Philip Hammond, by cartoonist Dave Brown: Mr Hammond’s policies are more likely to strangle the UK’s public services than the Chancellor himself.
It takes a special kind of genius to (metaphorically) shoot your own mouth off and shoot every Tory MP of the last seven years in the foot – at the same time.
That is the achievement of a Twitter user who, with stunning insight, calls him- or herself “Voice of Reason”.
This person clearly set out to undermine Labour’s answer to this week’s Budget statement, which Conservatives have tried to reduce to a claim that John McDonnell would borrow so much money, he would bankrupt the country.
That is impossible in a sovereign country, and there’s a huge difference between borrowing money, spending it, and having nothing to show for it – as the Conservatives have been doing – and borrowing in order to invest in business and receive a financial reward in return.
These facts seem to have bypassed “Voice of Reason”, who transmitted the following to the world:
Let’s just nail the fundamental flaw in the argument right now: John McDonnell and Labour have never claimed they won’t need to pay back any money they borrow – they want to invest such cash in money-making enterprises that will make a profit for the country. That doesn’t mean the premise of John McDonnell borrowing money for a house is false, as the Tories’ own policies have offered ways to make that work, too – as we shall see, now.
I don’t know whether the people who responded to this ill-advised outburst were Labour supporters or economists, or Labour-supporting economists, but they dealt out a lesson that everyone should remember. Let’s consider their responses:
With apologies to those who are easily offended by harsh language, that really is how this works. Labour is proposing business loans that are intended to produce a return on the investment – making more money than the initial outlay, which is exactly the same as any other business loan.
For ways to make money after buying a house, try this:
Alternatively, Jude (@faybijou) wrote:
“Borrower: I’ll leave it empty. House prices will rise because there aren’t enough to go round. And then eventually sell it at an inflated price and hide the profit in Paradise.”
Here’s a response that shows up Tory police for what it is:
Other commenters didn’t bother copying the style of the original tweet to point out its uselessness, but went straight for an explanation of the substantive issues:
The response to this showed up “Voice of Reason” even more:
Yes indeed – where is our money? Panama?
Moving on, try this:
This exchange is quite funny:
In fact the UK government never has any problem finding people who will lend money. The process was explained on the BBC’s Daily Politics this week: The Bank of England issues debt securities called “gilts” in one of two forms. A conventional gilt is a bond issued by the UK government which pays the holder a fixed cash payment (or coupon) every six months until maturity, at which point the holder receives his final coupon payment and the return of the principal; index-linked gilts pay coupons which are initially set in line with market interest rates.
Government bonds are usually in the currency of the country of origin, in which case the government cannot be forced to default.
The terms on which a government can sell bonds depend on how creditworthy the market considers it to be. International credit rating agencies will provide ratings for the bonds, but market participants will make up their own minds about this.
Not only does the UK have its own sovereign currency, meaning it cannot be forced to default on its debts, but market participants have chosen to ignore several downgrades by credit rating agencies since the Conservative took office in 2010.
This means UK gilts are considered extremely safe forms of investment. About two-thirds of UK gilts are held by insurance companies and pension funds. The UK has absolutely no problem finding lenders.
The claim that Labour has only ever spent money without making any return is risible. History shows that Labour is the party with a record of paying off the national debt; Tories merely increase it. Recent history shows that the Tories have borrowed more than every UK Labour government there has ever been.
This last response nails “Voice of Reason”‘s problem in a nutshell:
It is indeed economically illiterate to claim that anyone borrowing money to invest it in profitable enterprises, then using the profit to pay off the debt with interest, and still having cash left over, is a “nutcase”.
It is also economically illiterate to claim that the national debt will be paid off by borrowing money and then slashing economic growth, as the Tories have claimed for the past seven years.
So their economic policy can’t be about paying off the national debt.
In fact, Tory economic policy is about ensuring that the state cannot fund public services and must therefore sell off publicly-owned assets, forcing citizens to pay for services themselves – a far more expensive form of provision which therefore makes a large profit for any privately-owned provider of those services.
It is also about ensuring that the majority of citizens simply don’t have the funds to pay for those services privately, putting them at a permanent disadvantage in comparison to the rich asset- and shareholders.
That is why the Conservative-led governments of the past seven years have offered huge tax cuts to the richest people in the UK, when that money could have been used to help pay off the deficit and debt; and austerity to the poorest, cutting public services and business investments that could have brought in revenue for the state.
The policy means tax revenues are never enough to cover the cost of public services, providing the Tories with an excuse to go on cutting them until there are none left.
According to the Office for Budget Responsibility (OBR), we will reach that point in 2031. The Tories themselves are hoping to manage it in 2025.
Those are the dates at which these two organisations reckon the deficit will go into surplus, and that’s why we may conclude that it is the date by which all public services the Tories want to sell into private hands will have gone.
And this is the only explanation of Conservative policy on taxation and borrowing that makes any sense at all.
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