We are told that the UK can only afford to spend what it collects in taxes and what it borrows from investors in Government Bonds otherwise it will go bankrupt!
This is nonsense. UK currency is created by the Bank of England when the Government spends money. The Government can never go bankrupt as the Bank of England can always create money.
When the Government taxes the money it collects is effectively destroyed, it no longer exists. The Government therefore doesn't tax to raise money, it taxes to control inflation, to reduce inequality by charging rich people more income tax than poor people and to attempt to discourage certain behaviours such as drinking, smoking and driving cars by making alcohol, tobacco and petrol and diesel more expensive.
The Government doesn't need to issue bonds. It does so as a service to large investors such as pension funds who are seeking a safe haven for large amounts of cash with an attractive rate of interest. This does not fund Government spending. The Government can always repay the bonds and the interest on them by the Bank of England creating the money to do so, therefore large investors know their money is 100% safe.
Let us remember, money has no value in its own right. It is purely something which can be used to exchance things of value such as goods, labour and expertise.
The great 20th century economist John Maynard Keynes summed it up when he said: "If we are capable of doing it then we can afford to do it".
So when you hear politicians and journalists prattling on about how the country can't afford this or that just rembember that they are talking nonsense and you are being misled.
