Tyrone Braithwaite

This is an extraordinary amount of economic confusion to pack into one graphic. First, Britain does not need another 3.4 million taxpayers to provide the government with sterling. The British state is the sole issuer of sterling. It cannot involuntarily run out of its own currency in the way a household or a business can. Second, debt interest is not money lost to the British economy. Every pound paid by the Government is a pound received by someone else. Government interest expenditure is income to the holders of government liabilities. The IEA is presenting one side of the accounting while conveniently ignoring the other. Third, the recent increase in debt interest is substantially a consequence of higher interest rates and inflation indexation. The Bank of England as a matter of policy has increased the remuneration on reserves, consequently maturing government debt is being refinanced at higher yields. To describe all this as the inevitable price of excessive public spending is economically illiterate. Finally, the comparison with the income tax liabilities of 18 million workers is designed to evoke the household-budget fallacy: the idea that government must first collect sufficient money from taxpayers before it can spend on public services. It is a powerful political narrative, but a profoundly misleading description of how the monetary system operates. If debt interest is genuinely your concern, discuss the interest-rate policies that determine much of its cost, who receives the payments, and their economic consequences. But please stop pretending that Britain is running out of pounds.

The word “deficit”, when referring to government finances, is descriptively correct in accounting terms but rhetorically misleading, because in ordinary English it carries the sense of a shortage, inadequacy or failure. In this context, however, it simply describes a difference between government expenditure and receipts over an accounting period. It does not mean that the government itself is “short” of money. Compare: “The government ran a £100bn deficit.” with: “The government added £100bn of net sterling financial assets to the non-government sector.” They describe the same accounting outcome, yet provoke completely different intuitions. This is not to say that all government deficits produce good economic outcomes. A deficit may contribute to inflation; the composition of spending may be wasteful; or fiscal policy may produce an undesirable distribution of resources. Equally, a deficit may accompany price stability; the composition of spending may promote efficiency and productive capacity; or fiscal policy may produce a desirable distribution of resources. None of these outcomes necessarily follows from the fact that the government’s accounting balance carries a minus sign. It depends on the economic circumstances, the level and composition of spending and taxation, and the productive limits of the economy. A government “deficit”, then, identifies a residual accounting balance, not a deficiency in the government’s finances. The mistake is to import the ordinary-language meaning of deficiency into a national-accounting identity.

How do the finances of HM Government operate? The gory details right here: #ExchequerCredits #TreasuryOrders #BankofEngland An Accounting Model of the UK Exchequer - 2nd edition - The Gower Initiative for Modern Money Studies gimms.org.uk/2021/02/21/an-a…

Why not cut ~£100 billion the government pays out to bond holders? They don’t appear to do anything in return…seems just like a welfare payment.

According to the Consolidated Fund annual accounts in 2009-10 HM Government provided the Department for Communities and Local Government with £39.299 billion of funding. By 2018-19 this figure had reduced to £14.241 billion, a 60% reduction. In 2023-24 the Ministry of Housing, Communities and Local Government received a slight increase in central government funding of £25.559 billion. Central government funding is key to local councils’ ability to provide essential services. Given the data, it is no wonder our country is falling apart.

“The maths is simple. If government wants to spend more, there are only three ways to pay for it: borrow more, cut spending elsewhere or raise taxes.” This is a rhetorically effective soundbite, but it is operationally misleading. It conflates political financing choices with the monetary operations of a sovereign currency issuer. Operationally, the sequence is as follows: 1. Parliament authorises both Supply (spending) and Financing (revenue). 2. The Treasury makes payments through the Bank of England. 3. Commercial banks receive additional reserves, and private bank deposits are credited. 4. Taxes and other revenues are received through the Bank of England. 5. Commercial bank reserves and private deposits are debited. 6. If required, the UK Debt Management Office (DMO) subsequently sells or purchases gilts to drain or add reserves to the banking system while ensuring its accounts at the Bank of England meet the government's target end-of-day balance at the Bank of England. First, “borrow more”. Gilt issuance does not provide the pounds the government spends. Government spending creates the reserves first; gilt sales simply exchange those reserves for interest-bearing government securities. Borrowing is therefore a reserve management operation, not a funding operation. Second, “cut spending elsewhere”. Suppose the government wishes to spend an additional £5 billion on defence. It could choose to reduce welfare spending by £5 billion. However, the welfare cut has not "found" the money. It has merely reduced one group's income while increasing another's. The government's operational ability to make the defence payment was never contingent upon first withdrawing income from welfare recipients. Third, “raise taxes”. Taxation does not operationally provide the pounds the government spends. Government spending occurs when the Bank of England credits commercial bank reserve accounts and the corresponding customer deposits. Tax payments reverse that process by debiting reserves and deposits. Operationally: 1. Government spending creates reserves and bank deposits. 2. Taxation extinguishes reserves and bank deposits. A household faces a genuine financial constraint because it cannot issue sterling. The UK government, as the monopoly issuer of sterling, faces no such financial constraint. Its constraint is instead real: whether sufficient labour, skills, materials and productive capacity are available for purchase at current prices without generating inflation. The Shadow Chancellor of the Exchequer is therefore presenting a political narrative rather than an operational description of how the monetary system functions. By framing public spending as though the government must first obtain pounds through borrowing, taxation or spending cuts, he misrepresents government fiscal and monetary operations and reinforces widespread public misunderstanding of the state's financial capacity. The genuine policy question is not whether the government can obtain its own currency, but whether additional spending is consistent with the economy's available real resources and the government’s inflation objectives.