Follow the Money – How Much Does Britain Cost? (2023) By Paul Johnson

Follow the Money – How Much Does Britain Cost? (2023) By Paul Johnson

The truth is, I like money. Before you raise pitchforks and burning torches in the air and chase me through the village, the reason I like moolah is because I had next to none growing up. Things were so tight as a teenager, I used to buy cigarettes in singles from the corner shop over the road. Life has been better to me since those days of deprivation but, the point is, most people can never have enough cash to do everything they want. Millions more live a subsistence lifestyle with barely enough to get by. Think foodbanks. It’s a growth industry we don’t want.

So why is this? Why aren’t there enough spondoolicks to keep everyone happy?

Amongst other things, I am lucky enough to have taught economics at A-level. I loved it. A friend of mine knows about these foibles as we invariably talk about such lofty matters over the occasional coffee whilst putting the world to rights. At our last get together, he ambushed me thrusting Paul Johnson’s book “Follow the Money” in my direction and challenging me to read it. I did.

I couldn’t remember who the author was which is more about my memory than anything else. He has been director of the IFS since 2011 and a columnist for The Times along with being on a UK climate change committee. The list goes on and his spells at HM Treasury, the Department for Education and the FSA are all notable in qualifying him to write an authoritative text on how the government spends its/our money.

Total UK Spending 2023/4: £1.19 trillion. That’s the introduction. “follow the money” comes from the Watergate Scandal at the time of Nixon in the States. And off we go with chapters about taxes. There are a lot all levied in different ways. People generally hate taxes – think Poll Tax and Maggie Thatcher. Some don’t and more and more see paying taxes as a civic duty. Except the odd comedian maybe.

Income tax was introduced by William Pitt the Younger in 1798. At that time, all incomes over £200 were to be taxed at 10%. Let’s face it, someone had to foot the bill for the Napoleonic Wars. Most tax is raised from income tax, VAT and National Insurance – nearly two-thirds in fact. The former is a bone of contention at the moment. Fiscal drag means that more and more people are slipping into higher tax bandings and paying an increased contribution to the government. So this sleight of hand is where personal allowances are frozen meaning that rates of income tax fall out of line with pay increases due to inflation. The book explains it better than I. That’s a recurring theme. I know nuffink.

National insurance is simply another tax. However, it also plots a path towards State Pension entitlement. The last Conservative government were chipping away at NI by reducing the rates at which it is charged. This was simplistic as it meant leaving the mechanism of fiscal drag alone re income tax. There’s a hornet’s nest attached to NI and how people declare themselves as different rates apply to employed/self-employed. There’s some stuff about Gary Lineker arguing his case about being the latter rather than the former when the Tax Man pursued him for millions. This distinction affects Uber drivers and the like as well (Gig economy) so it’s not all about the former England striker even if he usually steals all the headlines.

VAT is a tax levied on goods and services with a labyrinthine system of exemptions. The book says that tax economists and finance ministers love VAT. It was introduced in France in 1954. It’s levied as spending happens. I’ve always found it a bit dullsville.

Johnson includes historical references. Lots of them. You can read up on the Window Tax from 1696 if you like. A great example of ill-thought through implementation of a new tax. Tax a few windows and watch them get boarded up. We are quite slippery when it comes to dodging tax.

Corporation tax is levied on…well….corporations. Well, OK, businesses then. As ever, judgements are placed on the fairness of taxes and this one, in particular. Punitive rates have been in place for a while in the energy sector with oil corporations “printing money” from substantial windfalls following huge rises in wholesale prices post Russian invasion of Ukraine. In the main, the public think of oil tycoons in the same way as insidious bankers from the 2008 financial crisis so happily back governments to kick them in their metaphorical nuts. It’s not as straight forward as it sounds as there are repercussions like future investment and disposal costs of spent drilling sites which return to haunt the tax payer.

About half the money received for councils is from Council Tax. It’s based on property valuations from 1991. These day, properties in band H are worth at least eight times those in band A but council tax bills for the top band are only three times that of the bottom. Needless to say this isn’t a fair system but whenever a story in the Press runs about updated valuations being done to replace the drive-bys of the 90's everyone assumes the worst, throws their arms in the air and cries foul. It’s clearly unfair, weighted heavily in favour of the wealthy and needs reforming.

