Thread by @andyverity

Before we accept it when we're told the government 'can't afford' something that might be to the public good we should remind ourselves of facts like the following from the Office for National Statistics this morning:

Total central government receipts were £929.0 billion in the full year to the end of March 2023, an increase of £88.0 billion (10.5%).

That of course doesn't at all mean the government has £88 bn 'to spare' - because spending's gone up by even more. What it does mean is that the government is taking more money out of the economy in tax at a time when the economy's in a sharp slowdown.

And is that a good idea? The traditional view for most of the past 100 years has been that the government should act 'contra-cyclically' with both monetary and fiscal policy (interest rates and taxes), offsetting any slowdown with spending.

In a way that's exactly what the government's doing by spending so much on energy support. But at the same time it's giving with one hand, it's taking away with the other. Take in the significance of the following:

Value Added Tax receipts were up £17.8 billion or 10.7%. Money paid in income tax was up £26 billion or 10.8%, boosted by record self-assessed taxes. Fiscal drag is pulling more people into higher tax bands. That's deliberate policy by the way.

Amid talk of how all political parties would like to support businesses (and a surge in profit warnings), Corporation Tax is up £10.6 billion or 14.7%. Some of that's the energy profits levy - a modest tax when energy firms are making colossal profits at all our expense.

But there's a vast difference between what corporation tax does to firms who've had so much money from the surge in energy prices - money they've done little to earn and don't know what to do with - and small companies squeezed tighter by energy costs than they've ever been.

And this was before the big hike in corporation tax took effect (this month). The problem is that if you focus all the public support on subsidising energy bills, then only tax energy firms quite lightly, everything gets a bit unbalanced.

As as if the whole economy - households, government and businesses - has suddenly decided to throw huge sums of money at oil companies - and only tax it back quite modestly, pushing us into greater borrowing.

Meanwhile everyone from military commanders wanting to support the war in Ukraine to unions begging the government to fix desperate skills shortages affecting patient safety are told there's not a few billion to spare.

The truth is that whenever a government says it 'can't afford' something, it's expressing a subjective judgment, dressed up as an economic fact.

That doesn't mean a Chancellor can spend whatever he likes (notably there's never been a female one). But the real constraint is not some arbitrary fiscal target but the risk of inflation.

What then becomes important is to consider what effect it has on the sector you're spending money on - and whether that's where, taking into account your policy priorities, you want the money to go.

What the public too often too meekly accept is this idea that government's are constrained by the public finances in the same way that households are. This is (insert suitable fruity word).

As the £300bn spent in the financial year 2020 demonstrated, when the government refuses pleas for necessary spending (or, if you prefer, tax cuts) on the basis that it can't afford something, it is not saying 'we can't' but 'we don't want to'.

Only once you realise those important facts can you have a rational debate about whether fiscal policy is doing what you want it to - whether it's stimulating the economy out of slowdown, building a green economic future, or improving health and education.

As long as we labour under the delusion that financial choices are the same for a government as they are for households or firms, who don't have a bank or a money printing machine in their front room whenever they need to spend, we'll be having the wrong conversations.

And that's a pity when there's so much to be done. Whatever policy goal you have, until you talk about it with the right information, you're never going to know whether or not it's feasible.

But as the lockdowns showed, governments can do things that previously almost everyone would have thought unimaginable. In 2019, if you'd said, 'next year everyone will be ordered not to go outside by the government - and people will obey' - who would have believed you?

If you'd said, 'next year, the government will shut most business down completely and offer to pay private companies wage bills', anyone listening would have thought you were off your head.

But that's what happened the following year.

Similarly, if you'd said to someone in 1895, 'fifty years from now we'll have universal education, universal health care and everyone will pay about a third of their income in taxes', they'd have carted you off to Bedlam.

It's only because people - from Lloyd George with his people's budget in 1913 to the founders of the welfare state (on both sides of the House of Commons) - had both the imagination to envision and the determination to enact these things that we grew up benefiting from them.

It's not the public finances that constrain us so much as a lack of imagination and political vision. It's finances of hard-pressed households, not government finances, that are the locus of human suffering right now - and which therefore should be the focus of policy attention.

The hope of course is that this general impoverishment will go away by itself as global inflationary pressures subside. But even if, as economists forecast, real incomes start to increase again later this year, it will take time for them to get back to where they were.

By 2025, households will be no better off than they were 20 years before. Now if you'd told someone that in about the year 2000, they'd have thought you were off your head too. In almost every year from 1945 to 2005, real incomes rose.

But these days, young adults almost have no clue that from World War II until the Blair era, everyone could take it for granted that their pay would rise faster than inflation - every year. Real terms pay cuts were greeted with outrage.

What a pity we're now so used to them. And what a pity the political will and strength of vision required to meet net zero targets now looks so absent from the major parties' public statements and policy documents. Don't we want our grandchildren to look back on us well?