Why be a Liberal Democrat and an ‘Orange Booker’?

A recent post in the ‘Why be a Liberal Democrat?’ Christmas competition on LDV had me nodding along in agreement for the first few paragraphs (yes, Labour are hopeless, and despite this our party is in a perilous position), but the nodding stopped at the abrupt veer into advocating for getting rid of ‘Orange Bookers’ in the party.

As a board member of Liberal Reform, which (fairly enough) is regarded as the pressure group for Orange Book fans, I’ve never really understood why some party members are so bothered by us. Though Liberal Reform members tend to be quite supportive of building more homes to lower living costs (and therefore sceptical of anti-development activism), see international trade as something to be encouraged, and take a dim view of attempting to regulate lifestyles (e.g. clamping down on vaping), these views are hardly anathema to liberalism. Nor do they constitute an excessively libertarian take on the role of government. You’ll find our board members advocating for restoring legal aid funding, as well as more ‘traditional’ Liberal Reform topics like taking a more permissive approach to drug policy and using competition to lower prices.

While the author of the post was happy to say he ‘respected’ Orange Bookers, the lurid claim that the book’s contributing authors (Nick Clegg, Vince Cable, Susan Kramer, and Ed Davey among others) pursued market-friendly ideas to advance their own careers was an unfortunate slight on many of our current and former parliamentarians. I have no doubt that the Coalition damaged our electoral popularity, but can’t see how the electoral math in 2010 allowed for anything other than entering government with the Conservatives, with many of the policy compromises that came with this.

What matters now is how we position ourselves going forward. Wholesale disowning of our only time in government since WW2 is unlikely to bear fruit, so that leaves promoting what we got right (e.g. the pupil premium, lifting the lowest paid out of tax, and reducing carbon emissions), and crafting new policies on matters like legal aid access and immigration policy where we gave the Tories far too much say over.

The team at Liberal Reform want to avoid the somewhat uninspiring centrism that the party has fallen back on at times and instead work with others to craft a compelling radical liberal message. You’ll find us taking a hard look at any suggestions to launch huge new government programmes or regulatory regimes, but where a programme or idea is the most efficient way to achieve a liberal aim, is supported by evidence, and doesn’t infringe on civil liberties, we’re going to back it.

This isn’t to say that Liberal Reform have no disagreements with others in the party. We think collaborating with the Greens in a ‘progressive alliance’ when they are actively aspiring to destroy and replace our party is a daft idea. As is adopting elements of their anti-growth and anti-trade policy platform, which might appeal to 3% of the electorate, but which is (rightly) hard to defend when subjected to scrutiny. Disagreement over election tactics and policy shouldn’t be grounds for instigating purges from our party though; let’s leave that to the Corbynistas.

The coming weeks and months are going to be crucial for stopping Brexit. Rather than taking the advice of some and spending this time trying to drive out fellow party members, let’s unite to redouble our efforts on winning support for a People’s Vote.

* The author is politically restricted. He is an economist at a research institute.

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  • Andy Briggs 3rd Jan '19 - 10:09am


  • chris moore 3rd Jan '19 - 10:37am


    Any party going into government will make mistakes. Some critics within the party would never have us near the dirty business of actually running things.

    The Orange Book is a source of liberal ideas for reforming government. It’s now over 10 years old and some solutions proposed seem dated. But overall there are many interesting suggestions for improving the life of all citizens, particularly the worst off.

  • Neil Sandison 3rd Jan '19 - 10:42am

    Sounds like its time for a new book with some fresh up to date thinking we can all own.

  • I keep an eye on what the LDs are up to, despite no longer being a member. Not great that you continue to have these sorts of defensive debates about why anyone with views to the right of the Green party should not be purged!

  • “and therefore skeptical of anti-development activism”.

    Hmmm. If the author wanted to let us in on one of the least appealing aspects of fundamentalist free market ideology, he/she has succeeded with this single parenthetic phrase. One of the reasons I got involved in politics was to fight people who want to destroy the environment. Without state protection, developers would deliver an effusion of low-grade urban sprawl stretching from Caterham to Brighton, and would cover what was left with motorways and shopping malls. The outer suburbs of London would finish somewhere around Alton or Odiham. London and Birmingham would merge. Liberals have long stood firm against the rape of the environment for profit, as indeed have some conservatives and socialists. How many votes would the Liberal Democrats have got in Wheatley the other week if they had promised to cover that division in concrete (which is what developers are planning to do, by the way). Surely, Liberal Democrats should favour a rational, planned approach to the development of the built environment, involving proper public debate and scrutiny rather than the top-down imposition of targets or simply letting developers do what they want? Go to Lewes or Winchester promising concrete, and see what that does to the party’s level of support in those places (and yes, I recall Simon Hughes inveighing against the destruction of Twyford Down to build a motorway that still gets blocked years later – fundamentalist free market solution: build an even bigger one).

  • Peter Martin 3rd Jan '19 - 11:29am

    There’s probably more to Orange Book Liberalism than “market-friendly ideas” Not that there’s anything particularly wrong with those ideas. The problems arise in an over reliance on the market to solve all economic problems. Laissez-faire capitalism doesn’t work.

    Governments are a key part in all modern capitalist economies for the not insignificant reason that they are the issuers of the currency! So they aren’t simply another player in the market with a requirement to make a profit. The overriding responsibility is to balance the economy not the ‘books’!

