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The Chancellor must be brave. Leon Neal/Getty Images
The recent British election was, by most accounts, a “service-delivery” vote. Appalled at the state of their public services, Britons opted for new management. And while they need no reminding of how bad things have become, the facts are still startling, with a recent report from the Institute of Government assessing that public services are in a worse state today than in 2010. Nor is the decline finished: all but general practice, hospitals and schools are currently on track for further decay between now and the end of the decade.
Reversing this trend will require money. Unfortunately, that situation may also be worse than we thought. We already know the Treasury is empty but what is only now becoming clear is the number of unfunded spending commitments which, while having been kept off the books by the previous government, will soon come due. In her speech today, Rachel Reeves is expected to hit this point home, announcing that the previous Conservative government left a black hole in the public finances. She estimates that the bills for compensation to tainted-blood and post office victims, promises to boost defence spending, public-sector pay awards, and other such invoices inherited by Labour amount to around £20 billion — though they could run as high as £50 billion.
However, the new Labour Party came into office having promised not to raise taxes nor alter the outgoing government’s borrowing limits. Instead, it hopes to generate the revenue needed to revive public services by raising the growth rate of the economy. Hope is the key word here. The cyclical recovery of the British economy, along with the positive mood music associated with the incoming government, will probably lift economic activity somewhat this year, affording the government a bit more breathing room. Reflecting this optimism, the IMF recently upgraded its forecast for the British economy this year, with private forecasters similarly more upbeat.
Still, it’s not much to get excited about. The IMF upgrade is in the order of a mere 0.2% of GDP, which works out to a few billion pounds of added output, some of which will make it into the state’s coffers in the form of tax. That won’t do much to improve the government’s fiscal position. If it’s to give a substantial lift to the country’s economic growth rate, the Government will need to find a way to raise the economy’s level of investment, which is the lowest in the G7 (a group whose investment performance has itself been declining for decades). Foreign direct investment in the UK is currently sitting at a 12-year low.
There are some measures the Government can take to stimulate investment without much spending, much of which it’s already committed to: tax reform, encouraging private-pension consolidation to make it easier for funds to invest in a wider range of assets, changes to the planning system, and improving its trade relations with Europe. The return of policy predictability and political stability after the chaos of the last eight years should also go a long way towards encouraging businesses to start looking to the long term again.
Nevertheless, for private investment to take off, there will almost certainly need to be more public investment in the infrastructure which facilitates economic activity — everything from roads and railways to research and development. Because if the state’s current account looks bad, its capital stock is even worse.
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SubscribeMaybe Reeves can get away with it, we’ll see. But she and Starmer have not been honest with the voters. Nothing mentioned by Rapley was a secret before the election. Labour should have known exactly what the public finances were like. If they didn’t, they were incompetent. And deaf. Paul Johnson of the IFS warned Labour about this before the election.
It just adds fuel to Starmer’s reputation for reneging on any promise he ever made. A reputation like that will be hard to shift, when he really wants people to believe him.
Economical with the actualities, just like the lie when he said the Saville fie never crossed his desk because he was sitting at someone else’s
Why the down vote.
A very careful choice and curious choice of words, plainly designed to mislead
No mention of spending cuts – not even a whisper. Raising taxes is just another nail in the coffin. Biden is not the model anyone should follow. Where is investment taking place in the U.S? In the states with zero state tax or very low state tax. It’s hubris to think the U.S. is leading world growth because of foolish spending programs.
Spending cuts are in the news now that Reeves has announced some piffling cuts and blamed it on the Tories (which I know every incoming party does, but Labour and profligacy go together like British summer and rainy weather)
If raising taxes made things better, the UK would be in good health. The Tories did it…and it isn’t.
The author starts with the false premise that Labour got in on a “service vote”. Now although the public is indeed appalled at the poor level of public services Labour in fact got in because of dissatisfaction with the government’s failure to honour its promises to cut immigration and level up while demanding a record level of taxation. The result was a vote for anyone but the conservatives but the principal beneficiary was Reform not Labour. It is delusional to believe that the country is eager for Labour’s familiar nostrums when the vote for Labour was actually down on previous levels under their former leader.
