The Budget

The BoE actually legally purchase Gilts and Bonds so they do exist it is not a conjuring trick
The Office of National Statistics show Gross UK debt April 2020 at £1900 billion now it would be well over £2000bn, half of that is QE. This is the true UK debt seen by outsiders

The accounting trick is the accumulated “Deficit” is recorded as Gross debt less QE, because the UK has lent money to itself, it does not have to be repaid.

Why are you ignoring requests for a source for what you are posting, Katie59?

Bad political decisions by the UK affect the exchange rate of Sterling, there have been many, in recent years Deregulation leading up to the 2008 crash and Brexit in 2016 both self inflicted wounds that hurt us all.
Covid is different it affects most economies, although other nations have handled it better, in Sterling terms it has not had much affect, despite massive - justifiable spending. Exchange rate is important because we import so much, if the UK stopped making stupid political decisions we would all be better off.

The Bank of England purchases Gilts and Bonds from the UK government and are held as “assets” on the bank balance sheet.
It is done as an alternative to selling securities to others because it reduces interest payments, it is indeed free money but the asset value remains on the BoE balance sheet.

Technically it should be repaid but the UK has never actually had a positive balance, when one loan ended another was taken to replace it. So the national debt remains to a greater or lesser extent and it does include QE.

Where the Government (not the BoE) fools us is that because QE is an asset it does not include it as debt. Its one of the accounting tricks that are used, to justify government spending. However international banking conventions do require the BoE to publish the real borrowings, including QE. Foreigners want to know the health of the UK economy, just as we want to know their economic health, the UK politician's could cancel QE debts at a stroke, overseas that would be seen as a very bad indicator of the UK economy.

Bad

I agree these things will happen Maizie, and that we, as a country, have the double whammy of both the pandemic and the Brexit impact.

I also agree that the government strategy looks increasingly as horrifying as Casdon suggests.

This means that the thinking of this government should and must be challenged, and that we have to insist they care for all the citizens of this country not just a few. This government's view is nothing new; most dictators show huge preferential treatment in favour of their supporters. We need to ensure we fight to take our democracy back for all via proper parliamentary governance. It's hard without an election but that doesn't mean we should stop calling them out, surely.

Casdon

Maybe growstuff, but with high unemployment and low consumer confidence particularly with the threat of a third wave, the uptake of house buying may well be less than anticipated as well. There’s obviously some pent up demand, but I wonder how it will look in a years time?

Casdon House prices have risen throughout the pandemic, although some sectors (such as student housing) have lost out. A significant proportion of house purchases are now made by BTL landlords, not people who will live in the housing themselves. They are mainly older people, who have very low personal housing costs, looking for somewhere to invest their money while other interest rates remain so low.

It's yet another factor dividing this country and causing inequality.

Well, I hate to upset anyone but I don't see consumer goods booming because we import an awful lot from Europe (not necessarily from the EU, but from countries inside the EU customs union) and I think they're going to be in short supply because many exporters won't want the extra red tape and the new VAT regime.

Unemployment is bound to rise, because many businesses will not survive the pandemic or Brexit. That'll cut consumer spending, too.

PippaZ I understand what you’re saying, but the underpinning Government strategy is to stimulate house buying, not social housing. That does seem to be the aspiration for a big part of the population too. Maybe I’m being pessimistic.

I’m also less than optimistic about how interested they are in sustainability. A proportion of the population is, although whether that will translate into a willingness to walk the walk is less certain.

On the leisure and tourism comment I made, everybody is so disheartened after the lockdowns that I think that’s what they will want to prioritise, there’s been a shift in perspective about what’s important to people. I really don’t see consumer goods booming after an initial flurry.

Why are people so obsessed with house buying? The latest figures I can find show total household debt in Great Britain was £1.28 trillion in April 2016 to March 2018, of which £119 billion (9%) was financial debt and £1.16 trillion (*91*%) was property debt (mortgages and equity release).[5 Dec 2019]

Building and refurbishing homes is surely more important than buying houses.

My post above was to Casdon. That's the second time I've lost a quote. I wonder if they're rationed

Maybe growstuff, but with high unemployment and low consumer confidence particularly with the threat of a third wave, the uptake of house buying may well be less than anticipated as well. There’s obviously some pent up demand, but I wonder how it will look in a years time?

That consumerism led to the purchase of fridges, TVs, etc. the futuristic items of the time but more than that it led to their manufacture. We also had growth in house building. I don't think anyone would be expecting it to be the same. What was invested in then will not be what is invested in now but I am surprised you think you see money spent will mainly be spent on leisure and tourism.

