Our party needs to take childcare seriously – and the tax to pay for it

In 2021 childcare took 30% of the average UK wage compared with Finland (18%), Netherlands (17%) Canada (16%) and Denmark (9%). Overall it is clear that the UK lags far behind most other developed countries.

At the same time, the UK continues to have the second-highest rate of social inequality in the G7, behind only the US, according to statistics published by the OECD.

Our inequality is fuelled by educational disadvantage.

Last week  a survey of primary school teachers said that nearly half of their new entrants weren’t toilet trained, could not give their name and couldn’t eat by themselves. Nearly half!

How can teachers teach properly while they are having to change nappies, teach children how to talk, and feed them by hand?

Early years’ education is hugely important. A child without basic skills at the age of 5 is likely to continue to lag behind all through their school career. What’s more, when they become parents in their turn, their children are likely to lack skills as well.

Levelling up won’t happen unless we educate our children properly. Professional childcare is vital to help our children, especially those from disadvantaged backgrounds.

Providing properly subsidised professional childcare doesn’t only help children. It also enables their parents to go for jobs. There are nurses, care-workers, fire-fighters, who can’t afford to go to work because of the cost of childcare. Mothers wanting to go back part-time can’t afford to.

Childcare is one of the top issues mentioned by people on the doorsteps. If we as a party are serious about reducing social inequality we need to put a properly-financed professional childcare policy at the top of our priorities.

Funding childcare and public services properly costs money.  We therefore need to get serious about tax. Public attitude in the UK towards tax is ridiculous: everyone wants something for nothing. It can’t be done and we should be honest about it.

The top countries in the Happiness Index are Finland, Denmark, Iceland, Netherlands, Norway and Sweden.  These countries have higher rates of tax on middle-income earners, higher VAT, and capital gains and dividend tax rates at 30-40% (compared with the UK where it is more like 20%). But people don’t resent it, because they get valued public services in return: good childcare, excellent health services, subsidised transport, excellent parental leave, welfare services, fantastic education. Social inequality in these countries is well below the OECD average.

We need to campaign on good childcare and proper pay for our public services. And tell people, yes, it will cost, but you get benefits in return and a happier society.

We should tackle tax inequality.  In the UK the top 1% of people earn 13% of all UK earned income. In Sweden and Norway the figure is 8%. Here, the richest fifth earn thirteen times more than the poorest fifth in our society. In addition, the poorest fifth paid 22% of their income in indirect taxes e.g. VAT, compared with the richest fifth, who paid 9%. We must make things fairer, including outlawing all tax havens and non-dom status.

* Alison Willott has been a PPC, local Councillor and Federal and local committee member. She is a retired civil servant, teacher, magistrate and CAB adviser.

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  • Peter Martin 7th Jun '23 - 2:30pm

    “We must make things fairer, including outlawing all tax havens and non-dom status.”

    Totally agree. Presumably you’d agree that we could make a start by requiring residents of Gibraltar, the Channel Islands, and the Isle of Man to pay UK taxes. If they want to be British then they should obey the same laws, including tax laws, as the rest of us.

    It’s always surprised me that no major British party has ever got near to advocating this policy. Or even discussing it!

  • Simon McGrath 7th Jun '23 - 5:23pm

    Very good to see an article recognising that if the state is to spend large amounts more money it will require substantial tax rises. Difficult to see voters actually voting for even higher taxes though.
    But this ” Last week a survey of primary school teachers said that nearly half of their new entrants weren’t toilet trained, could not give their name and couldn’t eat by themselves. Nearly half” is not accurate. The survey said 90% of teachers had at least one child who w not toilet trained or who do not have basic language skills – such as being unable to say their name. That is nothing like half.

    It should also be noted that the evidence for the positive effects on nursery education is more mixed than one might think. https://post.parliament.uk/the-impact-of-early-childhood-education-and-care-on-childrens-outcomes/

  • Mel Borthwaite 7th Jun '23 - 5:58pm

    @Peter Martin
    Of course, the Channel Islands, the Isle of Man and Gibraltar, are not part of the United Kingdom.

