We need to talk about tax

The developing consensus that the NHS needs more money, and that there is nowhere else for that to come from except increased taxation, shows that there are some things that voters may well be willing to pay more for in order to get better-quality service.  But we need, also, to recognise how strong the anti-tax lobby in this country is, and how difficult it will be to shift popular perceptions that others should pay more, but we deserve lower taxes ourselves.

Liberal Democrats beat themselves up about their collaboration in the coalition’s austerity programme.  Our mistake was not to mount a stronger argument in 2010 for funding a higher proportion of the adjustment through tax increases rather than cuts.

But we ought to recognise that all three parties have collaborated in the myth that decent public services could be provided without higher and more progressive taxation.

Margaret Thatcher set the tone, financing public services partly through the windfall revenues from North Sea oil – instead of establishing a sovereign wealth fund as the Norwegians did –  and partly through selling off state assets to fund current spending (‘selling off the family silver’, as the elderly Harold Macmillan had remarked).

The Labour Party as it approached the 1997 election was committed to increasing public spending, but deeply hesitant about admitting that it would mean higher taxes.  I recall being told by a Labour contact drafting their programme, as we produced our manifesto pledge of an extra penny on income tax for education, that this was a huge and damaging mistake: ‘the public will never vote for higher taxes’.  Taxes did rise under Labour, little by little, but public spending rose more – leaving little room for economic adjustment when the 2008 crisis hit.

As the Institute for Fiscal Studies and the Health Foundation’s joint study reports, the long-term rise in health spending has been accommodated by counterbalancing reductions in the defence and housing budgets – neither of which can easily be squeezed further.

And it’s not just health that needs more.  Schools, pre-school and adult education cry out for more – a more urgent priority than relieving the costs of the 50% who go to university, I would argue.  Prisons are appalling, and understaffed.  Police numbers have been cut by a third.  Social care, both for children and for the elderly, is desperately under-financed.  Local government is starved of funds for basic provision; Bradford in its latest cuts is disposing of its last three public toilets (in the tourist destinations of Haworth, Ilkley and Saltaire, where busloads of retired people and children arrive in need of them).

Yet the voices from a powerful group of right-wing think-tanks still call out for tax cuts and a smaller state.

The Taxpayers’ Alliance and the Institute of Economic Affairs share libertarian assumptions about shrinking the state and the inherent wastefulness of public spending; they argue that it’s not possible to raise more than 35% of GDP in taxation, and that public spending must shrink to that level.  They have campaigned to limit taxes on alcohol and fuel, to hold down public sector salaries, and to suggest that ‘a war on waste’ will save enough money to fund the minimal services the state should provide.  Their model is the United States under a Republican President and Congress; the wife of Matthew Elliott, co-founder of the Taxpayers Alliance, recently with the Legatum Institute and Brexit Central, is now chair of US Republicans in Britain.  Anti-European sentiment is closely linked to libertarian opposition to taxation in a mindset that goes back to the Chicago School and Von Hayek, and receives ready support in the right-wing press.

So how do we shift popular attitudes, and counter the siren voices of the libertarian right?

We start with the evident case that the needs of our growing elderly population require higher public spending, and that cutting back on investment, education, housing and other local services in order to fund those needs is a recipe for long-term economic decline.  We should point out that Britain’s tax take is well below the European average: Eurostat reports that as 40%, 5% above the UK percentage.  OECD figures provide an average of 34.3% for 2016, with the USA (at 26%) and Canada (at 31.7%) dragging down the overall figure; the UK in its calculations takes 33.2%.  Higher public spending has not ruined the German or Dutch economies; lower public spending has not noticeably led to a promised surge of private innovation, though it has certainly left us with a skills shortage and a housing crisis.

No serious political party can duck this issue.  Even Theresa May attempted to address the problem of funding the elderly in the last election, only to be driven back by claims in right-wing media that she was promoting a ‘dementia tax.’  We need to be far more determined than that to persuade the average British voter that an active state, and decent local government, have to be adequately financed.

* Lord Wallace of Saltaire is a Liberal Democrat member of the House of Lords.