Having started on the basis of this false premise he goes on to argue in Gordon Brown fashion that all that is needed is more public investment. Splashing the cash on the already bloated public sector while squeezing the private sector has never been a receipt for prosperity.
Because countries can issue their own currencies there is more room for financial manipulation and government self delusion but like any private company success comes from managing to invest in productive areas – to do more effectively with less. What people want of a government is what they want of a company – goods or services at an attractive price and this involves the company cutting out those things the public doesn’t want to buy at the cost demanded. Unfortunately governments are very bad at this. There is no popular demand for Diversity Directors, DEI delivery units and all the ideological baggage of the bureaucratic class but this will not be cut because it is a Labour Party luxury good someone else has to pay for.
If you heavily tax the product of hard work, ingenuity and risk taking you will get less of it . This occurs at every level. My son was astonished to learn that his manager at the bar where he worked as a student was only willing to work 16 hours a week because otherwise she would lose benefits. An early introduction to the effects of perverse incentives. Britain will only get back to a high level of productivity if the incentives for doing so are there and government can get out of the way by cutting impediments that are not justified by a positive contribution to productivity.
Labour did not get in on a service vote at all. Only 17% of the electorate voted for Labour or 35% of the actual turnout. So between 65% and 83% did not vote for labour.
Even more cheery that means 92% of folks eligible didn’t vote for Reform!
It’s not very well known, but when The Beatles, generally considered the best pop/rock band ever, were having lots of number 1s in the 60s, 95% of people never bought a single one! (Probably).
Lol touche!
This is borderline delusional.
“Bond investors would be unlikely to look unkindly on such measures, because they’d rest on the foundations of asset-values, and not the ethereal promise Truss offered that her tax cuts would somehow pay for themselves through future growth.”
It really irritates me, this sort of intellectually-dishonest nonsense that simply ignores the mechanics of taxation and in this case, the fact that the structure of the UK economy has never permitted more than about 37% of GDP to be raised in tax. This is where Britain’s Laffer optimum is: above this point, tax rises suppress economic output and tax revenues fall. We’re presently above that point now, growth is sclerotic because of it, and an even higher tax burden crush growth even worse than at present.
“Similarly, when it comes to taxes, the British public have for years been telling pollsters they’d be willing to pay more to restore public services to their former glory.”
What people mean when they talk to pollsters about tax is that they’re willing for other people to pay more tax to spend on things that they themselves think ought to be funded via tax. To imply that people vote for higher taxes upon themselves is idiotic.
Borderline? It’s full on delusional. And utterly disingenuous at the same time. What sort of bizarre belief system drives people to misrepresent reality in this way?
100%. An appallingly dim standard issue lazy Leftist poke at stuff they do not understand. I have already pointed a finger at the collapse in the standard of our public services. But on wider economy, the delusions also come thick and fast. The eco Pol Potism of I Once Loved Diesel Milliband will make energy costs for business impossibly high; a death knell for industry. Labour is still wedded to Command Dirigiste Regulation – it is what it and the EU it so loves does – and its crass new workers rights again show it has zero understanding of the world of (nasty capitalist) enterprise. Meanwhile, so long as we remain wedded to impossible levels of migration, our broken NHS will never recover. We are in systemic decline as an EU legacy Regulatory State hostile to wealth creation and wedded to human rights entitlement driven welfarism. Rachel had wanted to use the Bidenomic Money Tree to generate growth. Well thats idea has gone. What is left is a saddo shambolic unworkable mess which ignores all these systemic flaws. Chapter 1 on this new Road to Perdition starts at 3pm.
Delusional on every level and outright dangerous.I love the Contrast that with the US, where the Biden administration’s experiment with industrial policy has shown how effectively government investment can crowd in private investment.
Yeah-lets ape the worlds biggest and most dynamic economy with the world’s reserve currency-btw a country that is a net exporter of energy and a level of regulation on every level that is so much less than ours.
Probably the most riduculous article so far this year.
47% of the British public are non- income-taxpayers. While that includes children who are unlikely to be asked by pollsters about whether they are happy to pay more tax it ensures there are plenty of people happy for others to pay more tax to fund their benefits. There are in addition a fair number who pay pretty trivial sums in tax and as it is taxed at source are barely aware of the impact. The net result is that polls indicating a willingness to pay more tax to fund services are completely worthless as a guide to what those who actually pay income tax want.
