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Two Surefire Ways to Stimulate the post-COVID Economy
Eliminating the VAT until December 31 would stimulate the UK economy so much that by 2021 the economic hit from COVID-19 would be completely reversed.
Prior to July 08, 2020 the VAT in the United Kingdom was 20% on most items. However, the government sought to stimulate spending in the tourism sector by lowering their VAT to 15% on most items and admissions. Which was a bit underwhelming. To say the least.
I understand that the present UK government is Conservative-led and that caution rules their thinking, but a 5% cut to the VAT is nothing. They might as well not bother as it’s likely to have little effect.
Yes, they’re concerned about driving up the deficit in a (perhaps) uncertain economy. But let’s not feed that uncertainty by underwhelming the credit rating agencies!
Uncertain times call for CERTAINTY, not TINKERING with the economy.
Even Canada, a Country of 38-Million People Saw Fit to Run a $256 Billion Deficit to Assist Canadians
By contrast, the UK government which leads a country of 67-million people has cringed at running a deficit of £361.5 billion. That’s too little, too late, I’m afraid.
UK public borrowing to exceed £350bn with Sunak stimulus plan (FT.com)
To run with Canada and other Western nations in the post-COVID economic recovery period, the UK must do better than that!
Basic arithmetic will tell you that to meet Canada’s level of committent to its citizens, the UK with 67-million people would need to spend £451 billion in 2020.
That’s real money, delivered into the hands of Britons and British businesses to be spent in the UK economy to restart the UK economy.
Really, at this point, there’s nothing more important than restarting the UK economy; Debt-to-GDP and the present deficit are unimportant next to restarting the economy.
Rishi Sunak — nice person that he is — has listened to too many Conservative MP’s and not enough to economists, citizens, and the UK business community.
Normally, it would be a fine thing that a Chancellor of the Exchequer would pay such close attention to MP’s, as it signifies that the Chancellor is a good listener, but now is not the time to listen to overly-cautious (non-economist) Parliamentarians… now is the time to act boldly!
Regular Readers Know I Complain about Deficit Spending
But I only complain because, historically speaking (some) governments were just too lazy to oversee every pound spent in the economy and thereby engaged in deficit spending even when the economy was rocketing along with a high annual growth rate. And folks, there’s no excuse for that. It’s lazy bookkeeping and governments should be tossed from power whenever they fall below that level of fiscal responsibility.
The reason we need to be prudent with our spending during the boom times is so that we have some economic room to manoeuvre when things hit the fan, as they invariably do from time to time. Such as during Coronavirus, such as during the US subprime mortgage crisis, during times of high unemployment, or times of labour strife. And that’s the whole point of this blog post.
Governments need to be fiscally responsible during the boom times so there’s money to deal with things like Coronavirus.
Former Chancellor George Osborne was exceptionally prudent during a time of crisis (and unfairly) wasn’t able to retain his position long enough to enjoy the good times when they returned. He surely would’ve made the best of it — but was on the wrong side of Brexit — very unfortunately for him, and for the UK.
And unfortunately for Rishi Sunak — who is an easy person to like — he’s trying to please Conservative party stalwarts instead of trying to goose the economy to the same level as the UK’s competitor nations. And while we all like Rishi, that doesn’t work for him.
Please, Mr. Chancellor, put the UK’s stimulus spending to the same per capita footing as other Western economies to allow the UK to rocket out of the economic doldrums like an F-35 taking off from the deck of the HMS Prince of Wales… So important!
The Easiest Way to Stimulate the Economy…
Is by ‘topping-up’ the income of every adult British citizen in the UK to £1250 per month via a reverse income tax — thereby instantly replacing every other (overlapping and prohibitively expensive to administer) anti-poverty programme that poverty-stricken people receive assistance from in the UK, and that ‘top-up’ should also include any senior citizen who lives under the official poverty line in the UK.
For those earning over (approx) £20,000/yr. those people wouldn’t receive money from such a programme.
But for those living under the official poverty line amount, their income should be topped-up to £1250 per month in one payment from HMRC. And every pound sterling of that money will be spent in the local economy allowing that person to live and be ready to work when the economy improves, meaning 100% of that stimulus money will be spent in the economy.