Won't we want to have well-insulated adaptable homes? Won't we want our food grown sustainably? Sustainability and green projects should be in the government's eye surely. This government speaks the words and then takes the money away. We will all want to invest in a smart world and today's carpers, who criticise progress, will end up using the items that are useful to them just as those who damned TV and fridges when they were new probably had them for most of their lives. This is not about where we are but about where we can go or - if those who talk as some do have their way - what will leave us behind.

If they print money it stays on the UKs debt,

No it doesn't because if the BoE issues more money it is not owed to anyone. So it isn't a debt. In the past money was issued directly by the Sovereign. The BoE is now the issuing body but it does it on the instructions of the government.

Casdon

I wonder will that happen again though PippaZ, I think there’s a big groundswell towards less consumerism. In the fifties people had very few material possessions so there was a boom because they wanted to buy them. Now I think it will be leisure and tourism that will boom rather than consumer goods, most people seem to have spent lockdown re-evaluating what’s important to them - maybe they will spend on home improvements though.

The first priority must be the property market, which is a massive shift of wealth from the younger generation to the older and less wealthy to more wealthy.

Initiatives such as longer, cheaper mortgages will fuel house prices, unless there is a massive building programme, which was one way the UK got itself out of the 1930s recession and, to an extent, recovered after WW2.

Sunak must be very grateful that such a big proportion of the voting public is financially illiterate. It allows him to perpetuate the great austerity con.

Katie59

You can certainly invest to increase growth, or to get over a crisis, successive government have been borrowing or printing money continuously as one loan finished they took another one out.
If they print money it stays on the UKs debt, at current levels that is not a problem, the present government are not likely to let it get out of control. If future government decide to take too much advantage of “free” money 2 things will happen, inflation will reduce spending power and confidence in the UK will fall. Sterling will fall with it, the UK is already living beyond its means, let’s not pretend there are no consequences to printing money. Another bad political decision could easily trigger an avalanche and there have been plenty in the past 20 yrs.

Have you noticed any inflation since the current government "printed" billions of pounds over the last year? Prices of certain essentials have increased, but the RPI and CPI have hardly moved.

No, money supply just doesn't work like that.

Would you kindly like to have a go at explaining what you mean by a country "living beyond its means"? And what on earth do you mean by an "avalanche"? Sorry, but that's just nonsense.

I'd still be very interested to know the source of what you are asserting, Katie59

I can back up everything I say with the work of economists. Can you?

I wonder will that happen again though PippaZ, I think there’s a big groundswell towards less consumerism. In the fifties people had very few material possessions so there was a boom because they wanted to buy them. Now I think it will be leisure and tourism that will boom rather than consumer goods, most people seem to have spent lockdown re-evaluating what’s important to them - maybe they will spend on home improvements though.

If they print money it stays on the UKs debt, at current levels that is not a problem, the present government are not likely to let it get out of control. If future government decide to take too much advantage of “free” money 2 things will happen, inflation will reduce spending power and confidence in the UK will fall. Katie59 Wed 10-Mar-21 22:21:15

Why would any government - except the Conservatives - let that happen. Tax is the tool that controls inflation (not debt) but Sunak is introducing it as soon as he can taking yet more income away from the poor and comfortably off who would otherwise be the engine of recovery. The rich will, as they always do, find a way around it and we will be left without the lever to control inflation.

GrannyRose15

katie59

I agree and so does Dan Hannan former MEP, now Baron Hannan of Kingsclere.

"You cannot spend your way to growth. You cannot increase consumption, without producing anything."

"You cannot debase currency without consequences. You can't keep borrowing for ever."

No knowledge of history or economics on his part, it seems.

Spending our way out of debt is exactly what the UK did after the war and this, contrary to what some very suspect sources will tell you, meant we hugely reduced the national debt and increased employment. Taking care of economic growth and unemployment plays a considerable role in reducing debt to GDP ratios. What happened in the 1950s and 60s was the opposite of our recent, and if Sunak has his way soon to be repeated, austerity.

We may not be able to do as quite as well as we did after the war as personal debt is higher and savings are lower, relatively, than they were then thanks to the Conservatives deciding that making the poor poorer was the way to run this country for the last 10 years. However, we should be able to come out of this successfully and with more equality if we learn the lessons of the past.