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43 Comments

  • Peter Martin 31st May '18 - 1:12pm

    @Lord William Wallace,

    “The developing consensus that the NHS needs more money, and that there is nowhere else for that to come from except increased taxation,”

    A Consensus, ‘developing’ or otherwise, doesn’t mean the this is correct. It certainly isn’t. It’s largely arrived at by those who might do a back-of-envelope calculation indicating that raising the standard rate of income tax by 1p should bring in another £6 billion, or whatever, in revenue. What they fail to take into account is that if everyone has to pay more income tax they will have less to spend generally. VAT receipts will fall. Others will lose their jobs if spending is less overall. Fewer jobs means less income tax revenue.

    So unless you do the proper modelling of the economy you can’t say that increasing income tax rates will give the Govt “more to spend”. Not that this is at all the right way to look at Govt spending. Unlike us, it should be spending counter-cyclically with one eye on the unemployment (and underemployment) rate and the other on the inflation rate. It should be spending more when its revenue is lower and vice versa!

  • I’m not a libertarian but I do somewhat sympathise with their views – good and bad taxes exist so why should a person support the increase in taxation of bad taxes? I’ve gone over this before in other threads here on LDV and I don’t really have the willpower to do so again but I’d encourage others to have a quick skim of this OECD paper on tax policy:

    https://www.oecd.org/tax/tax-policy/41000592.pdf

    It ranks taxes from best to worst and the order goes: taxes on land, taxes on consumption, income taxes and corporate taxes.

    I’m in favour of the idea of making taxes efficient and sometimes regressive but making redistribution wholly progressive.

  • Peter Martin 31st May '18 - 1:45pm

    I sometimes despair that enough people will ever understand the real cause of our economic problems.

    This article (and I find the best ones on the subject do come from across the Atlantic) quotes a Conservative as saying:

    ‘……….austerity has been driven by nothing more grandiose than arithmetic. It’s the ideology of two plus two equals four,” says Daniel Finkelstein, a Conservative member of the upper chamber of Parliament, the House of Lords, and a columnist for The Times of London. “It wasn’t driven by a desire to reduce spending on public services. It was driven by the fact that we had a vast deficit problem, and the debt was going to keep growing.” ‘

    https://www.nytimes.com/2018/05/28/world/europe/uk-austerity-poverty.html

    But it’s not just the Tories who think like this. You need a little more than just simple counting on fingers and toes to successfully run an economy. But not a lot more. If money is leaving the economy to pay for our net import bill, the Govt has to run a deficit to stop it running out of money and so prevent recession. It’s really not that difficult so why can’t our Mr Finkelstein see that?

  • I don’t know where Mr Martin has dug up “our Mr. Finkelstein” from. As far as I know the noble Lord Finkelstein joined the Tories over twenty years ago….. And as far as I’m concerned they’re welcome to him.

  • Steve Trevethan 31st May '18 - 2:41pm

    Might it help our tax clarity and efficiency if we were to establish the “total tax pool” of British citizens and relevant non-citizens so that we have full transparent knowledge of what we are taxing?

  • Laurence Cox 31st May '18 - 2:45pm

    @Zak

    Paragraph 104 of the report you cite discusses the drawbacks of property taxes.
    Interestingly, paragraph 49 advocates increasing taxation on owner-occupiers (essentially reintroducing the old Schedule A income tax on the notional rental value) on the grounds that investment in housing draws savings away from other capital needs (they are thinking about investment in productive industry) and also reduces labour mobility (a typical OECD approach that reflects their Thatcherite ‘there is no such thing as society’ position).

    I would still argue for equalising tax on all forms of income, whether earned or unearned income or capital gains before we start looking at anything else. It is the wealthiest who can most effectively utilise unearned income and capital gains, so equalisation would automatically make the taxation system more progressive.

  • @ Peter Martin

    If the government raised say £6 billion extra in tax and then spent it by increasing wages in the public sector there should be little negative effect on the economy, assuming that those earning most paid more and those who had the pay rise had been receiving less. If the aim of the tax rise is to spend the money rather than reduce the deficit there is nothing wrong with increasing taxes. However, because some of the extra £6 billion spent by the government is likely to come back to the government in taxes, more than the amount estimated to be raised from the tax rise should be spent into the economy to counter any accidental increase in government income caused by their spending more.

