So the rich get richer ….and fuel inflation!

I have no evidence to support that Maizie. Nor that it might take only a year or two. I don’t consider that the amount of time it might take for ‘most’ of a wage increase to return to the government is immaterial at all.

GrannyGravy13

Articles like this just fan the flames of class wars

I am all for NHS staff and teachers getting a pay rise of the same rate as inflation.

Not so keen on Doctors with their 30% demands, I assume they think it is a starting point for negotiations.

Spending on holidays, eating out and luxuries are going to be up as they were non existent during the lockdowns and many people saved money by working from home, not going out etc.

Indeed.

Why the desire to inflame people over differences in peoples incomes?

Germanshepherdsmum

I have no evidence to support that Maizie. Nor that it might take only a year or two. I don’t consider that the amount of time it might take for ‘most’ of a wage increase to return to the government is immaterial at all.

Of course it's immaterial. There will always be money returning to the Treasury after an interval. The interval could be months or years, it really doesn't matter what it is as it will be happening all the time as millions of people spend their wages or savings.

Why does the thought of a time lag bother you so much?

We must agree to disagree. The argument that we should support unquantified public sector pay rises because most of the money returns to the government via taxation seems rather weak.

But it does return to the Treasury! That's how money works, unless people stick it under their mattress. I don't understand your argument GSM.

Germanshepherdsmum

Of course I understand the process. What I queried was your statement that ‘most’ of the wage increase ends up with the government. The narrative to the diagram shows that ‘most’ does not end up back with the government. Rather less than half. Of course it may in many years’ time - or it may not. Yes, I’m nitpicking on the word ‘most’ but that was my whole point.

The narrative to the diagram does not show that "most" does not end up with the government - quite the opposite:

"Furthermore, most of the money will have been taxed away by the end of the year and spending will have all but stopped."

CvD66, The ONS attributed the current high inflation to the spending by 1.2m high earners

Interesting. Reading GN thoughts - high earners spend little and park money off-shore, not spend it into the economy.

growstuff

But it does return to the Treasury! That's how money works, unless people stick it under their mattress. I don't understand your argument GSM.

I don't understand it either, growstuff.

Neither does gsm 😄

I understand it perfectly well but there is no indication of how long the pay increase takes to get back to the government. Nor can there be as each individual’s spending and saving pattern will be different to the next. That, to me, is very relevant if one is justifying pay increases by saying that most of the money gets back to the government through taxation.

I think one of the greatest problems in not paying people in the public sector properly is that they just leave to work in the private sector where they will get paid properly. Govts may be able to get away with it in times of high unemployment but at the moment they can't. It also tends to be the most experienced who quit, leaving a less experienced and understaffed workforce, new recruits are inadequately trained and supported so they fail. Is it any wonder that our public services are collapsing? Apparently only 5% of private rents would be payable via housing benefits. So many of the people doing the poorest paid work in our hospitals etc get help with their rent, these are some of the people who get caught by rising mortgage interest rates as well as less than inflation pay increases!

Germanshepherdsmum

I understand it perfectly well but there is no indication of how long the pay increase takes to get back to the government. Nor can there be as each individual’s spending and saving pattern will be different to the next. That, to me, is very relevant if one is justifying pay increases by saying that most of the money gets back to the government through taxation.

The link says within a year.

I haven’t found that. May I ask where? Given the assumption that some money will be saved, how can that be?

But why does the time it takes to return to the government matter?

The importance of the money injected by the govt. into the economy by way of govt. spending is that it facilitates economic activity. That is the whole 'point' of money, it enables economic activity. For example, economists calculate that govt spending on the NHS has a multiplier effect of about 2.5 as it works its way through the economy. The Sankey diagram demonstrates how govt. spending enables economic activity. The time it takes to 'return' is immaterial.

Most of the money circulating in our economy originates from the government, either by direct govt. spending, or by the creation of money by the commercial banks for loans to businesses or individuals, under licence from the govt. Banks don't use depositors' money for loans, they create new money with every loan. This isn't figment of my imagination, this is what the Bank of England tells us.

Top of page 16 (for some reason my ipad won't copy and paste the relevant section)

www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/quarterly-bulletin-2014-q1.pdf

Money originating from the govt. makes up the greater part of our GDP. The rest comes from foreign earnings and investment. But let's not go down that rabbit hole. The point is that without govt. originated money we'd be stymied.

Germanshepherdsmum

I haven’t found that. May I ask where? Given the assumption that some money will be saved, how can that be?

Even money that is saved will eventually be spent. But a point pertinent to the issue of public sector pay is that the greater part of it will be spent over a short period of time; the more that is spent in that period, the faster it will circulate and return to the govt. A great many public sector workers have little to spare for saving and pay increases won't make much difference to that. Only the better paid ones are able to save much.

The time the money takes to return to the government is relevant if this is used as a justification for pay increases. Circulation of money within the economy is not the same argument.

Indeed there are poorly paid public sector workers who will spend their money straight away, though not necessarily in a manner which effects a quick return to the government. And there are very well paid public sector workers who may spend money on things which mean a quick return via taxation (20% VAT) but can also afford long-term savings. The striking consultants are just one example.

Spending money =revenue. Unless it is all on books or food which is possible I suppose.

Germanshepherdsmum

The time the money takes to return to the government is relevant if this is used as a justification for pay increases. Circulation of money within the economy is not the same argument.

Why is it relevant?

As I said, it is relevant if you rely on return of money to the government as justification for a pay rise.

Germanshepherdsmum

As I said, it is relevant if you rely on return of money to the government as justification for a pay rise.

That still doesn't tell us why you think it important that the money is returned sooner rather than later.

If return of the money is the nub of your argument, surely that’s pretty evident?

It's not at all evident, GSM. I wouldn't be asking you to spell out what your problem is with the time it takes to return if it were 'evident'.

I have taken the trouble to detail the support for what I have said. Perhaps you could return the compliment.

If you underpin your argument for pay increases by saying that the money returns to the government via taxation you must surely be able to understand my view that the value of that argument diminishes the longer the money takes to find its way back.

No, I can't understand it. You are not explaining your rationale at all.

Would you please explain it.