They're sharks, not vigilantes

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Talk of ‘bond vigilantes’ has risen again this week in the light of a significant sell-off of government bonds, not just in the UK but in other major economies as well. The term is one we should reject absolutely: the word vigilante makes them sound like some sort of irregular financial police, doing their bit to keep the politicians in line and on track. It’s a complete misnomer – they’re profit-hungry sharks seeing an opportunity to make more profit for themselves by extracting interest from governments.

The first thing that we need to understand is that for every bond which is sold, someone has to buy it. No buyer = no sale. Those selling bonds are deliberately selling at a loss; someone who sells £1,000 worth of bonds (which the government has committed to redeeming for £1,000 at maturity) for £800 is crystalising a loss of £200. If the rate of interest on the bond is 3%, they would expect to receive £30 a year in interest. Since that amount of interest is fixed, the person buying the bond will now receive £30 a year on a holding they bought for £800 – a rate of interest of 3.75% - and still expect to get £1,000 back at maturity. Not a bad deal for them. It’s worth noting, though, that for all the talk of increasing rates of interest on bonds, the amount being paid by the government each year hasn’t changed by a single penny. A fall in the price of traded bonds does not cause an increase in the cost of existing borrowing.

So why would someone sell a safe asset for less than its nominal value? Well, if they believe that the government will have to respond by paying that higher rate of 3.75% on any new bonds issued, they will end up with a better-paying asset. And in that case, for new bonds issued, the cost of government borrowing has indeed increased. Both seller and buyer have managed to increase their income from interest paid on their bonds as a result. They will have seen an opportunity to make money and taken it. In none of these transactions is there any moral or economic judgement about government fiscal policy, let alone any attempt to enforce a particular policy. Indeed, it’s almost the reverse – the impact of fiscal policy is merely to create a belief that interest rates will have to rise, and the consequent belief that ‘other people’ will seek to take advantage of that increase, causing the whole herd to move. The belief, based entirely on the notion that government funding is dependent on bond issues, becomes self-fulfilling. Far from enforcing stability and discipline, the profit-seekers positively benefit from instability and chaos.

The conventional neoliberal economists and pundits tell us that, in order to avoid those rises in interest rates, governments must never ‘upset the markets’. What they mean by that is that governments must never take any actions which might create an opportunity for the traders to push interest rates higher. That in turn is based entirely on the assumption that governments must always borrow, on the markets, any money that they do not raise in taxes – in short, the assumption that the household analogy for government finances is true. But what if it isn’t true? What if the government does not need to balance its budget and can simply run an overdraft with the central bank? That goes to the heart of the debate about what money is and how it works. What gives the bond markets their alleged power is the adherence of governments to the household analogy for government finance, not some universal law of nature. An approach to economics which recognises that the constraint isn’t the availability of money but the availability of resources which can usefully be deployed would strip that power away. Neoliberal ideology is artificially constraining governments – we should be asking who benefits.

May was a near record month for UK saving

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The UK Government accepted a record level of deposits from savers during the month of May, the second highest total on record for the month of May. Savers (mostly pension and life insurance funds as well as some wealthy individuals) clearly recognised that saving with the UK government is one of the safest places for their money, because the UK government’s ability to create extra money as and when required means that they can never lose their capital. That’s one way of presenting the figures, but it’s not the way that most of the media chose to present the same information. Instead, the near-universal response (here’s one example) was to treat it as a disastrous increase in government borrowing.

The disparity serves to underline the simple and unavoidable fact that what looks like a debt to one party will always look like an asset to the other. It also underlines the way in which those who want to deliberately constrain or reduce UK government expenditure will choose to interpret the facts in the way which they believe boosts their perception – to say nothing of boosting their own financial interests. The willingness to deposit such large sums with the government suggests that the savers aren’t really against what they describe as ‘government borrowing’ at all – why would they be, when they’re the main beneficiaries? It’s more that they’re against the government spending money on services instead of cutting taxes. And – surprise, surprise – those who benefit most from interest payments on government ‘borrowing’ would also have the most to gain from tax cuts.

For the rest of us, the problem isn’t government borrowing per se, it’s the way in which paying for that borrowing ends up funnelling money into fewer and fewer hands, concentrating wealth rather than spreading it. Any meaningful attempt to decrease inequality must inevitably mean that we have to look at the way in which wealth and income are distributed within the economy. Understanding that one person’s debt is another person’s asset is one small step towards that.

Bad news for savers?

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Yesterday’s official figures for government ‘borrowing’ showed that it was down significantly compared to the same month last year. It was reported as though it was unalloyed good news. But the wonders of double-entry book-keeping mean that there is also another way of looking at it: the government took in a lower amount of people’s savings in July this year than it did the previous year. Whether the news is quite as good as it was portrayed as being depends on which side of the equation matters most.

That’s an oversimplification of a complex series of financial transactions, of course, but the basic point is this: debt and deposits must always net out to zero. Every pound of what the government regards as debt is a pound of assets to someone else – and most of those to whom the government ‘owes’ money are UK citizens and companies (and because of the process of quantitative easing, a significant amount of government dent is actually owed to a wholly-owned subsidiary of the government in the form of the Bank of England – effectively it owes that money to itself, meaning it isn’t really a ‘debt’ at all in any meaningful sense).

The Chancellor and government complain about the cost of paying interest on the money which they have ‘borrowed’, but that expenditure on interest looks like income to those who have deposited their savings with the government – a group which includes all those of us who have any sort of pension scheme from a source other than the state. The problem isn’t with the principle of government borrowing, or even with the amount (the Chancellor’s fiscal rules are entirely arbitrary and self-imposed), it is with way the assets and debt are distributed. The debt is treated as a liability for all of us, but the assets are overwhelmingly in the hands of the wealthiest in society, including those who have the biggest pension pots. The outcome of the government’s approach to tax and borrowing isn’t, as they like to suggest, that we are creating debts for future generations to repay, it is that the system is one of the many ways in which wealth ‘trickles up’, not between generations but within them. And it doesn’t seem to matter which party is in government.

Debt, per se, is not bad

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There was a story a month ago about a report from the Institute of International Finance that the total amount of global debt had reached a record height of $324 trillion. It’s a huge sum, so large as to be beyond comprehension in terms of our own daily interactions with money. It’s an estimate, of course. It could not be otherwise; human record-keeping is neither precise nor transparent enough to know for certain. Let’s just accept that it’s a very, very large number.