    There are two ways of considering government spending: the way William Wallace is looking at it, government spend money to provide services to the public; and those which stimulate the economy. All government spending contributes to aggregate demand and so can stimulate the economy. The question for us is, does the UK economy have spare capacity in all regions of the nation? If the answer is no then any general increase in government spending which effects all regions can cause problems for the economy. In which case any government stimulus has to be targeted to the regions which have the spare capacity. This is why a job guarantee is a way of targeting the government spending where there are people keen to work who are not working.

    @ Zak

    Indeed, but you failed to convince me that moving the tax to taxes on land and consumption and reducing taxes on income and capital are as beneficial as claimed, or as easy without increases in the tax take to pay for higher benefits to ensure the poorest are not adversely affected.

    @ Peter Martin

    William Wallace does imply that austerity was necessary and it wasn’t, but the point of the article is a discussion on increasing taxes to pay for government spending for public services across the whole country and not identifying the need for extra government spending to manage the economy.

  • Peter Martin 31st May '18 - 4:08pm

    @ Michael BG,

    “In which case any government stimulus has to be targeted to the regions which have the spare capacity.”

    Yes I very much agree with this and it should chime with Lib Dem wishes to move the economic ‘centre of gravity’ of the UK more away from London and the SE. There’s no point spending extra money in a region if it simply creates higher local inflation , in both the level of wages and asset prices. The Government wouldn’t be getting any benefit from the higher spending.

    Of course, higher spending on the NHS (or anything else) may cause the economy to overheat generally and that is when a tax rise would be required to cool it down again. This is how LWW might want to explain it in his article.

  • Peter Martin 31st May '18 - 4:21pm

    @ David Raw,

    “Our Mr. Finkelstein” alludes to his Britishness and not necessarily his membership of any political party. The article I referenced was American.

  • @Michael BG

    There’s a lot of literature which already exists explaining the benefits of taxes on land and consumption and away from income, and those texts do a far better job of explaining the benefits better than I could.

    @Laurence Cox

    Aye, land taxes are politically hard to introduce but they do exist in other countries such as Australia, Estonia and general property taxes in the US. The main problem with introducing any new tax is that voters don’t believe other taxes would be reduced so the electorate just see it as an extra burden on them. The tax would also have to be set at the national level instead of the local level to properly reallocate money coming in from London and the South East to other deprived areas such as Wales and the North East.

    Capital gains tax brings in very little of the overall tax receipts and has historically brought in very little, even when there were increased rates. The biggest source of unearned income comes from land and property which a land tax would solve.

  • Comments seem to focus on the economic impact of tax rises, but as Lord Wallace points out, the real problem is political. Indeed he eloquently points out just why the public, whatever that may say when faced with researcher with clipboard, are unlikely to support a party with a high tax agenda. As he says, it is not just the NHS but schools, prisons and other state institutions which need extra cash. I fear that pointing out to people that we have an aging population may be insufficient to change this state of mind, as will comparison with the Dutch.
    I know this suggestion will raise hackles, but is it not just vaguely possible that the urge to reform and even to privatise (ouch, I used the P word !) could be a response to the harsh political reality, rather than a heartless right wing plan to hurt the most vulnerable ? And before you destroy me, remember that there is a difference between understanding an impulse and agreeing with it.

  • Just on your paragraph about other underfunded areas of public spending – its not just the prison system; the entire criminal justice system is in crisis. Over 100 barrister’s chambers are effectively on strike right now and have been since March, due to severe cuts to legal aid and poor remuneration, and underfunding of the police and courts.

    This has meant that in recent weeks, where trials have gone ahead, some defendants have had to be represented by inexperienced and/or under-qualified solicitors rather than barristers; or have actually had to represent themselves! A recent report indicated that 97% of barristers said they had faced disclosure issues in criminal trials in the past year – caused largely by a lack of funding to allow the police and CPS to actually do it properly.

    Yet sadly, no politicians of any party seem to have noticed or care – so your omission of this is depressing.

    On the broader discussion – I feel we need to take ideology, and what is effectively bean counting, out of the debate really and fully accept that public services do have value, which means that to funcation effectively they do need to be paid for, and to be ambitious and broad ranging in our approach as to how to properly do so. Easier said than done obviously, but it would be nice to see the party try.

  • Peter Martin 31st May '18 - 7:14pm

    @ JoeB,

    “Demographic trends will require a substantially increased proportion of the population to be supported by a smaller working population.”

