then keep them. If you don’t then scrap them. But don’t scrap them because you think they are “unsustainable”. I’d suggest that we should offer students a way to pay for their upkeep by offering them some work during the time they are there and maybe for a year afterwards. Maybe everyone, regardless of economic circumstances, should be required to do a year’s community service to “pay for” their education.

    Is that a good idea? Maybe. Maybe not. Is is sustainable? Sure. Why wouldn’t it be?

    @ Michael BG,

    “An economy with a deficit of £100 billion would be a larger one than one with a deficit of £50 billion.”

    You need to tighten up on your logic a little. I presume you mean the Government’s deficit? Which is everyone else’s surplus -right? Sure there’s nothing wrong with having a Govt deficit of either figure you mention. But the size of the economy and the growth rate depend on lots of factors. Germany doesn’t have a Govt deficit at all but has a larger economy. So is Germany’s economy healthier than the UK’s? Not necessarily! The Govt deficit is just one of those parameters, like the exchange rate, that we need to keep our eye on but shouldn’t get too obsessed about.

    @Joe B,

    I detect echoes of Marx in your argument attributed to Keynes. Marx had the idea of constant and variable capital. The variable capital was linked with the ability of capitalists to extract surplus value from the workers which is the source of all profits. But as capital builds over time the amount of surplus value couldn’t keep pace and the rate of profit would fall. Leading ultimately to the demise of capitalism.

    Make of that argument what you will, but I often thought Keynes did pinch a few ideas like that from Marx. He denied it of course!

  • Catherine Jane Crosland 23rd Feb '18 - 8:24am

    It is disappointing to see that very few people who have commented, seem to believe in the principle that education should be free. This is a principle that the party appeared to believe in passionately up to 2015. And presumably the policy of abolishing university tuition fees is still party policy, as it has never actually been overturned by Conference?
    What has changed?
    My feeling is that the party has only started saying that free higher education is “unsustainable”, as an excuse for the behaviour of the Lib Dem MP’s who broke their pledge and voted for the rise in fees. If it was “unsustainable”, why did they sign the pledge in the first place?
    It is true that there has been a dramatic rise in the numbers of young people going to University, making a policy of free higher education far more costly. But there has also been a dramatic rise in the number of young people staying in education until the age of eighteen. As far as I know, no-one has suggested that students should have to take out loans to pay for their sixth form education, or that there should should be a tax for anyone who stayed at school beyond the age of sixteen, and there would rightly be an outcry if anyone did suggest it.

  • Peter Martin 23rd Feb '18 - 8:43am

    @ Micahel BG,

    Your calculations on what Lib Dem deficits might have been , such as £106.7 bn in 2014 is just guesswork. Suppose everyone else didn’t want to save that much in 2014? Or suppose they wanted to save more? There’s no way of knowing.

    Diane Abbott was widely criticised for getting into a muddle over the costs of recruiting 10,000 police officers during the 2017 election. She shot out some figures like £80 million, or whatever, which were ridiculed. The “correct” answer was £300 million pa. on the basis that the average pay plus overheads of a police officer was about £30ka and when you multiply that by 10,000…….

    But what about the tax and the NI that each police officer pays? That’s always about a third of our income. So is the “correct” figure now £200 million pa? And what about the extra VAT and other taxes that will be raised as that £200 million is spent and respent in the economy? What’s the real cost now? Maybe Diane Abbott was right all along?

    In truth, no-one, was right. However much the OBR might want to misinform us, we can’t do back of envelope type calculations, like this, in any meaningful way.

    The deficit always ends up being what everyone else wants to save. Period as the Americans like to say.

  • Catherine Jane Crosland 23rd Feb '18 - 8:46am

    I should have said above, of course, “a principle that the party appeared to believe in passionately up to 2010”

  • Peter Martin 23rd Feb '18 - 9:05am

    Catherine Jane Crossland makes a very good point about the desirability of having free education.

    Socialists would naturally favour the concept on principle. But, everyone else should be wary of the idea that paying for an education could actually become, over time, paying for a degree. That certainly would not be in anyone’s interest -apart from the person paying for one of course. But if there are thousands of pounds involved and the Universities are squeezed financially a corruption of the system is bound to happen sooner or later. Maybe it has already started

  • @ Peter Martin : “we can’t do back of envelope type calculations, like this, in any meaningful way”.

    Unfortunately some people do – at length.

  • @Katharine Pindar
    Looking at the consultation paper on ‘Tuition Fees’ being put forward at conference, it would seem that the party has made it’s mind up. It’s either a graduate tax or a graduate tax. In other words, because we got a flat tyre we’ve decided to re-invent the wheel.
    P.S.Much as I do admire your bubbly optimism, do you not think that the increased youth vote may have come about as a result of our Brexit stance? Do you think we can rely on it again?

  • Bill le Breton 23rd Feb '18 - 10:32am

    Peter and David – size of deficits 2010 to 2015.

    There is a slightly more scientific approach the calculating the likely deficits for this period.

    The Lib Dems supported the Labour spending plans in Darlings’s last budget and included these in its 2010 manifesto.

    Roughly speaking these proposals were to halve the deficit in the period 2010-2015

    Here is the Treasury’s pre-budget (2010) forecast for deficits (and within that figure the size of the structural deficits ie the ones that really mattered.)

    Table 7
    Total and Structural deficit, % GDP Total and (Structural)
    2009/10 12.6 (9.0)
    2010/11 12.0 (8.0)
    2011/12 9.1 (5.8)
    2012/13 7.1 (4.5)
    2013/14 5.5 (3.6)
    2014/15 4.4 (3.1)
    Source:HM Treasury, 2009 PBR, Table B2, p168

    Of course the noise that accompanied the “””Emergency””” June Coalition budget severely harmed confidence / undermining those invaluable animal spirits. And to its shame the Bank of England failed in its promise to the Coalition to loosen further monetary policy to offset the Coalition fiscal tightening.

    Growth was immediately revised downwards for 2010/11 by about 33% and this was never made up over the lifetime of the Parliament.

    The disastrous handling of the economy probably cost the UK economy half a trillion pounds of lost output/income over the life of the Parliament (as well as prolonging the period of high deficits).

    Of course it allowed Osborne to completely discredit Labour on the economy, but the collateral damage of this reputational damage was to squeeze the Lib Dem vote too. Destroying the Parliamentary party as an electoral force.

    It is not hard to see that this lost output and income across the nations of the UK became a serious factor in the EU referendum.

  • Catherine Jane Crosland 23rd Feb '18 - 11:27am

    PJ, I hadn’t realised that the consultation paper being considered by Conference definitely supports a graduate tax. I am very much opposed to the idea of a “graduate tax”, and feel that it is even worse than a system of students taking out loans (although I realise that in practice it more or less comes to the same thing).
    It is an extremely dangerous precedent. What next? Higher taxes for people who have had expensive surgery on the NHS? People with children paying higher taxes than people without children, to cover the cost of schools? I hope everyone would agree that these would be unacceptable, so we should regard a graduate tax as unacceptable too.
    Society as a whole benefits from having a highly educated population. Therefore it is fair for all taxpayers to pay for education, whether or not they have children, and whether or not they are themselves graduates. Just as it is fair for everyone to pay for the NHS, even if they are extremely healthy and rarely see a doctor.

  • Peter Martin 23rd Feb '18 - 11:28am

    @Bill le Breton,

    I can’t see how this is really any more scientific. Before the 2008 GFC, the level of private borrowing in the economy was relatively high. This meant that Govt budget deficits were relatively low. After the GFC, and the so-called “credit crunch” the private sector cut back its borrowing and started saving. So the Government deficit rose as tax receipts fell away.

    After the GFC the Government and BoE acted decisively to lower interest rates and so encourage the private sector to start borrowing again. Ergo the Govt deficit fell.

    Little or nothing to do with tax rises, such as VAT to 20%, or spending cuts. Very much to do with loose monetary policy.

    Everything that happens in one sector is just a mirror image of what happens in other sectors. See the first graph on this link:

  • Peter Watson 23rd Feb '18 - 11:33am

    @Catherine Jane Crosland “If it was “unsustainable”, why did they sign the pledge in the first place?”
    Indeed. Or more to the point, why did the party want to scrap tuition fees (and continue to “aspire” to do that for some time afterwards – perhaps still, who knows?).
    In 2010:

    We will: Scrap unfair university tuition fees for all students taking their first degree, including those studying part-time, saving them over £10,000 each. We have a financially responsible plan to phase fees out over six years, so that the change is affordable even in these difficult economic times, and without cutting university income.