Which is quite unlike when the government hands billions to corporations, where 50% of that stimulus goes straight to shareholders, many of whom may not live in the UK, spend money in the UK, nor retire in the UK. Therefore, half of any (corporate) stimulus money the government hands to corporations flies out of the UK never to be seen again. And that should be illegal. Certainly, if taxpayers knew the extent of this since 1950 there’d be a civil war.
The Coronavirus Economy NEEDS a Guaranteed Basic Income NOW! (LetterToBritain.com)
But my plea to the UK’s excellent Chancellor isn’t about plugging that particular loophole (yet) it’s about spending another £100 billion in the economy to better compete with other economies so the UK doesn’t get left behind in 2021 — and putting real money in the hands of Britons who will spend 100% of that money in local UK economies, instead of the government helping to make foreign shareholder returns more generous.
With the greatest respect, Mr. Sunak, it’s over to you!
The Coronavirus Economy NEEDS a Guaranteed Basic Income NOW!
Well, it appears that Coronavirus returned with a vengeance this week, just as I predicted.
The reasons for it’s return are both simple and complicated, and those reasons are; ONE: In the early days of the COVID-19 pandemic Western governments sat around waiting for someone to tell them what to do, and when someone didn’t, they sat some more, allowing the Novel Coronavirus to spread to thousands of people, who then infected many more thousands of people.
Mind you, once medical professionals told Western governments that Coronavirus represented an existential threat to their countries, they moved quickly to direct citizens towards healthier choices such as ‘social distancing’ and the wearing of PPE’s whenever they left their homes and only essential service workers were permitted to travel to and from work. Both modalities were surprisingly effective in reducing further airborne transmission of the disease.
TWO: A good example of the complete lack of personal responsibility shown by some is represented in the photo below, taken only days ago when the COVID-19 alert threshold was lowered (slightly) and thousands of people (who obviously AREN’T healthcare professionals) mobbed the beaches, disregarding the recently relaxed Coronavirus social distancing rules.
Bournemouth beaches under slightly relaxed lockdown rules. Image courtesy of SkyNews.
Consequently, the huge sacrifice made by millions of Britons staying home under lockdown for two months may be in vain!
And many may now catch the disease and perhaps die because a number of Britons lacked the personal discipline to adhere to the (recently relaxed) Coronavirus social distancing requirements!
Let’s hope it turns out that by sheer dumb luck only small numbers of Britons will subsequently catch the disease and suffer or even die on account of the irresponsible actions of those beach going Britons.
Why the UK Needs a Guaranteed Basic Income for the Coronavirus Economy
Due to initially slow response by Western governments (but see the effective response to COVID-19 mounted by South Korea here) and due to the lack of discipline shown by some Britons, it looks like Coronavirus is here to stay for the next two years. At least.
Not only that, but there WILL BE another COVID variant arising this year or next that may prove deadlier than the present Coronavirus pathogen. It’s typical of respiratory viruses that they mutate and those mutations often become more effective at terminating the lives they infect. ‘Nature of the beast’ as they say in virology labs around the world.
So, the economy can’t continue to be locked down and survive Coronavirus indefinitely. It needs real money to be earned, spent, taxed, and reinvested in the whole economy every day of the year.
Consequently, when large numbers of people aren’t working during the COVID-19 lockdown, money stops flowing and businesses begin to die. And that’s terrible for the economy. And it’s even more terrible for individuals who live from paycheque to paycheque as their cash and ‘fridge contents dwindle for as long as the crisis continues.
That’s why it’s no surprise that many headed to the beach over the past few days to gain respite from the living hell they experienced over the past weeks.
See how things are so connected? Demographers see it everyday.
To stabilize the economy and to prevent irreparable harm to persons during this and future Coronavirus lockdowns, the UK needs to institute a Guaranteed Basic Income
Handing huge amounts of taxpayer money to corporations isn’t the answer, as 50% will always and automatically be skimmed-off to add to annual profits and be thence distributed to shareholders — many of whom AREN’T UK citizens, don’t pay taxes in the UK, and may never live in the UK. Which isn’t any kind of pathway forward for the UK economy. So forget that plan.