Whether we should be worried about it or not is another question. Since all money owed by one person or body is owed to another person or body, it is inevitably the case that a total financial debt of $324 trillion is precisely matched somewhere by a total financial asset of $324 trillion. It’s just that the debt and the asset are in different hands. And whilst estimates of how much money exists in the world vary significantly, one thing we can say is that, since ‘money’ is, in its very essence, simply a way of denominating and trading debt (“I promise to pay the bearer on demand” etc.), the amount of money in the system must match, if accurately calculated, the amount of debt. An over-simplification, for sure, but if every individual and organisation were to repay all their debts tomorrow, the world would indeed be debt-free – but it would also be money-free. There would still be a pile – many piles – of physical notes and coins somewhere, but they’d be essentially worthless. And the economy would grind to a halt. Asking how much debt is the ‘right’ amount for the world economy is like asking how much money should exist. It’s a question which has no correct answer; the only thing we know is that, as the world’s population grows and becomes more affluent, the amount needed will increase. Worrying about how much debt there is, and by how much it is increasing, is focussing on the wrong question.

The right question is about who is in debt and to whom they are in debt; it’s about the underlying economic power relationships. The reason that it worries some is not the existence of debt, nor the amount of debt, nor the increase in that amount: it is about potential default – whether those in debt will be able to repay their debts. It is a concern by the rich that the poor will not be able to continue transferring their few assets to the rich, because (almost by definition) much borrowing is by those who have no money from those who have lots. What concerns politicians about the debt mountain facing the poorest – whether individuals or countries – should not be whether they are taking on debts that they can’t cover, but how and why the need for them to do so arose in the first place. And since that inevitably leads to discussion about how resources and wealth are distributed in the world, it’s easy to see why they prefer to avoid it.

Pretending to have a policy

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Workers in the old Soviet Union used to say that “we pretend to work, and they pretend to pay us”. It was a cutting summary of the state of the economy at the time. But ‘pretending’, when it comes to matters economic, wasn’t (and never has been) limited to the totalitarian state of the Soviet Union. It has also been practiced here, by Labour and Conservative governments alike – and it looks as though the new Chancellor is determined to restore pretence to a position of centrality in her handling of the economy. I refer, of course, to the idea of what was variously labelled the Private Finance Initiative, or Public Private Partnerships; a system in which the government pretends not to be borrowing any money to build schools, roads, hospitals or whatever, and the private partner pretends not to be charging any interest on the money it pretends not to have loaned to the government, recovering its costs instead by issuing extortionate bills for changing lightbulbs.

It was the Major government which came up with the scheme, although Blair and Brown adopted it with gusto after replacing Major. And it was Cameron/Osborne who ended the practice, when it became clear just how bad a deal it really was over the long term. It did, though, achieve its main stated aim, which was to hide the extent of government borrowing by pretending it wasn’t happening. Instead of loans, debts and interest payments, the government’s accounts showed only ongoing maintenance and rental costs.

The FT reported yesterday that the Chancellor is considering reviving some version of the scheme to build a new Thames crossing in London at a cost of around £9 billion. No doubt the details will be tweaked in the light of past experience, but the underlying truths will remain, whatever those details might suggest, and the development cost will miraculously not appear as a loan in the government’s accounts whilst, over the long term, those pretending not to be lending the money will make a killing.

It's dishonest, of course, but probably the inevitable conclusion of a government which thinks that being seen to adhere to an arbitrary and inflexible fiscal rule is more important than the underlying financial reality. The issue isn’t just about that dishonesty though, nor the resulting inflated costs compared with a more straightforward approach to borrowing the money; it’s about the way priorities are determined. Schemes prioritised for progress using such an approach will be those which produce the best return for those not lending the money to the government; it is they who will, effectively, decide the priorities. Maybe the two things sometimes align – perhaps Reeves really believes that, if the government were to find a spare £9 billion down the back of the sofa, a new Thames crossing would be its top priority. There is, though, no obvious evidence that any thought has been given to the best way of spending such a large windfall. The thinking seems, instead, to have started from asking which schemes will be most likely to attract the finance sector to pretend not to lend the government money. It’s not only the construction which is potentially being outsourced, it’s the determination of policy as well.

The myth of fiscal headroom

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Fiscal rules are magical things which, apparently, every party needs to have. Parties can and do, however, invent their own rules. And change them, if ever they become ‘inconvenient’. It’s easy to see why the Tories, particularly late in a parliament facing an election which they are all but certain to lose, would want to lay down rules which would constrain an incoming Labour government. It’s a lot less easy to understand why the Labour Party would be stupid enough to let them get away with that.

Whatever, the Tory rule is, in essence, a very simple one: it must show that government debt overall is reducing by the end of the current five year period. Effectively, it doesn’t matter what happens in years 1 to 4, as long as the numbers show the right answer by the end of year 5. Although it might sound very difficult, it’s actually quite easy to achieve, all they have to do is make up the numbers. And that, in effect, is exactly what the Office of Budget Responsibility accused them of doing last week. As their head honcho put it, it’s not that the government figures are a work of fiction, because there was no work involved. They are simply invented numbers, with no plan for achieving them and no evidence to justify them, yet statute requires the OBR to pretend they are serious.

But that isn’t the end of it; the rule is even more magical than that. When one year ends, what was year 5 becomes year 4 and a new year 5 gets added on to the end. The rule now only requires a reduction in debt by the end of the new year 5. If they want to, the government can put off debt reduction almost indefinitely and still claim to be meeting the rule which says it’s reducing. By definition, the figures for year 1 will always be firmer and more accurate (or rather, less inaccurate) than the figures for later years, and they become the basis on which the government manages the books for the year. So, if income increases for whatever reason (such as more people being brought into payment of income tax through frozen limits) or expenditure reduces (such as lower interest rates leading to reductions in the cost of debt servicing), the government finds itself with what it and the media like to call ‘fiscal headroom’. Without borrowing any more than they’ve already planned to do, there is suddenly cash available with which they can do one of three things.

They could reduce the planned borrowing for the year, they could increase spending on failing public services – or they could cut taxes. And all the talk at the moment is that the Chancellor will use this apparent windfall to reduce taxes in next month’s budget, in the belief that doing so will be a big enough bribe for people to vote for the Tories. They will still be borrowing the same amount as they’d already planned to borrow (for all their talk about needing to cut borrowing, that’s a task which they’re more than happy to put off until the mythical year 5 and thus leave to an incoming government). They’ll just use some of that borrowing to reduce taxes. That’s right – the policy is effectively the same as that promoted by the previous worst PM on record, Liz Truss, namely borrow money to cut taxes. The only difference is that she alarmed people by planning to exceed the budgeted amount of borrowing without providing a good enough set of fictitious figures for the future, whilst Hunt is promising to stick within the already agreed fiction.

