It was a weekend for rejoicing, for most of us. Even if on Friday you were in a nerve-jangling contest which eventually you, unlike luckier colleagues, just missed out on (as happened by just one vote to an unfortunate North Devonian), or even if you were stuck for seven hours as we were in West Cumbria waiting for the single result we had interest in (eventually wearily won) – even so, every hour that passed we all had the glad spectacle on our smart phones of that orange bar rising on the BBC News round-up, and that blue bar sinking in defeat.
There was delight as the numbers of successful Liberal Democrats rose steadily and new councils fell to us. There was wonder at outstanding triumphs – how did they do THAT in Chelmsford or Cotswold? And there was also for me admiration at seeing in the detailed lists how often just one, or at most two, Liberal Democrats had succeeded. We know how many hours of patient hard work those new councillors had to put in to achieve those small, significant glories.
And the work goes on. Our new councillors have so much to do just shoring up the threatened local services, fighting vested interests, standing up for local communities, always seeking to Demand Better for the ordinary people we serve.
It’s tempting to dwell a little on the past. Who does not remember the sinking feelings of a miserable May day four years ago, when the mounting evidence of preceding local elections and Euro elections culminated in our shattering national defeat? How gladly then we, remembering, welcome our 703 new councillors, and see that this time the 1100-plus losses are the Tories’!
But what of the future? We face the probable Euro elections in good heart now. As our Leader has said, we have shown ourselves to be clearly the strongest Remain force on the ballot paper. The challenge of Change UK with its mixed messages has been muted.
So what will we aim for beyond this year’s overriding goal of defeating Brexit? What will be our priorities?
My new colleague Stephen Barnes, who won a town ward in Cockermouth on Friday, points out that there are now virtually eight parties represented at Westminster besides ourselves. You could reckon that both the Tories and Labour are each really two parties, and then there are the Greens, Change UK, the SNP and Plaid Cymru. Nationally, our way forward will be in making alliances, so what will we be demanding better from those alliances for our country?
For me, it has to be first a radically compassionate approach, reversing the callous attitudes of this Government, to end relative poverty in this country and aid the most disadvantaged people through much fairer taxation and better welfare provision. Our party should fully endorse the report of the UN Rapporteur Philip Alston, with its comprehensive reach from provision of local services to the alienation of our young people, and put forward our policies, existing and being developed, as blueprints for achieving those aims.
We are here first to serve our people, nationally and locally.
* Katharine Pindar is a long-standing member of the Cumberland Lib Dems
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239 Comments
it is rather refreshing to find L-D Voice mentioning major social problems. Philip Dalston’s report on the UK’s deficiencies can be found at https://www.ohchr.org/en/NewsEvents/Pages/DisplayNews.aspx?NewsID=23881&LangID=E
UKIP’s current leader Gerard Batten MEP is resigning with effect from 2 June 2019.
He was elected unopposed in April 2018.
He has not decided whether to stand again.
1. Massive support for our new local government base – raised up a gear from before. Free membership of ALDC for a year. Regional training and planning conferences for local councillors. The equivalent of ALDC’s wonderful Kickstart for after the election. The national party should put in £100k to fund this – money well spent for the future.
2. New (and old) councillors PLUS non-councillors seeking out support. There’s masses available – join ALDC, online (not just from party sources), ALDC, regional and national conferences etc. etc.
3. Bold, juicy, somewhat “marmite” policies. Draw a line under the coalition. The fear is that success may stop us from thinking that’s necessary. Free university tuition. Double the pupil premium. Zero carbon emissions by at least 2040. Local Income Tax – saving the average household £400. Better funding for the NHS and schools. AND Stop Brexit. We’ve earned a hearing with British people. We can’t squander it by faffing around with sub-clause 10b of policy paper 20! Wishy washy, long complicated lists won’t be heard. Sell the cake not the ingredients.
4. Banning Lib Dem councillors from council offices! If they have any sense they will be out on the streets in the summer (and after). Surprising the electorate by actually talking to them after the election. Fundraising. Putting out Focuses. Practising community politics.
5. Remembering elections are mere punctuation marks. A start. Not an end.
6. Ignore most of the Westminster machinations. Yes of course it is about working “across the aisle” sometimes. On mental health. On green issues etc. But leave the plotting to Labour, the Tories and CHUK.
Thank you, M I Taylor, for giving people a link to Professor Alston’s summary of his long report, which was devastating in its reach and conclusions. Some pieces in LDV commented on it during the winter, for instance this January article: https://www.libdemvoice.org/alleviating-poverty-in-our-country-how-should-Liberal-Democrats-aim-to-help-59798.html. But the report was not formally endorsed by our party, as I believe it should be. There were mentions of it at Spring Conference, and it is to be hoped that the Working Group on Fairer Shares for All, which had its consultation session at that conference, will produce some further useful policy developments for consideration at our autumn Bournemouth Conference. But we should be calling for action before that. The benefits freeze goes on, ordinary people are having to keep going to food banks, people have lost their homes because of the vagaries of Universal Credit, child poverty and mental health problems of young people worsen – there is so much unnoticed hardship that Liberal Democrats need to focus on now and aim for the political action required to relieve it.
I sincerely hope that we are able to provide to our local campaigners, policy issues which they can feature in focus etc.The responsibility of the party is to obtain media space and it will need to move a step away from brexit and reach out to distressed labour and tory supporters, by zeroing in on things important to them
Social care, Mental health poverty and homelessness. We have policies on these issues but they need to be highlighted
I have read some of Dalston’s report. Long and depressing. There is a lot do . Yes cllrs SHOULD be talking to the people. The action to change things should start NOW. Just come in from shopping.had a glance at the headlines ,The right wing rags talking about a new baby that has arrived. Only 2 had articles on the condition of the planet. To me they show denial of what is going on in the country and the World. Ironic that the Times mentions that the Govnt is aiming to recruit Nurses from abroad after devastating thesystem in the 1st place!!
@ Michael 1 “Banning Lib Dem councillors from council offices! If they have any sense they will be out on the streets in the summer (and after).”
Have you ever been a Councillor or a portfolio holder, Michael, and how do you propose Liberal Democrat Councillors should transmit and implement the electorate’s wishes into action ?
Something else that ..we need to do is to get rid of FPTP We have to be the change party, not the other lot with change in their name We have to stand for the future.. The new consumerism (lack of) party.
@ Katharine Pindar “Our party should fully endorse the report of the UN Rapporteur Philip Alston, with its comprehensive reach from provision of local services to the alienation of our young people, and put forward our policies, existing and being developed, as blueprints for achieving those aims”.
Well said, Katharine, ……and it would help if the parliamentary spokespersons showed a bit of interest in it – and demonstrated that interest and some knowledge.
The priorities for the Lib Dems short Term?
1. Get more than ONE MEP elected later this month (even if they don’t take their seats).
2. Depending on what happens across the Channel, or Westminster for that matter, hang in for reform of the direction of travel of the EU including a more sensible interpretation of freedom of movement.
And long term?
(In no particular order)
1. Support a radical restructuring of local government in England by scrapping the remaining District and County Councils and replacing them with Unitary Authorities.
2. Reform local government finance, starting by replacing the Council Tax with (suggestions?).
3. Scrap H2, promote HS3 and put real money into infrastructure programmes elsewhere.
4. Take a realistic approach to Climate Change and the need to get countries like the USA, China and India on board.
5. Get a grip on education, health and social care. (A Royal Commission on all levels of Education, a ring fenced 2p on the Basic Rate of Income Tax for health immediately, another Royal Commission on Addiction in all its forms and a cross party agreement on Social Care provision).
And….
6. Keep campaigning for ‘fair votes’ (despite what ‘Michael1’ tells us).
@ Katharine Pindar,
Lib Dems seem very concerned with safety nets such as the way Universal Credit works, or doesn’t work. Free school meals. Housing benefits. The concept of a Universal Basic Income. Adjusting the tax system to try to make it fairer. That’s fine -up to a point but it’s arguably not doing much except smoothing off a few rough edges from a fundamentally unfair system. Especially when the economy is sluggish. It’s just a continuation of what has been tried for as long as anyone can remember. IF it was going to work it would have worked by now.
So how about something different? Like a job guarantee? The GDP per person in the UK is about £30k p.a. This includes the elderly and those too young to work. So there shouldn’t be any problem offering anyone something like £20k pa for a normal full time job.
It doesn’t mean workfare. It doesn’t mean that everyone has to do a 40 hour week 48 weeks per year. It should apply to everyone. People with Downs syndrome, for example, are usually overlooked in the job market. They wouldn’t be overlooked under the JG. There would be every effort made to find something suitable.
It is being discussed in the US. Maybe time for a discussion in the UK too?
https://www.theguardian.com/commentisfree/2018/may/03/the-guardian-view-on-a-job-guarantee-a-policy-whose-time-has-come
@ John Marriott Creating unitary authorities is simply window dressing unless you devolve more powers to them and provide them with greater tax raising and borrowing powers. The London boroughs are all equivalent to unitary authorities but they are unable to significantly differentiate themselves because their powers are so constrained by central government. Moreover it is the London Mayor who is now seen as the figurehead for London, while the boroughs are little more than agencies for central government.
In fact in many areas the emphasis should be on creating city regions with real autonomy, though I accept that this still leaves the problem of what we do with those parts of the country where there is no obvious city to look to.
Another good article Katharine. I noticed that a new parliamentary group working for compassion in politics has been set up with no apparent contributors from the Lib Dems. At first I was concerned about this, but then I thought …stuff compassion! We are talking about peoples’ Rights to a better life not condescendingly handing out a few Compassion tokens accompanied, no doubt, by a few tears from Heidi Allen.
@Michael1. I do so agree with you about ‘ sub clause 10 b of policy paper 20 ‘. It is constantly rearing its ugly head particularly in relation to the good old days of (insert any date from 1790 until 1956).
I am extremely interested in politics but I suffer from M.E. which means I have lots of enforced inactivity accompanied by brain fog, so I reckon I’m like most of the population who have no time and no interest in the intricacies of political debate.
If I can’t follow an argument I give up in despair. A couple of phrases accompanied by a good illustration means I get the message.
I don’t agree that we have mostly been concerned with safety nets, Peter Martin, but we have tried to put forward workable policies, such as promoting more co-operative enterprises, seeking more responsibility from businesses and recognising the role of unions in protecting workers. I think the various proposals for very radical measures like job guarantees and universal basic income are in a sense counsels of despair, of not any longer trying to make current capitalism work better.
Thanks for your useful suggestions, John Marriott, and thank you for your support, David and Sue. But Sue, I believe we do need to assert our values, which are at the heart of our policies, and declare that we reject the callous approach of current Government thinking and action and demand a more caring approach to the desperate problems of so many people in Britain, whether that is inability to earn enough to feed a family, inability to find a decent affordable home, inability to have enough access to drastically reduced local services and so on.
The point to me is this. Only the Liberal Democrats can really help. The Conservatives don’t care enough. The Labour Party doesn’t listen to and assist ordinary people as we try to do. It’s up to us.
“My new colleague Stephen Barnes, who won a town ward in Cockermouth on Friday, points out that there are now virtually eight parties represented at Westminster besides ourselves. You could reckon that both the Tories and Labour are each really two parties, and then there are the Greens, Change UK, the SNP and Plaid Cymru. ”
Is Northern Ireland no longer a part of the UK? Do they no longer have MPs?
@Graham Martin-Royle: “Is Northern Ireland no longer a part of the UK? Do they no longer have MPs?” They do, but the SF half of them won’t turn up. And the DUP are the one’s who do turn up, but you wish they didn’t. It’s a rum business, NI politics. We just have to hope the APNI can manage at least one seat at the next GE, and the way things are going it might just happen.
Katharine points out that in one of her comments that there is a working group who will produce a policy paper entitled “A Fairer Share for All” this summer. My hope is that this policy paper will embrace my suggestion to increase benefits to the Joseph Rowntree Foundation’s poverty level increased by inflation over eight years to end poverty in the UK. I hope it will support the idea of having regional governmentally set minimum wages rising to 70% of each region’s medium earnings over 7 years. I hope it will embrace the idea that our social housing target should be the one set by Shelter building 167,000 new social houses a year by year 14. I hope it will embrace the idea of introducing a voluntary job guarantee gradually starting with people who have been unemployed the longest in the regions with the highest unemployment figures and to include free training for jobs that are available in the region where a person lives. To be extended to the whole country and to include those who receive ESA. I hope it will embrace the idea that government economic policy should be to grow the economy by 3% each and every year.
The Government should ensure the economy works for everyone; that no one in the UK lives in poverty; that everyone who wants job has one; and everyone who wants a home of their own has one.
Peter Martin,
a jobs guarantee program could aid in addressing some of the entrenched issues around a small core of long-term unemployed; but would have little economy-wide impact in the current environment beyond providing a safety net to mitigate the impact of a recession induced by a dearth of private-sector investment since the Brexit referendum.
The Times report today that the NHS is to begin a global recruitment drive for tens of thousands of foreign nurses over the next five years as it struggles to fill gaps on wards.
However, the plan accepts that despite the international hiring campaign, there is little chance of ending staffing shortages for at least five years.
In contrast to the NHS and public sector in general, private sector hiring continues at record levels with unemployment at a 44 year low https://www.theguardian.com/business/2019/mar/19/uk-unemployment-falls-brexit-jobless-rate
The Guardian reports “Much of the jobs growth in recent years has also come from older Britons staying in the workforce for longer, particularly from changes in the state pension age resulting in fewer women retiring between the ages of 60 and 65 years. The ONS also said that the number of people in retirement dropped to the lowest level in 25 years.
Alastair Neame, senior economist at the Centre for Economics and Business Research, said: “Since the three months to January 2014, [employment] has increased by 2.39 million, [while] the number of over 50s in employment has increased by 1.41 million – 59% of the total.” Those numbers swamp anything that might possibly be delivered via a job guarantee program.
“The latest snapshot from the ONS suggests that stronger wage rises are starting to come through for British workers amid the low levels of unemployment. Official figures also show record levels of jobs vacancies, with as many as 863,000 unfilled jobs.”
“…a senior economic analyst at the Resolution Foundation, said: “This encouraging jobs growth is benefiting women and those traditionally left out of the labour market. It is even starting to have a knock-on effect on still historically weak pay rises.”
“This is crucial for driving a long overdue pay recovery for workers, but may be held back if firms’ reluctance to invest continues.”
Normally I always agree with everything Katharine says, but on this occasion I’m sorry I must disagree with the comment, “The Labour Party doesn’t listen to and assist ordinary people as we try to do”.
Now in some cases that might be true – but my local Labour Council gives a very generous five figure grant plus the use of premises to the Food Bank I chair – plus the local Labour MP personally donates every fee he receives for giving lectures and speeches to the Foodbank. (He happens to be a remainer and a second referendum supporter).
Short of a Lib Dem government (Dream on ?), if there’s ever going to be a radical alternative government to this hopeless prejudiced Tory Government, we should be building bridges with people we can share common values with. Sadly – putting last Thursday to one side – it might surprise some Lib Dems that there actually are people out there who have still not forgiven the Lib Dems for Universal Credit and all the other austerity iniquities that were inflicted on the less fortunate with a Lib Dem label on it.
Seven hundred Council seat gains doesn’t. at a stroke,. re-write history – and actions speak louder than words. They will be judged by what they do.
@Graham Evans
Of course local government needs more power AND more money. I’ve been banging on about this for a long time on LDV. Also, removing a tier of local government in England creates the space for regional assemblies and eventually a Federal U.K., that is, if there is enough left of the U.K. after the current pantomime is over to create one!
Expanding the party should also be the aim, perhaps subsuming Change UK who are likely to struggle with such a dull choice of name. How about they invent themselves as the Liberal Tiggers?
@David Raw
I was of course exaggerating for effect.
But I was told by officers “Councillor, KPI 22.33 is really important to the running of this council. It is important that you scrutinise it.”
I have to tell you that we were always really good at KPI 22.33 we scored 100% so my scrutiny obviously worked…
… no litter at all seen from bridleways….
…The only problem was that as an urban authority we didn’t have any bridleways!
I wasted many 100s of hours on interesting, fascinating scrutiny. To no noticeable benefit to my constituents.
Yes – I did some useful stuff for them as well – almost always outside the council – such as running a strong campaign against the closure of an award winning “end of life” elderly care ward at the local hospital.
And when I was first elected the make up was 13 Lib Dems, 14 Labour, 15 Conservatives and we stayed up until 3am trying to agree a budget that year. But got overall control during the coalition year and we gained overall control so we were doing something right.
But looking back I have to say during those years almost every minute I spent in meetings in the council was wasted. Listening to dreary speeches, producing scrutiny reports that sit on some dusty website somewhere never to be looked at again, having long arguments in group meetings.
To every new councillor (and existing!) councillor I say Resist! Resist! Resist! – officers an evil Doctor Who alien life-form here to infect you!
You “should transmit and implement the electorate’s wishes into action” by jumping up and down, running petitions, listening to the people, surveying them, delivering Focuses, getting into the press, lobbying health authorities, setting up and helping run food banks, press releasing everything you do in scrutiny committees. Especially if you are in opposition but also in control.
Above all getting those thick headed officers (I actually liked a lot of them!) to realise what the public really thinks not what they think the public thinks – they’re running the council.
And you can do all this as an ordinary member of the public – including asking questions at the council and effectively submitting motions via public petitions to council.
So if you are a new councillor RESIST! If you didn’t get elected on Thursday act as if you did – you effectively did. (And you will probably be elected next time if you do!)
What next is the question. Well there is the Peterborough by election on 6th June. Need to sort out quickly which party is standing, cannot afford a split centre/centre left vote. We have done a bit of work there over the last couple of months or so, got a return in Councillors last week, not sure if they are all in the Peterborough seat itself. We appear to have the base so it should be us, yes? We also have the potential Brecon by election probably in October.
@ Joe B @ Katharine,
The theory of the job guarantee goes a lot further than just a safety net. It’s not a gesture of despair. It’s an attempt to move away from the idea that unemployment and underemployment are necessary to discipline the workforce and act as a counter-inflationary measure. Politicians don’t like to use the term NAIRU (Non-accelerating inflation rate of unemployment) and the Philips curve, especially when they are in front of the TV cameras, but they are very much guided by the concepts.
https://www.vox.com/2014/11/14/7027823/nairu-natural-rate-unemployment
This is the first paragraph of the Lib Dem constitution:
“The Liberal Democrats exist to build and safeguard a fair, free and open society, in which we seek to balance the fundamental values of liberty, equality and community, and in which no one shall be enslaved by poverty, ignorance or conformity. We champion the freedom, dignity and well-being of individuals, we acknowledge and respect their right to freedom of conscience and their right to develop their talents to the full. We aim to disperse power, to foster diversity and to nurture creativity. We believe that the role of the state is to enable all citizens to attain these ideals, to contribute fully to their communities and to take part in the decisions which affect their lives.”
Either you should speak out against the NAIRU or add to your preamble ” except when we need to deliberately keep people poor and idle as a necessary measure in the fight against inflation”.
The really sad thing about the NAIRU is that it doesn’t even work as neoliberal theory suggests it should. You can’t keep people poor and idle and then expect them to suddenly turn into model citizens as the job market improves. People aren’t machines to be kept on the shelf until they are needed. Young people, especially, who’ve never worked can easily go off the rails and drift into drug use and criminal activity.
I love Michael 1’s advice to the new local councillors! Surely he’s right. And so is Michael BG in asking the Working Group on Fairer Shares for All to recommend much higher targets on welfare payments, social housing and regional balance than is presently available.
David, I am glad that your Labour people in Lothian are being generous and helpful, and no doubt as you suggest many are. But it does seem to me that Labour philosophy is different from ours, creating more top-down and authoritative governments and oppositions – just look at the way Jeremy Corbyn who says he wants his party to be more democratic is actually ignoring the apparent wish of the majority for a People’s Vote – and, because they tend to focus on caring for large groups, whether of workers in unions or middle-class voters, they just don’t show consistently the same care and concern for individuals, and people at the bottom, as we do. Grand calls to end austerity are not needed – real measures to alleviate poverty and help disadvantaged people surely are.
Peter Martin,
“Politicians don’t like to use the term NAIRU (Non-accelerating inflation rate of unemployment) and the Philips curve.”
There are good reasons for this. The Phillips Curve hypothesis has been widely viewed as dead, since the mid-1970s, when the predicted negative relationship between inflation and unemployment turned out to be utterly wrong. Instead, inflation exhibited a strong positive correlation with unemployment. A revolution in thinking rebuilt macroeconomics to be not just about demand, but also about supply. In the 1980s diagrams of shifting demand and supply curves appeared in most macroeconomics textbooks. An econometric model of the inflation rate developed in 1982, soon dubbed the “triangle model”, incorporated explicit variables for supply shifts and has successfully tracked inflation behavior since then https://www.wisegeek.com/what-is-the-triangle-model-of-inflation.htm#didyouknowout
In the past two decades, the core inflation rate has remained relatively stable despite substantial volatility of the unemployment rate, and the predictions of Philips curve analysis of ever greater amounts of negative inflation (i.e., deflation) over the years of labor-market slack since 2008 has not occurred.
With unemployment at a 44 year low and no acceleration in the general level of prices, there is little correlation to be observed between these two variables. Even where a correlation can be established over a short period of time, it is a correlation between a real economic variable (the unemployment rate) and a nominal economic variable (the inflation rate. To the extent that such a rate may exist, the level of the NAIRU is assumed to fluctuate over time as the relationship between unemployment level and pressure on wage levels is affected by productivity, demographics. immigration and public policies.
An unemployment rate in the UK of below 4% should be welcomed. It has little to do with government policy and is driven by private firms hiring workers to meet demand in place of investing in productivity-enhancing equipment. That is good for employment figures but not so good for real wages and living standards.
You might actually start with Brexit – or rather the EU elections (now official) campaigning for the 23rd May by saying clearing what the EU parliament is and does and why more Lib Dems there will improve the lot of people across the UK – beyond the Brexit yah boo! Mark this turning-point!!
Help! I seem to have created a vehicle for yet another deep dive into economic theory by our prize swimmers Joe and Peter. Thank you for a lifeboat, J. Minard. My Executive brought me back to safer shores this evening, too, with a plan for a party of thanks and celebration in the midst of a mass delivery of 6000 HQ leaflets extolling the virtues of voting Lib Dem to crush Brexit. Happy delivering to our now hopefully receptive voters, everyone!
Labour took many Lib Dem sympathisers, moderate centrist people, from us in the 2017 General Election. There was an imperative to defeat May’s Conservatives and keep the chance of remaining in the EU. It was a return of the old two-party system and the fear of the wasted vote.
But the moderate centrists who backed Labour in 2017 then found themselves linked to a Socialist-dominated party, with a leader who paid lip-service to democracy in his party but refused to agree to his voters’ majority wish to remain in the EU. For this betrayal, concealed for so long by ‘constructive ambiguity’, the Labour Party has begun to be punished. They failed in the local elections, and will most likely do badly in the Euros.
The Liberal Democrats can take advantage of this, because we are now virtually living in a multi-party state, as my colleague Stephen indicated. Huge cliffs are teetering, ready to break off, from both the great mountain parties. If the Conservatives come to be led later this year by Boris Johnson, and Jeremy Corbyn continues along the same path as Labour leader, it seems probable that each party will break into two unequal parts. Along with the Greens and Change UK, the SNP and Plaid Cymru, there are likely to be eight parties for us to deal with, not counting the Northern Irish.
This will present an unparalleled opportunity to the Liberal Democrats. We will naturally ask in any negotiation for a commitment to PR, which most of the parties will have some reason to support. Beyond that, we can choose with which to negotiate with a view to a governing alliance. As a successful, united, consistent and solidly established party, we will be a desirable ally. The old order is gone, and with it the dangers of coalition with either of the former great parties, now diminished. Let it be!
The Phillips Curve hypothesis has been widely viewed as dead…..
I don’t want to have to defend either the Philips curve or the NAIRU. It would be good if they were both regarded as “dead”. However a quick Google of the terms in connection with Mark Carney and others reveals they aren’t. Without going into technical detail the idea is that we have to have a relatively high level of unemployment, and I’d add underemployment and low wage employment too, (and that is one part of the ‘theory’ that needs updating), in order to counter inflation.
It’s an aspect of neoliberalism which is fundamentally incompatible with the stated aims of Liberal Democracy in the LibDem constitution. You can’t have it both ways. Speak out against it or change your constitution.
“An unemployment rate in the UK of below 4% should be welcomed.”
When unemployment is correctly measured I might start to believe the official figures. A person working one hour per week should not be counted as unemployed. Also, unemployed people should be treated with some respect rather than their lives deliberately made such a misery in the hope that they’ll just give up. Underemployment and poor wage employment is the new menace.
“It has little to do with government policy…..”
This is just nonsense. Governments, especially ones in charge of their own currencies, can create the conditions for full employment if they choose to. History, unfortunately, shows that it usually takes the outbreak of a major war for them to make that choice.
“……and is driven by private firms hiring workers to meet demand
And where does the demand come from? If anyone is setting up a business they’ll need to be sure that the demand exists. There’s not usually any sense setting up a posh restaurant in a poor area. The restaurant needs paying customers. The government has a huge role to play in adjusting demand through its taxation and spending policies.
That is good for employment figures but not so good for real wages and living standards.
You’ve left it to the last sentence to say something sensible! Of course it isn’t. And it does matter. When we read that child poverty is at an all time high we need to ask why that is. Well meaning people like Katharine do their best to ameliorate the symptoms of a rotten system, but there is a deeper cause which needs to be tackled too.
Katharine Pindar 8th May ’19 – 2:32am…………………Labour took many Lib Dem sympathisers, moderate centrist people, from us in the 2017 General Election. There was an imperative to defeat May’s Conservatives and keep the chance of remaining in the EU. It was a return of the old two-party system and the fear of the wasted vote…………..But the moderate centrists who backed Labour in 2017 then found themselves linked to a Socialist-dominated party, with a leader who paid lip-service to democracy in his party but refused to agree to his voters’ majority wish to remain in the EU…………………….
Really? There were umpteen articles, media reports and even threads on LDV ‘explaining’ Corbyn’s socialist, dictatorial, anti-EU, failings from the moment he became leader.
The idea that the massive swing to Labour in 2017 was due to LibDem sympathisers and moderate centrists is too ridiculous for words.
Under FPTP there doesn’t seem to be room for 2 centre-ground parties. We have to come to some sort of understanding with Change UK. It’s a shame that has not happened for the Euro elections, whatever the reason. But surely there is far more in common than not, not including Remain.
Michael 1
Free university tuition. Double the pupil premium. Zero carbon emissions by at least 2040. Local Income Tax – saving the average household £400. Better funding for the NHS and schools.
And how do you propose we pay for all this? I think we need to be honest and clear about that.
That was the problem with the Coalition. There was simply no way the Conservatives would have agreed to raise tax, or straightforward government borrowing to finance universities. So, if we had insisted on free university places, that would have had to be done by massive cuts to pay for it, in other things maybe (but what, given how serious the effects of the cuts that the Coalition made anyway were), but almost certainly also in university funding. If the pledge on tuition fees had been kept at the cost of closing down most UK universities, would the people have been pleased with us?
Forming just a small proportion of the government and no other coalition viable, it was not possible to get the Conservatives to do what is always their main pledge: to keep tax levels down. So, accepting the fee rises, but doing the best to make the loans available to all and only repaid after income met a certain level, in effect making it like graduation taxation, may well have been the best compromise that was possible. The consequence is that UK universities have boomed. It would have been nice if those of us working in them had been given pay increases, instead the money has mostly gone into investment in new building (and more pay for the top), but we have at least mostly kept our jobs, thanks to what happened stopping the massive cuts that would have been the alternative.
The disaster for the LibDems was not coming out clearly to explain this, and to say what happened was NOT our ideal, just what we were forced into as the only compromise the Tories would accept. If it was felt it couldn’t be said before the Coalition, it most certainly be said afterwards. So the next disaster was not even saying it by the 2017 election, and the leadership supposing that if we just put ourselves out as the main Remain party, people would forget what happened in the Coalition. Madness!!! Instead we have got the blame for it all, and what happened on that issue continues to be put forward as the main argument for not voting for us, for claiming we can’t be trusted because we’ll say one thing in the election and do the opposite in government.
