Hidden figures
You can almost hear the Tory MP’s salivating over the latest borrowing figures. But borrowing in the financial year to January was £96.6 billion, that is just £3.1 billion less than in the same ten-month period a year ago. The surplus is also lower than expected. These are terrible figures.
This is not a turn around in the country’s finances nor a glide path towards repaying our debt, not that we should repay our debt, nor does it mean there is any room for tax cuts.
The NHS, education, child care, social care and defence would absorb all this money and much more, in a month. Taxes are rising because the government needs to bring in more money, any give away will be based on totally unrealistic cuts in spending.
This government is quite shameless in almost everything it does, so we will doubtless get some pathetic tax cuts next month and then almost certainly tax rises before the end of the year to pay for them.
Whoever is in power by then.
Economics, trade and Brexit, not necessarily in that order but the dog always comes first.
By Jonty Bloom Media
Really all government spending is debt and all tax is a debt repayment. The government doesn't have a spending account which receives tax money and out of which it spends and which is either in surplus or in deficit.
Debt puts money into the economy and supports demand. Whether it is inflationary depends on the available spare capacity. Tax takes money out and reduces demand. It is anti-inflationary.
Debt well spent on investment builds tax revenue in the future. It is problematic to commit to cut debt to make room for investment that will drive revenue. It is better to commit to cut debt via the increased tax take from succesful investment.
Tax cuts drive demand only if spent. A proportion will be saved. They drive demand if debt remains the same or increases, but not if the overall fiscal stance is negative.
Tax cuts give discretionary spending power to consumers and business but don't necesarily drive investment, especially if increased demand mainly drives imports or is met by hiring cheap labour.
Its not at all clear what the tory position is on any of this now. They just seem to think that indefinite spending cuts in the process of shrinking the state matched by tax cuts is some kind of panacea. But this deprives the economy of investment, cripples services that support the wider economy, feeds imports and the record suggests it does nothing for productivity. They seem to have lost any strategic direction.
Labour were clear about the need for investment but now seem more tied to the idea of reducing government debt (ie maintaining high tax rates relative to spending). I just don't see any way Labour can be succesful without increasing the deficit in the medium term pending receipt of increased revenue. They are worried about their credibility in the financial markets. The key to that is less their fiscal stance than whether they show themselves
capable of investing successfully (so no more HS2 type debacles). That requires reform of the state machinery. Its a big job.