The Chancellor is due to announce her Autumn Statement on October 30. The Budget will set the framework within which the government will – or will not – be able to deliver on its promise of national renewal: returning the economy to growth, tackling the cost-of-living crisis and reducing poverty, curing the NHS crisis, rebuilding our public services and national infrastructure, and addressing the climate emergency. It is important that the Budget be assessed according to how well it will enable that renewal.
The media will be keen to publish a response quickly. This article sets out five simple tips you can follow to evaluate what you read – is the analysis punchy, insightful and distinctive?
Tip #1: Remember that the UK is no longer on the gold standard
The UK has not been on any form of the gold standard since 1971 – for over half a century we have been operating a fiat currency system in which the UK government can create money in unlimited quantities whenever it needs to do so. And it has created, via the Bank of England, £895 billion since 2009.
Of today’s government debt, as a result, around 25% is already ‘debt’ that the government owes to itself – and therefore this is not debt in any normal sense of the word. The Government could, if it wished, make that 25% into 50% or even more. This means that letting concern over future levels of ‘debt’ drive economic decisions is utterly misguided.
Not being on the gold standard also means that UK government finances are nothing like household finances. Taxes are needed to enable spending without letting inflation take hold; they are not needed to finance the government.
This means that hysteria over hitting or missing the Chancellor’s arbitrary and self-imposed fiscal rules is misplaced. The law of sectoral balances – one of the few economic laws that can be guaranteed to hold – implies that, in general, the government sector should run moderate deficits to prevent private sector deficits. Moderate government deficits are not some aberration of an ill-disciplined administration, they are the way a responsible government should run – and that is why almost always and in almost all countries, they exist.
The diagram below shows how you should assess Budget responsibility: it is almost the opposite of the way most media usually do assess it.
In contrast to what we are normally told:
- A government deficit equals stimulus to the economy (spending more money into it than we take out in tax), something which has been inadequate for the last 14 years – a deficit is not something to be eliminated;
- Public services are a critical part of being civilised, not a profligate indulgence;
- The private sector needs risk-free ways to save, for example, for pensions etc. and this is provided by government borrowing.
And there is really no risk of our government debt becoming unsustainable.
Alarmist headlines like “Tax rises of more than £40bn a year are ‘all but inevitable’ to protect UK government debt from spinning out of control” are utterly misleading to readers and viewers.
Tip #2: Remember that people are citizens, not just tax-payers
It is common to make the Budget more accessible and bring it to life by presenting what it means for working-class Dan and Janice in Bradford or middle-class Susan in Islington. This is good practice as long as you remember that Dan, Janice and Susan are citizens, with parents and children, not just taxpayers.
If Dan and Janice receive a £750 per annum tax cut because the government constrains public spending, it does not make them better-off if the NHS is so underfunded that Janice has to pay up to £15,000 to have her hip replaced privately.
Susan is not better-off if, because of the social care crisis, she has to fund her father’s nursing home fees. And if her daughter has autism, but is not suicidal, and CAMHS cannot give her an appointment for two years so her education is severely disrupted, Susan and her daughter are not better-off.
Tip #3: Do not ignore wealth and power
It is not enough to illustrate the impact of the Budget on Dan, Janice and Susan; Jonathan in Holland Park (though domiciled for tax purposes abroad) should also be mentioned.
Including Jonathan in the analysis will show how easy it is for a billionaire to pay under 5% of tax on his or her true economic income while working people can be paying up to 40% or more. Indeed it seems likely that Rishi Sunak pays under 1% on his true economic income in a normal year, rather than the 22% that was generally reported.
This is something the public should be made aware of.
Tip #4: Provide global and historical context
Providing data without context is largely meaningless. Media reports should compare how the average UK citizen is faring with how citizens of other countries like Germany, the Netherlands or Denmark (which we used to regard as our peers) are doing.
This chart on the FT website, for example, which indicates how many British households are now worse-off than their counterparts in Slovenia, is an example of useful context for readers.
Similarly, the public knows there is a cost-of-living crisis, but many are not aware how much worse the UK is performing for its citizens than it did historically. Charts with a long time series like the one below provide insightful context.
Tip #5: Show that alternatives are possible
It is particularly important when it is clear that the Budget will cause a further fall in living standards, weaken public services and infrastructure, and perpetuate low economic growth that press coverage illustrates – at least in outline – the shape of an alternative Budget which does address the needs of the UK.
If no alternative is visible, the government will present its Budget as a regrettable necessity, and the Chancellor as having had the responsibility of taking ‘difficult decisions’ rather than as ducking responsibility for rebuilding the UK.
Most media coverage of the Budget will be slightly worse than useless. If you read with these five simple suggestions in mind, your own analysis of the budget will be informed and you will be able to evaluate what’s reported in the press.
If you are interested, take a look at The 99% Organisation, and join us. We shall publish our own analysis – and we will attempt to make use of the tips.
This article is an edited version of one published by the 99%Organisation. Read the original article.
