Definition, Differentiation and Sense

Yesterday in Liverpool the Chancellor of the Exchequer told a 'business audience' [the CBI and guests] that the government must 'hold its nerve' to strike a balance between the legitimate aspirations of public sector workers and 'the taxpayer'. Such arrant nonsense could only emanate from a scriptwriting team that includes Economists.

The simple truth is that all public sector workers are taxpayers. Some, in the most simple jobs and on short-hours contracts may not pay income tax; but they are open to assessment for the tax and to national insurance. In all other aspects of life they are taxpayers: as drinkers, smokers, buyers of petrol and owners of TV sets.

While the Corbynite faction in the Labour party might include some extremists who mentally separate 'capitalists' from 'workers' and both categories from the rest of society, that is equally nonsensical. Even if their investment in shares and bonds is as exiguous as their slowly-accumulating 'pot' of savings in a compulsory minimum pension scheme, virtually everyone in employment willy-nilly has some capital. Those who have been lucky enough to 'buy' their homes [even though the mortgage lender often owns more of it than they do, and there is always a risk of them falling into 'negative equity'] do have a capital asset so long as they have 'equity ' in the house or flat.

Over the last weekend the media emphasised the bizarre situation that a very large proportion of the new cars that people 'buy' are effectively on loan from finance companies. The user is logged as the owner, but the loan agreement that enables her to obtain the vehicle is such that at the end of the initial loan period [say, two years] the 'owner' has not returned enough cash to the lender for the residual ownership of the vehicle to be given to the user. So the user is tempted to buy another new car on a similar contract to the last one, and the used car passes from the lender into the second-hand market. The lenders are usually able in total to recoup the discounted price at which they buy the cars from their manufacturers. The users are able to feel proud of their new car every couple of years. The economy contains a rising amount of 'unsecured personal debt' in the form of car loans; and the Bank of England can begin to worry about the sustainability of the whole edifice. So the Bank may require the lenders to hold larger balances of 'tier one' capital, which means that they can lend only a smaller proportion of the funds that they have on their books; thus the number of new car loans available in the ensuing months may be reduced, and the demand for new cars may decline. In that way, the impact of the Bank will be to reduce demand in the material economy; which can impact adversely on employment statistics, sales figures and manufacturing output. Thus [at least, in theory] 'excessive' borrowing by a man who works in a car factory can indirectly lead to the tipping-point in the money market that leads to his redundancy. This may seem a far-fetched example, but it does illustrate the principle that at least some producers are also consumers and borrowers.

So if Philip Hammond wants to convince the country that his endeavour to maintain at least the basic outline of Osbornian austerity is in the nation's interest, he has to begin with the recognition that 'taxpayers' and 'public sector workers' are not discrete sets of people. We are all in this together. It may be easier for Economists and statisticians to separate out aspects of whole individuals and put them in separate categories for some illustrative purpose; but in the end we are all entire people who necessarily live in a mixed economy. Simplistic Thatcherites may still try to separate the good 'private sector' from the parasitic and inefficient 'public sector', and some voters can always be conned into accepting that sort of categorisation. But anyone who experiences the wonderful care of the hard-worked staff of the NHS in a family crisis becomes very much harder to convince of the case for despising and oppressing the public sector and the people who sustain it.

Both Corbynite categorisation and Tory classification of people and activities are unsatisfactory. The present government's stand, largely derived from bad Economics, and sustained by a dogmatic assertion that 'debt is bad', is becoming indefensible and ministers are rushing to differentiate themselves from it. Labour's policy is mercifully opaque.

There is an urgent need simply to recognise that we all live in a mixed economy, that we have badly scrambled the mixture, and need rationally to reconstruct it.