Those who pay significant levels of direct tax are all to aware that any rise in their tax is unlikely to result in a measurable improvement in services they might use or indeed in any necessary improvement in any service.
Well said, and welcome back…
The left always goes wrong by ignoring the importance of incentives and deterrents. Humans need incentives to do their best and deterrents not to do their worst.
This piece is a delusional spin from the ‘hope over experience’ graveyard of economics. It fools the kids and the uninformed – too often, and for too long.
We already have a laconic workforce. USA gets the growth it does because people have to work hard to prosper. They cannot fall back on the state for everything – and success is not quite yet a dirty word.
Governments don’t grow the economy, people do. Their job is to create the climate for people to invest their labour and money. Labour are going down the disincentive for success route.
Green energy is a replacement activity for fossil fuels, and there’s only so much public infrastructure which can be afforded at any one time – and those big projects are finite. Then what, when facing mass unemployment from AI?
We’ve already had a tax hike. Tax as a percentage of GDP is now at its highest since 1948. In fact, there was never any austerity during the 2010s with a huge budget deficit and rising taxes paying for a state whose expense grew faster than the economy. The author neglects mention this, presumably because it isn’t helpful to the narrative that says we need to tax and spend more. Because of the obvious bias, the author fails to explain how even higher state pending now will achieve a different outcome from the last round of higher state spending. I guess we’re going to have to trust him that this time it’ll be different. Now, where have I heard that before?
Because this time it’s going to be (good and kind) Labour higher state spending instead of (evil) Tory higher state spending.
Of course Reeves will raise the tax burden . Personal Allowances will remain nailed to the floor whilst taxes on capital, inheritance, private investment and education will significantly increase. Meanwhile duties (or forced public subsidies) on energy will continue to rise and local government imposts of all types will balloon. Savers, investors and those not working for or dependent on the State will be hammered. Meanwhile politicians and their overpaid / over pensioned civil servants , incapable of running a whelk stall , will presume to lecture us ever more on how we should lead our lives and spend our money, whilst they waste even more of it in their supposed “ roof mending” business. Or is it now to become a business digging foundations ? If so, one wonders how deep the hole will be.
Labour Government = Tax increases. Simples.
The annual tax take is more than one trillion pounds. £20 billion is not a “black hole”. This is just an excuse not to do things, although quite possibly while putting up taxes at the same time. And which taxes? A tax of one to two per cent on assets above £10 million could abolish the two-child benefit cap 17 times over, while merely taxing each of Britain’s 173 billionaires down to one billion pounds per head would raise £1.1 trillion, an entire year’s tax take. But neither of those is going to happen. Keir Starmer thinks that if anything could be done about child poverty, then it would have been done by now. He has said that.
A sovereign state with its own free-floating, fiat currency has as much of that currency as it chooses to issue to itself, with readily available fiscal and monetary means of controlling any inflationary effect, means that therefore require to be under democratic political control. The responsibility of the Government is to ensure the supply of goods and services to be purchased with that currency. There is no debt. It is an accounting trick. The Treasury, which is the State, has issued bonds to the Bank of England, which is the State. Even if those bonds were held by anyone else, then the State could simply issue itself with enough of its own free-floating, fiat currency to redeem them. There is no debt. There is no debt. There is no debt.
It is impossible for the currency-issuing State to run out of money. Money “lent” to the Treasury by the Bank of England is money “lent” to the State by the State; such “debt” will never be called in, much less will bailiffs be sent round. Call this “the Magic Money Tree” if you will. There is no comparison between running the economy and managing a household budget, or even a business. There is no “national credit card” to “max out”. Terms such as “taxpayers’ money” are extremely and intentionally misleading. “Fiscal headroom” is nothing other than the gap between the Government’s tax and spending plans and what would be allowed under the fiscal rules that it sets for itself and changes frequently.
Giving up democratic political control of monetary policy has been a disaster. Without a manifesto commitment, Labour farmed out monetary policy. The Liberal Democrats forced the creation of the Office for Budget Responsibility. The Conservatives created the Economic Advisory Council out of thin air. Yet on none of those occasions have the salaries of the First Lord of the Treasury, of all other Treasury Ministers, and of all senior Treasury civil servants, been halved, as in each of those cases they should have been. It is difficult to see why those people should be paid anything at all once the Budget Responsibility Bill had become an Act and given the OBR the last word on everything. The same OBR, that is, that Rachel Reeves would have us believe had kept her in the dark about the “black hole”.
