Nearly a decade of austerity has put the UK economy in a sorry state. Wages have grown at their slowest rate since the Napoleonic Wars. Public services are stretched to breaking point, household debt is at near-record levels and we’re facing a sharp rise in inequality.
As the stagnation in growth and living standards continues, more and more people are asking, what has it all been for?
We’ve all heard the simple sayings our politicians fall back on to justify the spending cuts:
“We must live within our means.”
“We need to tighten our belts”.
“There is no magic money tree.”
However, when we take a look at the evidence, we quickly see that these statements are very misleading. Austerity is all politics, no economics. And to understand why, we need to look deep into the heart of our financial system: the Bank of England.
Since 2009, the Bank of England has created £435 billion of brand new money, and it used that money to buy masses of government debt from the private financial sector. This scheme, known as Quantitative Easing (QE), prevented the UK’s whole economy from grinding to a halt after the global financial crisis in 2008.
But the Bank of England is a public institution. In fact, the Bank of England’s equity is legally held on the Treasury’s behalf, and the Bank of England pays a significant amount of the profit it makes to the Treasury as well.
Right now, the UK government owes around £1,777 billion in debt. But £435 billion of that debt is owed to the Bank of England, which is a part of the UK government. This means that 25% of the government’s entire national debt has been taken out of the system, and replaced with newly created money.
So if the government can simply swap debt with new money in a time of crisis – using the power of the Bank of England – why do our public services face harsh funding cuts? Why are we struggling to fund a transition to a green economy, and avoid catastrophic climate change? And why are we putting the needs of the financial sector before the needs of everyone else?
The shocking answer is that austerity is nothing more than a political choice excused by bad economics. It’s a moral fable that uses the language of unpaid debts and sensible money management to provide a smokescreen for a wrongheaded and harmful political agenda.
Apparently the Bank of England can create money to save our big banks and financial businesses from bankrupting themselves, but if the people ask for the new money to support ordinary people, pay for our NHS, or invest in a green economy, we’re asking too much. And when we take into consideration the general lack of understanding our MPs have about the money and banking system, the notion that austerity policies are based on sound economic arguments rather than political ideology completely falls apart.
There’s no excuse for the system to stay like this. We have to change the way we think about banking, government spending, and even money itself. And to do that, we need to create a new frame: a shared language and better understanding of the government’s powerful role within our money system. That will empower us to move away from the politics of scarcity, and towards radically positive solutions.