How do we pay for it all?

The Chancellor has so far earmarked £200bn to bailout business and support individuals. This in in the context of total public expenditure approaching 900bn. There is a comparison with the bailout of the banking system in 2008. I think there is also one with the  two world wars where we paid whatever was needed, to quote the then Chancellor Lloyd George in WW1. We met the cost by increased taxation and borrowing. I explore this further in my blog piece on the comparisons with 1914-18 and 1939-45.
There is a difference. We are now paying people not to work, rather than work in the armed services or in the manufacture of war materiel. It is thus less wasteful. We are not consuming millions of tons of iron and steel in making tanks, ships and aircraft, or brass and explosives in makIng shells..

There remains the question of just how it will be paid for and Philip Inman offers some fascinating thoughts in The Observer. He dismisses yet more austerity and looks toward taxation. Raising taxes on individuals will reduce the amount they can spend and so further depress the economy. He adds this, which to me would seem to be key  :

“Unless, that is, the taxes are applied to households that save more than they spend, or target wealth. This is desirable, though unlikely, even from a free-thinking chancellor. Sunak is still a Tory, after all, and unlikely to sanction any attacks on core constituencies such as wealthy and older voters.”

Military historian and former editor of the Daily Telegraph, Max Hastings, said on Radio 4 that his (our) generation have been extraordinarily lucky. We should put our hands in our pockets rather than leaving it to younger and future generations.

The Blame Game

It seems that there is nothing for which Mrs May is not responsible. This is profoundly dangerous scape-goating and risks hiding the real issues.

Taking a very broad brush, the tragedy in Kensington, the Brexit vote and the state of the NHS all have in common the results of austerity. Buildings seem to have been maintained on the cheap and millions have seen their living standards eroded and it seems that there is simply not enough money to pay nurses properly or provide the health service we need. There has grown up in government a mind set that says all that matters is not spending money. It is a fear that if ministers do so they will be outed for sacrificing a sacred cow.

We don’t have enough money.

Why?

The immediate reason was the need for government to pay out many millions to save the banks which were on the point of going bust in the financial crisis of 2008. Banks going bust mean countless millions losing savings. It mattered.

Having saved the banks, the Labour government set about trying to balance the books. Millions had been borrowed and, if only to pay the interest, millions had to be found. There is a choice: borrow more, raise taxes or reduce public expenditure. Borrowings already looked terrifying, raising taxes risked impeding enterprise, or upsetting core supporters, and so public expenditure was chosen. The Coalition and then the Tory government continued on the same path.

The result is the denuded public services we now face and ministers closing their ears and eyes to the evidence of experts on the safety of tower blocks, for example.

Who was to blame?

Blame must focus on the banking crisis. Unpicking the strands, we had a situation where financial institutions were struggling to keep the interest rates paid on people savings at the levels they had become used to. World interest rates were falling, largely as a result of monies flowing out from China. The backroom boys at the banks set to work to devise products that would offer high interest rates to the people and pension funds hungry for them, that is you and me. One way of doing this was to lend money at high interest rates to people probably unable to borrow otherwise – high risk lending. These loans were bundled together in such a complex way that, when they were offered as an investment, the inherent risk was hidden. These were the sub-prime mortgages. First in the USA and then at Northern Rock amongst others people began to see that ‘the emperor had no clothes’, that millions of pounds of investments were worthless. Banks had invested heavily in them and so they faced disaster. The government stepped in, borrowing massively to do so.

Who was to blame? Was it pensioners demanding high interest rates, pension schemes struggling to meet their obligations to retired workers, evil bankers who without question made a fortune in the process? A bit of each. What is certain is that it was not the NHS, it was not occupiers of high rise flats and it was not millions of people whose jobs had disappeared over the decades with technological advances and third world countries entering the market. It wasn’t the EU.

Governments, including the EU, should have applied tighter regulation and still must. De-regulation goes back to the time of Mrs Thatcher but it continued under governments of all colours since.

What do we do?

We can’t go on with austerity. We have to have and pay for proper public services as Polly Toynbee argues in her book, Dismembered. So we have no alternative than to raise taxes, from everyone not just the rich, but the rich should pay proportionately more. The LibDems were wrong suggesting a penny in the pound from everyone; but Labour were also wrong in saying the rich must pay. We are all in this together, but those best able should shoulder the greater part of the burden, not by threats but by seeing their role in a cohesive society.

Probably the major part of the deficit arising from bailing out the banks should be left and no attempt made to repay it. Adair Turner, in his book Between Debt and  the Devil, suggests this. Investment financed by new borrowing should now be made in infrastructure and in education and training to encourage enterprise which is the key to a strong economy.

We need to look very carefully at the wisdom of an economy based on individual borrowing to finance consumer spending.

We must remain in the EU for access to their markets, for the immigration we desperately need and to work with other countries to face the challenges together.

We have to accept that we have been living beyond our means and so can’t have new cars on finance every few years. We have to share out the national cake more evenly: another point that Turner makes. This will benefit the economy as a whole since the current polarisation of wealth means that millions lie unproductive in property.

It is not only Mrs May, but equally she is not the leader we need to get us out of this complex mess.

Those tax returns and what really matters

One of the first things I was ever taught was to come clean. It is painful, but it is the best policy overall. Yet we all fail to do it from time to time; we are human and so are politicians.

The tax return revelations are not about this. They are not about how much a Prime Minister gets paid (this is decided by Parliament) nor about whether parents may give money to their children. The chilling figure is the rental income for just a quite a nice house in London. This rental is set by the market by reference to the sorts of prices people are willing to pay for houses in London. This figure is set by the super rich who are happy to pay ever increasing amounts for the very expensive properties whose values will go on rising so long as the super rich believe they will.  Where have we heard that before?

It is the amount of wealth held by the super rich which they put into real estate and which therefore has no benefit whatsoever to the economy - that is the issue that politicians should be shouting about and that newspapers and the other media should be probing. It is that issue that is causing hardship to the worse off in society and preventing ordinary people from owning their own home. Adair Turner has written with great brilliance on this. The fact that the super rich make their investments via tax havens only compounds the problems.

So, stop hounding middle rich politicians and go for the real culprits.

Stop bashing bankers' bonuses

Today's Guardian reported Lord Turner running to the defence of those whom he had previously termed socially useless. This is all in the context of Vince Cable's speech to the LibDem conference where he stated his intention to shine a 'harsh light into the murky world of corporate behaviour.'
Turner rightly calls for policy changes to bring in the tight regulation which is vital if these massive institutions are to act in the interests of the customers and economies they serve.
It is a stark comparison to suggest that a bank might be bigger than the economy of the country in which it resides.
This is more than the anxieties over complex financial instruments about which I am writing in Broken Bonds, and much closer to Edward Heath's condemnation of the unacceptable face of capitalism which I recall was directed at Lonrho.