Spend and Tax

Government Must Spend

The government must ignore the advice of the Bank of England governor - and those who agree with him.

As I have argued consistently in earlier Blogs, the April budget must include at least £100 Billion additional spending - to create jobs, take the lower paid out of tax brackets, increase benefits.

And all measures should aim to create a more equal society.

Repayment of Borrowing

What is not sensible is to borrow £100 Billion without a clear strategy for repaying it.

The repayment should be from taxing progressively incomes over £80,000, taxing excessive profits, and drastic cuts to expenditure on defence.


Defenders of the Status Quo

The reason for opposition to the new expenditure is a determination to defend our unequal society. It is a reasonable bet that almost all opponents of new expenditure would have to pay more tax as part of the repayment strategy.

Also, they yearn for a return to the capitalist dominated economies which caused the current crisis.

For these reasons they must be ignored.

DAVID BLANCHFLOWER: HE WAS RIGHT

Blanchflower’s Predictions

In the Guardian last week (Thursday 19 March 2009), David Blanchflower reminds us that, a year ago, he told the Treasury Select Committee that 'something horrible might come’. He was one of the very few to predict a serious recession.

He was largely ignored. It took the Bank of England’s Monetary Policy Committee six months (after his warning) to even start cutting interest rates. Yet, well before then, it was clear to many of us (especially those losing jobs) that there was an economic crisis deepening by the day.

Blanchflower’s Guardian article is headed ‘Now for the Jobs Stimulus’ He expresses the fear, now shared by many, that, unless the government acts speedily and decisively, unemployment will exceed 3 million.



Labour’s Opportunity: £100 Billion Stimulus


In his article, Blanchflower is, in effect, arguing for government expenditure along the lines I have proposed in earlier Blogs. Gordon Brown and Barack Obama, we are told, will argue for a worldwide fiscal stimulus at the G20 meeting in London next month

Blanchflower’s emphasis is on creating jobs, and taking steps to prevent long-term unemployment, especially amongst young people,

I would add (and I have no reason for thinking that Blanchflower, Brown and Obama would disagree) that the action taken should also aim to create a fairer, and more equal, society.

Government Borrowing and Repayment

For a package on this scale it is obvious that there would be a major increase in government borrowing. However, this is a problem only if there is no clear strategy for repayment

Such a strategy should be developed in a context of creating greater equality. This means higher income tax for people earning over £80,000 a year, with progressively higher rates.

£80,000 45%

£110,000 50%

£150,000 55%

£200,000+ 65%

In this context, part of the spending should be used to take at least 1,000,000 of the lower paid out of tax brackets and increase unemployment benefits. For obvious reasons, this extra income would be spent - a stimulus to the economy.

The second element of the repayment strategy should be a windfall tax on companies with excessive profits (e g utilities and oil companies).

The third element should be cuts to expenditure on defence and government quangos (by abolishing them).


This is Labour’s opportunity. A recent opinion poll (also published last week) indicated that 82% of respondents supported higher taxation for the better off.

Will Government Listen?

Forget the City

The Blair governments’ strategy, which has persisted since he resigned, was to avoid upsetting the City at all costs. Favourable financial conditions (e g low taxes, the prospect of big bonuses, high returns on investment) would, it was argued, keep money flowing into London and support an expanding economy.

We now know where this strategy has landed us. Without government £ Billions, the banks would have collapsed – resulting in the collapse of the capitalist economy.

It is now clear that the position would have stabilised much more quickly if, instead of the half-cock arrangements we now have, the banks had been nationalised. The government could then have determined a level of lending (and interest rates) to save jobs and stabilise the housing market.

YouGov Poll (Guardian 9 March 2009)

This poll of Labour Party members found over 70% support for most of the measures advocated on this Blog over the past 3 months. There is support for:

A Windfall Tax on excessive company profits (e g the utilities);

Ending, or drastically reducing, bonuses;

Higher rates of tax on those earning over £100,000 a year;

Greater equality (through legislation).


The only major issue (which I regard as very important) not mentioned in the report is a large reduction of expenditure on defence.

The Budget and Economic Recovery

In 20 February Blog (Will April Be The Cruellest Month?), I predicted that there would be signs (green shoots) of the recession end April/May 2009. Significant recovery will follow, however, only if the government takes further action.

The action must include job protection/creation, taking at least a million out of tax brackets, increases in allowances and pensions - and, vitally important, a strategy for repayment of the necessary borrowing over a 5 year period.

The strategy for repaying the borrowing is a key factor in creating a fairer, and more equal, society.

My proposal, which the YouGov poll indicates would be supported by a large majority of Labour Party members (and, I believe, a majority of citizens) is for borrowing of £100 Billion to fund the above.

The repayment strategy, over a 5 year period, should be along the following lines.

Reductions of expenditure (mainly defence) £35 Billion

Windfall Taxes on Companies £25 Billion

Higher Tax Rates on Personal Income £30 Billion

A Wealth Tax £10 Billion


Without this kind of strategy, any claim that the government intends to create a fairer, and more equal, society will lack conviction.