Cooking the Books 1 – The spending revue

Governments can’t control the way that the capitalist economy works. They can, however, decide how they are going to spend the money that they have or plan to have. This is the annual budget. From time to time, in Britain, the government takes a longer view and sets out their spending plans over a period of three or four years.

One such event occurred on 11 June when the Chancellor of the Exchequer Rachel Reeves stood up in the House of Commons and delivered a ‘spending review’, a ‘comprehensive’ one, no less, as it was broken down by government department. For weeks before, the media had been speculating which departments would be favoured and which would suffer cuts.

She announced that the total amount to be spent over the next three years or so was to be £2.2 trillion, a figure that the Times (12 June) commented ‘may be so large as to be meaningless’. Yes, what is a trillion? A million million? A thousand billion? Anyone know off-hand?

It’s the same every time. The Chancellor’s statement is followed by the Shadow Chancellor getting up and accusing the government of double counting or complaining that not enough is being spent on this or too much on that. And asking where’s the money coming from (a good question). From time to time MPs join in, cheering or booing.

A spending review, as its name suggests, only covers spending not where the money to spend is going to come from. Since governments as such don’t generate any income or wealth, their income has to come from elsewhere, the two sources being taxation and borrowing. This is where the workings of the capitalist economy come in.

Taxes ultimately fall on profits and profits are what drive the capitalist economy. This places limits on what the government can raise without provoking an economic downturn. Governments borrow from capitalist financial organisations at home and abroad and are competing with other capitalist states for loans from these speculators. Any hint that the government may be planning to spend money without credible funding from taxation is seen as increasing, however slightly, the risk of the speculators not getting their money back. This leads to an increase in the rate of interest they charge a government for lending it money. This, in turn, will mean that the government has to allocate more of the money it raises in taxes towards paying the higher interest payments. Another restriction on how much a government can spend.

Reeves is always tweeting that she is ‘fighting to put more money in the pockets of working people’ (though not of non-working people; she wants to stop money going into the pocket of many of them). She seems to mean increasing take-home pay.

Nothing in her spending review does this. That’s because it’s not from the government that she expects the money to come but from employers once the economy is growing. There is an element of truth in this in that, as Marx pointed out at the end of Wage Labour and Capital, ‘the rapid growth of capital is the most favourable condition for wage labour’ as the employers’ increased demand for labour power bids up its price. The trouble for Reeves is that the rapid growth of capital is not something that a government can engineer. It is just something that happens from time to time as capitalism moves through its regular boom-slump cycle.

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