Fiscal Rules

The economy is positively shrinking, and borrowing is not far off double what had been expected, but Rachel Reeves is still there. There really must be no one else. Well, no one else who usefully did not understand the money supply, anyway.

The issuing of currency is an act of the State, which is literally the creator of all money. As a sovereign state with its own free-floating, fiat currency, the United Kingdom has as much of that currency as it chooses to issue to itself, with readily available fiscal and monetary means of controlling any inflationary effect, means that therefore need to be under democratic political control. The responsibility of the Government is to ensure the supply of goods and services to be purchased with that currency.

It is impossible for the currency-issuing State to run out of money. Money “lent” to the Treasury by the Bank of England is money “lent” to the State by the State; such “debt” will never be called in, much less will bailiffs be sent round. Call this “the Magic Money Tree” if you will. There is no comparison between running the economy and managing a household budget, or even a business. There is no “national credit card” to “max out”. “Fiscal headroom” is only the gap between the Government’s tax and spending plans and what would be allowed under the fiscal rules that it sets for itself and changes frequently.

That is what both fiscal policy and monetary policy are for: to give the currency its value by controlling inflation to a politically chosen extent while discouraging certain politically chosen forms of behaviour, and while encouraging others, including economic equality, which is fundamental to social cohesion and thus to patriotism. There is no debt. It is an accounting trick. The Treasury, which is the State, has issued bonds to the Bank of England, which is the State. Even if those bonds were held by anyone else, then the State could simply issue itself with enough of its own free-floating, fiat currency to redeem them. Say it again that there is no debt.

Taxation is not where the State’s money comes from. Nothing is “unaffordable”, every recession is discretionary on the part of the Government, and there is no such thing as “taxpayers’ money”. Within and under that understanding, a tax of one to two per cent on assets above £10 million could abolish the two-child benefit cap 17 times over, while merely taxing each of Britain’s 173 billionaires down to one billion pounds per head would raise £1.1 trillion, an entire year’s tax take. The taxation of unearned income at the same rate as earnings, as was the case under Margaret Thatcher and Nigel Lawson, could easily abolish the two-child benefit cap as advocated by Nigel Farage and Suella Braverman, restore the £20 per week uplift to the Universal Credit two in five claimants of which were in work, and extend that uplift to disability benefits, all of which would inject money directly into the consumer economy. And so on.

There is no case whatever for cutting the benefits of the sick and disabled as if that would cure them or find them jobs, for retaining the two-child benefit cap, for withdrawing the Winter Fuel Payment from anyone, for increasing workers’ bus fares by 50 per cent, for failing to freeze Council Tax, for threatening to abolish the single person discount, for increasing employers’ National Insurance contributions so as to destroy charities and small businesses while making it impossible for big businesses to take on staff or to increase wages, for forcing working farmers of many decades’ standing who formally inherited their parents’ farms to sell them to giant American agribusinesses, or for any other form of austerity. There is an unanswerable economic and moral case for the full compensation of, among others, the victims of Orgreave, Grenfell Tower, the Windrush scandal, the Post Office scandal, and the contaminated blood scandal, as well as the WASPI women.