A Modest Proposal To Improve Confidence In Public Finances

Feb 12, 2025

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Guest article from Peter Sidor

The new Labour government is already managing to fail to keep its money under control. Not that it’s a surprise: the UK is in a terrible fiscal position and a spendthrift government won’t really help things.

The money issue can be summed up rather simply: the UK has too much debt and too much spending and its governments are as willing to cut back as a heroin addict would. Everybody wants to get rid of the deficit, but it’s always in the future, not today. The UK can’t finance its spending as a going concern, it has to pick up more debt. This debt has a while ago passed the notional boundary of 100% GDP, after which it will become increasingly unlikely that the UK will ever repay it. Attempts to increase taxes are already failing and cutting spending is just not in the cards. The logical consequence is a default (in whatever form it will be) and its effects will be severe for the general population. But the politicos will do their best to avoid a default or any serious decisions for a few more years if they can.

So what can be done?

Fiscal Responsibility Laws

A number of countries have adopted so-called Fiscal Responsibility Laws. These typically set limits on spending and targets for the reduction of government borrowing and debt. The laws can be pretty detailed and for some countries at least they have worked out. The problem with trying to quit a nasty habit is that you have to actually WANT IT.

This problem was demonstrated with UK’s Fiscal Responsibility Act 2010 which lasted all of one year before it was repealed. (From then on, the Chancellor of the Exchequer would create a “Charter for Budget Responsibility” that can contain pretty much anything and leave responsibility for later.)

Passing another complex set of budget rules is only going to fail. What is needed is something simple.

A Two-Step Budget Process

Passing the budget will be done in two stages. In stage one, the only thing that is decided on and is approved by the Parliament is the sum total of the budget, that is how much will be spent. This will become binding for the next year.

In stage two, the actual budget is passed as per the usual process. The budget can be even changed during the year – but the budget cannot exceed the value that was passed in stage one for that year.

Why is this a notable change? With desired spending and tax income always estimated in advance, deciding the total spending means the MPs passing the budget are forced to vote on how high a deficit they really want. Instead of voting on a laundry list of attractive spending items that the MP can flaunt to his voters, the first step is ostensibly deciding what the country can actually afford. Likewise, the government proposing the budget is forced to first show its actual fiscal responsibility and only then gets to divvy up the loot and bribe the voters.

But What If There Is A Crisis?!

Why yes, what if a crisis appears, which only happens in politics about once per week? What if more money is suddenly needed somewhere?

Well, then it’s really simple: if the government – or anybody seeing a crisis and wanting to spend more money on it – can find the means for it in the budget and redirect the funds, the crisis shall be addressed. Huzzah, the day is saved!

But if no money can be found anywhere for this latest crisis, then maybe, just maybe, the crisis isn’t quite that serious. This may be a rare idea in today’s hysterical politics but its worth considering.

The whole thing can be thus sold as an easy way to reform the budgeting process while exerting some actual pressure towards reducing the deficit. A government that passes a budget with a high deficit becomes instantly irresponsible. A government that can’t increase spending for some desired item can defend itself with the size of the budget – but everybody wanting more spending on something ‘essential’ is invited to find the means in the existing budget. Spend more on X by spending less on Y.

Or we could try some actual fiscal responsibility and always pass a balanced budget – but we don’t have time for rational solutions here.

Have a nice day!

Views submitted are the author’s own and do not necessarily represent the views of the Scottish Libertarian Party.

Peter is the Membership Secretary of the Scottish Libertarian Party. He’s not great at budgeting but that’s still better than most British Governments.

Comments

One response to “A Modest Proposal To Improve Confidence In Public Finances”

Steve

April 23, 2025

[Disclaimer: the purpose of this reply is to evoke conversation and elaboration]. Whilst I applaud your approach to public finance, I would equally draw the analogy to running one’s household budget. In this example we would have to see it from the point of view from after several remunerations are received and outgoings realised (as would be the case given Scotland’s current circumstances). The householders realise that their total remunerations received in the exchange of goods or services they provide neither meet nor exceed outgoings for total expenditures. Add to this that the householders have now introduced a system of credit (credit card/s) to cover these shortfalls thus borrowing (with interest) to ‘meet one’s perceived needs’. The point can be taken that the household may have exceeded their needs and have, in point of fact, fallen into the realm of wants or desires. This element is important to understand. The householders, wanting to end these circumstances with borrowing and its associated interest, decide to review total incomes. Upon doing so, they agree that, in order to end the cycle of debt, they must limit such total expenditure to only that with which they receive (or less – reasons for which I explain later). The householders then take up the task of reviewing all outgoing expenditure (something that fails to be fully transparent with a hapless tax payers). The householders must agree on priority items (the needs) first and foremost and eliminate those things deemed not necessary (the wants). As part of this process, the householders must also agree to buffer this future expenditure amount with repayment (as quickly as humanly possible) to creditors to both reduce the debt/s incurred as well as minimise accruing interest that would otherwise reduce current/future spending on essentials. It is important to note here that the household (or taxpayers) have to come to agreement fully cognisant of consequences of their actions, lest they fall back to old ways.

Further to this, there is the growing entity we could call ‘the pot’. Collections of taxes (or, in a truly collaborative society, agreed contributions) are siphoned into larger pots instead of the more local purpose for which they were originally intended. This obfuscation allows for misappropriation of funds. Note to reader: I believe it was a Lord in the House of Lords that commented on the then ‘Road Fund’ of its time. The gentleman noted that the Road Fund contributions actually exceeded the total amount required. I say again, the householders (or tax payers) therefore must be fully aware of items to be able to make such a judgement call as to paying the price (both figuratively and literally). This is why understanding fully the local charges that are, under agreement of those contributing, considered with no favourites (preferred suppliers) but rather open to a market that would compete for their provision.

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