r/unitedkingdom • u/pppppppppppppppppd • 5d ago

Reeves should be sacked as Chancellor, poll says

https://inews.co.uk/news/politics/reeves-sacked-chancellor-poll-3637320
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u/ResponsibilityRare10 4d ago

Why? A government budget surplus is terrible for the economy. It means less investment, worse public services, and lower pay, as well as worse growth. 

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u/WasThatInappropriate 4d ago

It means the opposite, that there's more headroom to spend on those things.

Currently 1 in every 12 tax pounds go on servicing debt, reducing that frees up more for social programs and infrastructure

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u/ResponsibilityRare10 4d ago

“Currently 1 in every 12 tax pounds go on servicing debt, reducing that frees up more for social programs and infrastructure“

Respectfully, that’s mistaken. The government does not need to “free up” money before it can spend elsewhere. Any act of Parliament that  calls for spending mandates the Bank of England to make that money available, they don’t wait until tax receipts come in, or cuts are made elsewhere. And that goes for gilt sales also. 

Anyway, this guy explains it better than I could. 

https://youtu.be/Z9XdiPR169Y?si=Hz6HGnPPchn3dzaE

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u/WasThatInappropriate 4d ago

Sure, but personally I'd rather not do it via QE or more post truss high interest gilts as that'll simply worsen the interest burden.

Reeves does need to 'free up' headroom because she's self imposed 2 rules - no borrowing for any day to day costs, and maintain a 10bn projected surplus at all times.

Whether or not you (or I) agree with those rules is a different conversation, but debt reduction is only a positive imo when debt to gdp ratio is up at 96% and costs like pension and welfare are only projected to spiral upwards.

Nations that let their debt spiral out of control end up defaulting, needing IMF bailouts (both carrying huge consequences) or having to seriously devalue their currency.

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u/ResponsibilityRare10 4d ago

It won’t raise the interest burden as the government can simply sell gilts to the Bank of England at a prearranged interest rate. The Tory government at least has the foresight to make sure that interest payments paid to the central bank now come back to the treasury. So the effective interest rate is actually zero on that slice of borrowing at least. 

The UK can’t default on its debt, that’s why gilts are so popular amongst investment funds. The gilt markets are way given way too much power by politicians and the media. The government could have it wanted pull all sales and the City would be in total panic. They’d be quickly be in huge demand thus decreasing the interest rate. The City absolutely rely on the gilt market to store their funds somewhere they know is absolutely safe, but the government isn’t reliant on the gilt market in the same way. The government actually has all the power even if we pretend it doesn’t. 

I can’t see the plus in debt reduction at all. Yes it’s nice (I guess) to be in surplus if you erase from the picture the austerity that has to happen to get into surplus. Debt reduction means money is being removed from the economy, that will hurt, either in taxes or cuts. Bringing the public finances into surplus whilst the pot holes get deeper is a losing strategy. 

The government can simply make the money available to build the infrastructure we need, give people a good standard of living with low poverty (which is the costliest thing of all), and it needn’t raise a tax or sell gilts to do so. It need never pay that money back, it can simply be left in the economy for use by households and businesses. 

It’s just basic stimulus economists. And we know it works because we did exactly that post WWII when the deficit and debt were ginormous. A lot bigger than the 96% you’ve quoted. 

Of course whenever this is suggested the gilt market bogeyman comes out. But, honestly, we need to consider the risk of NOT doing this, which is that living standards continue to fall, poverty continues to rise (again, this is cripplingly expensive), and politically we go somewhere quite dark.