As the prospect of a Labour government draws nearer, Britain’s future does not look any brighter. Last week, the Institute for Fiscal Studies (IFS) quietly published a shock statement to the financial press that was overlooked by many. The IFS stated that whichever party won the next election would be handed the worst fiscal situation Britain has faced since it emerged from post-WWII indebtedness and rationing.

According to IFS Director Paul Johnson, any government that hoped that it would be saved from Britain’s awful fiscal situation — specifically a yawning deficit of around 4.4% of GDP — by a bounceback in economic growth would be “miraculously lucky”. Johnson added that whoever won the election would have three choices. One option would be accepting “painful” public spending cuts. The other would be to raise the tax burden to an 80-year high, the highest since WWII. The final option would be to let things stand as they are and ramp up borrowing, but this would likely trigger a fiscal crisis of the sort that the Truss government experienced.

The reality is that the Labour Party will almost certainly win the next election, but it will be handed a bowl of fiscal gruel. Far from being a breath of fresh air that will bring in a new era of economic and political dynamism, Labour will be forced to become the party of austerity. The British public will be forced to stomach lower-quality public services, higher taxes and, likely, even more strikes and dysfunction in public transport.

These austerity measures will be turbocharged by geopolitical events. At the start of the year, Defence Secretary Grant Shapps warned that Britain would be at war with China, Iran, North Korea, and Russia within five years. These warnings triggered an extensive public debate on the status of British military preparedness. Starmer has seemingly accepted this hawkish stance, stating that security would be a Labour government’s “first priority”.

Although it’s unlikely that the Labour leader will press ahead with Rishi Sunak’s national service plan, it is possible that he will ramp up the UK’s defence spending, which could prove costly: Starmer is committing to 2.5% of Britain’s national income to defence by 2030.

The reality is that Britain is broke. The events of the last few years, starting with the lockdowns and then moving into the energy price subsidies in the wake of the Ukraine war, have bankrupted the country. Various Tory governments jumped headfirst into these policies without even considering their costs, and the Treasury seems to have gone along for the ride, having consistently backed economic support schemes during the lockdowns and extended the Government’s energy price guarantee scheme for months. Now the British public will have to bear the costs, we should expect to see rising taxes and a sharp decline in quality of public services.

What should Starmer do as PM? Unlike Liz Truss, the Labour leader is unlikely to be a risk-taker — so taking a gambit that the bond markets will accept a lax fiscal stance is a non-starter. Rather, he will have to rule over a series of painful tax increases and impose austerity on public services that are already subpar. Britain is facing a bleak future — no matter who is at the helm.

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Philip Pilkington is a macroeconomist and investment professional, and the author of The Reformation in Economics

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