Putting real money in the hands of Britons is the way forward, especially during times of lockdown, high unemployment, war, or natural disaster. By simply paying adults a minimum income, they can afford to eat, keep the lights on, and keep hope alive for their families for the duration of any crisis or emergency.
Many such facilities already exist in the UK, including all social welfare and Universal Credit spending, food banks, homeless shelters, substance abuse organizations, local charities, domestic NGO’s and foreign NGO’s operating in the UK during the pandemic.
What a GBI means to the UK economy is that all social welfare and charity gets rolled into one payments system — thereby eliminating the many parallel and overlapping programmes that were designed with the best of intentions to, (1) mitigate the effects of poverty on Britons, and (2) alleviate the sudden and unexpected poverty caused by local crises or national emergency.
It means keeping people alive until the crisis has passed (yes, it’s that dire in many cases) so that Britons can then pick up and carry on with their lives after the crisis and once again contribute to the wider economy.
Who Should Get It?
Every adult UK citizen (including senior citizens) who live in the bottom economic quintile and (a) thereby earn less than the annual official national poverty line (about £20,000/yr in the UK) or (b) any adult UK citizen temporarily affected by local crises such as flooding, or national crises such as pandemic, war, or other emergency situations that cause them real hardship; e.g. no money to buy food or find shelter, should automatically be eligible to receive GBI payments.
Non-citizens shouldn’t be eligible for a UK GBI, but should be able to (easily) access enough funds from the UK government to safely transport them back to their country of origin, allowing them to return to their home country until the crisis is over. E.g. A one-time payment of £1250.
How to Pay GBI to Citizens
The best way to pay a Guaranteed Basic Income to UK citizens is, of course, the easiest way. And that is via a reverse income tax, which simply means the UK government issues a monthly credit to individuals via their personal HM Revenue and Customs account to top-up their income to £1250/mo. for as long as they earn less than the official annual poverty line amount in the UK.
As HMRC knows exactly how much you earn due to your most recent income tax form, it’s a simple matter for them to credit your HMRC account to top you up to £1250 for that month and transfer it to your bank account via online banking. Some people may choose to allow HMRC to do this automatically, while others may wish to manually log in to their HMRC account to choose the date they want their GBI deposited into their bank account.
Some may wish to have their GBI payment deposited to their PayPal account. That should be OK too.
UK GBI: Reducing Government Overhead Costs, Supporting Low Income Britons, and Supporting Britons Hit by Natural Disasters/Pandemic, Etc.
Instead of today’s many overlapping and expensive government programmes, some with HUGE overhead costs, a single-payer system would put more actual money in the hands of Britons living below the official poverty line at a lower cost to taxpayers, and to more easily assist Britons during emergencies, again, at a lower cost to taxpayers.
How could it cost less when even more people are likely to receive a GBI, than presently receive Universal Credit?
By eliminating the many costly and overlapping anti-poverty programmes using the single-payer system (HMRC’s payments system) and by dramatically reducing homelessness, drug abuse, property crimes, policing costs, court costs, incarceration costs, mental health costs, and reducing NHS cost of (repeatedly) caring for homeless people or (repeatedly) caring for those injured while engaging in property crimes offences, or who (repeatedly) engage in confrontations with law enforcement, due to the nature of the poverty-stricken life they lead.
Read: Canada’s forgotten universal basic income experiment — BBC Worklife
A UK GBI Improves the UK’s ‘Velocity of Money’ and Therefore, the Whole Economy!
Economists call the speed of the transfer of money from one person to another, the ‘velocity of money’ and it’s a fascinating thing to examine. But to explain it properly, a short video is required to demonstrate how relatively small amounts of money can revolutionize a village, town, city, or rural area…
Now, for a more detailed look at the velocity of money, see Doug Andrew’s excellent example on the topic of how money really works, which refers directly to the ‘velocity of money’ — also known as MV = Py to economists.
FYI – All these examples are sans tax as they’re simple examples designed to demonstrate how velocity of money works.
