Public spending helps to grow the magic money tree

This is an edited version of  blog posts on the 999 Call for the NHS website.

Properly funding the NHS and social care benefits the economy. As National Health Action Party member Naveen Judah stated at the first Save Our A&Es public meeting in Halifax in March 2014, NHS spending has a “multiplier effect” – so that for every £1 of NHS funding, more recirculates in the economy.

When the government pays for public services it puts money in the pockets of public employees, who spend it in shops, on rent, on holidays – in short, in the private sector. It also fills the order books of the private sector – with railway lines, and light bulbs, books for schools, hospital equipment….

At just about every stage that the money changes hands, tax is paid back to the government.

The Body Economic: Why Austerity Kills – a study  by Dr David Stuckler and Dr Sanjay Basu – found that the multiplier effect for health spending is greater than 3 – so each £1 generates at least a £3 return. And a study by the Joseph Rowntree Foundation for the Kings Fund, Tackling poverty: Making more of the NHS in England, estimated the multiplier on healthcare spend at 3.6.

So-called “austerity” is about dismantling the welfare state

Since Austerity Kills, why would any government enforce it?

The 2008 financial sector collapse was the shock that enabled successive UK governments to cut spending on public services – justifying it by phony “tax and spend” myths.

The ConDem and Conservative governments have inflicted onto the public the huge costs -at least £1trillion – of bailing out the banksters  whose unregulated greed and criminality caused the 2008 financial crash. The poorest citizens, in the poorest regions, are being hit hardest.

This rescue package was equivalent to around 3/4 of the size of the entire GDP of the UK economy.

Having bailed out the banksters, Gordon Brown’s New Labour government then brought in the American consultancy company McKinsey to tell it how to cut NHS spending. McKinsey duly set out the cuts proposals that have led to NHS England’s 5 Year Forward View and the Sustainability and Transformation Plans.

Small wonder then that the 2017 Labour NHS Manifesto – the responsibility of Shadow Health Secretary Jon Ashworth, formerly a special adviser to Gordon Brown when he was Chancellor – continues the tax and spend myth.

Reject “tax and spend” myths about the economy

Before the June 8th election, the Cambridge economist Ha-Joon Chang called on voters to reject “tax and spend” myths about the economy that the mainstream political parties are still hung up on.

These myths create the delusion that there is an inherent virtue in balancing the nation’s books.

There is no inherent virtue in balancing the nation’s books – it depends on the circumstances.

If government cuts public spending, it shrinks the economy. The effects are to stop putting money in the pockets of public employees, who stop spending it in the private sector; and to stop filling the order books of the public sector.

As Ha-Joon Chang explains,

“ in an overheating economy, deficit spending would be a serious folly. However, in today’s UK economy, some deficit spending may be good – necessary, even.”

This is because the economy is stagnating – although this stagnation has been masked by “an oceanic scale” of personal debt, funded by banks that have excess cash to splash around.

Contrary to the “austerity” lie, the UK welfare state isn’t especially large.

In 2016, the British welfare state (measured by public social spending) was 21.5% of Gross Domestic Product. This is barely three-quarters of welfare spending in other comparably rich European countries.

Nor is welfare spending a drain on the nation’s productive resources that has to be minimised

A lot of welfare spending is investment that pays back more than it costs, through increased productivity in the future.

Expenditure on education (especially early learning programmes such as Sure Start), childcare and school meals programmes is an investment in the nation’s future productivity. So is investment in the NHS – an unhealthy population is not going to be a productive worksforce. Unemployment benefit, especially if combined with good publicly funded retraining and job-search programmes, such as in Scandinavia, helps people to hang onto their health, self-respect and skills that would otherwise be lost.

Nor is tax is a burden.

In return for paying taxes, we get public services, from education, health and old-age care, through to flood defence and roads to the police and military.

If tax really were a burden, as Ha-Joon Chang says,

“…all rich individuals and companies would move to Paraguay or Bulgaria, where the top rate of income tax is 10%. Of course, this does not happen because, in those countries, in return for low tax you get poor public services…

Japanese and German companies don’t move out of their countries in droves despite some of the highest corporate income tax rates in the world (31% and 30% respectively) because they get good infrastructure, well-educated workers, strong public support for research and development, and well-functioning administrative and legal systems.”


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