    Going along with Tory austerity was the biggest failing of the Lib Dems in coalition. Raising VAT to 20% at the same time as the economy was entering deep recession, after the previous Labour Govt had lowered the rate to 15%, was a big mistake. The Party of Keynes should have known that.

  • Laurence Cox 3rd Jan '19 - 11:43am

    There is already a new book with fresh up-to-date thinking. It is called “Four go in search of big ideas” and you can get it from SLF.


  • chris moore 3rd Jan '19 - 11:43am

    hi Peter,

    Does anybody in the Lib Dems argue for laisser-faire capitalism?

    When was the last time a Western government adopted laisser-faire policies?

  • Paul Pettinger 3rd Jan '19 - 12:20pm

    We are getting confused about terms and I think would benefit from more transparency. The Orange Book agenda and what was contained in the Orange Book aren’t necessarily the same. Although parts of the book sought to promote New Right ideology, most of it was unremarkable and much agreeable to people from across the Party. The greater significance was as a statement of intent and especially to closer align us to the Cons. Hence why some Liberal Reform supporters are so touchy about us moving back away from equidistance or cooperating with the Greens (despite it yielding electoral dividends, and the Orange Book agenda having served us so poorly).

    Likewise, a radical policy and Radical Liberalism are not necessarily the same. Radical Liberalism is a long standing leftwing tradition born in the C19 (https://en.wikipedia.org/wiki/Radicalism_(historical). Radicals comprised a key and eventually dominant part of the Victorian Liberal Party (https://en.wikipedia.org/wiki/Radicals_(UK). It’s a tradition
    radical and many modern/ social liberals in the UK consider themselves inheritors of.

  • Peter Martin 3rd Jan '19 - 1:11pm

    @ Chris Moore,

    “Does anybody in the Lib Dems argue for laissez-faire capitalism?”

    Of course, all are careful to avoid using the term, but anyone who thinks that the job of the Government is to ‘balance its books’, minimise the effects of inflation, and that the ‘market’ will take care of the rest is guilty of such thinking.

    I seem to remember the handing over of the setting of interest rates to the BoE was a Lib Dem idea. At one time government would have considered that it was primarily responsible for setting an important economic parameter. The “laissez faireres” don’t much like the idea of government having any such role and pushed for the change.

    The same thing has happened in the USA too. At present President Trump is doing his best, but without much success, to stop the Fed raising rates. I have to say that much as I don’t like the man – he’s quite right on this point.

    The Fed did the same thing in the run up to 2008 too. They haven’t learned and seem determined to repeat past mistakes.

  • Paul Pettinger 3rd Jan '19 - 1:20pm

    “Wholesale disowning of our only time in government since WW2 is unlikely to bear fruit, so that leaves promoting what we got right” – another point: we were in Coalition in Scotland between 1999 and 2007, delivered on key pledges and achieved PR for Scottish local elections, as well as broadly maintained our vote share and number of MSPs during the period. The challenges were different and not as great, but if we want to learn from experience and about what we got right, we should seriously examine why the 1999-2007 and 2010-2015 coalitions had such drastically different outcomes.

  • chris moore 3rd Jan '19 - 1:35pm

    @Peter Martin

    Hi Peter,

    you say….

    Of course, all are careful to avoid using the term, (laisser faire) but anyone who thinks that the job of the Government is to ‘balance its books’, minimise the effects of inflation, and that the ‘market’ will take care of the rest is guilty of such thinking.

    But is there anyone who believes that? Not in the Lib Dems. Of course, some Brexiteers have gone on about a Singapore model, slashing regulation…. But the reality is Singapore is highgly regulated and government plays a huge role.

    Nozick was the last major philosopher who argued for a major reduction in the size of the state. his ideas did influence libertarian thinking in the US, but the actual program of Republican libertarians was far more etatiste.

  • Sue Sutherland 3rd Jan '19 - 1:38pm

    “Where a programme or idea is the most efficient way to achieve a liberal aim, is supported by evidence and doesn’t infringe on civil liberties, we’re going to back it”. I’d like to thank the author of the post for this comment. Isn’t that what all of us do when we deliberate on policy suggestions? Being Lib Dems, a party of 200,000 members, there will be 200,000 different ideas and attitudes, which I’ve always felt is the strength of the party, but eventually it boils down to acceptance or rejection by conference.
    Why then do we have this division between Liberal Reform and the SLF? Perhaps the writer of the post could suggest that the boards of the two groups get together to find common ground. First to determine what a Lib Dem society would look like and then how we should go about achieving it.
    This may sound like pie in the sky but I come from the era of the Alliance, when two parties agreed to work together. I can truly say that working as a Council group and having to make decisions all the time, there wasn’t one case where a decision was made on party lines. Unfortunately, our leaders didn’t seem to be able to achieve this.
    It would be a very powerful think tank if the two groups could agree on working together in a creative way, without dismissing any ideas at first hearing but sifting evidence later to see what can be achieved. The party is crying out for a new statement of what we believe. Perhaps a synthesis of two main groups in the party could give it exactly that?

  • Peter Martin 3rd Jan '19 - 1:52pm

    Chris Moore,

    Laissez -faire-ism (Let’s get the French spelling right) is just another term for neoliberalism. Small Govt, Privatisation of state held assets, and a reditribution of power away from a democratically elected Parliament. An ideological commitment to the supremacy of market forces etc etc.

