1. As campaigners for a better democracy we need to challenge this claim but we can only do so if we equip ourselves with a better understanding of where money comes from.  There are two key points to make:

First and foremost,  money itself is not a static finite resource. At the heart of our monetary system, however complex the financial framework, lies a simple operating  principle: banks create  new money, they do not borrow from savers. And banks, including the government-owned Bank of England, can  create vast amounts of money  if  needed. This is not a political point but a description of what actually happens on a daily basis . Here is what the Bank of England has to say:

“If you borrow £100 from the bank, and it credits your account with the amount, ‘new money’ has been created. It didn’t exist until it was credited to your account. This also means as you pay off the loan, the electronic money your bank created is ‘deleted’ – it no longer exists…  essentially, banks create money, not wealth.”

And in a separate article on its website it states:

“The reality of how money is created today differs from the description found in some economics textbooks: rather than banks receiving deposits when households save and then lending them out, bank lending creates deposits.”

The implication of this is that for money to be taxed or borrowed by the government, it first has to exist in the real economy. And it can only exist if it is first created or spent into existence.

The second point follows from the first: governments with their own sovereign currency such as the UK Pound or  U.S. dollar, can instruct their central bank to create or print money in unlimited amounts when needed. For example during the Great Financial Crisis of 2007-9  the then governor of the Bank of England Mervyn King boasted to a Scottish conference in October 2009 that:

‘A trillion (that is, one thousand billion) pounds, close to two thirds of the annual output of the entire British economy’, had been mobilised to bail out the British banking system. (extract from Chapter 4 of Ann Pettifor’s book ‘The Production of Money’)

The Bank of England intervened  again during the covid pandemic when the government ‘borrowed’ £412 billion pounds from the financial markets to fund the Furlough scheme. While this generated shrill headlines about the size of the national debt, what went largely unreported was the Bank of England’s role in quietly  buying back that same government debt through ‘Quantitative Easing’ (QE) or ‘money printing’, thereby ‘deleting’ the debt.

Given the multiple crises we face from collapsing public services to climate change,  democratic reform must   include a stronger economic dimension  in two respects. The first is to replace dogmatic fiscal rules which constrain vital public investment  with a flexible set of fiscal rules co-designed by members of the public.  The model of  participatory budgeting at the local level may have great value in informing such an enterprise.

The second is to build on the citizens panels already run by the Bank of England. At present these are self-selecting and act more as focus groups than a forum for informed deliberation.  A properly convened citizens assembly can not only be the launchpad for public education on money and public finances, but also  strengthen democratic oversight of what is otherwise a technocratic and opaque organisation.

To conclude, building a stronger democracy in the UK means not just reevaluating our political institutions but also rethinking where the money could come from to do so. We need to challenge the myths around financial scarcity by improving our understanding of how money is created and using new tools that would benefit everyone. By involving everyday people in decision-making through participatory budgeting and citizens’ assemblies, we can give people a real say in how their democracy and economy work. This is our chance to redefine how our economy drives positive change, creating a future where a lack of funding isn’t an excuse for not making meaningful progress.

Gavin Barker is a member of Citizen Network who campaigns on constitutional reform.