    Was the party misleading voters about the sustainability of (and support for) that policy (raising questions about its honesty) or was it simply wrong (raising questions about its competence), or perhaps both? That (and the pledge-breaking) is why the the tuition fees fiasco is so damaging to the Lib Dems’ reputation, and failing to find a solution has prolonged it.

  • A lot of people think that it was all the students votes in 2010 that helped the Libdems when in fact we lost seats. People also think that the public turned on the libdems because of the so called u turn on tuition fees when in fact most of the people who deserted the libdems did so 5 days after the election! The Libdems were too naiive to think that, given the bill was going to be passed anyway, “in for a penny, in for a pound! we’ll tag some libdem goodies to the bill. Like Layla Idon’t understand why they did not take the “abstain” option. Clearly (given Clegg’s apology – once again a lot of people think he apologised for supporting the price hike, whereas of course he actually apologised for not making clear which manifesto pledges were red lines) the Libdem leadership agreed with the legislation. The review is a waste of time and money. Reinstate the maintenance grants and reduce interest rate. Fullstop. Having said that, it is also quite correct to address the 50/60% of people who do not go to university.

  • Nonconformistradical 23rd Feb '18 - 11:55am

    @Catherine Jane Crosland

    “Society as a whole benefits from having a highly educated population. Therefore it is fair for all taxpayers to pay for education, whether or not they have children, and whether or not they are themselves graduates. Just as it is fair for everyone to pay for the NHS, even if they are extremely healthy and rarely see a doctor.”

    Paying for the NHS out of public funds is akin to an insurance policy – just in case one draws a very short straw and needs extensive and unaffordable medical treatment.

    To what sort of ‘highly educated population’ do you refer? Some higher education is of greater benefit to society than other parts.Some institutions of higher education confer greater benenfits on their graduates than do others – e.g. Oxbridge influence – not what you know but who you know. That stinks.

    Personally I take a dim view of my taxes contributing to well-heeled offspring from largely tory backgrounds studying such areas as PPE (which from the subsequent performance of some of them in public office doesn’t necessarily appear to have benefited society at large but does appear to have benefited a select few at everyone else’s expense).

    I would far rather see my taxes spent on very much better vocational education (including basic management skills) to enable a very much greater proportion of society to obtain good jobs – and to do those jobs well.

  • Laurence Cox 23rd Feb '18 - 12:53pm

    “As I’m interested in having a say in who the UK’s next PM is, does anyone know if I can join the Conservative Party? I am a member of the Libdems.”

    No. Joining another British political party if not permitted if you wish to remain a Liberal Democrat member.

  • nvelope2003 23rd Feb '18 - 1:10pm

    David Raw: I think you will find that the honours, peerages etc mostly came after the 2015 election disaster. I would not think many voters could have anticipated it. Sadly the party is seen as irrelevant nationally not just because it entered a coalition with the Conservatives but because it did not stand up to them on policy matters. The experiences of 1924 and 1929 would seem to indicate that a coalition with Labour would have brought the same disaster but that was not practical in 2010 because the numbers did not add up. The obvious lesson for Liberal Democrats is not to enter national coalitions unless they are the largest party but it is one which they seem unwilling to learn. Yes it is nice for the party to be in Government but not so nice when it almost destroys the party as it has done and will do in future.
    There does have to be an innovative policy on tuition fees which is different from that of other parties and which is acceptable to most reasonable people. They also need leaders who are not tainted by the coalition years.

  • Peter Martin 23rd Feb '18 - 1:15pm

    What happens if someone fails a university degree and therefore isn’t a graduate but has still had the same amount of money spent on their education? Why only graduates? Where do you draw the line? What about HNCs and HNDs? Are holders of those qualifications graduates too? Are they included in the tax?

    We could tax those who’ve done A levels more than we tax those who have only done GCSEs perhaps. If we want to apply the same principles there is no reason why not!

    What about those who have spent a few years in prison? That probably costs more than supporting university tuition. So how about a convict tax, too?

  • Lorenzo Cherin 23rd Feb '18 - 1:29pm

    I must add to this.

    David Raw

    Understanding you is a gradual and worthwhile aspect here. I want to more. If you feel the extent of the demoralisation, constant, sometimes, appropriate solutions would be welcome. You seem to say, the gender emphasis is good, yet criticise identity politiics and oppose all women or BAME oe disability shortlists. You want this party to have policies not very distinct from Labour but are not an advocate of the actual or developing, a , progressive alliance, or are you, in which case, do it and cheer us up and on instead of comparing us with UKIP .

    Could some wise of well meaning colleague, Catherine, David, anyone, deal with the threat from Renew, who are openly ruining our chances with an identical policy stance, even wanting a basic income which some of us do and Sir Vince does not.

  • @Catherine Jane Crosland
    “Society as a whole benefits from having a highly educated population. Therefore it is fair for all taxpayers to pay for education”. But not nearly as much as the graduate himself who benefits by £500,000 over a lifetime!

  • Bill le Breton 23rd Feb '18 - 2:42pm

    Peter, I understand your reasoning. But plug in half a trillion of GDP over the lifetime of that Parliament and you get a lot of tax receipts.

    Talking up a sense of crisis in the summer of 2010 increased deleveraging and saving, reduced the demand for money/velocity of exchange, reduced investment, as well as reducing tax receipts and yes increased total government debt by more than would have occurred if a) we had stuck with our manifesto budget and b) not gone on about the UK being the next Greece!

    I think the above figures for the probably size of the deficit (as % of GDP) would be a reasonable approximation.

  • Peter Watson 23rd Feb '18 - 5:56pm

    @russell “Like Layla Idon’t understand why they did not take the “abstain” option.”
    The “abstain” option was part of the Coalition Agreement which signalled an intention to break the pledge within days of the General Election, so tuition fees was part of that initial disillusionment with Lib Dems in Coalition.

  • Peter Watson 23rd Feb '18 - 6:07pm

    @russell “But not nearly as much as the graduate himself who benefits by £500,000 over a lifetime!”
    Where has that figure has come from?
    If I recall correctly, during the Coalition, ministers claimed that the so-called “graduate premium” was nearer to £100,000, but it must be a very difficult figure to pin down. Also, there are concerns that it is eroded by repayment of loans (for fees and maintenance) and by graduates increasingly doing what were not traditionally considered “graduate jobs”.

  • Peter Martin,

    I think all economists that came after Karl Marx were enlightened by his work and insights. He might have been better off sticking with Das Capital instead of embarking on the Communist Manifesto, but then he was a moral philospher and Engels a social reformer in the tradition of the classica economists, even when they rejected the conclusions of the likes of Smith and Ricardo.

    Keynes was nontheless clear that a distinction be made between the current spending budget and the capital budget. If savings were not being recycled into productive investment (physical capital) then planned government spending on infrastructure should be accelerated. If private sector investment was running ahead of savings then government spending should be slowed to moderate overheating in the econmy.
    Non-pruductive debt (such as that incurred by the production of munitions for fighting wars) should be retired and replaced with new productive debt invested in economic infrastructure that generates an ongoing return to society as a whole. The current budget (inclusive of amortisation of non-productive debt) should be maintained in balance or in surplus to contribute to new infrastructure spending. The key aspect of this is (outside of general slump conditions), a budget deficit should only arise as a consequence of public investment in physical infrastructure in excess of any surplus generated from the current budget (including retirement or amortisation of prior debt incurred).
    This is an approach that attempts tp absorb excess savings in the economy (by running a government deficit) or cools excess private borrowing (by runung a government surplus). Of course it is earier said then done and it does not take account of the impact on inequality when much of the population are net borrowing and a small number are accumulating the savings. Likewise, no distinction is made between investment in produced capital (buildings and equipment and non-produced capital (land and intellectual property).

  • Russells comment at 11.52 am says pretty much all I had to say on tuition fees, with the exception of the abstain issue. With so many Libdem MPs serving as ministers and junior ministers this was not a clear-cut option for them in a newly formed government.

  • Peter Watson 23rd Feb '18 - 8:40pm

    @JoeB “With so many Libdem MPs serving as ministers and junior ministers this [abstention] was not a clear-cut option for them in a newly formed government.”
    Given that they had negotiated abstention into the Coalition Agreement, it was surprising that any of them chose to do the opposite of what they promised (not that those who abstained covered themselves with any glory either). The excuse of cancelling out the votes of those Lib Dem MPs who honoured their pledge was a terrible one, and the split between MPs who supported, opposed or abstained gave the impression of a party that did not know what it was doing. It is a shame that Tim Farron was later unable to capitalise on a reputation that was relatively untarnished by the Coalition years.