  • Childcare was the centrepiece of the 2019 manifesto Lib Dems promise 35 hours of free childcare from nine months old. The hope then was that it could be paid for in large part by a Brexit dividend i.e. the boost to the economy that would come from reversing the decision to leave the EU. That option (to the extent it ever existed) is no longer available and it will require alternative funding.
    The Nordic model does entail higher rates of tax on middle-income earners, however the rates of tax on dividends are comparable. UK Tax on dividends for basic rate payers is 8.75% after paying 25% on company profits. For higher rate taxpayers it jumps to 33.75 and for additional rate payers (those with income over £125K) it jumps to 39.35% on top of the 25% corporation tax assessed at the company level.
    UK tax levels are in the middle-ground compared with comparable economies. There may be some scope for additional employers national insurance, but this is often criticised as a jobs tax with some merit to the argument.
    Indirect taxes like VAT and Council Tax are (as a proportion of income) a greater burden on lower income households, but over 60% of al income tax collected is paid by the top income decile and 80% of all tax receipts are paid by the top 50% Tax statistics: an overview
    There are solutions that combine fairer distribution of the tax burden with incentivising economic growth. See Action for Land Tax and Economic Reform for more detail ALTER

  • Peter Davies 7th Jun '23 - 8:21pm

    “The poorest fifth paid 22% of their income in indirect taxes e.g. VAT, compared with the richest fifth, who paid 9%.” Actually they paid 22% of their income before taxes and benefits. e.g. an unemployed person who spends most of their money on rent and food (No VAT) and fuel (5%) nonetheless spends an infinite proportion of their income (before tax and benefits = 0) on indirect taxes. As a proportion of disposible income, the amount that goes on VAT is much more even and the rich typically pay a slightly higher proportion.

  • Mick Taylor 7th Jun '23 - 8:51pm

    Mel Borthwaite.
    Gibraltar was part of the European constituency covering the West Country, so at least in respect of the EU it was(is) part of the UK.
    The Channel Islands and the IoM have self government but the UK provides defence and foreign policy.
    All 3 are convenient tax havens so UK governments have done nothing about their status.
    Maybe this needs to be rethought.

  • George Thomas 7th Jun '23 - 9:08pm

    “Public attitude in the UK towards tax is ridiculous: everyone wants something for nothing.”

    I think part of the difficulty is that people pay tax here and don’t immediately see what they get in return. Do they get roads without potholes? Nope. Do they get easy access to healthcare? Nope. Do they get their elderly parents being treated well in final years of their life? Nope.

    Reason for this is austerity politics tried to make everything more efficient by cutting money which doesn’t make sense. “Here, we want you to work more efficiently but are going to do this by piling more work onto you at the same time as taking away your resources.”

    I don’t think it’s wholly an attitude problem. I think people are willing to pay tax if they get something in return but this awful government (of which the LD’s were once a very small part of) has ensured people pay relatively high levels of tax for bad services.

  • George,

    in my 50 years working as an accountant I have yet to meet anyone who will willingly pay more tax for public services. It is not how the world works. Some higher income earners may at times express a willingness to contribute more to aid social security provision.
    In 2021/22, public spending per person in the UK as a whole was £11,897 Public spending by country and region
    Total managed expenditure was 44.6% of GDP in 2021/22 and 47% for 2022/23. The increase in the corporation tax rate to 25% from April means that receipts are expected to increase to 37% of GDP over the next few years, leading to the total of taxes and other receipts rising to 41%. Total expenditure is expected to stay at 47% of GDP in 2023/24 before falling back to 45% in 2024/25, 44% in 2025/26 and 2026/27, and 43% in 2027/28.
    Taxes are at a historically high level, with taxation at its highest level as a share of economic activity since 1949. This is unsurprising given the combination of many more people living longer lives and the financial commitments to pay for pensions, health etc.
    It will be no easy ride for the next government and tinkering with taxes at the margins will not address the elevated shortfall between receipts and expenditure of 6%-7% of GDP compared with the 2% to 3% of GDP ‘normal’ range. That will require rapid economic growth and constraints on discretionary spending outside of pensions and social security.