I could go on and often do. But I won’t. Other subjects include: poverty and working age welfare (cost £124billion 2022/3), pensions (cost £152 billion 2023/4), Health (cost £186 billion 2023/4), Social Care (cost £22 billion England only 2021/22), Schools (cost £57.3 billion 2022/3), Post School (Tuition fee loans cost £10.3billion 2021/2), *Levelling Up (England £60billion 2023/4).

Johnson talks about the future and how costs will keep ratcheting up for the government. As more people live longer, costs re state pension, care, NHS will all keep on increasing as a percentage of GDP. In context, in 1972 1 in 100 was aged 85 or over and 13 were aged 65-84. Fast forward fifty years and that is expected to reach 7% aged 85 or over and 22% aged 65-84. This means more and more money needed for NHS and Adult Social Care. And State Pensions and Benefits.

Financial challenges for this present and future governments are immense. Post Covid, net debt to GDP is running at 97.9% as at April 2024. In essence, the UK is spending all of the revenue it generates. Historically, this is not usually the case. There’s a whole separate piece around government bonds, interest payments and refinancing but perhaps that’s for another day and, strangely, not really explained in detail in this book.

The current Labour government have hung their hat on growth. Boost the economy, make it bigger, drive higher tax receipts, more money to spend. It’s already facing dissenting voices amongst its own ranks about the existing two child benefit cap. The new chancellor Rachel Reeves says that finding £3billion to pay for ending it is not an option until growth takes place first. Others point towards the State Pension Triple Lock that currently costs £15 billion. So is the easing of child poverty being deferred to keep pensioners happy? I don’t know so please don’t throw stuff at me. It’s contentious. I read a piece in the Sunday Times. A politician was saying that the Cap was abhorrent and impinging on a woman’s rights to have as many children as she wants. I didn’t understand the argument. I don’t always. I do agree that children are our future and we should do everything we can to make things better as they transition through their formative years. Who pays for it? Pick your horse.

To be fair to Starmer, he has cited the disastrous mini-budget of Liz Truss and Kwasi Kwarteng as an inspiration for the central plank of his approach to fiscal responsibility. Above average pay settlements looming in the public sector will test the mathematics of the new regime but they can’t do any worse than the former Conservative prime minister with unfunded tax cuts leading to horrendous market volatility. Nobody can defy gravity as Truss found out at her cost. The Markets are the ultimate arbiter of whether finances are credible regardless of politics.

Johnson espouses many subjective opinions that run across the lucidity of how our government spends our money. One is that the NHS is pretty average compared to its equivalent in other countries. Another is that the university system is doing a good job in educating so many more young adults than ever before. The book was written before recent reports of the uni sector angling for a government bailout. Maybe Johnson may have changed his mind at seeing that.

In conclusion, the bottom line is that I loved reading the book. If you don’t want to take my recommendation, apparently Laura Kuenssberg says it’s good. She’s says “Read it, absorb it, and understand how the country works.” She’s smarter than most.

So you see, I like money. Conceptually, as a subject, not in a predatory way like a corrupt politician or grasping former President. It’s like maths or physics or anything that relates to numbers and making sense of them. I wish I was Warren Buffett. He has a net worth of $136.7billion. I’d buy Greenland. Maybe Scotland.

I would like to think that the increased prevalence of subjects like business studies in schools will revolutionise attitudes towards things as basic as budgeting. Maybe in time, there may even be a collective realisation that the government doesn’t actually have money of its own but relies on taxes and loans refinanced in perpetuity with interest charges cannibalised along the way. However, when you think of governments predominantly running fiscal deficits, you start to think that maybe the whole notion of money is simply theoretical after all and an artificial concept.

Either way, I must give my friend his book back.

*Levelling up as a notion/phrase now disbanded under the new government

https://www.amazon.co.uk/Follow-Money-Gripping-horrifying-brilliant/dp/0...