Britains economy

I don't understand the concept of the VAT, but I think it affects everyone in the UK. If that's the case, wouldn't removing that help people who are struggling financially? We have a tremendous labor shortage in the US. Ours was caused, in part, by huge outlays of unemployment money to people long past the height of the pandemic. During the 2008 financial crisis, the government's answer was to put large numbers of people on disability once their unemployment ran out. These are terribly inflationary practices. The unemployment continues despite huge salaries for entry level jobs and even very generous bonuses for people to come to work.

Increasing peoples' money is only inflationary if the goods & services they can buy with it are in short supply. Is this the case in the US?

I ignore OECD forecasts about growth as they are almost always wrong and far too pessimistic.

Having lived through the high inflation of the early 70’s, I dread that my small savings will again be wiped out.

Rishi Sunak has been accused of failing to act soon enough to save £11bn of taxpayers' money that has been used to pay interest on government debt.
The National Institute of Economic and Social Research (NIESR) said the losses stemmed from the chancellor's failure to insure against interest rate rises.
It meant higher than necessary payments on £900bn of reserves created through the quantitative easing (QE) programme.
The NIESR's Professor Jagjit Chadha, told the Financial Times that Mr Sunak's actions had left the country with "an enormous bill and heavy continuing exposure to interest rate risk".
According to the FT report, the Bank of England (BoE) created £895bn of money through quantitative easing, most of which was used to buy government bonds from pension funds and other investors.
When those investors put the proceeds in commercial bank deposits at the Bank, it had to pay interest at its official interest rate.
Last year, when the official rate was still 0.1%, the NIESR - an economic research group - said the government should have insured the cost of servicing this debt against the risk of rising interest rates.
It suggested converting the debt into government bonds with longer to pay it back.
Prof Chadha said Mr Sunak's failure to do this had cost taxpayers £11bn.

BBC News.

UK is part of Europe

I have little confidence that the measures needed to mend our economy will be carried out by this government. Listening carefully to what is being said there is no evidence that they have any plan to reduce the tax burden that has a depressing effect on growth.

What is needed are measures to grow the economy by infrastructure development, increase trade with the EU, by sorting out our relationship, and making the most or our areas of expertise like science and business services.

Until we can see concrete plans the U.K. will struggle and bump along at best at very little growth at worst in a recession.

Telling that the only 2 regions of the U.K. showing any positive growth are London and NIreland.

vegansrock

Telling that the only 2 regions of the U.K. showing any positive growth are London and NIreland.

Yes London has grown massively compared to the rest of the U.K. which benefits the satellite counties, although they are not doing so well as should be expected, and NI is benefiting from continued membership of the EU.

happycatholicwife1

I don't understand the concept of the VAT, but I think it affects everyone in the UK. If that's the case, wouldn't removing that help people who are struggling financially? We have a tremendous labor shortage in the US. Ours was caused, in part, by huge outlays of unemployment money to people long past the height of the pandemic. During the 2008 financial crisis, the government's answer was to put large numbers of people on disability once their unemployment ran out. These are terribly inflationary practices. The unemployment continues despite huge salaries for entry level jobs and even very generous bonuses for people to come to work.

VAT is a tax usually (in the U.K.) at 20% of price of supply, of everything purchased. There is no VAT on food, books newspapers and a lower tariff on fuel 5%.

Other things like rent, house purchase are exempt from VAT.

Bit too complicated to go into what the difference is between exempt and zero vat.

You may call it a purchase tax, which is what the U.K. had before we joined the EU. VAT was originally an EU tax and a country’s contribution to the club “subscription” was based on a country’s overall revenue from VAT. The rules governing VAT were agreed by the EU membership and everyone complied in order to make it totally fair to all businesses.

Most countries have a sales tax like VAT, the more you spend the more you pay. Every country has different rules (even in EU) which makes it extremely complex, the UK has more exemptions than most, food, childrens clothes, etc etc, far too many to list.

Whitewavemark2

Rishi Sunak has been accused of failing to act soon enough to save £11bn of taxpayers' money that has been used to pay interest on government debt.
The National Institute of Economic and Social Research (NIESR) said the losses stemmed from the chancellor's failure to insure against interest rate rises.
It meant higher than necessary payments on £900bn of reserves created through the quantitative easing (QE) programme.
The NIESR's Professor Jagjit Chadha, told the Financial Times that Mr Sunak's actions had left the country with "an enormous bill and heavy continuing exposure to interest rate risk".
According to the FT report, the Bank of England (BoE) created £895bn of money through quantitative easing, most of which was used to buy government bonds from pension funds and other investors.
When those investors put the proceeds in commercial bank deposits at the Bank, it had to pay interest at its official interest rate.
Last year, when the official rate was still 0.1%, the NIESR - an economic research group - said the government should have insured the cost of servicing this debt against the risk of rising interest rates.
It suggested converting the debt into government bonds with longer to pay it back.
Prof Chadha said Mr Sunak's failure to do this had cost taxpayers £11bn.

BBC News.

Richard Murphy has addressed this in a long post this morning.

I would try to summarise it but it's complex and I don't have time at the moment.

The big 'take away' is, though, that the BoE created this money for the bond purchases and, having created it, it now needs to create more money in order to pay the higher interest rate charges on the commercial banks' reserve accounts. Essentially, this is handing the commercial banks even bigger profits on money that they didn't earn in the first place, but was given to them by the BoE.

