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How does the government spend? A functional model of the UK Exchequer

In: Modern Monetary Theory

Author

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  • Andrew Berkeley
  • Richard Tye
  • Neil Wilson

Abstract

In this chapter, we examine the existing legal, institutional and policy framework which governs the UK Exchequer and show how the central claims of Modern Monetary Theory (MMT) map onto the financial activities of the UK government. The UK Parliament legislates money into existence, which then enters the banking system via government expenditure. Certain payments, such as those related to "debt", are permanently authorised by Parliament, and thus default is impossible. The government chooses to sell its securities only when the banking sector has excess funds, meaning buyers are always available and interest rates reflect monetary policy rather than market sentiment. The "National Debt" is the pounds created by Parliamentary will that have yet to be used to pay taxes. Finally, we explore MMT's claim that price stability with true full employment is possible and show how the existing UK institutions and legislation fully support that claim.

Suggested Citation

  • Andrew Berkeley & Richard Tye & Neil Wilson, 2023. "How does the government spend? A functional model of the UK Exchequer," Chapters, in: L. R. Wray & Phil Armstrong & Sara Holland & Claire Jackson-Prior & Prue Plumridge & Neil Wilson (ed.), Modern Monetary Theory, chapter 1, pages 1-40, Edward Elgar Publishing.
    • Handle: RePEc:elg:eechap:21315_1
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    Keywords

    Economics and Finance;

    Statistics

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