Here are two facts we know. Firstly, cuts in income tax always help higher earners more than low earners. And secondly, when the government borrows money and pays interest thereon, it necessarily borrows from those who have money available to lend, whether that’s directly through NS&I investments or indirectly through pension pots. Heads the better-off win, tails the less well-off lose. Doubly so, in a sense – the less well-off are also more dependent on the failing services in which the government is deliberately choosing not to invest. It’s easy to see why such policies appeal to those who have money: who wouldn’t prefer to pay less tax and then lend money to the government and receive interest on it instead? It’s a lot less obvious why this ploy will appeal to the majority who neither have the money available to lend to the government nor are likely to benefit greatly from any tax cuts. But then, sleight of hand is the secret of a good magician; most people aren’t seeing the full picture.

Burying the nugget of truth

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The trouble with bizarre and delusional rants is that any nugget of truth contained therein can easily be obscured by the patent nonsense in which it is embedded. Liz Truss’s opus magnus in the Telegraph on Sunday (widely covered in other media) is a case in point. The idea that the OBR, the Civil Service, the media and the markets are all run by some sort of left-wing conspiracy, and the suggestion that the only thing she did wrong was to fail to communicate her 'brilliant' ideas effectively, would lead anyone to wonder what her home planet looks like. But the nugget of truth is this: there is an accepted consensus around economic policy, shared by government and opposition politicians, the civil service and the media, and it is difficult for any politician, whether in or out of government, to challenge that consensus.

‘Left-wing’, however, it most definitely is not. It’s a consensus around ‘sound money’ and ‘balanced budgets’ which dates back to Thatcher and has broadly been followed by all governments since. Suggesting that Thatcherite economic policy is ‘left-wing’ tells us more about Truss’s own position on the political spectrum than it does about economics, but portraying Thatcher as some sort of dangerous communist is not a picture that many will recognise. It’s a consensus which the Tory-led government of 2010-2015 tried to embed as some sort of unchangeable basis for the future by setting fiscal rules and appointing the Office for Budget Responsibility to assess all government action against those rules. I’m sure that Osborne intended this to make it very difficult for any future alternative government to do anything different, although he probably didn’t expect a PM from his own party to be the one caught out. The fiscal rules were set by the government; the remit for its work was set by the government; and its members were appointed by the government. If a new government comes along – led by a maverick such as Truss, for instance – and leaves the same rules in place, to be assessed by the same people, working to the same remit, it should hardly be a surprise if, when that government then takes actions contrary to the fiscal rules, the OBR criticises those actions. And it’s hardly evidence of some great conspiracy – it worked as the Cameron government intended it to work, which is to force the government back to the accepted normality.

Whether the economic view on which it was based – that of the Treasury, the media, and Tory, Labour, and Lib Dem politicians alike – is the right one is another question entirely. And it isn’t only Liz Truss who’s questioning it. Last week, the BBC itself published a report on the way it covers economic policy (and Prof Richard Murphy has a brief summary of some of the salient points here) in which it accepts that it has given too much credence to prevailing orthodoxy and not enough to alternative viewpoints.  Specifically, the report accepts that the BBC (while making the valid point that it isn’t the only transgressor) has given excessive credence to the ‘household analogy’ for government budgets, without pointing out that it is opinion rather than substantiated fact and that there are other views. It’s not exactly coming from the same perspective as Truss, of course, but the underlying point – that there is an Overton window outside which debate is rarely allowed to wander – is the same.

None of that is intended to in any way support the insane proposition put forward by Truss that decreasing taxation on the rich would magically lead to economic growth and increase government revenues. All the empirical evidence suggests that borrowing money to give tax cuts to the rich ends up simply increasing government debt and financial inequality; but the infamous Laffer curve continues to draw support despite the fact that it is entirely unevidenced in practice. The fact that Truss was, and is, utterly clueless about how to generate growth, preferring to believe dogma than look at evidence, doesn’t mean that she was wrong in principle to worry more about overall economic performance than about specific levels of government debt. It’s a pity that her failed experiment, coupled with her tendency to see dangerous lefties under every bed and in every institution, will actually make it harder, rather than easier, to debate alternative viewpoints.

Missing an opportunity

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One of the ‘successes’ of the Tories over the past four decades has been implanting the idea that the government’s finances are like those of a household; spending should mostly be limited by income and any borrowing should be as short term as possible and repaid as rapidly as possible. It’s always been utter nonsense, and it’s not a paradigm that they’ve ever stuck to themselves, but they’ve succeeded in making it the starting point for all political discussion of economics under which all parties (except the Tories themselves, of course) are obliged to answer the question ‘how will you pay for it?’ in relation to each and every spending commitment, and then ridiculed for any failure to provide an 'acceptable' response. It’s an ideology which last week’s budget completely abandoned, with the results that we’ve seen on the financial markets, and whilst allowing itself to be seduced by the argument was not exactly a brilliant move by the Labour Party, being seen to be the upholders of what is essentially a Thatcherite position which the government have abandoned in favour of a trip to fantasy island will probably do Labour no harm in the short term. Appearing to be the adults in the room is not exactly a bad position to be in.

And yet… Their continued adherence to the Thatcherite view of the economy does them no favours in the longer term, and helps to sustain the household comparison. At a minor level, it leaves them open to a charge of inconsistency. For example, from the ‘household’ perspective, Labour's promise to reverse the unfunded abolition of the 45% rate of income tax and then use the ‘extra’ money for increasing expenditure in the NHS looks an awful lot like spending the same money twice. The open abandonment by the Tories of the position which they have imposed on everyone else for decades could – and should – be a real opportunity to have a serious discussion with the electorate about the way the economy really works. They could instead be spelling out that the problem isn’t the extent of Kwarteng’s borrowing per se, it’s that he’s using the borrowed money to reduce taxes on the rich: a move which few respectable economists believe will generate anything like the assumed level of growth which is required to make the numbers add up. Had he instead announced that he would be borrowing consistently more for some years to come in order to invest in infrastructure (which most economists would agree does contribute to growth), we would probably not have seen the panic which set in in the financial markets. Failure to even broach the argument that it’s not about borrowing, but how it’s used, is a serious constraint on Labour’s freedom to promise the investment which we need.