    The Lib Dems led by Orange Bookers were in 2010 to 2015 part of a governing coalition that adopted crudely neoliberal economic and social policies – the politics of shrinking the welfare state, of privatisation and of redistribution of wealth and power in the direction of those who already hold it.

    So Laissez-faire-ism hasn’t gone away. They adherents just don’t use the term any longer. In fact they don’t seem to like any particular label. They object to neoliberal too!

  • I feel that I don’t trust Liberal Reform. I trust the SLF. Does Liberal Reform see itself as centre-right?

    If Liberal Reform were more honest and open about what their political ideology actually is then I would be less suspicious of them.

  • Colin Paine 3rd Jan '19 - 5:50pm

    We could do with a dash of economic liberalism rather than a continued drift into Corbyn-lite, pseudo-green sogginess. We could start by opposing energy price caps and supporting a properly competitive market. That would be a distinctive position!

  • David Raw,

    a single mother with three Children could be eligible for a council house or Housing benefit – as per the local authority limit; Child tax credits; child benefit up to 2 Children., council tax credits and free school meals.
    This would all amount to a sum that is designed to cover all basic outgoings – and keep a roof over the families heads/utilities etc .

    Outside London the total benefit cap is £20,000 per year (£384.62 a week). In London it is £23,000(£442.31 a week.)

    The real issue is accommodation. If a council house is available families can generally manage to get by. If you are reliant on housing benefit it can be a struggle to find affordable accommodation (especially in London) at the housing benefit level paid by local authorities and the extra costs eats into income from other benefits. This is where the focus of attention should be.

  • David Warren 3rd Jan '19 - 7:26pm

    Spot on Joe Bourke.

    These are things we really need to focus on, starting by admitting that supporting the benefit cap was a mistake.

    We need to be arguing for a system that gives people enough to live on when they can’t find work or are not working due to illness, disability or things like caring responsibility.

    As a former carer I experienced the harshness of the DWP t first hand and it’s getting worse.

    I make no apology for saying again and again that we need a new Liberal Beveridge style plan for Britain.

  • Long time lurker, first post.

    Singapore gets mentioned quite frequently in debates about how to run the UK. I lived there until two years. On the vast majority of measures, it is substantially more illiberal than the UK. Socially, elections are gerrymandered, newspapers are censored, freedom of association is curtailed, gay sex is illegal and same-sex families actively opposed, the death penalty is applied, recreational personal use of drugs is harshly punished, divorce is difficult to obtain, and behaviour in public is heavily regulated. Economically, the Singaporean government owns more than two thirds of the economy, locally-owned businesses are given preferential access to contracts and licenses, “national champions” are subsidised, steep taxes are used to price people out of owning cars, and the government intervenes heavily in the housing market (most housing is publicly built and owned; activist taxation to regulate prices).

    Whether or not one agrees with any of the above policies, the idea that Singapore is a model of liberalism, libertarianism, openness or laisser-faire capitalism is PR guff from a rankings-obsessed bureaucracy keen to stay near the top of the a World Economic Forum’s ease of doing business table. It is not even a little bit close to reality.

  • Joseph Bourke 3rd Jan '19 - 11:43pm

    David Raw,

    Vince Cable in a pre-budget speech to the Joseph Rowntree Foundation on Universal Credit said:
    “The problems stem from conflicting objectives: providing minimum family income; providing incentives to work; simplification; and saving money. Simplification, saving money and work incentives have taken precedence over the first, crucial, priority.”

    “Practical problems have been ignored creating real hardship, payment delays in the switchover, penalties for the self-employed; use of a single bank account for divided families; barriers to work from lack of childcare; monthly payments for those on weekly or casual wages; technical complexities in establishing online payment; and the use of Universal Credit to facilitate debt collection…

    “[But] the fact that UC is becoming loathed and is being implemented incompetently and harshly does not invalidate the reasoning behind it. I strongly repudiate the Labour Party’s suggestion that Universal Credit should be scrapped without being clear what the replacement is: a classic case of soundbites taking precedence over thought-through policies .”

    The principles behind Universal Credit – its aims of simplifying the social security system; improving work incentives; increasing take-up; tackling poverty and reducing fraud and error remain valid.

    Properly administered there is no need for continuing benefit cuts as an efficiently designed safety net and an economic policy of full employment automatically incentives employment over lomg-term welfare dependency.

    As to VAT, I think Mirrlees recommendation to broaden the VAT base https://www.ifs.org.uk/mirrleesreview/design/ch9.pdf scapping most current exemptions and reallocating the tax revenue to income support at the lower income deciles (including restoring housing benefit in line with average rent and scapping arbitary caps) may be the way to go. VAT reform could solve many of the problems with Universal credit (including restoring work allowances), bring the national insurance threshold back in line with the personal allowance of £12,500 and provide the funding needed for integration of adult social care with health care services.
    It is part of wider tax reforms that are needed to make the tax system as a whole more progressive.

    Labour would no doubt denounce such changes as an attack on the poor and Conservatives as economically damaging tax hikes; but we make policy on the basis of evidence not soundbites.

