Debt

This Budget debacle signifies much more than Rachel Reeves’ ineptness

philmullan Debt, Democracy, Economic policy, Politics, state, Welfarism

After this shambolic Budget, it is now beyond doubt: no one should believe a word uttered by the chancellor of the exchequer. Her Budget statement this week amounted to a litany of broken pledges – including some made only weeks ago.

In her spirited response to Reeves’s statement, opposition leader Kemi Badenoch urged the chancellor to stop blaming others and instead blame herself. While Reeves certainly has much to answer for, it is ultimately misleading to hold her alone responsible for this politically and economically alarming state of affairs.

The deeper issue is that the British political system itself now produces figures like Reeves: technocratic managers who lack both authority and genuine democratic accountability. Reeves, Keir Starmer, and their cabinet colleagues merely personify the impotence of this type of managerialist politician.

Read the full article here.

Rachel Reeves has no answer to Britain’s financial mess

philmullan Economic policy, Politics, state, Debt, Welfarism

The deluded chancellor is at it again as Rachel Reeves prepares her second “one-time-only” tax-raising and debt-increasing autumn Budget. After last year’s Budget, the chancellor declared: “We will never need to do another budget like this again… We have now set the envelope for spending for this parliament, and we are not going to be coming back with more tax increases or, indeed, with more borrowing.”

But Rachel Reeves has spent much of the past month suggesting that it would be necessary to raise income-tax rates in the next budget. But now Reeves has U-turned on her U-turn. Having spent weeks suggesting the dire state of the public finances necessitated income tax rises, she appears to have changed her mind again. According to reports, Reeves was told by the God-like Office for Budget Responsibility this week that the government’s financial shortfall will be not quite as large as first forecasted – closer to £20 billion than £30 billion. This ‘good news’ apparently allowed Reeves to back down on some of her floated increases in income tax rates. There’s little doubt that political expediency also played a significant role in this U-turn on a U-turn.

This government seems to have absolutely no idea how to tackle Britain’s profound economic challenges. So let’s imagine an alternative approach: a new government is elected next week, with a mandate to fix things. What sort of budget could it come up with in the interests of the country?

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This is worse than the IMF-bailout crisis

philmullan Debt, Economic policy, Politics, Productivity, state , , ,

Economists and other commentators have been warning that Britain is heading towards a 1970s-style debt crisis – that is, at some point soon, bond investors might stop lending to the government. Critics claim we could be looking at a situation similar to that which faced James Callaghan’s Labour government in 1976, when it had to resort to an International Monetary Fund (IMF) bailout. But in some ways, Britain finds itself in a much worse state, economically and politically, than it did in the 1970s.

Productivity growth is much weaker than in the 1970s. The decay in productivity growth over the past half-century underpins the incapacity of the state, and the degradation of public services and infrastructure. Indeed, it is the problem of productivity growth that has produced the government’s most pressing economic challenge: how to deal with the unprecedented peacetime expansion in public indebtedness.

If productivity decline is a result of economic constraints that have been built up over time, the grim state of the public finances is different – it is primarily a political problem. Since the 1980s, successive governments of all political stripes have side-stepped the reality of the productivity slowdown. Instead they have acted as if ‘money is no object’. This is a matter of bad political choices, not economic fate.

Whatever you think of the politics and policies of the Callaghan-Healey team in the late 1970s, their robust political leadership shows up the timidity and ineffectiveness of Starmer and Reeves. Unlike Labour in the 1970s, Starmer and Reeves have no plan or clue how to steer the UK from disaster.

Read the full article here.


 

Why a wealth tax is a terrible idea

philmullan Debt, Economic policy, Politics, state, Welfarism

The wealth tax cure-all is having its day. Long time a favourite of the ‘progressive’ left to ameliorate the evils of capitalism, it has gained extra exposure from Gary Stevenson, the City trader turned bestselling author, YouTuber and leftist poster-boy. This self-acclaimed “very, very good economist” puts taxing the rich at the centre of his crusade for a fairer society. More recently, with the Labour government’s fiscal plans in tatters, their former leader Neil Kinnock floated the expediency of a 2 per cent tax on assets valued above £10 million. Subsequently at Prime Minister’s Questions the current leader Keir Starmer refused to rule out a new tax on wealth. 

Little better illustrates today’s political and cultural barriers to economic growth than these voguish proposals for a wealth tax. The suggestion of taxing the super-rich to address the government’s fiscal hole is another lily-livered evasion of the tough decisions required. It expresses the cultural and political elites’ prerogative that there is always some other group who can pay for social needs and for their own privileges.

Governments need to stop assuming there is always someone to pay for their spineless overspending. 

Read the full article here.

Rachel the Deluded

philmullan Debt, Economic policy, Investment, Politics, State intervention

Playing on the title of an Australian TV series, some critics of chancellor Rachel Reeves have taken to calling her ‘Rachel from Accounts’. That’s unfair to people who work in accounts departments. Most of them can interpret a balance sheet – a skill that seems to be beyond the capabilities of Britain’s chancellor.

Presenting today’s spending review, Reeves once again told the public that she can make everything add up, in defiance of common sense. ‘Rachel the Deluded’ is a more apt nickname

She insisted that the government can stick to its public-spending commitments, while not raising taxes on ‘working people’. And it can do all this while fulfilling her self-imposed fiscal rules.

In her fantastical spending-review statement, she claimed that Brits are starting to ‘see the results’ from her having ‘fixed the foundations’ and delivered ‘economic stability’.

Worse still, the spending review shows that the chancellor is continuing to ignore mounting public debt. Indeed, this clueless government has doubled down on the fantasy that the UK can borrow its way to growth, even though the national debt is already the equivalent of annual economic output.

Read the full article here.