  • Peter Martin 23rd Feb '18 - 8:42pm

    Yes, I am aware that Keynes and Keynesian economists have often played up the borrowing-is-OK-if-it-is-for-capital-spending argument. It’s a handy method to calm those who might have cold feet about any extra “borrowing” and worry that we are going to leave our children and grandchildren to pick up the tab etc.

    But, we should try to understand some of the contradictions. At least amongst ourselves. For example if we take spending on education, the net ‘product’, which we all want is well educated ex-students at the end of it all. But because we don’t actually own those people we can’t include them on our balance sheet. So strictly speaking it isn’t capital spending. Neither can the salaries of teachers be counted as capital spending. But it’s still essential spending nonetheless. But we can count the cost of the schools we build and put a value to them on our balance sheet. That’s true even if we’ve no intention of ever selling them.

    We can make the same argument with hospitals, doctors and healthy ex-patients.

    I’m not sure why it seems to calm some people down about the borrowing. It’s all nonsense really! But, if it serves a purpose….

  • Re: Consultation paper on ‘Tuition Fees’ being considered by the Spring Conference 2018

    It is clear from paragraph 1.1.1 of the document that Vince and the policy committees have already decided that:
    a) graduates should contribute to the costs of their degrees,
    b) a graduate tax is party policy
    and are hence working on the assumption that conference will simply accept the graduate tax proposal and so by default overturn conflicting pre-existing policy… – Hence why they have been so silent on such matters.

    Personally, I find the discussion document very academic, giving little real reason why a graduate tax is “the solution” only saying it is the solution because that is what Vince et al want (paragraph 1.1.1). In fact, the absence of real-world thinking is notably absent, probably because like all such arguments, they don’t stand up well to the cold light of day. Also, given the experience with Student Loans and the party’s policy legacy with respect to tuition fees and Student loans, is worrying.

    It thus was a welcome surprise then that it actually contained two paragraphs considering the position of EU (non-UK) students with respect to the current Student Loans system and makes this highly relevant point:

    Because the loan is a private law contract, it can be enforced in other EU jurisdictions through the arrangements on the mutual recognition of judgments. Taxes cannot be enforced in other jurisdictions, even EU ones. [Section 2.7.1]

    However, there is no further investigation of, what I would consider important, aspect of the loans v. tax repayment methods (although it is touched on again in section 4.4.1). Also no consideration of the real-world of post-graduate employment: how do you collect tax from a graduate who migrates and thus no longer pays UK taxes, plus as has been pointed out in the comments here is a graduate (for tax purposes) someone who has attended University or someone who gains a graduate qualification. Hence I do get the feeling that this has the real potential to be another policy mishap…

  • @Andrew McCaig I said “people who did not pay fees”. That is everyone who went to university before 1998.

    However, if we apply the same rules as apply to Student Loans, it actually means only those who graduated less than 30 years ago namely those who attended between 1988 and 1998, still ‘owe’ monies. Also given “Tuition Fee’s” weren’t determined before 1998, these and other variables would need to be calculated before we can calculate the theoretical amount outstanding on which a repayment/tax is due; not impossible but open to question.

    [Aside: Working in the private sector, where final salary schemes had largely been superceded by defined contribution schemes by 2008, I have little sympathy for the long overdue change in lecturers pension arrangements from defined benefits to defined contribution. Looking at the USS website, I would regard the proposed funding formula (Employer contribution 13.25%, employee contribution 8%) as good, given since 2008 I have used a benchmark of 23% pa. for my personal pension arrangements over and above NIC/state pension.]

  • @ David Raw

    When someone makes an incorrect statement even if it is off topic others should rebut it. Like Laurence Cox did with me. Unless people do this readers of the incorrect statement might well believe it. I think there is a saying about true news driving false news away.

    @ Joe Bourke

    Seems Keynes was good at predicting when he said government deficits were likely to need to be larger as the economy progresses.

    @ Peter Martin

    You are correct. What I meant was in relation to one economy not comparing different economies i.e. that bigger government deficits will everything else being equal produce a bigger economy in that economy. I am sorry if this was not clear.

    In case it was not clear what methodology I was using it was –
    Take the actual deficit for 2010-11 add back the £4 billion of cuts and add £6 billion of promised stimulus;
    Then reduce the figure by the promised £8.7 billion (net) of cuts as set out in the manifesto for 2011-12;
    Then reduce the new figure by the £6 billion stimulus and £11 bn. (net) of promised cuts for 2012-13;
    Thereafter reducing the previous year’s figure by the promised cuts – £10.4 bn. and £10.7 bn.

    My figures are not a prediction because I don’t have a model to put the figures into.

    @ Bill le Breton

    Our manifesto of 2010 set out net cuts to spending totally £40.8 billion (p 103). Therefore we were not keeping to Labour spending plans or the Treasuries forecasts.

  • @Joe Burke – “The conclusion notes “Keynes believed that aggregate real income would continue to increase as more and more capital is accumulated. This increase in income results in an increase in aggregate savings and an increase in the average propensity to save.”

    And here we can see a flaw in Keynes thinking, as evidenced by the UK economy in recent years! Note the use of the word ‘aggregate’. It is clear Keynes was thinking from a distant viewpoint and not an individual viewpoint. As we have seen, it is perfectly possible to have an increase in aggregate income (Gross GDP) whilst at the same time individual incomes (per capita GDP) remain largely static due to the constant inflow of significant numbers of cheap workers. Which as we know from the increasing levels of debt being reported, disproves the connection between increases in aggregate income and people’s propensity to save…

  • Peter Martin 23rd Feb '18 - 11:22pm

    @ Micheal BG,

    “bigger government deficits will bigger government deficits will everything else being equal produce a bigger economy in that economy produce a bigger economy in that economy”

    Only possibly. But you can never assume ” everything else being equal”. Change one thing and something else will always change to thwart you. In any case as I said to Michael1 you can’t assume, or even think, that Govt can control its deficit. An ability to run a deficit is quite a healthy sign because it means that others want to save in your currency of account. But you can’t force them.The more you try the more suspicious they’ll be.

    All you can do is try to steer a sensible path between having too much recession and too much inflation and try to get some growth too. Once you have that the economy will do well. It will then also be an attractive place for others in the world to park their hordes of cash. You’ll need to have a plan for that too otherwise the currency will rise, imports will rise and so will general deficit and debt levels.

  • Roland,

    Predictions are difficult to make, especially about the future – so goes the quip.
    Keynes in the 1920s predicted that productivity and incomes would grow so much in the next 100 years that the biggest problem we would face in our times would be what to do with all our leisure time.


    The UK current budget deficit – defined by Office of Budget Responsibility as (current expenditure – current receipts – depreciation) started out in 1947 at 3 percent of GDP and then immediately went into surplus, as the Attlee government worked to reduce the huge debt racked up in World War II. The surplus peaked at 6.3 percent of GDP in 1950 and then declined to a surplus of 0.9 percent GDP in 1961.
    But then surpluses started to climb again reaching 7.6 percent GDP in 1970 during the Wilson government before declining sharply. The UK scored a deficit of 0.1 percent GDP in 1975 for the first time in nearly 20 years.
    The UK ran a budget deficit till the end of the Thatcher years, with a peak of 2.2 percent of GDP in 1981. In the mid to late 1980s deficits declined, and went into surplus in 1989 at 1.9 percent GDP.
    Deficits returned in the Major years and the ERM crisis, reaching 5.7 percent GDP in 1994. But then the deficit came down and went into surplus, maxing out at a surplus of 2.3 percent GDP in 2001.
    Moderate deficits were the rule in the mid 2000s Blair years. But the deficit rocketed upwards to 6.9 percent in 2010 in response to the Crash of 2008 and the Great Recession. In the recent recovery, the budget deficit has declined to less than one percent of GDP.
    For the fiscal year ending in March 2018:
    The current budget deficit is estimated to be £18.2 billion. The difference between spending (including capital expenditure) and revenue is estimated to be £69.8 billion.
    The increase in UK “net debt” is estimated to be £100.2 billion.

  • Katharine Pindar 24th Feb '18 - 2:19am

    @Roland. Consultation Paper 134 on Tuition Fees does not, of course, represent party policy, which is yet to be decided by Conference, probably next September. I find this a most welcome, well thought-out and comprehensive discussion of the vexed question of tuition fees and their possible replacement by a graduate tax. Eight policy goals are discussed, including, ‘Any solution should offer a better deal not only to future students but also to those already in the system. It should also be a distinctive policy easily associated in the public mind with the Liberal Democrats.’ The following policy options are viewed dispassionately but convincingly against the policies of both the Conservatives and Labour. Replacing loans with individual income-sharing contracts is suggested, and weighed against possibly charging a supplementary income tax. ‘Additional ideas’ discussed include: ‘More radically and distinctively liberal, some trustees of the fund could be elected by all contributing graduates.’