It's a failure which is understandable in a sense; in an environment where politics has been reduced to simple slogans, preferably no longer then three words long, and against a backdrop where the household analogy has become established ‘truth’, it’s a very difficult argument to make. And to paraphrase Bonaparte somewhat, “never divert attention from your enemy when he’s making a mistake”. They don’t need to win the argument about the ‘right kind of borrowing’ to win an election which the Tories seem determined to lose, so why get bogged down in a debate which many may not understand? It’s short term thinking, though: after they win an election, how radical can they be in economic terms if the ground hasn’t been prepared in advance? Most worrying of all is the suspicion that they don’t really want to be radical; they’ll be happy just to be ‘in power’ and carry on with the sort of economic policies which (Truss and Kwarteng might be asking some of the right questions here, even if they’ve come up with the wrong answers) have led us to where we are.

Austerity and ideology haven't gone away

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Yesterday’s decision by the Chancellor to extend the furlough scheme was ultimately inevitable – the only alternative was to accept that most of the 7.5 million people being supported by it are, effectively, unemployed and that the companies employing them are, effectively, insolvent. There was a statement that companies would be expected to contribute to the costs from August onwards, caveated by something along the lines of ‘when businesses are open again’, a caveat which gives him enough wiggle room to simply carry the scheme forward until the end of October if – or perhaps when – it becomes as obvious to him as it is to others that the English government’s timeline for re-opening the economy is from the same fantasy world as a pain-free Brexit, and that the companies concerned will be in no position to make any such contribution. And even a caveated, almost grudging, extension of a scheme which is still far from perfect is to be welcomed as better than the alternative.

More worrying are the rumours about his views on how the government will pay for the costs associated with the pandemic. The Telegraph this morning (paywall) is reporting ‘exclusively’ that a leaked report talks about an increase in income tax, the abolition of the pensions triple lock (something the Tories have never liked anyway), and a two year pay freeze for public sector workers (like the ones they’ve been hypocritically clapping every Thursday). There is also talk of other tax rises and cuts to public spending – the Tories may avoid the word ‘austerity’, but it seems that they just can’t abandon the ideology behind it. When Sunak talked a few weeks ago about this ‘not being a time for ideology’, it seems that he merely wanted a postponement, not a change.

Because many people, and the media from which they get their news, adhere to the crazy notion that government finances are just like a household which can’t spend money it hasn’t got, there is a danger that this sort of talk gains traction, and that people will see it as inevitable that the money borrowed has to be repaid. But this is a complete fallacy – we need to think a bit more about who owes what to whom, and what the effect of repaying it is. It’s true, of course, that the government is borrowing vast sums of money at the moment, both on the bond market and from the Bank of England. The two need to be considered separately.

·        The Bank of England is owned by the government – all money ‘borrowed’ from the BoE is money that the government is actually borrowing from itself. Where does it come from? At it’s simplest, it comes from a computer – the governor of the bank (acting on the instructions of the bank’s owners) deposits a few hundred billions in the government’s account and then creates a matching asset in its own accounts. The money is, in short, created out of thin air, into which it will disappear again if it is ever ‘repaid’. Any ‘interest’ paid becomes a ‘profit’ of the BoE which gets paid to its owners – the government. The government is paying the interest to itself in effect. It can borrow as much as it wants or needs in this way, limited only by any inflationary effect if there is ever ‘too much’ money in circulation, although nobody knows how much is ‘too much’.

·        Money borrowed on the bond markets is mostly borrowed from the UK financial sector – much of it from pension funds. From their perspective, what the government sees as a ‘debt’ to be repaid looks like a valuable (and extremely safe) ‘asset’, which is why they are so willing to ‘invest’ the money which they manage. Their ‘investment’ is government ‘borrowing’. Nominally, all those debts need to be repaid at some point, but those to whom they are repaid are likely to want to simply re-invest (i.e. lend the money back to the government).

So, we (through the government) are borrowing money from ourselves (through our pension funds or the BoE) and in due course we will repay it to ourselves and then lend it back to ourselves in an ever-continuing circle. Does it matter? Well there’s a sting in the tail here – ‘we’ are not all equal in this process. The ‘we’ to whom the money is owed tend to be the more well-off – those with the larger pension funds, especially. But the ‘we’ who will do the repaying under the sort of proposals being considered by the Treasury are the low paid (who depend disproportionately on public sector services), the poorest pensioners (those for whom the state pension is their only or main source of income), and public sector workers. Austerity, in short, is a process by which the wealth of the wealthy is preserved by transferring resources from the least well-off. The PM may not want to use the word but that, like most of what he does and says, is about presentation not substance. Anyone who thinks that the virus has driven out Tory ideology hasn’t been paying attention.

Ideology succumbs to viral infection

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One of the emerging themes of the current crisis is the way in which the Tories are abandoning past positions one after another as reality shows that they were never as necessary as had been claimed.

In his first budget last week, the Chancellor abandoned all pretence that there was ever any necessity to plan for a balanced budget within a specified time scale – or, indeed, ever.  It was always an ideological choice.

In his second budget yesterday, he abandoned the claim that ‘there is no money’, demonstrating instead that there’s as much money as we need.  (And it’s a pretty safe prediction that he’ll do that on an even greater scale in his third budget, which will probably be delivered within a week when the flaws in yesterday's become more obvious.)  

He also abandoned another ideological pretence that was used to rubbish Labour’s nationalisation plans in the recent election, even if he didn’t put it in such blunt terms.  There is a great deal wrong with his plans to make £330 billion available for loans to businesses, even if there were a thought-through process for applying, which there isn’t.  (Prof Richard Murphy explains in detail here why it would be illegal under company law and the Insolvency Act for companies to borrow money when they are already, or are about to become, technically insolvent.)  The Chancellor claims that this money makes no difference to the government’s total debt because the expenditure is balanced in the accounts by an ‘asset’ in the form of debt to the government by the companies which are expected to repay any sums loaned.  The wonders of double-entry book-keeping!  They argued during the election that a Labour government could not afford to nationalise any large companies (and I leave to one side here the question of whether that is actually desirable; I’m purely looking at the political economics) because it would increase the national debt.  In truth, of course, any ‘debt’ incurred to buy companies would be matched by an ‘asset’ and would therefore make no difference to the overall total debt – as the Tories have now effectively admitted.  The main difference between the two is that Labour’s plans would have involved real, tangible assets to balance the expenditure, whilst the Tories’ plans involve a whole pile of notional debt, much of which would never be repaid.