Me
it was not possible to get the Conservatives to do what is always their main pledge: to keep tax levels down.
Of course what I mean here was NOT do …
No, expats. The swing to Labour in 2017 was surely mainly the result of the polarisation between the two major parties, because each had a leader of extreme tendencies which drove ordinary people to feel concerned to stop whichever of them they could not stand. It seemed too risky to vote Lib Dem in case it let the wrong one in. But there was analysis after the vote which showed young people, students in particular, swinging to Labour, Corbyn was almost a folk hero at that time, an inspiration for change to many young and idealistic people, so the swing was not for entirely negative reasons, and our party did not have the glamour to compete.
expats
The idea that the massive swing to Labour in 2017 was due to LibDem sympathisers and moderate centrists is too ridiculous for words.
The massive swing to Labour was due to the collapse of the LibDems. In many parts of the country, the LibDems were the main opposition to the Conservatives. The collapse of the LibDems caused most places that could or would have been LibDem to become safe Conservative. So they moan at us for forming the only coalition that was possible (thanks to the disproportional electoral system which didn’t give enough Labour and LibDem seats to make a Labour-LibDem coalition viable), but what they want is for there to be so many Conservative MPs that the Conservatives can form a majority government without need for a coalition, so long as that means the only big opposition party is Labour. Plus they’re happy for a vast proportion of the population to have no proper representation i.e. all those people in Conservative majority areas that don’t support the Conservatives, so long as that means they can dominate without having to do much work in other parts of the country.
So why can’t we say that?
@ Katharine,
You’re using the term “moderate centrist” like it’s a good thing. Admittedly, it could be. If everything was ticking along reasonably well in the economy and levels of unemployment, child poverty homelessness etc were falling and within acceptable limits then, of course, there would be a good case for not changing anything very much.
Is that really the case? Or, is a degree of radicalism called for to help remedy an ailing system?
@Michael 1
Regarding those ‘marmite’ policies of yours:
FREE UNIVERSITY TUITION
Yes, if you limit it to medical students and nurses etc. I might even throw in engineers as well. However the recipients should agree to spend at least the first four years following graduation working in this country. If they fail to do that and seek to ply their trade abroad, they should be made to pay the money back that was spent on their education. Otherwise, if we insist on ever expanding university numbers, there is no way that we should expect taxpayers to fund this.
DOUBLE THE PUPIL PREMIUM
Yes, provided that all state schools were brought back under democratically accountable control and the charitable status of so called public schools is abolished.
ZERO CARBON EMISSIONS BY AT LEAST 2040
No, by 2050. Any earlier than that, unless technology really does surprise us, will cause considerable hardship to many people around the world.
LOCAL INCOME TAX
Yes , although Mr Bourke might have something to say about that! However, what might produce a shed load of money in Kensington & Chelsea but certainly not in low wage areas like Lincolnshire. It will still require a top up from Central Government, something a bit like the damping formula or, as those of us used to call it in Local Government, ‘smoke and mirrors’!
BETTER FUNDING FOR THE NHS AND SCHOOLS
Yes, by raising the Basic Rate of Income Tax. BUT FIRST, let’s have a Royal Commission on Health, Social Care and Addiction in all its forms! Perhaps we could throw in one on education as well.
For me, our next two goals should be electoral reform and more action on climate change. Both are quality of life issues. Ideally, we need a new constitution via a Citizens’ Assembly and a 2040 deadline for net carbon neutrality. Let’s lead the field.
John Marriott is right to call for the abolition of Academy School and the reformation of local education authorities – and Michael 1 is wrong to want to double the blessed pupil premium – much of which is not being spent as intended but merelt to bail out existing inadequate budgets.
Ofsted has particularly criticised academy trusts for misusing it. Academy chain E-ACT, for example, top-sliced money from its pupil premium cash, to fund its central operations. Ofsted said at the time it was “unclear how these deducted funds are being used to improve outcomes for disadvantaged pupils”.
Properly funded local education authorities would be a great campaign to resurrect the former real ‘core vote’ of the Lib Dems lost – when the Cleggies were running the show and the Summer Wine ran out.
You make some powerful arguments, Matthew, here as in another current thread, but I disagree with you slightly about 2017. Surely it is the case that our party was reviving under Tim Farron, having a great increase of members, and holding its own in those May elections. The General Election came too soon for us, and English voters split between the Tories and Labour, each compelling under their powerful but vividly contrasted leaders. The folk-hero Corbyn seemed to promise more to Remainers, and to the idealistic young, despite the failure of Labour to hinder the acceptance of Article 50, which was overlooked.
Peter Hirst, I agree with your first goal, but we are not going to be distinctive in our support for action on climate change, now that Labour has leapt on that band-wagon, despite our fine record on environmental matters. Perhaps we can indeed be distinctive on education reforms, David and John, and I see the suggested revival of local education authorities as part of our demand for revival of local services generally, which is not likely to be top of the Labour wish-list – not in keeping with their philosophy.
Education, health, social care and housing are all areas which we must indeed campaign on, and where we can ally with parts of the Labour party if it breaks up. But where we can certainly be distinctive (and radical, Peter), if we declare AS A PRIORITY deep concern and speedy action for the poor and the disadvantaged of our country, and make it plain that we demand it as arising from a rejection of current governmental values, and a restoration of the Beveridge social contract. We should, I reiterate, fully endorse the Philip Alston report which so clearly sets out the failings and the needs – the attitudes which have caused so much hardship, and the practical results which must be reversed.
Matthew Huntbach asked in another context where is the money coming from. I am advocating the government aiming to have the UK economy grow by 3% each year and every year. This will provide the money long term for both increasing government spending and stimulating the economy to continue to meet this goal. My first priority is to end poverty in the UK, but I am talking about taking eight years to do it. My second priority is a job for everyone. This also takes time to achieve and I haven’t set a timescale. Free training and a job guarantee for everyone who is unemployed is part of the solution. My third priority of a home for everyone has a 20 year timescale as set by Shelter. Included within my government spending is £6 billion for the NHS and social care with increases every year after this. What I haven’t included is restoring the cuts to local government spending including education, but I would support this.
Peter Martin,
the arguments you make are not based on evidence but rather on economic fallacies https://www.theguardian.com/sustainable-business/economy-employee-working-hours and misconceptions put forward as facts about the workings of the economy.
The headline measure of unemployment is the Internationally consistent Labour Force Survey that has been in use for several decades. There is currently a record number of unfilled vacancies and widespread staff shortages being reported across all sectors of the economy.
The probems of relative poverty that this article raises are not attritubable to hidden unemploment in the UK. They arise from a fall in real wages and living standards. Neither is the dramatic fall in unemploymet attributable to directed government policy. It is a result of investment decisions by private firms and the public sector to make greater use of labour resources rather than productivity enhancing investments to meet rising demand.
The issue of poverty is linked with falls in real wages and increased living costs (primarily rents and housing costs). Relative poverty (as oppossed to absolute poverty) cannot be addressed by state diktat outside of a communist form of government. It is the outcome of a disfunctional economy based on high levels of value extraction via rent-seeking activities primarily but not exclusively through land rents.
Job guarantee programs are an important element in addressing entrenched long-term unemployment where it exists, but have little to offer in addressing the core issues of fairer taxation and better welfare provision highlighted by Katharine in her article.
@John Marriott
Thanks. It’s always good to have feedback (for or against) & I was rather disappointed that initially there seemed to be none to my comment! It is only through debate that I understand issues better. And I enjoy our debate here and your comments. So thanks very much.
On your points:
FREE UNIVERSITY. Limiting it to medical students. I appreciate the point. But you could say, why not social workers or teachers or entrepreneurs whose wealth generation pays for doctors?
Our aim should be 75% in full time education to 21 in ten years, 90% in 15 plus a lifelong learning account. If we don’t we won’t have a skilled, flexible to take advantage of the many (net) new and good jobs AI, Robotics and the internet will bring. Paid for by borrowing (as we do now).
PUPIL PREMIUM. I appreciate @David Raw’s points. I was being concise (for once!) & I’d add in a real terms increase for all state schools and an increase above that for schools in disadvantaged areas .
We’ve discussed this before. But the NAO is positive about the PP. The professor of education in Radio 4’s Analysis programme I posted a iink for before said it was improving the “attainment gap” between the poorer and better off children.
But yes, David, you are right ALL three need to be done.
ZERO CARBON. For clarity I was talking about the UK. A key is research into carbon capture and storage – sucking carbon out the environment. The Government advisors say we should invest heavily in this and we’re not. Of course this may not be realized but there are exciting developments. The future for development in developing countries is cheap solar power (and renewables) and electric cars. I foresee solar becoming free at the margin and if we invest in it now it becomes cheaper and available for developing countries.
LOCAL INCOME TAX. I’m a fan of Joe Bourke and LVT. I just don’t understand it! And if I don’t after hours of wrestling, we’ve little hope with the public. I think there is an argument for local income tax to pay for the “council service” element. It is a “juicy” local campaign theme – reducing an average household’s council tax by £400 goes down well – especially with soft Tories. The council tax is a very unfair tax that hits the poorer hard. There is an argument for starting on LVT by taking social out of being paid for from the council tax & paid centrally by LVT
Joe, do we have the policies that will work towards reversing our ‘disfunctional economy’ and creating the 3% annual growth which Michael BG thinks will be needed to pay for the sort of programme he advocates, to lift people out of relative poverty? I imagine you want there to be productive investment in infrastructure and industry, rather than the rent-seeking activity that has had such a calamitous rise in housing costs, and to deter the rentiers by taxing land values; probably, I suppose also, to have people earning more and spending more to promote more growth in the economy? – but as you know I am a novice in these matters. Are we yet in a position to negotiate with whatever parties look to seize the reins of Government in the next six months, for implementation of our policies? How do you think we need to develop them further, please?
@ Michael1
“I’m a fan of Joe Bourke and LVT. I just don’t understand it!”
I’m not sure how you can be a fan of something you don’t understand. But, having said that, I’m not surprised! It’s often said that if you can’t explain in terms that the average person can understand then you don’t understand yourself. SO, IMO either Joe doesn’t fully understand it or he’s trying to keep it deliberately vague to hide its inherent flaws.
@JoeB,
The only experience I’ve had with unemployment offices was, years ago, when I was a student and looking for holiday jobs. I was always treated courteously and with respect. But I do have it on good authority that’s it not like that any longer, and that the depiction of the system as shown in films like “I Daniel Blake” is not at all an exaggeration.
Does anyone really believe that counting someone who works for one hour per week as employed is going to produce accurate figures? I don’t care what the “Internationally Consistent Labour Force Survey” says , if that how it’s done it’s a load of cra*p!
https://www.bbc.co.uk/news/uk-46264291
Michael BG
Matthew Huntbach asked in another context where is the money coming from. I am advocating the government aiming to have the UK economy grow by 3% each year and every year.
That’s what the Tories say: keep taxes low, it will cause the economy to grow and that will raise more money more the government. They’ve been saying that since 1979. So how are we doing? Better and more wonderful government services? Er, no, I don’t think so, we’ve just had massive cuts.
As for the economy growing 3% every year, what exactly does that mean? Using up more and more resources in order to be able to do that? What great big changes every year do you think can easily be made so that it becomes no problem just to pay for everyone to go to university?
Sorry, but we need to deal with reality, not hand-waving. The reality in 2010 was that with the government refusing to raise taxes (after all, for five-sixths of it, that was their main election pledge), the only way to pay for what the government does was to have massive cuts, and the big massive cut that was part of that was cutting the direct funding of university tuition. Oh, the government could instead have just borrowed money, and actually that’s what they did to fund universities – except it was put as individual student loans. In practice, with the LibDems forcing it so the loans only had to be paid back after those having them earned enough, which many wouldn’t, much of it was really just government loan.
Katharine Pindar
You make some powerful arguments, Matthew, here as in another current thread, but I disagree with you slightly about 2017. Surely it is the case that our party was reviving under Tim Farron
What I am saying is that it was a huge mistake not to come out and all about the Coalition – to explain clearly that:
A government that was five-sixths Conservative is not what a LibDem government would be like.
It was five-sixths Conservative rather than three-fifths Conservative because of the disproportional electoral system.
There was no choice in forming it because due to the disproportional electoral system, it as the only stable government that could have been formed.
If you want the government to do things for you, taxes have to be raised pay for them, and there was no way the Conservatives could be persuaded by the LibDems not to break their pledge not to raise taxes.
So the student tuition fee system was not the ideal for the LibDems, but the only way universities could be saved from massive cuts, and the LibDems did their best to minimise its impact by making it payable only after a certain income was received
Michael 1,
there are two main strands to the argument for Land Value Taxation – the moral one o the grounds of social justice and the economic efficiency one.
The essential moral argument is that, as a finite natural resource, land differs from other forms of property and must be shared by the community: ‘no man had a better right than any other to a piece of land’, and a man who sought exclusive use of a plot of land should compensate the community for this through an annual tax on the plot’s undeveloped value. Urban land acquires its value through the infrastructure investments that enable the collective economic activity of the community. It is for this reason that it is the natural source of revenue for collective public spending on public amenities and services.
Taxes on the productive activities enabled by labour and capital carry a deadweight cost that reduces the overall level of production. An annual Land Value tax carries no deadweight costs as such taxes simply collect value created by the community (as opposed to individual effort) for the benefit of the community.
For a more detailed discussion see Josh Ryan-Collins essay http://evonomics.com/josh-ryan-collins-land-economic-theory/. In his book “Rethinking the economics of land and housing” he argues that putting land back at the centre of economic analysis could help us better understand many of today’s most pressing social and economic problems, including excessive property prices, rising wealth inequality and stagnant productivity.
To return to the question asked at the top of the page : “What Next ?”
There are probably 2 Parliamentary Byelections coming up this Year & we have a good chance of winning 1 of them, particularly if we can make some sort of sensible arrangement with Change & The Greens.
An Electoral Alliance or Umbrella covering Us, Change & The Greens could do a lot more than stop the waste of Votes & energy, the sight of Parties respecting differences of opinion & working together could attract a lot of New Voters to all 3 Parties.
We dont have a lot of time, its entirely possible that we could face a General Election in the Autumn.
In a Year we face another round of Local Elections & our target should be to get a higher Vote share than Labour, with help from Change & The Greens taking Labour Votes that aim is entirely possible.
@ Paul Barker It’s not just about winning elections – and debatingly exciting trips to Peterborough (??) and deepest Brecon & Radnor, Paul. It’s what you do next when you actually win an election…… what policies you adopt is crucial.
To mix a few metaphors……Pale blue Tory flag flying butters no parsnips, answers no needs and provides no solutions. No more cringingly naive Tory Rose Gardens and neo con policies if you please.
@ Matthew Huntbach: excuse me saying Matthew, that I don’t think you have understood Michael BG’s points at all. He isn’t advocating keeping taxes low on principle as the Tories wish to. We agree on party policies which will increase some taxes. Michael is not discussing in his points his recommended 3% growth, but he is not mentioning sending everyone to university: you are clearly confusing him with Michael 1, a different valued contributor to this discussion. Michael BG certainly does no handwaving, whatever that means. He suggests well-researched economic measures to alleviate poverty and improve social conditions, and I know nobody regularly contributing to this site who works harder to examine the proposals of national think-tanks and well-reputed experts, and produce carefully thought-out and costed suggestions of policy for our party which are both generous and practicable.
Turning to your reply to me, you repeat exactly what I had already read, sympathised with and understood from you, but do not answer my point. You had said that the massive swing to Labour in the GE of 2017 was due to the collapse of the Lib Dems. I had suggested that the collapse of 2015 had been somewhat countered by the party’s growth (in the following two years) under the leadership of Tim Farron – growth which was acknowledged by Tim’s successor Sir Vince.
@ Joe Bourke. When you have time, Joe, I should really value any answer you would like to provide to my query at 4.30 pm, though apologies if it sounded ignorant.
Brexit party now 1/8 to win the most votes in the EU elections and are odds on to win the Peterborough by-election.
Matthew,
I don’t recall any Conservative manifesto setting out a growth rate target of 3% per year. The impression I have is that the Conservatives believe in the government doing little to stimulate the economy and want to leave things to the market. Did you get the mistaken impression that I was saying the same? I don’t understand why you should when I wrote, “This will provide the money long term for both increasing government spending and stimulating the economy to continue to meet this goal” (i.e. growing the economy by 3% a year).
I also make it clear I was not referring to University tuition fees, “Matthew Huntbach asked in another context”. My context is different. I set out my priorities for how the money from 3% economic growth each year should be spent, increasing benefits levels, job guarantee, free training for the unemployed (I would add the UK replacing the funds provided by the EU if we leave for regional economic development) and building social housing, while not forgetting the NHS, social care, local government and education.
I believe we should replace tuition fees with a graduate tax, possibly with higher rates on higher incomes.
@Katharine Pindar
I asked “where is the money coming from” in order to pay for universities, and Michael BG replied “I am advocating the government aiming to have the UK economy grow by 3% each year and every year”. That doesn’t say anything about increasing taxes to pay for it.
Now that was the biggest problem with the Coalition. We did not make it clear that there was no way we could force the Conservatives to raise taxes in order to be able to pay for universities, and that because of the Conservative tax policy there were already massive cuts in local government spending and the NHS was struggling, so more direct government spending on universities would mean even more cuts on those other things. Because of that we were attacked for agreeing to university tuition fee increases (actually many LibDem MPs voted against it, but those who were government ministers had no choice but to vote for it) as if somehow we could easily have stopped that without any drastic effect elsewhere.
This is still being put now as the main reason for not voting LibDem – because we said one thing in the election and did the opposite in government. So all I am saying is that we ought to have countered that by coming out with a clear explanation of the issue.
Many people now seem to think that we agreed with everything the Coalition did, as if that was what a 100% Liberal Democrat government would do. So that has obviously lost us huge numbers of votes from those who used to vote for us seeing us as the best opposition to the Tories (that’s why I joined the party). Why don’t you care about that, Katharine? Are you happy that the image of us as being much more right-wing on economics than used to be the case has perhaps recruited new members who in the past would have been Conservatives? Please let me know, because if so, I will finally leave the party after 40 years membership.
And if I am being unfair to you here, why can’t you get my point that we ought to have been much more clear in explaining that you cannot get everything you want as the minor party in a coalition, especially when it is the only possible coalition, and therefore it is necessary to compromise and have to agree to things that are not your ideal?
MIchael BG
What you are saying is what most parties like to say – that their politics are so wonderful that it will result in a growth in the economy so that will pay for everything. Sorry, but I do see this as hand-waving unless it is actually made much more clear how that growth could happen. I am saying we need to be honest and actually come out and say that if the government is to provide thing it needs to pay for it by taxes. I think politics is being seriously damaged by politicians not being clear on this, and what happened to us after the Coalition is a clear example of this.
Regarding economic growth, I think it needs to be made more clear just what that means. If it means using up more limited resources, it’s dangerous and can’t continue forever. Or if it means bringing in huge numbers of immigrants to get more things happening in this country, I’m not sure everyone would be so keen about it.
On providing housing for everyone, how is that to happen? Most people will agree on abstract to the principle of building many more houses, but when it actually comes to doing it, it’s a different issue – any attempt to build big numbers of new houses anywhere results in local people there being outraged by it and saying it’s taking away the land space they love so much. That was my experience when I was a councillor, and a member of the Planning Committee. Any plan for major building got mass opposition from the locals in the area it was proposed. Most people wrongly assumed that councillors could just arbitrarily reject any plan – not the case, because you can only reject a plan if there is a legal reason to do so, and often there is not. So, if you accepted a plan to build more houses (even if you had no choice because there was no legal case to reject it), locals would scream at you and say you have been bribed by the constructors to do that, because why otherwise would you agree to something that the people in that area were so opposed to?
@ Matthew @ Katharine @ Michael BG
“where is the money coming from”
This is always the killer question. But you really need to start by asking a slightly different question. “Where does any money come from in the first place?” Hint: It doesn’t come from taxpayers. Unless they are in the counterfeiting business!
“I am advocating the government aiming to have the UK economy grow by 3% each year and every year.”
There’ll be some who would say we should aim for a low growth economy. But, leaving this argument aside, and assuming that 3% growth is a good thing what does it mean? It means we all have to spend 3% more. Year in. Year out. Ah but what about our 2% inflation target? OK. This now means we have to spend 5% p.a. more. So where is it going to come from? Three possibilities.
1) Govt ups its spending.
2) We all have to borrow more and spend it. ie The favoured solution for a last few decades.
3) We have to export more so it’s overseas residents who do the spending. ie We all have to be like Germany and export more than we import. 🙂
You decide. Which one do you prefer? Because there aren’t any other options.
“This (ie 3% growth) will provide the money long term for both increasing government spending and stimulating the economy to continue to meet this goal.”
I’m not saying that 3% growth is a bad thing but it will inevitably mean that the price of labour will be more expensive as everyone expects their fair share of the extra wealth and income. So our doctors, teachers, nurses etc will have to be paid more. It’s something we tend to overlook, but it does need factoring in.
It’s sometimes known as the “orchestra effect”. In the 19th century we had more professional orchestras than we do now. Economic growth has meant that musicians are now much better paid than previously and so, paradoxically, we can afford fewer of them.
Katharine Pindar 8th May ’19 – 8:42am…………….Matthew Huntbach 8th May ’19 – 8:51am………
I’m sorry but I disagree with both of you.
The collapse of LibDem support was long before 2017 (even penguins did better).
You both forget that May called her ‘snap’ election because the opinion polls showed a massive Tory lead ( May More Popular Than David Beckham ‘shouted’ the, usually factual, Independent) and a three figure majority over Labour looked certain.
What caused the swing to Labour (which happened in the weeks between the calling and voting of the election) was the ‘unfiltered’ coverage of both leaders. May, for all her talk of ‘strong and stable leadership’, showed herself to be ‘weak and wobbly’ whilst Corbyn. who’d been painted as an extreme socialist, IRA loving, dictator, came across as a modest man with sensible policies.
Corbyn, as opposed to Tory ‘heavyweights’, never used personal insults and stuck to policies (Laura Kuenssberg tried her best to get a nasty personal response to Johnson’s “Mugwump” but a mild, “I don’t do personal attacks”, left her floundering).
You also forget that many of Corbyn’s own party refused to even mention his name in their canvassing.; had they done so, perhaps Labour might have won.
IMO the 2017 swing to Labour was down to an enthusiastic youth vote (many ex-student voters still remembered the ‘fees’ fiasco) and Labour voters who had become disillusioned during the Blair/Brown/Miliband years. The real cincher was someone who, far from a baby eating monster, came across as a statesman-like leader.
This discussion seems to me to be worthwhile: how to stimulate the economy to increase productivity and national wealth; how to increase people’s incomes so higher taxes produce more and the Government can better support local services and fairer welfare provision. I see all this in the context of a probable new government being formed in a few months’ time, where our party will be in a position to negotiate terms for supporting it. So many better things are needed by our people, and we need to be clear on the way forward and our priorities.
I’m giving up. All I see is nonsensical handwaving here, not serious practical working politics. Bye-bye.
@ Matthew Huntbach,
Don’t give up. There’s a very good article by Steve Trevethan. It’s all in quotes so I’m not sure if that means he hasn’t written it.
Anyway, it introduces the concept of the ‘Enabling State’ which I very much like and has a positive sound to it. The problem the left have had in recent years is that they are widely seen as as only supporting the ‘welfare state’ which is problematic and somewhat negative in its wider appeal. ie to those who aren’t on welfare.
So if you’re looking for an answer to the question of “what next”, this sounds a good theme to develop.
Good points, expats, in your suggestions on why we did badly in the 2017 GE. We are not actually disagreeing – strong feelings for and against both major leaders led to us being squeezed out, especially as Mr Corbyn did not commit himself on Remain.
I suppose the question then is, how can we be more successful in the next GE, which could well be before the end of this year? The Labour party has lost its 2017 shine, I think it is safe to say, and we have the great boost of our success in the locals. But perhaps the Euro elections, because of the splitting of the Remain vote, may not boost us as much as we deserve. There could however be the boost of a by-election in which we might do well. Meanwhile, useful discussions with the other parties will hopefully resume, and I suppose the probable splitting of the big two will help all that our party has to offer become more visible to the public.
That will indeed include proposals for tax increases, which Matthew did not seem to understand have already been decided as party policy.
Matthew
Perhaps you read what you wanted to read. In the past governments ran the economy to provide full employment. It is said that an economy can only grow each year by a limited amount and if the government tries to stimulate the economy too much this will result in inflation. If you look at UK growth rates we don’t often achieve more than 3% growth a year and before the 2008 crash we mostly did get to around 3%. I am not saying by magic our economic policies will achieve 3% growth I am saying government need to stimulate the economy to try to achieve 3% each and every year. I am saying this growth figure is the limitation on what more a government can spend.
According to the 2018 budget book for the year 2018-19 Government expenditure is expected to be 38.2% and £812.8 billion. From this we can calculate the size of the UK economy as £2127 billion. The deficit is forecast to be £25.5 billion making Government Taxation £787.3 billion (37%). Economic growth is forecast to be 1.6% for 2019, 1.4% for 2020, 1.4% for 2021, 1.5% for 2022 and 1.6% for 2023.
If we assume that economic growth will be 1.4% we can calculate that the value of economic growth for 2019 will be £29.778 billion and every year after this it will increase by even more. If we assume that the government receives 37% of this increase that makes an increase in government income in 2019 of just over £11 billion. If a government instead managed to increase economic growth to 3% then the increase in the economy would be £63.81 billion; 37% of this is £23.6 billion. That is an extra £23.6 billion for the government to spend without increasing any taxes.
If economic growth is 1% or less history shows us that unemployment will rise. The achievement of 3% economic growth is to try to ensure everyone in the UK who wants a job can have one, and a job guarantee then provides jobs for when the economy doesn’t.
I can’t imagine there being a council-wide out-cry if a council had a plan to build social houses to provide a home for everyone on their waiting list over 11 years.
Peter,
To increase economic growth from 1.4% to 3% I would increase government spending by 1.3% of GDP and expect the multiplier to provide the other 0.3%. The following years increase in government spending would be determined by the shortfall of the predicted growth rate from the 3% target with the government increasing government spending by 5/6 of the gap.
@ Michael,
“To increase economic growth from 1.4% to 3% I would increase government spending by 1.3% of GDP and expect the multiplier to provide the other 0.3%. ”
You shouldn’t expect anything. Ultimately for a given amount of savings in the economy, which can be either domestically or by our overseas trading partners who may wish not to spend all they have earned selling us stuff, Government spending has to be proportional to total GDP. The trick is to increase spending to create growth rather than inflation.
If you can do that an increase in spending by Govt will show up directly as an increase in GDP. Penny for penny.
MichaeL BG
I can’t imagine there being a council-wide out-cry if a council had a plan to build social houses to provide a home for everyone on their waiting list over 11 years.
Well, I’d meant to give up, but I have to respond to this.
Get rid of parks and gardens and sports grounds and countryside so that thousands of houses can be built. And everyone will say “Oh, that’s wonderful” … Really?
Peter,
I still think there is a multiplier effect in the UK which I have estimated at 1/6th. You may not believe this; do you have any evidence that Keynes’ multiplier does not exist?
I agree that increasing government spending would increase GDP “penny for penny”. I have pointed out the possibility of creating inflation and having the government only provide 5/6 of the gap between the predicted growth and 3% I would hope would ensure inflation would not be created. The target of 3% was chosen because it is the rate at which the UK has been able to grow in the past without causing inflationary pressure.
Matthew,
I stated “council-wide”. I accept that close to a development there would be protests about the loss of countryside. If parks or sports grounds were being used for new housing I would expect protests and people would be right to protest. As a liberal I do believe that people would accept the need to provide social housing for the people on the council waiting list.
expats
The collapse of LibDem support was long before 2017 (even penguins did better).
