UK responses to Hunt’s budget

19 Nov

There’s no remorse for George Osborne’s austerity that stripped the country bare and wiped 1% off GDP. Instead, here comes the austerity reprise, but far worse now that the Tories are cutting spending on skeleton services in a state of collapse.

Polly Toynbee


I’m still gathering thoughts and materials for a more comprehensive assessment of Thursday’s budget, and the roads leading to it. In the meantime, of the screeds of comment penned since Chancellor Hunt – that you, Jez? – …

… gave Britain its autumn statement, I’ve selected just two. Both are by pundits whose political views for the most part are far removed from mine. But within sharply defined parameters, both have my respect.

Here then is Polly Toynbee in the Guardian on Thursday, November 17:

‘These Tories forget nothing and learn nothing’

No contrition. Not for Liz Truss, not for their self-harming Brexit deal, nor for 12 years of going backwards. Recession, eight years of growth wiped out, rising unemployment, falling wages: all this is confirmed by the Office for Budget Responsibility today. But these Tory Bourbons forget nothing and learn nothing.

There’s no remorse for George Osborne’s austerity that stripped the country bare and wiped 1% off GDP. Instead, here comes the austerity reprise, but far worse now that the Tories are cutting spending on skeleton services in a state of collapse. The usual flurry of spending announcements can’t blot out the warning of Rob Whiteman, the head of the Chartered Institute of Public Finance and Accountancy. He says: “Public services are going to need increases of about 20% just to stand still, and we are not going to see anything like that.” More for the NHS and social care doesn’t begin to compensate for years of their worst funding ever. The NHS spends 20% less per person than 14 similar EU countries, the Health Foundation reveals today. There’s no chance of reducing the waiting lists, the National Audit Office warns. Even Tory home counties council leaders are finally breaking their silence to warn they will go bankrupt.

“Eye-wateringly difficult,” said Jeremy Hunt, but whose eyes are watering most? “To be British is to be compassionate,” the chancellor claimed at his most unctuous. True, he hasn’t cut benefits yet again, but his government slashed them in seven of the last 10 years to the lowest among similar countries, as millions of children go hungry to school.

Look where Tory “choices” have left us, with the worst wage growth in 200 years and one in five key workers earning so little they bring up their children in poverty. Meanwhile shareholders had a bonanza and bankers’ bonuses doubled. Covid and the war in Ukraine don’t explain why Britain faces the lowest growth in the G20 – bar Russia.

An extraordinary poll today suggests the public will neither forgive nor forget. With things so hard for so many, Ipsos found a third of those interviewed expected the autumn statement to make things worse, a third expected they would be no better, and only 22% expected improvement.

The sheer effrontery of Hunt’s claim that “Conservatives do not leave our debts to the next generation” is breathtaking. No, he leaves it to Labour after the next election, a callow political trick. We wait for Labour’s policy responses: tax rises in this under-taxed country can only help Labour’s future, while spending cuts are unthinkable.

Thanks Polly; you always did produce tightly argued copy, though your colleague Jonathan Freedland, writing the next day, takes a less sanguine view of whether Hunt’s move “can only help Labour”.

For his part, the author of my next choice has little faith in Starmer’s Labour, period. Where Polly finds Hunt’s claim – “Conservatives do not leave our debts to the next generation” – breathtaking, tax specialist and modern monetary theorist Richard Murphy finds it economic illiteracy at best, legalised larceny at worst.

I of course favour the latter reading. Be that as it may, here, writing yesterday November 18, is what Professor Murphy – let’s for now ignore the ignorance of his repeated blogsite references to “Putin’s war” – had to say:

£136 billion of wasted government spending when the NHS is being massively underfunded

The government is going to pay our commercial banks £136 billion of excess interest over the next five years on money the government gifted to them using the QE process. That’s £27bn a year that could be used in the NHS and education. This is outrageous. A thread….

The key issue to understand here is that when the government made almost £900 billion of new money using the QE process that got spent into the economy via our commercial banks, like Lloyds, Barclays and Santander.

What happened as a result was that these banks ended up with over £900 billion supposedly on deposit account with the Bank of England. They are being paid Bank of England base interest rate on these deposits.

In 2021 that bank base rate was 0.1%. Even in March this year it was expected to peak at around 2% and then fall to 1.25%. Now the Office for Budget Responsibility forecasts a peak of 5% and then only a slight decline to 4.25% by 2027.

I used this new interest rate forecast plus forecast falls in these deposit account balances because of (unlikely to happen) plans to reverse QE to forecast how much extra interest the banks will be paid over 5 years as a result of the increase in official interest rates.

The answer is £155 billion of extra interest due over five years.

Now, in practice I accept some might need to be paid for technical reasons. So I adjusted for that. The excess payment then became to £136 billion over five years.

That is £27 billion a year on average for the next five years that the government will be paying to the commercial banks on money they never earned but were instead given because of the QE process.

Let me put this in context. £27 billion a year also happens to be the amount of increased tax a year imposed yesterday. All of that is going to our banks. They are the only people gaining from it under Hunt’s plans.

Alternatively, £27 billion was the total cuts a year imposed yesterday. And what I am suggesting is that all of those cuts were made to ensure we can pay the banks what they are not owed, but which the government wants to pay them.

This is absurd. This interest need not be paid. There is no law requiring it. Pre-2008 nothing at all was paid on these balances. I reckon 0.1% on total balances over £100bn would be more than enough to fulfil the policy goal for making payments. And that would save £136 billion.

In other words we could, by simply denying the banks their unearned gains, provide enough to protect and reinvest in the NHS and to protect and invest in education.

The government has made a choice. They have decided banks should gain. As a result they have decided people will die and children will not get the future they deserve. And they have done that so that bankers can have massive bonuses on ill-gotten income.

I think this is wrong. I think it should be put right. I call on all politicians to stop these absurd and unnecessary payments to banks and to use the money for essential public services instead.

And for those who want the detail, my workings are here.

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2 Replies to “UK responses to Hunt’s budget

  1. I am under the impression rightly or wrongly (I have little very little economic acumen like the average Joe in the UK) that QE in the UK and US gifted billions to the doyens of the financialised capitalist system or in simpler terms the corporate and private money lenders who sit in the temples of finance i.e., Wall Street and London. Your example is obvious evidence that QE is a money spigot for the 1% to enlarge the rentier economy to their heart’s desire further impoverishing the rest of us and re-ordering our lives into a neo feudal existence. Am I also correct in viewing the ease with which the US administration and its Congress sign off billions of military aid to Ukraine as an example of “helicopter money” or QE conjured up on the Fed balance sheet to feed their vociferous claimants in the Military Industrial Complex?

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