    There are eight questions posed in the text to be answered by members, who can contribute replies to the Policy Unit at HQ by email or post up until March 31st. At first reading I am delighted to be so challenged by all these ideas, and feel confident we should indeed be able to offer a sensible set of solutions which will be both distinctive and popular at the end of our deliberations.

  • Catherine Jane Crosland 24th Feb '18 - 8:33am

    Russell, the figure that you claim that graduates “benefit by”, is clearly vastly exaggerated, or applies only to a small minority of graduates.
    The reality is that for many graduates, the “benefits” of their degree are not financial. Many graduates have jobs that do not require a degree. Sometimes this is by choice, or sometimes it is because their are not enough graduate jobs to go round. Even many jobs that do require a degree are not particularly well paid.
    And of course some people who do not have degrees earn very high salaries, or run their own highly successful business.
    Graduates may earn more than non graduates on average, but nevertheless it is the case that many graduates earn less than many non graduates. So how can it be fair for everyone who has a degree to be expected to pay a graduate tax, which someone on the same salary or a much higher salary will be exempt from because they do not have a degree? Even though the non graduate benefits from the fact that others have degrees. Every time they visit a doctor, to give just one obvious example.

  • Peter Martin 24th Feb '18 - 10:06am

    @ JoeB,

    “The UK current budget deficit …….started out in 1947 at 3 percent of GDP and then immediately went into surplus, as the Attlee government worked to reduce the huge debt racked up in World War II”

    Ok but this gives the impression that the Attlee Govt were repaying debt to those they had borrowed it from. This may have been true if the debt was in US$, or swiss francs or whatever, but the vast majority of the debt was in the form of the savings of the UK population. There wasn’t much to spend money on during the war and the patriotic thing to do was save, rather than spend, in support of the war effort. So the high deficits over the war time period was simply the savings of the UK population.

    So, at the end of the war we had a population with tidy bank balances but still not much to spend it on in the shops. The switch back to a peacetime economy was going to take some time. To prevent inflation the Attlee Govt had to tighten fiscal policy, ie raising taxes, to stop the population spending their savings too quickly. At the same time rationing was continued – again to prevent inflation by reducing demand.

  • Richard Underhill 24th Feb '18 - 10:42am

    Peter Martin 24th Feb ’18 – 10:06am: ‘Debt’ should be ‘debts’, sterling area or not.

  • Richard Underhill 24th Feb '18 - 10:49am

    Brave to take on Hartley-Brewer, glad you got a word in edgeways.
    Please see Peston-on-Sunday ITV 19/2/18. Oxford and Cambridge are too dominant. More local universities needed as most European countries have had for centuries.

  • Peter,

    don’t forget this was the start of the Bretton-Woods agreement with sterling fixed at an exchange rate of $4.02. The loans that Keynes negotiated with the US and Canada were primarily to support British overseas expenditure in the immediate post-war years and not to implement the Labour government’s welfare reforms. British treasury officials believed they could implement the Labour government’s domestic reforms without the loan if Britain withdrew from all major overseas commitments. The loans were on top of the lend-lease balance that was paid off for $650 million (US$ 900 million) in 2006.
    At the start of the war, Britain had spent the money that they did have in normal payments for materiel under the “US cash-and-carry” scheme. Basing rights were also traded for equipment, e.g., the Destroyers for Bases Agreement, but by 1941 Britain was no longer able to finance cash payments and Lend-Lease was introduced.
    Large quantities of goods were in Britain or in transit when Washington suddenly and unexpectedly terminated Lend-Lease on 21 August 1945. The British economy had been heavily geared towards war production (around 55% GDP) and had drastically reduced its exports. The UK therefore relied on Lend-Lease imports to obtain essential consumer commodities such as food while it could no longer afford to pay for these items using export profits. The end of lend-lease thus came as a great economic shock. Britain needed to retain some of this equipment in the immediate post war period. As a result, the Anglo-American loan came about. Lend-lease items retained were sold to Britain at the knockdown price of about 10 cents on the dollar giving an initial value of £1.075 billion]
    Keynes went to the United States and Canada to obtain more funds. America offered $US 3.75bn (US$51 billion in 2018) and Canada contributed another US$1.19 bn (US$16 billion in 2018), both at the rate of 2% annual interest. The total amount repaid, including interest, was $7.5bn (£3.8bn) to the US and US$2bn (£1bn) to Canada.The loan was made subject to conditions, the most damaging of which was the convertibility of sterling.The effect of convertibility was to worsen British post-war economic problems. International sterling balances became convertible one year after the loan was ratified, on 15 July 1947. Within a month, nations with sterling balances (e.g. pounds which they had earned from buying British exports, and which they were now permitted to sell to Britain in exchange for dollars) had drawn almost a billion dollars from British dollar reserves, forcing the British government to suspend convertibility and to begin immediate drastic cuts in domestic and overseas expenditure. The rapid loss of dollar reserves also highlighted the weakness of sterling, which was duly devalued in 1949 from $4.02 to $2.80.In later years, the term of 2% interest was rather less than the prevailing market interest rates, resulting in it being described as a “very advantageous loan” by members of the British government, as elaborated below.
    Much of the loan had been earmarked for foreign military spending to maintain the United Kingdom’s empire and payments to British allies prior to its passage, which had been concealed in negotiations through to the summer of 1946.Keynes had noted that a failure to pass the loan agreement would cause Britain to abandon its military outposts in the Middle East, Asian and Mediterranean regions, as the alternative of reducing British standards of living was politically unfeasible. The last payment was made on 29 December 2006 for the sum of about $83m (£45.5m), the 29th being the last working day of the year. The final payment was actually six years late, the British Government having suspended payments due in the years 1956, 1957, 1964, 1965, 1968 and 1976 because the exchange rates were seen as impractical.

  • Peter Martin,

    regarding the issue of capital expenditure the paper referenced above outlines Keynes reasoning.

    “Keynes was opposed to deficit spending in the sense of “collecting taxes less than the current non-capital expenditure of the state as a means of stimulating consumption” (CW, vol. XXVII, p. 406). Borrowing to finance capital expenditure by govenment to stimulate investnent was different and, with Keynes’ suggestions as to how this would be reflected on the balance sheet of the central government versus that of local entities, should not result in a budget deficit.
    Keynes viewed deficits as the result of a decrease in revenues due to a decrease in economic activity. As such, the best way to avoid deficits was to offset fluctuations in private investment with designed changes in public investment. It was the countercyclical change in public investment that should reduce the size of or the necessity for deficits.”
    Today, automatic stabilisers (reductions in the tax take and increases in the level of benefit and tax credit payments) do the work of moderating the fiscal impact of the current budget in recessionary or expansionary conditions.
    The maintenance of foreign reserves are no longer the issue they were in the fixed rate era. Overseas investors can freely convert sterling in the foreign exchange markets and it is these markets that determine Sterlings exchange rate and hence the purchasing power of the pound in overseas markets.

  • @ Peter Martin

    In the context of what is a stimulus and what is austerity and how is the economy affected generally when the deficit is increased or reduced my point is correct. This was shown in the simplified examples I gave. To understand how the economy works you have to start with simplified examples.

    I disagree the government has some control of the size of their deficit and can take action to increase it or reduce it. It can’t control what the end figure is. As you say they can “steer” the economy.

    @ Joe Bourke

    I am not really sure what point you were making to me. Are you the same Joe who posted quoting the OBR “budget surpluses have been achieved in only 12 years since 1948 and only five years since 1971-72”?

    I hope the figures you are using are not from, because I saw their figures for the deficit as a share of GDP and concluded their figures were wrong. If you look at the figures for the National Debt in monetary terms you find that after 1945 the National Debt increases every year from 1950 to 1988 accept for 1952, 1957, 1969, and 1970, from £25.80 billion (1950) to £40.46 in 1974. (
    If you then change it to share of GDP you can work out that GDP in 1950 was £13.3 billion and in 1974 was £84.5 billion and in 2006 it was £1328.6 billion. The deficits were 1950 – £630 million, 1974 – £3.38 billion and 2006 – £40.7 billion. In each of these years the deficit was bigger than earlier and the total size of the economy is bigger. I was not implying that a government couldn’t run a surplus just that it seems Keynes was right that deficits are likely to be bigger the larger the economy.

