This is the first of two articles looking at last week’s budget.
Looking at the headlines of the budget there is much to welcome and support:
- £12 billion to deal with Coronavirus, of which £5 billion is for the NHS and social care
- Increasing the National Insurance threshold from £8,632 to £9,500
- About £640 billion to be spent on investment over the next five years
- £5 billion for broadband in the hardest to reach places
- Doubling the £2.6 billion money for flood defences
- £2.5 billion for fixing potholes and resurfacing roads
- An extra £10.9 billion to achieve one million new homes in five years and get to 300,000 new homes a year.
I am surprised by the increase in government spending and reduction in tax take. Day-to-day expenditure is increased each year by £13.765, £11.176, and £2.95 billion and investment each year by £5.49, £14.726, £2.5, £3.325 and £0.68 billion.
The IFS state, “while austerity is clearly at an end in the sense that spending is rising, spending levels in many areas are set to remain well below 2010 levels for a long time to come.”
The total “economic stimulus” for 2020/21 is £17.9 billion, which is only 0.798% of GDP. With a further £18.5 billion, 0.81% of GDP for 2021/22. (A deficit of £54.8 billion is forecast to be 2.4% of GDP for 2020/21, therefore GDP is forecast to be £2283.3 billion for the coming year.)
In addition to the £17.9 billion being added to the economy by the budget for the coming year, £13.4 billion was added by the 2019 spending round. The government is therefore increasing the economy by £31.4 billion (1.4% of GDP) over the coming year.
The OBR forecast growth of 1.1% for 2020 and 1.8% for 2021. Therefore I believe that the budget should not be adding only 0.798 of GDP to the economy this coming year and only 0.81% for 2021/22. These figures should be 1.5% for 2020/21 and 1.3% for 2021/22. That is £33.64 billion for the coming year and a further £29.68 billion for 2020/21.
The budget mostly does not set out where the extra money will be spent with for the coming year £12.45 billion being added for the “resource envelope for the Comprehensive Review 2020”: £10 billion for day-to-day expenses; and £2.45 billion for investment.
The £640 billion investment figure announced is not the extra amount being spent, it is the combination of the current plans and the extra £84.42 billion of investment spending in the budget. In our recent manifesto we promised £180 billion of extra investment spending. Therefore this Conservative government is investing £95.58 billion less than we would do!
We should be saying that for the coming year the government is £15.74 billion short of what is needed.
-
From our manifesto these should be done: £ Billions ESA WRAG cut 0.25 Scrap the two-child benefit limit and the benefit cap 2.82 Make changes to Universal Credit working allowances 2.56 Increase Carer’s Allowance 0.37 Reduce Universal Credit waiting period from 5 weeks to 5 days 0.71 (my estimate) Education 2 Police 0.25 Further education, skill and youth services 0.34 Restore maintenance grants 0.94 Environmental capital measures (for homes and building) 1 Things not in our manifesto which should be done: Restore benefits to their 2010 real value 3.5 (my estimate) Increasing public servant wages 1 Total 15.74
Part 2 in this series is available here.
* Michael Berwick-Gooding is a Liberal Democrat member in Basingstoke and has held various party positions at local, regional and English Party level. He posts comments as Michael BG.
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46 Comments
The budget is out-of-date in just a week!
“£12 billion to deal with Coronavirus” ????
This is just a ludicrous underestimate. You could probably multiply that by a factor of ten and still say the same thing.
” I am surprised by the increase in government spending and reduction in tax take.”
I’m not sure what you’re getting at here. Yes there will be a reduction in the tax take as many parts of the economy shut down in the coming months. There has to be. If we follow the usual neoliberal mantra of “cutting our clothes according to our cloth” and cut back govt spening as a result we’ll end up in very bad shape indeed.
Boris Johnson has always fancied himself as another Winston Churchill. Now’s his big chance. He has to put the country on a wartime economic footing.
Prof. Bill Mitchell gets it right as always:
http://bilbo.economicoutlook.net/blog/?p=44507
Peter Martin,
The budget reduced the tax take by increasing the National Insurance threshold from £8,632 to £9,500. This is forecast to reduce the revenue of the government by £2.11 billion for 2020/21, £2.185 billion for 2021/22 and £2.36 billion for 2022/23.