And then there’s the appeal, entirely correct and justifiable, by the government for shoppers to be less selfish and to think of others, especially the most vulnerable.  But this is the party which – aided and abetted by ‘New’ Labour, it should be said – has been telling us for the last four decades that ‘the markets’ will solve all problems, that individual actions in pursuit of individual interests are what drive the economy, and that, dare I say it, ‘there is no such thing as society’.  It turns out that, in a crisis, co-operation and collectivism make for a more resilient and kinder society than competition and individualism.  Who'd have guessed it?

I suspect that current events are something after which ‘normal’ will look very different from what ‘normal’ looked like just a few short weeks ago.  The same is true of ideology – as long as we all remember the lessons learnt.  It might be a crisis which is exposing the failure of an ideology, but it was failing anyway, just less obviously.  We can hope to minimise the number of human fatalities caused by coronavirus but let no-one grieve for the ideology to which it is also delivering a series of, hopefully fatal, blows.

Chancellor admits independence affordable

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Amongst the political responses to yesterday’s budget announcements, the leader of the Tory group in the Senedd described it as being “exactly what the country needs”.  This would have been more credible if we didn’t all know that (a) he would have said exactly the same thing if the Chancellor had stood up and doubled down on austerity, and (b) he would have been apoplectic with rage had the same budget been announced by a Labour Chancellor.  He’s not really expressing an opinion on the content of the budget at all – merely reaffirming his desire that it should always be delivered by a Tory.

Labour were inevitably wrong-footed to a degree – a massive increase in spending is exactly what they have been arguing for, and that is what we are going to get (although there is always scope to argue about the detail – and I suspect, given the Chancellor’s assertion that it meets his own unnecessary and irrelevant fiscal rules, that there is a sting in the tail to come, perhaps in the ‘proper’ budget in the autumn, or even in the ‘emergency’ budget which is likely to be presented in a few months’ time).  Corbyn’s claim that the budget is an admission that austerity has failed is fair comment, but it doesn’t go nearly far enough.  It’s much more than that – it’s also an admission that austerity was also both unnecessary and inappropriate as a policy choice.  I suppose, though, that it would be difficult for Labour to make that point, given that, at the time austerity was introduced in 2010, Labour’s own policy was also for austerity, just a little less and a little slower.

We should also note that a budget which deliberately increases the budget deficit year on year, and which abandons any pretence that the UK needs to have a plan to return to a balanced budget at some foreseeable future date, blows a massive hole in the main, repeated, argument of unionists against Welsh independence.  If the UK can run a more-or-less permanent budget deficit, then so could an independent Wales.  An argument of principle (“You can’t run a permanent deficit”) becomes an argument of degree (“There is a limit to the size of the deficit you can sustain”), which is a much easier argument to have, not least because most independentistas would agree with it.  Of course there are limits; but the factors governing those limits are complex and there are no hard and fast rules.

Some reports yesterday suggested that bond markets were ‘unfazed’ by the planned increase in borrowing – and, indeed, that what surprised them most was that the figure for planned new debt is lower than they were expecting.  But why would they be fazed by this – new government debt is exactly what the markets need.  What is debt for the government is a safe haven for funds, even at effectively negative interest rates.  The funds being released by the stock market sell-off have to go somewhere and lending the money to the government is far and away the safest option.  Not only are they ‘unfazed’, they are delighted that the government is going to borrow more.  Indeed, Professor Richard Murphy argued a few days ago that, as the borrower of last resort, the government had a duty to issue more bonds (i.e. borrow money).  It all underlines what some have been saying for a long time – one person’s debt is another person’s asset.  Most of the debt which the government accrues on behalf of the population is owed to the same population (much of it through pension funds), and if the government repays ‘our’ debt, it is a case of us repaying ourselves.  (Yes, there is a question of distribution of assets and debt which needs to be addressed, but I’m just considering accounting principles here.)  If we can only get that understanding clear, the debate about how much ‘debt’ governments can ‘afford’ becomes a lot clearer.  If independence was ‘unaffordable’ on the basis of deficit budgets, then the UK would have to declare itself un unviable state on the same basis.  Neither is true.

Borrowing and investment

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Yesterday’s Sunday Times carried what appeared to be an almost blow-by-blow account (paywall) of who said what in a crisis meeting of the Cabinet last week called to discuss Brexit.  The extent of the leaking of what are nominally ‘confidential’ discussions (the paper claimed at least six different cabinet sources just for its reporting of what the Chancellor said) shows how power and influence are ebbing away from the Prime Minister, with her underlings keen to parade their credentials in the inevitable battle to succeed her.

But if the leaking in itself showed an increasing detachment from any idea of collective responsibility, some of the proposals apparently made look like desperation is setting in.  One example was the claim that the transport secretary put forward a proposal to give everyone in Britain a Brexit bonus of £200.  Given the fact that any suggestion of there being a Brexit bonus has been well and truly debunked many times, it is unclear where he thought this money was coming from, but bribing people with their own money doesn’t look like honest government. 

One minister, Andrea Leadsom, reportedly did come up with a proposal to raise some money: the government should sell ‘Brexit Bonds’ to get people ‘investing’ in the government. (And of course, if each of us ‘invests’, say, £200, the government will have enough money to give us all a ‘Brexit bonus’ of £200 – the sad thing is that some might even be taken in by that one.)  ‘Selling bonds’ is something the government does all the time.  Whether labelling them as ‘Brexit’ bonds would make them any more saleable or attractive is doubtful, but we do know that the government can, at the moment, sell as many bonds as it wants to; people and institutions are queuing up to buy them.  It is one of the main routes by which government raises money, although it’s more usually called ‘borrowing’ - because as any accountant or book-keeper will be aware, anything that looks like an investment to one party will look like a loan to the other.

Calling on people to ‘invest in the government’ may have a nicer ring to it than ‘the government should borrow more’, but it amounts to exactly the same thing.  I welcome any recognition in government that they can and should borrow more to invest in services and infrastructure; I just wish they weren’t in a position where they have to do it to pay for the folly of Brexit, let alone in order to try and trick us into thinking we’re getting some sort of bonus.

When is a loan not a loan?

