Thanks Steve
There is in the departments that touch on pensions (and it’s more than HMT and DWP) a malaise at this moment because Government is failing to show a direction. Steve Groves would have Government cut back and so would I, there is too much in Brighton, to a lesser extent in Stratford and the productivity of the DWP has been, until this summer – dire.
But if you talk to civil servants – and we heard a senior one speak on our coffee morning this week – you will hear a direction they are going which they have been given by Torsten Bell over the Bill and over CDC – we are yet to see the secondary legislation to make it happen on the Bill side but we are getting master trust CDC (UMES) in 2027 and a roadmap for the Retirement CDC by the end of 2028.
In short, we are seeing an improvement in the DWP and its Pension Schemes Bill is making its way through parliament as quickly as could be hoped for. To suppose that the rest of Government is under new management is a bit of a leap but I would say that the DWP and its regulator TPR have some direction – that’s fair. Give them a chance.
I don’t know where Steve’s chart is from but it makes sense from experience, we have nearly a thousand in the Pensions Regulator and it is not productive, but compared with the administration of the NHS and the management of immigration, it is not a big deal. We have to live with it and the Treasury does not manage problems like these through the budget.
Seve Groves is right, we need a business style approach and it is harder for a Labour Government to make changes because of its history and because it is still funded to a degree by unions.
So he will be on the side of Conservatives and most likely Reform UK in demanding a cut but that is not what we voted for last year. We may have thought we had bought Blair Pt 2 and we have not got Blair and Brown (yet). But we have a long way to go with this Government.
Reading through the comments of those he reaches out to (Tom McPhail is openly on the side of Conservatives) , I hear a frustration.
And from another right wing friend, Laurie Edmonds
This goes back to the election and I wonder if it’s helpful to carp from the side when at least in our world- the world of providing regular income to most people, we are getting on with it.
The Government has worked out that it cannot weaken its position with employers still further by implementing the 2017 AE reforms on top of the NI changes in 2024 and that “get real” means making the most with what we have by way of AE workplace savings plans and a means to collect contributions from employers and employees.
There is a lot of stuff that Torsten Bell can’t focus on and he’s given that Jeannie Drake and team to come up with suggestions for another Government. Right now Bell is proving himself in the Treasury and – supposing he can get a Budget out of last week’s mess – he will have done something that is pretty good for a Junior Minister of Pensions.
So to repeat a phrase I used of another friend (Darren) – “shut your pipe Steve”. There is not much we can do to manage Government through the Budget and that is the matter in hand. We have a job in hand to get the Pension Schemes Bill an Act by early next year and we need a CDC roadmap that is met.
Our job is to travel using the Roadmaps, if we don’t then we will let the public down and miss an opportunity. We may be appalled by ineptitude, which Government admits it is displaying, but this kind of thing happens.
I support a productive Government . I support Torsten Bell. Public and Private sectors need to travel down the mapped roads together as we can.
We must work with the Budget’s outcomes – get on with this Pension Schemes Bill and what goes with it.
We seem to have two opposing economic perspectives in today’s blogs: private sector bosses typically advocate for cutting government spending to encourage private investment and reduce deficits, while proponents of modern monetary theory (MMT) would argue that governments with their own currency can spend or lend freely, as their spending creates money and is constrained by real resources, not finances.
MMT economists suggest that if government spending leads to inflation, the solution is not to cut spending, but either to reduce private sector demand through taxes or increase government spending on public services.
A Keynesian critique of Modern Monetary Theory (MMT) would argue that MMT oversimplifies the relationship between government spending, inflation, and economic stability, particularly by underestimating real-world constraints.
MMT’s view of money and government finance seems naïve, failing to recognise the importance of money scarcity and the real limitations of government budgets, which MMT downplays by treating currency creation as a simple answer for everything.
MMT has potential for creating instability through its policy recommendations, especially the neglect of international constraints like the balance of payments and exchange rate issues.
It seems to take an over-optimistic view of government power.
Keynesian theory, even when used to advocate for government intervention, recognises that monetary policy is constrained by factors like inflation and market forces.
It’s not just the bond markets, however.
I am not sure you are entirely correct about the Keynesian critique of MMT.
The trouble is that there are two main groups of Keynesians: New-Keynesians – who include the OBR and many orthodox economists who combine Keynesian ideas with methods and ideas either rejected by Keynes in his lifetime or developed subsequently – and Post-Keynesians – who seek to adhere to the true spirit of Keynes’ writing. The OBR describes its model as New-Keynesian but PKs would reject that as being in the true Keynesian tradition.
One of the leading (Post) Keynesian economists, Abba Lerner, was an advocate of Functional Finance, a key MMT idea.
A fundamental Keynesian insight is the Principle of Effective Demand, based on the fact that from the point of view of an economy (rather than a household or firm) spending is also income. So government spending – eg on teachers’ salaries – is also received as income for the private sector – ie teachers who in turn can spend most of it (ie disposable income not taxed).
This multiplier is a key concept. It means that it might happen that an increase in government spending pays for itself. Certainly a large part of it will be paid for by the multiplier dividend through bringing underemployed resources into use.
Keynesian stimulus does not necessarily imply an increase in government debt.
I agree with you.
I’m afraid my AI-inspired summary was also addressing a topic covered by tomorrow’s Pension Playpen speaker, Rogier Swierstra, who has written on the Ramsey-Cass-Koopmans (RCK) growth model. (This isn’t the subject of tomorrow’s webinar, some may be pleased to hear.)
The RCK model is a supply-side growth model driven by the optimisation of a single agent. My limited understanding of Keynesian theory, however, is that it prioritises aggregate demand and the potential for underutilisation of resources due to insufficient demand at certain times.
Also, when I refer to government “spending”, I include the potential for government lending to support investment.
There is no need to embrace MMT to counter the simplistic “Any competent Exec running a similar situation would…[blah blah]” economic illiteracy comparing the public sector to a private company. The public and private sectors are different for a reason to do with their fundamental nature in providing different sorts of goods and service. And that has also a lot to do with differences in scope to improve productivity: something called the Baumol effect.
Considering public spending cuts, dont forget that GDP measures ALL output, both tax-funded public as well as sold on private markets. Public goods such as education, defence, police, prisons, health, social services, refuse disposal, cultural services, art galleries, libraries, etc. Last year spending on Government Consumption (which is what the purchase of factors of production as inputs to these public services are called in the System of National Accounts) amounted to 22 percent of GDP. (This excludes transfers such as pensions that make up the rest of the government budget which are not productive.) So a 5% cut in spending across the board would mean an identical ~1% reduction in GDP.
So on the government’s GDP yardstick there would be a reduction in growth and productivity before any supposed positive effects could be felt.
Steve’s chart seems to be based on an ONS attempt at a productivity review.
http://www.ons.gov.uk/economy/economicoutputandproductivity/publicservicesproductivity/articles/publicserviceproductivityuk/1997to2022#overview-of-productivity-review
I was puzzled by the contrasting productivity during the Covid lockdown, which makes me suspicious of the private sector illustration.