Now is not the time for a return to austerity

This week it looks likely that the Chancellor will announce a freeze on public sector pay and cuts to the foreign aid budget. There are also murmurings of more harsh spending cuts and tax rises on the way. If Sunak and the Tories are planning on a return to austerity then this would be a huge mistake, and the Liberal Democrats should oppose it.

There is no urgent need to cut spending or raise taxes right now. Borrowing is currently extremely cheap, and bond yields are likely going to remain low for a while. Even in the event that interest rates do start to rise, we can take the opportunity while costs are low now to borrow over a longer period of time, in fact we’re already borrowing over longer terms than any other OECD country so it’ll be a while before we have to start paying most of this debt back.

In these conditions policy makers can afford to be less constrained than they were in the past. There has never been a better time for some new ideas, and to build back better.

First of all we shouldn’t be afraid to spend big on infrastructure and job creation. HS2? Get it done, along with HS3. Lets build mass transit systems in cities like Bristol and Leeds that desperately need them. Let’s invest in 5G, and let’s power all of this with renewables and create thousands of green jobs! We also urgently need to build more affordable homes, and we should give our local authorities the cash and the powers that they need to do this.

If we want a rapid recovery then we should not be raising taxes either, if anything we should do the opposite. There should be more ambitious grants and/or tax breaks for small businesses, particularly for sectors like hospitality and the arts which have been hit the hardest this year. Or better yet we could introduce full expensing, so businesses can feel free to invest in the equipment and technology that they need without facing a huge tax bill. Scrapping business rates and replacing them with a land value tax would also be fairer and simpler for our high streets.

And while these plans will create a lot more opportunities, there will still be those that are in danger of being left behind, and we must not abandon them. We already back the continuation of furlough and other associated schemes, but we should also call for more support for the three million people that have thus far been excluded from government support. We should also advocate more investment in retraining to help thousands of people back to work. At the last election we offered a £10k “skills wallet” for everybody to spend on education, why not do the same again?

This will all cost money? Fine. As I’ve already established, we can find it.

We’re currently in the midst of the largest national crisis since the Second World War, and it was during those trying times that the liberal William Beveridge produced his now famous report. He was able to create the blueprint for the welfare state, our NHS, and a more compassionate society.

That is the sort of bold, forward thinking that we need right now.

* Fraser Coppin is a Lib Dem member from North Somerset and is the incoming co-chair of Liberal Reform.

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  • Michael Sammon 24th Nov '20 - 9:20am

    Full expensing is an interesting one I haven’t heard much talk about. I like all this about investing in infrastructure too. Build a new eco city whilst we are at it, get it it done! 🙂

  • nigel hunter 24th Nov '20 - 9:45am

    Full expensing, I have not heard of this, how does it work?

  • More than cheap. Real interest rates are actually negative. Meaning its cheaper to do things now than next year. Given we have by law to cut carbon emissions and we have an army of unemployed we need to get on with it.

    Even more we need to invest in human infrastructure – the skills and education of our people. We repay debt from gdp growth. And I suspect education gives the biggest increase to GDP. And if we are to compete with robots and cheap labour in developing countries we need a very very highly skilled workforce.

  • Gwyn Williams 24th Nov '20 - 11:45am

    Full expensing is a new name for 100% capital allowances. This allows companies to write off the cost of plant and machinery in the year that the expenditure is made. The Tories introduced it during the recession of the early 80s.

  • Peter Martin 24th Nov '20 - 12:42pm

    Whilst I would generally agree with title of this posting, the macroeconomic rationale behind it is not correct.

    “Borrowing is currently extremely cheap, and bond yields are likely going to remain low for a while. Even in the event that interest rates do start to rise…..”

    The implication here is that the Government has been lucky enough to have to borrow at a time when interest rates are low. The truth of the matter is that the Government controls both short term rates (by direct decision of the Monetary Committee in the not-so-independent BoE) and long term rates y being an active player in the bond markets. If it wants to force down longer term rates the BoE buys up gilts to force up their price (QE), and so reducing their yield, at the same time the Treasury sells new ones into the market. So if Government want 0% it can have 0%, or 10%, any time it likes.

