What does the piece say? Despite the economy puttering along better than expected, state borrowing for July had doubled compared to this time last year. Because it's £3bn over target, "tough decisions" are called for. I thought economic growth was supposed to be our magical cure-all? There are four measures that are being trailed. Raising capital gains and inheritance tax, and keeping to the letter of no new taxes on "working people". Going for a 1% increase in public spending, while expecting some departments to find savings. The child benefit cap is staying in place because the point of hard choices is to look tough and uncaring. And finally, the Bank of England will be excluded from state debt figures.
The last is the most wonkish, but is politically interesting. As we know, taxes are paid into the consolidated fund, which is effectively the government's current account with the Bank. It suits Labour and the Tories to pretend its incomings and outgoings have to be balanced, and that borrowing money from other sources is super bad. However, the money lender of first resort is always the Bank. In 2022-23, the Bank owned 25% of government bonds (gilts), effectively meaning a quarter of the state's debt is owned by the state. According to the House of Commons public finance report published this Wednesday, redefining state debt so it excludes money the state owes itself would depress debt from 99.4% to 91.9% of GDP. An accounting trick that can be presented as Labour's achievement in getting the figures down when everyone's forgot the redefinition, and allows more borrowing from the Bank off the books (as it were).
To underline the point that this means absolutely no relief for the party's base, the FT splashed on Reeves's plans to raise social rents above the rate of inflation. This means "stability" apparently, because it's a 10-year settlement that will allow housing associations and councils to plan and use monies to invest in new builds. A way of diverting housing benefit for those who qualify into the sector, while hammering those who don't. But ultimately, efforts at trying to rebuild social rents by putting costs onto tenants is undermined by Labour's retention of Right to Buy. Why invest in new housing when tenants can buy them at a discount after three years of 'permanent tenancy' status? No wonder councils have put cash in build-to-rents via "private" local authority-owned landlords. They get a return without the asset being sold from under them. And in the mean time the housing crisis worsens.
One might say Reeves is moving pieces around a chess board. Except there are no clever-clever 11-dimensional moves here. The Chancellor is narrowing the range of public debate and purposely pretending her choices are "necessities". Therefore, Labour has "no option" but to throw public money at business, can't do anything about the financial crisis in public services, and demand those at the sharpest end cough up to cover the costs of refurbishing the state. She is presenting a false, dishonest politics, and it's up to the labour movement to expose it as such and push back.
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3 comments:
There's some speculation Reeves will increase employers' national insurance contributions, which is an interesting bit of sleight of hand. People with a reasonable grasp of economics understand that's a direct employment tax, but the majority of people don't understand the concept of tax incidence, so because it's not transparent in the way employees' contributions and income tax are, they don't immediately grasp the implication. Reeves can probably do it and make a disingenuous claim she's not putting up the the employment taxes as claimed, or at least not the parts visible to employees. Reeves being an economist knows this is sophistry, it's the overall cost of employment that matters, but position it as a tax 'bosses pay' and the gullible will probably buy it. Like fiscal drag, the optics are better than the real world effects.
Speaking as someone with a "reasonable grasp of economics" I think that whether that can be said to be a direct employment tax is arguable. Mainly because you'd have to define what you meant by both direct and employment. So, it could be viewed as a 'tax on jobs' but at least it doesn't fall on the employee directly. As it happens, I am against income tax and NI in principle because they tax labour rather than taxing rent (the economic sort of rent, rather than what you pay for your flat) or assets, which is where most of those with real wealth would pay.
You seem to have a misconception of economists. Sophistry is pretty much what its all about, at least in the establishment neoclassical version of the subject. If cost of employment is what matters then the obvious road is to up productivity, but instead most of our employers seem more intent on suppressing pay. When I say pay, obviously not their own pay. That continues to explode.
Fiscal drag sounds like a gender fluid night club (its even got optics) for accountants. Are you a member?
The SNP, of all parties, with this stalking horse today: https://www.bbc.co.uk/news/articles/cwy7p2y1p1eo
"Stop asking to be paid, or the nature funding gets it!"
Is that the new negotiating tactic of the state?
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