Laugh it up. (Kirsty Wigglesworth - WPA Pool/Getty Images)
Fifteen years after the great financial crisis blew Britain’s economic settlement apart, we’re still scrabbling around for a replacement. The staggering scale of our problems was revealed yesterday in Jeremy Hunt’s thoroughly depressing budget statement. Despite heavy doses of magical thinking to make his sums add up, the grim reality of the budget, buried in the small print, is that we are getting poorer and more vulnerable. Even the smallest fluctuations in the international economic climate could have ruinous consequences.
To grasp the scale of our national fragility, you have only to cast your eye across the Office for Budget Responsibility’s report. The basic reality, there in black and white, is as confounding as it is worrying: we are now set to continue to get poorer even as the economy gets bigger, while rising taxes will not fund more spending on public services.
At first glance this doesn’t make sense, but the reasons are simple. The economy will only get bigger because there will be a lot more people in it, rather than because we, as individuals, are getting richer. The OBR’s forecast for the overall size of the economy remained virtually unchanged from last time. Yet it revised down its expectations of GDP per person. In fact, from 2022 we have been getting poorer — a situation which will only start to change from the second half of this year.
But perhaps the most crucial line of all was this: “Economic and market conditions mean the Government needs to run a primary surplus… of around 1.3% of GDP just to stabilise debt in the medium term.” By comparison, the OBR went on, in the 2010s, “debt could be stabilised while running a primary deficit of 2.1%”. In other words, we now get less for more, literally.
To illustrate the point, take these figures: taxes as a share of GDP will rise to 37.1% in 2028-29, four points up on what they were before the pandemic. But spending will fall “steadily” as a share of GDP from 44.5% this year to 42.5% in 2028-29. All the while, national debt will rise. Put bluntly, the size of our debt — and the scale of the interest we are paying on it — means we are now much poorer than we used to be. And this is before we consider the economic burden caused by our ageing population and the crisis in Ukraine leeching more money for defence.
And so, facing this reality, even though we are just a matter of months away from the next election, Hunt had barely any room for manoeuvre. The 2p cut from national insurance and the increase in the threshold at which child benefit is removed eased the tax burden on middle-class workers, the voters the Conservative Party will need if it is to stand any chance of avoiding a wipeout whenever the election is called. But even these tweaks around the edges of the tax system required such fanciful assumptions as to be essentially worthless as a meaningful forecast.
Join the discussion
Join like minded readers that support our journalism by becoming a paid subscriber
To join the discussion in the comments, become a paid subscriber.
Join like minded readers that support our journalism, read unlimited articles and enjoy other subscriber-only benefits.
SubscribeRight. No ideas on how to fix it though.
Recent modelling (recognising that the reliability of such projections have rightly been brought into question due to the virus of unspecified origins) has most industries looking at a starting rate of 23 – 36% in headcount reduction over the next 2-3 years due to AI.
These losses will mostly impact knowledge-based, high earning, white collar, middle class jobs. The impact of removing the middle class from a nation has never historically gone particularly well – e.g. the Kulaks in the Ukraine in the 1930s (est. 3-6M dead), or post-invasion Iraq (20yr insurgency and 1.2M dead).
In addition, removing that many job roles from the the market will not only significantly reduce the amount of tax available (the middle class are currently shouldering most of the tax burden), but will also have a terrible knock-on effect in the housing market as more and more people start to default on their mortgages. Since, the bankers (shockingly) didn’t learn much from the 2008 sub-prime fiasco – a significant amount of our debt-based economy still rests on the mortgage market. So, I’ll let you imagine how that ends up.
Fundamentally, the coming tide of economic disruption is unprecedented, but luckily we’ll have the highly competent and visionary leadership of the Labour Party to steer us through these troubled waters.
God helps us all, we’re going to need a bigger boat!