It's not costing 'the taxpayer' anything; that is a fiction, but it's boosting bank profits. It's not benefitting the UK economy in any way.

Here is part of Murphy's explanation:

The commercial banks have not earned this money. They are just being gifted it. And that cost is going to rise. Some bankers are demanding Bank of England interest rates rise to 4% or more. The annual gift to the banks might rise to more than £40 billion in that case.

So, at a time of austerity and because the government is letting the Bank of England raise interest rates (which is a wholly mistaken policy because that will just crush the economy when we’re already heading for recession) and the UK’s banks are cashing in, massively.

In effect, as people in this country go into deep poverty and debt the banks will have never made so much and all because the government literally gifted them £900 billion, much if to stop them going bust after 2008 and Brexit, and the rest because of Covid.

Money is not going to trickle up to those who deserve it least. It is going to flood in their direction. And although I’ve been saying this for some time, now people are beginning to notice. But, they have the wrong response.

www.taxresearch.org.uk/Blog/2022/06/10/sunaks-choice-to-support-the-banks-and-their-ill-gotten-gains-or-to-save-the-people-of-this-country-from-poverty/

I will read that forthwith?

Q. And musings From reading above.

Right I get QE and the argument that the BoE owned by the government “prints” money to ease the deficit between spending and tax intake.

So that suggests that tax does affect spending?

So going back to basics. The government will have a balance sheet that put at its most simplest ‘in’s and outs’ in order to show deficit/surplus.

The only income as far as I am aware apart from interest etc is revenue from tax. So there is my conundrum. (Well I have loads)
QE must surely show as a deficit? The point is that whilst I can half understand murphy’s argument, I do get unstuck with the argument that suggests that the pot is limitless. Nothing is limitless because it doesn’t make sense.

Can anyone put me right?

Right another Q leading on from above.

Just supposing that the government was in isolation without the need to fund banks etc.

Why if money is limitless don’t we have the most superb Health Service in the world, the best roads etc etc.

“Money is not going to trickle up to those who deserve it least. It is going to flood in their direction. And although I’ve been saying this for some time, now people are beginning to notice. But, they have the wrong response”

That’s an exageration the banks obviously lend to “creditworthy” borrowers be is businesses or individuals, loans are available to those who can meet the repayments. There are always going to be some, wether employed or not, who cannot afford a mortgage, for them rented or social housing has to be made available.
Lack of investment in social housing is pushing up private rents, this is the most concerning issue, much more could and should be done. Certainly social housing should not be sold off at a discount.

Comment

“The loss to taxpayers is greater than the amount Conservatives have accused former Labour chancellor and prime minister Gordon Brown of costing the UK between 2003 and 2010, when he sold some of the nation’s gold reserves at rock bottom prices.”

Gloomy the world over it seems, not just the UK. A lettuce now costs $10 here - nearly £6

nanna8

Gloomy the world over it seems, not just the UK. A lettuce now costs $10 here - nearly £6

Yes for sure, those who will suffer most are those with the least, like communities in less developed countries. They won’t bemoan the price of food except to say it is what killed them, because for sure there will be starvation and want. Not only from the consequences of Ukraine but also from global warming.

They are the folk that will soon be turning up on our shores in desperation, and if Patel gets her evil way be promptly transported to Rwanda.

“So going back to basics. The government will have a balance sheet that put at its most simplest ‘in’s and outs’ in order to show deficit/surplus.”

Surplus ? We have only had a few very brief surpluses in the last 50 yrs, we keep adding to the deficit, we sold off the family silver decades ago as well.

Katie59

“So going back to basics. The government will have a balance sheet that put at its most simplest ‘in’s and outs’ in order to show deficit/surplus.”

Surplus ? We have only had a few very brief surpluses in the last 50 yrs, we keep adding to the deficit, we sold off the family silver decades ago as well.

Yes I know but it was just trying to work out what Murphy has said.

Should QE show as a deficit?, the use of QE is quite open, investors at home and overseas know it’s happening so it doesnt really matter to them. What does matter to them is the value of sterling because if they invest in bonds at 2% but sterling falls by 5% they have lost money.
Short term policies have dogged sterling for decades it’s time to change.

I think, from what I have read, that in MMT "debt", as we saw it when we were on the Gold Standard, is not perceived in the same way. It is simply money the government has put into the economy and chosen not to "tax" back out again.

Where we once were told to worry about "debt", we should now prioritise a strong economy. With a sovereign currency, investment is not judged by debt created (it isn't) but by the strength of the economy. This means we have to stop seeing austerity as the answer to "debt" and see wise investment as the answer to a strong, nationwide economy. Austerity does the reverse of what we want as it strangles growth.

Instead of 'tax and spend' we would see 'spend, grow and tax (to balance inflation)'. Inflation's first control is spending for growth, however. Tax is also used for equality as equality is part of a national growth economy.

This is what my reading/research tells me. However, I have to admit I am no economist, so happy to be told if I have misinterpreted MMT or missed anything.

This is Richard Murphy following up his twitter thread in an interview on Byline TV

It's not heavy so worth watching through to the end.

One reason why our energy and petrol prices have risen so rapidly - more than in many other countries - is that the price of oil is measured in US$. The weakness of the £ means that it’s more expensive for the U.K. to buy it than countries with a stronger currency.