  • Richard Younger-Ross 4th Jan '19 - 10:02am

    I am not one for driving others out of the Party, but the harm done by The Orange Bookers in power may take us years to recover from. I still recall a prominent Orage Booker shadow minster arguing that we should not listen to Third Sector workers on International aid because they had a vested interest! However their hatred of anything left of centre can be clearly illustrated from one line in this piece. “We think collaborating with the Greens in a ‘progressive alliance’ when they are actively aspiring to destroy and replace our party is a daft idea.” Any alliance links you with a party trying to ultimatly destroy you but use you in the mean time. We went into a coalition with the Tories. I rest my case.

  • Tony Vickers 4th Jan '19 - 10:17am

    “Markets where possible; state where necessary.” Can’t we all that is Lib Dem economic philosophy in a nutshell, whether Orange Book followers / Liberal Reform or SLF? The role of the State should be to ensure the economic, legal and social conditions within which markets can and should operate freely. One example of where it is essential for the State to intervene is the Land Market, where “Land” is the entire natural world. THE great failing of modern capitalism is to tackle what Churchill (as a Liberal) called “the mother of all monopolies”. This failing is at the root of our crisis in housing, benefits and rising inequality of opportunity.

  • I’ve not been aware of any proposed purges in the party; however, there seems to be a few threads determined to re-write history.

    Perhaps, we can see a thread explaining how the sinking of the ‘Titanic’ was entirely due to the iceberg’s failure to get out of the way?

  • chris moore 4th Jan '19 - 11:31am

    @Peter Martin

    Hi Peter,

    Laisser faire is acceptable French. It’s the infinitive, not the plural imperative. I’m happy for you to use “laissez-faire” however, as most English speakers do this. So you’re right, it’s the more common usage; it’s not the more correct though. So I’ll go on using laisser faire, thank you.

    You say …The Lib Dems led by Orange Bookers were in 2010 to 2015 part of a governing coalition that adopted crudely neoliberal economic and social policies – the politics of shrinking the welfare state, of privatisation and of redistribution of wealth and power in the direction of those who already hold it.

    Privatisations: Royal Mail, but also selling off the state holdings in Lloyds and RBS; the latter two were surely the right thing to do?

    In spite of bearing down, often crudely and cruelly on welfare – we agree on that – state spending only just dipped below 40% of GNP. This really isn’t laisser faire, by any stretch of the imagination. We have all become inured to the major role the state plays in modern liberal democracies.

    As I mentioned before, Nozick, the last major libertarian philosopher, argued for a serious slashing of the state. He thought the state should merely guarantee transactional justice: hence a pólice forcé, judiciary and by extensión an army : small I asume!

    As for re-distribution of wealth, the Lib Dems contributed raising tax thresholds to take poorer tax payers out of tax and the poor pupil premium, which made a significant contribution to improving education in poorer áreas.

    However, I’d agree with you that a majority Lib Dem government should be far more ambitious in tackling inequalities. Let’s hope one day, we’ll get there!

  • Joseph Bourke 4th Jan '19 - 2:05pm

    Tony Vickers makes an important point in stating it is essential for the State to intervene is the Land Market, where “Land” is the entire natural world. THE great failing of modern capitalism is to tackle what Churchill (as a Liberal) called “the mother of all monopolies”. This failing is at the root of our crisis in housing, benefits and rising inequality of opportunity.
    Party policy on housing focuses on the imperative to increase supply. Liberal reform addesses this issue by focusing on the market distortions that result from the planning system. Alex Marsh in the social Liberal Forums publication ‘Four go in search of big ideas” argues that we do not have a shotage of supply saying:
    “The issue is its distribution . Some people are occupying a lot more housing than others, many households are squeezing into overcrowded accommodation and others are squeezed out of the market entirely. In this respect the problems of the housing market are in part a manifestation of broader social and economic changes, including changes in income and wealth inequality or welfare reform and increased use of benefit sanctions. We see problems in the housing market, but they are not necessarily problems of the housing market.”
    Alter https://libdemsalter.org.uk/en/ addresses these different factors direcly in three pamphlets:

    There will be a LibdemVoice fringe at York on Universal credit and Homelessness and Norman Lamb will present ALTER’s fringe on adult social care, bringing together ideas from across the party.

  • Peter Martin 4th Jan '19 - 2:53pm

    @ Chris Moore

    You’re making the argument that:

    “state spending only just dipped below 40% of GNP”

    To be able to come to the conclusion that:

    “This really isn’t laisser faire, by any stretch of the imagination.”

    Whether we call it laisser-faire (and I take your point this can mean ‘to leave to do’, rather than ‘leave to do’) rather than neoliberalism doesn’t really matter. What does matter is that it fails even on its own terms. The idea is that Government cuts its spending and/or raises taxes and this reduces the Government’s deficit. Ultimately the percentage of the economy controlled by the Government falls too.

    Several problems. The Government’s revenue falls as its spending falls. At the same time the economy contracts. So the Government’s deficit doesn’t fall as expected, it’s more likely to increase unless private sector borrowing can be encouraged, and the same or sightly less spending ends up as larger percentage of GNP or GDP.

    Another way of looking at the problem is to consider that many economic players who can manage quite well without too much Government assistance in a buoyant economy can no longer do so in a recessed or semi-depressed economy. We see this to an even larger extent in the euro using countries where the rules of neoliberalism, the Germans call it ordoliberalism, are hard wired into the European treaties.

