Does Rachel Reeves actually need to take £6 billion from benefits? There’s a strong argument that she doesn’t.
That would make her reasons for doing it false, of course. She would end up looking like a cruel despot, hammering the poor for no reason other than the twisted enjoyment she might get out of it.
Hmm.
Buy Cruel Britannia in print here. Buy the Cruel Britannia ebook here. Or just click on the image!
The argument runs something like this: “In practical terms the government creates new money as needed. Tax is then gathered to reduce the amount in circulation which controls the supply of money in use, thereby controlling inflation.
“But the amount of tax gathered has nothing to do with the amount of new money created. Inflation doesn’t increase because of new money being created. It would increase only if the amount of money actually circulating was higher than demand for that money.
“As there is huge poverty, and a need to improve infrastructure and essential services (like the NHS), there is need for the extra money and therefore inflation would be minimal (most likely zero).”
This is a seductive argument, in line with Modern Monetary Theory (MMT).
It is true that sovereign governments with their own fiat currency – like the UK or the US – can create new money as needed, but the real question is how much they can do so before triggering inflation.
MMT argues that taxes primarily remove money from circulation to prevent inflation, but traditional economic views also see taxation as a means of financing government spending to avoid excessive reliance on money creation. The two ideas are not mutually exclusive – instead of tax money being removed from the system, as in MMT, the traditional theory simply recycles it back in. Rachel Reeves’s [pictured] plan to fund day-to-day spending from tax revenue springs to mind.
While taxation reduces demand by taking money out of the private sector, other factors—like supply chain issues or external price shocks—also affect inflation.
The claim that inflation “doesn’t increase because of new money being created” is partially true but incomplete. If new money enters the economy and is absorbed by underused resources – unemployed workers, unused factories – inflation may remain low. But if the economy is at or near full capacity, adding more money without increasing productivity will likely cause inflation.
Just because there is poverty or there are underfunded services, that doesn’t mean extra money can be printed without inflation. It depends on how that money is introduced and whether it translates into increased productive capacity.
It is true that inflation happens when the supply of money in circulation outstrips demand. But demand is shaped by many factors – including confidence, wages, and the velocity of money – how fast money moves in the economy.
Simply saying that “there is need for extra money” doesn’t automatically prevent inflation—what matters is whether that money is absorbed into productive use rather than bidding up prices.
Historical examples – hyperinflation in Zimbabwe, Venezuela, or Weimar Germany – show that unchecked money creation can cause inflation if supply constraints exist.
The UK and US are not in the same situation as those extreme cases, but assuming inflation will always remain zero because “there is need” is risky.
So here’s the question: can new money be matched by real economic growth, like more hospitals, better infrastructure, higher productivity? If yes, the inflation risk is lower. If no, inflation can rise.
So, by deciding to take money away from poor and vulnerable people with long-term illnesses and disabilities, rather than creating more money and pumping it into Labour’s economic projects, what is Rachel Reeves telling us?
Is she saying that she does not have faith that Labour’s economic plan will work?
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Does Rachel Reeves actually need to take £6 billion from benefits?
Does Rachel Reeves actually need to take £6 billion from benefits? There’s a strong argument that she doesn’t.
That would make her reasons for doing it false, of course. She would end up looking like a cruel despot, hammering the poor for no reason other than the twisted enjoyment she might get out of it.
Hmm.
Buy Cruel Britannia in print here. Buy the Cruel Britannia ebook here. Or just click on the image!
The argument runs something like this: “In practical terms the government creates new money as needed. Tax is then gathered to reduce the amount in circulation which controls the supply of money in use, thereby controlling inflation.
“But the amount of tax gathered has nothing to do with the amount of new money created. Inflation doesn’t increase because of new money being created. It would increase only if the amount of money actually circulating was higher than demand for that money.
“As there is huge poverty, and a need to improve infrastructure and essential services (like the NHS), there is need for the extra money and therefore inflation would be minimal (most likely zero).”
This is a seductive argument, in line with Modern Monetary Theory (MMT).
It is true that sovereign governments with their own fiat currency – like the UK or the US – can create new money as needed, but the real question is how much they can do so before triggering inflation.
MMT argues that taxes primarily remove money from circulation to prevent inflation, but traditional economic views also see taxation as a means of financing government spending to avoid excessive reliance on money creation. The two ideas are not mutually exclusive – instead of tax money being removed from the system, as in MMT, the traditional theory simply recycles it back in. Rachel Reeves’s [pictured] plan to fund day-to-day spending from tax revenue springs to mind.
While taxation reduces demand by taking money out of the private sector, other factors—like supply chain issues or external price shocks—also affect inflation.
The claim that inflation “doesn’t increase because of new money being created” is partially true but incomplete. If new money enters the economy and is absorbed by underused resources – unemployed workers, unused factories – inflation may remain low. But if the economy is at or near full capacity, adding more money without increasing productivity will likely cause inflation.
Just because there is poverty or there are underfunded services, that doesn’t mean extra money can be printed without inflation. It depends on how that money is introduced and whether it translates into increased productive capacity.
It is true that inflation happens when the supply of money in circulation outstrips demand. But demand is shaped by many factors – including confidence, wages, and the velocity of money – how fast money moves in the economy.
Simply saying that “there is need for extra money” doesn’t automatically prevent inflation—what matters is whether that money is absorbed into productive use rather than bidding up prices.
Historical examples – hyperinflation in Zimbabwe, Venezuela, or Weimar Germany – show that unchecked money creation can cause inflation if supply constraints exist.
The UK and US are not in the same situation as those extreme cases, but assuming inflation will always remain zero because “there is need” is risky.
So here’s the question: can new money be matched by real economic growth, like more hospitals, better infrastructure, higher productivity? If yes, the inflation risk is lower. If no, inflation can rise.
So, by deciding to take money away from poor and vulnerable people with long-term illnesses and disabilities, rather than creating more money and pumping it into Labour’s economic projects, what is Rachel Reeves telling us?
Is she saying that she does not have faith that Labour’s economic plan will work?
Vox Political needs your help!
If you want to support this site
(but don’t want to give your money to advertisers)
you can make a one-off donation here:
Be among the first to know what’s going on! Here are the ways to manage it:
1) Register with us by clicking on ‘Subscribe’ (bottom right of the home page). You can then receive notifications of every new article that is posted here.
2) Follow VP on Twitter @VoxPolitical
3) Like the Facebook page at https://www.facebook.com/VoxPolitical/
Join the Vox Political Facebook page.
4) You could even make Vox Political your homepage at http://voxpoliticalonline.com
5) Follow Vox Political writer Mike Sivier on BlueSky
6) Join the MeWe page at https://mewe.com/p-front/voxpolitical
7) Feel free to comment!
And do share with your family and friends – so they don’t miss out!
If you have appreciated this article, don’t forget to share it using the buttons at the bottom of this page. Politics is about everybody – so let’s try to get everybody involved!
Buy Vox Political books so we can continue
fighting for the facts.
Cruel Britannia is available
in either print or eBook format here:
The Livingstone Presumption is available
in either print or eBook format here:
Health Warning: Government! is now available
in either print or eBook format here:
The first collection, Strong Words and Hard Times,
is still available in either print or eBook format here:
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