  • Peter Martin 8th Jun '23 - 12:31pm

    @ George and Joe,

    Joe is right to suggest there is an extreme reluctance, on the part of nearly all of us, to pay more tax for public services. Rightly or wrongly we’re cynical enough to believe that we’ll end up paying more taxes but won’t get the extra services. We should perhaps take note of how it’s done when the ruling class wants to build a new jet fighter or similar. They carefully avoid the Lib Dem approach of making excuses like “it’s only a penny in the pound on income tax”. Instead they tell us how many jobs the project will create.

    So if that works for aircraft carrier construction, it also work for more workers in public services. They’ll be paying taxes, both directly and indirectly as their spending gets taxed away and out of the economy so there’s no reason to expect, contrary to Joe’s other suggestion, that the Govt’s deficit will increase. Inflation could increase though, if the extra spending causes any overheating of the economy, but that’s a different argument.

  • Inflation, cost of living and taxes are all related. Core inflation represents the long run trend in the price level. In measuring long run inflation, transitory price changes should be excluded. This is typically done by excluding items frequently subject to volatile prices, like food and energy from the inflation measure being targeted.
    Core inflation can be addressed by hikes in taxation and interest rates, but these both exacerbate cost of living pressures and fuel demands for greater increases in wage levels that can spur inflation and lead to growing unemployment as a consequences. These are the problems of stagflation that are not amenable to fiscal and monetary stimulus.
    The next government will have to focus on redistribution of the tax burden and tax policy designed to incentivise economic growth rather than acting as a deadweight or drag on economic activity.

  • Steve Trevethan 8th Jun '23 - 3:31pm

    To some it seems that HMG can issue as much money as it wishes as we have a sovereign currency and that taxation contributes to this cost and does not control it.
    Taxation is very much a society managing set up and not solely for HMG income purposes.
    Richard Murphy, as in his book “The Joy of Taxation” is very good on his analysis of taxation.
    As ever, inflation is a foundation factor!

  • Peter Martin 9th Jun '23 - 6:54am

    @ Mel Borthwaite,

    “Of course, the Channel Islands, the Isle of Man and Gibraltar, are not part of the United Kingdom”

    True! But they are British or claim to be. As is said in the OP if we want a fairer society, including with better childcare for all, we do need to prevent the wealthy using tax havens.

    @ Joe,

    “Inflation, cost of living and taxes are all related”

    Yes they are. However this is not how it is explained by the mainstream. Inflation is officially the responsibility of the BoE who can’t do much about it. Except perhaps to make it worse!

    Whenever there is a request for extra social spending the argument used, as by yourself, is about a “shortfall between (taxation) receipts and expenditure”. So despite always saying that you’re aware that a nation’s finances cannot be compared to a household you carry on as if you aren’t.

    It’s all simple enough. If we have the people available to provide better childcare, better healthcare, better child education etc then we can have it. If we don’t we can’t.

  • Helen Dudden 9th Jun '23 - 7:59am

    This country is a total mess.
    From the grooming gangs to drugs and money laundering. Every MP is responsible.
    The situation on borders should be enforced.
    My sympathy is for the children and parents in France.
    For sometime I have supported need for change on relationship breakdowns. As previously written they can become a volatile situation.

  • Peter Martin,

    a nation’s finances cannot be compared to a household, but they can be compared to a corporate entity that issues its own negotiable instruments in the form of shares or loan stock. A corporation can issue an unlimited number of shares, but will simply dilute the value of those shares if the capital raised is not employed in productive activity that generates value. in the case of a not-for-profit entity, it can fundraise for Charitable or social activities without limit only to the extent that it can acquire and retain the support of donors.
    Likewise a sovereign democratic government can command as much of the resources and output of a nation as its program necessitates, subject to acquiring and retaining the support of voters for its actions. It cannot simply issue currency without commensurate offsetting taxation and/or cyclical debt financing to maintain the purchasing power of the currency. To do so would be akin to a corporation that issues shares with abandon ultimately depleting shareholder wealth and driving a company to ruin. In the case of a company, shareholders usually dump stock quickly and bail-out before the inevitable corporate collapse comes. In the case of a democratic nation, we have the ballot box to oust incompetent governments. In autocracies such as Venezuela there is usually little recourse outside of mass emigration of the population or a peoples revolution.