    Most of the unemployed there are unemployed through no fault of their own and have no option other than to be reliant on the State.

  • Peter Martin 4th Jan '19 - 2:54pm


    @ Martin,

    I’m just wondering how it might be possible to have a system of ‘non-intervention’ on the part of Government, given that we all rely on the Government to be the currency issuer? Whatever it does is intervention of one kind or another.

    The LIb Dem view ( or maybe just your view?) of the economy seems to be that the Government is an independent observer of it rather than an integral part. This is fundamentally incorrect.

    The Government is effectively a huge bank which is largely the Treasury and the BoE and with additional spending and taxation powers. The Government creates money by spending it in to the system and removes money from the system in taxation. It controls interest rates to whatever it wants them to be. It controls where money is spent as well as how much is spent. So the Government can no more ‘intervene’, or not ‘intevene’, in the economy anymore than say the human heart can ‘intervene’ in the workings of the human body.

  • chris moore 4th Jan '19 - 4:42pm

    Hello Peter Martin and Martin and others,

    I’m not aware of any contemporary national UK policians who argue for an end to the mixed economy or a dominant regulatory role for government.

    Ironically, the Coalition ran a major déficit in their first few years in government – inherited from Labour, of course. This was the correct cyclical stimulus- though, we can argue about whether they should have reduced the déficit more slowly or not.

    Nonetheles, it was a serious stimulus. Most European countries ran a significantly maller déficit; perhaps partly for this reason they fared worse than the UK. (Yes, you are welcome to visit me in Spain, where unemployment peaked at close to 30% and serious poverty was and is widespread.)

    Where I imagine there is agreement amongst most contributors here is that attempts to reduce the déficit should have focussed more on increasing taxes on the average and better off and less on grinding down on welfare.

    I believe a civilised society should accept that in any welfare system, there will be individuals who game the system. But that is no justification for a penal approach to claimants. We need to be far more generous and pro-active in helping those at the bottom.

  • Matthew Huntbach 5th Jan '19 - 8:21am

    By the late 1970s, it was clear that old-style socialism, in particular as implemented by Communist parties where they had taken power, was simply not working to give the more equal and fair society that it was supposed to be all about. This was what led to the revival of interest in free-market economic theory.

    In Britain, it was the Conservative Party that took over adopting the theory of extreme free-market economics as the central thing it was about. Rather than supporting this sort of right-wing politics, however, the success of the UK Liberal Party came from opposing the sort of inequality that would lead to, while also recognising why traditional style socialism wasn’t working and trying to come up with a new sort of politics of the left that would work better.

    By the late 2000s it was clear that free-market ideology was simply not providing the true freedom to everyone that it claimed it would. Rather it was mainly giving more wealth and power to a tiny rich minority in charge of big business, while leading to a more stressful life for everyone else.

    So, for the Liberal Democrats to give the impression that it was adopting the extreme free-market ideology as what liberalism is all about, which those who pushed the Orange Book seemed to be doing, was about as sensible as adopting old-style socialism in the 1970s. These people took advantage of the formation of the coalition in 2010,a and the way by then they had grabbed control of the leadership, to push this even further, and thus wrecked the party.

    Of course acknowledging those aspects of free market economics that help improve general freedom is important, but just as important was acknowledging why the simplistic version does not work. The Liberal Democrats gave the impression they had stopped doing that and were just saying “we too” to the Conservatives adoption of that.

  • Innocent Bystander 5th Jan '19 - 10:06am

    Your comments on the NHS are a perfect bullseye. The party that boasts that it wants intelligent discussion and debate has a number of sacred cows and regards any alternative views as simply the words of Satan and the Old Guard quickly rally to sneer and deride until those with new ideas are shut down and driven away.
    Those topics are the NHS, Keynesian Economics, “invest in skills and infrastucture” and a borderless world.

  • Peter Martin 5th Jan '19 - 1:15pm

    Chris Moore,

    “I’m not aware of any contemporary national UK politicians who argue for an end to the mixed economy ..

    It may not be said in so many words but the economy becomes less mixed with every privatisation.

    ….or a dominant regulatory role for government.

    The argument is usually that govt “should keep out of the way”. There is also a tendency to want to weaken the power of national govt by increased devolution on the local level, and further transfers of power to pan-nationalist structures like the EU.

    Ironically, the Coalition ran a major déficit in their first few years in government – inherited from Labour, of course.

    We should get away from the idea that Govts ‘run’ surpluses or deficits. The Govt can control its spending. That’s about it. It can’t control its income and therefore its deficit. Its deficit is, penny for penny, everyone else’s surplus. That includes you and I and the Bundesbank! If we want to spend then the Government’s income will rise and its deficit will fall. If we don’t it will rise. There’s not much the Govt can do about that. It can’t force us to spend. When it comes to the Bundesbank it can’t even force it to pay any taxes!

  • chris moore 5th Jan '19 - 5:39pm

    Its déficit is the difference between its spending and its tax take.

    Tax take is related to level of taxes. (It’s obviously not a deterministic relationship.)

    So government does have influence over level of déficit.Of course, it’s politically suicidal to make some choices: it’s unlikely tha Latvian-style austerity would go down well in the UK. Hence government is politically constrained too.