    “First of all we shouldn’t be afraid to spend big on infrastructure and job creation…If we want a rapid recovery then we should not be raising taxes either……. This will all cost money? Fine. As I’ve already established, we can find it.

    Sure, “we” , ie a currency issuing government, can always do that. But what are the limitations? It has to be the extent of the available resources in the economy and the extent to which everyone else apart from Government is willing to save. The Government’s debt has increased by £400 billion or so due to the recent crisis which means that it has spent £400 billion more into the economy than it has taken back in taxes. Someone, somewhere, is saving this money.

    The debt itself is not a problem but that £400 billion in the economy might be if it is not saved and spent too quickly. It could generate higher than desired inflation. Therefore there should be no promises that taxes won’t have to be raised to prevent that. It would be like promising that you’ll not apply your brakes on your next car journey. You just don’t know what is around the corner and what corrective action might be necessary.

  • @Peter

    I’d suggest that the risk is more on the side of not spending money quickly enough and not borrowing enough. Inflation is ultra-low – way below target – and there is the risk that it might turn negative (deflation) which (in theory) leads to consumers postponing spending as it is cheaper to buy things next week.

    There are also negative multipliers at work. Lay-offs in the travel industry etc. leading them to spend less money in shops and so on. We need to have some positive multipliers to counteract that.

    There is at least a 10% capacity gap – in that GDP has fallen by that amount at least this year.

    We have by law to meet zero carbon emissions in the next 30 years anyway. With negative real interest rates it is cheaper to that now rather than later – and we get more of the benefit – better insulation, low fuel bills for longer.

    And clearly we have fallen behind on providing (non-Covid) health and education and we should be spending on those to provide catch-up services and to employ people – actors who can’t work at the moment to teach drama etc.

    Risks of over-heating and inflation are non existent at the moment and indeed the risks are not spending and borrowing enough.

  • Peter Martin 24th Nov '20 - 1:32pm

    @ Michael 1

    “Risks of over-heating and inflation are non existent at the moment and indeed the risks are not spending and borrowing enough.”

    This is true. At the moment. We’re in (semi) lockdown so we can’t spend our money in restaurants, or at the pub, or at football matches, or in the shops that have closed, or going on holiday etc. So spending is generally below what is required to keep the economy ticking along. This is where the Government has to do its bit. It has to spend more/tax less to compensate. It has to do the opposite of what everyone else is doing.

    But what about this time next year? Hopefully the vaccine will have worked as well as we all hope it will and we’ll be back to something more like normal. So how are we all going to react? Are we going to use some of that £400 billion on a spending spree?

    I don’t know for sure. No-one does. But my guess, for what it’s worth, is that the economy will be much more buoyant than we many will expect. But there’s no need to guess providing we are alert to the possibility that some restraint might just be needed. We’ll see how we go and react accordingly.

  • So, according to Fraser Coppin : “This week it looks likely that the Chancellor will announce a freeze on public sector pay”.

    Unfortunately, the Liberal Democrats have got themselves in a bind over this. It is a self inflicted wound on the groups who used to be the nearest thing to a Lib Dem ‘core vote’.

    The only way the party will be listened to on this is for Ed Davey to come out and ‘repent’ the Coalition record. It’s an uncomfortable truth and no doubt it will upset the amour propre of the Lib Dem establishment if I remind them of it.

    Who can forget ? Public sector workers don’t and won’t :

    “Danny Alexander denies public sector pension ‘assault’ – BBC … › news › uk-politics-13800573
    17 Jun 2011 — Treasury minister Danny Alexander has said plans for public sector … and a pay freeze across the public sector, but said public servants could …

    Alexander cracks down on public sector pay | Financial › content
    24 Jan 2012 — Danny Alexander, the Liberal Democrat Treasury chief secretary, has … public sector workers are experiencing a pay freeze for several years.

    Two-year pay freeze confirmed – Public Sector › news › two-year-pay…
    22 Mar 2011 — … which the Government has accepted. Danny Alexander, the Chief Secretary to the Treasury, said: “By taking tough decisions on a pay freeze, …

    Fresh details about public sector pay freeze disclosed – BBC … › news
    14 Jul 2010 — In response, Chief Secretary to the Treasury Danny Alexander said the pay policy was being applied “pro rata” but added that low-paid staff with …”

    Don’t ignore it, Lib Dem hierarchy. Do something about it.