The budget is now completely dead, spending will have to go into fighting the virus and keeping the viable companies afloat – it can ultimately be funded by the govn taking equity at a heavily discounted price and selling at recovery prices a year or two down the line (as per the banks).
I would say the key to fighting the virus is instant self-tests that can be done at home and at borders.
Frank West is correct when he says the the budget is now completely dead, spending will have to go into fighting the virus and keeping the viable companies afloat.
The OBR forecast growth of 1.1% for 2020 and 1.8% for 2021 is now completely redundant.
Businesses are in deep trouble particularly airlines, hotels , restaurants, pubs, cinemas theatres and other hospitality and leisure businesses. To make matters worse,the Insurance industry is telling companies that they are not covered for business interruption caused by coronavirus .
President Macron has just announced a 300 billion Euro support package in France.This is a massive intervention. Something of this kind will be required in the UK with wartime levels of deficit spending needed to prevent mass unemployment.
The Chancellor is due to make a statement today. One of the key areas is adult social care which was a glaring omission from the budget and will be impacted further by social distancing.
The other point made by Frank West – instant self-tests that can be done at home and at borders – is important. These quick10 minute self-test kits could be sent out to all households as a preliminary measure.
One thing we should be saying clearly is that there should be no Public Money to bail out The Airlines. If we are serious about fighting climate change then we should see this this as a golden opportunity to shift away from Air travel to Rail.
Well miracles occasionally happen and Peter Martin is actually right the budget is a Norwegian Blue budget, it is dead, deceased, pushing up the daisies. I wouldn’t bother printing part 2, alas it us no longer relevant. Deficit spending will need to be cranked up ( it always is in war and we are in a war) but at the end the damage done will be painful. Can we rejoin the European virus tracking system and forget a red white and blue Brexit if nothing else this disaster shows you can’t retreat to your little village for people like you and hope the world will ignore you, but, but I hear a poster cry ” Tis just the flu” not it isn’t.
Frank West,
I don’t think self-testing kits are available yet. The one I saw being demonstrated on TV I think said a person has to wait three days after symptoms have come out and if it is negative do the test again two or three days later. It therefore would have limited effect on reducing the amount of time a person has to self-isolate if they have symptoms.
Frank West and Joe Bourke,
The measures in the budget should not be cancelled. However the unallocated £10 billion for day-to-day expenditure could be diverted to financial support for people affected by Coronavirus. My second article focuses on the Coronavirus measures announced in the budget, which hopefully will be published later today.
Paul Baker,
This Conservative government is not going to take your advice, especially with Brexit and the government’s desire that we export more to non-EU countries. Business people are not likely to want to use rail rather than air to get to these countries as there would be an enormous time cost for them. With the collapse of Flybe flying internally in the UK will be cut by half.
Michael,
I’m afraid 10 billion is just spitting in the fire, we will need a much bigger bucket of cash to damp down this fire. Times 10 by 10 and it still won’t be enough, triple that and you might make some dent in the damage this dammed virus will do.
“President Macron has just announced a 300 billion Euro support package in France.”
I’d be interested to know how this is going to work. As far as I know, the rules of the eurozone haven’t changed and it’s not within Emmanuel Macron’s power to deficit spend in this way. I would expect one Fr. Angela Merkel might have something to say about this type of spending commitment. Essentially, many German ordoliberals will see it as others spending their money.
The economic impact of the COVID 19 will present a huge challenge for European solidarity. It could be either the making or the breaking of the eurozone and the EU as a whole too.
@ Frankie,
“I’m afraid 10 billion is just spitting in the fire …..Times 10 by 10 and it still won’t be enough, triple that and you might make some dent…..”
I’m pleased you’ve moved away from thinking that budgets must always be balanced otherwise we’ll end up like Zimbabwe. But you shouldn’t swing from one extreme to the other. The COVID 19 outbreak won’t just cause demand problems. There will be supply problems too if our productive capacity is seriously impaired through workers falling ill and the Govt having to forcibly close down factories and offices.
So any stimulus has to be carefully calibrated to avoid making more demands on the economy than it can supply and thereby causing an inflation problem.
Peter,
I don’t believe budgets need to be balanced, I just believe budgets need to retain peoples faith in the currency. Something you seem unable to grasp, if people lose faith in the currency you do indeed end up in a Zimbabwian or Weimar situation. Now everyone is printing you can print, try printing when others are not and you are toast. The problem you have is you’d print no matter what situation we are in or what ever the perception of the value of our currency. The problem you have is your only tool is a hammer so every problem looks like a nail, so you’ll print away because it is all you know.
