Verity

Even the BBC casually admits it now. Andy Verity writes:

Ultimately, if it's consistently spending much more than it has in the past, the state has to raise more money in taxes. But the key word there is "ultimately". There is no urgency to repaying the government's debt. More urgent are the debts of small businesses and poorer households.

Ordinary households rightly fear getting into too much debt because if interest rates rise, lenders can close in and deploy lawyers and bailiffs with all the attendant unpleasantness.

But it is profoundly wrong and misleading to infer that it's like that for governments who issue their own sovereign currency.

Unlike households, governments controlling their own currency can borrow without limit money that they have freshly created.

They therefore can't go bankrupt. Because almost all of the money borrowed by the government in this financial year (by issuing gilts) will be owed to another public sector body, the Bank of England, it's nothing like a household borrowing from a bank.

And in fact, as the government tacitly acknowledged in its recent Budget, it makes sense in the midst of an economic contraction for the government to spend more, not less - not least because other parts of the economy (households and businesses) aren't spending anything like what they normally would.

Without the additional government spending the economic contraction would, without a shadow of a doubt, be worse.