“ When this failed, Theresa May and Boris Johnson tried different versions of Big State Toryism to increase prosperity outside of the South East of England“
Eh? Did I miss something here? While Johnson had some platitudes to ‘levelling up’ in his manifesto, nothing actually happened and he instead implemented his barking mad wife’s green agenda (although I will concede that he did put this in his manifesto also). I don’t recall May doing much other than try to get her EU deal passed and adding modern slavery laws that now prevent the UK from repatriating Albanian gangsters.
and enshrining Nut Zero in law thereby ensuring the continued immiseration of the UK populace.
We have loads of levers we could quickly pull:
1) We have 4 trillion cubic metres of Shale in the UK while Nuclear Modules can be deployed in 2 years. We could have way cheaper energy within a single parliamentary term if we really wanted.
2) No more Net Zero bondoogles
3) Planning reform – we need 4 million new houses just for existing population
4) Immigrants earning under £40K are a net fiscal drain on the Treasury – no more
5) Anxiety is not best served with a line from the Doctor (or even from the Receptionist sometimes). Getting back to work is good for the patient and the economy.
What we have is a shortage of will.
I believe that you have to earn more than £48K pa before you start to pay in more than you take out
I agree that we must extract the energy we have and remove all the green charges. But there are other equally important factors to creating growth. We must produce goods and services that are competitive and we cannot do that because our salaries are too high. Energy is not our only problem, we need the materials for manufacturing and we have to import them, as well as food. It is time we returned to the days of looking at the trade balance. We need to export to pay for all the imports we need. My believe is that we are a declining country and will have to accept that. Europe is in a similar situation for the same reasons.
Historically speaking, it was improbable that a small island nation in the far northern latitudes would ever become a great empire or a world power. All things being equal, larger countries with more land, more resources, and more people will have an advantage. In earlier eras, that largely meant arable land to generate food. The need for other resources existed, but was limited enough to not be a major factor in civilizational power. Industrialization though allowed for a nation to radically improve their output relative to their available resources, a factor we today call productivity. This gave a few relatively small nations in Europe a decisive military and economic advantage over the rest of the world, an advantage that allowed them to dominate and conquer multiple nations the size of themselves or larger, all over the world.
Industrialization though, was bound to spread, and has. As it spread, the temporary advantage of the European powers was bound to deteriorate, and it has. Thus, we return to a sort of default state where the largest nations with the most resources have significant advantages over smaller nations, and now, thanks to industrialization, there are even more resources to consider. Early on, industrialization used mostly things that are fairly common like tin, copper, iron, coal, etc. but as technology continued marching on the needed list of resources got bigger to include things like aluminum, oil, chromium, titanium and above all oil. Now we have resource needs varied enough to include super rare things like lithium and cobalt. Only the largest nations are going to have the varieties and quantities of resources that will command global power. The obvious world powers going forward are bound to be China, India, Russia, Brazil, Iran, the USA if it can manage to avoid self-destruction, and other large nations. One of the ideas behind the EU was to remain competitive in a world where Europe no longer had an advantage. Still, being the first region to industrialize, Europe is by far the most resource depleted. Europe has also resisted political and military unity, and without that, the individual nations are still conducting their own diplomacy and keeping their military power to themselves. Centuries of rivalries can’t be hand waved away because its economically expedient.
As a small independent nation, the UK has an even poorer outlook in a strategic sense. Small nations must find a niche to fill in between the great powers and do it well, like Taiwan, Singapore, South Korea, etc. and/or attach themselves to one of the great powers. It’s likely as not the UK and probably the rest of Europe will be pulled apart and fought over by Russia, China, and the US over the short to medium term and who knows who else down the road. I fear the multipolar world will not be kind to the UK.
You’re forgetting the rising importance of knowledge economics. We are already several decades into a transfer away from physical resource economies into virtual, information-based economies. That doesn’t mean the UK will necessarily prosper from the process: we’re been trying to emulate Silicon Valley for decades and we still can’t get right the combination of technology expertise, risk appetite and financial heft that makes California so successful, but it does mean that the UK isn’t facing the simplistic threats you’re describing.