  • (Cont) Human resources available are measured by the unemployment rate. This remains at relatively low levels in the UK with labour shortages reported in many areas of the economy due in part to barriers to EU Freedom of movement and other factors.
    Social spending like any other state spending has to be financed while taking into account borrowing costs and the deadweight impact of additional taxation on consumption and private sector investment levels. With UK interest costs expected to rise to over £100 billion annually (6% of public spending) and a large element paid out to overseas holders of debt (who typically convert the currency on foreign exchange markets); itself puts downward pressure on the value of sterling and contributes to higher import costs for food, energy and durable goods. A falling exchange rate often has to be countered by increasing the rate of interest paid on UK Gilts and/or quantitative tightening to prevent runaway inflation taking hold in a stagflationary global environment.

  • Mel Borthwaite 9th Jun '23 - 8:20pm

    @Joe Bourke
    “Human Resources available are measured by the unemployment rate”.
    Actually, changes to the recorded rate of unemployment just give an indication of a change in the pool of potential workers, but nothing more. Large numbers of potential employees who are not working do not sign on as unemployed – some of these choose to apply for jobs that may become available if the terms and conditions are attractive. Similarly, a proportion of those who sign on as ‘unemployed and available for work’ don’t actually want to be offered a job. (A friend who runs a business and is always trying to recruit fish workers complains that about half of all applications he receives contain mobile phone numbers that don’t work – people completing applications so they don’t get benefit sanctions but not wanting contacted with a job offer.)

  • Mel,
    that is no doubt true and applies to many statistical indicators. The employment rate in the UK is 75% of the working age population with a 3.7% unemployment rate and 21.3% economically inactive (Carers, disabled, housewives etc).
    As regards Childcare, nurseries across the UK are being forced to close or reduce their services because they are struggling to recruit and retain staff UK faces childcare crisis as staff shortages force nurseries to close
    Alison’s article suggests “we need to campaign on good childcare and proper pay for our public services. And tell people, yes, it will cost, but you get benefits in return and a happier society.” – following the Nordic example. It is a good argument, but imposing greater costs on already squeezed middle income families is not an easy sell. Clamping down on tax havens and non-doms is a good policy and may help relieve some of the pressures, but it won’t of itself pay for expansion of public services.
    In years past economically inactive mothers helped staff community nurseries on a voluntary or part-time basis. Those kind of workers have become few and far between. There is additionally an acute shortage of early years graduate teachers exacerbating the problem ENGLAND FACES ACUTE SHORTAGE OF 11,000 NURSERY TEACHERS

  • Peter Martin 10th Jun '23 - 7:22am


    Don’t you see that by comparing the government’s financial position to a “corporate entity”, you are also engaging in household economics? A company can go bust. A government can’t.

    This is not to say there can’t be an inflation problem if both the Government and everyone else who have ££ to spend makes excessive demands on the available resources of the economy. This is why taxation is required to free up resources for the public use. This doesn’t have to, and in the UK rarely does, equal revenue collected.

    Also it’s somewhat naive to think that the level of unemployment is a reliable indicator of the spare resources we do have. You’ll probably fall back on some supposedly “internationally agreed” definition of how it should be measured but it clearly makes no sense to exclude those who are working only a few hours per month and who somehow become classed as “self employed”. Then there are many workers who would take a job if it were offered but aren’t included in the stats because they haven’t signed on as unemployed. The Lib Dems claim to understand why potential claimants are deterred from doing this.