  • Peter Martin 24th Feb '18 - 3:58pm

    @ JoeB,

    It’s always interesting to read Keynes and other notable economists from past eras too. But I don’t believe we should hang on to their every word. We should instead build on their ideas rather than slavishly trying to follow them. We aren’t a religious cult with Keynes, or anyone else, as our Messiah. As you say he lived in an era of largely fixed exchange rates when held reserves of foreign currency and gold mattered much more than they do now.

    So he didn’t have the same kind of direct experience of administering a fully fiat currency – except perhaps one highly controlled to fully support a war effort. So his advice, for example, to run a Govt surplus on the upswing and a deficit on the down swing has to be be interpreted in the light of his experience and not ours. Similarly his advice on how to treat current and capital spending.

    We now have an economy which consistently runs a significant deficit in its current account. We have a large trade deficit. Now, we can reduce, or even eliminate, that deficit by ‘managing’ our exchange rate in the way that many countries do. Denmark, for example, pegs its currency to the euro at an artificially low level. If Denmark can do that then so can we. If we want to. That means we could have balanced trade.

    The alternative is to continually replenish our economy with ££ by deficit spending to replace the ££ that are lost to fund our current account deficit. Whether we call that capital or current spending doesn’t really matter much at all.

    The notion that we can attack the problem from the other end by the application of austerity economics has been tried and found not to work. A genuinely floating currency doesn’t give us balanced trade and there is no reason to expect that to change any time soon.

  • Peter Martin 24th Feb '18 - 4:27pm

    @ Michael BG,

    Sure, Govt can steer the economy. It can raise or lower interest rates to encourage everyone to save more or less. It can have a tighter or looser fiscal policy. Let’s take a look at what happened when the Lib Dems first had a taste of Govt in 2010.

    You started off with ‘austerity’. You, and your coalition partner, wanted a tighter fiscal policy. That was telling all potential savers that the UK was going to get serious about inflation and therefore it was a good place to park their cash. Those savings increased the Govt deficit. But, is that what you really wanted? I don’t think so!

    On the other hand, interest rates were kept very low. This told savers that although the inflation rate was likely to be also low they weren’t going to be paid much. This discouraged savers and stopped an influx of foreign money into the UK and so reduced the govt deficit.

    So two conflicting policies! Of course if you start with the idea that govt deficits are always a bad thing then it’s easy to get into a muddle. The ability to run a deficit is actually a good thing as it shows a degree of confidence in the economy. Ironically, the way to reduce a deficit, or even to eliminate it, is to destroy that confidence by having inflation running quite a bit higher than interest rates with a combination of loose monetary and fiscal policy. But you probably didn’t want this either!

    We know what you did want. Lowish interest rates, but not so low as they were. Low inflation of around 2%. Approximately balanced trade. Approximately balanced Govt budgets. A genuinely floating pound which was at least $1.50 on the forex markets. Low unemployment. Low levels of immigration (at least by your coaltion partners). 2-3% growth. Lower levels of private debt which didn’t create dangerous asset bubbles in the property markets.

    It’s just not possible. You could get most of the rest though if you just held the pound down on the forex markets to around US£1.00 and kept it there for at least a few years.

  • @Peter Martin – “It’s always interesting to read Keynes and other notable economists from past eras too. But I don’t believe we should hang on to their every word. We should instead build on their ideas rather than slavishly trying to follow them. We aren’t a religious cult with Keynes, or anyone else, as our Messiah. …”

    Thanks for expressing the point behind my dig at Keynes. Yes we can and should read the works of notable economists from the past, as they do help use to gain insight, but we do need to reinterpret their ideas for the modern age and not treat them as if they are written on tablets of stone; because economics is not an exact science.

  • Michael BG,

    the figures are for the current account budget (defined by Office of Budget Responsibility as (current expenditure – current receipts – depreciation). Keynes is explicit in separating the cuurrent budget and capital spending and suggests that the current account should be in surplus and contribute towards financing of capital spending. The overall government budget includes capital expenditure. . Overall budget surpluses (including capital expenditure) have been achieved in only 12 years since 1948 and only five years since 1971-72”
    For the fiscal year ending in March 2018:
    The current budget deficit is estimated to be £18.2 billion. The difference between spending (including public sector gross investment of £51.6 billion) and revenue is estimated to be £69.8 billion. Net borrowing is the current budget plus net investment. i.e. the main figure for the government deficit.

  • Peter,

    I often make the same point. Keynes was of his era as was the Keynesian consensus of the post-war period. Jim Callaghan suumed it up well in 1976
    “We used to think that you could spend your way out of a recession and increase employment by cutting taxes and boosting government spending. I tell you in all candour that that option no longer exists, and in so far as it ever did exist, it only worked on each occasion since the war by injecting a bigger dose of inflation into the economy, followed by a higher level of unemployment as the next step.”

    We have indeed moved on and gained a better understanding of when Keynesian remedies can be effective (during severe recessions) and when they are not – during the upswing in the business cycle or during normal economic conditions.
    Most countries today have some form of managed float, pegged or fixed rate cuurency regime in place or are members of a currency union in the case of much of Europe. That is the world we need to trade with on the basis of equality in terms of trade.

  • @ Peter Martin

    I won’t defend the economic policy of the coalition government. I have stated that we ditched the economic policy in our manifesto and that was a mistake. I am not sure if I had been Chancellor of the Exchequer I would have wanted to carry out our promised economic policy. However, I do accept that the government can reduce its deficit once there is sustained economic growth with an expectation of future falls in the number of unemployed.

    @ JoeB

    I really don’t understand what your point is. I am only concerned with overall government budget deficits which was what you were quoting in that earlier thread.

    In the same speech Jim Callaghan said, “When we reject unemployment as an economic instrument — as we do”.

  • Michael,
    from the paper on Keynes view of deficits cited above you draw the conclusion – Seems Keynes was good at predicting when he said government deficits were likely to need to be larger as the economy progresses.

    The paper notes:
    “Keynes .. suggested that “It would also be a good plan . . . to include in the Revenue Budget a modest contribution . . . to- wards the extinction of the dead-weight debt or. . . towards the conversion of the dead-weight debt into productive debt.” This was qualified with the provision that the amount of public capital investment would have to be sufficient to cover the dead-weight Sinking Fund “in addition to current amortisation, public and private, and to the current net savings of the private sector.” Thus, if tax revenues were collected to go toward the repayment of debt, including amortization of the loans for capital or productive debt, the leakage would have to be offset by additional public investment. Keynes did not believe the repayment of debt would occur, but rather that dead-weight or unproductive debt would be replaced with productive debt-that associated with the financing of public capital. “But this would not involve repayment of debt, since I should expect for a long time to come that the government debt or government-guaranteed debt would be continually increasing in grand total” [CW, vol. XXVII, p. 278]. Keynes clearly argues against increasing non-productive or dead-weight debt but suggests that the increase in government debt would not be “out of proportion to the growth of the national income” (CW, vol. XXVII, p. 366).
    Countercyclical variation in incomes via taxes and, therefore, spending should not be relied on to maintain full employment.
    The government should not deficit finance current expenditures. Public investment expenditures should be financed by borrowed funds that are repaid over the service life of the project. Tax revenues should be budgeted so as to meet these payments.. There should be no deficit in the current or ordinary budget. In economic downturns the automatic variation in the collection of social security contributions might result in a deficit in that fund. However, in prosperous times, the fund should automatically run a surplus. No other type of deficit should be incurred in the current budget. It is possible, however, to reduce contributions to the sinking fund for repayment of outstanding non-productive debt in periods of economic downturn.
    It is clear that Keynes’ view of appropriate economic policy did not call for recurring deficits to finance current operations. Similarly, he did not call for a policy aimed at countercyclical variation in income and consumption. Most important, he did not call for government policy aimed at the direct stimulation of private investment. Indeed, he felt the only way to increase the return to capital was to keep capital scarce and that this was not in the best interest of living standards.
    In summary, Keynes believed that growing incomes would lead to an increase in the propensity to save and as a consequence the government would have to increase capital spending to absorb this leakage from consumption. Keynes is not arguing for ever larger deficits as a % of GDP but rather the maintenance of a constant level of debt to GDP sufficient to absorb the level of accumulated savings not utilised for private sector investment. He argues for taxation to be kept at sufficient levels to cover both current spending and the amortisation of capital expenditures i.e. a current budget surplus and capital deficits not out of proportion to growth in national income.