    Yes this is true. That’s why the “rise of the robots” isnt so scary as it may first appear.

    At present, most people, on this blog, spend half their time worrying that the robots will take all our jobs and pushing for a UBI to make up, and the other half worrying about changing demographics and the possibility that Brexit will deprive the country of much needed workers.

    Well make your minds up! It’s one or the other or it’s neither (incidentally the correct answer!) But it certainly can’t be both!

  • Geoffrey Payne 31st May '18 - 7:33pm

    I know you are a consensual kind of politician, so I wonder back in 2010 you must have been think we got the balance wrong between taxation and public spending cuts. What do you do about it? It was not a trivial mistake, it led to the bedroom tax and other benefit cuts that ruined people’s lives. With that in mind what should a responsible politician do to guide the party from going into the wrong direction? By not acting then we pay the price today.
    And I am curious that you do not put any numbers on it. I partially agree that Labour was guilty of spending more financed by borrowing rather than tax increases. But the real problem in 2008 was the huge cost of having to bail out the banks who thanks to light touch regulation had behaved so irresponsibly going for a quick profit. That was far more a problem than Labour’s irresponsible spending as Vince Cable often points out.
    As for today, yes we need to tax and spend more, the Tory experiment that we tagged along with trying to achieve “more with less” has simply failed and our public services are in a terrible state.

  • Katharine Pindar 31st May '18 - 10:28pm

    Yes, but what about the young? We are very good on this site at wanting to provide for health and social care and local services, which sometimes makes me think that the bulk of contributors may be retired. I worry about young people’s housing crisis, and their increasing inability to earn enough to buy a home, and I want taxes on land and deterrence on buying property as investment. Plus taxes on wealth to help tackle the growing inequality of our country and have money for regional development and properly funded welfare benefits. I look forward to progressive taxation being proposed and passed at Brighton.

  • On the whole you get what you pay for. Not willing to pay tax don’t start griping there are no police. the roads are lousy and the health service can’t cope. Now I know the Tories (and a few others) will tell you “you can do more with less” the problem is while this may be true for the short term, quite quickly the scrimping, saving and cutting lead to a threadbare service struggling to cope and leading to more problems. It’s also a fallacy that by not paying taxes you will be better off, you have to pay for the services you don’t get; the extra security, the private healthcare, the repair to cars. the extra fuel caused by driving over assault courses. You will pay more it is just a case of will it be tax or paying for services taxes used to pay for.

    Finally just a thought “The Tories believe in doing more with less, eventually this will lead to us doing everything with nothing”.

  • 1. ACCURATE INTERNATIONAL COMPARISONS Of course for comparisons we should always point out that in the USA for most working age earners taxes do not cover healthcare – so that depending how you calculate it takes USA taxes above British rates. Google suggests that the cheapest Obamacare policy for a 40 year-old non-smoker is £4000 a year. In addition wikipedia has Canadan taxes at 39.8%. Actually the UK has pretty much the lowest taxes of any western developed nation which surprised me. https://en.wikipedia.org/wiki/List_of_countries_by_tax_revenue_to_GDP_ratio

    2. A MAJORITY WANT HIGHER TAXES FOR BETTER PUBLIC SERVICES – PARTICULARLY SCHOOLS AND HOSPITALS. I am not sure the anti-tax lobby is that strong in this country. Britain has consistently voted over the last 20 years by a majority for parties that have advocated higher taxes – if you add together us, Labour, greens, SNP, Welsh Nats. People see from their own experience that schools and hospitals need more funding and from TV programmes. Many more lobby groups are on more advocating better funding for these services – we have shown good public services funded by fair taxation is a vote winner. Clearly we should take every opportunity to explain why and why you don’t get something for nothing.

    3. BORROW FOR A HUMAN INFRASTRUCTURE FUND. We should not be afraid to borrow to invest in our human infrastructure – just as we have advocated borrowing for a physical infrastructure fund. Borrow for £2.5 billion extra pupil premium, real terms increase in schools funding and at the very least for Vince’s £10,000 for non-university adult education fund. Today countries like South Korea send 69% of their young people to university. We need everyone in 13 years time to be ready for 18-21 education – that means closing the attainment gap between poorer pupils and richer and investing in schools. It is prudent to borrow for something that will make us (significantly) richer in the future.