    Add in the levels of underemployment and the picture isn’t quite as you make it out to be. There are more human resources available if only we would choose to use them.

  • Governments can and do default on their public debts, leaving countries unable to pay for vital imports of food and energy and reliant on bailouts from International institutions. That is state bankruptcy. Sri Lanka and Lebanon are two recent examples in a long list throughout history.
    Even when a nation gets into financial difficulties it still has its natural resources, built infrastructure and that part of the population that has not emigrated for greener fields. So too does a company that goes out of business. It’s assets are auctioned off to other firms and workforce disperses.
    There will always be a mix of part-time workers, students, housewives etc in the Labour force including those who would like to work more hours and those who would prefer to work less. As you indicate in your comment the unemployment rate allows for international comparisons and provides a good indicator of the direction of travel at any given time in the level of unemployment.
    Continuing labour shortages across many sectors of the economy does not suggest there is an unwillingness to use more human resources in either the private or public sectors, but rather a lack of availability of staff to fill positions in these sectors.
    Job vacancies started to outpace unemployment last year Job vacancies outpace unemployment for first time and that trend seems to be growing with an ageing population and growing nuumber of retirees.

  • Simon McGrath, It is understandable that you find it, “Difficult to see voters actually voting for even higher taxes though.” despite the fact they are only to eager support the idea when it comes to others paying such. e.g. windfall taxes on energy and utility companies.

  • Jenny Barnes 10th Jun '23 - 3:45pm

    “Continuing labour shortages across many sectors of the economy ..”
    suggests that there is more money in the economy than productive resources available to fulfil those monetary claims. Which implies the need for higher taxes to reduce inflation.

  • Jenny Barnes 10th Jun '23 - 3:47pm

    I’d suggest an increase in fuel duty, and aIrline passenger tax as a start.

  • Jenny,

    increases in fuel duty and APD could be justified on environmental grounds. However, these are indirect taxes that while contracting consumer spending would add directly to price levels at a time of elevated inflation just as VAT increases would.. Petrol prices (along with food) have been a major contributor to the double-digit inflation levels seen in recent months UK inflation hits 10.1%, driven by soaring food and fuel prices whereas air fares in Europe were up 36% as of last month Flight prices to Europe holiday hotspots soar at six times the rate of inflation
    I don’t think taxes need to increase too much above current levels as a % of national income. Rather, our focus should be on redistributing the tax burden to alleviate pressure on lower income households by, for example, making council tax proportionate to property prices to align that tax more closely with income levels and perhaps restricting the income tax personal allowances to the basic 20% rate so that the amount of relief is the same for higher rate and basic rate taxpayers.

  • Peter Martin 10th Jun '23 - 5:38pm

    @ Joe,

    Even Weimar Republic Germany in the 20s couldn’t be classed as bankrupt. Sure, it might not have been able to pay any reparations denominated in Gold or some other foreign currency which had been demanded by the WW1 Allies, but that isn’t quite the same thing. Present day Sri Lanka might have a similar problem. However it can’t run out of Sri Lankan Rupees, no matter how much they are eroded by inflation, and it’s hardly likely to allow any foreign creditors to seize its land and evict its population in the same way as you or I would be evicted in we became bankrupt and defaulted on our home loan repayments.

    “However, these are indirect taxes that while contracting consumer spending would add directly to price levels at a time of elevated inflation just as VAT increases would.”

    This is the major reason, if not the whole point, of having any tax! They are to stop us spending quite so much so that we consume fewer resources and enable the Government to consume more without inflationary consequences. They aren’t to collect money for government. Govt can always create money as required, should the need arise, as we saw during the Covid spending.

    So there’s nothing particularly wrong, on an Economic level, with Jenny’s suggestion providing the deflationary consequences of the extra taxation are equally matched by the reflationary effects of increased Govt spending.

    Whether or not this is a good idea is a matter of political opinion.