Is this intended as a parody of brain-dead lefty thinking? Or some bizzare fantasy? The Liz Truss experiement fatally torpedoed the Magical Money Tree theory you espouse – it’s dead in the water. Carrying on reciting this mantra after that is utterly delusional.
You seriously believe billionaires will just sit there and see their wealth taxed away? I have a bridge in London you can buy…
Just tax 173 people and we’re all sorted! And the following year …?
Nonsense. Those billionaires will just leave Britain. Then you’re left with nothing. Not £1 trillion in tax take, not investment, nor innovation – because there’s no one to fund it.
There is no magic money tree. Capitalism is purely barter, and that is the only way to add value to human endeavour.
Remove the incentives for effort and no one will bother. The young are already showing signs of not bothering.
Good luck to them when AI creates mass unemployment, with the most vulnerable suffering the most.
We just found out that Britian dropped out of the top ten manufacturing countries. Increasing taxes – corporation tax, income tax and expecially energy taxes – can only hasten that decline. Only an imbecilic lefty with no grasp of economic fundamentals can argue otherwise. Sadly they seem to be out in force at the moment.
Yes I saw that. Never seen more contradictions than Labour’s “policies”. Growth but higher energy costs, growth but over 30 of our new bills rrgulatory in nature, growth but increased worker rights, growth but CPOs to take 100% land value uplift to the state. Feels like the UK is in full Pravda mode.
Don’t worry. The enhanced NET Zero policies will mean Nirvana will be ‘Ever Closer’, as will the EU
1. You knew. Paul Johnson IFS won the GE in his ability to communicate your attempted lies.
2. 66% seats on 33% vote makes you vulnerable. This is going to be the shortest honeymoon in history. After all 67% of the voters are already prepared to give you a kicking. No amount of gaslighting is going to allow you to get away with this one.
3. Talent is leaving the UK. We (untalented by many standards) left last year. We now pay 20% tax, no IHT/CGT and it works. We spend part of our time giving free advice to others about how to get here what to expect, etc. A surprising number of acquaintances are seriously considering their options. They are just tired of working harder to stand still. Some of it isn’t tax – many biz owners are just tired of the regulatory burden and hidden fees that go with it.
Why unherd ran this piece of self-serving propaganda I am unsure.
This article certainly contains nothing unheard still less Unherd. I presume this delusional propaganda piece is either to generate infuriated comment or as a sop to our new masters in case they are closed down as a far right hate publication.
Voicing the reflex leftist mantra – Tory Scum ‘Government” is directly responsible for every aspect of public service provision – every hospital appointment, every school building – and that the solution is ‘more money’. The Tories were useless indeed – but not as bad as our banana republic standard public sector and crass permanent Quango technocrats. A BoE who cannot see any risk of inflation after a 2 year suffocation of the economy and 975bn QE. An NHS employing 90% female staff when their own unions deem the workload impossibly ‘anti women’. A WFH workshy civil service who let Afghans fall into the hands of the Tali rathervthan leave their French holoday homes and get into the office to process their appeals. Twisted Leftist teachers who were campaigning to shut schools from day 1 of the covid outbreak, desperate to harm the day 3 Brexit government and not concerned about the catastrophic impact on children in their care. Cold eyed Young Doctors who let thousands of old suffering patients suffer more pain as they pursue their greed and anti Tory agenda. Energy regulators? Water regulators? Defence contractors? HMRC phone lines? No show cops to shoplifters?? Our appalling productivity performance?? It is impossible not to conclude a dramatic collapse in the working standards of our ever more bloated State. Anyone who thinks this Statist horror show will be fixed by medicinal Rachel and ‘more money’ and the just banishment of the Fake limp Tories who were swamped by this crisis is in for quite a shock come 2030.
I would much prefer to borrow Javier Milei’s chainsaw…
What a load of old dingoes kidneys.
What says the cat-loving Ann Widdecombe about J.D. Vance? But British fan clubs of that sort of thing are of no concern. The British are inured to “tax hikes”, and do not mind them too much if they can see something for them. What they mind are spending cuts, including being denied things that they had been led to expect.
