Sunak and Truss continue to squabble over economic policy, Sunak repeatedly claiming his opponent’s promise of immediate tax cuts is akin to putting increases in national debt on ‘credit card’ for future generations to pay.
Despite being told by his ex-boss to spend billions on Covid support and the furlough, Sunak is on the ‘balance the books’ wing of the Tories, associated with George Osborne, who in the years following the financial crash, imposed ‘austerity’ policies and pushed the economy into recession. With the help of the media, Osborne was able to blame Labour for ‘reckless’ spending (in reality a necessary fiscal stimulus) to deal with its consequences. But it is a completely different context now.
In contrast, Truss claims the tax reductions themselves will allow the economy to expand are equally hogwash. Truss will use higher interest rates to curb any extra inflation her policies might cause (though most of the current price rises are the result of external shocks ) and will not hesitate use public spending cuts instead to reduce the deficit – the pair of them are just peddling different versions of neo-liberal economics.
But sadly, neo-liberal thinking continues to go largely unchallenged, with Keir Starmer using his recent ‘economy’ speech (as it turned out, completely overshadowed by the Tory infighting) to lay out Labour’s ‘fiscal rules’ and its objections to spendthrift economics. While Starmer says Labour can still borrow for ‘investment’, inheriting such a run-down economy like the UKs would require huge amounts of emergency day-to-day expenditure. This additional spending would also generate additional income for people and in turn provide additional tax revenue. Before neo-liberalism thinking dominated, this would be considered a normal response by the majority of economists. But these days, running an economy has once again become equated to balancing a household budget.
There are huge myths and inaccuracies about the size and make-up of the National Debt as well. It’s true that costs are incurred in servicing the debt and technically this is a charge on taxpayers – but over a third of the debt is held by the Bank of England, in otherwords one state body is owed money by another – the Treasury. This is the result of two doses of ‘quantitative easing’ to prevent a banking collapse and to fund the Covid assistance. Government has the power to write this off at a stroke.
Technically ‘future generations’ are also liable for the size of debt, but rather than being a ‘burden’, in addition to the Bank of England’s holdings (whereas already noted, the government effectively owns the debt itself) another third is owed by pension funds workers contribute to, or by individual UK citizens themselves. Less than 20% is owed to overseas lenders. (It was the extent of overseas debt that was the main problem for the Greek government in the wake of the financial crisis although Tory politicians like Osborne used the Greek crisis to justify their policies for cutting deficits.)
What is more significant for young people and (unless things radically change) for ‘future generations’, is the amount of private debt they are forced to rack up. Even before the pandemic, more than a third of young people had taken out loans through credit cards, overdrafts or other sources. On average those aged 18-24 owed over £3000, this excludes outstanding balance on student loans Rather than tax cuts or fiscal prudence, the Covid Generation need additional state support now!