The UK parliament's House of Lords Economic Affairs Committee has issued a call for evidence, asking the question, ‘How sustainable is our national debt?'
In its early paragraphs, the Committee notes that the UK's Office for Budget Responsibility stated in 2023 that “the 2020s are turning out to be a very risky era for public finance”. As a consequence, the committee is launching an investigation into the sustainability of the UK's so-called national debt. In particular, it is asking the following questions:
- What is meant by a “sustainable” national debt? Does the metric of debt as a percentage of GDP adequately capture sustainability?
- The Government's target is for public sector net debt (excluding the Bank of England) to be falling, as a percentage of GDP, by the fifth year of the OBR's forecast. How meaningful is this target; and how does it inform an evaluation of the sustainability of our national debt?
- How robust are the assumptions used by the Office for Budget Responsibility when forecasting our national debt?
- What implications does the structure of the UK's national debt have for its short and longer-term funding?
- What are the market risks created by high levels of public debt; and what factors will influence the market's appetite for this debt?
- What levels of productivity and growth are required to ensure our national debt is sustainable?
- If we are to ensure our national debt is sustainable, what might this mean for fiscal policy?
- Should the definition of the national debt differentiate between debt incurred for investments (which generate revenue for the Government), and other areas of spending?
The submission deadline is 9 February 2024.
The committee is encouraging relatively short submissions.
Critically, any submission that is made must be an original piece of work that is previously unpublished.
The submission must also be submitted via a specific form linked from the website noted above.
I am planning to submit evidence, but for obvious reasons noted above, cannot publish it in advance.
What I would like to do is encourage others to submit evidence. Without being able to suggest forms of wording, Topics that people might like to consider, including:
- That we do not have a national debt, but instead have national savings because the government effectively provides savings opportunities for people and organisations seeking a safe home for their money. See here and many other places on this blog
- The national debt is overstated by maybe £1 trillion. See here.
- The cost of the national debt could be reduced by cutting the Bank of England base rate.
- Interest need not be paid on all the central bank reserve account balances. See this from the New Economics Foundation for a bit of variety.
- The national debt has existed since 1694. Anything that has existed since then is sustainable.
More detail is possible, but the above provides useful starting points.
Good luck if you decide to do this.
Hat tip to Nigel Hargreaves for drawing my attention to this.
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Thank you for this – here’s your coffee.
BTW – I think that they are doing this jut to check how thick we are.
🙂
Coffee will be in the cold this morning
Thanks for the heads up.
This seems important. It is seldom that the public have an opportunity to voice an opinion.
Sadly history suggests that rational arguments will be ignored – but, ever the optimist, it’s worth a shot.
History shows many countries have/had problems with debt.
The challenge is when debt-servicing costs are higher than Government revenues and government bonds trade at a hefty discount !.
https://www.economist.com/finance-and-economics/2023/12/03/is-the-worlds-most-important-asset-market-broken?utm_content=conversion.direct-response.non-subscriber.textlink_article_top&utm_campaign=a.24spotlight_content_v1_prospect.2024-01-21&utm_medium=email.owned.np&utm_source=salesforce-marketing-cloud&utm_term=1/21/2024&utm_id=1845593&sfmc_id=0033z000033xNrVAAU
Yeh, yeh
No there is not
Not in countries like the UK
I know one member of that committee who is very financially conservative- will check out the others. My concern would be that those with a banking or economics background will drown out the others with their conservative views so definitely worth us putting in questions.
They are usually quite good
Thank you Richard for that acknowledgement re “bankers”. By no means all of us subscribe to neoliberal economic ideas. It may be of interest to those who read your blog posts that we who entered banking in the couple of decades after the war had to study and pass exams in Monetary Theory and Practice, the Finance of Foreign Trade and Foreign Exchange, Law Relating to Banking and a variety of other related subjects – such as Economic Geography – in order to gain any kind of promotion. I for one was quickly informed by a more senior colleague, in my first year of working in the City of London, that I must understand how clearing banks created money. Yes, really!
I was a contemporary of none other than a certain John Major. I didn’t know him personally, obviously. His Cabinet Office staff once informed the press, when asked what Major’s degree was in, that he had a “correspondence degree in banking”. He’d simply passed all of those Institute of Bankers exams, like thousands of us, by studying at evening class in South London and doing correspondence courses where necessary.