I’m well aware of that. The point I’m making is that LibDem support didn’t get any better in 2017. I believe we needed to properly explain the Coalition as I have said above, pointing out it was a very long way from our ideal, and we were forced into it only because thanks to the disproportional electoral system supported by the Labervatives, it was the only stable government that could have been formed.
Instead the idea was pushed that if we didn’t mention the Coalition, people would forget about it, and if we came out as the party that all about staying in the EU and nothing much else, we’d get loads of new voters. That was a disaster, and I said it would be at the time. It has let the impression be kept that the LibDems are an extreme right-wing economic party, just like theTories, differing from them only by our position about the EU. Well, if that is the case I’ve no interest whatsoever in remaining a member, and most of the people who used to vote for us in the past won’t want to return to us.
What happened about tuition fees is still being put out as the main reason for not voting for us. We could have explained that it wasn’t our ideal, but it was the only way we could save the universities from massive cuts, and we did our best to make it as much as possible become just like a gradate tax. We didn’t.
The belief that all of us as members were enthusiastic supporters of everything the Coalition did is nonsense, yet it is being pushed hard by our opponents and by many neutral commentators, so many ordinary people now just believe it. As time goes on, it seems this will just become the general picture of what we are, with the details of what happened forgotten. Well, I know the Cleggies actually wanted that to be the case, but I’d hoped that Farron and others would see that was getting us nowhere, because unlike what the Cleggies said when they first pushed that, there weren’t millions who’d jump to vote for us if that really was the case.
If we couldn’t be clear about saying what we needed to say to recover when Clegg was still leader, we should certainly have done so once he’d gone. That’s what I mean when I point out the 2017 general election as being so disastrously wrong in the way the LibDem leadership let it be run.
@ Michael BG,
It is possible that the multiplier effect exists as you suggest. If Government is seen to be spending more then it could well encourage more investment if everyone else comes to the conclusion that the economy is on an up turn. My view is that it doesn’t really matter. Government should spend more to create an efficient economy but back off spending and maybe raise taxes if inflation becomes an issue.
It’s over-idealistic to think that this will coincide with a condition of full employment. There’ll always be a natural demand for the most able. Employers will ‘hire off the top’ -in the jargon. We also have to face up to the reality that some people who have severe alcohol and drugs problems, and possibly with a criminal history too, are just about unemployable. This is where the JG comes in. It’s largely about preventing people from getting into a bad way in the first place.
Michael BG
As a liberal I do believe that people would accept the need to provide social housing for the people on the council waiting list.
And in the sentence before you said the opposite …
Peter Martin
It’s over-idealistic to think that this will coincide with a condition of full employment. There’ll always be a natural demand for the most able.
Yes, that’s what’s happened. Why employ average ability British people when you can employ top-performing people from poorer countries who’d come here and accept lower wages? Why pay taxes to train British people when you can leave other countries to do that, and employ those they’ve paid to train? Why pay British people what is needed for them to have a home and bring up a family when you can employ a young immigrant who’s happy to live in shared accommodation with loads of others of the same sort? Why employ a British person with a working class accent when you think someone from another country looks and sounds much nicer, and there’s no laws against class prejudice to stop you from thinking and acting in that way? So why not be openly class prejudiced when the left in this country will cheer you on for doing so, because the forms of prejudice they seem to care about are race and gay prejudice?
You can sort of see why so many working-class British people voted Leave …
@ Matthew,
What you’ve just said is quite astute. Maybe I’d like to say the same in my more angry moments. The problem is we end up sounding like the EDL !
The serious point is that we can cure our own unemployment problem in the UK but we cannot be expected to fix the EU’s problems too. If we have a JG in the UK, or even run conventional Keynesian economic policies we’d have to be able to only offer freedom of movement on a reciprocal basis. ie We off a JG to the rest of the EU if they do the same for UK workers.
Matthew Huntbach 9th May ’19 – 12:36pm
expats…..What happened about tuition fees is still being put out as the main reason for not voting for us. We could have explained that it wasn’t our ideal, but it was the only way we could save the universities from massive cuts, and we did our best to make it as much as possible become just like a gradate tax. We didn’t………………
I agree;however, tripling the fees, after rashly, signing ‘in blood, to abolish them was always going to tarnish the party. Like Labour, under Miliband, refusing to point out that the 2008 ‘crash’ was global and not caused by social UK overspending, the tuition fee matter became a defining point in, and post, coalition.
For me, a far more damaging matter was the acceptance of Lansley’s Health and Social Care Bill; Clegg’s wheeling out of Shirley Williams, to cover his mistake, was a disgrace.
Matthew Huntbach – ‘You can sort of see why so many working-class British people voted Leave.’ Only if they believe the sort of anti-immigrant rant you’ve just cited, which I do trust is far from your own view. For example, ’employ a young immigrant who’s happy to live in shared accommodation with loads of others of the same sort’ (undefined, but implied undesirable). In fact, I think most British people have come to accept that immigrants are actually needed in this country to work in the Health Service, in care homes and in hotels and catering, in building and in seasonal fruit-picking, and as EU nationals have departed they are missed. Most British people are also able to understand that immigrants settling here work and pay taxes, and that they pay more in tax than they take in family benefits. I’d add that parts of the country such as West Cumbria should actually welcome immigrant families coming here, or young people setting up home and having children here, because we haven’t enough of our own young people staying in the county to fill the expanding jobs of our ‘Energy Coast’. I gently suggest it’s a bit undesirable to be working out the sort of rant the supposed British working family are probably too tolerant and sensible actually to think.
Not wanting to over-use this space, I do want to mention Chuka Ummuna’s interview on the World at One this lunchtime, just before Jo Swinson’s welcome piece. Chuka had only one thing to say against our party, but it was that we had supported austerity during the Coalition. If that is going to be revived, then there may be sense in the kind of reply that Matthew Huntbach has made above, that we were drawn further into the Tory plans by our limited representation than we would have wished (and actually there was considerable opposition voiced in the party outside).
But apart from offering this explanation, if having allowed austerity is raised against us, there is all the more reason for us to adopt the radically compassionate approach I am advocating, accepting the strictures and suggestions of Professor Alston in full, and making achieving social justice and an end to relative poverty and deprivation in our country one of our foremost, if not THE foremost, of our revived party’s aims.
@ Katharine “Only if they believe the sort of anti-immigrant rant you’ve just cited”.
No, sorry, Katharine. That does exist, but there’s a lot more to it than that to do with austerity, zero hour contracts, welfare cuts, diminution of pension expectations, a loss of local government facilities, housing and rental problems and, for example, sure start closures. The last ten years have produced much unhappiness and disaffection – which the Lib Dems were identified with – and a feeling that the establishment and the political class needed a kick in the title of the Lib Dem manifesto.
Katharine Pindar — would Ann Soubry and Rachel Johnson make the same criticism as Chuka?
Katharine, “Only if they believe the sort of anti-immigrant rant …” I’m afraid this is precisely why too many Lib Dems still fail the test. We have all got to stop pretending that those who are pro Brexit are not normal people, but somehow over influenced by the dark side. Indeed we are totally lacking in empathy for those most adversely affected, if we just keep repeating the same mantra, especially when the real problem is being patiently explained to us by good long standing liberals, who are dismayed at what has been done to those groups of people over the last 20 years.
We have to listen and actually engage with the issues they are pointing out, not just revert to the discussion closing and mind closing ‘They are wrong or at best misled’. We are capable of so much better if we only listen and engage with each other.
Katharine,
Libdem proposals are set-out in detail in the policy paper Good Jobs, Better Business, Stonger Communities https://d3n8a8pro7vhmx.cloudfront.net/libdems/pages/43501/attachments/original/1533290057/Policy_Paper_133_-_Good_Jobs__Better_Businesses__Stronger_Communities.pdf?1533290057
Jobs:
. Giving control and choice back to workers.
• Investing in skills, in particular in lifelong opportunities for retraining with a new initiative – Lifelong Learning Entitlements.
• Setting immigration policies that support growth and meet key skills gaps
• Strengthening diversity and equality of opportunity in the workplace.
Business:
Reforming the ways companies and markets are governed to entrench a longer-term, more sustainable approach.
• Making the UK a laboratory for new forms of enterprise, with a big boost to employee ownership.
• An extended public interest test for takeovers that conflict with the national industrial strategy.
• Challenging the growing concentration of market power – including in energy, banking and the new ‘tech titans’ – with stronger regulation of monopolies, enhanced consumer
protections, greater rights over data and by sharing economic benefits more widely through an innovative Citizens’ Wealth Fund.
• Introducing a new ‘right to repair’ for consumer products.
• Harnessing the strength of the public sector balance sheet to open additional sources of finance for innovative business, the green economy and vital national infrastructure including hyper-fast broadband.
• Helping businesses to adapt to the challenges of the digital economy, with forward thinking ‘automation plans’ to prepare for change.
Communities:
• Devolving more powers on economic development to cities and regions within England, with enhanced flexibility on revenue generation and a focus on increasing local purchasing power.
• Developing sustainable cities as hubs of growth, concentrated around skills, housing and healthy environments.
• City and region integrated economic development plans, aligned with the national industrial strategy, based on specialist sector clusters and with close links to universities.
• Increasing access to finance and investment, with an enhanced mandate for the British Business Bank to catalyse private sector investment equally across the UK.
David and David. Heavens! I am really well aware of what people have suffered in the jobs market, through welfare cuts, loss of local services and facilities, inadequate housing and so on. But Liberal Democrats have opposed these ills vigorously, I am sure in local councils (or why would we have had these council triumphs just now?) and nationally also for the last four years. We also know that our ministers in the Coalition did produce some good results, and some restraining of the Tories; and that immigrants are not to be blamed for the many ills of our society. Please don’t suggest that I am blind to them or haven’t listened to the Leavers. Philip Alston identified many of these ills, and so I have taken him as a standard -bearer.
Joe, thank you for responding, and summarising Policy Paper 133. I had the intention of looking it up again, since I had written about it in LDV, and had attended and spoken in the debate which passed the motion, F28, at Brighton. I am interested in your choosing it as the answer to my query. Useful as it is – and I am grateful for your recording it here – it does not deal with the economics of attaining 3% growth and necessary taxation measures. However, we also of course had ALTER’s F26 motion, Taxing Land, Not Investment, and F34 Promoting a Fairer Distribution of Wealth, policies passed with which we can arm ourselves against detractors from outside the party (or even from within).
Matt (Bristol): Rachel Johnson was notably silent when asked on the Today Programme this morning what of Liberal Democrat policies she disapproved of. I don’t know Anna Soubry’s views, but it was she who came to our Conference to talk to a fringe meeting with Jo. And Heidi Allen, as a noted campaigner for welfare rights, can surely work with Christine Jardine, our welfare spokesperson, after the Euro elections.
Katharine,
In an open economy like the UK economic growth is highly dependent on International trade and the global economy. We live in a globalised world of inter-dependent economies and are reliant on sustained growth in our major markets in Europe and the USA for our own well-being and economic progress.
Domestic growth cannot be sustained over the long-term by increased government spending on services (as against productivity-enhancing investments) and increases in the overall level of public services cannot be delivered from the proceeds of economic growth. The great majority of spending on public services is wages. As the economy grows so too does real wages and the costs of recruiting and retaining public service staff. The long-running pay freeze in the public sector is one of the key reasons why there is a recruitment crisis in the NHS and Schools leading to abandoning of waiting time targets and larger class sizes.
Economic growth comes from increasing per capita output i.e. production of goods and services per person employed. In an economy near full-employment such as the UK, sustained economic growth and improvement in living standards can only come from investment in productivity improvements.
Josh Ryan-Collins in his essay http://evonomics.com/josh-ryan-collins-land-economic-theory/ writes:
“…productivity (and related average incomes) [have] been flat-lining, even as ‘wealth’ has been increasing. [This] is explained by the fact that the majority of the growth in wealth has come from capital gains rather than increased profits (or savings) derived from productive investment, Savings are at a fifty year low in the UK even as the wealth to income ratio hits record highs.”
“Rising land values suck purchasing power and demand out of the economy, as the benefits of growth are concentrated in property owners with a low marginal propensity to consume, which in turn reduces spending and investment. In addition, most new credit creation by the banking system now flows in to real estate rather than productive activity. This crowds out productive investment, both by the banking system itself and non-bank investors who see the potential for much higher returns on relatively tax free real estate investment.”
Taxes on wages and profits exacerbate these problems. The answer lies in a shift towards taxes on rising land values.
Thank you, Joe. So the main necessity appears to be productive investment. Is our suggestion of a British Business Bank the main policy directly intended to help with that? I suppose we would also cite taxing the value of land as helping to hinder the unproductive use of capital to acquire real estate. I think we need to digest these helpful policies and produce simple statements we can share with everyone, which I am sure you will be able to help with. I believe Lord Newby is in charge of the team drawing up the Manifesto for the next GE, so I suppose we should be directing requests to him.
@ Katharine,
You might as well join the Tory party and listen to their economists as listen to Joe. There’s really no shortage of money for “productive investment”. Capital markets are awash with capital whose owners are looking to do something with it. But why would they invest when they they don’t see any return?
Say’s law of markets is a classical economic theory that says that production is the source of demand. This is what Joe is effectively saying and it’s complete bunkum. Sure the supply side of the economy is important but you can’t ignore the demand side and just assume a natural equilibrium in the economy. You’re the party of Keynes. How is it that the party, generally, can unlearn everything that it had previously understood very well?
So what will we aim for beyond this year’s overriding goal of defeating Brexit? What will be our priorities?
Simples! its so obvious that people have totally forgotten it already:
Keeping addressing climate change and the looming environmental disaster at the top of the political agenda.
From the reports, it seems a zero carbon UK is achievable by 2040, but only if we start now…
It can be sold to the Tories as an opportunity (for them to invest in) for the UK to become a world leader and create capital that a future (Tory) government can sell off…
Joseph
According to the OEC of MIT, “In 2017, the United Kingdom exported $395B and imported $617B, resulting in a negative trade balance of $222B. In 2017 the GDP of the United Kingdom was $2.62T” (https://atlas.media.mit.edu/en/profile/country/gbr/). Therefore exports were 15.07% of GDP. So it can’t be correct that “UK economic growth is highly dependent on International trade and the global economy”, only 15% is. Imports were less than 25% (23.6%) of GDP.
It is also wrong that economic growth can only come from increased productivity. Economic growth comes from more being produced; more can be produced if more people are employed or work more hours. However, if there is more demand in the economy then more will need to be provided and some of this increase in production we can hope will come from increased productivity.
Peter Martin,
the Tory party (or Labour for that matter) have no credible policies for addressing the issues raised by Katharine. Libdem economic policy is derived from evidence-based economic analysis and based on borrowing for a specific purpose – to invest in growing the productive capacity of the economy.
As Vince Cable writes in this article https://www.theguardian.com/commentisfree/2018/sep/12/wealth-inequality-liberal-democrats-economic-reform
“expectations of a better life cannot be met without wealth creation. And this needs investment and technological progress through innovation, which in turn requires rewards for the risk-taking entrepreneurs who make it happen. In other words, it is far easier to create a fairer society when the size of the pie is growing. That is why my party recently set out proposals to replace business rates with a far more investment-friendly land value tax. But what particularly frustrates about wealth inequality in Britain is that it is not obviously the result of productive activity, and has widened primarily thanks to asset price inflation, especially that of property. And this inequality is now so deeply rooted that relying on the doubtful existence of a trickle down effect is no longer enough, if indeed it ever was.”
“…taxing wealth and work in the same way – is at the core of our proposals. We would also tax capital gains at income tax rates, and abolish separate tax-free allowances for both capital gains and dividends. All income, be it from employment or wealth, would be eligible for the personal allowance, so that those who depend solely on income from assets would not be unfairly penalised. These changes would also remove the existing incentive for the well-off to shift employment income into other forms – such as capital gains or dividends – to minimise their tax bills.”
Michael BG,
I think you are quoting figures for the trade in goods only. This House of Commons briefing gives the figures including services for 2017 https://commonslibrary.parliament.uk/world-affairs/uk-trade-in-2017/ “In 2017, the UK exported £615.9 billion of goods and services and imported £641.8 billion, resulting in a trade deficit of -£25.9 billion.” Exports constitute around 40% of private sector output or around 30% of total GDP inclusive of government spending on goods and services.
Increases in per capita economic growth are derived from productivity growth in an economy near full employment as the UK is. There is insufficient domestic labour resouces to increase output significantly with unemployment below 4% and vacancies at record levels. Job guarantees can bring some of the longer-term uemployed into the labour force but (in the absence of current work skills) are more likelly to reduce overall labour productivity not increase it.
Joseph
Thank you for the link, which doesn’t give a percentage figure for exports. It states that goods exported were £338.9 billion and service exports were £277 billion. Working out the size of GDP from 1.3% = £25.9 billion I get £1992.3 billion. Exported goods are 17% and services 13.9% making 31% of the total economy and imports 32%. So about 70% of our GDP is internal and has nothing to do with international trade.
I have been talking about GDP growth not per capita economic growth. I am not convinced there are insufficient domestic labour resources in the UK as I believe there are over 2 million people not in work who could be in work if the government had the correct policies. (I expect there are still people who have part-time work who would prefer full time work.) However, the UK recruits labour from outside the country and so the domestic labour market is not a limiting factor in the ability of the UK to employing more people to produce more without increasing productivity.
My solution to the unemployed not having the skills needed is to provide them free training for roles which there is a demand for in the area in which they live.
Katharine Pindar
In fact, I think most British people have come to accept that immigrants are actually needed in this country to work in the Health Service, in care homes and in hotels and catering, in building and in seasonal fruit-picking,
Ok, so an economy that only works by increasing the population every year with immigrants to take on basic jobs will work in the long-term, there’s not an issue, we can’t even mention it to think a little bit about problems it might lead to?
One ought to be able to understand concerns without necessary agreeing to them. It is actually an important way to win votes from people who otherwise get tricked to vote for bad things. Like Leave, for example – but you say we can’t even talk about this, and if any of us does, we get dismissed as prejudiced people.
Oh well, now really, Bye-Bye.
@ Joe,
So you’re saying that your tribe is the only one with an “evidence based economic analysis” and that no-one else has “credible policies”?
Well I’d go further and say that no tribe, including my own, has it right. The mainstream parties are all staffed by politicians who’ve been ‘educated’, some would say brainwashed, by the mainstream, so they all tend to think along the same erroneous lines. In the mainstream textbooks crashes like the 2008GFC don’t happen. The eurozone has full employment! So it would be good if we did see some signs of an “evidence-based economic analysis”which took into account the actual realities of what we see happen.
The Liberal Lord Keynes had it much closer than anyone else in his time, not forgetting the important contributions made by Kalecki and Lerner, and so it’s a pity we have all moved away from that.
But we’re working on it!
@ Péter Martin : Peter, you say, “No tribe, including my own, has it right.”
I didn’t realize you were a member of any tribe. I had the impression that you were a lone wolf, wandering in the wilderness, after having contracted a dangerous and potentially infectious case of MMTitis.
I’m still a bit in the dark as to which your tribe might be?
Corbynite Labour??
@ Katharine @ Matthew,
It is difficult to discuss immigration without all kinds of accusations flying about. In economic jargon, employers all have tendency to “hire off the top”. In other words every employer will want the best candidate for the job to the obvious benefit of their business.
This creates a problem for those of us who do argue that we need to move away from austerity economics to give our young people a better chance of employment. A personal interest of mine is young people with Down’s syndrome. Many DS people are quite capable of working but their chances in the job market are severely limited when they are up against able bodied people in the selection process.
So, how to give them the best chance without stoking up the economy to such an extent that we create high levels of inflation and/or higher than socially acceptable levels of immigration?
@ chris,
No I’m quite a social animal! I’m a member of several “tribes”. My football team isn’t doing too well but I like football generally and interact quite amicably with members of other tribes!
Similarly in politics. My tribe is doing better but socially my friends are all more like you lot! ie Lib Dems and Greens. I’m even married to one! 🙂
‘Faint but pursuing’ through economic thickets, I want to address Matthew Huntbach’s concerns here. You asked early yesterday morning, and I missed it, Matthew, if I cared that people may think of us as being as right-wing on the economy as the Conservatives. Of course I would care very much about that if it were so; I want an interventionist economic plan, to invest in a productive way, and I therefore welcome Joseph Bourke’s statement at 1.02 am today, quoting Vince Cable, which I hope will convince you, Matthew, that you are still in the right party.
I also want to concede that I see your point now that under Tim Farron’s leadership, even though our membership increased through his inspiration, it might have been wise to confront directly the fact that we had no real choice in the Coalition to increase government spending as we would have wished to do. I think we should also factor in the point that everyone believed that the Deficit constituted a national emergency which must be tackled, at the time when we joined the Coalition. However, we should perhaps have insisted on the measures that we would have liked to take during those years, but could not as junior partners in a Coalition where the leaders had a very different outlook on desirable spending.
Finally, on the immigration question and the attitudes of ordinary people. I expect you are right, that many ordinary people, despite seeing how useful immigrants are, still feel that they may be a threat. And as Michael BG writes, there is scope to give British people currently unemployed or under-employed more training and this should be done, plus perhaps creating jobs for them. But the reason why I became heated in defending immigrants was not only because I believe fundamentally in the free movement of people, but also because I was upset by thinking that opponents of ours could seize on what you wrote and spread it on social media: that in the on-line Liberal Democrat magazine a right-wing anti-immigrant statement had been published. This could so easily be done without explaining that this is not what we believe or hold to, in this era of false news.
I hope this consideration of your views may convince you, not only that you are in the right party but that I am an acceptable colleague!i
@ Katharine Rest assured you are indeed a very acceptable, caring and compassionate colleague. I just wish there were a few more like you – with the same priorities you often express not just at constituency level but at ‘the top’ in leadership positions.
My regret about the Coalition is that it wasn’t just a lack of compassion – it was a lack of competence and political nous….. the fruits of which I observe every day.
Time will tell whether those inadequacies have been remedied under new leadership and a flush of newly elected councillors. They will be judged by what they do.
Thank you, David, for those kind words and wise thoughts. I think this is all about how to prepare for us to have a significant role again in national politics, which I see happily is now happening and which may accelerate in a few months, if, as I believe (and which has been suggested by the influential Tory commentator Matthew Parris) we may have another General Election after ructions in his party if an arch-Brexiteer succeeds Theresa May. I think there will be several parties with which we can then fruitfully negotiate for a share of power.
It is therefore useful to consider here, as we have been doing, what we should put forward first among our progressive policies, and how we believe they can be paid for. There have been many helpful suggestions among commentators above, and I hope some will feed their ideas through to the Manifesto preparation group, headed by Lord Newby.
I just want to add one thought, enlarging on what may be said about immigration, discussed in my third long paragraph above to Matthew Huntbach. The point to me is that the more we are seen as significant by right-wing parties, the more they will seize on any stick to try to hit us with. We have all seen how sensitive matters have become for the Labour Party with accusations of anti-Semitism, and similarly though to a lesser degree for the Conservatives with accusations of being anti-Muslim. The last thing we want is for our opponents to try to smear us with any false suggestion that we could be anti-immigrant, and so I respectfully suggest we should be a bit cautious now in what we say and write on this sensitive subject.
Peter Martin,
the objective of economics is the efficient allocation of scarce resources. That involves the balancing of supply and demand. The supply and demand of goods and services; the supply and demand for the factors of production – Land, Labour and Physical capital ;and the supply and demand for money and credit – the medium of exchange. Changes in any one of these variables impacts on the other variables in the circular flow of goods, production and money through the economy. Focus on a single variable to the exclusion of others produces no useful policy direction. There are trade-offs involved with every policy instrument. That is the function of political economy – to determine and direct the distribution of scarce resources in a fair and efficient manner – and is the ultimate aim of social and economic liberalism.
@ Joe B,
“.the objective of economics is the efficient allocation of scarce resources”
Yes of course. That’s why it makes no sense to depress the economy unnecessarily and create the conditions for 1.5 million unemployed. We should be utilising everyone’s talents and not wasting a scarce resource. Neither is it an “efficient allocation of scarce resources” to have 3.7 million children living below the poverty line.
They are the future of the country and we should be looking after them better than we are.
Good to see you coming around to a more sensible viewpoint.
Katharine you talk of us having an interventionist economic plan. I disagree if we look at the list of policies Joseph Bourke listed yesterday many of them are tinkering at the edges and none of them are large scale interventions.
Lifelong Learning Entitlement is not an entitlement it is a limited sum of money only for the people on reaching a certain age. I think 18 has been suggested. Free training for everyone would have been so much better and would have assisted people who at the moment are finding it difficult to get the job they would prefer because of lacking the training they need.
The “harnessing the strength of the public sector balance sheet” is via the British Business Bank, but I couldn’t see any figure in the policy paper for how much we are promising for this. According to the Joseph Rowntree Foundation the UK will lose £9.6 billion from the European Structural and Investment Funds. They also talk of remodelling the Local Growth Fund to provide funding for business support, economic development and transport and increasing the funding to £12.5 billion a year. I think this fund should have £4 billion a year targeted at those districts which have high unemployment levels. These are the sort of figures we should be promising.
I couldn’t find any details of Citizens’ Wealth Fund. I couldn’t find out what the proceeds from this government investment fund would be used for.
None of the list of policies are particularly bad; there are just not radical enough to ensure everyone in the UK reaches their full potential.
i read Cable’s piece. It was clear enough. Tax your income, tax your house and the land it stands on, tax your life savings, tax any thing you try and do for your own children, tax everything you have painstakingly gathered by making do and going without.
The message is stark. Don’ t try and better yourself. Don’t work late or at the weekends. Above all don’t start a business. Don’t employ anyone. Do the minimum. Let some other mug see their life’s work taken off them. If you achieve any personal success the state will come for it.
“the objective of economics is the efficient allocation of scarce resources.”
Economics don’t have an objective. The people and interest groups that control the economy do……. something Lib Dems often shie away from.
Michael BG,
it is important to use actual data. The economy has grown for nine consecutive years, public debt as a % of GDP is falling, employment is at a record high and wages are rising at their fastest pace in over a decade.
The Bank of England recently raised its forecast for GDP growth in 2019 based on a higher level of global GDP growth than expected at the beginning of the year, increasing it from 1.2% to 1.5. UK GDP consists of public services (excluding transfer payments) accounting for around 20% of output and employment. Private sector output and employment is circa 80% of which approximately 40% relates to export markets.
ONS data shows that the number of people usually working six hours or fewer a week is just 1.4% of the UK working population – or just over 400,000 people, which compares with a total of 32.4 million people in work. In fact, that’s a drop from 1.8% at the start of the century. So, the share of people working very short hours has actually fallen, which suggests zero-hour contracts are not distorting the headline employment numbers.
Beveridge defined full employment as being a claimant count equal to the number of vacancies in the economy. Official figures currently show circa 900,000 for both figures i.e. what Beveridge considered a full-employment economy.
The UK can and does boost labour resources with immigration, but a larger population needs greater levels of public services. With net migration of 250,000 to 300,000 a year additional schools, hospitals, GP practices, transport infrastructure and housing are needed together with the whole plethora of public services. While population growth can boost overall GDP it does not increase per capita GDP which is the measure of rising living standards or address the issues of fairer taxation and better welfare provision raised by Katharine in her article.
Innocent Bystander,
this was Vince Cable’s pre-budget speech in 2017 https://www.libdems.org.uk/vince-cable-economy-speech-full-text-november-2017 In it he sets out the economic priorities and focus of a Libdem Administration:
“…we need a Government which prioritises economic competence over political dogma.
Neither the ‘no deal’ Brexit extremism of the Conservative Party nor the ‘socialism in one country’ dreamed of by Labour will deliver a successful economy.”
Priorities:
1. A freeing up of government capital spending, separate from decisions around the day-to-day budget, to build the homes and infrastructure the country needs.
2. Additional funding for key public services for the NHS and welfare provision financed on a tax neutral basis.
3. A learning account of £18,000 for young people on their 16th or 18th birthday which they can draw down at any time in life all to pay for further and higher education (a post graduate course, for example), reskilling and adult learning, as they choose.