It has been 32 years since a party promising tax cuts has won a General Election, and it delivered the opposite in office. To this day, it claims to have bequeathed “a golden economic legacy” that must therefore have been based on much higher taxes. It is making the same claim today.
Tony Blair’s and Gordon Brown’s tax rises led to a second landslide, to a third comfortable overall majority, and to Brown’s effortless accession to the Premiership a full decade after the supposedly infamous “raid on pensions”. During that period, the very poor stopped voting, but the tax-paying, pension-drawing classes carried on voting for Blair and Brown. Brown was massively popular among them until a bank went bust in New York. If anyone noticed the sale of the gold reserves, which a sovereign state with its own free-floating, fiat currency did not need, then no one minded.
Even when global circumstances had led Brown (wrongly, but that is not the present point) to implement austerity, then the other side could not win an overall majority against him. It did, however, win more votes on a less austere manifesto than his, even if, again, it behaved very differently once it had won, although it is possible to attribute that to its Coalition with the heirs of Whiggery, of Gladstonianism, of Alderman Alfred Roberts, of the founders of the Institute of Economic Affairs, and of both sides of the Lib-Lab Pact that had introduced monetarism to Britain.
The British do not mind tax increases, or at the very least they are resigned to them. What they do not like are spending cuts. Having seen five Left Independents elected this year with several near misses, and having created seven more such candidates out of incumbent MPs, Keir Starmer and Rachel Reeves need to think on.
Brown was dumped the first time he faced the electorate as PM.
Does the author of this garbage really believe whatvhe wrote or is the just an attempt at satire?
The election was a vote against the establishment. Starmer and his Labour party are now even more establishment than the Tories, but the did benefit from the Tories being nominally in charge.
Government spending is not a general economic stimulus but a transfer of resources to favoured recipients – almost always a negative sum game.
The only rational fiscal policy is to shrink the role of government, and thus shrink the resources it suck out of the economy and squanders.
67% of the voters voted against Labour. In other words, they cannot claim a mandate for ANY sweeping changes without a referendum. It is worse than that. A recent poll asked why Labour voters voted Labour. Only 5% said they were voting for Labour policies. In other words, support for Labour policies amongst those who voted was just 1.6%. Still worse, turnout was just 60%. That is, positive support for Labour policy is under 1% in the country. Labour has no mandate for its manifesto.
Ridiculous as well as being economically and politically ignorant.
The UK needs growth and tax rises inhibit growth. Labour got 33.7% of the vote, watch how quickly that sinks to support in the low 20’s following more tax increases.
There is a service deficit because of incompetence and lockdowns and the solution is not more money, its to rein in the government and what it aspires to do, not more redistribution.
Surveys saying that people are prepared to pay higher taxes for better services are all easily rubbished because they all come with qualifiers and only a fool thinks that the respondents actually mean it.
This article is worse than the usual clickbait, particularly when it comes from someone who is a beneficiary of higher taxes; hardly a disinterested party.
From all these comments I suppose the answer is to do nothing or…are there any concrete and helpful suggestions? Eviscerating departments of government might be one but would that really make a difference? Halving pensions might be another but that would be catastrophic. Cutting benefits by forcing people (gulag style) to get to work might be another. Closing down the NHS and throwing older pateients out of hospitals to let them die…how about that one? Any helpful suggestions? I don’t hear any innovative solutions…only critical whinging. The Tories were thrown out because no one trusted the anymore…get over it. Rather than whinging…make some concrete, innovative proposals on how to solve this mess. Not same old same old spent solutions. Time yo be bold and innovative. I am a scientist, not an economist. Get to work guys!!
The level of services in this country is quite low but the cost is astronomical. Spend can be, could be, cut without any effect on level service provision at all. With professional management that is, not the dreadful civil service we currently have
Governmemts don’t create wealth or grow the economy, people do. Innovation arises from a climate where effort, sacrifice and preparedness to invest one’s own money goes hand in hand with rewards for success.
No incentives, no effort and no growth.
People need incentives to do their best and deterrents not to do their worst.
Labour is heading down right down the ugly path of mass disincentives and increased dependence on the state, that is, other people’s money.