    4. BORROW COLLECTIVELY FOR UNIVERSITY TUITION. It is surely better to borrow individually at a negative real interest rate – that’s right the banks pay us than individually at extortionate rates! Soon we will have near universal 18-21 education so it is not about one section benefiting at the expense of others – just as the school leaving age has gone from 10 to 18 over the last 120 years.

  • John Appleby of the Nuffield Trust estimates NHS England needs a 4% real terms increase in funding every year for the foreseeable future to maintain a service comparable with European Standards. NHS England incurred a £1billion deficit last year and that was after one-off receipts of £800m from land sales etc. Capital expenditure has been cannibalised falling from £2bn in 2010 to £600m last year. There are 90,000 unfilled vacancies and 4 million on the waiting list for operations/treatment.

    NHS England is a conglomeration of regional bodies. Five regional teams regions cover healthcare commissioning and delivery in their area and provide professional leadership on finance, nursing, medical, specialised commissioning, patients and information, human resources, organisational development, assurance and delivery.
    Regional teams work closely with organisations such as clinical commissioning groups (CCGs), local authorities, health and wellbeing boards as well as GP practices.
    North regional team
    Midlands and East regional team
    London regional team
    South East regional team
    South West regional team

    Each of these regions has the capacity to train healthcare staff sufficient to their regional needs and direct the funding of healthcare and social care needs from devolved local taxation based around land value taxes.

    Lord Wallace writes “We need… to persuade the average British voter that an active state, and decent local government, have to be adequately financed. When it comes to politicisation of schools and healthcare, we might do worse then heed the advice of the late Ronald Reagan when he said “In this present crisis, [national] government is not the solution to our problem; government is the problem.”

  • Peter Martin 1st Jun '18 - 6:00am

    LWW clearly doesn’t understand accounting from the govt’s perspective. It can’t “sell off state assets to fund current spending”. The govt doesn’t need money to be able to spend in the same way as you or I. If it did, how would the first pound ever be created? Where would the money in the economy come from in the first place?

    So what happens when the Government nationalises, say, a £1 billion industry? It swaps a £1 billion of its own IOUs (bonds created from ‘thin air’ or maybe Govt stock) for £1 billion of shares. The Govt now owns the shares the former shareholders now own the bonds or the stock. If the price is fair, neither the Govt nor the shareholders have a different bottom line on their balance sheets.

    Has the Govt now ‘less money to spend’ than previously? No. The former shareholders are no more likely than they were before to splurge out on buying new cars etc. The situation, from an accountancy perspective is unchanged. The corollary is if another Govt, of a different political complexion, comes along and reverses the process it then doesn’t have ‘more to spend’. Govt neither has, nor doesn’t have, ‘money to spend’, in its own currency.

    Once you understand this is how it is for Govt (ie completely different from you and I) you can easily see the nonsensical thinking behind so-called sovereign wealth funds too.

    http://bilbo.economicoutlook.net/blog/?p=28913

  • Ken Palmerton 1st Jun '18 - 8:58am

    Yes indeed. We DO need to talk about tax.

    But it is deeply depressing to see respected LibDems repeat parrot fashion the Thatcherite mantra that “The only monies available to Government come`s either from taxation, or borrowing”.

    This has NEVER been true, as shown by the actions of British Liberals in Government in 1914 When they created and issued Treasury bills “Bradburys” interest free, against the credit of the whole nation.

    If it was possible to do this then, it is possible now. As Keynes wrote: ” This involves the euthenasia of the Rentier”.

  • @Peter – Yes the accounting is different for central government. However, for local government accounting is just as people normally understand it. Hence in the case of Northamptonshire CC the rules are such that it cannot draw on reserves to “balance the budget” and must “sell off state/community assets to fund current spending” …

  • Peter Martin 1st Jun '18 - 9:33am

    @ Roland,

    Yep. Totally agree. I’ve often made the same point myself.

  • Neil Sandison 1st Jun '18 - 10:23am

    William Wallace is correct taxation is political but it is also emotional particularly where health and social care are concerned .Thats why i think we should go back to a national insurance based system which we all regardless of source of income pay into ,and at a progressive level based on personal wealth , None of us know when we might be the victim of an accident . none of us know when an epidemic might strike us down or cause major problems for our hospitals ,none of us know because of dementia we may require high levels of personal care ,none of us know when a loved one will need 24 hours person care.So stand by our commitment to fund the NHS and Social Care.