  • Increasing fuel duty and APD adds directly to price increases that offsets any deflationary impact from reduced levels of spending. If the government increases its spending by an equivalent amount to the tax raised into the economy; there is no deflationary impact just consumer price increases for fuel that feed into prices across the economy and a reduced volume of air travel. Environmental policy can and probably should override these concerns. But is not a policy that can be expected to reduce price levels, it is more directed at saving the planet.
    The Weimar republic inflation in the 20s was the outcome of money printing during and in the years after WW1. The reparations were never paid in full and the payments that were made were enabled by printing yet more marks to buy foreign currency, making the mark increasingly worthless. The final catalyst for the hyper-inflation was the instruction to coal miners not to go to work when the French army occupied the Ruhr. The Weimar government paid the workers their wages to stay at home exacerbating an already highly precarious financial condition. Savings and financial assets were wiped out and Germany had to start over with a new currency. Any cash or bank accounts denominated in the German Papiermark were worthless. That is state bankruptcy.
    The German government and the banks had two unacceptable alternatives. If they stopped inflation, there would be immediate bankruptcies, unemployment, strikes, hunger, violence, collapse of civil order, insurrection and possibly even revolution.If they continued the inflation, they would default on their foreign debt. However, attempting to avoid both unemployment and insolvency ultimately failed when Germany had both.

  • Peter Martin frequently seeks to demonstrate superior knowledge of economics, but it took my breath away to read his latest comment, “Even Weimar Republic Germany in the 20s couldn’t be classed as bankrupt”.

    Could he share his source for this statement ? I assume it won’t be Keynes or even Gerald Feldman’s , ‘The great disorder politics, economics, and society in the German inflation’, 1914 – 1924 (1996, Oxford University Press. ISBN 0-19-510114-6).

    I await a response with interest.

  • Peter Martin 11th Jun '23 - 9:58am

    @ David Raw,

    Haven’t I already explained this? There would undoubtedly have been some who did want to genuinely bankrupt the Weimar Republic by using military force to strip out anything of value they could find in the country during the hyperinflation period of the early 1920s. That probably wouldn’t have been a good idea and thankfully it didn’t happen.

    Yes they did have an inflation problem. But so have many other countries had one too. How high does it have to be to qualify as ‘bankruptcy’? 5%, 10%, 50%, 100%,….. 10000%

  • Peter Martin 11th Jun '23 - 10:27am

    @ Joe Burke,

    “But is not a policy that can be expected to reduce price levels, it is more directed at saving the planet.”

    Nearly all economists agree, perhaps to the surprise of others, that a counter inflation policy isn’t about ‘reducing price levels’ – at least in the short term. Some favour an increase in the rates of taxation. Others argue for an increase in interest rates. Both measures will lead to an immediate rise in some prices.

    Sure if anyone has lent them money, other than that denominated in Sri Lankan Rupees to the Sri Lankan government they may well find the government won’t be able to repay. Good luck to anyone trying to declare them bankrupt. Bankruptcy has to be imposed by a court order and there simply isn’t any world court available which is prepared to issue such an order.

  • Peter Martin,

    a common definition of inflation is “a general increase in prices and fall in the purchasing value of money”. Price rises occurring for reasons other than inflation of the money supply is not strictly inflation. When the Opec cartel decides to cut production then oil prices will generally increase and that will feed through to many sectors of the economy. That is sometimes referred to as cost-push inflation. When money/private credit creation is expanding faster than productivity growth, demand-pull inflation begins to occur i.e. when the economy grows too quickly and starts to overheat due to labour shortages or declining terms of trade.
    A state becomes insolvent when it can no longer meet its obligations to its own population or overseas creditors. It is the very principle of fiduciary currencies (meaning you can put your faith and trust in the government bills issued) that the truly important aspect of these short-term debts is that they should be repaid in purchasing power over goods and services independently of any conversion rate. The Weimar republic failed on both counts honouring neither its fiduciary responsibilities to the German people or its foreign debts.
    When a state becomes insolvent it loses access to overseas credit markets and is forced to either revert to autarky and accept the resulting impoverishment or agree an arrangement for restructuring of its public finances with International institutions set up for these purposes such as the IMF and World bank.