Thhis would be funded by a modest tax on personal wealth and would cost just over £14bn per annum for each new age cohort. This is worth roughly 1/3 of 1% of net household financial and property assets.
4. Authoritative analysis of the British tax system, notably the Mirlees Report, makes it clear that the taxation of land is the most economically efficient and rational form of taxation, the least open to evasion and avoidance and the most relevant to contemporary needs such as better utilisation of land for housing.
– As a first step, business rates would be replaced with site value taxation.
– Corporation tax would be increased from 19% to 20% and maintained at that level and reforms introduced to withdraw unintended incentives.
The speech concludes:
“Disillusionment with our current economic performance, and the model which underpins it is acute. Any Brexit would make the problem worse, and a ‘no deal’ Brexit would cause severe destabilisation .
The danger is that this provokes a further growing appetite both for populist fiscal policy – sometimes described as the magic money tree – and for retreating to a much more state controlled and inward looking model. Both could be catastrophic for our country.
So what is needed is a serious strategy for growth and prosperity, and in today’s politics only the Liberal Democrats are offering it.”
‘Above all don’t start a business.’ Politely, that’s nonsense, Innocent. Look at our policies in detail. F26 Taxing Land, Not Investment, for instance, begins by noting that ‘dissatisfaction with Business Rates has reached an all-time high.’ Besides asking for the replacement of Business Rates in England with a Commercial Landowner Levy based on the land value of commercial sites, it seeks the abolition of the current system of Small Business Rates Relief ‘much of which is absorbed by landlords through higher rents’, and replacing it with ‘a doubled Employment Allowance giving every employer a £3000 tax cut by reducing their National Insurance bills, and providing a boost to wages and employment.’ I showed this policy proposal to my close friend who is a small-business woman, and she thought the ideas sounded sensible.
I think we try for fairness and balance, not for penalising employers or soaking the rich, but working always towards everyone having a decent standard of living. It was the principle that led to our ministers in Coalition obtaining the increase of personal earnings to £10.000 before National Insurance was payable. We would tax wealth as well as income, and we would ensure that the poorest got a better deal. Look at our policies first – they are made by Conference, not by our Leader, who can only recommend and guide towards them.
@ Innocent (?) Presumably, the, Mr Innocent, If you’re ill you won’t use the NHS, you’ll not send your children to state schools, you won’t drive your car to work on the roads, if you’re burgled or any of your family are assaulted you won’t call in the police – or expect the miscreant to be punished or jailed, you’ll refuse the state pension, you certainly won’t want any border or customs arrangements – and no doubt if the country is invaded you won’t want an army to defend you.
Not sure whether that’s anarchism or extreme Thatcherism where there’s no such thing as society. What it certainly is is reductio ad absurdum – in every sense of the last word. Won’t waste any more typing on you – but I’m sure you’ve got enough material on your broad shoulders to open a chip shop.
Katharine,
“‘Above all don’t start a business.’ Politely, that’s nonsense, Innocent. ”
Then start one yourself, with equal politeness. You will likely discover how difficult it actually is to create wealth from nothing compared to helping oneself to the prosperity someone else worked for.
My point is simple. All of Joe’s four points are more taxes. Despite the positive opinion of your friend, simple arithmetic remains. All of Vince’s handouts have to be found from more tax. If LVT raises more money someone loses out. (I don’t understand “more funding” and “tax neutral” in the same sentence) and those upon whom the taxes fall have options of their own.
They can move their resources out of reach ( the mega-rich did this long ago and the midi-rich are quietly doing it now) or, and far worse, those with talent, energy, intelligence and enterprise who could, and should, be founding entirely new businesses and industrial empires just sit on their hands and leave it to someone else to do just that (as you have done).
This is Britain’s biggest weakness, a lack of ambition, hunger to succeed, and personal determination. We are a nation sitting on the couch while other nations power ahead with new ideas and products. This is much more important than the economic hocus-pocus repeated ad-nauseam around here.
So, Katharine, if you think my contention that punitive taxation discourages business starts is nonsense, then please share your own business success story.
Innocent Bystander,
all of us involved with businesses understand the concept of risk management and the pooling of risk via the use of insurance products to protect a business. Public services are just that – a pooling of risk. To be able to create wealth you need a combination of a favourable economic environment, reliable public services, economic infrastructure, hard work and a large dose of good luck.
Vince in his guardian article writes:
“Of course, expectations of a better life cannot be met without wealth creation. And this needs investment and technological progress through innovation, which in turn requires rewards for the risk-taking entrepreneurs who make it happen. In other words, it is far easier to create a fairer society when the size of the pie is growing. That is why my party recently set out proposals to replace business rates with a far more investment-friendly land value tax. But what particularly frustrates about wealth inequality in Britain is that it is not obviously the result of productive activity, and has widened primarily thanks to asset price inflation, especially that of property. And this inequality is now so deeply rooted that relying on the doubtful existence of a trickle down effect is no longer enough, if indeed it ever was.
Britain’s wealth gap entrenches power and privilege both between and within generations, by generating additional income for asset owners while restricting opportunities for those with little or no wealth. Through gifts and inheritances, these inequalities are passed down to future generations. Those without wealth struggle to acquire property, fund education and training, deal with unexpected income shocks, or pursue their own business and creative ideas. Worse still, wealth inequality is likely to worsen in the coming years due to weak wage growth, rising household debt, automation and falling rates of home ownership and saving. Meanwhile, the money being passed down through inheritances to a lucky minority is projected to grow.”
As a political party, these trends need to be addressed for the good of all – wealth creators and consumers of goods and services alike. You can’t run a successful business without customers able to pay for your goods and services.
@ Innocent Bystander “Then start one yourself, with equal politeness. You will likely discover how difficult it actually is to create wealth from nothing compared to helping oneself to the prosperity someone else worked for”.
As always, you assume and presume far too much, dear anonymous Mr Bystander. It’s probably escaped you, but I happen to know that Katharine does in fact run a business. She doesn’t need any condescending or patronising lectures/advice from you – nor does she owe you any explanations. As stated, you assume and presume far too much. End of.
Joe,
Many thanks but
“rewards for the risk-taking entrepreneurs who make it happen”
well, as long as they don’t actually accumulate any wealth as Vince, in the subsequent paragraphs announces that he is coming for it.
As to LVT I know it is a subject dear to your heart but I think you expect too much magic. It looks like it is a tax on London and the South East and it might well encourage businesses to relocate to the North – but it might be the north of Poland or north China. Nobody is obliged to create wealth in Britain, and no Briton has the right to be a “customer” either, and many of the world’s citizens can only afford the bare minimum of goods and services.
Spoiler alert = us next.
People have to want to create wealth and as I watch the business start up scene the exact opposite is happening. At least the proprietors (of the “right sort” of businesses) only seem to want to reach £50 M cap and then sell it to the Indians, Chinese or Americans so they can join the offshore domiciled. We have a nephew who is a physics PhD and, with a colleague, makes very high tech measuring equipment in his spare room. They have no employees and want none but sell the devices mostly in America to where they plan to relocate.
David,
I only responded to Katharine’s dismissal as “nonsense” my well intentioned advice not to start a business. I am pleased to hear that she runs a business as my wife and I did for a few years after we retired. We reached the point of having to take on employees or run it down and liquidate. The amount of “guff” from HMRC on PAYE Ni and all the rest was too much trouble so we kept going just the two of us until we wound it up, last year. So my advice is based on experience.
And I wish Katharine and her employees every success because I know how hard it is to make it worthwhile.
Endof.
p.s. is that the new way to finish a contribution?
Well, I think our Leader, channelled by and expanded by Joseph, has said it all: all that needs doing and that our great party can help to do in the economic sphere. Thank you Joe, and also David for your further kind defence of me. As David says, I don’t owe you any explanations, Innocent, but he is quite right – I set up a small business ten years ago and am still running it, to the extent I want.
This has been a happy day for me as I always ensure May 10 is, because it was the birthday of the most important and dearest person ever in my life, my mother. She was a Liberal by instinct and in practice, an inspiration to me, and beloved by many. Thank you, colleagues, for a happy ending of this day, and goodnight, God bless.
Joseph,
I do base what I call for on actual data. You seem to have forgotten that at the end 2011 and the start of 2012 it was reported that we were back in recession. The Budget Book forecasts for economic growth are 1.6% for 2019, 1.4% for 2020, 1.4% for 2021, 1.5% for 2022 and 1.6% for 2023. I think that the public sector is larger than you think, for 2018-19 Government expenditure is expected to be 38.2% of GDP. You seem to value someone who manufactures something or sells something more than a doctor or a teacher who work in the public sector.
So there are over 400,000 people working 6 hours or less. 6.3% (using your figures 1.8 million people) work between 6 and 15 hours, 20.1% (using your figures 5.7 million people) work between 16 and 30 hours. So there are (using your figures) 7.9 million people working 30 or fewer hours, some of whom would want to work more hours. There are 1.34 million people unemployed of which 347,000 have been unemployed for over one year. Then there are the nearly 2 million people on ESA, some of who would like to work.
As I pointed out economic growth of 3% would provide the government with an extra £23.6 billion for the government to spend without increasing any taxes. This money could be used to reduce poverty, build more social homes, provide free training or a guaranteed job to some of those unemployed, and funds to stimulate more economic growth particularly in those regions with the highest number of unemployed people. As I have pointed out over 8 years with economic growth of 3% each and every year we could eliminate poverty in the UK, provide a job for everyone who wants one and build more social homes.
Michael,
Is the 3% “growth” you propose just from the govt borrowing money and shoving it into the economy? Will that only increase the import of Korean phones, Chinese everything and German cars? How does frittering away even more money on foreign industries help the British?
Michael BG,
Brits already work longer hours than the rest of the EU https://www.huffingtonpost.co.uk/entry/brits-work-an-extra-two-and-a-half-weeks-each-year-compared-with-other-people-in-the-eu_uk_5cb5cd14e4b0ffefe3b73567
The TUC claims long hours are “robbing workers of a decent home life and time with their loved ones” and that “overwork, stress and exhaustion have become the new normal.”
Public expenditure of 38% includes transfer payments of pensions, housing benefits, tax credits etc. Output is the value of goods and services produced. In the public sector this means the value of work undertaken by doctors and teachers and other public service procurement. This is the output that is included in GDP not transfer payments.
Economic growth simply funds above inflation cost increases in the public sector that rise in line with earnings growth i.e. public sector wage costs, pension costs, housing benefits, tax credits and other tranfer payments in the public sector.
What you are proposing would require abanding the earnings link for state pensions and limiting public sector pay to inflation increases only for another 8 years. As Vince Cable has said “inequality is now so deeply rooted that relying on the doubtful existence of a trickle down effect is no longer enough, if indeed it ever was.”
Innocent Bystander
Some of the government expenditure in the first year is likely to be from increased borrowing, but I don’t see government borrowing as bad, however once economic growth has reached the 3% mark the extra government spending needed to achieve 3% growth would come from the economic growth. As I point out if economic growth was 3% government income would increase by £23.6 billion. Then the next year it would increase by more as the economy has grown.
The effect on imports is not as clear as you state. As I stated above 32% of GDP is imports. It is possible that this percentage would stay the same but the total amount spent would increase by3% in monetary terms. Also above I pointed out that imports are greater than exports by only 1% of GDP. This figure does not concern me. The reason that I believe that the multiplier is only 1/6 is because of the percentage of imports and government income.
Joseph,
As you point out instead of investing in increasing production British businesses increase the hours that their employees work. From the ONS figures 53.9% of the workforce work between 31 and 45 hours and 18.3% work over 45 hours a week. These figures have no effect on the fact that 7.9 million people are working 30 or fewer hours, some of whom would want to work more hours.
You are mistaken in your belief in how GDP is calculated. It is either based on spending – consumer spending (C) plus business investment (I) and government spending (G) and net exports (exports minus imports [X-M] or based on income. Therefore the salaries of the public sector are included as are benefits and pensions when based on income or when based on spending.
It appears that you are saying that normally the triple lock for pensions if above inflation and above inflation increases to public sector pay are paid for out of the normal increase in government income generated by the growth in the economy. Therefore these costs should be deducted from the £23.6 billion when considering how to divide up the amount of extra government income. I am only advocating spending in the region of £10 billion on increasing benefits each year after the first year, which compares well with the £9.345 billion we promised in our 2017 manifesto (which doesn’t include our new welfare promises since the general election).
I am not relying on a “trickle down effect”. I am stating that the government has to take drastic action and commit to increasing economic growth so it can use £10 billion of its extra income it will get each year to increase benefit payments. So that after 8 years no one in the UK lives in poverty.
“3% growth would come from the economic growth. ”
Michael,
This is where I lose it. Why? What changes after the govt has bumped up the GDP temporarily? Wherefrom comes the economic miracle?
The fabelled investment is not investment in production resources at all. It is just vague and hugely expensive “infrastructure” stuff. It will have no payback. Building new railway lines alongside perfectly good existing ones is just nugatory spend. It generates no new national earning streams.
Keynes wasn’t a good idea when the factories were in Birmingham and the customers were in China. Now it’s the opposite way round it’s economic suicide.
Why should GDP continue to grow after the govt turns off the borrow and squander tap? From automotive? We are going the opposite way. Agriculture? No chance. Finance is probably on the way down as well so what engine drives the “new growth?”
I am not being mischievous (despite the anger I often attract) I just want to understand how these plans, of which I hear such a lot, actually deliver. I hear of the lifelong learning allowance which if it works at all (it won’t of course) can’t possibly deliver anything for at least two decades. Also increases to taxation (which can only make entrepreneurs less interested in expanding their activities).
Nothing makes sense, Michael, there is no engine to deliver the turn around?
I have to agree with Innocent to a little puzzlement over one sentence in your argument, Michael. You wrote,’Once economic growth has reached 3% the next government spending needed to achieve 3% growth would come from the economic growth.’ I can’t quite see this, chickens and eggs are revolving in my mind! I am sure you can explain. But I should like you also to give a little clarity if possible on how you see us achieving 3% growth anyway, since the current expected growth is no more than 1.6%. I am sure I am missing something!
Michael BG,
Goverment spending on transfer payments does is not an element of gdp. Government spending in GDP is the sum of government expenditures on final goods and services. It includes salaries of public servants, procurement and any investment expenditure by a government. It does not include any transfer payments, such as social security or unemployment benefits. In economics, a transfer payment is a redistribution of income and wealth by means of the government making a payment, without goods or services being received in return. These payments do not directly absorb resources or create output.
Additional government spending on welfare transfer payments( as you advocate) adds nothing to GDP (nominal or real). Assitional welfare It may well be merited in its own right but it represents a transfer of spending from the donating party (the taxpayer) to the recipient (the beneficiary). It has no impact on output (GDP). That is why you need a robust economy to be able to afford adequate welfare provision.
Innocent Bystander,
It would help if you quoted the whole sentence, “once economic growth has reached the 3% mark the extra government spending needed to achieve 3% growth would come from the economic growth”
If economic growth is forecast to be 1.4%, I have stated I want the government to increase spending by 1.3% of GDP to provide growth of an extra 1.3% and hopefully with the multiplier achieve 3%. With an economy of £2127 billion 1.3% is £27.65 billion. The following year the economy is valued at £2184.4 billion, economic growth is now forecast to be 1.7% (1.4 + 0.3) making a gap of 1.3%, of which I want the government to fund 5/6th of, making 1.1%, which is £24 billion. 3% of £2184.4 is £65.53. 37% of £65.53 billion is £24.25 billion. Therefore the £24 billion of extra spending I want in year two can be totally funded from the £24.25 billion increase in government revenue generated from economic growth of 3%. (In the second year the budget deficit is reduced by £250 million.) I hope this is now clear.
If the forecast for economic growth continues to increase then the amount extra that the government should spend has to be reduced. I can provide figures for year three assuming economic growth forecast to be 2% if it would help.
Therefore to answer your question the multiplier affect applies to all increases in the economy, so even economic growth produced from private spending will provide more economic growth the following year. So long as businesses produce enough to meet the extra demand we have no problems. My 3% target is the level which I think output can be increased every year by businesses, based on what was achieved before 2008.
Katharine,
GDP can be calculated by measuring spending in the economy therefore as Peter Martin said for every penny the government spends the economic grows by a penny. Therefore if the government spends an extra 1.3% of GDP, economic growth goes to 2.7% (1.4 + 1.3) and the multiplier hopefully provides the other 0.3% making 3%.
Joseph,
“One way of arriving at the GDP of a country is to calculate the monies spent by the different groups that participate in the economy. … Thus, a country’s GDP is a measure of consumer spending (C) plus business investment (I) and government spending (G) as well as its net exports, which is exports minus imports (X-M).”
“Considering that the other side of the spending coin is income and since what you spend is somebody else’s income, another approach to calculating GDP is based on a tally of the national income.” (https://www.investopedia.com/articles/investing/051415/how-calculate-gdp-country.asp)
Another website (https://www.bankofengland.co.uk/knowledgebank/what-is-gdp)
“there are three ways to measure GDP! You can calculate it by adding up, for everyone in the country:
• The total value of goods and services (‘output’) produced;
• Everyone’s income;
• Or what everyone in the country has spent.
The last measure, total spending, is perhaps the most familiar and can be broken down as:
GDP = Household spending + Investment + Government spending + Net exports”
I think you are questioning what is included in each section, so it might be more useful to consider them as:
Household spending + Business spending + Government spending + Net exports
(where spending is on goods and services).
Therefore the spending of transfer payments and the salaries of all workers appear in household spending and so do count in GDP.
Michael,
Well at least could I thank you for your detailed response and there is no need to engage further. Your answers were as I expected and confirmed my worst fears.
Thank you again.
Michael BG,
I don’t know how many times to say it – transfer payments are not payments for goods or labour services. You can read any introductury textbook on economics or google it if you need further explanations. This link is one you can read https://books.google.co.uk/books?id=GsH6CAAAQBAJ&pg=PA145&redir_esc=y#v=onepage&q&f=false
The reason transfer payments are not included in gdp calculations is that it would be double-counting as household spendng is already included in consumption.
Innocent Bystander,
Perhaps your fears are generated from not understanding Keynesian economics and the idea that aggregate demand is important in economics and can drive higher production. Aggregate demand can be seen as your ‘engine’ which drives economic growth. Also I expect you fear imports much more than you need to. Also perhaps you are too pessimistic about the UK economy and its capacity to increase production.
Joseph,
Firstly, thank you for posting a link and not quoting from the book.
I have already accepted in my last post that transfer payments are excluded from the government spending figure. Also unpaid labour is not included in GDP.
The wages of people working in the private sector are not included in the spending calculation of GDP, only what business invest are included because the cost of production are included in the cost of an item purchased. The government provides services for free and this it seems to me is why wages are included in government spending (not as I had earlier posted).
(The wages of doctors and nurses are not included if they work in a private hospital but they are in they work in a NHS one!)
However, even when we exclude transfer payments from GDP, increasing them will have an effect on GDP because when the money is spent it will increase GDP.
I think perhaps this economic discussion has run its course, being rather far now from the original theme of the article, and a bit difficult to follow in places for the likes of me. It is a narrower theme, earnestly pursued by fewer people, and that seems to me rather in keeping with what is perhaps a lower mood in our party, nine days since the local elections, eleven days before the next, Euro election day.
The euphoria is over, we are being ignored or denigrated again by politicians from Labour and Change UK, and after all the Euro elections are a bit futile. They aren’t about Brexit, those elected from Britain will never take their seats if Brexit happens, and if it is eventually stopped as we want we shall still most likely be represented – if you can call it that – by a big bunch of EU deniers replacing the previous useless 24 UKIP MEPs, plus a mixed bag of people hopefully with some enthusiasm for the European Union. Of course we hope they will include several Lib Dems, but probably also Labour, SDP and Green representatives. Is the best we can hope for then that those MEPs work together in a constructive and progressive spirit, in the same Euro Alliance?
I shall be canvassing and leafletting like all our activists during the next ten days. but I admit that my thoughts, hopes and even prayers will be for our party’s progress, necessarily under a new leader, in the next six months. Thanks to everyone who has engaged in this useful discussion of our possible future plans, which are so worth considering.
Michael BG,
these are the compoents of GDP https://researchbriefings.parliament.uk/ResearchBriefing/Summary/SN02787 “Household consumption is the largest element of expenditure across the economy, accounting for 63% of the total in 2018. Government consumption accounted for 18% and investment for 17%.”
Total output (GDP) may increase or decrease as a consequence of increases in transfer payments such as state pensions and welfare. Increased taxation on productive activity has a deadweight effect on production and output. This is the case whether taxes are levied directly or via an inflation tax. Keynes argued that inflation is “a method of taxation” which the government uses to “secure the command over real resources, resources just as real as those obtained by [ordinary] taxation”. “What is raised by printing notes,” he writes, “is just as much taken from the public as is a beer duty or an income tax. A government can live by this means when it can live by no other. It is the form of taxation which the public find hardest to evade and even the weakest government can enforce, when it can’ enforce nothing else”
Workers on job guarantees may or may not produce output of greater money value then the cost of employing them. Either way, welfare provision and funding of public services need to be increased. This requires the transfer of real resources from taxpayers to the state and will be achieved by the kind of levies outlined by Vince Cable in his speeches and articles.
Joseph,
I wish Vince Cable was advocating increasing spending on benefits by about £10 billion each year for the next 8 years to eliminate poverty in the UK funded from economic growth. I wish it was party policy. Do you agree with me that the basic rates of benefits should be increased to the Joseph Rowntree Foundation’s poverty levels?
If the base rates of benefits were increased as I suggested I don’t see how economic growth could be reduced as a result. However, I have to recognise that maybe not all of the £10 billion would increase the size of GDP, but this is not a problem for me. With economic growth at 3% the deficit is unlikely to be 3% and so the national debt as a proportion of GDP would be falling.
With regard to those with a job guarantee or doing my free training their payments would have to be treated as transfers as they would not be a cost of production.
Funding extra government spending (such as on the NHS and social care) from tax increases will not directly grow the economy and are unlikely to indirectly grow it either.
Michael BG,
there are two approaches to economic management that we know do not work to alleviate poverty. The first is the Conservative approach based on big tax reductions in an effort to stimulate growth that relies on a tricke-down effect from a growing economy to raise the living standards of the poorest at the bottom of the income deciles.
The second is socialism based on high tax and spend policies that generate higher levels of inflation in the economy. Higher levels of inflation benefit the owners of assets and shares while simultaneously depressing real wages and living standards.
Liberal economics is focused on equality of opportunity; equality of access to property and ownership stakes in firms sharing in the benefits of economic growth.
Economic growth is driven principally by three factors – Investment in physical capital to produce goods and deliver services, employment growth and productivity growth.
Funding extra government spending (such as on the NHS and social care) from tax increases will not directly grow the economy, but it is not intended to. It is the economic growth that generates the increased output that allows for expansion of public services to meet the needs of an aging population.
Liberal social policy seeks to ensure a fair distribution of the proceeds of economic growth across the factors of production – rents to land, wages to labour, interest to capital and profits to risk-taking entrepreneurs.
Tax has to come from the income that is a return to the factors of production i.e, land rents, wages, interest or profits. Of this only taxation of economic rents (of which land is the greatest source), mortgage interest on land and profits from land speculation does not carry the deadweight effect of taxes on wages, interest on lending for productive investment and profits from trading ventures undertaken by entrepreneurs.
Practical policies to reduce poverty and inequality require a redistribution of resources within the economy. The question is – how best to effect that redistribution without damaging economic growth at the same time. This inevitably involves political trade-offs and development and maintenance of a societal consensus on where the right balance should be struck between individual rights over access to resources and individual responsibilities for provision.
Joseph,
You are mistaken to believe that economic growth on its own will end poverty in the UK. It is how governments choose to use its extra income from economic growth which could end poverty in the UK.
The Liberal Democrats while in government cut benefits in real terms, increased the Income Tax Personal Allowance and hoped that work would cure poverty. Quantitative Easing benefits owners of assets and shares and increases inequalities. In my submission on the public consultation on Universal Credit I pointed out that increasing minimum wages would remove some people from poverty. George Osborne seemed to accept the need to increase minimum wages when he introduced the National Living Wage. I want to build on this with my regional minimum wages (see above).
Yesterday I was reading an economic text book as you suggested – “Economics: Principles, Problems and Policies” by McConnell, Brue and Flynn. In the book they talked of a business building a factory to make cars because they believe there was demand for their new cars. This is why managing aggregate demand in the economy is so important. Businesses will not produce goods and services unless they believe there is demand for them.
My policies would increase economic growth in the UK to near to 3%; will ensure that the government does not over heat the economy and cause inflation; and will over 8 years remove everyone in the UK out of poverty, what is not to like?
As you failed to answer my question – Do you agree with me that the basic rates of benefits should be increased to the Joseph Rowntree Foundation’s poverty levels? I can only assume you disagree. The Liberal Democrats recognise that poverty reduces freedom and therefore we should have policies to ensure that no one in the UK lives in poverty.
Michael BG,
I thought I had been clear that economic growth generated by Conservative trickle-down and Labours high tax and spend policies both fail to address entrenched poverty.
The late Tony Atkinson spent his life studying the economics of poverty and inequality. In this 2015 article, he highlights what needs to be done https://www.thestar.com/opinion/commentary/2015/09/29/the-inequality-debate-we-can-do-something-about-it.html
“The first step is to restore the welfare state. Since 1980 there has been an unwinding of redistributive policies in OECD countries, with adverse distributional consequences.
To change this involves raising taxes. This is not easy, but I suggest a series of tax measures addressed towards reducing inequality, based on a return to progressive income taxation. On the transfer side, I argue for the raising of child benefit and the revitalization of unemployment insurance. I explore the potential of a basic income for all, a radical idea but one that has received support in the U.S. from Nobel Prize winners with very differing views: Milton Friedman on the right, and James Tobin on the left.
But reducing inequality is not just a matter of taxes and spending. Many of my proposals are concerned with the market distribution of income: what people receive in wages, interest and other forms of capital income. This means first of all addressing unemployment, and giving the reduction of unemployment the same priority as controlling inflation. Jobs, however, are only part of the story. The level of pay is important. In the EU, just half of the unemployed who find jobs earn sufficient to ensure that their families are above the poverty line. Poverty among working people is a major problem.
What about wealth? I propose a major new wealth transfer tax, with the tax based on the amount received over one’s lifetime in the form of bequests and gifts. Such a tax would contribute to achieving equality of opportunity, and the leveling of the playing field would be enhanced if the revenue from the wealth transfer tax were used to fund a minimum inheritance for all on reaching the age of 18.”
This, in short, is a summary of the policies that are reflected in libdem policy on welfare provision, jobs and the economy and the taxation of wealth to provide a learning support fund ay 18 years of age, with the Universal basic income still under discussion.
Joseph Bourke, thank you for those very clear explanations of the needs required and the policies our party has developed on welfare provision, jobs, the economy and taxation; and thank you also, Michael BG, for pursuing the details to enhance this understanding. All we will need now is the chance for our party to share in power, so that we can promote such policies for our country’s welfare. I am hopeful that after some possible temporary sliding of our fortunes we will be able to obtain that chance, even possibly within this very year.
I remember reading, possibly from a comment above, that our Leader and Chuka Umunna have discussed industrial policy together in the past, and hope they will be able to do so again once the Euro election distraction is past. Meantime, we are all fighting for the same thing – an end to Brexit through giving the people the chance to vote in a referendum once more. Thanks to all who posted in this discussion.
Joseph,
Why can’t you answer a question in your own words?
You don’t agree with everything Tony Atkinson wrote. You don’t believe addressing unemployment and underemployment should be given “the same priority as controlling inflation”. I don’t recall you writing that the higher rates of income tax should be increased to make our tax system more progressive. I have never seen you write that minimum wages should be increased to either 60% or 70% of medium earnings.
I have to assume you don’t like my policies of the government increasing economic growth in the UK to near to 3% by increasing government spending; ensuring that the government does not over heat the economy and cause inflation; and over 8 years removing everyone in the UK out of poverty.