  • Mick Taylor 1st Jun '18 - 10:39am

    Peter Martin. What you say about nationalisation is only partly true in that it assumes that the government pays market value for the industry. If it pays less, or if it pays nothing then the like for like analogy fails.
    Ken Palmerton. Hello Ken, long time no see or hear from! Social credit does not have a widespread history, though ‘green’ money is used in places like Ittheca and to a limited degree in Hebden Bridge. You could argue that in wartime, when the government largely took over the economy, ‘Bradburys’ were a logical way of providing the financial grease that kept the economy going. Without that tight economic control I have severe doubts that this idea would work.
    LWW. Agree that we have to start rehabilitating tax and arguing for higher and different taxes. My constituency put forward a resolution on rehabilitating tax to be considered at spring conference and it was rejected. If we want to have a serious debate at conference then we have to get past the FCC hurdle. If we can’t do that perhaps we can start with a fringe meeting and perhaps Ken could be invited to put his case there too.
    After 40 years of denigrating tax – and the Lib Dems are just as culpable here- it will be a difficult road to travel.
    We can no longer go on pretending that you can have the services we want and not pay the price in tax. Voters won’t like the message but they will at least appreciate its honesty. Whether they will then vote for higher taxes is the question!

  • Mick Taylor 1st Jun '18 - 10:49am

    Peter Martin. A further thought. Your analogy also breaks down if the government ‘rescues’ an ailing industry and eventually sells it for a profit. One can think of British Leyland nationalised for a song in the early 70s by the Tories and then later sold off. Or what happens when the government makes a loss as with RBS?

  • William Fowler 1st Jun '18 - 11:33am

    Public spending continues to rise, the deficit continues to fall, for the moment… but I can’t understand how a partly that proclaims Brexit will be a fiscal disaster for the UK can then harp on about increased govn spending when at the same time talking about govn revenue falling.post Brexit. All the gibberish about printing money out of thin air is just silly unless you yearn after a ruined currency and hyper-inflation. Reality is the govn takes a huge chunk of money out of the economy and is still very lacking in its efficient use so really should concentrate on how to distribute a small pot fairly in the future.

    If the govn nationalizes a viable industry, it will pay too much, then all the workers will relax a bit so it becomes less productive, then all the clever guys will take off for the private sector so the company becomes less innovative and lack people willing to stand up to the ideas of silly politicians so the products become less atrractive… in a few years a billion pound investment will end up worth a quarter of that.

    Incidentally, the actual numbers of pensioners needing care is quite small, good health and good pensions mean a remarkable number of people in the 65-75 age group are doing very well and don’t want to be treated like overgrown children. 75 is the new 50, and that has to be borne in mind when projecting health care costs into the future, perhaps not such a disaster as the figures suggest.

  • William Wallace 1st Jun '18 - 12:03pm

    Public spending on education, training, housing and infrastructure IS investment, as well as provision of public services. The Resolution Foundation’s Inter-generational equity study focused on another underlying aspect of our changing pattern of public spending: that rising spending on the elderly (people like me) is crowding out investment for future generations. My main point is that the IEA/TPA line that HMG can’t raise more than 35% of GDP in tax, and that public spending must be squeezed down to that level, is ideologically driven, and we have to challenge it to make the case for increased public investment and better public services.

  • William Wallace 1st Jun '18 - 12:14pm

    William Fowler: I don’t know where you get your figures from to support your statement that ‘the actual numbers of pensioners needing care is quite small’ : the crisis in social care for the very elderly (80-85+) is dragging down local government and the NHS. Rising life expectancy partly results from NHS procedures that were not available a generation ago: replacement hips and knees, successful cancer treatment, long-term medication for elderly patients, etc.. One new social phenomenon, after all, is that retired people in their 60s and 70s are often having to care for others in their 90s.

  • I wouldn’t be overconcerned about Mr Fowler’s cavalier treatment of figures, William. It’s usually an attempt to justify right wing ideology and which would be described north of the border as ‘just blether’.

  • Peter Martin 1st Jun '18 - 3:32pm

    Mick Taylor,

    The Govt can make or lose on the deal. It’s really no different from you or I buying shares in that respect. If anyone buys shares they don’t feel immediately worse off because they’ve spent the money. Govt is in the slightly better position that they don’t have to actually ‘have’ the money as we do.