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The reaction from some quarters to Labour’s proposal to bring PFI deals back ‘in-house’ has been to claim that this would be very expensive, and would require a Labour Government to borrow money in order to buy out the PFI contracts.  The problem with that line of attack is that it assumes that the money involved in PFI deals wasn’t borrowed in the first place, and that is a contentious argument to say the least.

What is the difference between the government directly borrowing money to build a hospital and paying it back over, say, 40 years, and the private sector borrowing money to build that same hospital while the government pay a service charge over the same period and then take ownership of the hospital at the end of that period?  The difference is just a question of accountancy or ‘financial engineering’; effectively the government is borrowing in both cases but treating one type of loan as an ‘off-balance-sheet’ arrangement.  When private companies use off-balance-sheet arrangements, they are often accused of hiding the true state of their indebtedness.  That seems like fair comment to me, and it is equally true when it comes to the government.

The point is that the government already owes the money to pay for PFI deals; it merely pretends that it doesn’t so that it doesn’t have to count the total amount due in its debts.  Any proper due diligence exercise on HM Government’s accounts would, as a result, conclude that it owes a great deal more than its accounts show.  The question therefore, when it comes to terminating PFI contracts early, is not whether the government needs to borrow new money to buy them out, it’s whether borrowing from a different lender at a better rate might be a cheaper (and more honest) way of financing the same debt.  And given the exorbitant effective interest rates being charged on some PFI contracts, and the record low level of interest on new government debt, it’s hard to believe than buying out PFI deals at a fair rate based on normal accounting treatment of the value of future payments won’t be far cheaper than letting them run.

The real question to Corbyn and McDonnell is not ‘how will you pay for this?’, but ‘why did it take you so long to figure this out?’  The latter question gives me far more concerns about their financial acuity than the former; but it puts them way ahead of the Tories who still haven’t been able to figure it out.

All models are wrong - and some aren't even useful

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On Monday, the Tory group leader in the Assembly demanded that the First Minister dissociate himself from Corbyn’s policies, claiming that they would result in around £4,000 of extra debt for each person in Wales, and that the UK would end up paying around £5.8 billion a year in additional interest payments if Labour’s plans were implemented.  It’s the stuff of good political knock-about, but without a lot more information on how they’ve done their sums (and the Tories don’t exactly have a brilliant record when it comes to financial arithmetic), it’s difficult to know what, if any, relationship exists between his figures and ‘truth’, in the mathematical sense of the word.

But, for the sake of argument, let’s suppose his figures are accurate ones.  Is it really the economic disaster as which he paints it?  Of course, £5.8 billion sounds like a very large sum of money to be paying in extra interest every year, but that’s in absolute terms.  And it makes a number of unstated but implicit assumptions.

The first comparison that has to be made is not, as the Tories effectively claimed, with the status quo, but with what the outcome would be over the same period with a Tory Government.  The implicit assumption in what Davies said is that Tory spending plans would not lead to a similar outcome, but given the way in which out-turn has varied from predictions over the last few years, and the way in which much of the (uncosted) Tory manifesto has been ditched, that looks to me like an invalid assumption.  If there is a gap between the likely outcome under a Corbyn government and the likely outcome under a Tory government (and even that is a significant ‘if’) then it is probable that the gap would be much smaller than Davies is suggesting.  All the signs are that the Tories will also increase borrowing to pay for their programme; the honest question is not how much Labour would need to borrow, but what is the difference in borrowing levels between the two.

The second question is about what proportion of GDP the debt would represent, and what proportion of expenditure any extra interest payments would represent.  Both of those are dependent on a range of assumptions and guesses about the likely level of inflation, economic growth, and interest rates.  Given the propensity of all involved to get such estimates wrong, it would be a very brave person who would claim to know the correct value of any of those variables over a five-year parliament.  But in principle, simple mathematics shows that a debt which increases in absolute value by a smaller percentage than the rate of economic growth will end up reducing the ratio of debt to GDP, which is why the absolute value being used by Davies is irrelevant.  The same mathematics also demonstrates that when interest rates are lower than the rate of inflation, paying more interest in absolute terms can still result in a reduction in the percentage of government income committed to paying interest.

What we do know is that, as things stand today (and I accept that’s a very important caveat), the UK Government is effectively borrowing money interest-free.  It’s costing us, in real terms, absolutely nothing, and given the demand from people who want to lend money to the government, there is no immediate problem in borrowing more.  Indeed, some would even argue that increasing government spending actually generates more tax income than the amount spent: the calculation all depends on the value assigned to the infamous ‘multiplier’.

Now of course it is true that different economists will give different answers to questions such as these, but that merely serves to underline that economists base their predictions on models rather than on absolute truths, and there are a number of different models available.  As the famous statistician, George Box, said, “All models are wrong, but some are useful”.  It’s a point worth bearing in mind that when politicians state categorically what the outcome of a particular policy will be for the economy they are depending on a model of some sort, whether they admit it - or even realise it - or not.

As I said at the beginning, this sort of guff from Davies is all good knock-about politics, but it’s really froth; he has no more clue than do I about the accuracy of what he says.  The real question is why one particular model – the idea that the government is like a giant household, which is used by the Tories when they come out with this stuff – is taken as gospel truth by a media which regularly demands that politicians from other parties explain themselves in the terms mandated by that model.  It would be more useful to political debate – let alone to economic policy – if the idea which underlies much of what they say was challenged more forensically rather than being simply accepted.  And it’s a shame that more opposition politicians don’t appear to have the understanding or the confidence to do that.

How will you pay for it?

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When it comes to political manifestos, I struggle to work out which is the silliest – asking that question, or trying to answer it.  But that doesn’t stop them.  Having ‘fully-costed’ manifestos is, it seems, de rigueur, even if it’s economic nonsense, and yesterday’s Labour manifesto was a case in point.  I can’t remember when or how it became necessary for parties to explain in detail both the cost and the method of financing of their policy proposals, but I suspect it’s a consequence of the Thatcher years when a political ideology contrary to the interests of the many was promulgated by the simple expedient of pretending that government spending is like household spending, and must always balance out.

It’s a simple enough comparison to make, and it’s counter-intuitive to argue that it’s nonsense, which is why it has taken hold to the extent that it has.  The press and broadcast media promote the ideology by default – whether because they are biased towards it, see it as in their own best interest, are innumerate, or are just plain lazy is an open question.  It doesn’t really matter why – the effect is that parties have become so afraid of challenging the established wisdom that they seek to comply even if at least some of those involved realise how silly it is.