  • @Peter

    Thanks for your further comments.

    I am not sure that the Government has to do the opposite of everyone else.

    According to the BBC, the Bank of England has bought £875 billion in Government bonds as part of quantitative easing – about half the national debt. So its borrowing from itself not from others. As I think you and others have pointed out a Government with its own currency can print money when the bills come due.

    As it happens the US and indeed the UK have run quite large deficits since the 90s with low inflation rates.

    There are also quite a lot of counter-cyclical parts in Government spending. In a recession benefit spending goes up as more people are unemployed and taxes go down. Indeed both happen more than the economy as a whole – and go up more than the economy as a whole in a boom.

    “But what about this time next year?”

    I think that there are few people that think that the economy will running at full capacity in 12 months time even if we have put the virus behind us with a vaccine and that there is likely to be substantial unemployment and underemployment.

    It is likely therefore that there will not be any great inflationary pressures.

    Unemployment is a lagging indicator as people who become unemployed in the first wave say the travel industry or previously in finance spend less in the economy leading to further waves of lay-offs in other sectors.

    The general criticism now of Governments after the financial crash is that they cut back spending and deficits too much.

    Before the virus even the Conservatives were looking to have a deficit of around £30 billion – £50 billion and frankly this is a rounding error on a budget of £800 million and just before the virus hit, many Tory MPs even on the far right were pointing out that it was a good time to borrow to invest in infrastructure because money was essentially “free” or at the very least very cheap.

    Obviously quite lot of support such as the furlough scheme will go but personally I’d be happy with a “structural” deficit of £50 billion – £100 billion and for a deficit for a few years above £100 billion as it is more prudent financially to have a higher GDP and a higher deficit.

    If nominal GDP growth (inflation plus real growth) is around 5% then a yearly deficit below £100 billion means that the national debt is coming down as a percentage of GDP which is the measure of its affordability.

  • @David Raw

    I think we are back to our traditional roles of you pointing out how terrible things were under the coalition and me pointing out that they were slight less terrible 🙂 !

    I think you have cut out from your quotes that most of the time low paid public sector workers got an increase. And indeed from memory the national minimum wage was increased by inflation during the coalition.

    Low paid workers including public sector workers got quite a boost to their take home pay by the substantial increase in the personal allowance.

    In addition public sector workers tend to still have final salary pension schemes whereas they have been scrapped for most private sector workers.

    And between 2009-2015 many private sector workers – the taxpayers who pay the salaries of the public sector had to take a decrease in their wages – never mind a freeze.

    I am also as a former councillor slightly sceptical whether a “pay freeze” actually means a freeze in take home pay. Most public sector workers are paid within a band and are not at the top of their band so there is scope for them to move up within their band.

    That said the Tories would be stupid politically to freeze the pay of public sector workers who have worked so heroically and beyond the call of duty this year.

    Of course Labour had left us with no money so that was undoubtedly a problem – but you don’t normally reserve your criticism for them 😉 !

  • @ Michael 1 I’m sorry Michael, but if the Liberal Democrat Party doesn’t deal with the austerity legacy of 2010-15 (and, like you, it has shied away from this and self justified) it’s never going to recover.

    Like you, I was a Councillor (elected five times) and a Cabinet member responsible for social care. I remember the reaction of Council Staff at all levels to the Alexander policies in what was a parliamentary seat held by the Party since 1965. They used to be core party voters….. but then no more…… the vote more than halved from 22,000 to 10,000 despite a strong personal vote for our losing MP.

    Sorry, but that’s the real world, Michael, not the Lib Dem world of today.

  • Peter Martin 24th Nov '20 - 5:56pm

    @ Michael 1,

    “As I think you and others have pointed out a Government with its own currency can print money when the bills come due.”

    That was at 4.20pm But by 5pm:

    “Of course Labour had left us with no money so that was undoubtedly a problem

    And the problem was? Having to get out the Treasury/BOE computer and start tapping away on the keyboard? Was this the same Michael1?

    “the national debt is coming down as a percentage of GDP which is the measure of its affordability.” ??

    If it comes down it has had to go up in the first place. So what started off as being unaffordable later become affordable?