Peter Martin,
France has announced an initial 45 billion euro emergency fiscal package and 300 billion of government loan guarantees https://www.france24.com/en/20200317-france-rolls-out-initial-%E2%82%AC45-billion-package-to-help-struggling-companies. This compares with £1 billion of loan guarantees announced in last weeks UK budget to be provided via the British business bank.
The Airline sector alone is calling for £7.5 billion of immediate aid https://www.theguardian.com/world/2020/mar/15/uk-airlines-call-for-multibillion-bailout-to-survive-covid-19-crisis. Airlines, travel and hospitality businesses are in the front line of the crisis and will need urgent assistance to avoid mass layoffs.
The EU has already announced it will flex budget rules. That is just a pragmatic recognition that deficit rules will go out the window anyway, just as they did during the financial crisis.
Frankie’s comment hits the nail on the head. “…budgets need to retain peoples faith in the currency. The problem you have is your only tool is a hammer so every problem looks like a nail, so you’ll print away because it is all you know.”
Emergency measures need to deal with the immediate problem of collapse in consumer and business confidence. They are not the time for longer-term social engineering. The measures adopted by Alistair Darling and Gordon Brown during the financial crisis are a blueprint for how to tackle an economic crisis. Commenting a few days ago https://www.dailymail.co.uk/news/article-8108259/Coronavirus-Ex-chancellor-Alistair-Darling-blasts-lack-international-cooperation.html, Alistair Darling was particularly critical of the lack of a coordinated International response saying:
“As this intensifies [the Chancellor] he will need to go back to the House of Commons – I had to do it several times during the financial crisis – they must do whatever it takes to keep the economy going.’
‘…the government does have to have an eye on as we come through this, and we will, at some stage we will recover, we need to make sure we have still got the basic economic infrastructure that will work.’
“…one of the reasons why the world was able to recover from the 2008 economic crisis was that countries worked together and agreed an action plan.”
‘I think that one other element which is similar to what happened 10 years ago but is singularly lacking today, one of the reasons that the global economy recovered 10 years ago was because of international cooperation,’.
‘We all did the same thing, from communist China to republican-led United States, international cooperation at the moment is in something of short supply.’
He added: ‘International cooperation to my mind is very, very important
Paul Barker: “One thing we should be saying clearly is that there should be no Public Money to bail out The Airlines.”
That is my gut response too. Airline companies tend to proclaim their belief in free market economics but rarely show modesty when asking for a handout. There is an improbable theory that in the long term, airlines are net sum-zero businesses. But it is not far from the truth, reminding us that for every fortune made, another is lost.
I’ll reserve judgement for a while. The problems of maintaining grounded aircraft and companies retaining skilled staff are not trivial.
@ Joe B @ frankie,
“…budgets need to retain peoples (sic) faith in the currency.”
Sure. That means inflation shouldn’t be too high. No-one is suggesting otherwise. Or are you saying it means something else?
Peter Martin,
inflation is not the current problem with oil and already low commodity prices falling. It is deflation. Falling prices and stagnant wage growth coupled with permanent loss of supply capacity, technical skills and share of world trade impact on international competitiveness and purchasing power parity. As Alistair Darling comments in his interview “we need to make sure we have still got the basic economic infrastructure that will work.”
The primary focus of the economic support package will be in ensuring business has access to adequate credit to keep the bulk of their workforce and supply capacity intact during the downturn, just as it was during the financial crisis. Additionally, aggregate demand will need to be supported with fiscal measures to alleviate the burden of taxation on business and help sustain consumer spending both during the downturn and in the early recovery stage.
@ Joe B,
“inflation is not the current problem”
No it isn’t. Agreed.
So why all the concern about “losing faith in the currency”?
Peter Martin,
when domestic supply is constrained and fiscal stimulus is introduced to boost demand, a surge in purchases of foreign goods by home country residents will cause a surge in demand for foreign currency with which to pay for those goods, causing a depreciation of the home currency and potential loss of confidence in the currency when it is pushed too far as has historically occurred in many countries. Hence, the primary focus of support packages on maintaining domestic supply capacity and Alistair Darlings call for international coordination.