  • The Callaghan speech was an important turning point in the end of the post-war Keynesian consensus

    “For too long, perhaps ever since the war, we postponed facing up to fundamental choices and fundamental changes in our society and in our economy. That is what I mean when I say we have been living on borrowed time. For too long this country – all of us, yes, this Conference too – has been ready to settle for borrowing money abroad to maintain our standards of life, instead of grappling with the fundamental problems of British industry. Governments of both parties have failed to ignite the fires of industrial growth in the ways that countries with very different political and economic philosophies have done. Take Germany; France, Japan – different countries, different philosophies. We are, as you know, still borrowing money. But this time we are not borrowing – if the Government con­tinues on its present course – to pay for yet another short-lived consumer boom of the kind which used to buy success at the polls – or so we were told – but which never bought success in the world’s markets or at the work place. We are borrowing now partly to pay for our huge investment in the North Sea. We are borrowing, too, because other industrial nations volunteer credits, so that our strategy and our proposals for regenerating British industry need not be thwarted by short-term speculative movements of sterling balances – a load we have still been unable to shed. We are determined that this borrowing will be used to act and to press on with the task of rebuilding a regenerated manufactur­ing industry. This time we are not going for a consumer boom on borrowed money: we are going to invest it in our future.
    The cosy world we were told would go on for ever, where full employment would be guaran­teed by a stroke of the Chancellor’s pen, cutting taxes, deficit spending, that cosy world is gone. Yesterday delegates pointed to the first sorry fruits: a high rate of unemployment. The rate of unemployment today – there is no need for me to say this to you – cannot be justified on any grounds, least of all the human dignity of those involved. But Mr. Chairman and comrades, I did not become a member of our Party, still less did I become the Leader of our Party, to pro­pound shallow analyses and false remedies for fundamental economic and social problems.
    When we reject unemployment as an economic instrument – as we do – and when we reject also superficial remedies, as socialists must, then we must ask ourselves unflinchingly what is the cause of high unemployment. Quite simply and unequivocally, it is caused by paying ourselves more than the value of what we produce. There are no scapegoats. This is as true in a mixed economy under a Labour Government as it is under capitalism or under communism. It is an absolute fact of life which no Government, be it left or right, can alter. Of course in Eastern Europe you cannot price yourself out of your job, because you cannot withdraw your labour. So those Governments can at least guarantee the appearance of full employment. But that is not the democratic way.
    We used to think that you could spend your way out of a recession, and increase employ­ment by cutting taxes and boosting Government spending. I tell you in all candour that that option no longer exists, and that in so far as it ever did exist, it only worked on each occasion since the war by injecting a bigger dose of infla­tion into the economy, followed by a higher level of unemployment as the next step. Higher inflation followed by higher unemployment. We have just escaped from the highest rate of inflation this country has known; we have not yet escaped from the consequences: high unemployment.
    That is the history of the last 20 years. Each time we did this the twin evils of unemployment and inflation have hit hardest those least able to stand them. Not those with the strongest bargaining power, no, it has not hit those. It has hit the poor, the old and the sick. We have strug­gled, as a Party, to try to maintain their stan­dards, and indeed to improve them, against the strength of the free collective bargaining power that we have seen exerted as some people have tried to maintain their standards against this economic policy.
    Now we must get back to fundamentals. First, overcoming unemployment now unambiguously depends on our labour costs being at least com­parable with those of our major competitors. Second, we can only become competitive by having the right kind of investment at the right kind of level, and by significantly improving the productivity of both labour and capital. Third, we will fail – and I say this to those who have been pressing about public expenditure, to which I will come back – if we think we can buy our way out by printing what Denis Healey calls ‘confetti money’ to pay ourselves more than we produce. I do not care what economic system we live in – at least, I do care very much – but the moral I want to draw is this that whatever system we live under these fundamentals are at the heart of the standard of life of the people of the country concerned, and we ignore them at our peril. They are also at the heart of the Social Contract and of our industrial strategy.
    Britain is now at a watershed. We have the chance to make real and fundamental choices about priorities which are absolutely necessary to achieve a growing and prosperous manufac­turing industry, with all the advantages and easements that can follow.

  • Peter Martin 25th Feb '18 - 9:31am

    @ Michael BG,

    I always try to avoid the party political stuff and I’m not criticising the LIb Dems as necessarily being any worse than anyone else. The problem is that the electorate want a combination of 1) a low govt deficit/debt economy, 2) a healthy economy (naturally), and 3) a high pound.

    It’s tempting to promise all three, but we have to choose any two from these three. The Coalition made the mistake of going for 1) and 3). The ditching of the tuition fees pledge was an attempt to achieve lower deficits. Naturally the health of the economy suffered and also the political health of the Lib Dems.

    @ Joe B,

    I don’t think we need go into what Jim Callaghan may or may not have said about Keynesian economics. The theory was fundamentally sound. It needed just a few revisions to bring it up to date. Its implementation by Govts of various colours wasn’t. The Labour Govt clearly hadn’t appreciated that floating currencies need to float. They panicked and called in the IMF when the £ fell below $2. Just a few years later the Tories let it fall to $1.08.
    Should they have called the IMF in too? There was no need. We all survived and hardly anyone remembers that now.

    Jim Callaghan’s speech was a classic case of a bad workman blaming his tools!

  • Peter Watson 25th Feb '18 - 9:59am

    @Peter Martin “The ditching of the tuition fees pledge was an attempt to achieve lower deficits.”
    There’s an interesting point there.
    Despite just as much or more government money going into universities (since graduates would not start repaying their loans for a few years), presumably this spending “disappeared” from the calculation of the deficit in a way that it would not with a graduate tax.

  • Peter Martin 25th Feb '18 - 11:03am

    @ Peter Watson

    Yep. According to the rules of accounting, the value of a loan is an asset on a balance sheet. It doesn’t count as a deficit. That’s assuming the loan is sound and will be repaid. That’s quite a big assumption when the economy is in poor shape.

    Banks can be reluctant to face reality in this respect. There is a general feeling that the Italian banking system is only functioning because everyone is ignoring the bad debt problem. There’s plenty of hits when you Google the words Italian, Banks and Zombie.

  • Peter Martin,

    I don’t disagree that Keynes theory is fundamentally sound, if you actually follow what Keynes said instead of picking out the bits that suit and ignoring the elements that are required to make the approach practical.
    It is not about running ever larger deficits year on year. It is about maintaining a constant level of productive investment and running balanced budgets over the course of a business cycle – excluding borrowings at the local authority level as Keynes suggested. MMT sectoral balance analysis includes local authorities in the government sector notwithstanding that local authorities issue no currency.
    If savings are too high in the external sector as consequence of large trade imbalances then that needs to be addressed via policy measures – Keynes idea was the Bancor.
    If excess capital is accumulating domestically that is not being reinvested in productive capital then that needs to be addressed by wealth taxes that do not impact on productivity – namely Land Value Tax.
    Callaghan was Chancellor of the Exchequer before becoming prime minister. To suggest the he, Dennis Healey and the British treasury didn’t understand the implications of a free floating currency and that perhaps only MMT economists do is hardly credible.
    The impact of currency devaluation is a major blind spot in MMT analysis. If the theory held in the real world, there would not be any significant trade imbalances they would automatically adjust over time. In the real world, however, central banks intervene in foreign exchange markets to maintain what they consider favourable terms of trade. Firms and Individuals accumulating sterling overseas utilise the capital to acquire both productive and non-productive assets in the UK. The former is an investment in the economy the latter is rent seeking.

  • Joe

    Thank you for making clear what your point is. I expect that if the government achieved full employment then the “automatic stabilisers” would achieve a current account budget surplus if the government wanted to achieve this, while at the same time generating an overall budget deficit to counter the lack of investment or as predicted by Keynes the increase in the amounts leaked out of the system because the wealthier people get the lower proportion of their income they spend and the more they save.

    With reference to Callaghan’s speech. It is a speech of its time. The control of the money supply as a tool of government was in its infancy. If he was correct and all UK governments cut taxes instead of investing then we need to learn the lesson that it is better to invest. I think I have already made this point. I especially think this is true because the government can target the investment (government spending) in the regions of the UK where the highest levels of unemployment are. I also support the idea of the government providing free training for the unemployed – investing in people.

    Peter Martin

    It was your use of “you” to identify me and the Liberal Democrats as having the same economic policy which I wanted to make clear was not true. You know what my priority is – full employment.