    There are three factors which determine affordability. In order of priority these are:
    1) Inflation 2) Inflation 3) Inflation

  • @nigel hunter
    Full expensing = Allowing firms to deduct the cost of investments from their tax bill. So if a restaurant bought some furniture and a patio heater, so that their customers can eat outside safely during Covid for example, then with FE they wouldn’t have to pay tax on those.

    This is a good explainer for more info:

  • @Peter

    “That was at 4.20pm But by 5pm:”

    Lol! Touche! I don’t know – taking as long as 40 minutes to change one’s mind is a model of consistency for a politician 🙂 !

    Actually I deal with that point in my comments. The political consensus from all parties including Labour *at the time* was that the deficit needed to come down from £150 billion to £0. Bu in fact even when they were on their own the Tories maintained a sizeable annual deficit.

    To that end Labour left us with no money.

    “If it comes down it has had to go up in the first place. So what started off as being unaffordable later become affordable?”

    I have not said that at any point that the national debt is unaffordable. We have since the Napoleonic Wars stuck the cost of the war on the national debt and this has been a war even if it has been against a different sort of enemy and essentially we have never paid a penny of that off in cash terms.

    There are three factors which determine affordability. In order of priority these are:
    1) Inflation 2) Inflation 3) Inflation

    Um… I am not quite sure what you mean by this but to coin a phrase “No! No! No!”

    The first thing that determines affordability is real interest rates. These are NEGATIVE at the moment – meaning not only is it highly affordable it is financially prudent because it is cheaper to do things now rather than later. As I say even the Tory right has cottoned on to this.

    Secondly income and GDP. If you invest by borrowing a pound in a road, railway or broadband and it generates two pounds in GDP growth then this is a good deal and you have more money to pay for the borrowing. People do this all the time to do home improvements, expand their business etc. Personally I’d extend this to investing in skills and education and not just physical infrastructure.

    Thirdly actually inflation makes the national debt more affordable. Inflation of 2% reduces the national debt in real pounds by 2%. Indeed deflation of 2% increases it by 2%. And deflation or very low inflation is the risk at the moment.

    In fact we and the US have run big deficits since the 90s that the monetarists of the 80s would be aghast at and would say would lead to massive inflation but actually we have had very very low inflation rates.

  • @David Raw

    I am sure that I will never win with left leaning voters that actually the coalition was not as terrible as they think it was. And one of the things that I have been clear about is that we need to “scrape the barnacles off the boat” as Lynton Crosby puts it and we have been slow to do that. And we – well Nick Clegg and Danny Alexander did a terrible job of campaigning and putting our case forward.

    An anecdote that I have relayed before. In the 2015 General Election campaign I knocked on one door in a (then) Lib Dem held seat and the voter said I am Labour leaning and didn’t like you going into coalition with the Tories. Fair enough I thought. At the very next door, the person said: “I like the coalition.” And I got my hopes up! But they continued: “So I am voting Tory!”

    So we clearly couldn’t win. But it doesn’t mean that I will stop my campaign on LDV at least to point out some sense of perspective to the coalition years!

  • John Marriott 24th Nov '20 - 7:37pm

    Some great and quite passionate arguments. Unfortunately, as the legendary coach of the Green Bay Packers, the late Vince Lombardi, famously said to his team after a particularly bad performance, their efforts didn’t amount to a “pint of p**s” in the scheme of things.

    Come on chaps, whatever you say, your chances of influencing what Rishi or Boris decide to do are pretty slim and, as boxing promoter Don King once said, “Slim has left town”.

  • Peter Watson 24th Nov '20 - 8:07pm

    @Michael 1 ‘At the very next door, the person said: “I like the coalition.” And I got my hopes up! But they continued: “So I am voting Tory!”’
    A terrific anecdote which epitomises the biggest mistake (IMHO) of the party in Coalition: by presenting itself as indistinguishable from the Tories, the party looked unappealing to those on the centre-left and redundant to those on the centre-right. Sadly, this is what so many were pointing out for years before that awful 2015 election.

  • @ Paul Barker And of course they didn’t stop the inherited from Labour ATOS system, they extended it, the latest outcome of which came out today in The Guardian :

    “Disabled ex-armed forces personnel are being let down by the welfare system, with many experiencing stress and anxiety brought on by the struggle to access social security benefits, according to the Royal British Legion.