Specifically I have to assume that you do not agree with me that the basic rates of benefits should be increased to the Joseph Rowntree Foundation’s poverty levels.
@ Joseph B,
I notice that Tony Atkinson is described as a “neo Keynesian” in his Wiki entry. In turn Wiki says about “neo- Keynesianism”
“A group of economists (notably John Hicks, Franco Modigliani and Paul Samuelson), attempted to interpret and formalize Keynes’ writings and to synthesize it with the neo-classical models of economics.”
This is where MMT disagrees. Keynes writings should be interpreted in their own right. There’s really no need to try to formulate any “synthesis” with a neo Classical model. That’s not to say Hicks and co shouldn’t do that, if they wish, but they should then drop the name Keynes and call it Hicksism or whatever.
The so-called NK ( I always read that as Not Keynesian incidentally) view incorporates the IS-LM model and the Phillips curve. MMT rejects both.
Michael BG,
if the party is going to effectively address poverty and inequality it has to be able to understand what are the drivers of these issues and have policies that will address them. Relying on economic growth or thinking you can fine-tune real growth to whatever target you think it ought to be is a recipe for failure.
Professor Sir Angus Deaton has been appointed to lead a UK inequality review https://www.fitz.cam.ac.uk/news/professor-sir-angus-deaton-leading-uk-inequality-review In speaking to the issue he comments: “Income inequality is important, but I don’t think it is as important in explaining what’s happening in Britain today, for instance, as inequality in access to education, inequality to access to health, inequality in political access. That’s an inequality of political voice, which in some ways is even worse”
These are important points for any political party to take on board.
Anthony Atkinson was a renowned economist. So too was the late Sir James Mirrlees. They differed on the optimal rate of higher taxation with Mirrlees suggesting 40% was about the right level and Atkinson (for the reasons explained in his article) suggesting it could be as high as 65%. Mirrlees, I think, provides the stronger evidence; but I am inclined to agree with Vince Cable’s assessment that the state shoud not seek to take in tax more than 50% of an individuals income.
I would make an exception to that when it comes to Land Value Tax as increases in Land Values are not generated by individul effort, skiiks or enterprise, they are generated by the community at large and are the principal driver of poverty and inequality in society.
Liberal political economy is focused on equality of access to resources and in particular equality of access to what people need to live a fulfulled life beyond the basic necessities of food, shelter and clothing; as highlighted by Angus Deaton — education, health and political representation.
Peter Martin,
Keynes himself was building on the work of earlier economists or as Isaac Newton put it in 1675: “If I have seen further it is by standing on the shoulders of Giants.”
Angus Deaton in his concluding remarks in the linked article above writes:
“I think that people getting rich is a good thing, especially when it brings prosperity to others,”.
“But the other kind of getting rich, ‘taking’ rather than ‘making’, rent-seeking rather than creating, enriching the few at the expense of the many, taking the free out of free markets, is making a mockery of democracy. In that world, inequality and misery are intimate companions.”
I think Keynes would have agreed with these sentiments.
Joseph,
Liberalism is concerned with everyone being equally free and therefore having enough money not to live in poverty, having a roof over their heads and I would add having a job if they want one. If a person does not have one of these things how are they equal with someone who does?
Please note my concern is poverty. My policies are to end poverty. There are other inequalities but I am not trying to solve them and I don’t think solving poverty would make solving other inequality problems any harder.
It appears you do not believe that a government could control its spending to achieve 3% economic growth a year (or even 2.7% if the multiplier isn’t as big as I think it is) I assume this is because you don’t believe demand drives production.
You have not clearly stated it, but I can only conclude that you do not think everyone in the UK should have enough money not to live in poverty as defined by the Joseph Rowntree Foundation.
Joe,
Of all the many laws we have the one I like the most is the “Law of Unintended Consequences”.
I am not being mischievous (for once) but could I offer these cases under LVT for discussion.
1. Company A operates, on a shoe string, in premises which are old and dilapidated, but in an expensive area. Their new land tax comes in and they can neither afford to move or pay it. They fold.
2. Company B wants to build a new plant. They could choose brownfield near a facilities and workers but the land value is high or they can grub up some nice green fields, miles from anywhere but which are cheap.
3. A couple of bright PhDs have an idea to set up a high tech company based on their University research, but rents around the Uni have soared since LVT came in so do they move far from the Uni or forget the whole idea and just get a job lecturing?
4. We are domestic residents and we decide to elect councillors who will forbid planning for any infrastructure in our area because it will stuff us when the next imputed rent review comes round. We are far better off driving to another area to shop and fly (and let them poor beggars cough the higher tax).
Ta.
@ Michael BG,
“Liberalism is concerned with everyone being equally free and therefore having enough money not to live in poverty”
I’d say it’s possible to make this argument in the UK. But Liberalism means different things in different parts of the world. In Germany ALDE are represented by the FDP who are ultra neoliberal in their economic views. They’d be appalled at our advocacy of running Govt deficits! Their economics is that of the Swabian hausfrau!
Michael BG,
UK unemployment is reported at 3.8% today https://www.theguardian.com/business/live/2019/may/14/trade-war-us-china-fears-markets-uk-unemployment-wages-business-live?page=with:block-5cda7d708f08ea3978d861f9#block-5cda7d708f08ea3978d861f9
Unemployment rates have been falling for over 5 years now. The UK employment rate has risen to 76.1% — the joint- highest figure on record.
These facts may not fit with your argument that there is a lack of aggregate demand in the UK economy, but ignoring them is not a basis for sound policy.
Despite these low rates of unemployment wage growth has barely been keeping pace with inflation.
The principal determinant on in-work poverty is how much of disposable income is taken-up by housing costs. Those in council housing generally fare better than those renting in the private sector, as housing benefit is often insufficient to meet the full costs of renting and eats into income available for food, clothing, utilities etc.
The greatest concentration of poverty in the UK is in London where housing costs are at their highest.
As more and more people enter the workforce including large numbers of women and retirees going back to work to supplement pensions, competition for scarce housing increases and rents and the need for higher levels of housing benefit are driven up.
in the post-war years, a man could house and bring-up a family on a single wage. That is no longer possible for the great majority.
Until the problem of rents is addressed these entrenched issues of poverty and inequality cannot be solved.
You cannot dictate the level of real economic growth. The government can only create the conditions for economic growth. It can target nominal growth in GDP instead of an inflation target, but the split of nominal growth between inflation and real growth is determined by the actions of the private sector and where firms decide to invest in increasing the production of goods and services.
Innocent bystander,
1. Company A – it is called destructive capitalism. Inefficient firms make way for newer more competitive businesses to emerge and make better use of scarce land resources.
2. Company B – Amazon’s new warehouse in Thurrock, Essex is a case in point where Land values are much lower than the Greater London Area. It uses a high level of robotics and working conditions are not at their best https://www.essexlive.news/news/essex-news/life-inside-amazons-essex-warehouse-834044. LVT can aid in providing some benefits to residents and workers in the local area here.
3. LVT does not increase rents. This was seen earlier when business rates were reduced or waived in economic development zones. Rents increased in these zones to soak-up the government subsidies. Rents are based on what the market will pay irrespective of what taxes individual landowners are incurring on their income from land rentals.
4. It is something of a fallacy that local councilors can prevent developments. If a development meets national planning law and is consistent with approved local area plans, councilors have no powers to prevent the development from going ahead.
Joe,
Many thanks. Not a very cheery prospect. I thought I was a bit of a capitalist but it looks like LVT takes no prisoners. Goodbye green fields and struggling little companies. Margaret is looking down benignly.
I am still unsure of 3). If land is taxed to the point where its value does not allow the owner to charge a worthwhile rent then the land wasn’t worth its imputed value in the first place. He needs to sell or rent it to someone who is one of these ‘productive’ types who will take a gamble on being able to pay the LVT and still come out in profit.
No one is obliged to be a wealth creator. If this tax is misapplied it could wipe out a lot of little people and frighten off new ones.
Land values take a big hit. Pensions and banks are forced into write offs and we all suffer. But as you said, that’s ‘destructive capitalism’!
It seems to not just encourage ‘productive land occupiers’ but need them to avoid catastrophe. What happens if they don’t come forward?
@ Katharine Pindar Hope you had a good day thinking about your Mum, Katharine.
This coming Saturday (18th) is always a sad one for me. 41 years since we lost Dad….. far too young…… the war pushed him far too hard and knocked far too much out of him. I do
miss his grin when Town score a goal (sadly, not very often these days) – and I still wonder at his courage which I’ll never be able to match. Aye, and he was a proper Liberal.
Innocent Bystander,
when considering market rents we have to take the combined cost of rent paid to the landlord and business rates to the government. If business rates are 25% of current contract rent and the Landlord now pays them he will increase his contract rent by 25%. The occupier is paying no more than previously. Instead of paying a cheque to the Landlord and another cheque to the local authority he pays one cheque to the Landlord and the Landlord pays the local authority.
The Landlord will always charge the highest rent the market will allow. The tenant is making the same decision as before – can I run a profitable business from this location taking into account the occupancy costs?
Undeveloped land has no production or maintenance costs – it is only the improvements (buildings) that incur running costs and these are not assessed to LVT.
A Landowner with a mortgage may have interest costs to service. As with rents, interest has no cost of production – it is a function of the supply and demand for commercial loan funds and is set on the basis of what the market will bear.
The outcome is that the producer is paying a rent for a location from which he determines he can run a profitable enterprise. That element of the rent that relates to Land is assessed to LVT. The commercial mortgage providers share of land rents extracted by way of interest charges is restricted by market forces.
The ultimate determinant of what rent is paid (and the LVT thereon) and consequently the interest cost that a Landlord is willing to pay for finance is the tenant.
The tenant will base his decision on the prices his customers are willing to pay for goods and services which in turn is based on competitive market forces.
The bottom line is that it is market forces that will determine prices for goods and services, rents and interest costs on commercial mortgages. None of this changes with LVT – what does change is the relative share of economic value added that is extracted by Landowners and finance providers.
Joe,
Many thanks again.
As I read you seem to say if LVT is assessed as the same as rates no one loses out?
If, however, LVT is higher than the rates then the landlord has to charge the occupier more or find a new occupier who can afford it?
If the landlord can’t, he still has to pay the LVT but with no income. This must mean that the land has a lower value than assessed and he will have to wait until the assessor returns next year,
It all works fine if lower productive tenants can be replaced from an inexhaustible (but non existent) pool of higher productivity ones. I am sure all will find its own level after a decade or two (of massive disruption and losses) and LVT will then be the norm.
This all has echoes of other debates I have had wherein economic plans appear to assume an equally vast pool of energetic high tech entrepreneurs straining at the leash to start exciting businesses (so they can pay a lot of tax).
I sense that the UK is on brink of an economic calamity brought on sooner and made worse by Brexit. My advice would be to leave LVT alone. It may have benefits. They won’t come immediately. There will be major teething troubles and the underlying problems remain. Our high tech start ups are few and are quickly gobbled up. There is no sign of any indigenous, science based industrial dynasties emerging at all, and all the political parties can offer are word for word repeats of initiatives which have tried before at least six times in my lifetime and all have failed.
But thank you anyway. I enjoyed the discussion.
Innocent bystander.
it is not really what I am saying. I spent many years in the hotel and property management business. You sell hotel rooms at whatever price you can get. Ideally at full price, but any rent you get over and above the costs of cleaning the room adds to your profitability. An unsold room night is a lost oppurtunity.
Landlords are the same. Empty properties bring in nothing. If you try to increase your rents because taxes go up you may well have no tenants and no income. So ultmately rents are determined by what the market is willing to pay and what income you can get above your variable costs.
The difference with land (and interest) compared with produced goods and services is there are no production costs. Land rents like interest rates can rise and fall with supply and demand. Rents in major towns and cities are almost always increasing.
A shift to land value tax (a tax on rents not property values) can be and ideally should be accompanied by a reduction in taxes on wages and busiess profits. This shifts part of the burden of taxation from producers and wage earners to Landlords and financiers. The objective is to increase the after-tax income of employees and producers and shift more of the tax burden to Landowners and financiers. As Angus Deaton puts it is taxing ‘takers rather than ‘makers’, rent-seeking rather than creating.
You are right to say that such a shift would involve a transition period to bed-in the changes but every journey starts with the first step.
Liberal Democrats should be the party of small and medium size business. I see LVT as an essential element in supporting the creation of productive businesses in the UK with taxes on productive activity low enough to allow firms to compete effectively in International markets.
Peter Martin,
Indeed I was taking about modern British liberalism.
Joseph,
You must know by now that the current unemployment level does not impress me. Earlier together we identified 7.9 million people are working 30 or fewer hours, some of whom would want to work more hours (see above). I also mentioned the 1.34 million people unemployed of which 347,000 have been unemployed for over one year. Then there are the nearly 2 million people on ESA, some of who would like to work.
I also set out the Budget book economic growth figures of 1.6% for 2019 (this might be a bit low), 1.4% for 2020, 1.4% for 2021, 1.5% for 2022 and 1.6% for 2023.
Between 1949 and 1972 UK average economic growth was 3.45% a year; between 1976 and 1979 is was 3.3%; between 1993 and 2007 it was 2.98%. Please can you therefore explain why you think 3% economic growth a year is an unrealistic aim?
Even you must accept that if the government spent 1% of GDP on building houses (excluding land) this would increase GDP by at least 1%.
As I have stated businesses increase production if they believe there is the demand for the new production. Therefore demand pushes production. It would be a very silly business with increased its production if it did not think there was demand for the extra items being produced.
Do you understand that the poverty level as defined by the Joseph Rowntree Foundation excludes housing costs, so rents and land prices are not relevant to the idea that everyone in the UK should have enough income before housing costs not to live in poverty.
Why do you find it so hard to state that we should ensure that everyone in the UK should have enough money not to live in poverty as defined by the Joseph Rowntree Foundation?
@ JoeB,
“……. The government can only create the conditions for economic growth.”
Maybe it can do a bit more than that, but, anyway, what does “create the conditions” mean? For a start it needs to understand some simple numbers.
3% growth means 3% more spending in real terms.
A 2% inflation target means 2% more nominal spending.
3+2 = 5 to give us 5% more spending from one year to the next. So where is that spending going to come from?
It can only come from net private sector borrowing, government spending, or exports.
The system in the UK is far too reliant on the first option. I’d say it was totally reliant. When we have high PS borrowing we have reasonably good growth. 3% or so. I think we’d both agree that if we tried for more there could be an inflation problem. When the net private borrowing slows or stops our growth slows or stops with it. That’s not just an opinion. Go back and check the historical record if you disagree.
The question we have to ask is do we want an economy which is totally reliant for growth on the level of private sector borrowing?
Joe,
Many thanks again but this LVT could be a very brutal system. The government will have to assign a notional value to every square metre of UK territory. The owner then pays a tax on that. If the owner can find some activity sufficiently beneficial to pay the tax, well and good, If they can’t they will have to pay out of their reserves until they declare bankruptcy. They need to find some who will buy it off them who has a productive idea which can fund the new tax and make a profit. If no such pool of clever dicks exist (I don’t believe it does) the landlord’s creditors (the government) takes ownership but they have the same problem.
Ah! but they can reduce the tax until plausible activities on that land can become profitable again.
Can I hear someone shouting “Foul ! ” somewhere?
I have no confidence that our corrupt and incompetent political leadership could introduce LVT in any other way than as a complete omnishambles and I foresee huge tracts of Britain turned into a giant Flint, Michigan, with abandoned, derelict homes and industrial sites.
Joseph, you wrote, ‘Until the problem of rents is addressed these entrenched issues of poverty and inequality cannot be solved.’ (May 14, 6.09 pm.) You were focusing on the fact of high housing costs contributing so much to poverty. Do you see Land Value Taxation as a major way forward to solving this enormous problem? Can investment in housing for speculative purposes, rather than to provide homes which people can buy or can rent with some security of tenure and cost, be deterred?
Michael, I understand that you think that our economy could grow to 3% per year GDP and this would unable the Government to implement measures to relieve poverty. However I have been puzzled in this discussion by phrases like ‘lack of aggregate demand in the UK economy’ cited by Joseph, and would be grateful if you would give a simple explanation here of how you think the 3% growth rate can be achieved, since the forecasts are for no more than 1.6%. I thought this was to be concerned with Government investment, but there is also a phrase I think you used about reining in Government spending, so I am confused. We have such need to tackle poverty and inequality, that it will be good if our party is well informed and agreeing on the necessary steps forward.
Getting rid of (or reducing) poverty – won’t happen by LVT or trickle down from 3% “growth”.
The former is complicated and would get lost in a mire of parliamentary objections which would make Brexit look like child’s play. It pre-supposes a Liberal Democrat government and the abolition of the House of Lords – all before breakfast.
The latter is clearly hazardous given Brexit and the Lib Dem Party that voted for austerity would have to perform a gymnastic somersault.
Just to begin it would need the Lib Dems to return to their former Keynesian and Beveridge heritage – and talk constructively with both the Labour Party, the SNP at Westminster (and Plaid and the Greens) in the devolved Assemblies. It would also need a radical look at Corporation Tax, Income Tax and Non Dom status as well as generous support to Local Government to restore Social Care and programmes such as Sure Start.
There’s plenty of evidence around – what’s lacking is the political will. As far as the Lib Dems are concerned it would help if senior spokespersons expressed and showed a bit more interest and entered dialogue with such as the Rowntree Trust, Shelter and the Cyrenians.
Google this for starters :
Why UK child poverty targets won’t be met – BBC News
https://www.bbc.co.uk/news/uk-47697757
9 Apr 2019 – Twenty years ago, the Labour Party pledged to end child poverty
Michael BG,
you need to deal with facts. Unemployment is at 3.8%, the employmnt rate is at 76.1% – the highest rate on record, public and private sector employers are reporting staff shortages across every sector of the economy. Thinking that housewives bringing up children or pensioners doing some part-time work to supplement pensions are going to suddently fill the 40,000 nursing posts the NHS or start working on building sites to build housing is wholly unrelistic.
GDP growth has been sub 2% since the financial crisis (except for 2014 and 2015 when it was 2.9% and 2.3% respectively). This is during a period when government debt financing has increased by over £1 trillion to £1.8 trillion (83% of GDP) and household borrowing has increased to £1.8 trillion from £1.4 trillion in 2008.
Peter Martin asks “do we want an economy which is totally reliant for growth on the level of private sector borrowing”? However, £1.6 trillion of household borrowing is for mortgage debt and only 5% of mortgages fund new build. The great bulk of mortgage financing relates to existing housing purchases. Purchase of existing housing adds nothing to GDP and the borowing is driven by increases in the value of land not buildings.
So neither increased government borrowing of £1 trillion or increased household borrowing of £400 billiion has consistently driven GDP growth over the 2% level.
Increasing government spending does not increase GDP. It merely reallocates capital and labour resources from the private sector to the public sector. To build more social housing workers and equipment need to be transferred from builing high priced apartments in Cental London and other cities to building affordable housing or workers and equiment imported from abroad. This is a necessary policy but does not generate economic growth – it is a transfer of resources from the private sector to the public sector. Similarly to hire more nurses they need to be drawn away from private sector employment of filled with immigration. More immigration increases the need for public sevices and the costs of funding. It adds to economic growth but not per capita GDP leaving no significant extra funding available beyond the costs of providing for the needs of a larger population.
Innocent bystander,
LVT works in a similiar way to business rates and property taxes in the USA. It is assessed on the basis of rental values (not land values). Rents and the property tax base in Flint, Michigan (like deindustriled areas of the UK) have fallen dramatically.
The main difference with LVT is that it does not assess tax on improvemets to Land (the buidings). Tax receipts as econmic activity and rental values increase. The receipts fall where economic activity and rental values are in decline.
We can’t do anything about a corrupt and incompetent political leadership other tha vote them out and replace with a Liberal Democrat dominated government (PS Labour are on board with LVT).
Katharine,
the economic basis of LVT is that you cannot address entrenched poverty with social security payments or trickle down growth. The reason is that no matter how much social security or wages grow, the lions share will be sucked up by rents or servicing mortgage repayments. It is a case of the dog chasing the tail. wages increase and rents go up. Housing benefits have to increase to pay increased rents. As housing benefits increase this pushes up rents again and so on.
Winston Churchill gave a good example http://www.landvaluetax.org/current-affairs-comment/winston-churchill-said-it-all-better-then-we-can.html
“Some years ago in London there was a toll bar on a bridge across the Thames, and all the working people who lived on the south side of the river had to pay a daily toll of one penny for going and returning from their work. The spectacle of these poor people thus mulcted of so large a proportion of their earnings offended the public con-science, and agitation was set on foot, municipal authorities were roused, and at the cost of the taxpayers, the bridge was freed and the toll removed. All those people who used the bridge were saved sixpence a week, but within a very short time rents on the south side of the river were found to have risen about sixpence a week, or the amount of the toll which had been remitted!
And a friend of mine was telling me the other day that, in the parish of Southwark, about 350 pounds a year was given away in doles of bread by charitable people in connection with one of the churches. As a consequence of this charity, the competition for small houses and single-room tenements is so great that rents are considerably higher in the parish!
All goes back to the land, and the landowner is able to absorb to himself a share of almost every public and every private benefit, however important or however pitiful those benefits may be.”
LVT seeks to funds welfare provision like housing benefit from the increased rents rather than taking yetmore taxes out of wages and it seeks to increase the supply of land that is developed or brought into productive use by ensuring there is a cost to holding scarce land resources out of use.
Joe,
Thank you again. I feels we are in violent agreement. My quibble is in the real world difficulties. The government is, in effect, setting the rent that each metre of land can achieve in its initial assessment. Not a small task. Not one which could be concluded without
sorry..
…. substantial argument and challenge (for everywhere mind).
Not only that. The process is continuous as an activity as innocuous as someone handing out “Mother’s Pride” can change the rental value for miles around! The tax values of the land at Flint have only fallen because they have been re-assessed lower. When? If it had been done sooner could some businesses and households have survived, or was the lag financially fatal? How many assessors will we have? How often will they have to redo the UK?
In contrast I expect Wiltshire Council only assessed the Rateable Value of Stonehenge once (when it was built) and haven’t since. But my house has only been assessed once either (I agree it’s not as old).
David Raw,
Keynes was concerned with macroeconomic measures to bring an economy back to its natural equilibrium state of full employment. The basis of his theory is that all spending is someone else’s income. If households and firms lacked confidence they stopped spending and investing (the paradigm of thrift). Keynesian effective demand theory was based on restoring confidence and reviving entrepreneurs ‘animal spirits’ so that full employment could be regained. Keynesian and macroeconomic theory, in general, has little to say about the distribution of value among the various factors of production in the economy.
The Beveridge welfare state was based on a presumption of full employment which he defined as a condition where the numbers claiming unemployment benefit were roughly equal to the number of vacancies in the economy i.e. where we are right now. This article discusses why Beveridge failed to tackle the problem of rents https://www.theguardian.com/housing-network/2012/nov/22/beveridge-problem-rent-welfare-reform. It has been left to us to do so.
To effectively address poverty and inequality in the UK requires a holistic approach to investment in infrastructure, housing and investment in new technologies to increase wage growth and productivity. While taxes need to be increased to fund welfare provision these should come predominantly from where the lions share of investment-driven economic growth ends up – in rents and mortgage interest payments.
innocent bystander,
the infrastructure for rental assessments is already in place with the Land Valuation Office. At present Business Rates are on a five-year valuation cycle but this is being reduced to three.
With the advent of Geo-spatial computer modelling, it is likely that much of the rental assessments can be conducted annually in the future – much as self-assessment returns are processed today.
The council tax valuations were done in 1992 many being drive-by valuations by surveyors to put them into council bands. With the data available today at the Land Registry property sites like Zoopla can come up with a continuously amended valuation for housing properties.
While commercial rents may vary significantly based on the improvements that have been constructedn on the land, underlying land rents should be much more consistent based on location and planning consents thereon.
@ Joe Bourke
If Winston Churchill – a man of fluctuating political loyalties – was so keen on LVT in 1909, and if it was so simple to get through parliament, why didn’t he introduce it when he was a peacetime Prime Minister in the early 1950’s ?
Joe,
“all spending is someone else’s income”
Exactly correct. And all British spending is welcome income for the Koreans, Chinese, Saudi Arabians, Germans, French etc. Are the Magic Beans of Maynard Keynes still a sound plan?
“firms ,,,, stopped spending and investing” For UK based firms, over many years now, they have stopped actually existing. Thus a Keynesian plan for Britain will benefit everyone (except the British).
Joe,
A drive by evaluation 30 years ago won’t do for this system. A full annual appraisal is a minimum requirement, not a target. Zoopla valuations are utter nonsense and are simply the last price this house achieved (from the Land Registry) + n% per annum. We keep our eye on house values around here and Zoopla is nowhere near accurate on real prices achieved.
Any algorithm based system can be gamed and manipulated.
Still, I don’t disagree that LVT could be applied. Somehow or other, over time, we will get used to it. After it has settled down (at least 10 years maybe more) we may even like it.
It’s just that there will be major disruption, many casualties both business and domestic and we really don’t need it. The fundamental problems are not tackled. With either LVT or rates we are in desperate need of energetic modern businesses so we can bequeath our children means of earning a living in a highly competitive world. LVT is being touted as a magic panacea. My prediction is that the benefits will be seen, in time to have been disappointing and nowhere near as transformative as its proposers promised.
Thank you David Raw for the link which clearly points out the link between the number of people living in poverty and the level of benefits they receive. If the amount people receive in benefits were more of course fewer people would be living in poverty. The Joseph Rowntree Foundation definition of a poverty income excluding housing costs seems a good level to aim benefits to be at. Housing costs should be covered by housing benefit and our party already has policies to increase these and I am calling to go further by restoring the Local Housing Allowance to the pre-2010 real term levels and then to the 50% percentile level.
Katharine,
Looking at the 2018 budget book we can see the deficit falling from £37.1 billion in 2018-19, £33.9 in 2019-20 down to £21.4 billion in 2022-23. I think that the extra 0.2% of economic growth for 2019 over 2020 is due to this extra government expenditure. The reasons that economic growth is forecast to be only 1.4% in 2020 and 2021 is because that is all businesses will grow by.
From the earlier discussion on how GDP is measured we agree that:
GDP = Household spending + Business Investment spending + Government spending + Net exports
(excluded from government spending are transfer payments).
Therefore if the government spends £12 billion on building something this increases GDP by £12 billion. The extra spending before it is spent is demand, so we can say that aggregate (total) demand in the economy has grown by £12 billion. I have stated that I believe 1/6th of this figure will result in even more demand in the economy (the multiplier affect). Therefore total demand has increased by £14 billion. The issue is can the economy actually produce this £14 billion of extra things. I believe that history shows us that the UK economy can produce an extra 3% of things each year.
If it is forecast to only produce an extra 1.4% then government spending can increase demand by the extra 1.6% so 3% is actually produced.
Now I am not saying that the government should spend an extra £24 billion more on things. I am saying that £10 billion should be used to increase benefit levels. By giving the money to people total demand is still increased and the multiplier affect still happens. Therefore this £10 billion should create £11.67 billion of extra demand.
I hope this helps.
Joseph,
The total debt size is not relevant to this discussion. So what you are saying is that the UK economy can no longer grow at 3% and that 1.6% is the best we can do. Do you have any evidence that if aggregate demand in the economy grew faster there would be any inflationary pressures? I think you have been saying that unemployment can’t be reduced any more for months but it has. There are still millions of people (excluding pensioners) in the UK who would either like to work more hours or have a job but don’t.
Unemployment is not at a historical low. It has been below 3.8% in the all the years between 1948 and 1971. The lowest figure was 1.2% in 1955, reaching 3.5% in 1971. It was 2.5% in 1967, 1968 and 1969, between 1952 and 1958 it was below 1.8% being 2.2% in those years. Even in the nineteenth century it was below 3.8% between 1889-92 and 1896-1902 (figures from ONS).
You are wrong, increased basic benefits can help relieve poverty. If this was not the case the reduction in benefit levels would not have increased the number of people living in poverty in the UK. Your faith in LVT seems to have blinded you to the idea that benefit levels excluding housing costs are far too low.