Joe Bourke,
Indeed, something will have to be done to keep aggregate demand near to what can be supplied. We could be facing a massive drop in aggregate demand like nothing we have ever seen before. I am also concerned about international trade and what happens if it collapses because the distribution network has ceased to work.
@ JoeB,
“….a surge in purchases of foreign goods by home country residents will cause a surge in demand for foreign currency with which to pay for those goods….”
So what? But that’s not the right way to look at it anyway. If anyone wants to sell to the UK there’s no point expecting us to pay in US dollars or euros. We pay in pounds because that’s all we have! Just like if we’re exporting to Germany or the USA we know we’ll be paid in euros or US dollars. That’s all they have.
In practice, we don’t really care providing we can use a calculator and know the exchange rate. We just convert from one to the other at the time of the sale. If it’s a large sale and we are concerned about future currency movements we can hedge against that.
What ultimately governs the exchange rate is what the pound will buy in the UK. Relative to what the US dollar will buy in America and the euro in Europe. It’s not a perfect measure. If anyone really understands the vagaries of the money markets they can get very rich very quickly. But generally speaking this is true. The Japanese Yen, for example, is closer in value to a US cent than a US dollar. This is because it doesn’t buy much at all in Japan. So you’ll probably pay 300 yen for a cup of coffee in Tokyo but maybe $3 in NY. It’s some time since I’ve been to either place so maybe my prices are slightly out of date – but you’ll know what I mean.
It’s generally a mistake for UK governments to focus too closely on the value of the pound. I can’t think of a time when it’s ever done any good at all. The way to maintain confidence in the pound is to make it worth something. ie You can buy something with it. Govts should concentrate on keeping the economy running well with inflation under control and leave the speculators to, er, speculate in the currency markets. That way they are fighting each other rather than pocketing billions from misguided governments.
About 4.30 pm yesterday I posted a comment similar to this, which didn’t appear:
My position as set out in the article is that even without the Coronavirus £17.9 billion was not enough, it should have been £33.64 billion. If there had been no Coronavirus the only differences to what I think we should be spending the extra £15.74 billion on would have been the £3.5 billion to restore benefits to their 2010 real value because this is not a priority for the party and maybe the £1 billion extra for public servants. (This has been corrected.)
Peter Martin,
if you want to buy imports from the US and Europe (as the UK must) you will need to pay suppliers in dollars or Euros and buy the currencies you need with sterling.
The pound has dropped precipitously against both currencies falling to $1.18 and E1.08 Euros today. There is no government intervention in the foreign exchange market. This is the markets assessment of what the pound will buy in the UK, relative to what the US dollar will buy in America and the euro in Europe.
To offset the lower value of the pound greater levels of foreign direct investment are required to finance the balance of payments deficit and perhaps higher yields offered to attract foreign investment in gilt auctions.
As the pound plummets against the $ and euro Peter Martin is receiving an object lesson of what happens when people lose faith in a currency. The $ and euro are seen as a safe haven, the pound to quote the BBC “is a proxy for risk”. Well done Peter, now I wonder what made it risky, something you worked for perhaps!
@ JoeB
“if you want to buy imports from the US and Europe (as the UK must) you will need to pay suppliers in dollars or Euros and buy the currencies you need with sterling.”
If this statement is true, then it’s also true that anyone wanting to buy from the UK needs to pay their suppliers in sterling.
As it happens it isn’t true. Anyone selling into the EU will happily take euros, and anyone selling to the US will take dollars. What they do with them afterwards is their choice. Usually, they will be converted to sterling. But it isn’t compulsory.
“There is no government intervention in the foreign exchange market.”
Also not true. Govts often intervene to smooth out any large fluctuations in currency values. I would say this is permissable. The last time the UK govt intervened, big time, was in the early 90s when the Tory government was trying to track the German DM. That cost £ billions and ended up with Black Wednesday.
“This is the markets assessment of what the pound will buy in the UK, relative to what the US dollar will buy in America and the euro in Europe.”
This is the way it works in the longer term but you can’t say much about short term currency movements. They are usually irrational. If you could make sense of them, you’d be able to predict currency movements and clean up big time!
@ JoeB
“if you want to buy imports from the US and Europe (as the UK must) you will need to pay suppliers in dollars or Euros and buy the currencies you need with sterling.”
