Government Spending and Debt:
A New Approach
A New Approach
Rebuild Britain has produced highly acclaimed publications on the steps required to rebuild the British economy.
This is the third pamphlet published by Rebuild Britain. Our first two look at what is needed to rebuild the fishing industry and manufacturing.
We will not be able to move forward with a strong economy unless we attend to Britain’s finances and the position of the financial sector. More austerity, more national debt, more market madness, greater inequality and rising prices are not the answer. This pamphlet shows how they can be avoided.
Written in an accessible style, this pamphlet provides an educational tool for trade unionists and community activists setting out the straightforward solutions that are needed and urges readers to translate them into new policies in their organisations.
Public finances, that is the income and expenditure of government, and private finance, that is the vast wealth in money of the banks, pension schemes, insurance companies and money traders in general, have for a long time been regarded by workers as mysterious, with an aura of magic. The operations of the great institutions of finance are seen as alien, unfathomable and complex.
In truth, there is no mystery, just mystification; no complexity, just confusion.
For trade unions, public finance has often been regarded as a secondary question to the bigger, priority issues of pay and conditions, economic strategy and industrial policy. In fact, public finance is the bigger picture. It is the scaffolding that buttresses and conditions the shape of the nation’s whole economy. Sound, stable public finances are the pre-requisite to any serious attempt to rebuild industry, revive agriculture and public services and combat climate change.
The Banking System Must Work For The Nation
The Bank of England Must Deliver for the People
by Fawzi Ibrahim
One of the more interesting but almost entirely ignored piece of evidence Dominique Cummings gave to the joint parliamentary committee enquiry into the coronavirus pandemic on May 26, was the reliability of the Bank of England in providing the government with the trillions needed to mitigate the economic cost of the first lockdown.
‘What if the bond markets suddenly spike and go crazy and refuse to lend [to] us’ Cummings told the committee, ‘We’re going to then have to find emergency powers to tell the Bank of England to buy the debt, etc. etc. So, there were conversations going on at the time about that possible problem’.
It seems inconceivable that the Bank of England could refuse to rescue a government in a national crisis. But that was a real possibility. Being independent, the government could not instruct the Bank to do anything. This independence came about when Gordon Brown de-nationalised the bank, it was one of his first acts as Chancellor of the Exchequer. Ironically, in doing so, he reversed one of the first acts of the post-war Attlee government. The Attlee government recognised the crucial role of the Bank plays in the future direction of the economy, something that could not be left to an independent private body.
According to Cummings, he, the Prime Minister, the Chancellor and the Cabinet Secretary were involved in ‘discussions about what they would do if there was a kind of financial crisis, and bond market crisis, and a sterling crisis on top of the whole health crisis’. The very status of the Bank was raised and the option of re-nationalising it was seriously contemplated.
Currently, the Bank of England holds 35% of the ‘national debt’ (a misnomer if there ever was one for how can a nation be indebted to itself) mainly in the form of government bonds. If it decides to ‘pay back the debt’ and sell these bonds back to the private sector, the government will be forced to set aside hard-earned public money to pay private investors the face value of these bonds when they mature, money that could be more usefully employed to shore up our industrial and manufacturing base as well as to enhance welfare provisions. There is no reason for the Bank of England to sell off these bonds. The ‘debt’ has already been paid when the Bank bought these bonds in the first place. The only reason why the Bank should sell the bonds it holds is to increase the private sector’s claim on the nation’s wealth.
For far too long, the labour and trade union movement has shied away from discussing the fiscal policies of the Bank of England and its status. Matters of finance are regarded as too complex to understand, better left to ‘our betters’. But the Bank of England plays a central role equal only to that of the Treasury.
Like other national assets from water and rail to energy and steel making, the Bank of England should be re-nationalised.