A Labour government would have made a mess of covid too.

MaizieD
Thanks for that-I’ll read the whole document later, but I headed straight for the New British Recovery Bond-says ‘new and innovative’, but which turns out to be more of the same.
It could help build . . .
It could raise billions to . . .
He has to do something to restore the LP credibility. This is not a bad start, and I’m impressed with all the things he’s going to do- e.g. not cutting funding for this and that and providing money e.g. for start up loans. So far I’ve found no mention of where the money will come from, although I’ve heard mention of involving people’s savings. (And before you ask, I’m busy hunting for the evidence to back that up.)

So far I’ve found no mention of where the money will come from, although I’ve heard mention of involving people’s savings.

I think it would be so useful if people were to have a really good look at the economists who say the the national budget is not like a household budget (and that is most economists), particularly those influenced by Keynesian theory. I've touched on this is previous posts in this thread. It is the government that issues money into the economy. There is no restraint on the amount of money it can release apart from the fact that if there is nothing to spend it on inflation will inevitably follow. There is no 'money' issued by anyone else in a country (apart from small 'local money' schemes and, I suppose, things like BitCoin). If the government doesn't put money into the economy the the economy begins to fail ; it cannot grow. This is what happened with tory 'austerity' post 2010. They took a growing economy and stopped it dead in its tracks because, they said, state spending had to be cut (because the country couldn't afford it...) Which promptly took money out of the economy through cutting state spending on wages and resources. Which, if you look at it logically, makes no sense whatsoever.

The extraordinary rationale was that if the state wasn't providing services, private enterprise would, and that somehow, state spending on services was depriving private enterprise of the money they needed to be successful. Of course, cutting state spending meant that there was less money available in the economy for private enterprise to 'earn'.

If people cannot accept that the spending potential of a government which issues its own currency is unlimited we are going to be continually held back by voters thinking that government spending is wasteful and 'bankrupting the country'' and so refusing to vote for parties which want to spend more on public services and achieving more fairness and equality.

No public spending is ever 'wasteful'* because it provides many people and businesses with their livelihoods and the money mostly returns to the treasury by way of taxation.

(*Though it could well be spent on useless projects, but that's another topic, really)

That’s such a long post I gave up.
I just need to know things like if the money will come from increased taxation and if so, what will be taxed.

The waffle about the new government bond is pertinent to all gilts. KS or his advisers could have found the exact terminology he used on the internet so is nothing new.
He didn’t elaborate the benefits to those who buy them in terms of payments, tax relief, maturity terms etc. and he won’t ever have to until the LP gets in, whereupon all this will be smothered by the usual government claims of, “We can’t do any if this because we need to sort out the mess left by the previous government.”
Government spending is only described as wasteful when you don’t like the government that is in power. I know we (as in my DH and I) complained bitterly about the wasteful spending of TB.

I just need to know things like if the money will come from increased taxation and if so, what will be taxed.

Taxation doesn't fund spending.

Government spends money into existence. Taxation makes sure that there isn't so much money floating around the system that it causes inflation. Having said that, I would hope that taxation would be targeted towards those who hog the country's resources for no good reason.

Sorry you CBA to read long posts. I realise that the completely incorrect 'household budget' theory of national economies is really easy to understand.

Understanding that the UK can create and spend its own money without constraints, and that refusal to use it for the benefit of all its citizens is purely ideological, and that the 'household budget' myth is a very convenient way of keeping the populace accepting of deprivation, is a tad more complex, I'm afraid. Can't be done in a handy catch phrase.

P.S In answer to your actual question, I haven't a clue what is in the mind of the LP leadership, except that I don't think that the poorer people in our society will be hit...

Government spending is only described as wasteful when you don’t like the government that is in power. I know we (as in my DH and I) complained bitterly about the wasteful spending of TB.

Government spending is only 'wasteful' if you cling to the erroneous belief that the country has a fixed amount of money to spend. The torie's know that the fixed amount of money is not true. Look at the £billions they've put in the way of their friends and donors in the past 12 months...

They'll get away with it, and with fresh austerity 'because it has to be paid for', because most voters believe the myth...

Mollygo

Ilovecheese
A new government bond if KS is elected.
I’ll watch with interest to see how this differs from the existing ones. I wonder if it will be better or worse than others e.g. the existing EIS government backed scheme, or current gilts.
What sort of returns and tax relief will they offer?
Will they be index linked? What sort of maturity dates will be offered?
Government bonds are currently sold to raise money for government spending, e.g. on infrastructure, future developments and things like pensions so it’s not a new idea.
I recorded his speech so I can listen again. Often what I think I heard turns out to be only part of the information so I can’t really pass an opinion yet.

There's not a lot of point in stating now what returns there will be in 4 years time. No one knows what will happen to the economy and the need for such govt borrowings. The coupon rate will depend upon the situation at the time of issue. The rate is likely to be reasonable because the govt will want the money.

Why should there be any tax relief.? Any govt. bonds issued are an investment, like any other, but unlike stocks and shares are safer because they are backed by the govt. Interest payments on War Loans weren't taxed but at that time there was a dire need.