  • chris moore 6th Jan '19 - 12:08pm

    @ Peter Martin

    You say, We should get away from the idea that Govts ‘run’ surpluses or deficits. The Govt can control its spending. That’s about it. It can’t control its income and therefore its deficit.

    Hi, Peter, you are reading too much into the word “run” In this context, it means presided over!

    The Coalition, of course, inherited an 11% déficit and faced Hobson’s choice!

    You say, governement can control its spending: really, like tax income levels of spending are uncertain too. But in both cases, uncertainty is not complete! There is a range of forward predictions for both spending and taxation revenue.

    And, of course, the government does have room for manoevre; it can make a choice to let things rip or try to rein in spending/increase taxation.

    Some Keynesians believe in a very high multiplier; possibly you are one of these.

  • Neil Sandison 7th Jan '19 - 11:48am

    David Warren ” i make no apology for saying again and again we need a new liberal Beveridge style plan for Britain ” couldnt agree more ,enter St Norman Lamb who is linking ,health ,social care and enduring mental health issues. but it does not need sticking plaster solutions limping from one general election to the next .it needs incremental change supported by local government who in most instances have a duty of care .it needs underpinning with a basic right to a affordable home where services can be delivered not institutional care that supports the clinicians but community care that supporters the patient and there carers .

  • Peter Martin 7th Jan '19 - 6:29pm

    @ Chris Moore,

    “Some Keynesians believe in a very high multiplier; possibly you are one of these.”

    I’m not sure I believe in any multiplier at all! The way I see it is that the Government creates money as it spends it into the economy and gets some of it back in taxation revenue. What it doesn’t get back, ie its deficit, is what everyone else has hung on to, or saved, in one way or another. Its everyone else’s surplus.

    So if you are thinking the Government’s deficit was too high at its peak of 11% then you are also thinking everyone’s surplus was too high. Presumably you’d have preferred it if everyone else had spent more of their money on Scotch whisky, much of which comes back as tax revenue, and less on Premium bonds (none of which comes back)?

  • Peter Martin 7th Jan '19 - 7:11pm

    @ Chris Moore

    “Tax take is related to level of taxes.”

    Not necessarily. And if it is, it might be the opposite of what is usually assumed!

    It is related to what we all spend if you take the view that money initially flows from the Government, as it spends it into the economy, through the various players in the economy, including our overseas trading partners, and then back to Government as it imposes taxes.

    So all spending eventually ends up back with Government? Where else can it go? It won’t, though, end up back with Government if someone saves it for future use.

    So, the question is: will the individual players save less if taxation rates are increased? If they do then the tax take will rise and the deficit will fall as nearly everyone might assume. But it’s possible they’ll actually save more if the economy becomes more depressed and people are faced with increasing uncertainty. In that case the deficit will rise and we end up with a counter intuitive outcome.

    It’s really no wonder that predictions of future government deficits are so difficult. All the ‘forecasts’ we used to hear about the Government ‘being back in the black’ etc, just a few years into the future, were obvious nonsense. I really don’t know why anyone took them seriously.

  • Peter Martin 7th Jan '19 - 7:17pm

    @ JoeB

    “Not everyone else.”

    Yes. Everyone else.

    We can divide the ££ economy into the ‘UK Government’ and ‘Not the UK Government’.

    ‘Not the UK Government’ = Everyone else but the UK Government.

  • Peter Martin 8th Jan '19 - 7:08am

    @ JoeB,

    Of course you can further divide up “everyone else” in different ways. You can have a further division into they live in the UK or live overseas, or whether they are or aren’t part of the corporate sector, whether they male or female, or even if they have, or don’t have, blue eyes.

    Whatever you like.

    It doesn’t change the fact that the Government deficit is ‘everyone else’s’ surplus. To the penny.

  • chris moore 8th Jan '19 - 12:58pm

    @Peter Martin ,

    Yes, I do remember Ronald Reagan aruging that cutting taxes would increase government tax revenue. (Indeed once, tax levels got down to 0%, government tax income would be infinite.)

    Come on, Peter, you are seriously stretching a point. You do actually believe tax take is related to the level of taxes. No one said it was a simple linear relationship!

  • Joseph Bourke 8th Jan '19 - 1:40pm

    Peter Martin,

    GDP is a measure of poduction of goods and services in the economy. We can measure it in terms of income – returns to Land (Rents), Labour (wages) and Capital (Profits and Interest. We can also measure it in terms of spending by Households on consumption; by firms on investment of profits not distributed to households; by government on the provision of public services and by spending on imports in excess of exports,
    Changes to government spendng and taxation have some level of impact on each of the components of income and each of the other components of spending. Such changes may increase or reduce overall output or the counterbalacing effects may simply cancel each other (as they tend to do in the long run as prices adjust).
    What is critical is the distribution of output between rents, wages and Profits/interest. Stagnating wages while rents and interest income are increasing and retained profits are recycled into property and stock speculation leads to an insufficiency of demand in the economy; an accumulation of excess capital by firms and a build-up of household indebtness.
    One of the key reasons we are able to maintain a significant trade deficit in this country is because multi-national companies find the UK an attactive base that gives them unfettered access to the 500 million consumers of the European. That is why firms in the automotive sector like Nissan or Tata invest here. Outside the EU the UK becomes a less attractive destination for inward investment. The consequences of a Brexit induced capital flight will be reduced higher interest costs, a lower exchange rate and reduced living standards in the UK.