These exams were phased out in the 1990s, I seem to remember. The Institute of Bankers no longer exists. Draw your own conclusions.
I had not realised it had gone
That is very odd
But banking as it was is no longer a profession
John L’s comments ring true. During the 90s and early 2000s all those trained and experienced bankers were eased out. The ones that understood the needs of personal and business customers. Replaced by traders and generic finance staff, there just to sell profitable products for the bank, regardless of the customers needs or products suitability.
It is a problem for the country as we no longer have a banking system that serves the economy. They have become parasites. Talk to any SME about trying to get support from banks. It is a killer for investment.
I alerted Richard to this having found it in another blog.
Whilst trawling through the DMO’s website I also happened upon a spreadshhet that shows who owns gilts, which I downloaded and noticed that it specifiied that £154 billion are owned by the government excluding those owned by the BoE and the DMO. I then emailed a FOIA to the DMO asking why the government owns its own gilts. The response was that they have been bought as the result of the activity of the Commission for the Reduction of the National Debt (CRND). Googling it I found this body (which is chaired by the Chancellor) was formed by a late noneteenth century Act, but it had not convened for decades until recently. They are now buying up UK gilts. But it further begs the question as to how buying up gilts would reduce the National Debt unless they plan to cancel them. I have put this further question but have not yet received a response.
Any ideas?
I think these are DMO owned for open market operations. Might you share the spreadsheet? These are not in national debt, as I showed on 23/12.
They’re not owned by the DMO because it specifically says not.
You can find the spreadsheet at https://www.dmo.gov.uk/data/gilt-market/gilts-in-issue/ then clicking on “Gilts in issue”. I happened to come across it when researching something else and it drew my attention.
Nigel
I have tried to find what you are referring to and simply cannot
Can you send me a screen shot?
Richard
“Talk to any SME about trying to get support from banks.”
Banks aren’t really in the risk capital business. UK SMEs should be funded with risk capital from investors (like our USA cousins) and not loaded up with debt !
That’s fine and dandy, but I’m talking about basic working capital. And most SMEs are never going to get into equity. Especially when they can’t even get the basic support to enable them to grow to that point.
When they do get to that stage, they are in the hands of vulture capitalists whose only interest is getting in and out with maximum profit. No interest in growing the business long term. All too often those innovative businesses then get sold off to overseas buyers.
You understand it Robin
I will make a short submission.
Will carefully study each item and submit responses. My first impression is that there is a lot of mumbo jumbo here.
The most fundamental question which needs asking but you can guarantee won’t be asked and answered in the House of Lords committee (because we have faux democracy in the United Kingdom) is that a careful examination of British history reveals both the state and private sector licenced banks create money in single currency form from nothing or thin air if you prefer. Most importantly the answer from history reveals that for stable markets to operate the state must be the originator and regulator of this currency and therefore believing the shallow Neoclassical/Neoliberal economic nostrum “market good/state bad” is the belief of poorly or deceptively educated individuals!
Make the point….
Send it in
I’ve got a feeling it’s only the central banks which create currency ex nihilo, while the High St banks create it in return for acceptance of a loan agreement/promissory note/IOU of sorts. I’ve found myself arguing with online nitpickers lately who will insist on this distinction being made and, given the gravity of what we’re about here, perhaps we should be making that distinction too.
The circumstances are, of course, different
The topic suggests some very basic questions that I hope they address rather than assuming they already know the answers:
* what are the components of the so-called “national debt” – coins and notes, national savings, bonds, pension liabilities, etc – and how much of each
* who is all of that owed to (and for example to what extent is an amount that the left hand – at the Treasury – owes to its right hand – nominee at the BoE APF – “debt” at all)
* how much does it “cost” to service each year (and how much of that is voluntary payments on central bank reserve accounts, and how much notional amounts on index linked bonds that will not become due for many years). What does “cost” even mean when bonds are repaid by issuing more bonds, and “cash” is just another form of public debt.
* what does “sustainable” mean? (Bonus marks for considering if it was “sustainable” to prohibit the slave trade and then slavery, or fight the first or second world wars. Is it “sustainable” for us to fail to deal with the consequences of climate change?)