It would be interesting to see how rent levels would be effected if 3.1 million more social homes were available for rent and if more houses to buy were being built. Land for building houses continues to increase, but homes are not being built to meet demand. Housing prices and rent levels are dependent on supply and demand just like other things not a basic shortage of total land in the UK.
Innocent Bystander,
the LVT system is in use in Canberra https://www.revenue.act.gov.au/land-tax for residential properties that are not used as principal places of residence, including all residential properties owned by a trust or corporation.
The amount of land tax you pay is made up of two components: a fixed charge and a valuation charge. The fixed charge for land tax is AU $1,203.
The valuation charge is calculated by applying a rating factor to the average unimproved value (AUV), which is the average of the property’s unimproved value over the last three years. Together, the fixed charge and the rate of the AUV add up to the total land tax amount for the year, which is then billed over four quarters.
There is a calculator that taxpayers can use of the government website to get an estimate of the LVT on any property/plot.
LVT does not solve all problems, but it does start to address some of the fundamental inequities in the tax system between earned and unearned income.
I don’t disagree that fiscal stimulus is counter-productive in a full-employment economy such as we have today. Neither fiscal or monetary policies will address the structural issues that exist. We do, however, need an integrated approach that addresses investment in infrastructure, housing and investment in new technologies to increase wage growth and productivity. Equally, we need to be able to reorganize our tax system in such a way that UK firms and entrepreneurs producing goods and services can compete effectively and thrive in both domestic and International markets.
David Raw 15th May ’19 – 11:47am
Google this for starters ………………………Why UK child poverty targets won’t be met – BBC Newshttps://www.bbc.co.uk/news/uk-47697757
9 Apr 2019 – Twenty years ago, the Labour Party pledged to end child poverty…………
What it shows is that, in both relative and absolute child poverty, the first 10 years, under Labour, saw a major fall; the latter 10 have seen little change (despite May’s claim at PMQs that all is well)
Michael BG,
Japan averaged double-digit growth rates in the post-war period until the early1990s when its real estate and stock market bubble burst. It has been trying to revive its economic growth with Fiscal and monetary stimulus for the past three decades with limited success.
“Zombie” companies that should have died years ago were allowed to remain, partly because banks didn’t want to take the write-off, and partly because putting people out of work is seen as failure. Its unemployment rate is at 2.9%.
Its big companies, faced with a stagnant domestic market and aging population, decided to invest overseas, particularly in China, instead of domestically. That’s great for the tiny portion (about 11%) of the population that owns stock, but does nothing for the average family.
The UK started using the Labour Force Survey in 1973. Prior to that unemployment stats were based on the claimant count. Unemployed married women were not generally counted. Taking into account married women who considered themselves unemployed the unemployment figures today are similar to those of the late sixties.
The lowest unemployment figures in the world are in subsistence economies like Cambodia where there is no social security or Oil rich states like Qatar where many don’t need to work.
Welfare benefits in the UK were cut on the basis of economic failure. Addressing this economic failure with the investment that is required to grow the economy and making taxation more equitable is what will provide the income to restore welfare benefits in line with earnings growth.
Shelter’s program for building 3.1m homes is based around Land Value Capture and reform of the 1961 Land Compensation Act https://blog.shelter.org.uk/2018/09/another-step-towards-land-market-reform/
“If we want to end the housing crisis and solve the problems that we see every day in our services around the country, then we simply must build more genuinely affordable homes. Unfortunately, when land prices are sky high it’s affordable housing that feels it hardest. If land is priced as though it will be used for luxury developments, we shouldn’t be surprised when we don’t even get close to meeting housing need.”
Joe,
Thank you again for your thought out reply. We may have to go our separate ways on LVT. If adopted, I am sure the British people will come to terms with it and live with it. They will find loop holes and work arounds but it still may make the “start” to which you refer. I’m sure it hasn’t turned Canberra into any sort of paradise and it won’t wreak a miracle here either.
Your last bit about UK firms and entrepreneurs is my great interest. Upon that problem hangs everything and the particular form of property task is a small detail.
No political party has any offering apart from the banal, the trite and the tried before. My own view is that drastic action is needed at national emergency levels of severity and scope.
@ JosephB,
“…….you need to deal with facts. Unemployment is at 3.8%”
If that’s a fact then it’s also a fact that I’ve got fairies at the bottom of my garden. Working one hour per week is not being employed on any sensible interpretation of the meaning of the word.
https://www.bbc.co.uk/news/uk-46264291
“Japan averaged double-digit growth rates in the post-war period until the early1990s when its real estate and stock market bubble burst”
Growth was slowing before that. That was OK. It’s not realistic to expect such high rates of growth indefinitely. But, yes things were going well, at least superficially, when the level of private sector borrowing was high. But the danger is that bubbles burst and debt deflation sets it. Japan had its 2008 type crash earlier than the rest of the world – that’s all.
Focusing on high land values is focusing on the just one symptom of the problem rather than the problem itself. This is an over reliance on private sector debt to drive economic growth. Govts love a credit boom. Temporarily, it creates high growth levels at the same time as their fiscal policy seemingly ticks all the boxes of financial respectability. They are a neoliberal wet dream.
The big problem is we don’t seem to be able to learn from our mistakes. It’s still happening.
https://theconversation.com/i-predicted-the-last-financial-crisis-now-soaring-global-debt-levels-pose-risk-of-another-84136
Well, thank you, folks, for these further helpful comments. I am left with some hopeful feelings. Particularly if Brexit is stopped, I suppose there will be more possibility of productive Government investment, and of personal investment as well, to grow the economy. I suppose, Michael, that if still more workers get extra work there will be more Government income from taxation. And so there should be capacity to grow our depleted services and enhance the welfare payments, actions so much needed.
It does appear that your Land Value Taxation should be gradually introduced, Joe (even though it is the rent of land not the actual land value, apparently, that is to be taxed) . We do have useful taxation policies already, David, including equalising the tax treatment of income from wealth and income from work: but you are surely right that we shall need to talk to the nationalist parties as well as Labour and Change UK about introducing such progressive policies when the party upheavals begin in the next few months. (Thank you also, David for your earlier friendly comment, and I will think of your memories also on Saturday.)
The reason why I have been able to catch up with people’s comments is that the party leaflets to deliver to Remainers in West Cumbria have yet to arrive! We trust we shall have them tomorrow, and then the beavering about our towns and villages will commence at last. Let’s hope other areas have had the leaflets sooner.
Peter Martin,
we have discussed employment stats above. Brits work longer hours on average than their EU counterparts. ONS data shows that the number of people usually working six hours or fewer a week is just 1.4% of the UK working population – or just over 400,000 people, which compares with a total of 32.4 million people in work. In fact, that’s a drop from 1.8% at the start of the century. So, the share of people working very short hours has actually fallen, which suggests zero-hour contracts are not distorting the headline employment numbers.
I would agree that it is the growth in household debt and not public debt that is a threat to continued economic growth. As your linked article notes “There was a runaway bubble in asset markets caused by too much credit being created by banks.” and “I don’t expect a crisis in the US and UK in the near future. I do expect stagnation like that which Japan has experienced since its asset bubble economy burst back in 1990.”
This is consistent with the IFS analysis https://www.ifs.org.uk/publications/13302 “While the economy has been growing for eight years now, it has been growing only slowly by historic standards. While the government’s deficit, which ballooned to record levels by 2010, is now relatively low, public debt is double its pre-crisis level relative to the size of the economy. The crisis precipitated what has proved to be a big and permanent hit to the size and structure of the UK economy. It affects our incomes and the tough choices we face today.”
Japan is a nation of savers and with little alternative outlet for investment of surplus savings the government recycles domestic savings in the economy rather than taxing them away.
The UK household savings rate is at a historic low. As the IFS report concludes:
“The UK economy has broken record after record, and not generally in a good way: record low earnings growth, record low interest rates, record low productivity growth, record public borrowing followed by record cuts in public spending. On the upside employment levels are remarkably high and, in spite of how it may feel, the gap between rich and poor has actually narrowed somewhat, but the gap between old and young has grown and grown. With public debt twice its pre-crisis level, economic growth remaining sluggish and the population ageing rapidly there will be no shortage of tough decisions over the coming decade.”
Joseph,
Japan’s economy has grown in every year since 1994 accept 1998, 1999, 2008, 2009 and 2011. Japan’s national debt was reduced in 2006, 2007, 2015 and 2017. Therefore I can only concluded that your overview of the Japanese economy is incorrect. Inflation was not a problem in 1998 (0.6%), 1999 (-0.3%), 2008 (1.4%) and 2009 (-1.4%). Interest rates were 0.5% in 1998, 1999 and 2009 and 0.75 in 2008. However during this time banks were not lending enough. Therefore monetary policy could not reflate the economy. Looking at the figures the situation would have been a lot worse if the government had not run large budget deficits.
In the UK there are: 7.9 million people who are working 30 or fewer hours, some of whom would want to work more hours; 1.34 million people unemployed of which 347,000 have been unemployed for over one year; and nearly 2 million people on ESA, some of who would like to work. What I forgot to mention in addition to these human resources is the idea that increased production could come about through increased productivity rather than longer hours or employing more people. Therefore if you believe that the maximum economic growth we can have is only 1.6% you are mistaken.
In the Shelter report I didn’t see any call for the average £10.7 billion needed to build the social houses coming from Land Value Taxation. The funds come from the £62 billion capital spending and £21 billion housing benefit budgets. The link you provide is mainly about the reforming the 1961 Land Compensation Act.
Party policy is to replace “Business Rates in England (currently set at a rate of 49.3p per pound) with a Commercial Landowner Levy (CLL) set at a rate of 59p per pound but based solely on the land value of commercial sites … over 4 years”. According to the paper “Replacing Business Rates: taxing land, not investment” the introduction of CLL in England will cost £1.375 billion a year and £49 million in Wales. Therefore the introduction of CLL will not provide any funds to transfer to the poorest in society.
Joseph,
I note you failed to provide any evidence for why you think UK economic growth has a ceiling of 1.6%. You have failed to address the point that there is a relationship between benefit levels and the number of people in the UK living in poverty, or what the basic benefit levels should be in relation to the Joseph Rowntree Foundation poverty income excluding housing costs or even what the effect on rents for housing would be if 3.1 million more social homes existed.
@ Joseph,
If the effect of zero hours contracts on employment figures is as low as you suggest, why set the threshold at such an absurdly low level? ie 1 hour. I’m sure it would make very little difference to the total numbers if it was set at 2 hours or even 5 hours. Nevertheless it is an strong indication (as if we really needed one!) that the overall intention isn’t to collate accurate numbers on the extent of unemployment in the economy, but to minimise, for political purposes, its total extent. If ‘they’ are so determined to use the 1 hour threshold to shave a tiny bit off the numbers, what else are they up to? I’m sure we all know some of the ‘tricks of the trade’ in that respect! ‘We’ make sure that life is as difficult as possible for anyone having the temerity to claim they are unemployed. ‘We’ say they are too young to qualify, or too old, or too sick, or their partner earns too much, or whatever can be thought of.
In the midst of a lot of talk on percentages, we tend to lose sight of the total numbers. Even with all the efforts to massage the numbers downwards, we still have over 1.5 million unemployed. That about 400k more now than when Mrs Thatcher famously won the ’79 election on the slogan of ‘Labour isn’t Working’.
I’m sure we don’t really need any more evidence of the neoliberal leanings of the IFS. Nevertheless, I might just highlight the use of the terms ‘ballooned’ and ‘record’ in “While the government’s deficit, which ballooned to record levels….”
They aren’t record levels in GDP terms. This is the picture of UK national debt since its inception in 1692. It’s really quite modest at the moment.
https://www.economicshelp.org/wp-content/uploads/2017/09/uk-debt-1692-2017.png
If ND was such a bad thing then it should have been Napoleon who won 200 years ago! To take a leaf out of the neoliberal text book we can liken it, on the basis that ND =100% of GDP, to someone with an after tax annual income of £60k who also owes £60k but at the same time he has assets of a house and other investments of over £600k. Is this person going to lose any sleep over that?
@ JoeB (cont)
Japan has over double the extent of UK debt. You seem to think that this is OK because it is the Japanese themselves who are, largely, the savers rather than the Bundesbank and other central banks who are, more typically, the overseas savers in the UK. Is this an advantage? In any bank, which is effectively what govt is, there is always going to be a problem if the savers want their money all at the same time. It’s going to be much easier for the UK govt to negotiate with a group of central banks than it will be for the Japanese govt to negotiate with millions of savers. Especially when they have votes in Japanese elections.
Michael,
Joe has provided no evidence re growth because you didn’t either. I asked you, specifically, how you justified the number “3%” and from which economic sectors it would come and your reply was “the multiplier effect” and “everywhere”.
You may as well have replied ” Dark Matter” and “Sooty’s Magic Wand”. I am sorry to be so clear but all a boost in govt spending will do is suck in imported consumer goods. If British suppliers are closing and moving now because they can’t compete with the Korean, Chinese and German onslaught how do they suddenly improve after some random government largesse?
@ Innocent Bystander
“…..but all a boost in govt spending will do is suck in imported consumer goods.”
Not necessarily. Trade is essentially about swapping something that is of value to us in return for something that is of value to someone else. It doesn’t really make sense for Korea, China, Germany or anyone else to supply us with more goods and services in return for a lesser value of goods and services year after year. What’s the point?
If they want to do that then fine. Just let them get on with it. But if we are worried about the longer term imbalances that could be building up, maybe we could point out to them that all they are really accumulating are digits in a BoE computer.
“What’s the point?”
Put down the book and look out of the window. They are using the receipts to buy up our housing stock and infrastructure to provide income streams for decades to come.
In the case of Hinkley Point C we are actually paying them to buy up our infrastructure.
You have to laugh.
Economists obsess about “money” and you are right – it is just digits. One of the clever ones should invent a unit of “wealth”, independent of money because these foreigners are not stupid after all. They are using their economic success to take everything worthwhile which we own, not sacks of printed paper.
Our land, our homes, our infrastructure and the tools we use to provide for ourselves. are all disappearing because of our refusal to confront our economic failure but we console ourselves with some Keynseian Hocus-Pocus numbers because we dare not look at reality.
@ Innocent Bystander,
You’re right about Hinckley Point, and also Huawei, where they are clear security implications.
There will always be wealthy overseas potential buyers of UK property. Not wanting to expand our our own economy, for fear of increasing imports, isn’t going to deter them from buying up already expensive property in London and keeping it empty. That has to be tackled using residential status and Nationality laws.
Peter Martin,
I am not suggesting that zero hours contract use is low, I an quoting ONS statistics on numbers and the decline in the % of the workforce working 6 hours since the start of the century. The LFS is an internationally agreed methodology to make employment stats comparable across different jurisdictions, not some neo-liberal conspiracy to understate unemployment.
Excessive borrowing for either consumption or land speculation in the economy leads to economic instability. This is the case with household borrowing or where the government (acting as an agent for households) engages in excess borrowing to fund consumption rather than to invest in assets that produce economic benefits and skills development. The only time fiscal stimulus should be used is to when demand in the economy needs a boost to reverse a recession and put the economy back on a growth trajectory. This is normally a relatively short-term operation.
The real economy and our income is what we produce not the nominal value of the medium of exchange. Money and credit influences consumer behaviour and levels of demand in the economy. It is not of itself real income in the form of goods,services and assets.
The author of the article you cite above writes “I don’t expect a crisis in the US and UK in the near future. I do expect stagnation like that which Japan has experienced since its asset bubble economy burst back in 1990.”
Many economic commentators make a similar argument (including the IFS) that the UK is quite likely to experience a long period of sluggish growth/stagnant economy that Japan has seen since the early 1990s. Japan has injected an enormous volume of fiscal and monetary stimulus into their economy in recent decades just to stave off deflation as banks and borrowers gradually work their way through deleveraging the credit bubble that was created in the 1980s. Their economic growth has been lower than International competitors for several decades now.
I believe that simply enlarging an already failing economy is a fool’s paradise.
I further believe that we need to make our economy better, not bigger and that is a thousand times more complex and difficult task which we haven’t even begun to discuss seriously. The only solutions offered are to throw more money at a nation which has a long track record of wasting it or trivial tax tinkering or cosmetic business support solutions.
Innocent Bystander
I did provide lots of evidence. The evidence of history, the evidence of GDP and how government spending can increase it and the evidence of the percentage of GDP which are imports.
It is impossible for 100% of government spending to be spent on imports, this is because some materials would come from the UK and the labour would be in the UK. Once the government has spent the money I have said that I only expect 1/6th of this to be spent on UK produced goods and services. It is not that I have not provided evidence, it is that you do not seem to recognise how the economy works.
Joseph,
It good to read that you agree with me when I wrote, “Looking at the figures the situation would have been a lot worse if the government had not run large budget deficits”, when you wrote, “Japan has injected an enormous volume of fiscal and monetary stimulus into their economy in recent decades just to stave off deflation”. It also seems that you are arguing against your own belief that a “fiscal stimulus … (should only be) a relatively short-term operation” as Japan has been doing it for over 20 years.
Indeed the UK will have sluggish economic growth if you believe that 1.6% is the maximum it can grow, even where history shows us this is not the case. Our sluggish economic growth is the result of Brexit and the failure of the government to stimulate the economy enough to provide the conditions for businesses to invest in improving productivity. The government needs to target some of its expenditure into regions with the highest unemployment, increasing out of work benefits would do this, as would a job guarantee scheme where those on it receive more money than those not on it (I have suggested this should be rolled out in the areas of the highest unemployment) plus providing free training for people who have been unemployed for 6 months or more to provide them with the skills employers need. I think this would cost about £7.2 billion plus admin and training costs for 1 million people to be on these two schemes and so could easily be rolled out over 5 years. This compares to the £7.12 billion cost over 5 years for the introduction of CCL in only England and Wales. This £7.12 billion are transfers to businesses, classic trickle-down economics.
As always I am seeking out the areas of agreement between our economic commentators. Am I right to assume that we wish to have Government borrowing to use for productive investment, on infrastructure, housing and technological advances? And that this should include investment in areas of high unemployment. Further, that increasing benefits as should anyway in fairness be done will provide more spending power, as would further training and creation of job opportunities for unemployed or underemployed people. I suppose that small local industry can be fostered to some extent by councils under Liberal Democrat control, as I believe is the case in South Lakes.
I am not clear how firms and rich individuals can be encouraged into productive investment, but no doubt an end to Brexit if it happens will itself produce a stimulus through the greater security of industrial chiefs and the general spur to increased productivity as confidence returns.
Michael BG,
Japan tried fiscal stimulus from 1994 to 2012. It combined the largest fiscal stimulus (in peacetime) that the world has ever seen—by far, with the worst performance for aggregate demand that the world has ever seen in a major country—by far. Nominal GDP actually fell. Aggregate income was lower in 2012 than in 1994, eventhough the population increased over that period.
The debt ratio soared from 20% of GDP in 1994 to 140% of GDP in 2013. Since 2012 its fiscal stimulus has been less expansionary, although gross debt has reached 250% (Net debt around 80%).
When they cut back on fiscal stimulus after 2012 and focused on quantitative easing and structural reforms (including introducing a consumption tax) they started to get some results in reviving economic growth. GDP started to increase even as the population was contracting (GDP fell over the previous 19 years even as the population was rising) https://www.ceicdata.com/en/indicator/japan/gdp-deflator-growth.
Japan has been stuck in a low-interest environment for many years and it is taking decades to repair the damage of the debt overhang that the credit-bubble of the 1980s left behind.
The moral of the story is don’t do what Japan (and Italy to a lesser extent) did in the 1980s. Private debt build-up (principally in real estate) will ultimately transfer to the public sector when bubbles burst and banks are bailed out to prevent a financial meltdown; and it will take a generation or so to work through the problems.
Apprenticeship training schemes, job guarantees and welfare provision are policies that should be pursued in their own right. They don’t need to be justified on the basis of an illusory fiscal stimulus. They can be justified on skills development social welfare grounds even if productivity is initially lowered or there is a negative multiplier (crowding out) associated with such policies.
Katharine,
my view is that LibDem economic and tax policy is well thought through and is guided by a competent and experienced economist in Vince Cable.
The policies are simple and straighforward. We will run a balanced current spending budget (outside of recessions) over the course of an economic cycle (i.e. years when the economy is growing strongly there should be a surplus, years when the economy is growing below trend there will be a deficit). This is sometimes referred to as automatic stabilisers.
To promote economic growth, we will increase borrowing significantly to invest in public infrastructure, public housing and research and development. Public debt will fall gradually over-time as % of GDP.
Taxes will be increased to provide for increased needs in the provision of public services and welfare. This may include income tax (1p in the pound), corporation tax (increased to 20%), and reform of taxes on capital gains, dividends higher rate tax relief on pensions. Wealth taxes will be explored as a source of funding for lifetime learning accounts.
Business rates will be reformed on a site-value rating and council tax will be reviewed with a view to making it more progressive. Reform of the legislation around the cost of the acquisition of land by public authorities based on being able to acquire land at existing use values (rather than so called hope value) will also be undertaken to provide for a major public housing construction programme.
This suite of policies taken in the round addresses the issues of economic policy, jobs and poverty alleviation, public service provision, welfare and housing.
Brexit may throw a spanner in the works, but if we are able to get some kind of reasonable resolution that may well spur a rebound in confidence and business investment.
@ JosephB,
If the Japanese Govt was running a budget deficit for an extended period of time, there would have been be no fiscal stimulus. All it means is that as the Government was increasing its spending the private sector was increasing its savings. The two cancel.
It reminds me of an argument made by Robert Barro against the use of fiscal stimuli:
“A network of intergenerational transfers makes the typical person a part of an extended family that goes on indefinitely. In this setting, households capitalise the entire array of expected future taxes, and thereby plan effectively with an infinite horizon…”
What he means is that as the Government spends more, everyone saves more to enable their descendent to be able to pay off their future taxes! Therefore they don’t work.
It’s nonsense. But it does illustrate the point that it’s not the deficit per se which creates the stimulus. It’s the extra spending that stimulates the economy which then comes back as extra taxes and therefore no greater deficit overall.
Peter Martin,
that is probably true. Richard Koo refers to Japan as an example of a balance sheet recession https://voxeu.org/article/balance-sheet-recession-reason-secular-stagnation The Japanese government may have no option other than to continue to pump enough demand into the economy to hold back a hugely damaging deflationary recession or depression. However, unlike a cyclical demand recession, this spending needs to be maintained over a long period of time as Japanese consumers continue to save a relatively high proportion of their income and it does not of itself generate economic growth. Koo writes “the government must sustain the fiscal stimulus for years until the private sector has finished repairing its balance sheets and has become ready to borrow again. Any premature withdrawal of fiscal stimulus would unleash the deflationary forces, as unborrowed savings are allowed to become a leakage in the economy’s income stream”
A glut of household savings, however, is not a problem that the UK currently faces. Household spending bounced back by 2013. The household savings ratio here is at an all-time low and the trade deficit has narrowed significantly from 2017. It is corporate surpluses that are accumulating as investments are put on hold.
We have a potential household over-indebtedness problem (mostly mortgage debt) that a Brexit related shock could bring to a head.
@ Joseph B,
A rare moment of agreement!
I’ve had this discussion with a few MMTers too, including a couple of the big names. I think we all agree. Ironically the way it works is that the deficit will probably fall if the Govt can create the conditions for everyone to not want to save so much. Of course, one way is to deliberately push up the rate of inflation and induce a ‘use it or lose it’ mentality about money. So more govt spending, which can lead to a higher deficit in the short term, can lead to more inflation which will bring down the deficit later. A counter intuitive outcome? Maybe.
This fits in with what we saw happen during WW2. Govt deficits were high. This is explainable on the grounds that rationing prevented too much private sector spending. A patriotic willingness to put savings into war bonds also helped. After the war this meant there was a potential inflationary problem, meaning that rationing had to be extended for longer than might have been expected by many.
Yes, you’re right that UK households aren’t saving much. If anything. But if the Govt is still running a deficit then it must follow that someone is running a surplus.
Katharine,
There is a huge difference between Joseph and myself regarding what the government should do. I believe it should intervene to increase demand in the economy and assist the unemployed, while to me it seems that Joseph is interested in running the economy in such a way to hope that the private sector will produce more goods. I do not see infrastructure structure expenditure as so important as Joseph as I am concerned with increasing demand in the economy particularly in the poorer regions. I am not against unbalanced budgets for current government spending. I am concerned with ending poverty in the UK by the government taking direct action, while to me it seems that Joseph is happy for the private sector to grow the economy and for us to have sluggish economic growth. He has consistently refused to say that the benefit level excluding housing costs should be at the Joseph Rowntree Foundation poverty level. He also seems to believe that government borrowing would crowd out private borrowing.
Joseph
If you actually look at the graph of Japan’s Nominal GDP you will see that by about 2012 they had recovered to their 1995 level. I understand that they have a declining working population and an increasing number of pensioners. In 1995 GDP of Japan was $2,965.5 billion, it continued to growth until reaching $3,200.6 billion in 1998, in 1999 it was $3,239.6 billion, and in 2008 it was $4,463.1 billion and $4,485.9 billion in 2010. In 2018 it was $5,594.5 billion which is 188.65% of what it was in 1995. Japan is not a good match with the UK. If they have a lower multiplier than us this is not because of high imports but because of high levels of saving; you even recognise this.
Higher levels of benefit have to be funded, I have set out how this can be done over 8 years without increasing any taxes; higher levels of benefit will increase demand in the economy.
Joseph, thank you for that clear statement of Lib Dem economic and taxation policy. Much of it I was familiar with, but it was good to have such a summary. I had been rather bemused by the ongoing discussion about Japan’s economic experiences, which were too technical for me. On the details you provide about our position, I just grieve that we are still only ‘reviewing’ council tax reform, when surely we should be calling for a new evaluation and the restoration of council tax reliefs: the increase in council tax in April will have borne heavily on many families.
Michael, thank you for explaining your wish for a more interventionist policy. Yet Joseph says there should be increase of (presumably) government borrowing to invest, and I suppose infrastructure investment would for instance cover much-needed housing (I think we propose a national scheme), more off-shore wind farms and the Severn barrage, and faster development of northern rail links, also much needed. I don’t quite see where Joseph is advocating leaving the private sector to grow the economy, but I agree with you on having higher levels of welfare benefits, and understand your careful working-out of how this can be funded over several years.
How do you see government intervention to create demand in the economy working? What measures should be taken, do you think?
I agree with you that we should accept the Joseph Rowntree assessment of the levels of benefit needed to end relative poverty. And as you know I believe we should be asking for attitude change and commitment to aid the poorest and most disadvantaged of our society from future government.,
Michael BG,
This is from the Japan Cabinet office in the domestic currency – Yen https://www.japanmacroadvisors.com/page/category/economic-indicators/gdp-and-business-activity/gdp/
“GDP has been on a declining trend since 1997 when it was 523.5 trillion yen. The decline is due to low real growth (0.6% per year on average between 1997-2012) and outright deflation (-1.2% per year on average between 1997-2012)”
The decline in the general price level coupled with low growth resulted in a lower nominal GDP. Japan has begun a halting recovery since 2012 but this is during a period when fiscal policy has been contractionary (i.e. government spending growing at a slower rate that the prior period to 2012)
The 2017 manifesto propoed a 14bn-a-year spending package and £100bn infrastructure fund. This does meam more borrowing, but it was all spelled out in the costing document. The 1p on income tax rates is estimated to raise £6.3bn a year of the £14bn a year extra current spending . Other big sources include £3.6bn from corporation tax, £2bn from CGT cuts, abolishing marriage allowance and £1m inheritance tax threshold,. The committment is to only borrow for capital spending and tax receipts will rise to 37.9% of GDP compared with 37.1% under Tory plans.