But in the case of government stimulus — whether government stimulus paid to corporations (a corporate subsidy, or corporate welfare) or paid to individuals as part of a GBI (a personal subsidy, or personal welfare) every dollar or pound sterling of that stimulus (subsidy) returns to the government via taxation within 11-years — and the government is only ‘out’ by the amount of interest paid on the money they injected into the economy 11-years prior. And that’s why you pay taxes…
By the way, your taxes don’t pay for the full amount that the government lends to the economy, you’re paying tax to cover the interest on the money the government lends to the economy. If it wasn’t done this way (so-called ‘Cost of Use’ of money) your taxes would be much higher.
Therefore, British taxpayers don’t pay the full cost of social welfare programmes via taxation, they only pay the interest on the amount loaned to the economy by the government over that 11-year period.
Now, here’s a secret: Since I took my economics education (U.S.A. circa 1991) that 11-year repayment statistic has decreased to 4.3-years (U.S.A. stat roughly similar to the UK statistic) because the velocity of money has increased so dramatically since then. Ask any economist.
Therefore, the huge cost of homelessness, property crimes, policing costs, court costs, incarceration costs, property and vehicle insurance costs, medical costs, etc., to the economy will always be many times more… than the cost of 4.3-years worth of interest payments on money loaned to the economy by the government to solve those problems! Which means, that after 4.3-years (or thereabouts) the British taxpayer should be in for a tax break — courtesy of the GBI and a much better velocity of money factor. All of which equals a booming economy.
Conclusion: It’s cheaper to pay citizens a GBI than it is to pay for the huge costs of poverty on individuals and on the whole economy!
I love economics. Have a great day everyone!
Memo to Boris: Bulk Medicine Purchases Could Save the NHS Millions Annually
The UK’s excellent National Health Service could save millions of pounds annually if the UK government were to bulk purchase all medicine for the entire country and thereby obtain huge discounts from pharmaceutical manufacturers.
The NHS can save itself millions of pounds sterling per year by simply purchasing a year’s worth of medicines in advance, similar to what is done in Canada where the government of Canada, using their mass-purchasing power, negotiates massive discounts on medicines from multinational pharmaceutical corporations.
In Canada, each province operates its own provincial health service and pays the entire cost of it via provincial income tax, sales tax and other fees — but they couldn’t succeed without the huge price discounts that the federal government of Canada obtains from its medicine suppliers. Not only do Canada’s healthcare systems benefit from lower drug costs, but the Canadian military and Coast Guard also benefit from those lower prices.
It’s not the whole answer to solve all NHS spending problems all the time but it could be a good part of the answer.
As the NHS constantly struggles to meet the demands placed on it by attempting to treat everyone, all the time, no matter the disease, ailment or injury; Saving millions annually on medicine costs could allow NHS funding to be better spent on treatment for patients, instead of it being consumed by drug costs.
It’s not about purchasing low quality medicines, nor is it about payoffs or patronage.
It’s about deciding how much medicine to purchase (a year in advance) and thereby obtain competitive pricing from the legitimate pharmaceutical corporations in America and Europe which appreciate knowing (in advance) how much of each medicine to manufacture and (in the case of some medicines) they are willing to offer deep discounts (usually about 50% off the listed prices, but in certain cases those discounts can reach 80% off the list price) which can help healthcare providers to lower their costs.
Using the Mass Purchasing Power of the UK Government to Lower Medicine Costs
Of course, the NHS has almost certainly looked at this model in the past.
But ‘timing is everything’ they say, and in the midst of recession, austerity, or during times of political upheaval, it isn’t practical to divert millions of pounds to prepay an entire year’s worth of medicines, nor is it likely to be done without prior approval of the UK government.
However, once we move out of the Coronavirus crisis (but while there’s still plenty of well-deserved focus on the heroic NHS workers) it might be time to have a national conversation about bulk purchasing the UK’s entire annual medicinal requirements — including purchasing on behalf of all devolved territory NHS units and the UK military. The UK government would thereby become the sole wholesale purchaser and wholesale seller of medicines in the UK, even acting as the sole supplier to every wholesale medicinal distributor in the country.