  • Michael,

    I think John McDonnel would do well to pay heed to Callaghan’s speech when he is war gaming how to deal with a potential problem of capital flight, should Labours economic program cause International bond investors to worry about exchange losses on their investments.
    I think Keynes would have been critical of the way his program was implemented in the post-war period without proper considertion of the inflationary effects of monetary and fiscal stimulus in a resource constrained economy.
    I don’t think any serious mainstream economist has advocated austerity in the recovery from the financial crisis;and in the UK the fiscal stance has probably been a relatively appropriate balance (with the exception of first couple of years of the coalition when capital spending was unnecssarily cut-back).
    I also would agree with Keynes assessment that tax rates should not be cut (the tax take will fall automatically when the economy is is recession) and aggressive reduction of corporation tax rates has not induced a significant increase in private sector investment. We would have been better to allow local authorities to invest excess savings in housing and infrastructure.
    Public sector services need to be properly financed and this means facing up to the need for increased levels of taxation in the economy.
    Keynes’s idea of reducing social security contributions during a slump is effectively in place. Small employers have been receiving a reduction of £3k per year against their employer national insurance contributins for a few years now.
    Running the economy at a full employment level has to be a priority for any Liberal Democrat economic policy. Where we might disagree on that is I think once unemployment is below the 5% level (the estimated Nairu rate) the focus should turn away from fiscal stumulus as it is too broad and focus on targeted policies. The MMT proposal for job guarantees is the kind of targeted policy I would support in these circumstances.
    The bulk of household savings are in pension funds. This should be the primary source for the kind of social investment that Keynes recommended. Developing infrastructure and Local authority housing bonds that provide a stable and safe return to pension funds would I believe be the kind of policy that Keynes would be advocation were he around today.

  • Peter Martin 25th Feb '18 - 5:59pm

    Apologies to anyone who thinks we have drifted off the topic of tuition fees. I’d say we haven’t. The Lib Dems, and any other political party, will always have a credibility problem if they don’t understand how the economy works and think they have to make spending cuts when there is really no need to.
    JoeB says “It (Keynesian Economics).. is about maintaining a constant level of productive investment and running balanced budgets over the course of a business cycle “.

    This, the second part, is nonsense. Neither the USA, nor the UK, both being consistently large net importers, do or can run balanced budgets -either over the business cycle or for any sustained period of time. It worth repeating that we are basically Keynesian in approach but we aren’t slavish to every pronouncement he might have made. Yes Keynes proposed a new international currency to be known as the Bancor but it wasn’t adopted. This isn’t likely to change any time soon. It’s really only ever discussed in a historical context now. There’s really only two options for UK and US govts. Just let the net exporters get on with supplying goods and services, keep selling them bonds and use the proceeds to fund deficit spending. Or get very serious with them and insist, using whatever means it might take, that they don’t use undervalued currencies.

    Strictly speaking, the local government sector should probably be included in the private domestic sector. Any deficits or surpluses aren’t included in Govt figures. It probably wouldn’t make much difference if they were though.

    “The impact of currency devaluation is a major blind spot in MMT analysis.”
    MMT analysis on this point is quite conventional and uncontroversial. Currencies are valued according to the process of supply and demand on the forex markets.

    “If the theory held in the real world, there would not be any significant trade imbalances they would automatically adjust over time.”

    This was said at the time of the move to floating currencies. But only some countries: eg the USA, the UK, and Canada genuinely let their currencies float. Most “manage” them in one way or another to keep their trade in the black. Guess who ends up with the current account deficits or their trade in the red? There’s no reason to expect any automatic adjustment.

  • you didn’t state the full sentence – running balanced budgets over the course of a business cycle – excluding borrowings at the local authority level . Keynes argument is based on the observation that much social investment is undertaken by local government and funded by central government. Amortising capital expenditure grants to local authorities over the expected life of the buildings or infrastructure being constructed reduces the budget deficit. The revenue budget is charged with the depreciation on such outlays and can be maintained in balance over the course of the business cycle. The capital budget will in effect have public buildings and other infrastructure as assets and the national debt as a liability with the aim of bringing the total stock of debt in line with the productive capital that the debt has financed.
    National government accounting treats borrowings for capital expenditure as part of the overall deficit i.e. capital expenditures are accounted for on a cash basis. Accounting for capital expenditures over the lifetime of the infrastructure is what provides for balanced budgets over the business cycle and is akin to private sector or accrual accounting.
    Actual expenditures are not impacted. What changes is the level of taxation required to ensure that government borrowings (non-government sector savings) are matched with productive investments.
    You argue that government borrowing is solely determined by how much the non-government sector desires to save without seeming to acknowledge that the level and type of taxation (particularly wealth taxation) can impact the level of savings (accumulated capital) or propensity to save.

  • Peter Martin 25th Feb '18 - 9:04pm

    I don’t, of course, disagree with having productive investments. But I don’t agree that they can be defined by the extent of capital spending for reasons previously supplied. Without going over it all again I’d just mention the salaries of teachers and doctors aren’t counted as capital spending.

    I think I’ve said before that the accounting identities don’t indicate causality. So it could be that a government deficit causes everyone else’s deficit. Or it could be the other way around?

    I’d say that in a world where countries largely want to manipulate their currencies to keep their trade in the black that we will inevitably end up in the red if we genuinely let our currency float. So it’s that fact, which leads me to say that the causality doesn’t lie with the UK govt in wanting to run a budget deficit.

  • Fair enough, Peter.

    I would say that capital expenditure has to be clearly defined as capital that will produce an income or a service benefit in the future when retirement savings are being consumed.
    It needs to be physical capital that can be freely used by the public – buildings, infrastructure and equipment – not salaries and costs for the provision of education and training or other forms of ongoing current expenditures which need to be treated as current expenditure and paid for as incurred. The services of teachers and doctors are a societal benefit but so are rubbish collectors, footballers, plumbers, dog-walkers etc. Some we pay for collectively via taxes and social insurance, some we pay for directly based on our use of them.

  • Joe
    “Running the economy at a full employment level has to be a priority for any Liberal Democrat economic policy”.

    I hope that “running the economy at a full employment level will be the highest priority when we do produce our economic policy but I don’t think it will be. I also wish you meant the same as me when you talk of full employment. I don’t think economists think the NAIRU level is the full employment level. If the government accepts the NAIRU level as the best it can do it is doing what Jim Callaghan called accepting “unemployment as an economic instrument”.

    It seems you would be happy for the government to employ 5% of the working age population in a Job Guarantee scheme at the peak of the economic cycle, while I would like this figure to be closer to 2.5%. As I keep saying it should be possible for the government to still stimulate the economy when unemployment is at the NAIRU level if the government spending is targeted in the regions with the highest unemployment and not where the inflationary pressure is greatest.

    Education and training is an investment in people and just like other forms of investment can increase productivity.

  • Michael,

    I don’t think fiscal stumulus in the form of increased deficits will be effective at low levels of unemployment below 5%. Nor do I think unemployment can get much below 2.5% as there will always be frictional unemployment (people temporarily between jobs).
    The job guarantee scheme would be targetted at the long-term unemployed and the net costs (wage payments less benefit savings) funded through taxes not by borrowing. Long-term unemployed are not just in former mining and industrial communities.. There are signidficant numbers in London. That is what i mean by runnung the economy at full employment- a job guarantee scheme aimed at those who would not by themselves find work in an economy operating in normal conditions..
    Education and training is an investment but it needs to be paid for as it is delivered and not reliant on temporary deficit funding . That is ducking the issue of how to permanently fund life-long learning and not facing up to the reality that the resources needed for public services have to paid for.

  • Peter Martin 27th Feb '18 - 9:15am

    That is ducking the issue of how to permanently fund life-long learning and not facing up to the reality that the resources needed for public services have to paid for.

    Who says they haven’t to be paid for?

    You’re ducking the issue of how much money the government can spend to pay for these services. It can spend all it receives in tax revenue. If you like the idea of a LVT, the receipts from this will of course be included too. Plus it can spend all the money that it receives from the proceeds of bond sales, national savings certificates etc. The main buyers of bonds being the central banks of the big exporters. We have to bear in mind that the net figure of the latter could be negative.

    Can it spend any more? Well possibly. If, for example, I save a sum of money in a safe or a money box, I am holding savings in just the same way as if I’d bought bonds. So, logically, the government can spend these kinds of savings too. But, of course, they also can be negative.

    Some of these numbers won’t be known to Government. So all it can do is keep an eye on inflation and adjust its fiscal and monetary policies accordingly.

  • Peter,

    “Some of these numbers won’t be known to Government. So all it can do is keep an eye on inflation and adjust its fiscal and monetary policies accordingly.”