Seriously, who’s going to bother? Young people are already not bothering. That’s your future.
It’s reasonable to imagine that a state which controls education, health, social care, agriculture, transport, planning, media culture and the arts and does it all very very badly indeed at exponentiating cost might conceivably shrink.
The state could reasonably be reduced to police, justice and the military.
People would not be abandoned. They would rely more on their families, insurance and themselves.
Today they have the temerity to announce a 20 billion shortfall in public funds. They’ve also recently announced nearly 12 billion in foreign ‘climate’ aid and another 8 billion in foreign ‘migrant’ aid. 12 + 8 =
Utter nonsense. The problem is not lack of money but utter incompetent management, especially in the NHS but in every aspect of government provided services. Needs a rigorous approach from new senior managers, ruthless removal of overmanning, and focus on productivity. And budget cuts to enforce all this. Plus tax cuts to rebuild productivity in the private sector.
Something you didn’t dwell on, something that’s ruinously expensive for the country is the mismatch between initiative and regulation. Get that right and success is almost guaranteed.
Over-regulation creates a sluggish morass that few companies escape. It stifles growth. It stymies agility. It costs a fortune.
Over-regulation is why we can’t build houses in Britain. The EU nutrient/neutral planning laws are time consuming, hugely expensive and add practically nothing to our environment.
Over-regulation means we can’t control our borders or deport criminals without a huge costly process. It stops schools being able to educate children properly. It weaponised the law of diminishing marginal returns.
Over-regulation selects for large, cumbersome established companies and against innovative start-ups. It means that everything the government does costs three times as much as the same thing done by you or me.
Cut red tape. Neuter lawyers who grow fat on red tape. Then sit back and enjoy the prosperity that will inevitably follow.
Unfortunately, the Labour government love regulation, the lifeblood of socialism. Prepare for a long period of misery.
Yes services need to be improved. The default solution however needs to be about more than increasing expenditure. The critical issue is to look at different and better ways of delivering a service, not necessarily throwing more money at the problem although it’s not in the DNA of the Labour Party to accept that.
The British People want excellent social services, but can’t afford them? Sadly, Governments have no money of their own, and higher taxation is like a snake eating it’s tail. I guess the People will need to accept worse services, or work harder/better.
UnHerd comment section is a strange place. An (admittedly bad) vaguely left-wing article, timidly suggesting some tax rises… and people here go absolutely mental.
The groupthink of this ‘I’m against the herd’ mob is hilarious, if it wasn’t so sad. Reminds me of Life of Brian- ‘we are all individuals.’ …’I’m not!’
Lol. But surely, the manufactured consensus confirmed by the last election is leaning towards bigger, more resourced, more interventionist government. Naturally the minority who disagree will cluster together.
Broken Britain needs a spending cut, not a tax hike!
Britain needs to reform its taxes to be more efficient, simple and promote growth. Some of that may require redistributing tax from some activities and on to others. Most commenters are delusional here and think you can just cut and cut and still expect good roads, schools, NHS, police service, army and social care, but you can’t.
I believe it was Upton Sinclair who said “A government trying to tax a country into prosperity is like a man trying to stand in a bucket and lift himself up by the handle”
Lol. Great quote.I looked it up. Google says it was Winston Churchill. Upton Sinclair was a socialist.
This is delusional magical thinking stuff. The US is in a unique position using the world’s majority reserve currency which the UK is not. The public are very willing for other people to pay more taxes, just not for themselves. Do we remember when doctors were drawn into the higher tax bracket and all of a sudden it was screeching from various people on the left liberal side. So, what, we tax everybody of other certain salary more except for doctors?! (And possibly manages in diversity inclusion and equity teams!).
Other countries have higher taxes. Some do, some don’t (Ireland). Nations do have different cultures here. But the author might have noticed the struggles of a certain M Macron trying to stop French state debt bloating even more than it already is.
The word investment is now sprayed around promiscuously to mean almost any government spending at all, including increasing salaries. As for public sector “glory”, was it ever,but in any case we need the state did less but did so far more competently than it now does.
“Nevertheless, for private investment to take off, there will almost certainly need to be more public investment in the infrastructure which facilitates economic activity”…yeah, that’s the right formula. Wow.