  • Jenny Barnes 11th Jun '23 - 3:27pm

    JB “If the government increases its spending by an equivalent amount to the tax raised into the economy; there is no deflationary impact”
    and if it doesn’t, then there is. Simples.

  • @ Peter Martin “Haven’t I already explained this ?”

    No, Mr Martin, you have not. As is often the case, you make an assertion…. but cite no source.

  • Peter Martin 11th Jun '23 - 3:56pm

    @ Joe,

    “Price rises occurring for reasons other than inflation of the money supply is not strictly inflation. When the Opec cartel decides to cut production then oil prices will generally increase and that will feed through to many sectors of the economy. ”

    You may be surprised to read that I generally agree with this. When we have a poor Avocado crop the price of Avocados will rise but we don’t call it inflation.

    The same happens when we have a rise in the price of energy, or there are other disruptions in supply, but these can have substantially more of an impact on all other prices too. So the argument that “it’s not really inflation” won’t cut much ice with the average voter. The technocrats at the BoE should appreciate it better though and not try to make a bad situation worse by imposing such an aggressive monetary correction.

    The Weimar and Zimbabwean “inflations” weren’t simply caused by “printing money”. That’s a myth. Both economies were in a post war situation and, for somewhat different reasons, had suffered a huge shock to their productive capacity. If there is hardly anything in the shops for sale then prices will soar regardless of any expansion in the money supply. If wages chase prices then there is no stopping it!

    But, especially in a divided society like our own, it is difficult to argue that workers and consumers alone should bear the cost.

  • Jenny,

    there is a deflationary impact from tax rises, but if the tax is imposed directly on goods and services like fuel and flights then there is no effective change in the price level. You have offset one type of inflation (demand-pull) to lower spending and created another type of inflation (cost-push) to increase prices having zero effect on the price level as measured by the CPI.
    This applies equally to other indirect taxes like VAT or import tariff’s. To address monetary inflation without also increasing prices you need to use direct taxes on incomes to reduce spending in the economy. That is effectively what is happening now with the freeze on personal tax allowances and increase in Corporation tax from 19% to 25%. to increase taxes further in the midst of a cost of living crisis would be far from simple.You might be able to redistribute the burden of taxation to alleviate cost of living pressures for lower income households. That may reduce the need for spending on credit by lower income households, but redistribution of incomes does not necessarily reduce overall spending in the economy. Hence the focus on interest rates to cut the level of credit spending as an anti-inflationary measure.

  • Joe Bourke,

    The cost of borrowing should not be a factor in deciding how much a government borrows. The cost of borrowing will fall as inflation comes down. In fact when interest rates are high businesses don’t invest and so the government needs to do so.

    I don’t see an unemployment rate of 3.7% as being particularly low compared to those after the Second World War and before the 1970s. As you say 21.3% are economically inactive which includes about 2 million who are not working because of health issues. (The party should look at how it can support people with health issues get into work.) Therefore there are spare human resources who could be in employment.

    With regard to childcare I thought businesses were closing because the amount they receive for providing the entitlement to 30 hours of free childcare for 38 weeks a year is not high enough. If the government paid the commercial rate then this wouldn’t be happening and this might lead to more people who are currently economically inactive getting jobs.

    Peter Martin, David Raw and Joe Bourke

    Perhaps the word bankrupt is the wrong word. A country is not bankrupt in the same way as a company or person who are forced to sell their assets. A country defaults on their debts. King Philip II of Spain did this four times but “could borrow again within a year or two of each default” (https://press.princeton.edu/books/hardcover/9780691151496/lending-to-the-borrower-from-hell).

  • Jenny Barnes,

    The last thing the UK economy needs are increase fuel prices which would feed into inflation. The government was too slow to cut fuel duty to keep petrol prices stable in March 2022, which fuelled inflation along with gas and energy price increases.

    A more liberal way to reduce fossil fuel consumption is for the government to reduce the price of the alternatives or give incentives to switch.