* can we in fact afford to do anything we have the human and physical resources to actually do? (The rest is allocation and distribution. And political will.)
Good points
Get them in…..
Perhaps some questions that always comes to my mind are:
1.) Who buys Government Bonds?
2.) Why do they buy these bonds?
3.) If they couldn’t buy Government Bonds (because we were reducing so called Government debt), where could they store money that was completely safe and secure?
4.) If we wanted to reduce Government debt should we stop selling all premium bonds (perhaps even refund them) and all national savings?
Do these make sense?
If premium bonds were refunded then this would increase the money in CBRAs, or the cash in circulation if refunded in cash, and so, presumably the national debt would remain the same.
It seems to me that as it is more important what the balance of the various components is than its precise size.
Interesting view….
Interesting point
Is it worth starting with a query about whether GDP is ‘real’ ie, valid and independently calculated, or is that measure set in stone?
That is a good one….
Why is Prem not on the committee, but Mervyn King is?
I suspect he is too awkward
Further perspectives on the National Debt might be gained from reading Hugh Dunthorne’s “Britain and the Dutch Revolt 1560–1700” “… Britain’s so-called financial revolution was distinctive too. It is true that the establishment of the Bank of England in 1694 and the introduction of a national debt funded by parliamentary taxation caused some observers to complain, rightly, that the country was being taken over by what they called ‘Dutch finance’. There was indeed a broad similarity between the system of long term public borrowing pioneered by the Dutch during their war against Spain in the sixteenth century and the one introduced into Britain by William the Third in order to fund the Nine Years War against France. Dutch investors were prominent among those subscribing loans to the British state at this time, as well as in the insurance market and on London’s stock exchange.”
Let’s peer into “The Political Economy of Nation Building: The World’s Unfinished Business” by Mack Ott; “The world’s first central bank was established by Sweden, the Riksbank in 1668, but the Bank of England was next in 1684. Both embodied the notion of ‘Dutch Finance,’ the dedication of specific government revenues to service debt issues… The first application of Dutch Finance in William’s financing of his Continental wars occurred in 1693 when Parliament passed an act to borrow £1million with excise duties dedicated for ninety-nine years to fund servicing of the debt. There were two innovations in this finance: First, principal would not be repaid, and lenders would only receive monthly interest payments. More generally, the principle of ‘interest-only payments’ became the cornerstone of English fiscal finance in instruments known as consols. Second, Parliament was the guarantor, not the Crown, and the adequacy of the pledged tax receipts was anticipated to make the issue attractive. These new features were unfamiliar, and since there were at the time no secondary markets, the 1693 issue was not fully subscribed; however, the act also allowed for life annuities to cover the amount not taken up, and those annuities were quite popular and were quickly taken up completing the successful issue. This was the first instance of the new Dutch Finance in England – that is, long-term finance with dedicated tax revenues to fund its servicing with arrangements guaranteed by Parliament, not the Crown. As such it was one of the first and most lasting benefits of the newly established constitutional monarchy of England. This financing marked the beginning of England’s permanent national debt, and its success led to even more revolutionary changes in the government’s finances in its next borrowing for war funding in 1694.”
Readers may be reminded by the acceptance of the newly created national debt as a permanent feature of the nation’s financial landscape that it isn’t some horrific and freakish occurrence; it’s actually supposed to be there.
(I had this material handy.)
Thanks Bill
I may have got this wrong. The Government/BoE is the insurer of last resort against banks failing. Where are the premiums that banks pay for this insurance? Is the interest on central bank deposits the equivalent of my home insurance company paying me for the privilege of insuring our house? If central bank deposits are partly equivalent to insurance premiums, should they be counted as part of national debt?
The government pays them ibnterest on CBRAs
They are not insurance
These balances are the equivalent of being given a million by your bank and they then pay you interest on it
That is how bad the system is
I think I will bring up the question of how Japan manages to survive with a national debt of 263% of GDP (as ofMarch 2023).
Speaking of the Japanese experience, Stephanie Kelton refers to it in a recent interview here
https://jacobin.com/2024/01/stephanie-kelton-monetary-theory-economy
while Bill Mitchell (also recently) goes into more detail here:
https://billmitchell.org/blog/?p=61510
Thanks, I will take a look at them.