If this statement is true, then it’s also true that anyone wanting to buy from the UK needs to pay their suppliers in sterling.
As it happens it isn’t true. Anyone selling into the EU will happily take euros, and anyone selling to the US will take dollars. What they do with them afterwards is their choice. Usually, they will be converted to sterling. But it isn’t compulsory.
“There is no government intervention in the foreign exchange market.”
Also not true. Govts often intervene to smooth out any large fluctuations in currency values. I would say this is permissable. The last time the UK govt intervened, big time, was in the early 90s when the Tory government was trying to track the German DM. That cost £ billions and ended up with Black Wednesday.
“This is the markets assessment of what the pound will buy in the UK, relative to what the US dollar will buy in America and the euro in Europe.”
This is the way it works in the longer term but you can’t say much about short term currency movements. They are usually irrational. If you could make sense of them, you’d be able to predict currency movements and clean up big time!
“To offset the lower value of the pound greater levels of foreign direct investment are required to finance the balance of payments deficit and perhaps higher yields offered to attract foreign investment in gilt auctions.”
The concept of a balance of payments deficit is only associated with a fixed exchange rate. Not a floating currency.
Peter Martin,
this is a simple explanation from the BofE
https://www.bankofengland.co.uk/knowledgebank/who-sets-exchange-rates
As the graph shows the $ exchange rate has fallen almost 40% in the long-term since 2006.
The bank of England does not set the exchange rate,as stated in their article, but its interest rate decisions can and do influence the exchange value of the pound.
The ONS calculates and publishes statistics on the balance of payments deficit each quarter https://www.ons.gov.uk/economy/nationalaccounts/balanceofpayments. It is not a concept, it is a measurement of economic transactions between residents of the UK and the rest of the world.
Oil and many other commodities are traded in US dollars and the bulk of UK imports come from the EU and the USA. Some EU or US companies may have branches in the UK that price in Sterling, but in general purchases from EU suppliers will need to be settled in Euros and from US suppliers in dollars. The same applies with UK suppliers with overseas branches that price their goods and services in local currencies.
The striking thing about this crises is how behind the curve Depeffle and Co are and how little their advice is being heeded. they are not leading they are following and being ignored.
The schools closed not because they felt it was time but because the teachers and staff had voted with their feet and they couldn’t stay open. The pubs are still open and packed because people like Tim Martin believe they know better and the fools (and they are fools) who are drunk both on alcohol and emotionalism follow his lead. Why as Tim said
Wetherspoon’s maverick founder said the prime minister should copy the Netherlands’ approach, which accepts that most people will get the virus. A “lockdown” of activity for 12 weeks will result in a further outbreak of infections in July, he said, citing comments from a professor at Imperial College London.
“The Dutch approach has the additional advantage of being in tune with the robust instincts of the nation,” Martin said on Tuesday. “This is evidenced by Wetherspoon sales which have been positive in the last few weeks in spite of storms and health scares.”
In a trading update on 12 March Wetherspoon said like-for-like sales in 2020 were up 3.2% and that wet weather had affected business more than concerns about coronavirus.
Martin’s statement, issued via the stock exchange, sees him shifting his outspoken views to the coronavirus pandemic from Brexit. He has regularly used company announcements to support Britain leaving the EU and lambast Brexit’s critics.
https://www.hl.co.uk/shares/stock-market-news/company–news/wetherspoons-tim-martin-attacks-coronavirus-lockdown
To those that followed Tim on Brexit, remember this, his actions could lead to your early demise and you’d have no one to blame but yourself, for following him ( and follow him you did).
@ Joe B,
On the question of a BOP deficit:
“However, it is not strictly proper to describe a country with floating exchange rates as having a balance of payment deficit or surplus. The reason is that interventions are not necessary in a floating exchange rate. In a floating system, an imbalance between supply and demand in the private Forex is relieved by a change in the exchange rate. Thus there need never be an imbalance in the balance of payments in a floating system.”
https://saylordotorg.github.io/text_international-finance-theory-and-policy/s14-fixed-exchange-rates.html
“Oil and many other commodities are traded in US dollars”
It doesn’t matter in the slightest. As Warren Mosler explains here, its not the currency of trading. He says “paper clips”. I’d have chosen a currency Vietnamese Dong to illustrate the point. It’s the currency that the sellers want to save in that does matter.