So, yesterday was Labour’s turn to answer the silly question and explain how they will pay for one of the boldest manifestos put forward for many a year, so they duly gave an appropriately silly answer.  Oh the numbers certainly add up, it’s just that they’re based on so many unstated assumptions as to be completely meaningless.  The government, with all its statisticians and experts, has only just been able to tell us what the rate of inflation was last month, and nobody knows what the actual rate of economic growth is until after the event either.  And that’s without throwing in uncertainty over exchange rates, Brexit, and unexpected events which are, by their nature, unforeseeable.  Yet producing a ‘fully-costed’ manifesto requires all of these things to be known for the next five years in advance.  It’s impossible; figures which can only be, at best, rough estimates based on a whole range of assumptions are being bandied around as though they are gospel truth.

Since being elected in 2010, and again in 2015, the Tories have borrowed hundreds of billions of pounds more than they said they would.  This is equivalent to hundreds of billions of pounds’ worth of uncosted expenditure compared to their manifesto promise, yet few of the media so keen to pin down Labour and other opposition parties seem to bat an eyelid over that.  Politicians can get away with uncosted expenditure as long as either a) they don’t predict it in advance, or b) they’re Tories, apparently.  But having said that, I should make it clear that it’s the hypocrisy and double standards to which I object, not the borrowing itself.

Borrowing, despite all the rhetoric, actually makes sense at a time when people are queuing up to lend money to the government at what are, effectively, negative real interest rates.  They don’t call it lending to the government, of course – they call it investing in NSI products, or buying government bonds.  But whatever they call it they are in fact lending money to the government, and are currently willing to go on doing so.  Labour’s talk of increasing borrowing not only makes economic sense, it’s a welcome change from the ideological straitjacket.  My main criticism would be that they’ve tried to put a firm figure on it, rather than simply stating that they will borrow whenever it makes sense to do so.

There’s an interesting analysis here of borrowing over the years by Labour and Conservative governments respectively.  It clearly shows that the rhetoric generally being used is at variance with the truth: overall, Tory governments borrow more and Labour governments are actually better at repaying debt.  One possible (and counter-intuitive interpretation) of this is that, actually, the Tories really are better at economics than Labour, and that, despite what they say, they have a willingness to borrow as and when appropriate – we just need to judge them on what they do, rather than on what they say they will do.  It isn’t the only possible interpretation however, and it would be a far too simplistic one.  A more detailed analysis of the difference in circumstances facing governments of the two parties would be too lengthy for this post.  It’s enough for the time being to indicate that knee-jerk criticism of Labour for planning to borrow owes more to spin than to good economics.

Borrowing from Peter to pay Paul

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We can’t go on borrowing indefinitely, according to the Labour-Tory austerity mantra, and we need to reduce the national debt.  One of the ways in which that is to be achieved is by getting private companies, or other countries, to fund infrastructure projects, because, of course, they have the money sitting in their piggy banks and don’t need to depend on borrowing.  Or do they?

I’m far from being a fan of the Wylfa Newydd project in any event, but I noticed recently that there’s something curious about the way in which it’s being funded, when compared with the mantra referred to above.  According to press reports, up to £12 billion of the construction cost will be funded by the Japanese government.  So where, exactly, will the Japanese government find such a sum of money?

According to this list, the country with the largest public debt as a percentage of GDP is … Japan.  (The link shows several different ways of assessing the level of debt – I’ve used the column showing the average of CIA and IMF data.  Using one of the measures, the first and second positions of Japan and Greece are reversed, but the basic point still holds.)  So a country which has a debt ratio of 90% of GDP (the UK) cannot afford to borrow more to fund its infrastructure development, but it will instead rely on another country whose ratio is 174% (Japan) to fund that development.  By borrowing the money, of course.

Borrowing is fine, apparently, as long as someone else is doing it.  It only brings about the end of civilisation as we know it when the UK borrows money.  And that brings me back to a common theme on this blog – the decision as to whether a government should borrow or not owes more to ideology than to economics.

Whose debt is it anyway?

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I’ve posted on the GERW figures previously, and particularly on the fact that what they show relates only to the position of Wales as a part of the UK, and tells us little about the position in which Wales would find itself as an independent state.  The overall figures necessarily include estimates for some items of expenditure where the actual cost to Wales cannot be separately identified.

One of those is the cost of servicing the national debt.  As part of the UK, Wales is assumed to bear a part of that cost, and the simplest and easiest assumption to make is that the proportion notionally allocated to Wales should be based on the population of Wales as a proportion of the population of the UK, so an assumption is made that around 5% of the cost is attributable to Wales.

That isn’t the only way of doing it, however.  We could assume that it should be done on the basis of share of GDP; given that Wales lags behind the UK average in terms of GDP that would reduce the share attributable to Wales.  We could do it on the basis of share of directly attributable public expenditure – given that identifiable spend per head in Wales is higher, that would increase the share attributable to Wales.

But all of those methods relate to assessing the position of Wales within the UK.  What would be the position of Wales at independence in relation to the national debt of the UK?  Most nationalists – eminently reasonable people – have tended to assume that Wales would take a share, probably on the basis of population.  But again, that isn’t the only option.

If we look at history, we could ask ourselves one simple question – of all of the countries which have over the last 250 years gained independence from the UK or the British Empire, how many of them took on any part of the national debt of the colonial power?  The Thirteen Colonies of the US?  Australia?  India?  Ireland?  I don’t believe that there is a single example of any country gaining its independence which has agreed to take a share of the national debt of the colonial power over and above any debt built up by any pre-existing local administration prior to independence.  And I’m pretty sure that the same applies to the former possessions of Spain, Portugal, France etc., as well as those of the UK.  Indeed, at the time of the Scottish independence referendum, the UK Treasury itself made it clear that it was ultimately responsible for the whole of the UK’s debt.

What actually happens will be the result of negotiation at the time; but perhaps our starting point should be rather lower than many are assuming – only debt actually incurred by the Welsh Government itself.  It would make a significant difference to the economics of independence.  And before anyone claims that that is tantamount to avoiding our obligations, let’s just remind ourselves – who is it that prevents the Welsh Government from borrowing as it sees fit, and therefore constrains the economic development in Wales which would be required to repay debt?

Conceding the narrative

Tweet Amongst the more useful things that I’ve learned over the years are that that which is obvious isn’t necessarily true, and that that which is true isn’t necessarily obvious.  Assuming the obvious to be true is a common mistake, but in this election the failure to challenge the ‘truth’ of the obvious has allowed the Tories to frame the debate and win the argument on economic narratives.  To describe that as disappointing is an understatement.