    The charity said frontline Department for Work and Pensions (DWP) staff were insufficiently aware of their obligations under the armed forces covenant, which requires public services to give special consideration to injured ex-service personnel.

    Among the difficulties reported by veterans to a Royal British Legion survey was the failure of benefits officials to understand post-traumatic stress disorder (PTSD) when carrying out and scoring health assessments for disability benefits”.

  • Peter Martin 24th Nov '20 - 10:12pm

    @ Michael1,

    “The first thing that determines affordability is real interest rates”

    This is true for you and I. This is because we aren’t currency issuers. It’s true for everyone but not the currency issuer. The currency issuer, usually the National Govt, as I previously said, controls the level of interest rates to be what it wants them to be.

    At the moment the Government wants them ultra low. They’ve never been lower. This is not because there would otherwise be any affordability problem for Govt. As I think we both agree, the Government doesn’t even have to bother printing the money. It just creates it in a computer. So it’s no extra effort to type in some slightly higher numbers to cover the interest payments.

    But there would be an affordability problem for everyone else and that’s why the Govt wants rates to be near zero. The prevailing wisdom of the so called New Keynesians has been that interest rates can be adjusted to regulate the economy. Upwards to slow it down and downwards to speed it up. The snag is that there have been, by necessity, more downwards movements than upwards ones, so we always were going to end up where we are now.

  • Peter Martin 24th Nov '20 - 10:44pm

    @ Michael1,

    “The political consensus from all parties including Labour *at the time* was that the deficit needed to come down from £150 billion to £0. But in fact even when they were on their own the Tories maintained a sizeable annual deficit.”

    To some extent this is true. But Labour managed the economy reasonably well in the couple of years after the 2008 GFC. Reducing VAT to 15% was a good move. The various stimulus schemes, such as inducements to buy new cars less so.

    The coalition got it all wrong after 2010 though. The problem was that people were net saving rather than net borrowing. So prior to the crash we would have had something like a net borrowing of 3% of GDP by the private sector. We were running a 5% or so deficit in our international trade so by the law of sectoral balances:

    Govt Deficit = 5-3 = 2% of GDP which looks good enough to the neolibs.

    After the GFC we go from net borrowing of 3% to net saving of 3% and we have

    Govt Deficit = 5 + 3 = 8% of GDP. Not very good at all!

    Actually the numbers may need some correction because the Govt Deficit was more like 11% at its peak. Shock Horror!

    So, obviously, the thing to do was encourage everyone to stop saving and start borrowing and that’s why interest rates are now so low.

    The austerity part was less successful. True, if you make people poorer they can’t save and that’s why it partially does work but it’s a painful process. Largely it’s self defeating. If Govt cuts its spending it slows the economy which means it ends up reducing its income.

    Austerity is good for reducing inflation though!

  • My take on the Coalition maybe somewhat formed by selfish motives, as a small businessman who by trying to look after the future by putting aside hard earned money for retirement but then found that a good part of those savings wiped out by the Equitable Life debacle, I was eternally grateful that a stable government was formed to enable a serious monetary collapse to be averted, thus saving what was left of my retirement fund. That’s how I remember the Coalition!!

  • I am sorry to have seen no reference here to MMT — “Modern Monetary Theory”. It is explained by the “New York Times Best Seller” entitled “THE DEFICIT MYTH and How to Build a Better Economy”, by (Professor Stephanie Kelton, a sometime advisor to the US government). To those who read Economics in the Keynesian1960s the “Modern” may seem a bit of a cheek — but then, why not? It’s not saying ‘New’, after all!

    We have recently adopted UBI as a policy to promote, and that will marry very well, I consider, with MMT, since MMT expounds a solution to UBI’s longstanding enigma, How To Pay For It.

    Just Google M M T, and Skelton’s book will appear.

  • @ Barry Lofty Interesting to get your take on the Equitable debacle, Barry.

    In fact Equitable Life encouraged people to move their life savings into unsustainable pension funds by promising bonuses that could not be delivered. It also paid commission to agents to encourage people to move their savings into these scandalous positions. Ponzi schemes are all very well when money is coming in, but eventually money must be paid out. If the amount of money coming in is unsustainable, the bonuses that are promised to savers cannot be paid.