You can certainly invest to increase growth, or to get over a crisis, successive government have been borrowing or printing money continuously as one loan finished they took another one out.
If they print money it stays on the UKs debt, at current levels that is not a problem, the present government are not likely to let it get out of control. If future government decide to take too much advantage of “free” money 2 things will happen, inflation will reduce spending power and confidence in the UK will fall. Sterling will fall with it, the UK is already living beyond its means, let’s not pretend there are no consequences to printing money. Another bad political decision could easily trigger an avalanche and there have been plenty in the past 20 yrs.

Dan Hannan has no more idea abut economics than my cat has. What a load of absolute nonsense.

Why don't you look at what what actual, real life economists are saying?

Simon Wren-Lewis:

A balanced recovery requires increases in investment as well as consumption. The impact of corporation tax on investment is very uncertain, but higher corporation tax will probably discourage investment and FDI to some extent. As a result, there seems no reason to announce any increases in corporation tax in this budget, particularly if the motivation for it is to reduce debt. (Expectations matter, so delaying increases by a year or two does not make much difference to their impact on investment.) Raising corporation tax makes sense when the recovery is complete, but there is a strong economic case not to anticipate or pre-announce this. [1]

A balanced recovery should also involve additional public spending as well as private spending. The demand for most public services does not go down in a recovery. There is a strong case against cutting overseas aid, and for additional funds to certain parts of the public sector including local authorities. A large increase in council tax is again not a good idea in a recovery, and it is up to central government to give local authorities funding to avoid this and more.

Last but not least, the 3% cap on public investment should be thrown out of the window. It is incredibly fortuitous that a desperate need for public investment to help green the economy takes place during a period of historically low real interest rates. It would be criminal if that opportunity was not exploited so that every potential investment that effectively reduced carbon use or protected us from things like flooding was undertaken. Keeping a lid on public investment that prevents projects with a high social return makes no sense at any time, least of all today.

mainlymacro.blogspot.com/

But you can spend your way to growth! Without investment, which is just one form of spending, there is unlikely to be growth ever.

You can't increase consumption (even if you want to) if people can't afford to buy what's produced.

The comment about "debasing" currency is just ignorant.

I'm not sure that Hannan is the wisest of economic commentators. He certainly couldn't give a stuff about the effects of the free trade and neo-liberalism he embraces.

katie59

I agree and so does Dan Hannan former MEP, now Baron Hannan of Kingsclere.

"You cannot spend your way to growth. You cannot increase consumption, without producing anything."

"You cannot debase currency without consequences. You can't keep borrowing for ever."

Not economics but how it affects us.

www.itv.com/hub/the-martin-lewis-money-show-live/2a1827a0102

I think that most of the voting population would like to achieve a balance to the left of what many Tories support, where a mixed economy thrives, the tax system is seen as fair and a sensible welfare state is achieved. None of this is being achieved at present. Whitewavemark2 Sun 07-Mar-21 08:49:09

Sadly I don't agree. There is a thin line between those who want this and those who don't. Neither do I think it is just "the rich" or "big business" who get and keep the Tories in power. Again sadly, I think it is those who benefited from the post-war changes who want to keep what that helped them to achieve each believing, to quote my daughter at four "I did it my own self"; four-year-olds is what many of them sound like.

After the war changes were made because we realised bombs could land on the rich and the poor alike. Hopefully, after Covid, more people will realise that Covid can hit, both financially and mortally, both the rich, the poor and the previously comfortably off alike.

We have moved from our poor relief system and now have a choice of three social security systems. Many English speaking countries have gone, as we have since Thatcher, for a market-orientated system where the state just picks up the pieces. We know this government wants to extend this.

The second choice is the European family-oriented style where employers and state have a supporting role. The third system could be seen as The Scandinavian, state-orientated, one with universal protection and services.

Even before Covid, any protection offered by the state needed modernisation; so much so that people were already showing dissatisfaction with the current, anachronistic system on offer. According to the Edelman Trust Barometer, since May 2020 the trust bubble has burst. The very fact that our government threw money at the Economy, responding to Covid aggressively in some areas, tells us that the responsibility for some risk is misplaced. Even the Financial Times has articles entitled "The New Social Contract", etc. This is being looked at from both left and right currently. Let's hope it's not too late and that it isn't prevented or hindered by the current government who are, in their views, the very anachronisms that have brought us to the wrong place at this time.

(I am part-way through an article on this very point in the Economist which has influenced this post [PW]
www.economist.com/briefing/2021/03/06/covid-19-has-transformed-the-welfare-state-which-changes-will-endure )