    This is the key point. How this is achieved is by developing revenue and capital budgets that endeavour to maintain the purchasing power of the currency. This necessitates planning on the basis that intended budget deficits should not be excessive over the course of a business cycle – rising automatically as necessary when economic growth is slowing and reducing automatically as growth picks up. Preferably BofE monetary and treasury fiscal policy will work in tandem as a means of smoothing peaks and troughs that occur naturally in the economy and maintaining a predictable rate of inflation.
    Spending and tax is a continuous cycle – the more a government spends the more tax receipts it needs to maintain that balance – even if the tax comes sometime after the spending as the economy strengthens. The whole purpose of fiscal and monetary stimulus is to ensure that significant resources of capital and labour are not left idle during an economic slowdown. The level of spending on public services and redistribution transfers (and hence the amount of tax recovery required to sterilise that spending and where the incidence of that tax falls) remains a political decision. Hence the classical name for the science of economics – political economy.

  • Peter Martin 27th Feb '18 - 8:38pm

    @ JoeB,

    It’s hard going with you. You find it too difficult to switch away from a microeconomic viewpoint. For example you say

    “…. the more a government spends the more tax receipts it needs to maintain that balance”

    This is true if you are talking about, for example, my spending. The more I spend the more I need to earn to keep my finances in balance. Or if they aren’t perfectly in balance then at least they are close enough so that I can borrow to make up the difference. In that sense I, like you, and like any company, are like a household.

    But Government is a currency issuer. It issues currency when it spends and gets back some of that when it imposes taxes. It doesn’t “need” any balance or even any tax receipts at all. It doesn’t need to maintain a balanced budget. Either over a business cycle or over a any given time period. It imposes taxes, primarily, to control inflation. The more it spends the more it gets back in taxes. Regardless of the level of inflation, the difference between the two is what everyone else hangs on to in some way by putting it into their bank account or piggy bank.

    Even if Govt does run a balanced budget it can still have an inflation problem. On the other hand it can run a large deficit and have price deflation. There is really no such thing as balance unless perhaps you mean by the balance between having too much or too little economic activity. That’s more of an optimum that a balance.

    There is no reason to suppose that budget deficits are likely to be “rising automatically as necessary when economic growth is slowing and reducing automatically as growth picks up.”

    If the budget deficit is largely, as it is in the UK, caused by our trade imbalance, why would German, or any other, exporters want (or be able?) to sell us more when our economic growth was slowing and sell us less when it was rising? Wouldn’t it be more likely be the other way around?

  • Peter,

    what I am advocating is mainstream post-Keynesian approach that integrates macro and microeconomic theory.
    It is hardgoing when you make statements like “It (govt) doesn’t “need” .. any tax receipts at all and then “the more it spends (govt) the more it gets back in taxes.”

    Thomas Palley published a critique of MMT The abstract is a fairly close approximation of how I view the MMT approach, the theoretical assumptions that underpin it and the policy recommendations that flow from it.

    “The principal conclusion is that the macroeconomics of MMT is a restatement of elementary well-understood Keynesian macroeconomics. There is nothing new in MMT’s construction of monetary macroeconomics that warrants the distinct nomenclature of MMT. Moreover, MMT over-simplifies the challenges of attaining non-inflationary full employment by ignoring the dilemmas posed by Phillips curve analysis; the dilemmas associated with maintaining real and financial sector stability; and the dilemmas confronting open economies. Its policy recommendations also rest on over-simplistic analysis that takes little account of political economy difficulties, and its interest rate policy recommendation would likely generate instability. At this time of high unemployment, when too many policymakers are being drawn toward mistaken fiscal austerity, MMT’s polemic on behalf of expansionary fiscal policy is useful. However, that does not justify turning a blind eye to MMT’s oversimplifications of macroeconomic theory and policy. ”

    I don’t expect you to agree with Palley’s conclusions, just to accept that there may be alternative routes to developing policy that are equally valid; and not based on the MMT notion that external constraints go away simply because a country floats its exchange rate in the markets.

  • Peter Martin 28th Feb '18 - 8:03am

    Of course it’s fair enough for anyone to make a critique of a MTT. But Palley doesn’t seem to understand what he’s critiquing. For example he writes:

    “Once again, the lack of formal modeling requires reading between the lines to tryand intuit the MMT approach to inflation. That approach seems to be an “on-off” model in which the economy is initially below full employment and then hits the full
    employment barrier………. Below full employment, the inflation switch is “off”
    and expansions of AD generate pure output gains with no price level or inflation effects. At full employment, the inflation switch is “on” and expansions of AD generate pure price level increases with no output effects.”

    This is nonsense. MMT recognises that there are significant inflationary constraints which will arise well before full employment is reached. To look at it in a non mathematical way, when the economy is on the up, it is often cheaper for an employer to pay more to attract and keep existing workers than retrain those who may have been in the unemployment queue for a length of time.

    Curiously Palley claims, in the abstract, that MMT is “nothing new” but then modifies his claim later to say that if there is anything new it must be wrong!

  • Peter,

    Palley’s paper acknowledges the Chartalist framework for analysing money creation as being fundamentally sound.

    I think one of the problems in the discourse is, it is often not made clear that MMT recognises that there are significant inflationary constraints which will arise well before full employment is reached.

    Productivity enhancing Investment is fundamental to the Keynesian aggregate demand model. Investment in physical capital is a necessary precursor to maintaining and growing income and demand in the economy. Where I would depart from the Keynesian model is in making a distinction between land and physical capital. The stock of physical capital can be increased to supply increased demand, the stock of land is fixed.
    Deficits arising as a result of increases in the stock of physical capital are a necessary function of a growing economy. Temporary deficits in the revenue budget may arise over the course of business cycle, but persistent deficits in the current budget point to structural problems in the economy that cannot be addressed by monetary ur fiscal stimulus. These structural problems may include lack of competitiveness arising from lower productivity than international competitors. Other structural problems may arise from excessive inequalities in the distribution of income and capital as Kalecki, Kaldor and Stiglitz have argued. It is my contention that a principal cause of these structural problems lies with inflated land values and the prevalence of rent-seeking in the economy. The solution to these structural problems, in my opinion, lies with the Henry George remedy of old – the Land Value Tax.

  • Peter Martin 28th Feb '18 - 3:49pm

    @ JoeB,

    “I think one of the problems in the discourse is, it is often not made clear that MMT recognises that there are significant inflationary constraints which will arise well before full employment is reached.”

    This is the very reason MMT proposes a Job Guarantee. The idea is that we should not condemn 5%, or whatever, of people to unemployment just so that inflation can be kept under control. Admittedly, half of this 5% will be in between jobs but there’s still 2% or so of long term unemployed who need help rather be labelled scroungers. The problem with long term unemployment is that it can lead to unemployability. The ‘pool or reserve labour’ ceases to be that after a while. Employers prefer to leave them where they are and recruit labour from overseas.

    I’m not totally on board with the JG. It does have its problems. But I would like to see it trialled on a purely voluntary basis.

  • Peter Martin 28th Feb '18 - 4:10pm

    @ JoeB

    Prof Mitchell says, and I know how he feels 🙂 , that:

    “In general, the Georgists I have come across and the literature produced by those sympathetic to the Single Tax idea, is problematic because there is a presumption that national governments need tax revenue to fund their spending”

    But this does not mean that either Prof Mitchell or myself would say there is no place for a LVT. He then goes on:

    I am going on here to write about how a land tax might be compatible with MMT in controlling sectoral imbalances in spending without compromising overall aggregate spending and employment.

  • Peter,

    there may be a few fundamentalists that adhere to the idea of a single tax but I have not come across too many.
    Josepg Stiglitz in this essay notes:

    “Three striking aspects of the evolution of most rich countries in the past thirty-five years are (a) the increase in the wealth-to-income ratio; (b) the stagnation of median wages; and (c) the failure of the return to capital to decline.

    …rents are increasing (due to the increase in land rents, intellectual property rents and monopoly power). As a result, the value of those assets that are able to provide rents to their owners— such as land, houses and some financial claims— is rising proportionately. So overall wealth increases, but this does not lead to an increase in the productive capacity of the economy or in the mean marginal productivity or average wage of workers. On the contrary, wages may stagnate or even decrease, because the rise in the share of rents has happened at the expense of wages.

    The assets which are driving the increase in overall wealth, in fact, are not produced capital goods. In many cases, they are not even ‘productive’ in the usual sense; they are not directly related to the production of goods and services. With more wealth put into these assets, there may be less invested in real productive capital. In the case of many countries where we have data (such as France) there is evidence that this is indeed the case: a disproportionate part of savings in recent years has gone into the purchase of housing, which has not increased the productivity of the ‘real’ economy.”

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