KS was correct when he said that many people would have increased their savings. Whilst there are thousands of people who are badly affect financially by the current crisis, there are also many thousands who aren't. My OH and i have probably saved around 250 euros a month because we're not going out.

MaizieD I'm in complete agreement with you on the subject of household budgets. The following is not meant for you because you already understand it all.

The economy is not run like a house-keeping budget. What Thatcher didn't mention is the mortgages that many people have. If you look at a simple balance sheet, there are debits and credits. Assets and liabilities. Your house is an asset and your mortgage is a liability. Over time the liability is reduced and the money previously used to service it is spent elsewhere - on stuff. That spending is what helps the economy move. With a bit of luck the value of your asset might even grow.

Mollygro You are sounding a little bit knowledgeable about gilts. But, KS cannot possibly state now what the interest rate would be in 4 years time. I can remember when coupon rates were as high as 13.5% and people paid £120 for a gilt with the face value of £100. At the moment there is a 10 year govt bond with a coupon rate of 4.75% which costs around £139 for every £100 face value.

tickingbird

GrannyRose15 is right. Just printing more money is far too simplistic as it leads to hyperinflation. The ones that put this forward as a solution are naive. It’s not Monopoly.

Thankyou

tickingbird is wrong! Quantitative Easing does not necessarily lead to hyperinflation. Inflation is caused when there is an imbalance in the supply and demand of money and goods. A government in control can withdraw money in circulation at any time by tax. The government is also in control of interest rates, which at the moment are almost non-existent. Government's debt appears as an asset to the Bank of England. As both are owned by the government they cancel each other out. In any case, increasing the money supply reduces private debt and increases the amount available for investment, which is critical in a depression, which is where the UK is.

Modern Monetary Theory describes how money works. Reducing money supply increases unemployment, which is fine for those who would wish to see the unemployed starve and have the luxury of pensions and assets, such as property, but most people aren't quite so selfish.

PS. The ones who put forward this theory know a great deal more about economics than tickingbird does. Even Rishi Sunak knows it's the only way at the moment, although he's not going to admit that to the camp followers.

Ever felt like your head is making repeated contact with a brick wall, growstuff ? I've even quoted actual research at them and they still don't believe it.

Dinahmo It's estimated that there is about £1.6 trillion, which hasn't been spent since the start of the pandemic. That figure is from Aviva and others have come up with a different figure. Whatever it is, it's huge.

At the moment, that money is sitting in bank accounts, the stock market or property investments. Most property prices have actually increased over the last year, even though those at the bottom of the ladder have lost jobs and can't get on the property ladder.

That money needs to be directed towards projects which would benefit the country by providing jobs and improving infrastructure (preferably green). The "market" wouldn't do that, so it needs central government to provide incentives, such as new bonds. It's a work in progress, but I think Starmer is going in the right direction.

There was a financial expert on the radio saying that the bond idea was not relevant because there is no limit to the amount the government can borrow anyway. It does occur to me that if the government ask people to buy bonds they will not spend their savings in areas that will benefit the local economy-eating out, health/beauty services, home improvements all things which provide employment for people. So perhaps Kier is wrong and the money would be better left for people to spend.

GrannyRose15

tickingbird

GrannyRose15 is right. Just printing more money is far too simplistic as it leads to hyperinflation. The ones that put this forward as a solution are naive. It’s not Monopoly.

Thankyou

Except it isn't right, is it. Just saying you agree, without sharing any knowledge that backs this up does not turn an opinion into a fact - well in Trump World perhaps it does and to some extent in the old Brexit World but not in real life where continuing to repeat something shown to be untrue often has another name.

Could you just back up your opinions with some known experts saying the same thing, perhaps?

trisher

There was a financial expert on the radio saying that the bond idea was not relevant because there is no limit to the amount the government can borrow anyway. It does occur to me that if the government ask people to buy bonds they will not spend their savings in areas that will benefit the local economy-eating out, health/beauty services, home improvements all things which provide employment for people. So perhaps Kier is wrong and the money would be better left for people to spend.

This is part of a blog repeating a twitter thread made recently

After ten years of Tory government the UK’s in a poor economic place. Ignore Brexit and it’s still underinvested, its infrastructure is poor, its social housing stock too limited. Its banks are dependent on quantitative easing for their survival, and almost failed in 2008 and 2020,

On top of that QE has, whilst successfully funding government and keeping inflation low, forced savings into speculative activity like the stock exchange, which keeps the City happy but very rarely ever funds a new job. The result is an over valued market that could topple.

There’s another dangerous aspect to that savings bubble. It represents the growth of ever greater inequality in the UK that is going to be crushing for generations to come.

What is needed are four things. First is new capital for investment. Second is a Green New Deal. Third is safe savings. Fourth is better use for government subsidies to savers of about £60bn a year now. The Recovery Bond could address all these.

ISAs collect more than £70bn in savings a year. Pensions do more than £100bn. The total tax subsidy may be £60bn a year. Now offer a Recovery Bond, guaranteed by the government. Make them the only thing available in ISAs. Offer them in pensions. Up to £100bn could be raised a year.

