Let's try and absent the politics from Sunak's budget for a moment and narrow our imagination down to wonkish dimensions. The extension of the Job Retention Scheme until September is good (but with limitations). Ensuring the £20 uplift remains until at least then is also welcome (though, of course, it should be permanent and be more). New mortgages requiring a five per cent deposit will be introduced from April, and should help a layer of younger people trying to buy a house. And green bonds are to be introduced over the summer, sounding a bit like recovery bonds that, coincidentally, were trailed recently. And then there is the big ticket item. Corporation Tax is set to rise but will not come into force until 2023 and, admittedly sensibly, introduces progressive taxation on profits with businesses operating at £50k or below staying on 19% followed by a tiered system up to a maximum of 25%. And so the eager burning of political capital to look pro-business we saw this week was effortlessly sidestepped by the Tories.
Back to the politics. Huge sums were sprayed here and there, but this was not a Labour budget, nor a centrist affair happened to be fronted by a Conservative chancellor. This was every inch a Tory budget. Remember, right wing statecraft is not beholden to principle. Its aim is the preservation of Conservative political dominance as a means of defending the class relations they stand on, and if this requires confounding small statist expectations and sinning against the collected works of Milton Friedman they will merrily trample his screeds into pulp. Consider the evidence. Support for the self-employed continues, but those who don't qualify for the scheme still receive nothing - people who, as it happens, disproportionately fall into the creative sector. The suspension of stamp duty extends into the summer, helping the loyal Tory strata of private landlords. Business rate relief was handed another three months, and VAT on food and drink for pubs, bars, and restaurants is cut to five per cent until September before rising to 12.5% for a further six months. More grants and cheap loans are available to start ups and small business. And to induce capitalists to pony up capital for investment, Sunak also announced a sweetener where businesses can reduce their tax bill by 130%(!) of the costs incurred. Last, but by no means least, buried in the small print is a further reduction to departmental budgets. In other words, a generous splash for businesses, help for the Tory coalition, but continued cuts to the public sector.
And so no help for renters. No help with living costs for workers in th reduced circumtances of furlough. No let up on lashing civil servants, public services, and local government. There was no money for the NHS beyond £1.6bn for the vaccine rollout, nothing for education, nothing for emergency services, nothing for adult social care, nothing for the court system. The tax cut due from April as the thresholds rise will get gobbled up by the five per cent council tax increase thanks to the government's (intentional) failure to fund local authorities properly. This isn't just Toryism, it's two-nation Toryism.
More than 18 months into "Johnsonism", the contours are now obvious to everyone who looks for them. The state is back in a big way and is being used above board and below desk to lubricate the gears of British capital, and offer inducements to bits and pieces of their voter coalition. Meanwhile our class qualifies for no such largesse, helping ensure that when a semblance of normality returns (vaccine resistant variants permitting) there will be a large pool of labour desperate to take anything the reopening economy offers. And, the Tories hope, continued restraint on the part of de-furloughing workers grateful to still have a job and keen to crack on. At every step the Tories' political management of the Covid crisis is something of a master class. Not only have they avoided the blame for an unnecessarily high death toll, they have successfully headed off hops thing might get better after Covid, beyond bosses making some concessions over homeworking. If this is all the government and their system have to concede, British capitalism can easily live with it.
Rishi Sunak's budget therefore marks crowns the Tory triumph in the politics if the virus. A victory lap after a struggle that saw them afforded every advantage, including an opposition responsible enough to not offer opposition. The blizzard of bank notes is so much snow blindness for those who refuse to see what this budget was about. Boris Johnson defined "the war" against the pandemic, and now his party gets to define the peace. This is Toryism for the 2020s: a creed and a settlement, as it always was, for the bourgeois interest at the expense of everyone else.
It has been a long time coming, but today the Labour Party officially declared itself economically to the right of the Conservatives. Most of its MPs have been so ever since the end of the Whiggish Coalition marked the end of the Gladstonian austerity programme. There is still plenty wrong with the Conservative Party, but the dividing line between it and Labour is now clear. As is the fact of which party is at least to the left of that line.
ReplyDeleteBut Leeds is not on the Red Wall. Unlike the five Labour ones, the three Conservative seats in its council area are so outlying that none of them even has the word in its name. Nor was any of them captured in 2017 or in 2019. Will the National Infrastructure Bank be going to any of those constituencies? It seems highly unlikely. It was Consett that was emblematic of deindustrialisation in the 1980s, and it is Consett that is the largest town in the parliamentary constituency of North West Durham, which has come to be regarded as the archetypal Red Wall seat. Therefore, the National Infrastructure Bank should have come to Consett.
And 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. There is no debt. There is no debt. There is no debt.
Of course there is debt! The process described is simply one of how the debt is being dealt with via its monetisation. But, monetisation simply shifts the burden of the debt to others via inflation.
ReplyDeleteIn the last 30 years such monetisation created a hyper inflation of asset prices. That created the huge inequality of paper wealth seen plus also making it impossible for many workers to buy homes because of an astronomical property bubble. On the back of that it caused rents to rise to ridiculous levels that only continue because the state undertakes further debt to pay out £30 billion a year in Housing Benefit subsidies to landlords. It has made pension provision unaffordable, because the monthly contributions of workers and employers to pension schemes now buy only around a 30th of the shares and bonds they did back in 1980, and so the revenue from that capital base is not adequate to meet pension liabilities.
The monetisation of the debt creates inflation, which given that the debt is currently going to finance unproductive consumption will be an inflation of consumer prices, not asset prices as was the case over the last 30 years when money printing went just to assist in the buying up of existing paper, so as to push up those asset prices. The rising inflation will cause higher interest rates as lenders seek to protect themselves against being paid back in funny money.
As I set out back in 2009, states have always used inflation by a debasement of the currency to cove their debts, and its always leads to such inflation and the shifting of the debt on to others, not the magical disappearance of the debt itself. The huge amount of QE since 2009 showed that analysis was correct. Those who suffer are those on fixed incomes like the unemployed and pensioners, as well as workers - particularly poorly organised workers, or workers whose labour is not in high demand) as they cannot raise wages in line with prices.
I've set it out in The Poison Fruit of the Magic Money Tree.
A simple example.
ReplyDeleteA state is headed by a King. The state produces 100 tons of food each year. There is £100,000 of currency in circulation, in the hands of subjects, who use it to buy the food, at £1,000 per ton.
The King decides he would like to consume 20 tons of the food himself. He can directly appropriate this 20 tons, leaving the subjects with 20 tons less to consume. He can levy a tax in kind so as to give some kind of legitimate cover for the appropriation, or he could levy a 20% monetary tax on the £100,000 of currency in circulation, using the £20,000 to buy 20 tons of food. That still leaves the subjects worse off by £20,000 o 20 tons of food.
Alternatively, the King could ask his mint to provide him with £20,000 of new coins, which he gives them a slip of paper for saying he owes it to them at some indeterminate future date meaning never. He uses, the new £20,000 to buy 20 tons of food. But, oh look, there is now just 80 tons of food available, still, for the subjects to buy with their £100,000. The £100k chases after the 80 tons of food left, and so its price rises to £1,250 per ton.
The King's debt has actually been covered by a reduction in the standard of living of the subjects by 20%, as a result of an inflation of the currency. In reality, some subjects would be hit much worse than others.
Its also the effect of a Basic Minimum Income. All these ideas were put forward in the past. They amount to a Ponzi Scheme to pay out current incomes at the expense of the future. They all ended in disaster as with John Law's Scheme, and the Pereire Brothers Credit Mobilere.