  • Peter Martin 8th Jan '19 - 1:53pm

    @ Chris Moore,

    Ronald Reagan was taken in by Arthur Laffer who had a rather simple minded idea that there was an optimum level of tax to maximise overall revenue. We can see this in the applied tax to, say, cigarettes. If tax rates are too high then fewer people smoke and tax revenue, from smoking alone, falls. So for a single tax there is nearly always an optimum level. He’s right about that.

    But Laffer doesn’t then take the logical next step and consider that if people have more money in their pockets from not smoking then they might spend more on something else. Maybe they’ll drink more! We don’t really know but they will likely spend that extra money on something else and tax revenue won’t fall overall. So tax revenues have to be considered in their entirety rather than on a collection of single taxes to be aggregated. That’s where Laffer goes wrong.

    Yes, the level of tax revenue is related to the level of taxes. They work pretty much the way people think they do on a local level, ie an increase in tax rates will produce greater revenue. But not on a National level. An increase in tax rates will slow down the economy, which may be a good thing to do if inflation is the prime consideration. However, a slower economy will produce lower taxation revenue.

    I can’t see what’s difficult to follow about that. It just needs a little lateral thinking to see how easy it can be to have a superficially counter-intuitive result.

  • Peter Martin 8th Jan '19 - 2:05pm

    @Joseph Burke,

    “One of the key reasons we are able to maintain a significant trade deficit in this country is because multi-national companies find the UK an attractive base …..”

    It’s really nothing to do with multinational companies. The last time I looked Singapore ran something like a 15% of GDP trade surplus. There’s nothing unattractive about Singapore from the viewpoint of multinational companies. So why doesn’t Singapore run a trade deficit? Answer: It’s a government decision to run a surplus. Which it does by currency manipulation.

    Many governments in the world make the same decision meaning that someone has to run deficits. Rightly or wrongly, that includes us and the USA! We can’t all manipulate our currencies downwards to run surpluses!

  • Peter Martin 8th Jan '19 - 8:38pm


    I’m not quite sure what point you are trying to make but according to the figures I’ve looked up Singapore now runs a 18.8% of GDP surplus in its current account. Denmark runs a surplus of 7.6%. Both manipulate their currencies to achieve this. Now, whatever success these two countries have with their economies and whatever levels of low Govt net debts they ‘enjoy’, it simply isn’t arithmetically possible for these models to be applicable on a world scale.

    You’ve chosen to bring the multinationals into the picture. I’m not sure why. These decisions are 100% the doing of the respective governments of Singapore and Denmark. Period.

    You’ve also chosen to bring Donald Trump into the argument. I think I do know why. He’s such an unpleasant character that whatever he says must be wrong! This isn’t very logical thinking and In this case he isn’t wrong. Currency manipulation is currency manipulation no matter who calls it out. It’s also trade protectionism and it’s just as bad if its done by Denmark and Germany as if its done by the USA.

  • chris moore 9th Jan '19 - 10:49am

    @ Peter Martin

    You say,

    !. Yes, the level of tax revenue is related to the level of taxes.

    Nice. We ‘ve got there, at last.

    Then you say

    2. They work pretty much the way people think they do on a local level, ie an increase in tax rates will produce greater revenue. But not on a National level. An increase in tax rates will slow down the economy, which may be a good thing to do if inflation is the prime consideration. However, a slower economy will produce lower taxation revenue.
    I can’t see what’s difficult to follow about that. It just needs a little lateral thinking to see how easy it can be to have a superficially counter-intuitive result.

    Peter, firstly, that isn’t “lateral” thinking. It’s basic economic theory: tax (on any activty, good etc) i is a financial disincentive to that activity. I haven’t noticed anyone on here argue otherwise; who are you arguing with?

    The fact that tax is a disincentive doesn’t mean that raising taxes will inevitably reduce overall tax take. That’s utter nonsense., as you well know.

    In the same way, reducing taxes will not inevitably increase overall tax take.

  • Peter Martin 9th Jan '19 - 1:22pm

    @ Chris Moore,

    The fact that tax is a disincentive doesn’t mean that raising taxes will inevitably reduce overall tax take.

    You are perhaps confusing me with someone else because I I haven’t said that. Replace ‘inevitably’ by ‘possibly’ and you’ll be closer.

    Suppose the Government spends an amount currency into the economy. If the tax rate is 10% per transaction, one half of it will be returned back to the Government after 9 transactions. If the tax rate is 12% the number of transactions for the Government to get half its money back falls to 7 transactions. I can send you a simple spreadsheet to demonstrate this if you need verification.

    I’m possibly drawing on my Physics background here with the concept of a ‘half life’ for money. Because of the exponential nature of the decay the process lasts theoretically for ever. However it will all come back eventually. Unless someone saves it. The important thing from the Government’s POV is the number of transactions it takes. It is never going to get back more than it spends initially. Deficits and debts are quite normal.

    Too many transactions means the economy is running too hot and taxation needs to be increased (or the Govt needs to spend less). Too few transactions means the economy is running too cool and taxation needs to be decreased (or the Govt needs to spend more).