When it comes to the budget deficit, all three of the main UK parties are committed to the view that it needs to be eliminated; any disagreement is solely about the method by which that is achieved and the timing.  Even the self-styled ‘anti-austerity’ parties, despite calling for an increase in borrowing to fund infrastructure in the short term, seem to have bought into the ‘truth’ of the ‘obvious’ need to eliminate the deficit.  In her piece for the Western Mail on Saturday, Plaid’s leader said “The Party of Wales wants to see the fiscal deficit eliminated”, going on to argue that it just doesn’t have to be done so quickly.

Deficit elimination as a necessity is a narrative which the Tories, aided by their friends in the media, have set, and which has gone unchallenged.  It is, after all ‘obvious’ that a government cannot run a deficit forever.  But is it true?

As the chart on this page shows, deficits have been the norm over a very lengthy period.  Where there have been surpluses, they’ve been short-lived and very much smaller than the deficits.  The simple conclusion is that countries are not like households; the budget really doesn’t have to be balanced, even over the long term.  Governments really can run deficits more or less indefinitely if they choose, however counter-intuitive that may seem.  And because it’s so counter-intuitive, it’s a point which simply hasn’t been made effectively during the election campaign.

The extent to which it’s possible to run a deficit indefinitely depends on a number of factors, most notable perhaps inflation and the level of economic growth, although it’s important to remember the importance of international comparisons as well – relative security of funds is more relevant than absolute security.  That’s why a more useful measure than the existence of a deficit per se is the relationship between that deficit and the overall size of the economy over time. 

If they’d all talked about ‘reducing’ the deficit, rather than eliminating it, I’d be a good deal less critical, because there probably is an upper limit to the size of the deficit.  However, I don’t know what that limit is, even if I suspect that the UK got closer to it than was wise.  But here’s the thing – neither does anyone else know what that limit is. 

For sure, any number of different economists will tell you with apparent certitude what the limit is, and justify setting it at that level by reference to all sorts of economic theories based on what’s happened in the past.  But none of them can be, whatever they may say, certain.  In effect, governments can go on borrowing until people won’t lend them money any more – not a sensible thing to do, but the only way anyone will ever know what the limit is.  Everything else said about the deficit is simply opinion, not fact.

One of the few things which are certain is that the existence of a deficit per se is not a problem – which is precisely the opposite of what all the politicians are telling us.  It’s clear enough why the Tories are telling us the reverse of the truth.  Using the ‘obvious’ comparisons with household debt or ‘maxing out the credit card’ provides them with the cover they need for an ideologically based desire to shrink the state and further redistribute power and wealth from the many to the few.  What’s a good deal less clear is why the rest of them have allowed the Tories to get away with this unchallenged.

Taxpayer funded bribery

Tweet Yesterday, the Chancellor announced that he was extending the availability of pensioner bonds until a date which is conveniently just after the UK General Election.  I posted on this some weeks ago, drawing attention to the fact that this was, in effect, getting us as taxpayers to pay more to borrow money than was necessary, in order to give a pre-election bribe to the wealthiest pensioners.

It’s not often that I find myself agreeing with a right wing think tank such as the Institute for Economic Affairs, but there’s a first time for everything.  Their comment that “Borrowing more expensively than the government needs to is effectively a direct subsidy to wealthy pensioners from the working-age population” sums up precisely the point which I made previously.

They go on to say "Pensioner bonds have never been anything other than a gimmick that will benefit pensioners at the expense of the taxpayer, and it beggars belief that the government is prolonging such a foolish policy."  Whilst I agree with the first part of that as well, it only beggars belief if considered solely as an economic policy.  It may be rubbish economics, but it’s good politics from a Tory point of view.  Offering a bribe to a particular section of the population to stay loyal to them – and getting the rest of us to pay for it – is clever to say the least.

Cleverer yet, they’ve managed to get the entire compliant UK media to follow their line that they’re ‘selling a good investment’ rather than making a very poor borrowing decision, and put the other parties on the wrong foot – they’re afraid to criticise it for fear of being seen to be attacking those pensioners likely to benefit from it.  What is a bad news story for those of us paying for it is being presented as a good news story for the minority who benefit from it.

There’s plenty of reason for the taxpayer to offer more help to struggling pensioners, but no reason at all to single out the most well-off for the receipt of our largesse.  The Tories are committing blatant taxpayer-funded bribery, and it’s going largely unchallenged.

Blatant bribery

Tweet The UK Government’s new Pensioners’ Bonds seem to be popular amongst those pensioners who can afford to buy them.  There seems little doubt that the whole of the £10bn issue will be sold, and a million or more pensioners will be very happy with the above-average return on their investment.  There are, though, two sides to any investment.  As anyone who’s ever had anything to do with accounting will realise, one person’s savings are another person’s debt.  And in this case, the debt is the government’s – and therefore ultimately ours.

What has been presented as ‘selling’ £10bn worth of bonds to pensioners is in effect borrowing £10bn from pensioners.  There’s nothing wrong with that of course; governments borrow all the time, and most of their money is borrowed from citizens.  As an alternative to simply taking our money away in taxes, paying us a guaranteed rate of interest to loan them money is not without its attractions to many.

There are, however, two special factors about this particular bond issue.

The first is the generous rate of interest.  A government which has spent most of the past five years telling us that we must cut the deficit because continued borrowing commits the taxpayers to paying interest in future has decided, in effect, to pay over the odds to borrow £10bn which it could easily have borrowed on the bond markets at a lower rate of interest.

And the second is that it has restricted access to this generous rate of interest to a small section of the population, namely those pensioners who have spare cash to invest.  To put it another way, they have decided to commit all those of us who pay tax to paying interest at above the going rate to the most well-off pensioners. 

I don’t know how anyone can see this as anything other than a blatant bribe to a targeted section of the population – wealthier pensioners – in advance of the UK General Election in May.  And a bribe paid for by the rest of us at that – which is spun as a safe and well-rewarded investment to help our elderly.

But there’s another little lesson that we should learn as well.  When they say that we can’t afford to go on borrowing because of the future interest payments, what they actually mean is that we can afford to borrow as long as it helps them to win an election.  The worst of it is that it might actually work, and the irony is that many of those benefiting are probably amongst those whose support for cutting borrowing is strongest.