Committments on welfare included ending the freeze on benefits, reversing the cuts to the family element of tax credits and scapping the two child limit on payments as well as reversing cuts to Universal credit and the ESA WRAG, scapping the so called bedroom tax and reintroducing housing benefit 18-21 year olds. The wefare package was costed at an extra £9.7bn per year. Other big spending committments included £6.3bn for the NHS and £8.7bn on education including maintenance grants for students.
The requirements for funding of the NHS and social care are much greater than the amounts provided for in the 2017 and will have to be costed in the future. This is what needs to be done to put together a credible economic plan for funding of public sevices and welfare provision.
Joseph,
The quote makes no sense, how can an economy grow on average by 0.6% a year and at the same time decline by 1.2% a year. From the link you provided I see a graph which has Japanese economic growth at 2.8% for 2000, followed by 0.4%, 0.1%, 1.5%, 2.2%, 1.7%, 1.4%, 1.7%, -1.1% (2008), -5.4% (2009), 4.2% (2010), -0.1%, 1.5%, 2%, 0.4%,1.2%, 0.6%, 1.9%, and 0.8% (2018) which apart for 2008 (difference of 0.1%) are what I have been using.
As I said Japan’s economy is not like ours and using it as a case study for our economy is not useful.
The total increase in everyday spending in our 2017 manifesto was £30.08 billion reduced by £15.965 of tax changes down to a net increase in the year 2019-20 of £14.115 billion. The extra welfare spending of £9.71 billion did not include scrapping the benefit cap which is now party policy. My figure of less than £10 billion a year for years two to eight to be spent on benefits fits in well with the over £9.71 billion in the first year of a Lib Dem government.
I was concerned about the £100 billion figure until I looked at the maths, the extra each year on top of the previous one could be £5 billion, £7 billion, £8 billion, £8 billion and £7 billion so in year five an extra £35 billion would be being spent. Finding these amounts out of my £24 billion plus extra government spending each year is possible. It would still leave funds for my up to £10 billion for benefits and over £7 billion for training, job guarantee and real wage growth.
Looking at the figures again, for 2020 I advocate additional government spending of £27.65 billion of which I expect at least £10.27 billion to come back to the government in increased revenue. Thereafter I have suggested just using the increase in government revenue due to 3% growth which would be for year 2 – £24.3 billion, then £25 billion, £25.8 billion and £26.6 billion for subsequent years. The cumulative increase in government spending would be £388.8 billion. However, I have another restraint and that is the government should not increase spending by more than 5/6th of the difference between 3% and the forecast economic growth. Therefore if in year 5 economic growth was forecast to be 2% the extra spending the government could do would be (5/6 of 3-2) about 0.8% of GDP which would be only £19.15 billion and the deficit would be reduced by £7.45 billion.
Katharine,
I am not sure I have actually set out what I want the billions from economic growth spent on specifically in year two and after of a Liberal Democrat government. I think I have only spoken in very general terms. Perhaps it is a subject for an article but it might get rejected for having too many numbers in it.
Michael BG,
the data from the Japanese Cabinet office reflects what happened to national income in the 15 year period from 1997 to 2012. Nominal GDP growth (actual money growth) is a combination of inflation and real growth (i.e. an increase in the real output of goods and services). The Japanese economy experienced a long period of deflation (declining prices). As a consequence of average real growth in output of 0.6% and average price deflation of -1.2%, nominal GDP was lower in 2012 than it had been two decades earlier and aggregate incomes were lower as a result. These are the consequences of over-inflated property and stock markets.
Economic growth in the UK historically has led to above-inflation wage rises although that has not been the case since the 2008 financial crash. Public sector pay freezes have left the NHS, Schools and other areas of the public sector struggling to retain staff and fill vacancies. It is probable that public sector pay will need to increase above inflation for a number of years to correct this situation absorbing the proceeds of any economic growth the UK can muster in a difficult global climate.
Economic growth on its own cannot be relied on to address relative poverty as this article explains https://www.economicshelp.org/macroeconomics/inequality/poverty-inequality-economic-growth/ . The article highlights some reasons why we don’t see economic growth reducing income inequality
– Economic growth often creates the best opportunities for those who are highly skilled and educated.
– Modern economies are creating an increased number of part-time/flexible service sector jobs. In these sectors, wages have been lagging behind average earnings.
– In the UK, government benefits have been indexed linked. This means that benefit incomes have fallen behind average earnings.
– Interest-bearing wealth. The wealthy gain interest and dividends from their assets. This rent, interest and dividends can be used to re-invest in increasing their wealth. For the wealthy, it is a wealth creating cycle – which increases their share of income.
– Economic growth will not necessarily solve unemployment. For example, growth cannot solve structural and frictional unemployment; this is unemployment caused by lack of skills and geographical immobilities.
“The 1p on income tax rates is estimated to raise £6.3bn a year of the £14bn a year extra current spending ”
I wish Lib Dems could get away from this type of intrinsic neoliberal put-a-penny-on-income-tax thinking. That is the key to ‘what next’. There are several problems with it. The assumption is that the Government needs to ‘raise’ £6.3 billion to then be able to spend it. It IS the correct approach for a local council to take (if we divide all numbers by 1000 maybe) but not for a National currency issuing Govt. If Govt cuts its spending it will reduce its taxation revenue. If it tries to increase the revenue from one tax the revenue from other taxes will fall. Not that ‘revenue’ really means anything!
If you want to increase taxation “revenue” – increase Govt spending so that there is more money in the economy! Of course the objection is the potential inflationary effect of doing that. If you are making too many demands on the economy you will probably create too much inflation. That will be the time to increase taxation or reduce spending to cool down the economy.
Struggling through the thickets and avoiding any trip to Japan, I perceive the question is: can we afford all our commitments? Joseph says that the extra we want to spend on the NHS and Social Care is not yet fully costed and needs to be worked out. Michael suggests, I think, that economic growth will enable us to meet all our commitments, including the absolute need to raise people out of relative poverty, over a few carefully costed years.
It would be good if others could weigh in with their opinions, if this monster thread (begun ten days ago) is to continue any further. For now that our beloved party is again seen to be nationally relevant, we shall need to become as certain on our progressive proposals as we are clear on our anti-Brexit message. We may be involved in national negotiations in a few months’ time – roll on the day!
“Economic growth will not necessarily solve unemployment. For example, growth cannot solve structural and frictional unemployment; this is unemployment caused by lack of skills and geographical immobilities.”
This is largely true. But it can reduce it. This is where the idea of the JG comes in. The JG can, and should, include a large measure of training. We can redefine all students as being on the JG for example. That wouldn’t mean anyone could choose to go through life studying one degree after another! There would be conditions attached. So we could say that we train our teachers for free if they agree to put in some time in educationally deprived areas afterwards or spend some of their holiday time working with young people in some way. It’s all up for discussion.
I’m not sure I have all the answers. What would we do if someone wanted to move to an unhinhabited Scottish island? Would they qualify for a JG? There are some tricky questions to answer but the idea is worth discussing.
This is the economic rationale behind the concept BTW.
https://www.huffpost.com/entry/the-umkc-buckaroo-a-curre_b_970447?guccounter=1&guce_referrer=aHR0cHM6Ly93d3cuZ29vZ2xlLmNvbS8&guce_referrer_sig=AQAAAIMAo7Lvl6dZ4t0QwHquKafVDI0E7NUci1usAv6VqDAulTzgXu3ia9FOp82tqRAIO3bzJIT3Sg-RGhQxcsaoJPM6AP-SupRPpeeZhbeGZzavc5wlTr2eVX_Pzu5BPDxrjbA42JqjUzBZt83SD6eAh0PqyljSjcsRFDxNkVjL7wIh
Peter Martin,
yes, I think Job guarantees are an important element of the policy mix in addressing poverty arising from structural and regional unemployment hotspots.
It draws on the social justice tradition of the right to work and is a good fit with Liberal philosophy on striking a reasonable balance between individual rights and responsibilities.
Katharine,
you are unlikely to see a consensus develop on the impact of fiscal policy. This article discusses fiscal policy issues in some detail https://www.econlib.org/library/Enc/FiscalPolicy.html. Not everyone will agree with the analysis and conclusions whether that be because they dispute the evidence or on purely political grounds. A key point in the article is:
“A fiscal expansion affects the output level in the long run because it affects the country’s saving rate. The country’s total saving is composed of two parts: private saving (by individuals and corporations) and government saving (which is the same as the budget surplus). A fiscal expansion entails a decrease in government saving. Lower saving means, in turn, that the country will either invest less in new plants and equipment or increase the amount that it borrows from abroad, both of which lead to unpleasant consequences in the long term. Lower investment will lead to a lower capital stock and to a reduction in a country’s ability to produce output in the future. Increased indebtedness to foreigners means that a higher fraction of a country’s output will have to be sent abroad in the future rather than being consumed at home.”
Savings here means that element of GDP (output) that is invested in physical capital rather than consumed.
However, politics is a practical business and we have to be able to say what we plan to do and who is going to pay for it. Using OBR forecasts for growth projections introduces an element of fiscal discipline around growth assumptions and allows independent bodies like the IFS to compare and assess the credibility or otherwise of different party manifesto’s. I think the OBR growth forecasts are here to stay for the forseeable future.
Joseph,
The growth figures I quoted are real growth nor nominal, therefore inflation and deflation have been removed from them. However, the most important thing is that Japan’s economy is not anything like the UK’s and therefore what happened there cannot be used to predict what would happen in the UK.
In our 2017 costing document there is £2.7 billion for the cost of lifting the cap on public sector pay which is a long way from the £11 billion that would be generated in extra government income if growth was only 1.4%.
The article that you linked to states that addressing relative poverty has to be done by redistributing money. I am suggesting this, by using up to £10 billion a year from the extra £24 billion plus the government would receive from economic growth of 3% to increase benefits in real terms to reach the Joseph Rowntree Foundation poverty level excluding housing costs.
Do you not understand that I am using part of the extra £24 billion plus to train unemployed people and provide them with job guarantees and invest in the regions with the highest unemployment figures? My multi-pronged approach to increasing economic growth is heavily focused on lifting people out of poverty, rather than trying to grow the economy in the hope that some of the benefits of economic growth will trickle down to those living in poverty.
Are you aware that the OBR forecast takes account of budget changes and so they provide forecasts before a budget and then provide new ones taking account of what the government sets out it will spend and on what.?
Katharine,
”Michael suggests … that economic growth will enable us to meet all our commitments, including the absolute need to raise people out of relative poverty”. Indeed I do. I state it can be done in eight years if we grow the economy by 3% a year. I state over 8 years £80 billion could be used for removing everyone in the UK out of poverty, but I believe the cost would be less than £60 billion.
Peter,
I wish you would stop saying that everything the government spends returns to the government. The Buckaroo article shows this is not true.
The idea that a change in a tax will cost or raise a certain amount is not a neo-liberal thing, it has been around for ages. If the economy is at full production, and growth is forecast to be as high as it has ever achieved and as Chancellor of the Exchequer you want to increase welfare payments by £6.3 billion, you can’t just spend the money as it will not create any more growth, it will just generate inflation, therefore you would need to increase revenue to find the money. If inflation is high it is useful to know how much it is estimated will be withdrawn from the economy when a particular tax is increased. The important thing to remember is they are all estimates.
Michael BG.
the reason we are discussing Japan is that so many economists are comparing the crash of the 1990s there with the financial crisis of 2008 here. All modern economies have similarities and a degree of inter-dependence.
You mentioned that you have been reading an economics textbook- Economics: Principles, Problems and Policies” by McConnell, Brue and Flynn. You should read the sections on productive efficiency and allocative efficiency. There are two major factors that determine what it is possible to produce. The first is the obvious one – limited resources. The second is often forgotten or not well understood – diminishing returns. Dimishing retuns means the more you make of something, the less return you get of each successive unit. Eventually, the costs exceed the benefit, which limits how much you want to produce.
Diminishing returns is sometimes referred to as the “low hanging fruit principle”. I think Peter Martin referred to it as the Orchestra effect. The most skilled or productive workers get hired first. As you approach full-employment productivity levels drop as the additional managers/workers hired tend to be less produtive. Virtually all production processes show dimishing returns and not just for aditional labour but additional capital and marginal land as well. These two factors – limited resources and dimishing resources determine the maximum level of output an economy can achieve. The main driver of economc growth at the full emplyment level are tecgnological advances and the replacement of older physical capital with moderm more efficient equipment.
Japan is one of the few advanced economies that has even worse productivity levels than the UK. Their fiscal policy has maintained low unemployment but widespread overmanning and inefficient use of labour in the service sector has come at a significant cost to aggregate national income reducing living standards for all.
All policy measures come at a cost and the benefits are uncertain or sometimes couter-prouctive. Taxation as a basis of redistribution has a degree of certainty and transparency that fiscal and monetary stimilus does not.
@ Michael BG,
We can imagine a tank of water to represent the economy. Government spending is analagous to pouring water in. At the base of the tank is an outlet for the water. This is analagous to the effect of taxation. The more water that is in the tank, which represents the level of activity in the economy, the more that will come out. We can, say, have two openings. One that represents direct taxation and one that represents indirect taxation.
So if we increase the size of the direct taxation outlet we’ll initially get more water out but the level of the water will fall meaning that the amount coming out will start to decrease. It will start to decrease from the indirect taxation outlet too, as the water level falls, even though we haven’t changed the size of that.
What we are trying to do is maintain the water at the correct level. If it’s too high we have too much inflation. If its too low we have too much recession. We have an infinite supply of water, just like we have an infinite supply of pounds, but we don’t want to overfill our tank.
Now, we have to consider the effect of savings. This introduces a second tank into the model. If everyone is net saving they are taking water out of the main tank and moving it to a storage tank. So to compensate we have to pour more water into the main tank. If everyone wants to desave they will be putting water back into the main tank from the storage tank. So we have to pour in less to compensate.
So what you are saying is that there is possibly a small leak in the main tank which means that not every drop of water we pour in comes out of one of the taxation outlets. But do we really care? We just let all the water run away back into the river anyway!
Katharine,
I detect that you are probing to reassure yourself that LibDem economic policy is sound and has been endorsed by respected economic thinkers. After reading these exchanges I suspect you have a growing sense of unease as the economists here do the only thing that economists actually do which is to argue with other economists on the basis that “My textbook references are more crushing than yours”.
You will have spotted growth figures plucked from thin air and a tax system which will force ‘financiers’ to pay. No they won’t. They will pass it down to those who want to live in a house or run a business. Who else can pay? It’s not a new idea. It operates elsewhere. On Flint, Michigans website they devote a whole section on how they they foreclose land on which “delinquent taxes are owed”. A first attempt is then made to auction with a reserve equal to the unpaid taxes and then with no reserve if there are no bidders. Wow! that is coming here.
But it depends what you want. If it is a few resounding words for a manifesto then you have those already. But those proposals will have no more effect than identical words used in previous manifestos (from all parties) over decades. Hey, if there was an easy fix wouldn’t it have been done long ago?
I spent some years heavily involved in economic regeneration and this topic is fraught with difficulties. Firstly, the govt is constrained in what it can actually do. It can’t support Company A without companies B through Z complaining bitterly. Next there is a layer of scalpers who watch govt proposals and think up ways to “help” with implementation. Just ask yourself, every day, where for example did the £43 million the govt spent on the Garden Bridge end up? Without even getting one bag of cement in return. The vast majority of the proposed spend will end up in undeserving pockets.
Finally, wealth creators have to be persuaded to pay tax. They have choices. They can create the wealth in another country altogether (very popular) or not create the wealth in the first place. No one can be forced to use their energy productively.
It’s questions of offering job opportunities which I think we might be developing further in our plans. ‘Full employment’ leaves many people still wanting more or better work, and as technology advances the less skilled will have even fewer job opportunities. We all seem to agree that a Job Guarantee scheme would be a good thing, but what would it involve in practice? Can the Government, and local authorities, develop work schemes?
There seems scope in the provision of services, left now much to individual enterprise: perhaps there could be back-up schemes to organise less enterprising people to offer their skills, since everyone has something to offer, and it is fulfilling for people to find opportunities. Economic growth surely need not only depend on technical advances, but on the use of people who are employed productively, that is in ways useful to them and to society. We might need less medical provision, smaller costs to the NHS, in that case.
Innocent Bystander,
all of what you say is true. When I refer to allocative efficiency I am talking about producing the kinds of goods and services that people actually want and in the right amounts. Dimishing returns from production of goods and services means we need a price mechanism to signal what exactly nd how much should be produced . This is the function of private markets, governments are unable to do it. State direction of production gives you soviet style shortages of everything or common market wine lakes.
Where the state is proviing services such as in health and education it needs to do so efficiently and get value for money. The level of service is not regulated by the price mechanism but by outcomes like A&E waiting times, class sizes and educatiional attainment levels, police numbers and level of crime, housing waiting lists etc.
To provide these services requires trained personnel. As the eonomy grows wages increase. In 2017 Labour proposed increasing public sector wages in line with private sector wage growth. This was projected to cost £9.2billion by next year. It is higher now as wage growth in the private sector has increased. State Pensiions are linked with earnings and grow faster than inflation in line with economic growth. Rents increase faster thn inflation in line with economic and wage growth. In short, the cost of running the public sector increases broadly in line with wage growth and as the population ages greater demands are placed on health service and social care provision as well as the provision of state pensions.
The resources to provide these services come from the working population – those working directly in public services and those working in the private sector to provide the private goods and services we all need.
Tax is the mechanism we use to allocate resoures from the private sector to the public sector. You are right to say that “if there was an easy fix would have been done long ago? As Milton Friedman once said – the most important lesson of economics is “there is no such thing as a free lunch”.
If you think council tax is a burden on wealth creators here, take look at what you would be expected to pay in New York or New Jersey where property taxes fund virtually all of public education services.
Joseph,
If UK governments had increased government spending to achieve at least 2.7% growth every year since 2008 and economic growth had not reached 2.7% and inflation was negative, then and only then I would see the similarities of the UK economy with Japan.
Of course I have studied the “law” of diminishing returns. I would argue this is why UK economic growth cannot be as high as it was in the nineteenth century or as high as some less developed nations. This is why it is so important to increase demand in the economy to make the less productive more attractive to bring into production. This is why I propose offering free training for everyone who has been unemployed for 6 months or more to give them the skills needed in their area; this is why I propose a job guarantee scheme so the unemployed keep their skills up to date and have recent experience.
I agree once it becomes difficult to employ more people or give then more hours to work (see above) businesses have to invest to improve productivity if there is unfulfilled demand for their goods.
It still appears that you think, that I think economic growth will raise people out of poverty. I think that is your position. That is not what I am saying. I am saying create the economic growth and then use some the increased government revenue to raise benefit levels so no one in the UK lives in poverty. I am also saying that giving the poorest more money will increase demand in the economy and businesses will then produce more.
Peter,
If a government increases a tax and doesn’t spent the money then as you say there will be less water in the system and in future years as the water level drops less will be removed from the system. However, that is not relevant to the estimate of what changing a tax will generate. If the estimate for the second year or even the first is slightly wrong then the new estimate will be considered when making the next decision. Economics is an art form not a true science that is why forecasts are so often wrong.
In the UK economy I am saying that the government revenue pipe as you call it takes 37% of the water to recycle or throw away and never takes 100%. We should care about the 63%, but I like you am not bothered by the net 1% which ends up in foreign countries. If huge amounts were being saved this would be problematic and the government would need to replenish those amounts not returned to the tank.
Katharine,
I don’t have an answer to the question of how to find the correct type of work for a Job Guarantee scheme. I also am not proposing that the jobs should pay minimum wages. I envision them being more like the old Employment Training scheme where a person receives a small amount on top of their benefit (say £50 a week) and their traveling expenses. Finding the right place for someone to be for their guaranteed job may not be easy and might include some people doing it in the private sector. If I understand the proposed idea correctly the person with the Guaranteed Job can’t work full time hours; a ceiling of 35 hours a week has been suggested, perhaps it should be 32.5 hours. Any Job Guarantee scheme must not be seen as cheap labour for a job that need doing, it should be seen as a way of ensuring that the person keeps their skills up to date and has recent relevant experience to make them employable when more jobs return to the economy.
Joe,
Thank you again. I must say I look forward to reading your posts and of course I agree that tax is required to provide for communally needed activities. LVT is fine, I just don’t see it as the answer to the nation’s prayers. I would like, however, to ask your opinion on a wider concept. I have lost track of where corporation tax is now but it was 20% when I paid it.
Why fixed number? With computers, every entity at Companies House could have a different rate with a central number (say 20%) and + or – from that in increments or decrements depending on “value” to UK plc. These could be societal value (eg a % knocked off if the entity employs more than the average number of registered disabled and % on for those who don’t). Environmental performance could win or lose % points and of course economic benefit. Exports and foreign exchange earn points and importers could see their % increase. Extra % could be imposed for companies who make large transfer payments to offshore parents for use of trademarks etc (a racket that makes me furious).
So that those who operate ‘properly’ could see a corp tax of 10% and those who are less beneficial get stiffed for 30%??
Whaddya think?
Michael BG,
diminishing returns means firms will not employ more people or increase investment if the return on investment does not justify the cost. There are more people in the UK who would like to work less hours than would like to work more if the TUC stats are anything to go by.
The OBR’s assessment is that the UK economy is operating at normal levels close to full capacity. There is no indication of a deficiency of demand versus supply capacity based on employment trends, unemployment levels, ultra-low interest levels, high levels of consumer borrowing and a historically low savings ratio.
The argument I have made is that the Libdem economic policy approach is well thought through. On welfare the manifesto commitments and the subsequent commitment to the lifting of the welfare cap address the most pressing issues. Restoring the link between welfare benefits and earnings growth (as is the case with state pensions) will maintain the purchasing power of benefit recipients. Other policies yet to be adopted include Reform of the 1961 Land Compensation Act (this is the key to ramping up public housing provision) and land value tax as the basis for council tax reform.
Economic growth based on OBR projections will be largely absorbed by increased wage costs in the public sector, increased state pensions and housing benefit payments. Restoring public service pay in line with expected pay growth in the private sector was estimated to cost £9.2bn in 2021-22 based on estimates made in 2017 https://www.ifs.org.uk/publications/9241. It will be higher now. The Chancellor has already announced lifting of pay caps for about 1 million public service workers without providing funding. This is on top of an unfunded £20billion increase for the NHS.
The reasons why economic growth has not addressed relative poverty are given in the earlier linked article. A key element is – Interest-bearing wealth. The wealthy gain interest and dividends from their assets. This rent, interest and dividends can be used to re-invest in increasing their wealth. For the wealthy, it is a wealth creating cycle – which increases their share of income.
The policies needed to address poverty are those outlined by the late Anthony Atkinson. Increasing government spending (as Japan has attempted for decades) does not increase output and GDP of itself. It increases the money supply at a proportionally greater rate than output increases lowering labour productivity and average living standards. Relative poverty can be decreased by making the majority poorer but that is not really the objective is it? To increase output requires strategic investment by both the public and private sectors. Lower investment leads to a lower capital stock and to a reduction in the ability to produce output that has to be made up by imports. Increased trade deficits require a higher proportion of the country’s output to be sent abroad rather than being consumed domestically.
The argument you make that increasing government spending on consumption of services will grow the economy and pay for itself is what the labour party has being doing unsuccessfully for decades. Public service and welfare provision need to be properly resourced through tax policy. Relying on producing additional economic growth (over and above OBR projections) through increased levels of government spending on consumption is unreliable as a means of addressing welfare provision and poverty alleviation. This is what I have said above.
“wealth creators have to be persuaded to pay tax. They have choices. They can create the wealth in another country altogether (very popular) or not create the wealth in the first place. No one can be forced to use their energy productively.”
Starvation seems to be the method of choice for the reserve army of the unemployed…People are not commodities, and if they are treated as commodities, it is not surprising that some people don’t get paid enough to live…
“Are there no prisons? Are there no workhouses?”
What you mean by wealth creators is more like value extractors.
innocent Bystander,
corporation tax used to be 28% for large companies and 20% for small companies with a rate between these levels for medium-size companies. It is now 19% for all companies but the dividend tax credit has gone and dividends are taxed at 7.5% up to the basic rate band, at 32.5% for higher rate taxpayers and 38.1% for additional rate taxpayers with taxable earnings over £150k.
The 28% corporation tax rate has been retained for banks, so there is a differential in place for some companies. There was also a Petroleum Revenue Tax on North sea oil and gas but this has largely gone now. Real Estate Investment Trusts that distribute 95% or more of their profits don’t pay corporation tax and the dividends received by investors are treated as income from Land and Property.
Differential rates are used in flat-rate VAT schemes for small businesses where a flat rate of VAT is paid on turnover depending on the category of trade the business falls under. There have been proposals of the kind you suggest but with little progress. Relief from corporation tax is mostly given through tax deferral via capital allowances on investment in plant and machinery or research and development tax credits.
The Mirrlees tax review proposed an allowance for equity to equalize the tax treatment of financing via share capital with tax deductions for interest-bearing debt but no such tax legislation has been brought forward. Meanwhile, many big firms continue to buy back stock in great volumes rather than reinvesting retained profits and replace equity capital with low-interest debt.
The point you make about companies who make large transfer payments to offshore parents for use of trademarks etc is an important one. Land Value tax is based on the concept of economic rents i.e. profits over and above what is generated by produced physical capital. Both land and intellectual property (that is not internally generated) are the main sources of economic rents that do not arise from human production – what is referred to as rent-seeking activities. Taxing income from land rents at higher rates and restricting tax deductions for royalties etc (as is the case currently with corporation tax rates for banks) can be justified on economic efficiency, tax equity, and social welfare grounds.
Jenny,
I understand but Stalin announced the liquidation of the kulaks in 1929. And then a lot of people really did starve.
My words may grate but I am just a realist, not a right wing extremist.
The intrinsic failure mode for socialism is that it denies what I have written which, like it or not, is exactly correct. Their path ends in suppression, hunger, a ten year waiting list for a Trabant motor car and the Red October Plastic Sandal Factory.
A reply often heard is “we acknowledge the right of people to make themselves wealthy”. Well spell out to them what you mean. I believe the failure of western liberalism is that it has not faced up to reality. Capitalism is mobile. All the latest ideas and exciting products are not coming from Britain but in countries far away. Those ideas which do emerge here quickly disappear to Singapore, for example.
Socialism, liberalism, egalitariansim etc must accept that they are powerless to prevent this process. I only want to open the minds of these thinkers to confront it and try and derive workable solutions instead of just expressing loud indignation.
I repeat, you can not compel someone to be a successful entrepreneur even if they have the talent to become one.
Katharine,
“Economic growth surely need not only depend on technical advances, but on the use of people who are employed productively, that is in ways useful to them and to society.”
You might find these short pieces from the BofE instructive. The first is a brief history of economic growth https://www.bankofengland.co.uk/knowledgebank/how-has-growth-changed-over-time and the second is an assessment of how fast the economy can grow currently https://www.bankofengland.co.uk/knowledgebank/how-fast-can-the-economy-grow
In assessing how fast the economy can grow the focus on three major elements:
– First, if businesses invest in new factories and research and develop better ways of doing things, they’re able to increase their output.
– Next there’s the size of the workforce: more workers means more potential output. And having a specialised workforce where people focus on certain tasks tends to be more efficient. Because they specialise, they get faster and better at their job.
– Finally, to grow, the economy needs high-quality infrastructure that makes transport and communication quick and cheap for businesses and workers. This could include anything from broadband to railways.
Today the BofE assessment is that our economy can only grow at an average of around one-and-a-half percent a year. They also currently think actual demand is growing close to this limit. This means demand can’t grow faster than at its current pace without causing prices to start rising too quickly.
Of course, the BofE could be wrong but it influential in economic planning and forms the basis for government decision making.
Joseph,
The OBR is conservative economically (as is the Bank of England) and has been saying that the UK economy is operating close to “full capacity” for years. The idea of full capacity includes some unemployment and includes other people who would like to work, so the whole idea of being nearly at full capacity is ridiculous. There is no such thing, because if productivity increased so would capacity.
I am not saying there is over supply, I am saying that the UK economy can cope with at least 1.3% of GDP more demand. Therefore I strongly disagree with the Bank of England.