It means that if Britain even slightly improves its ability to leverage the assets of its existing information economy, it will retain the medium term ability to project both hard and soft power in an uncertain world. If we have any sense we’ll restrict the use of it to knocking the crap out of anyone who tries to attack our own borders rather than being America’s moral alibi for screwing with other countries, but either way Britain isn’t necessarily facing the stark future you imply.
I’m not saying it’s all going to be fine – we still need transformational political change and economic renewal which the existing political class is clearly incapable of delivering, all I’m saying is that there’s no inevitability about the decline you describe.
I’m sorry but that sounds like magical thinking to me. It sounds like globalist nonsense to dupe people into deindustrializing and buying cheap materials from countries with no environmental restrictions. Information economy is a buzzword invented by some academic sitting in an office getting paid out of somebody else’s pocket, either taxpayers or university donors. I suppose the “information economy” works pretty well for them.
The bottom line is this. Over time information and technology will spread everywhere. I can look up how to build an atomic bomb on Wikipedia. What I can’t do is get the uranium out of the ground or enrich it to a good enough quality; a process that requires huge and expensive machines that also use all kinds of resources and labor to build and assemble. The information is the easy part. To maintain a competitive advantage long term based on information alone was nigh impossible before the Internet existed. Any advantage can be easily lost through the ordinary diffusion of information or through espionage. The Chinese are really good at this.
Nations that have more resources have an advantage that can’t be overcome. More people means more labor. More land means more food production, more timber, and in most cases more mineral resources. No matter how hi tech we get, people will need materials to build the machines and energy to run them. The rest is just noise.
A shortage of will? Yes! But this is partly because we have a shortage of inspiration from leaders with big vision, strategic thinking, pragmatism and the courage to tell the truth in straightforward language.
I see it as a lack of balls. No one’s prepared to lead from the front anymore with all that entails. We are a national focus group led towards the lowest common denominator.
In reality what will happen over the next five years:
No shale or nuclear.
Doubling down on net zero.
Instead of housing, we will have stuff like taxes on private schooling fees or enforced DIE initiatives.
Immigrants from India and China who commonly fall in the over 40k bucket will be cut off to “control immigration”, while the boats keep coming.
It’s bizarre that the writer appears to take OBR forecasts as gospel.
The OBR are fact-checkers don’t you know.
Or Fat-Chequers. It’s difficult to tell.
Anyway, chact-facking is what they do.
So this was a Budget for growth not sustained by migration, Chancellor Jeremy Hunt announced…
Odd, because his last one was a ‘Budget for growth’… Ah, I get it: so his last one was a Budget for growth, BUT sustained by migration, was it?
Or, I would not be in the least bit surprised, if the Treasury has decided to change the definition of common speech, slipped in in one of their myriad of technical notes released with the Budget documents, IR-372965 no doubt, where speeches will henceforth disallow implicit premises, i.e. unstated claims or unstated assumptions of the argument.
I know a busted flush when I see one.
the Office for Budget Responsibility — > Who says that govt has no sense of humor or irony.
This is disturbingly narrowly reasoned. Forecasts from OBR and unspecified other source(s) – perhaps the relentlessly left-wing Resolution Foundation? – added to a distinctly jaundiced view of events in the recent past are a poor substitute for robust research and unbiased conclusions.
I tend to agree with Tom T. viz the podcast with Helen the other day, ‘Britain’s Lethal Economic Bind’.
Things before the GFC were not real anyway. The whole thing had an air of unreality . . . towns you’d visit that had no real industries, with chippy, chortling folks at the shopping mall carparks, wrestling huge flatscreen TVs and home enterntainment units into their SUVs.
Where was the money for it all coming from?