Offer 1% and that will happen. And to all those yelling ‘that will cost £1bn extra year’ I don’t hear complaints about the current £60bn subsidy to free market savings now, so I don’t get the issue.

There is more here: www.taxresearch.org.uk/Blog/2021/02/18/labours-recovery-bond-and-why-it-makes-sense-now/?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+org%2FlWWh+%28Tax+Research+UK+2%29

trisher

There was a financial expert on the radio saying that the bond idea was not relevant because there is no limit to the amount the government can borrow anyway. It does occur to me that if the government ask people to buy bonds they will not spend their savings in areas that will benefit the local economy-eating out, health/beauty services, home improvements all things which provide employment for people. So perhaps Kier is wrong and the money would be better left for people to spend.

In one sense the 'financial expert' is right but very misleading. Bonds are borrowing. That's all that government 'borrowing' is, it's people's savings/investments in government financial products. NSI accounts and Premium Bonds are also people's savings/investments. The government doesn't go off to a neighbouring country and ask if can borrow a few quid.... The only international 'borrowing' is the sale of government bonds to overseas investors; which naturally creates an obligation to pay them their interest and the face value of the bonds at redemption.
For many well off people in the past government bonds were a source of regular income, sometimes their only source of income.

There will always be a demand for a good savings vehicle. I think that post pandemic it will still be there. I'm sure that people will have a bit of a spending bonanza (well, those who weren't furloughed, or lost their jobs, or who never had any financial support at all from the government) but I think that this experience may well have made people more cautious about spending, or aware that their 'needs' aren't quite as important as they'd previously thought. If there were a hypothecated bond for government investment then the money used from it would also stimulate the real economy through job creation and purchase of goods and materials for the projects.

Caroline Lucas has an interesting take on this 'bond'. She suggests that there is a psychological aspect to it in that the older people who will, mainly, be those who invest in the bond will be seen to be supporting growth to provide jobs and opportunities for the up coming generations.

I suppose though, that investing in a bond in order to help the country recover, would perhaps make people feel that they were doing something to help. As does spending in the local economy, cafes, hairdressers pubs etc.
A problem with relying on people spending, is that some people find it very difficult to let go of money they have saved, and so hoard it, where it is useless, but might be more inclined to buy a bond, which could be useful.

Crossed posts MaisieD but as usual you can put it much better than I can.

Hair dressers/beauty salons/nail salons, gyms,etc all these things have been restricted or inaccessible during lockdown. I think people who have savings will splurge it all on the things they have missed. If they want to invest money it will be once again in property, which has held its value, by either moving or extending.
As for older people I think much of their savings will go on supporting the members of their family who really need it. It's a mistake to think older people are more altruistic, and think of the wider good, family usually comes first.
It's fine to conjure up something you think would solve the problem but it's a mistake to think it will work without properly researching the market.

You're very kind, Ilovecheese

I think that economics is so interesting and really fundamental to controlling voter behaviour. That damned 'household economy' myth has been an absolute gift to the tories because so many people believe it and they exploit it by using it to cast doubt on any progressive spending policies the LP might have. They successfully convince voters that the LP is going to bankrupt the country so voters shy away from possible economic 'ruin'..

And when we do have a Labour government which has implemented a few (not many, I grant you) progressive spending policies the tories spend the next decade telling everyone that Labour has bankrupted the country...

By the way MaizieD I understood entirely about the borrowing aspect. The point is if the government "borrows" peoples' money, the people will see little return apart from any interest. Whereas if they have a local hairdressers/beauty salon they will know the people they are keeping in employment.

MaizieD You speak a lot of sense and reality, really enjoyed reading your comments.

It's fine to conjure up something you think would solve the problem but it's a mistake to think it will work without properly researching the market.

Sorry, trisher but your extensive research is....? do you have some references to help us?

I think you are looking at a fairly narrow section of the population. The just keeping their heads above the water, or, a little bit further on from keeping their heads above the water section. There are plenty of older people with money to spare who don't want to splurge it all or have to provide for adult children, but who invest to supplement their incomes.

I really don't see why everyone should want to invest in housing. I think it's in a bubble at the moment and to buy now, near the top of the bubble, would be quite risky. Prices can remain static or fall. Plenty of people were caught by that a few years ago.

trisher

By the way MaizieD I understood entirely about the borrowing aspect. The point is if the government "borrows" peoples' money, the people will see little return apart from any interest. Whereas if they have a local hairdressers/beauty salon they will know the people they are keeping in employment.

Yeah, but many people can do both, trisher. It's not an 'all or nothing' situation.

As I said before, I think you're looking at a quite narrow section of the older population.

I think as well that there must be plenty of people who have saved during lock down, but not buckets of cash, just a bit, not enough to make any appreciable difference to children's lives (especially when you have more than one or two children). Or to buy property. But would like to have a bit put by in a safe place. Not enough to add to income, but for an emergency.
I think this is an o.k. aim for Keir Starmer, but hardly enough to swing anyone's vote, and maybe a bit off putting for people who are in the opposite position and have lost income during lockdown, worrying about losing their home, who will be wondering just who his policies are aimed at.