PS I’m not quite sure why you’re quoting the BoE at me!
Peter Martin,
“Anyone selling into the EU will happily take euros, and anyone selling to the US will take dollars”
Foreign companies selling in the UK will accept sterling, but whenever I buy things from abroad I pay in their currency and get charged for exchanging my pounds into their currencies. If you buy from foreign companies they are most likely to want to be paid in their own currencies.
Peter Martin,
I have linked the BofE report to illustrate the decline in the exchange rate of sterling against the US dollar and the Euro over the long term; and to confirm that the BofE does not intervene in FX markets but rather acknowledges that interest rates influence the exchange rate. It is true to say that with a floating exchange rate the supply of currency will always equal the demand for currency, and demand driven changes in the exchange rate will adjust the balance of payments to zero. So Warren Mosler is right in this respect that the currency that sellers wish to save in matters. A high demand for sterling will increase the exchange rate and reduce the volume of investment required to finance current account deficits. Conversely, low demand for sterling will weaken the exchange rate and increase the volume of financial flows required to finance the trade deficit.
These savings can be split into two broad categories:
Direct investment. This is net investment from abroad. For example, if a Japanese firm built a factory in the UK it would be a credit on the UK financial account and represent long-term savings in sterling.
Portfolio investment. These are financial flows, such as the purchase of bonds, gilts or saving in banks. They include short-term monetary flows known as “hot money flows” to take advantage of exchange rate changes, e.g. foreign investor saving money in a UK bank to take advantage of better interest rates or as temporary safe haven during times of global economic uncertainty.
The BofE issues reports on the balance of payments from time to time https://www.reuters.com/article/us-britain-boe-banks/bank-of-england-says-uks-reliance-on-kindness-of-strangers-for-finance-is-rising-idUSKCN1GS12P For example, this report notes “Over recent quarters (the current account) deficit has been increasingly funded by capital inflows – rather than sales of foreign assets by UK residents – thus increasing the UK’s reliance on the confidence of foreign investors,”
Coming to Michael’s main article late because I have been away, I am disappointed to find the discussion seeming mainly to be about exchange rates. To me, the importance here was Michael’s assessment that the Chancellor should be providing £15.74 billion more to effect the good outcomes of ending austerity and restoring services which we set out in our Manifesto, plus restoring benefits to their 2010 value. Though we hear of the Chancellor promising yet more billions, correct me if I am wrong but I don’t see him meeting these targets which we should be forcefully demanding.
For example, although the Chancellor is promising loans and even grants to small businesses to make up for their losses, I don’t hear of him channeling funds to their dispossessed workers. They are said to be able to claim sick pay or benefits, but will either be the equivalent of what they would have been earning? And will they have to wait five weeks to obtain it? From zero-hour contracts or part-time work on the minimum wage, will people suddenly find themselves in absolute poverty? Will the food banks have the volunteers needed to keep packing and distributing, even if the would -be givers can find enough to purchase on depleted supermarket shelves? We surely need to ask, and Michael’s prompting should be rung loud in the ears of this would-be generous Chancellor.
@ Katharine,
You are quite right to want to steer the discussion back on to the main issue of the day. But you slightly misunderstand why “economics” has reared its ugly head again. The debate will always be between those who say “B*gg*r the exchange rate. Put the country on a wartime footing. Do what is needed to get us through this crisis.” and those who remind us that the pound has lost x% of its value since (insert date for best effect) and think we rely of the supposed “kindness of strangers” to pay our way. And say “we can’t afford to upset them , can we?”
Well take your pick. Does anyone really want an overvalued pound if it means upwards of half a million deaths plus riots in the street because many people have lost their livelihoods?
Peter
A run on Sterling isn’t going to do anybody any good. This is a time that requires real leadership and cool heads.
@ Manfarang,
Yes we need decisive leadership. This means doing the right thing to protect the health of the population and the national economy. The level of sterling is its lowest level for 30 years. So just as it came back then, so it will in future. If we stop firms going out of business and look after the interests of the work force.