I could only see how to respond using the email given -and have done so- from my limited knowledge but recommending a modern monetary theory approach
and that Richard Murphy be brought in to advise.
Thanks
The submission process is a bit confusing… at the footer on the Call For Evidence page there’s a blue button marked Start which begins the process but frankly doesn’t standout at first glance. You’ll want to have your Word docs handy before beginning submission of course…
All I’m going to ask is who does the nation owe the money to?
And where is the any contractual obligation to pay it back?
And what – if there are any – the consequences of not paying back?
If the nations owns the BoE anyway, then what is the problem? The nation is its own money supply since the 1600s.
The nation owes the money to itself to the point where the national debt is just a record of the nations spending.
What they should be looking at is tax – especially if they are bothered about inflation – and all the spare money floating around that that would soak up.
And as for calling people’s savings with the Govt’ ‘a debt’ – well that’s not really on is it – this was only ever the storage of other people’s money and should not be in the same accounting group surely?
This subject reminds me of the games being played by private finance.
They want to turn a state power into a liability instead.
This way they can justify their narrative of the state pushing out the private sector but also enables them to capture the sovereign fiat currency for their own benefit (bail outs / a nice fat juicy CBRA plus being paid to use it as an incentive not to blow up the world again) – this is nothing but a war on sovereign state money in all but name where the rest of us apparently can just go to hell as far as they are concerned.
Loadsamoney for the rich.
Buggerallmoney for everyone else.
The other thing to say about the ‘national debt’ is of course the interest rate debacle but look at what dealing with Covid and BREXIT did to our finances. Is the government really that serious in not seeing this as one off expenditures to deal with crises and going to call that expenditure a debt and have it hanging over us to justify further spending cuts?
So what happens then when we have the next pandemic? Talk about backing us into a corner.
Because if that is so, this is NOT the traditional behaviour of a central bank.
It’s the behaviour of a commercial bank of creditor who just happens to make money out of someone’s loss with huge knock on consequences for the people of this country.
I’d add to PSR’s questions.
What if the holders of national debt don’t want it paid back to them?
I’ve mentioned before the indignation of Premium Bond holders when I suggested that the government might refund their original purchase money in order to pay off the national debt. They don’t want it back, they want the possibility of a nice win.
Would holders of national savings accounts want their money returned to them?
Likewise the holders of government bonds?
Is there a genuine reason why the ‘debt’ should be reduced? If there is, why does the government go on offering bonds and savings vehicles?
I find this all a bit bemusing…
I think thsoe two are the perfect places to start the debate
Largely distractions I’d think, while serious metrics like public wellbeing are side-lined, ignored.
I’m looking at the PDF for the ONS Public sector finances, UK: November 2023 which I’m doing as Public Sector Net Debt seems to be how the Committee are defining the National Debt for the purposes of this enquiry. I’m puzzling over what the following might mean “Excluding the Bank of England, debt was £2,418.6 billion, or around 88.3% of GDP, £252.8 billion (or 9.2 percentage points) lower than the wider measure.” and while I suppose I’ll figure it out, it occurs to me that this entire exercise is all about misdirection, drawing participants in to some fantasy world made up entirely of figures which we endlessly debate while all around wretches crawl around in the debris… I think answering in expected terms might be losing in that it’s playing the game as it’s dictated by those content they’ve already won it. Anyhoo, I could use a quick rundown of what these mean in English (if any bloggers handy feel up to this course 🙂 )
• Public sector net borrowing excluding public sector banks (borrowing) in November 2023
was £14.3 billion, £0.9 billion less than in November 2022 and the fourth highest
November borrowing since monthly records began in 1993.
• Borrowing in the financial year-to-November 2023 was £116.4 billion, £24.4 billion more
than in the same eight-month period last year and the second highest financial year-to-
November borrowing on record.
• Public sector net debt excluding public sector banks (debt) was £2,671.4 billion at the
end of November 2023 and was provisionally estimated at around 97.5% of the UK’s
annual gross domestic product (GDP); this is 1.8 percentage points higher than in
November 2022 and remains at levels last seen in the early 1960s.
• Excluding the Bank of England, debt was £2,418.6 billion, or around 88.3% of GDP,
£252.8 billion (or 9.2 percentage points) lower than the wider measure.