It seems you are content that Lib Dem policy on benefits goes far enough and means that those who need benefits (or just live on out of work benefits) are consigned to live in poverty. This is not liberalism. I don’t think it is radical to call for us to ensure that no one in the UK lives in poverty after eight years of Lib Dem government.
OBR forecasts for economic growth are not high enough that is why we have to do something about it. £9.2 billion over 5 years and £20 billion over 5 years would be easily affordable out of £388 billion of extra government spending mostly funded from 3% growth and increased government revenue.
You appear to be conservative economically and our party should not be. We have a tradition of not being conservative with regard to economic policy and we should re-discover this. You are wrong to criticise the Labour government’s economic policy between 2002 and 2008. With the budget deficit of 1.38% or less of GDP each year economic growth was 3.3%, 2.3%, 3.1%, 2.5%, and 2.5%. This shows what could be achieved in the future.
Having £100 billion of additional infrastructure spending by the government will generate extra demand in the economy, as will the increase on current spending of £14.115 billion in our 2017 manifesto. You believe that the increase in government revenue due to growth can be spent on current expenditure but you just don’t want to use it to increase benefit levels.
We have already discussed that government spending is part of GDP and therefore increasing it without taking the money from consumers by increasing taxes will increase GDP.
If there is no extra demand there is no point investing to increase production.
@ Micheal BG,
I don’t think we have a fundamental disagreement but you’re still slightly hung on the idea that money comes in and then government can spend it. Phrases like “the estimate of what changing a tax will generate” are a bit of a give away. Taxes don’t generate anything per se. Joseph might possibly point out that taxes go into a consolidated revenue account. That money is spent first and only when there is a shortfall is the Govt allowed to “borrow”. This is an entirely self imposed accounting system. The Americans are just the same. They even have their “debt ceiling”. There’s no ceiling other the one that they have invented for themselves.
It’s like we make a rule that the water isn’t allowed to flow back into the river in my model. We have to always recycle it and count any extra we add, even though that supply is effectively infinite, as “borrowing”. We don’t have to do that. Its our choice. However, if we aim for some growth and 2% inflation, its exactly the same as having a tank which is somehow growing from one year to the next so we have to provide the water from somewhere.
The other factor you might like to consider is the effect of free movement on our economic model. I think we’d both agree that a sensible expansion of demand would go a long way to curing the UK’s problem (if the UK was a totally independent country) but can we be expected to fix the EU’s problem too?
Michael,
potential capcity in the economy is measured on an ongoing basis. It is neither conservative or optimistic. It is the best estimate based on the data that economic researchers collect.
This BofE article from February discussess the issue https://www.bankofengland.co.uk/inflation-report/2019/february-2019/supply-and-spare-capacity
“The pace at which demand can grow without generating sustained inflationary pressures depends on the amount of spare capacity in the economy and the growth rate of potential supply. In turn, potential supply growth depends on structural features of the economy such as population growth and gains in productivity.”
Public sector pay was frozen for 2 years and capped at a 1% thereafter. There are significant trade offs in the future setting of public sector pay. Restraining public sector pay compared to the private sector, as proposed by the Conservatives, and – to a lesser extent by Libdems –risks exacerbating recruitment, retention and motivation problems and ultimately the quantity and quality of public services provided.
On the other hand, increasing public sector pay results in significantly higher costs to public sector employers compared to the current Conservative government’s plans. The next government could decide to increase departmental spending to account for these higher costs of paying public sector workers. But if it did not provide extra funds, departments would need to make cuts elsewhere – for example by further reducing the number of public sector workers, cuts that may themselves reduce the quality of public services.
Ultimately, Public service pay needs to keep pace with earnings growth in the private sector and there is a limit to how much discretion any government has in keeping pay below comparable jobs in the private sector.
The public sector paycap has itself been a significant contributor to poverty as this article discusses https://www.theguardian.com/politics/2018/oct/27/george-osborne-ignored-poverty-warnings-on-public-sector-pay-cap noting
“The policy directly affected over a million families with children. There are an estimated 2.4 million dependent children in households in which there is at least one public sector worker in the UK.”
Joseph,
I have been looking at the Bank of England’s latest inflation report from it I can see you are wrong to asset vacancies equal the number unemployed. It states that there are 2.5% vacancies to size of the workforce; unemployment is 3.8% of the workforce. The report states that UK supply could grow 2.9% a year between 1998 and 2007, this includes 2.2% from productivity. Their current estimate is 1.5% a year of which only 0.9% is productivity. Their current figure is clearly wrong. In the last quarter growth was 0.5% which if sustained for the whole year would make 2%.
Therefore the suggestion that getting growth up 2.9% a year is not unrealistic. If there was a government committed to increasing demand in the economy and we stayed in the EU then productivity increases could provide 2.2% economic growth as it did before 2008. The uncertainty of Brexit is discouraging businesses from investing to increase productivity.
Peter,
When a government levies a tax it receives an income from it, you shouldn’t get hung up with the word “generate”. In theory the government could just create all the money it spends. I think Venezuela is an example of doing this and this is a major cause of their inflation. Therefore the government is constrained and cannot just create as much money as it wants to spend. Also you state that the government taxes are what gives the money its value so there has be taxation and this will generate an income for the government. In my example I set out an economy which was very constrained. In my example the government couldn’t just print the money, there needed to be an expectation of receiving a near equal amount to the extra being spent.
I think we both agree that removing government budget deficit targets for Euro countries would assist in generating growth in the EU if the poorer countries would then generate more demand. I wonder if using my model for the maximum a government could increase spending would work across the whole of the EU.
Michael BG,
policy should be based on best evidence.Beveridges definition of full employment is the claimant count (not Labour force survey). versus vacancies. This does not mean that everyone who wanrs a job is employed at any given time or there is no structural or frictional unemployment. It means that supply and demand in the economy is at an equilbrium point – what Keynes called effective demand. Structural and frictional unemployment are best addressed by targeted program like job guarantees, training schemes and local economy development not cyclical demand management.
If you read the BofE linked article you will find their comments on the Labour market including:
“Spare capacity also appears to have been largely absorbed elsewhere in the labour market. The ‘marginal attachment’ ratio — the proportion of the working-age population who are not currently in work or seeking employment but report that they would like a job — has fallen sharply in recent years to a record low. That suggests the scope for further rises in the employment rate as such people enter the labour market is likely to be limited. In addition, the number of hours that those in employment say they would like to work, over and above those they are currently working, has fallen back in recent years and has been close to, or a little above, zero in recent quarters.”
The last quarters growth of 0/5% has been attributed to stockbuilding in preparation for a disorderly Brexit. Annualised growth rates have been between 1.3% and 1.8% in the last four quarters https://tradingeconomics.com/united-kingdom/gdp-growth-annual. This data is incorporated in BofE forecasts.
Sustained long-term growth is not determined by cylical demand management or fiscal stumulus it is a function of growth in the stock of fixed capital, technological advance and skilled labour productivity.
@ MichaelBG,
“In theory the government could just create all the money it spends”
That happens in practice too. A ten pound note held by you or I can be represented as (10,0) We have the asset. That same note is (0, -10) to the Govt. The Govt holds the liability. When the Govt gets it back in tax it becomes (10,-10) The two parts cancel so it doesn’t exist in any meaningful way.
You know very well that I always say that a country has to match its spending, all spending not just Govt spending, with the real resources available in the economy to keep inflation under check.
Yes, it probably would help a lot if the rules of the SPG had been more relaxed. The The system is still unstable and should have only ever been considered as a temporary measure to bridge the gap between the old EEC and a more unified United States like Federal Structure. It nearly failed in 2012 and it’s very close to failing again. My reading is that the EU PTB are doing what it takes to make sure that the system holds together this side of the EU elections but there’s likely to be major conflicts, probably between Brussels and Rome, any time afterwards. Plus if the extreme right do as well as expected the markets could get spooked bringing on another crash.
It’s probably too late for any tinkering with the rules now.
Radicalism vs. realism, above. I think we need some of both. But wouldn’t it be ironic if, at the time when one of the major parties is ditching its leader for failure, another major party is letting its leader go at a time of success? We should surely ask Sir Vince to delay his handing over the baton until at least October, and later if there is a General Election this year.
‘There is a tide in the affairs of men, Which taken at the flood leads on to fortune.’
Good points Katharine. We should only promise what we are certain we can deliver. At the same time there has to a vision of a better future. I hope that will include a recognition that Land Value Capture can be a significant tool in providing the resources needed for social housing provision and funding of local government services and we are able to develop a consensus around a Universal basic income as a key element of welfare provision.
Modern Monetary Theory reasserts the important point made by Keynesian economists that money and cyclical deficits are not themselves a limiting factor – it is the availability and distribution of real resources that ultimately matter for both employment and economic growth.
Vince Cable on the Andrew Marr today made the point that the coalitiion government will come to be seen as a period of recovery and stability compared to the shambles of the Conservatives governing alone since 2015. That seems fair comment to me and I too would like to see him lead us through a general election should one occur this year.
Katherine & Joseph – I’ve long been a critical admirer of Sir Vince, but increasingly during the last few weeks I’ve felt that he’s really come into his own as the sort of assured and balanced statesman which the country so badly needs – and increasing numbers of voters seem to think so too. So, like you, I hope that he can be persuaded to delay his departure at least until the next General Election if that occurs before the end of the year. It would be ironic to lose him whilst the Party’s fortunes are still rising.
So I come full circle, after the 220th comment on this thread which began on May 7. Human Rights Watch has taken up the Philip Alston report of last November, with an article entitled, UN Poverty Expert Exposes Human Toll of Government’s Welfare Changes. See
https://www.hrw.org/news/2018/11/20/un-right-families-uk-are going-hungry. The organisation is preparing its own research on the increased reliance of food banks in deprived areas of England, to be published next year.
I want our Leader, Vince Cable, now to commit himself and lead our party in fully endorsing the Alston report and demanding actions to deal with the appalling situation revealed there, THIS year. I believe this should be our party’s first priority. And I want Sir Vince to stay on as Leader to continue to mastermind our party’s rise until October at least, and longer if a General Election occurs this year. I’m glad you agree on that, Joseph – I will be tweeting Vince directly tomorrow morning. and invite others to contact him similarly. We have a chance for effective action in the next six months, thanks to the hard work of our new and established councillors, members and supporters, HQ and Parliamentarians, and Vince should make this his swan-song, the right person to lead us all at this juncture.
Thank you for that endorsement from the South -West, Yeovil Yokel! We’ve much to do beyond getting some MEPs elected on Thursday.
Joseph,
From your post of Sunday at 3.23pm it seems you think it is more important for the government to increase wages for public sector workers than ensure all workers are treated the same or to increase benefits by the just over 10% they have been cut in real terms since April 2012.
I am suggesting in the second year of a Lib Dem government increasing benefits by just over 19%. This would remove some of those in work out of poverty no matter which sector they worked in. I have suggested introducing regional minimum wages to reach 70% of medium earnings in each region after 5 years, accept for London which is after 7 years. This also will remove some workers out of poverty no matter which sector they work in.
Just because the things produced have not been sold does not mean they were not produced from the existing capacity, therefore more can be produced than the Bank of England thinks. If economic growth from productivity returned to 2.2% and the extra production in the last quarter were all to happen in the same year for the whole year economic growth would be 3.3% (2 + 1.3).
Growth comes from more things being produced to meet increased demand.
Please remember that our policy to replace Business Rates in England with a Commercial Landowner Levy (CLL) will cost £7.12 billion over five years and will not provide any extra revenue for redistribution.
Katharine,
There will be no general election until September or later, as it is unlikely the Conservatives will be able to elect a new leader before the schools break up for the summer. We will be able to elect a new leader by September too.
The Coalition government should be looked back as a failure economically imposing the wrong policy – austerity and turning a recovery nearly into another recession. It carried out the orthodox economic policy of the time and as so often happens this has proven to be the wrong policy. We need a leader who doesn’t support the economic orthodoxy; a radical leader like the Liberal Party had in the past. (I am not even sure if a radical is going to stand for the party leadership).
Michael, I suggest that with British politics in flux and big decisions to be taken by our leadership this year whether or not there is another General Election, this is no time to be changing an experienced leader. Leave that to the Tories who have to ditch their failing one! Under Vince’s leadership our party is now rising, and we can appreciate his wisdom in fostering this.
I don’t think the Coalition argument is relevant. Vince was not in the central ‘Quad’ which took the big decisions, and he did good work in his Business department. In any case we know that the two most likely candidates to contest the succession were also ministers in the Coalition. Our party is now orientated towards ending austerity and towards social justice, as we both believe it should be, and can help our leaders, present and to come, to achieve this essential aim. There will be negotiations to be undertaken with other parties and sections of parties, and continuing dialogue after this week’s elections, and they will be in good hands.
Joseph,
I have been looking again at our promises for the 2017 general election. As already referred to we promised to increase government borrowing by £14 billion a year for “day-to-day spending” and at least £5 billion for additional capital spending. We also promised we would increase government spending in line with the growth of the economy as well as borrowing to invest an additional £100 billion over five years, which I have suggested would mean increasing capital spending in the following years by £7 billion, £8 billion, £8 billion and £7 billion.
So what would we have expected from a Liberal Democrat government if we had been the government after the 2017 general election. GDP at the end of 2017 was about £2098 billion; our £19 billion of extra government spending would have increased it by 0.9% and so the economy would have grown by 2.3% and would total £2146 billion. This is an increase of £48 billion. The 2018 budget book states that the government receives 37% of GDP as revenue. 37% of £48 billion is £17.76 billion. The following year we would have increased current spending by £17.76 billion and capital spending by £7 billion. I would expect economic growth to be 2.7% and this would generate £21.4 billion of extra government income which we would spend on current spending and we would also borrow a further £8 billion for capital spending. I would expect economic growth to be 2.9% and this would produce £23.65 billion of extra government income.
Katharine,
I am not a Vince fan. We should not put pressure on him to stay when he has decided to go. I would not like the party to be let into a general election with a leader who doesn’t want to be leader and who will resign as soon as practicable.
Is it not exciting and exhilarating to be Sir Vince Cable at a time when our party is at last getting the recognition it deserves? Would he not like to carry through his good work to see us influential in power again, if this happens this year as it might do?
Of course that is speculation. All I am suggesting is that those who agree it would be good for Vince to carry on till October, and even to the end of the year if there is a GE, should ask him to reconsider, while the British political crisis goes on.
I had a discussion with the colleague I was leafletting with today, as we sat eventually eating icecream in the sunshine and admiring the beauty of the beach and sea at Seascale, here by the Solway Firth. My colleague wants a new face as Leader, and pointed out that both likely contenders had ministerial experience. We agreed on which of the two we would like to take over eventually, but I pointed out that neither has such leadership experience as does Sir Vince. I think we need him in these stirring and challenging times to serve for a little while longer, if he will.
Michael BG,
you are continuing to assume that extra government spending grows output (GDP). However in an economy operating normally (i.e. close to capacity) additional government spending utlises more of the resources available in the economy principally by transferring use of those resources from the private sector to the the public sector. Increased provision of services in the public services is delivered in large part by reducing the output of services in the private sector.
The fiscal position has actually improved significanly since 2017 and the current expenditure budget was balanced from last year. The OBR published an updated fiscal report in March https://obr.uk/efo/economic-fiscal-outlook-march-2019/.
Based on expected economic growth, borrowing is expected to be £23 billion for 2018-19 and £13.5 billion by 2023-24. Libdem policy increases taxes to tranfer resources from the private sector to the public sector and will make use of the headroom in borrowing levels to invest in infrastructure. housing and Research and Development with a view to creating the conditions for sustainable long-term growth. Concomitant with investment in the economy is the aim of gradualy reducing the debt to gdp ratio to provide fiscal room for stimulus during downturns.
The ratio of debt to GDP is a common and meaningful measure of fiscal sustainability. When the nominal GDP growth rate exceeds the nominal interest rate, the government can run modest primary deficits and still have a stable or falling debt ratio. By contrast, when interest rates exceed economic growth, the government must run primary surpluses (i.e., revenues must exceed program costs) in order to stabilize or reduce the debt ratio. When economic growth rates and interest rates are the same, a primary balance will stabilize the debt ratio and primary surpluses will reduce it.
Forecasts of the fiscal position assume a level of gdp growth based on a large number of variables including capacity in the economy, age demographics that require significant levels of increased spending on healthcare and pensions as well as expected upward trends in International interest rates.
Joseph,
There is no rule that states that if a government increases its spending without raising taxes to cover the amount that either consumer spending or business investment will decline. You might wish to argue that there is a finite amount which can be spent on investment and if the government increases spending on investment such as building homes or infrastructure then businesses will invest less. I don’t hold to this position. I accept the Keynesian idea that if demand is not sufficient this is because businesses and consumers are not spending enough and so the government has to meet the shortfall. I am arguing that if demand was higher business would have to increase productivity to meet this extra demand as it did before 2008.
However, looking at the figures I produced I am concerned that we don’t have my constraint to limit the total amount the government can increase spending by each year. With my constraint in place we would not spend all of the £23.65 billion in extra government revenue in the third full year but only £23.28 billion. I think my constraint would apply for all future years after this as well and so would reduce the national debt to GDP ratio.
What I haven’t mentioned is the effect of expectation. Currently businesses expect the government to keep spending constant or to reduce it, they also expect to be able to export less because of Brexit. I would argue therefore they are not expecting demand for their products to increase and so are reluctant to invest to improve productivity and this is why the Bank of England predicts economic growth from increased productivity to be only 0.9% rather than 2.2% that it was for the years 1998 to 2007. With a government committed to spending the proceeds of economic growth and increasing spending on infrastructure and housing each year from borrowing this would change businesses expectation and encourage businesses to invest to improve productivity and so improve the forecasts for the potential for growth.
Joseph,
I note you didn’t address my point that you think wages for public sector workers should increase but you don’t think the real term cuts to benefit levels (just over 10% since April 2012) should be restored by using the extra income the government gets from economic growth.
I note you have failed to address my point that it is Liberal Democrat policy to increase day-to-day spending in line with the increase in the economy as I have been suggesting. Therefore for our party there should be no problem with thinking about how we should spend these extra billions of pounds each year.
Of course government spending increases GDP assuming that they don’t fund the extra spending from increasing taxes to generate the amount. We earlier discussed and agreed on the how GDP is calculated.
GDP is output that is measured by total spending or total income in the economy. Total output is limited by the capacity to produce goods in the economy and the amount it can grow by. The government has no income from rents on land, wages or returns to capital in the form of interest. The state collects taxes and spends money on rents, wages, interest, goods and services and transfer payments. Goverment consumption (spending on wages, goods and services) accounts for about 18% of GDP. As the economy grows incomes increase and the amount the state pays out in rents, wages, for goods and services, interest and transfer payments (including pensions, welfare, foreign aid, EU payments etc) increases. All this is brought together in budget forecasts and borrowing forecasts are generated.
The basis of Keynesian economics is monetary and fiscal stimilus whe the economy is operating below capacity and contractionary policy when the economy is overheating as evidenced by rapid increases in house prices and unsustainable expansion in cosumer credit and spending.
In normal conditions the fiscal policy will be neutral and seek to balance curent spending while using borrowing to maintain state investment in infrastructure and public housing.
What you describe as Keynsian economics is neither Keynesian or economics. Jim Callaghan at the 1976 Labour Party conference put in aptly “When we reject unemployment as an economic instrument — as we do — and when we reject also superficial remedies, as socialists must, then we must ask ourselves unflinchingly what is the cause of high unemployment. Quite simply and unequivocally, it is caused by paying ourselves more than the value of what we produce. There are no scapegoats.”
Libdem policy welfare policy is outlined above. It requires a substantial initial injection of funding (in excess of £10billion) and maintenance of benefits in line with earnings and economic growth thereafter. There is little point in capping public sector and then having to make up the difference in tax credits. Just don’t cap the pay in the first place and you won’t need so much welfare support.
Joseph,
It seems that you mistakenly believe that business output has to increase before demand increases. Keynesian economics does not. As I keep telling you output only increases if businesses believe there is the demand for the extra goods.
If the government builds something GDP increases.
I agree the UK economy is limited in the amount it can grow each year without causing inflation and I have concluded from history that this limit is about 3%. That is the capacity limit for growth. Currently the UK economy can grow by 2% a year as demonstrated in the last quarter.
The indication that there is too much demand in the economy is an increasing inflation rate. Consumer credit just increases demand just like extra government spending funded from borrowing. House prices increase because not enough houses are being built to meet the demand.
Keynesian economics does not state the government should borrow to invest in housing and infrastructure when the economy is at full capacity. It states that doing such things increases demand in the economy and stimulates businesses to produce more when businesses can do this and causes inflation when businesses can’t.
There is no Lib Dem commitment to link benefit rises to wages rises, nor to restore the 10% real terms cut since April 2012, nor to increase it to the poverty level to remove everyone in the UK out of living in poverty.
Even if I was advocating keeping the public sector pay cap, which I am not, it still would lift more people out of poverty to just increase the benefit levels to the poverty level as the policy would not only benefit public sector workers but all people living in poverty.
I still don’t understand why you reject the idea that people who receive benefits should not live in poverty. Please can you explain why it is a good thing that some people in the UK live in poverty?
Michael BG,
Aggregate demand is volatile. If aggregate demand falls, we find ourselves in what Keynes termed a recessionary gap. The economy is in equilibrium but with less than full employment. Keynes believed that (due to sticky prices and wages) the economy would tend to stay in a recessionary gap, with its attendant unemployment, for a significant period of time.
Similarly, if aggregate demand increases, the economy could experience an inflationary gap, where demand is attempting to push the economy past potential output. As a consequence, the economy would experience inflation.
The key policy implication for either situation is that government needs to step in and close the gap, increasing spending during recessions and decreasing spending during booms, to return aggregate demand to match potential output. These are short-run effects that do not materially alter the long-term path of economic growth.
Aggregate demand is total spending, economy-wide, on domestic goods and services, economists also refer to it as total planned expenditure. It is calculated (not determined) by adding up its four components: consumption expenditure, investment expenditure, government spending, and spending on net exports—exports minus imports. If government consumption spending increases from 18% to 20% of GDP, the other components of GDP will contract from 82% to 80%.
Keynes put emphasis on government spending to stimulate or contract demand in the short-term and on sustained investment in the economy to maintain demand in the longer term. The objective of these policies is to mitigate the cycle of boom and bust that has been a damaging feature of modern industrialized economies,
There has been and continues to be many misrepresentations of Keynes economic analysis, mainly by Labour politicians who have likely never read what he said in his actual works.
Real GDP per person has more than trebled since 1960. Why then do we still have widespread poverty if economic growth is the cure all? The answer lies in the relative distribution of income and the increasing share of economic growth going to rents and interest versus wages in the economy.
Attempting to resurrect failed policies that claim to be based on Keynesian economic analysis when they in practice contradict Keynesian theory, will leave us in the same place in the future as it has now.
Would it be helpful if Joseph and Michael had a special thread all of their ownio ?
Florrie Forde – Oh! Oh! Antonio (1908) – YouTube
https://www.youtube.com/watch?v=1raydJ-HYSc
Video for oh antonio▶ 2:56
I’m sure Katharine has won an award for the most ever LDV comments (233 and rising), but surely, gents, enuff is enuff…….
Joseph,
Do we have an inflationary gap now? Of course not, inflation is the lowest it has been for nearly two years. The extra demand being produced in our economy is being met mostly with increased growth. There is not too much demand in the economy and it is not the role of government to remove demand from the economy. It seems you have misunderstood me; I am saying that the current potential for economic growth is 2% but in the future it will return to 3%.
You do not seem to understand that future demand is not currently spending!
If government spending is increased by 2% of GDP assuming that it is not funded from tax increases then GDP will increase by 2% of GDP and consumer spending and business investment will be unchanged. This is how Keynesian economics works in the short-term. The multiplier effect then increases demand further and businesses then produce more, this then produces more demand and the economy can continue to grow from this extra demand. This up-turn in the economy should reach a point where the extra demand cannot be met and inflation rises. It is at this point that the government has to remove demand from the economy either by cutting government spending or increasing taxes. We are clearly not there yet.
After the Second World War until Thatcher the benefits of economic growth were shared across the whole community. Poverty and economic inequalities have increased since 1979. Since 1979 capital has increased its return and labour has had its return reduced. Increasing minimum wages will do something to rebalance this, as would full employment, as would increasing the basic benefit rates to the poverty level, this would also have the benefit of removing everyone in the UK out of poverty.
You still have not stated why it is a good thing that some people in the UK live in poverty.
Mchael BG,
Libdem ecnomic policy is not contractionary. Spending on public services will increase in line with economic growth (i.e. fiscally neutral) and borrowing capacity will be utilised to increase investment spending.
Welfare policy requires a large injection of funding initially and maintenance of spending in line with economic growth. This is not leaving people on benefits living in poverty.
I think all that needs to be said has been said (and repeated more than once) so I’ll contribute no further.
@ Michael BG,
The conventional and mainstream economic thinking at the moment is that the duty of the government is to run a balanced budget, or close to it, which is then supposed to minimise inflation. There is usually some ‘wiggle room’ on the question of capital and current spending.
The question of growth and the inflation target is subcontracted out to the central bank, who are supposed to achieve the targets set, on both inflation and growth, by adjustments in monetary policy. The governor of the BoE is required to send regular letters to the Chancellor of the Exchequer explaining how well, or otherwise, this is all going.
So it is difficult to persuade people like Joe to step away from this worldview and accept anything other than that ” Spending on public services…… increase in line with economic growth”. They are very resistant to the idea that spending on public services can actually increase economic growth. They want that done by increased ” borrowing capacity” but not govt borrowing capacity of course!
There is some contradiction in their own explanations. They’ll happily acknowledge that having a too loose fiscal policy will create inflation, they know how to spell the words Zimbabwe and Weimar Republic to put down anyone who dares mention that the Govt might have just a small role in achieving growth and inflation targets too! But they are very resistant to the idea that Govt should actually use its fiscal power to hit the inflation and growth targets.
cont
I think we are making some progress on challenging these ideas. When I first came across MMT thinking a few years ago, hardly anyone had heard of it! But now the term is everywhere. The mainstreamers are torn between saying that MMT is crazy because we’ll all end up like Zimbabwe, and saying MMT is basically correct but MMTers aren’t saying anything they don’t already know.
However, the progress isn’t everywhere. It’s curious that the Australian Labor Party has just lost an ‘unloseable’ election. As Bill Mitchell says:
“For the last six years they have been raving on about ‘budget repair’ and castigating the government for its on-going deficits. So within that neoliberal fiscal frame – bigger surpluses are better – they were then locked into coming up with some very big tax hikes to “pay for” the spending promises.”
“The Labor Party would have been better off spending the period in Opposition educating the population about how the monetary system operates and extolling the virtues of fiscal deficits, especially in the context of nearly 14 per cent of the available labour force are either unemployed or underemployed and economic growth is heading south.”
http://bilbo.economicoutlook.net/blog/?p=42380
Joseph,
You have nearly got to where I am. I am not calling for more spending on benefits in the first year of the Liberal Democrat government than was in the 2017 manifesto; then I am calling for between £5 and £8 billion extra each year for benefits after that (the lower number is if all claimants are single and the higher if all claimants are couples so it will be somewhere between the two) funded from economic growth. All you need to do is recognise that the Liberal Democrats will stimulate the economy by £19 billion in the first year and the extra income generated from economic growth will continue to grow especially with £100 billion of additional infrastructure spending funded from borrowing so by the full third year of a Lib Dem government this extra revenue will be in the region of £23.65 billion.
Of course you also need to recognise three other things: that the basic benefit level should be set at the Joseph Rowntree Foundation’s poverty level: this will cost between £30.8 and £47.9 billion; and it can’t be done in one year.
Peter,
Indeed, I do see the contradictions in Joseph’s position in that he seems to accept that if the government spends money on infrastructure which is funded from borrowing this is a good thing, but if it is spent on increasing benefits or the NHS it is a bad thing. Also, I don’t understand how he can think that the economy works how I say it does during a recession but not the rest of the time. It either works how I say it does or it doesn’t.