    So suppose the Govt did raise the general level of tax from 10% to 12%. Would it get back more money? It would depend on how much the economy slowed. If if slowed by more than (9-7)/9 = 22% (approx) then it wouldn’t get back any extra money.

    In any case where would the extra money come from? It can only come from extra private sector borrowing to maintain overall spending levels. And that’s what we’ve seen happen in recent years as interest rates have been continually been lowered to maintain spending levels in the economy.

  • Peter Martin 9th Jan '19 - 4:04pm

    @ JoeB,

    “Most countries around the world will use some form of peg or managed float.”

    Yes they do. But can’t you see that this isn’t an option for everyone ? Someone, somewhere has to let their currency freely float.

    It’s very easy to keep your currency on the cheap side and run an export surplus. As the 1990s Tory government found out the hard way, it’s just about impossible to manipulate your currency to be on the expensive side to run an external deficit.

    So, if those who manipuluate are likely to run export or trade surpluses it follows that those who let their currencies float will run trade deficits. Trade deficits have to then translate to govt budget budget deficits as we’ve previously discussed.

    What is difficult to follow about any of this?

    PS Anyone who feels they have to drag Venezuela or Zimbabwe into the argument has really lost the plot!

  • Peter Martin,

    the yen was trading at 300 to the $ in the early 1970s. Today it trades at around 110. As the yen has strengthened over the decades, Japan continues to maintain a high trading surplus with the US and maintain a high government deficit since the early 1990s.

    Australia has maintained a trading surplus with China. The strength of the Australian dollar is more influenced by commodity prices than interest rates and subject to continuing demand from China.

    In floating exchange rate systems, central banks buy or sell their local currencies to adjust the exchange rate. Groups of central banks, such as the Federal Reserve, ECB, Bank of Japan and Bank of England often work together in coordinated interventions to increase the impact.
    They can also intervene indirectly in the currency markets by raising or lowering interest rates to impact the flow of investors’ funds into the country.
    Countries like Zimbabwe have completely lost control of their currency https://www.timeslive.co.za/news/africa/2019-01-09-zimbabwes-mnangagwa-off-to-five-countries-as-economy-hits-crisis-levels/
    The new president is urgently seeking to bring in foreign investment to support the economy. Doctors, teachers and public servants in Zimbabwe want to be paid in US Dollars and are quite unlikely to be swayed by arguments that taxes give value to the local currency.

  • Peter Martin 9th Jan '19 - 9:08pm

    @ JoeB,

    Look this is just a waste of time.

    I make the point that not everyone can manipulate their currency downwards to run an export surplus. The world needs countries like the UK and USA to let their currencies float and run offsetting trade deficits. You ignore that and you start telling me about the historic yen – dollar exchange rate, which has really got FA to do with it.

    Can you either engage or talk to someone else please?

  • Joseph Bourke 10th Jan '19 - 12:20am

    Peter Martin,

    Management of currency is practiced by nation states and central banks across the world to maintain price stability. That is not currency manipulation, dumping or protectionism.
    Germany uses a shared currency. It has a export surplus because it has a strong comparative advantage in advanced manufacturing and is a member of a single market that allows for the free flow of traded goods (but not yet services).
    Japan has a floating currency but like Germany has a comparative advantage in advanced manufacturing and electronics.
    China is a developing economy that uses a managed float, competes on cost and has an advantage in unit labour costs over producers of consumer goods in developed economies.
    Australia’s has a floating currency. It’s export surplus is based largely on the commodities it produces.
    In the Euro area, Ireland, Portugal and Spain ran current account deficits before the financial crisis but are now running surpluses. Almost every Euruzone country – apart from France, Estonia and Spain – is now running a primary fiscal surplus (ie, before interest payments).
    Over 40% of the US trade deficit is with China, but the US also runs trade deficits with Canada and Mexico it’s Nafta free trade partners, both of whom have free floating currencies. The UK deficit also arises from its free trade partners in the EU who also use a free floating currency.
    The US and the UK both rely on capital flows to their dominant financial centres, both to fund the deficits in traded goods and services and maitain the availability of credit for the consumption of imports.

  • Peter Martin 10th Jan '19 - 8:42am

    @ JoeB,

    Look, any country that doesn’t let its currency freely float is manipulating its value. You might like to choose more acceptable synonyms for manipulation like ‘management’, or ‘engineering’ but the whole point of doing this is to game the system and run an export surplus. The manipulation is therefore downwards rather than upwards. And, you really must have no concept of the inflationary process if you think that countries depress their currency level to control inflation.

    Suppose the UK government decided to peg the pound at 10% lower than its market value supposedly to ‘control inflation’. There would be howls of protest, and rightly so, on LDV about that. I wouldn’t give much for your chances of persuading anyone that it was a good anti-inflationary move.

    You’re probably right about Japan having moved to allow the Yen to float more freely. Good on them. But guess what’s happened to Japanese trade?


  • @ Peter Martin

    So we agree, after all.

    Goodbye for now. Have a good week.

  • Peter Martin 11th Jan '19 - 10:19am

    @ Chris Moore,

    I should be careful before admitting that you agree with what most people consider my ‘loopy’ economic take!

    On the other hand if you’d said that God had created all the ££ that He thought we’d ever need, and had then left strict instructions that we should never create any more or we’d end up with a Weimar like hyperinflation, you’d be more in agreement with most commentators on LDV!

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