The myth of the Government’s money

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Austerity march

There is a huge lie at the centre of British politics. We are all being deceived by politicians only telling us half of the truth.

To be fair to politicians, they are not the only ones carrying out this deception. We, the public, are also a part of it. We are deceiving ourselves.

And it’s all to do with a pile of mythical money. The Government’s money, which doesn’t really exist.

Let’s start with the deception. Politicians love to splash the cash. One lot says “Vote for us and we will spend £1 billion more on the National Health Service”.

“Pah!” say the next lot. “That’s nothing. Vote for us and we will spend £2 billion.”

“£2 billion? You’re having a larf, aincha? We’ll spend £5 billion.”

We hear this every general election. Politicians love to tell us how much money they are going to spend on different things.

Then after the election, Government Ministers love to cut ribbons and announce how much they are spending on new projects. Government Departments churn out thousands of press notices proudly proclaiming that the Government is providing £X million for a new project.

And it’s all funny money. Not quite real.

And then we have thousands of people demonstrating about austerity. The evil Government is taking money away from all of us. Boo, hiss, he’s behind you. Oh no, he isn’t. Oh yes, he is.

It makes me want to tear out what little hair I have left. Because they are all getting it wrong. They are all believing in the myth of the Government’s money.

Many people seem to have a particular image in mind. This one:

smaug

They see the Government as a very rich dragon sitting on a pile of gold. This dragon is obsessed with gold. He steals gold wherever he can, somehow dragging it back to his mountain lair. To be perfectly honest, I’ve never quite worked out dragons manage to move coins, jewels and other treasure. They don’t seem to have the right digits for the job. No opposable thumbs, you see.

Anyhow, moving on…

The nasty dragon steals our money. Just occasionally a kindly dragon might let us have some of his gold. And all we need to do is to get our hands on his gold and life will be good.

Sorry, but this isn’t how it works. The Government isn’t sitting on a mountain of gold. It doesn’t work that way.

My elderly Mum has one fixed idea about Government money. She has “paid her stamp”. That’s the phrase she keeps coming back to. She spent a working lifetime paying her stamp, so now it’s time that the Government gave her that money back.

This was based on an idea when the welfare state was first established that everyone would pay into National Insurance when they were working. This would mean that when you retire the Government will open up the piggy bank with your name on it and spend that money looking after you.

Sorry, Mum, but that isn’t how it works either. There is no piggy bank in your name. That money has long since gone.

Let’s tell the truth for a change. The Government doesn’t have any money. The myth of Smaug sitting on a pile of gold is just that – a myth.

Okay, so you’re going to argue that the Government holds reserves. We have our version of Fort Knox, don’t we? Her Maj has those pretty jewels in the Tower, doesn’t she?

Well, yes, there is some money in the system. But we’ve also got a huge pile of debts that you can’t see. Around £1.5 trillion. That’s £1,500 billion. A scarily large amount of wonga.

The plain fact of the matter is that the Government lives from year to year, month to month. It takes money from us in taxes and then it spends that money straight away.

The Government is broke. There is no pile of gold. It doesn’t exist.

Don’t worry – this is perfectly normal. It might not be what you are expecting, but it is how nearly all Governments work.

The truth is that the Government takes our money in taxes and spends it almost immediately on things that we can’t pay for individually. It’s our money. We are simply asking them to make good decisions about where to spend it.

So when a politician boasts about how much his Government is spending or has spent or will spend, we can shrug and say … “but it’s our money!” We shouldn’t feel grateful for a Government Department spending money on a new project. We gave them that money. They damn well should spend it on things, and not expect a pat on the back when they do it.

But there’s a problem. A huge problem. The Government has only two main ways of raising money. It takes money from us in taxes or it borrows. And borrowing doesn’t really count. It has to be paid back eventually, and with a large amount of interest. In reality, all of the Government’s money has to come from taxes.

And that’s the harsh truth. If we want the Government to spend more on us, we need to give more of our money in taxes. I’ll say it again – the Government doesn’t have any money of its own. It spends our own money on our behalf. That’s the deal.

That gets us to the truth of the matter. Government spending is all about distributing wealth. Taking money from some people to give it to some others.

It might sound impressive when a political party says that it is going to spend money on something like the NHS or increasing pensions. But what they really means is that they are going to take money away from somewhere else in order to pay for it. They have no choice. There is no spare money lying around.

I chortle when I see a politician making promises about spending money. It’s our money they are spending. And every spending promise they make has to be paid for with higher taxes or by not spending as much money on something else.

Then we have the anti-austerity protests in the UK and in Greece. On the face of it, their cause seems entirely just, like 21st century Robin Hoods. The nasty Government is cutting services. Boo, hiss. We want that pot of gold.

The pot of gold that doesn’t exist. Austerity doesn’t just take money away, as some people seem to think. The idea is to reduce Government spending so we don’t need to pay as much in taxes. We then have more money to spend on ourselves.

What is the alternative to austerity? We could borrow more, but that would have to be paid back eventually. We could reduce spending in areas we don’t like, but those areas are tiny when compared to the huge amount we spend on the welfare state. It is by far the biggest thing that the Government spends money on.

The poll tax riots that finished off Maggie Thatcher are another case in point. The poll tax was presented as this huge money-grabbing ploy by the Government. In reality, the poll tax would not have raised a penny more in money for the Exchequer than the rates system it replaced. And any extra money it would have raised would have been added to the Treasury coffers and spent on us.

The real reason that the poll tax was hated was because it re-distributed money from one group of people to another. It reduced the tax on rich people and increased it on the poorest. As a whole it was revenue neutral. It attracted so much criticism because the people who benefited stayed quiet and the people who lost out protested.

But that is how we should look at Government spending. Government spending is not about spending cash. It is not about nasty cuts. It is about redistributing money between one group and another.

This might sound like an apology for the Conservative Government, but it shouldn’t. There is a very real debate that we should be having about how we balance our finances. I don’t feel comfortable with tax changes that give more money to the rich whilst taking it away from the poor.

But we aren’t talking about that. The debate has polarised into a slightly silly slanging match between two concepts that don’t really make much sense – spending versus austerity.

Government spending isn’t spending. It’s just moving money around. And it’s our money.

Austerity isn’t really austerity. Spending less on something means there is more to spend on something else.

There is a very important debate that we need to have about the distribution of wealth. We have not got that right at the moment. The wealthiest in society have a much better standard of living than the poorest. That can’t be right.

But we are not going to have that debate until we stop talking about meaningless terms like spending and cuts and start talking about the distribution of wealth.

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