    The scheme originated, of course, in the Thatcher years, and the whole course of the scandal was pretty murky, only the lawyers making money out of it. I’m curious to know what happened to the Equitable Life directors on whose watch it was when the schemes were first launched.

  • Barry Lofty 25th Nov '20 - 3:36pm

    David [email protected] David in hindsight I was so busy with work and took advice from our solicitor and when the scandal evolved tried to stay loyal and hoped for the best, big mistake as we were forced to do what we should have done earlier, pay an adviser to extract the remains of our investment and reinvest. Thanks for your interest. Many letters to MPs got me nowhere with compensation, such is life!

  • Peter Martin 25th Nov '20 - 7:35pm

    @ Roger Lake,

    My comments are MMT based even if I don’t explicitly say so.

    “We have recently adopted UBI as a policy to promote, and that will marry very well, I consider, with MMT, since MMT expounds a solution to UBI’s longstanding enigma, How To Pay For It.”

    No it doesn’t.

    Mainstream economists would likely say that if the UBI was affordable it would be too small to have the desired impact. But if it was large enough to do that it would be unaffordable. MMT economists wouldn’t like the term “unaffordable”, instead they would say it would cause too much inflation. So the end result isn’t really any different.

    MMT’s critics on the right say it’s fiscally irresponsible. Unfortunately some of its supposed ‘supporters’ like the idea of fiscal irresponsibility and completely misrepresent the MMT argument too.

    Just to make it clear. MMT does NOT support the policy of a UBI.

    “UBI advocates ignore the dynamic efficiencies of full employment”

  • It’s interesting to see how the views of ‘Old Lib Dems’ (i.e those who’s political memory goes back to 2010) is still totally split, while those of ‘New Lib Dems’ (i.e. those who weren’t around then or at least weren’t interested) don’t even comment on it.

    However, it is the one thing that made Liberal Democracy and Liberal Democrats totally unelectable across almost the entire country and as a result has almost destroyed any chance for those new Lib Dems to ever get elected now or in the future. to anything bigger than a local council.

    We are now in a position where almost no-one, anywhere could get even remotely close to being elected on a Lib Dem badge alone. Most of our MPs are now elected for their name and personal reputation as local super campaigners; the mutual support and co-operation of a strong local party, a strong council group and the ability to suck in massive resources from activists in surrounding constituencies; and the fact that having an MP generates the funds to employ enough full time staff to organise and co-ordinate the work of all these across a constituency. Equally, council candidates outside those few constituencies are increasingly on their own when it comes to making a breakthrough.

    The big problem with coalition, which took us down from 57 MPs the 11 we have now and from 15-20% in the opinion polls to the 5-10% we get now, was not just austerity, the breaches of trust, or the total unwillingness of so many influencers and senior figures including many in positions of authority now to face up to problems when they could have been dealt with. Indeed so many just cheered it on.

    The big problem was the willingness of so many to stand by and do or say nothing for five long years, while those at the top squandered the chances of so many future generations of Lib Dems to do the things they had the chance to do – to make Britain a better place for its people.

    That to me was unforgiveable. And that is why it should be important for all Liberal Democrats to realise and accept it was a disaster. Not just for what it did or didn’t do, but for what it prevented future generations from doing.

  • Peter Martin 26th Nov '20 - 5:25am

    It is interesting to look back to what was being said ten years ago. This is Jo Swinson in November 2010.

    “The flagship ‘penny on income tax’ for education” was one of the reasons I joined the party in 1997. ”

    Wow! Maybe she would have joined earlier if it had been for raising VAT too?

    “Labour left us with £1 trillion of national debt, and an urgent need to tackle the deficit – we are currently spending £120 million a day on debt interest alone.”

    So what’s the National Debt now? Not that it really matters. It wouldn’t have been so bad if she’d said the way to cut debt interest was borrow more from the BoE who don’t charge anything! We’ve seen that austerity economics fails even on its own terms. If Government cuts its spending it slows the economy, creates additional unemployment, creates the need for additional welfare spending and cuts its revenue base. Trying to cut the deficit this way, especially in the immediate period after a financial crash is crazy economics.

    Surely she would have known that.