It might take a bit of UK legislation for this to happen and some money, because for all it’s merits, you must still pay for an entire year’s worth of medicine in advance in order to qualify for those quite wonderful discounts.
Also, every NHS unit including NHS Scotland, NHS Wales, NHS Northern Ireland and NHS England, and the UK military and every pharmacy supplier would need to provide a list of medicines to the UK government a year in advance so they could form an accurate picture of the pending mass purchase and consequent deep discount.
Yes, it would take some work to calculate that list and perfect it over time. But if Canada (and certain other countries and militaries) can do it; Why not the UK?
The truth is that certain global healthcare systems benefit massively from volume discount medicine purchases and the UK government needs to act now to create the requisite legislation so each NHS unit can save millions, allow the UK military to save hundreds of thousands of pounds sterling, and allow pharmacies to lower their retail prices via significant cost saving on the wholesale price they pay their suppliers.
But other than the price — as everything else would remain the same — the UK must get organized so it can obtain those astonishing discounts and benefit as other healthcare systems benefit from bulk purchasing.
The NHS Will Save Multi-Millions on Medicine Costs
You’ve got to like that.
Ditto for the UK military and for retail pharmacies.
Therefore, I respectfully submit that the UK government pass legislation to create a National Medicines Purchasing Agency (or ministry) that should thenceforth operate as the sole purchaser for all (non-homeopathic) medicines for the entire UK, including on behalf of all NHS units, the UK military, and for suppliers to pharmacies UK-wide, and provide it with generous funding to accomplish the task.
The legislation should require the agency or ministry to create a continuously updated website that is robust enough that the public and medical professionals could find relevant information on every medicine sold in the country — including general information, dosages, contraindications, along with high quality images of each pill or tablet to help counter possible fraudulent imitation pills or tablets.
Further, I believe that such an agency should be set-up — not to earn a profit from reselling medicines, but to simply recover the cost of each medicine — and that should remain true whether the agency is selling to any NHS unit, to the UK military, or to pharmacy suppliers across the UK.
However, if other national healthcare systems wish to purchase surplus UK medicines, then perhaps that UK agency could offer them to other healthcare systems at cost-plus-ten-per-cent for example, or whatever seems reasonable. No favouritism, please. Just enough to maintain a zero deficit/zero profit annual budget within the national medicines purchasing agency.
Selling Medicine that is ‘Near To Expiry Date’ & Selling Other Surplus Medicine to the UK Foreign Aid Office in Lieu of Monetary Donations to Developing Nations
The UK is highly regarded globally for its foreign aid commitment of .7% of GDP. It’s one of the most generous foreign aid budgets in the world by percentage and compares well with larger countries even when measured in total currency amounts.
However, more can always be done.
And instead of dumping ‘near to expiry date’ medicines or other surplus medicine in a landfill or incinerator; By staying current with the expiry dates, the UK could boost its foreign aid spending by sending such surpluses to developing nations once those medications are down to 6-months remaining on their batch number expiry date.
Therefore, whatever those drugs have cost the UK government, by simply reallocating them to the Foreign Aid Office for transshipment to a developing nation along with a note to the Foreign Aid Office explaining how much the National Medicines Purchasing Agency (or ministry) paid for that pallet of medications, it’s a just way to increase the UK’s foreign aid budget by that exact amount. Or to top it up to .7% during lean years.
In either case, it won’t hurt to send a truckload or two of nearly outdated medicine (annually) to the developing nations that need them and include those donations as part of the UK’s foreign aid spending.
It’s a ‘Win-Win’ when you bulk purchase an entire country’s worth of pills annually and thereby receive astonishing discounts from multinational pharmaceuticals, it’s ‘Win-Win’ when each NHS unit never again runs short of medicine and only ever pays the deeply discounted wholesale price, it’s ‘Win-Win’ for pharmacy suppliers that benefit from a much lower wholesale price than they could ever hope to negotiate themselves, the UK military wins by having lower cost medicine for its personnel, and it’s a ‘Win-Win’ for the UK foreign aid budget/developing nations.
And all that, just by getting the UK organized on its total annual medicine purchase.
Who knew?
Letter to Britain 