    If the government increased taxes the UK economy would go into recession, unless the government spent the revenue from the increased taxes.

  • The Weimar inflation had developed both during and in the years after WW1as Germany had decided to fund its war spending by borrowing rather than increased taxes. The Kaiser’s assumption was that they would pay off the borrowing by imposing war reparations on the defeated Allies. However, as Germany’s defeat approached the exchange rate of the mark against the US dollar steadily devalued from 4.2 to 7.9 marks per dollar between 1914 and 1918, a preliminary warning to the extreme postwar inflation. Germany ended the war with massive foreign debts even before reparations were imposed in the Treaty of Versailles. Because the Western Front of the war had been mostly fought in France and Belgium, Germany came out of the war with most of its industrial infrastructure intact. The hyper-inflation took hold with a vengeance from 1921-23. Germany had begun a strategy of buying foreign currency with marks at any price, without any regards for inflation, and it only increased the speed of the collapse in value of the mark. In the first half of 1922, the mark stabilized at about 320 marks per dollar making it virtually impossible to buy gold or foreign currency to meet reparation payments. French and Belgian troops occupied the Ruhr valley, Germany’s main industrial region, in 1923. Reparations were to be paid in goods, such as coal, and the occupation was supposed to ensure reparations payments.
    The German government called a general strike in the region and paid the workers to stay at home by printing yet more marks causing an uncontrollable rise in the general price level.. The hyper-inflation was only halted by scrapping the existing currency and effectively defaulting on debts by writing down the real value of savings and financial assets to a small fraction of their original value.
    The classic account of the Weimar inflation is available online When money dies

  • Michael BG,

    the cost of capital is a factor in private sector investment, but not as important as the prospects for future growth. Despite the abnormally low interest rates since 2008, UK private sector investment remained relatively low compared with OECD countries “Between 1995 and 2003, the UK was in the bottom 10th percentile of government investment in non-financial assets of all Organisation for Economic Co-operation and Development (OECD) nations; it has since climbed out of the bottom 10th percentile. The UK has the lowest percentage of non-government gross fixed capital formation (GFCF) as a percentage of gross domestic product (GDP) across the OECD between 1995 and 2015. Data show a negative relationship between the percentage of GFCF as a share of GDP as the size of the services sector increases, and a positive relationship between the percentage of GFCF as a share of GDP as the relative size of the manufacturing sector increases.”An analysis of investment expenditure in the UK and other Organisation for Economic Co-operation and Development nations

  • @ Joe Bourke “The classic account of the Weimar inflation is available online When money dies….. ”

    Thank you for providing a source, Joe.

  • Peter Martin 12th Jun '23 - 8:25am

    We seem to have got off topic somewhat!

    It’s somewhat frustrating that making the very obvious point that our ability to provide decent childcare, as with all our other requirements from government, depends on the human and other real resources which are available to us can derail the discussion. As we’ve seen it has ended up in a different discussion of the inflation problems of the Weimar Republic!

    Am I correct in thinking that some are arguing that we can’t make full use of the resources which are available to us because we’d end up papering our walls with £100 bank notes?

  • William Francis 12th Jun '23 - 9:30am

    Whilst I agree with the argument we do need to do more to promote social trust, to get those public services. Many Brits have little faith in Whitehall or Westminster.

  • Nonconformistradical 12th Jun '23 - 9:49am

    @William Francis
    “Many Brits have little faith in Whitehall or Westminster.”

    And might one factor in that be that large numbers of them are not being listened to by a goverment totally out of touch with their needs?

    And not interested in their needs as our flawed electoral system enables government by those whose self interest lies with the better off who have much less problem putting food on table, clothes on back, roof over head?

  • David Garlick 12th Jun '23 - 10:10am

    Sadly Tax is not a popular issue but unless ‘someone’ grasps the nettle ‘no one’ will act and ‘everyone’ will sufferfrom the lack of the services we all say we want.
    You get what you pay for!
    Make it effective, make it efficient, make it cost efficient but it still needs to be paid for or
    ‘Everyone’ losses out.

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