The exchange rate is one of those indicators which, perhaps somewhat ironically, we should ignore if we want a health economy. We didn’t ignore it in the 60s, largely because we were stuck with a fixed exchange rate, so we couldn’t, and it didn’t do us any good then. We didn’t ignore it in the mid 70s when the Labour Govt called in the IMF. The Tory Govt didn’t ignore it in the early 90s. That ended up with Black Wednesday. However, the Tory Govt did ignore it in the early 80s when the pound fell to almost parity with the dollar. Who remembers that now? Hardly anyone. That’s one thing they did get absolutely right.
@ Katherine
Although it is tempting to push the Party’s political agenda at this time – it is worth remembering what happened after WW2 once Hitler had been defeated. Churchill, although recognised as a great war-time leader. was voted out of office in the 1945 GE to be replaced by Attlee’s Labour Party – which introduced the welfare state, including the NHS, and many other social reforms.
Tory policies introduced since 2010 – particularly Osborne’s austerity measures – were aimed at benefitting the richest at the expense of the poorest. Indeed the vast majority of additional wealth created since then has gone to a tiny few of the very richest.
The underlying injustice of these measures are likely be further exposed as the COVID 19 crisis develops. This should give an unexpected opportunity to the opposition parties at the next GE. However, a national unity is required until the virus is defeated to provide public confidence until then – which is likely to take at least another year and probably a lot longer.
It seems to me that far greater reforms will be possible if this approach is adopted.
Peter
The eurozone has hinted at providing further support for the bloc’s economy which has boosted EUR further.
@ John Roffey “Tory policies introduced since 2010 – particularly Osborne’s austerity measures – were aimed at benefiting the richest at the expense of the poorest. Indeed the vast majority of additional wealth created since then has gone to a tiny few of the very richest. The underlying injustice of these measures are likely be further exposed as the COVID 19 crisis develops”. Correct, Sir.
“This should give an unexpected opportunity to the opposition parties at the next GE”.
Unfortunately for the Lib Dems (and those on the sharp end) they were a consenting party in the government which introduced the measures you rightly complain of, John. If there is to be ‘an unexpected opportunity to the opposition parties at the next GE’, Lib Dems will have very little moral claim to be included in it. They have yet to provide a convincing answer to that unhappy fact.
As Charles Dickens might have written, “Facts is Facts, Mr. Roffey”.
@ David Raw
You are of course correct David. However, if the Party’s MPs can demonstrate a constructive approach to defeating COVID 19 whilst the battle lasts – the sheer enormity of the damage done in terms of thousands of deaths [probably hundreds of thousands] by the virus should make the L/Ds mistakes during the coalition pale into insignificance.
If this is the case – the performance of L/D MPs during this time should be that which has the greatest influence – when it comes to the next GE.
Manafrang is correct that “a run on Sterling isn’t going to do anybody any good. This is a time that requires real leadership and cool heads.”
All major economies are in the same boat facing a severe recession. However, a steep decline in sterling against the US dollar and Euro is an indicator that foreign investors may be losing confidence in the UK economy and sterling, selling off UK financial securities and moving financial capital to the US, Europe and elsewhere. The government will need to factor in the maintenance of confidence in UK financial markets as they develop the response to the economic crisis.
The key issue for confidence is the ability to bounce back quickly in International markets from a recession and avoid getting stuck in the kind of economic stagnation Japan has found itself in since the early 1990s.
@John Roffey. Frankly, John, I am amazed by your comment of 9.13, which suggests that we should pipe down in the interests of national unity just now and expect to reap the benefits of public disgust at Tory indifference to the poor at the next election. I suggest to you that the poor, getting poorer probably in this national crisis, need help NOW and not in four years’ time! This is not a question of party political advantage, it is a question of getting this Chancellor who is promising help to everyone actually to spread his generosity to the poorest would-be and actual workers and their dependants.
As for your citing the post-war events, may I remind you that it was a combination of the Liberal Beveridge with his demands for defeating the five great evils and the Labour post-war government which brought us the NHS and social insurance and welfare provision. Just so, now, our party leaders should be combining with the Labour leadership – who for instance have raised the need for help for renters – to demand immediate help for the poorest and most helpless workers and families NOW. I was glad to read that Layla Moran MP is interested in co-operation with Labour, though only in terms of electoral pacts. Let us press our MPs to co-ordinate demands for the poorest people right away, because they need it .
