There is no such thing as “taxpayers’ money”!
From the early 80s, the idea that Governments can only spend what they receive in tax, was heavily promoted, especially by UK Prime Minister Mrs Thatcher.
She famously said, in 1983, “We know that there is no such thing as public money”, and added “there is only taxpayer money”.
Tax before spending sounds like common sense!
To most of us, the idea that the Government must tax more to spend more probably sounds reasonable” as Professor Stephanie Kelton puts it in her bestselling book “The Deficit Myth”.
Because we all understand “budgeting”. We’re all familiar with this, so it has been easy to convince us that government money works the same way. It has been called, “handbag economics”.
However, like all successful advertising slogans, the phrase ‘tax-payer’s money’ invokes what psychologists call a schema…. a whole body of emotions, experiences and knowledge which mediate our response.
‘Taxpayer’s money’ is intended to create a direct link between government spending and the individual. But, the idea that any UK Government receives tax income, puts it into an account, and then spends from that account, is just false.
Government Spending?
It doesn’t work like that, for a government with its own independent (sovereign) fiat currency, and its own central bank (Bank of England).
So, where does public money actually come from? It’s created by governments, by spending it into existence.
If they didn’t, there would be no money in the economy for public services, public buildings, roads, the NHS, businesses to grow, or people to spend or pay taxes.
Still think it comes from everybody earning money in various ways, spending some of it, and paying tax with the rest?
Why not just create your own?
We can’t dig it up, grow it, and if we hire an industrial unit and manufacture our own, the police take a dim view! It is created by the State.
The money governments create is spent into existence on things like the NHS, schools, Police, Courts, the Civil Service, Armed Forces and councils for public services. How is it “spent into existence”?
By the Bank of England (BoE) marking up the balance in the accounts of those who are receiving the money. For example, state pensions are paid, a pensioner’s bank account is credited up.
If the Government decides to build a big new bridge, the BoE marks up the Department for Transport account, and they mark up the contractor’s account.
A government with its own currency, such as the UK, can create/issue as much money as it chooses to. They can never be bankrupt, max out ‘the credit card’ or run out of ‘money’! The only limitation is enough resourses available to carry out any project.
Taxation is not a sovereign government’s source of money to spend. So, there is actually no such thing as “taxpayer’s money”.