• Public sector net worth excluding public sector banks was in deficit by £714.6 billion at
the end of November 2023; this compares with a £561.0 billion deficit at the end of
November 2022.
• Central government net cash requirement (excluding UK Asset Resolution Ltd and
Network Rail) was £17.4 billion in November 2023, £8.1 billion less than in November
2022.
See my post on 23/12/23 on the natuional debt for explanation
24/12/2023 the-good-news-this-is-christmas-is-that-trillion-of-the-uks-national-debt-does-not-exist 🙂
https://www.taxresearch.org.uk/Blog/2023/12/24/the-good-news-this-is-christmas-is-that-trillion-of-the-uks-national-debt-does-not-exist/
I have long harboured a secret desire to appear on a TV political panel debate and, when some politician or other bemoans the state of our “National Debt” I would ask them who we owe all this money to.
I would demand actual names and addresses. No evasive references to “the markets” or “China” or “financial institutions”!
Just as the nation’s economy is discussed as if it,s akin to a household or a corner shop, so they also talk of debt as if it is the same as a mortgage or credit card bill for buying a washing machine.
But in a household you know exactly who you owe for what, and how much.
But no politician seems to know who it was who loaned us all this money. I am not advocating that we go round to break their windows and threaten them to stop hassling us for the money.
But I want to take their “common sense” view of the “National Debt” and see how far that gets us. If nobody can actually name any of these people……well……..how accurate is their calculation?
Perhaps a better question for the Committee to consider is ” are neoliberal economic policies sustainable”?
I will be tempted to question their premise that the National Debt is the problem to be investigated. I will not feel guilty about my grandchildren being left with any size of National Debt as by definition it is simply the money spent into the economy through the public purse that has not yet been taxed back out again, and having existed for the last 300+ years there appears to be evidence that it is sustainable. What I will feel guilty about is leaving them infrastructure and social support systems, which my generation have benefitted from, in such a state of decay.
Agreed
I’m not an economist. Or a banker. Just a concerned citizen. I feel the national debt should reflect the so far unquantified debt we owe to the planet and many of its people’s. The gross over-extraction of resources and unsustainable trashing of the natural world should be acknowledged as a debt that needs repaying. £28 billion a year is peanuts in comparison. Likewise the miseries and death that our foreign policies have wrought.
Not sure whether this is useful – just feel it needed to be said.
But, that debt cannot be paid, can it?
Reparations?
To whom?
The planet?
In a very readable but highly reserached paper by a double PHD author, the question of national (and private) debt is addressed by looking at the advantages and disadvantage of monetary advocacy groups including MMT https://www.scirp.org/journal/paperinformation.aspx?paperid=87125
A Synthesis of the Chicago Plan, Sovereign Money, and the Modern Money Theory
While having good things to say about MMT, synthesizing the three groups would address MMT’s majore weakness:
“More mainstream post Keynesians have pointed out that the role of private banks in creating money is not covered well in MMT ( [33] [34] , p. 19). This is an important issue, since the MMT emphasizes the view that the government has a monopoly to create money, which however is not the case in reality. It is even more confusing that the MMT makes this argument in the context of post Keynesianism, which believes in its core in the endogenous money theory [35] . The advocates of MMT have replied to this criticism that they tried to add the state to the mainstream post Keynesian analysis ( [25] , p. 2). And this is possible, because private banks “cannot get hold of [state money] for clearing (or, to meet reserve requirements) unless the state lends or has spent [state money] into existence” ( [25] , p. 3). This, however, sounds like the money multiplier theory and not the endogenous money theory ( [33] , p. 61; [35] )―an interpretation, which is strongly rejected by Tymoigne and Wray ( [29] , p. 36f). I have to admit, I am confused too. MMT cannot be applied in an economy that allows endogenous money creation, because the state has no monopoly over the money supply. Unfortunately, it can also not be applied to an economy that gives the private banks the permission to multiple state money, if the state does not close the loopholes to go beyond the reserve requirements: securitization.”
Joe
I got to the abstract
And there I read that the author thinks we have fractional reserve banking now
We don’t. We have nothing like it. The claim is utterly discredited as noted here, often, and by central banks frequently.
No wonder he can’t work out MMT in that case.
This looks to be total nonsense by a very poor scholar.
Richard