The economy, a sensible debate in advance of the budget

[malumbu]

@Sephiroth you made some interesting points on the economy, on the Lammy thread.

Thought it worth broadening the discussion.

Reeves (irrespective of her financial competence) clearly was too downbeat on things when Labour came into power.

But could there have been more honesty on the liklihood of taxes going up (which they have done, and will do in any case due to the freezing of personal allowances).  It may have been a silly commitment not to do this, but were you damned if you do and damned if you don't?

[Earl Aelfheah]

Yes, they should clearly have been more honest on taxes before the election and not backed themselves into a corner. After 14 years of mismanagement and decline, they have to invest and at the same time start to bring borrowing down (otherwise they continues to be at the mercy of the bond markets). Continued cuts / degrading of public services is counter productive (a successful economy and society needs good infrastructure, education and health care). 

The single biggest thing they could do to immediately improve growth would be to rejoin the single market, but I appreciate that is difficult politically. 

So if you can't significantly boost growth short term, can't cut too much further, and need to raise money without borrowing, that only really leaves taxation. 

 

Of course, where best to target those taxes - that's the real question.

Edited 4 hours ago by Earl Aelfheah

[Angelina]

or cut costs. 

The cost of debt is a huge burden, it cannot be increased.

[Spartacus]

Today we are seeing the impact of increased taxes (employers NI) with tje UK unemployment rate rising 

https://www.bbc.co.uk/news/articles/cdxrp7znkdlo

Unfortunately, to increase tax burdens will see the economy stall or a recession, as Angelina says, cutting spending, whilst painful short term, is a good way to bring down government borrowing. 

True, we don't want to see cuts to services but there are other areas of government spending that can be reduced and with AI impacting all jobs across all businesses, maybe it will also reduce overall staffing costs. 

Edited 4 hours ago by Spartacus

[Sephiroth]

3 hours ago, Angelina said:

or cut costs. 

The cost of debt is a huge burden, it cannot be increased.

After 15 years of austerity I’m not sure where you would find costs to cut 

I mean it’s been 15 years - “short term” isn’t the word I would use 

Edited 1 hour ago by Sephiroth

[Angelina]

There is a vast difference between cutting costs and not being wasteful.

We cannot have the equivalent of not having the money to insure your car, while buying lunches in Waitrose everyday.

You can have all the money in the world, and be a fool with how you spend it.

Now, it's completely out of control. It has been for a long time.

 

[Earl Aelfheah]

1 hour ago, Spartacus said:

Unfortunately, to increase tax burdens will see the economy stall or a recession, as Angelina says, cutting spending, whilst painful short term, is a good way to bring down government borrowing. 

I think one could argue that degrading public services / infrastructure is what's led to our current, slow economic decline. We've spent 14 years trying austerity, and it's proven counter productive to growth and productivity. A successful economy and society needs good transport, education and early intervention health care.

On taxes, it depends how you target them. Tax funded spending may be a positive fiscal multiplier. Taxes on work aren't great, or when they hit the poorest (who tend to spend most of what they earn, boosting economic activity). We need a well designed wealth tax (on idle assets), and stronger measures to target avoidance. 

Edited 2 hours ago by Earl Aelfheah

[Sephiroth]

50 minutes ago, Angelina said:

There is a vast difference between cutting costs and not being wasteful.

We cannot have the equivalent of not having the money to insure your car, while buying lunches in Waitrose everyday.

You can have all the money in the world, and be a fool with how you spend it.

Now, it's completely out of control. It has been for a long time.

 

This is to conflate household budgets with government budgets. They are very different things 

a large part of the anger felt across the country is the decline in public services after a decade and a half of austerity.  You cut more you get more ugly anger 

Of course people need to be persuaded to pay more - but that is only realistic path. You cut more you will find out the hard way 

[Angelina]

we actually need growth. It may be counter intuitive, but we need investment.

 

my example is about poor financial management, be it personal or central. I'm referring to poor government financial management.

Edited 2 hours ago by Angelina

[Earl Aelfheah]

We do need growth and investment. But cutting spending, is the opposite of investment - degrading transport, increasing waiting lists, etc. The analogy of government spending as a household budget is a very poor one. 

Government financial management is probably poor, but every single prospective government says they'll find billions in efficiencies and then fail to find them. I don't believe there is as much waste as people think. 

We need to tax unproductive assets, raising money to invest in public services / paying down debt, (or else encouraging people to move their money in to productive investments). 

Edited 1 hour ago by Earl Aelfheah

[Sephiroth]

I would also suggest if we all care about growth and investment as we claim, we should be looking to rejoin single market and customs union - if not  reversing Brexit in its entirety 

Otherwise we are all cake and eat it merchants 

[Angelina]

My point is exactly that, cutting spending isn’t the answer, reducing wasteful spending and improving financial management is. They are not the same.

[Earl Aelfheah]

Every politician says they’ll find loads of money cutting frivolous spending. Reform had their own ‘DOGE’ team at Kent council who were going to go in and save huge amounts’ of money. They disbanded very quickly having realised that the mountains of waste didn’t actually exist.