@ Katharine Pindar
I am not surprised that you disagree with me so adamantly Katharine. I have added to my thoughts on the most recent UBI thread:
“As highlighted in a previous thread UBI is extraordinarily expensive. It looks as if evictions are going to be banned through the emergency measures. With that done basic survival also requires food and some energy.
At this stage wouldn’t food parcels for those obliged to self isolate and the jobless be a more practical step? With some energy allowance added to the package.
It looks as if the nation is going to be in a dire financial state by the time the virus is defeated – is it sensible to make a recovery almost impossible by providing more than is absolutely necessary at this early stage?”
I do not expect that this addition will change your mind Katharine – but we must all express our views honestly.
Peter Martin,
you ask” Does anyone really want an overvalued pound.” I think the answer is no, equally no one should want an undervalued pound. Both have consequences.
The debate in economics is not about the merits of floating exchange rates versus fixed or pegged currency regimes, both have their pros and cons. The debate is around the nature and proper utilisation of money creation and fiscal or monetary stimulus in the economy. That is epitomised by cliches like the ‘Majic money tree (MMT) or ‘ there is no such thing as a free lunch in economics.’
Politicians have to deal with the real world. That requires an understanding of what money creation actually means and that there is a difference between microeconomics and macroeconomics that leads many into ‘fallacies of composition’.
As this ING paper concludes https://think.ing.com/reports/the-money-creation-paradox/
“In the debate about the role of banks in money creation, remarkably little attention is given to the money creation paradox. This is the paradox that, on the one side, the banking sector creates money when it extends credit while, on the other, banks actually have to attract money to finance their lending. The paradox reflects the fact that money creation takes place at a system level, and individual banks are only one component of this. Money creation is not, therefore, an aim in itself for banks, but is merely a byproduct of their lending, one of their core tasks.
Banks cannot extend unlimited credit and, in so doing, create unlimited money. They have to weigh the risks and keep an eye on their reserves, liquidity and solvency. But ultimately policymakers are in control. The financial crisis has led to a recognition that monetary policy focused on using interest rates to achieve price stability is no longer enough. New monetary policy tools such as quantitative easing have a bearing on money and credit creation, and there is a consensus that macroprudential supervision should monitor and, when necessary, adjust credit extension and money creation at system level. As a point of departure, macroprudential policy assumes that credit and money are necessary and useful sources of economic growth and prosperity, but that excesses must be avoided.
Sadly, economists have, to date, offered very few points of reference to determine what exactly a prudent pace of lending and money creation is. This is perhaps not surprising given the widespread lack of understanding of the money creation paradox.
Quite right, Katharine….. and I notice that Frank West (still no answer on which ones) was talking about reducing benefits as well. I sometimes wonder just how liberal some Liberal Democrats are, and how much some of them either know or care about the real world.. The unfortunates at the bottom of this class ridden society are in great health and economic danger.
HMG could immediately reverse fund PAYE on the condition of it funding firms to keep jobs going…. and to scrap the five weeks UC wait, and to update benefits.
When I consider people like Grant Shapps (Transport), Priti Patel (Home Office) and Gavin Williamson (Education) – known as Private Pike when at Defence – I shudder at the incompetence of the motley crew at Westminster (with it’s virus spreading archaic voting lobbies).
Thanks, David. As someone lucky enough to have enough to live on and a bit more with which to enjoy myself, I am going to decline to join in discussion of food parcels (John R.), or indeed handouts to everyone of either the same temporary monetary grant or continuing basic income. For goodness’ sake, let’s just work together to make sure everyone who wants a job keeps one, and that he and she is paid enough to live on without poverty. As indeed Michael has proposed as part of the new Social Contract that he and I wish our party to support, and that I guess will be even more needed when the worst of this crisis is over.
It is likely that the decline in the value of the pound is related to the lack of a government package to ensure workers keep their current income. It seems that foreign investors believe we will be in a recession for a long time.
John R(offey)
We should not be advocating food parcels. Everyone should be able to choose what they eat and not have to rely on what someone else thinks they should have. We as a party should be advocating increasing benefit levels to at least the poverty line because lots of people are being put on short-time and soon lots will be made redundant.
I believe Michael is right. It would be better for our party to be pressing for benefit levels which are sufficient to lift people out of poverty than to be pursuing the costly idea of the one-size-fits-all universal basic income. Thousands more people are likely to be obliged to live now for many weeks on the inadequate levels of benefit now made available in its various forms.