  • David Evans and Peter Martin both make a compelling case for the self inflicted wounds perpetrated by the Liberal Democrat Party.

    Ms Swinson’s article (quoted by Peter) echoes that old chestnut “Labour left us no money”, just as, predictably, does Michael 1.

    The fact is George Bush Jnr left us no money – and his sub prime chums Fannie Mae and Freddie Mac, both in the USA, were not to the best of my knowledge in the Brown Cabinet. It’s funny how you don’t hear much about ‘The Magic Money Tree’ from the Tories these days…. although clearly some Lib Dems still cling to it.

    I suggest Michael 1 takes a good look at the 140 protesting comments posted onto Jo Swinson’s 2010 article and ask the question, “Where are they now ?”

  • I entirely agree that as an “old Liberal Democrat” we should stop talking about the Coalition , I wish people would and stop blaming the Lib Dems participation in it for all the woes the party finds itself in today, maybe backing a naive motion to give the Tories their election last year might have saved us from the present disastrous administration,if Lib Dems can’t get elected now they never will.
    While accepting we did not get everything right back then I do not think it was a complete disaster either.

  • @Peter Martin, about five comments up.

    Peter, I believe you are mistakenly dogmatic in dismissing my suggestion that MMT offers the solution of the problem,’how to pay for UBI’. I think MMT recognises the danger of inflation, of course, but that it can and should be avoided.

    I have looked from time to time for MMT to appear in our dsicussions, but failed to find it, so your now using those initials is encouraging to me. I am trying to sell my house, and at 82 finding it hard to keep up, so if I have missed a proper discussion in these pages please do direct me to it.

    I believe “The Deficit Myth” stops only one paragraph short of UBI. And I believe that is because that excellent volume, for all its breadth of scope, concentrates on an American readership. There is relevant discussion of a ‘job guarantee’ , especially in the final chapter. I suspect that much of that will be close to UBI, which does not even feature in the extremely good index to the book.

  • Peter Watson 26th Nov '20 - 11:00am

    @Barry Lofty
    I wish people would [stop talking about the Coalition] and stop blaming the Lib Dems participation in it for all the woes the party finds itself in today
    Shades of Basil Fawlty … Don’t mention the Coalition. I mentioned it once, but I think I got away with it. 😉

    I believe that it’s definitely the root cause of all the woes the party finds itself in today, but I also think that the party has made plenty of other serious mistakes since then. Perhaps a failure to ever seriously address the root cause (i.e. pick a side and say what the party really thinks about the Coalition years and what it learnt in order to clarify its position in the political landscape) has compounded those other mistakes.

  • Peter Watson: Now you mention it perhaps Basil Fawlty WAS based on me, :Sybil”!!

  • Peter Martin 26th Nov '20 - 11:51am

    @ Roger,

    It’s not down to me to be dogmatic about MMT theory. I’m just a very peripheral advocate. However, the MMT position is for the Job Guarantee rather than a UBI. If you Google {stephanie kelton ubi} the first thing you’ll see is Stephanie retweeting “Why a universal basic income is a poor substitute for a guaranteed job “.

    There’s lots of other stuff too by SK on youtube etc.

    Geoff Crocker attempts to enlist SK’s support for the UBI too. She spoke, I presume virtually, at a meeting of the Bristol Festival of Ideas on the UBI. I haven’t heard her talk but I’d be surprised if she said anything different to what she normally does. There’s quite a long debate between Geoff and I on this thread.

  • Peter Hirst 26th Nov '20 - 3:30pm

    Though I accept that we can live with a huge national debt for some time it is important that we return to living within our means as soon as possible. How this is done is not certain though it must be done. Also, getting in shape for the next coming global emergency is prudent. Increased taxation especially on wealth, contributors to climate change and further work on tax evasion and similar activities would help.

  • Thanks for the point about full expensing and the link included in comments. I’ve long supported FE as the alternative amounts to taxing investment – which must lead to less investment.

    It would also orient investment decisions to cash flow rather than to tax or accounting – just as they should be. That could be a significant benefit for smaller businesses and certainly no disadvantage.

    But… I do have an issue with the macroeconomic element in this article and endless other comment threads. It is important but, unless you happen to work in the higher echelons of the Treasury, there is nothing you can do about it except talk. It is, par excellence, a very top down view of the world.