    With RBS political considerations, rather than ideology, dictated the purchase. Any government would have done the same thing. Too big to fail and all that.

    @ Joe B,

    Yes, Govt does do as you say. Did anyone say they didn’t? The only slight quibble I might have is that as the pound is an IOU of Govt then selling bonds isn’t really borrowing in the normal sense of the word. They are swapping one kind of Govt IOU (gilts) for another (cash).

  • @ Zak

    If you wish to convince people to change their minds you need to engage in debate with them and not just point them to articles to read. (Encouraging them to read articles is only one part of the process.)

    @ Peter Martin

    If any government raised no tax and just created money to pay for things inflation would result. You understand this. You also understand that having to pay the government’s taxes is what gives the money its value.

    In your example Nationalisation by swaps would work and should have no direct economic downsides. However, privatising does give the government money, there is no share / gilt swop. It can be used as a mechanism for transferring money from rich investors into being useful expenditure in the economy.

  • Peter Martin 1st Jun '18 - 3:33pm

    Mick Taylor,

    The Govt can make or lose on the deal. It’s really no different from you or I buying shares in that respect. If anyone buys shares they don’t feel immediately worse off because they’ve spent the money. Govt is in the slightly better position that they don’t have to actually ‘have’ the money as we do.

    With RBS political considerations, rather than ideology, dictated the purchase. Any government would have done the same thing. Too big to fail and all that.

    @ Joe B,

    Yes, Govt does do as you say. Did anyone say they didn’t? The only slight quibble I might have is that as the pound is an IOU of Govt then selling bonds isn’t really borrowing in the normal sense of the word. They are swapping one kind of Govt IOU (gilts) for another (cash).

  • Peter Martin 1st Jun '18 - 3:35pm

    @Joe B,

    PS Forgot to say I agree with buying out PFI contracts and I wouldn’t be too generous on the terms either. I’d pay as little as legally possible!

  • William Fowler 2nd Jun '18 - 8:12am

    Can’t recall where I read it but as a percentage of the senior population the actual number needing care was surprisingly small. Yep relatively lots of 85 plus eating up health costs but they are in a similar health state to 70 year-olds a few decades ago when there were few 85 plus. So people living longer but not needing serious health care until much later is the point I was making (costing more in state and govn pensions admittedly).

  • @ Peter Martin

    When the government sells assets such as with a privatisation in really does receive the money in the same way as it receives taxes. There is no difference.

    It could use the money to repay debt and then it would end up as savings and not be spent, and is deflationary. Or it could spend the money which if it had been idle before would be reflationary. Or it could do a bit of both.

  • Peter Martin 5th Jun '18 - 5:14pm

    @ Micheal BG,

    The difference is that privatisation/nationalisations are (assuming there’s a fair price involved) just an asset swap. So nationalisations don’t actually cost anything. You can see that this must be true from the way the Attlee govt nationalised about a third of UK industry in the immediate post war period. Otherwise however would they have been able to ‘afford it’ if they had to actually raise the money from taxation?

    The corollary is that if nationalisations don’t cost anything then privatisations don’t raise any money. If that weren’t true then there could be a never ending merry go round of nationalisations then privatisations raising lots of lovely money for the Govt!

    Because the govt isn’t like you and I. It doesn’t need money to spend. So the actual concept of ‘raising money’ is quite meaningless. It’s like the post office acquiring extra stamps. Or a railway company acquiring extra of its own tickets. Or a casino acquiring more of its own chips.

  • @ Peter Martin
    “The difference is that privatisation/nationalisations are (assuming there’s a fair price involved) just an asset swap.”

    This is only the case with privatisation if the government actually uses the money raised to pay off government debt (i.e. buy back gilts); and with nationalisation actually issues gilts to pay for the shares.

    Governments do need to raise some money to cover some of its expenditure. If a government created money to pay for ALL of its expenditure inflation will increase, especially with a developed economy such as ours.

  • Peter Hirst 5th Jun '18 - 6:52pm

    It’s more a question of what taxes increase and who they effect. We can talk about keeping taxes steady while increasing them for the wealthy. As long as Vince can say taxes will not increase on my watch, we’ll be alright?

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