All forecasts are wrong – it’s just a question of “by how much?”. Hunts forecast that an extension of the 75% tax rate on U.K. North Sea oil and gas production will raise an extra £1.5 billion of tax receipts in 2029 really does take the biscuit!! First he doesn’t have the foggiest clue what the price of oil and gas will be in five years time. Second because it must assume that five years of taxing U.K. North Sea producers at 75% will not have a very serious negative effect on investment ( and hence production) and Third it assumes companies will not accelerate the decommissioning of the very many fields now in the latter stages of their productive lives. The £1.5 billion of additional tax is therefore a complete fiction designed to fill a gap in a spreadsheet and make his numbers look good. The much better guess is that this wholly unwarranted continuation of the “ Windfall” tax to six years in total will result in increasingly negative tax revenue as the Government finally has to cough up ever more of the decommissioning relief it owes. As the saying goes, what goes round comes round – and a huge fiscal headache is coming the Government’s way thanks to the ignorance of men like Hunt who are negligently and prematurely shutting down one of the greatest productivity success stories the U.K. has ever enjoyed. Sadly with £350 billion of tax paid (and still counting) it was also too easy a source of cash for spendthrift Chancellors with no real understanding of what it really takes to build a sound economy. A tragedy. A huge blow for Scotland too. Furthermore, quite incredibly, the Labour Party’s plans for the industry are even worse!
Governments never have any money, except what they take from the people. Or print, which is about the same thing. The only way the UK can become wealthy, is that everyone work harder or better. The Government can assist, but fundamentally the people must make their own wealth. Waiting for a new Government to give the people more money, is a fantasy.
The big picture here is that we live in a world where technology is still driving up the total productivity of our economy and will continue to do so, and yet somehow we cannot run a stable economic system.
It’s not enough to say that the tech titans are firing middle class workers and taking all the gains for themselves: if that was true, Zuckerberg, Musk and Bezos etc would be worth multiple trillions each, not hundreds of billions. Even with the regressive wealth transfer effects we can see (which I do not dispute – they are real), there’s still an order of magnitude larger hole in the numbers somewhere.
Why is it that the UK seemingly cannot climb out of this stagnation trap?
“Our grim reality today is that we have no money — and no strategy either. Good luck, Keir Starmer”
This, in fact, is the only bit that cheered me up a little. (Albeit savagely). I can’t wait to see what Labour does when it starts out with a mess, instead of ending up with one.
Utter shambles and the broader Right is to blame. On the ‘political level’ putting so much stock in the two Bs – Brexit and Bojo – the BS ‘twins’, as predicted, disastrous. Doubling down with Mad Liz lunacy showed how much the Right lost it’s marbles on basic politics.
And ‘economically’ a fundamental failure to diagnose and act on the key problems in the UK economy. Just simpleton stuff on need for Growth – ‘no sh*t Sherlock’! A strategy then akin to wandering into the Bank manager and asking for a loan and when they ask how where’s your plan to pay it back saying ‘don’t worry about that I’m a genius’. Comical if it wasn’t so tragic. Crucially though just ask the question – why when so many are struggling have the v rich got even richer? The Right ain’t going to tackle this because it’s key leaders and ‘controllers’ are the v Rich propped up by lots of useful idiots who buy all the smokescreens.
And then what do we get instead – ‘culture wars’ and constant searches for scapegoats. Contemptible.
But we’ve been told time and again that immigration is good for the country. Migrants are motivated, hard-working folks doing jobs that lazy Brits won’t, contributing to the economic welfare of the nation. With 750,000 net migrants in 2023 and forecasts of 1+ million migrants in 2024 the UK future should presumably rosier than ever before?
It’s not about the money, it’s about the honey. People will be attracted to your economy if you make it pleasing and easy for them to come in, invest, and prosper from the fruits of their labor. Think Singapore. Think Israel. Think US. The common theme that threads through all these economies is their attraction. Sell the sizzle, not the steak, as they say. The actual state of your economy matters, yes, but the perception of it matters more.