    Also, as a matter of practical politics, we will never beat neoliberals’ false equivalence with home economics as the whole subject is way beyond the interests of 99% (FWIW I agree with Peter Martin on it).

    So, is this a lost cause? Far from it. Reformat the issue to use a bottom up perspective and it will relate to people’s everyday experience and so make perfect sense to everyone.

    The bottom up approach is to insist that every public investment, large or small, should have a positive return – i.e. it should earn more than it costs. If that’s true then (even with some inevitable miscalculations), there is no case for borrowing limits as the borrowing is always covered.

    That’s obviously easier said than done but with the political ambition it can be mostly right – and people will understand and buy into the logic.

    Politically, the Tories are very, very exposed on this flank; every PFI scheme that ever was would fail as would HS2 and many others. It’s very hard to resist the conclusion that cronyism and worse are the driving force behind such schemes. So, we should attack them ceaselessly and link the wasteful spending to the shortage of money for things that would add to people’s wellbeing.

    If we don’t do that we are effectively saying to voters, ‘Our plan is to carry on spending lots and lots of your money even though we know but choose to ignore that half of it is being wasted”. That is not a winning pitch.

  • Peter Martin 27th Nov '20 - 4:38am

    @ Peter Hirst,

    “it is important that we return to living within our means as soon as possible.”

    For you and I, our means are determined by our income. But, we aren’t currency issuing govts. They spend money into the economy and get some of it back in taxes. They can’t get back more than they’ve spent in the first place and it has to be less than they’ve spent in overall. That’s where the money in your wallet comes from. We wouldn’t have any if they took out too much.

    @ Gordon,

    “we will never beat neoliberals’ false equivalence with home economics as the whole subject is way beyond the interests of 99%”

    The point made to Peter Hirst, above, isn’t that hard to understand. It’s not rocket science or Quantum mechanics. The latter can be very difficult! It’s just a matter of a few simple concepts and looking at the problem the right way. It would be a start if we could get all Lib Dem and Labour MPs to do that.

  • @ Peter,

    It is indeed not rocket science but then you are in the 1% in the sense of above. The great majority of the public aren’t that interested so, although many would be perfectly capable of understanding the distinction between currency issuers and users if they put their minds to it, that’s not going to happen anytime soon.

    Most pay little attention so when they hear something that sounds familiar, they will mentally nod and move on however gross a category error it is. So, messaging should take that into account and work with the grain.

    As it happens, I think most Tory MPs understand it well enough when their own skins are involved – hence the zero opposition to Covid-19 related spending. So, really their normal stance is determined by self-interest and understanding only what they want to understand. Logical arguments can’t touch that however perfectly made.

  • Peter Martin 28th Nov '20 - 10:55am

    @ Gordon,

    You are being unnecessarily pessimistic. A good intellectual case has been made in recent years as to why the policy of Economic Austerity is both undesirable and unnecessary.

    There will always be those (and I’d include most Lib Dems and nearly all the Labour right wing in this category) who will , although considering the policy to be undesirable, will simply shrug their shoulders and accept such nonsenses as that “the government has run out of money” and that “we have maxxed out our credit card”. etc etc.

    Of the 4 candidates for the Labour leadership, to replace Ed Miliband after the 2015 defeat, only Jeremy Corbyn was saying anything different. That’s undoubtedly why he upset all the odds to come from behind and win. So ideas do matter. And there have to be reasoned arguments as to why they are viable – even if not everyone fully understands them.

  • @ Peter,

    We are talking at cross purposes. Obviously, anyone aspiring to run the country should take steps educate themselves about the basic economics involved and I am astonished that so many haven’t. Do they think they can talk their way through life without doing the homework? Let’s leave that approach to Johnson.

    There is a wider group (but still a small minority) who ‘get it’ but aren’t in the driving seat. They should have a very useful role in creating the intellectual context in which decisions are made – except that in the Lib Dems at least (don’t know about Labour) the leadership doesn’t listen to anyone outside their magic circle. That is a critical weakness.

    However, the thrust of my earlier comments in this thread was not about us oddballs interested in economic theory but how to make the point (or at least a closely related one) more digestible to the great majority, “as a matter of practical politics…”

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