Jeremy Warner
Sometimes it pays to be bold. For our beleaguered government, this is one of those moments. Having settled the ship after last year’s near sinking, the public finances are again on an improving trend, or are at least looking a little bit better than was expected.
This has prompted renewed calls – with the Tories trailing badly, and very likely terminally, in the polls – for vote-buying tax cuts. The impact of rising interest rates on debt servicing costs, together with ongoing losses on quantitative easing, could yet derail all the gains now being made on deficit reduction. But then, what is there to lose? The Autumn Statement in early November would seem to be the last opportunity the Government has got to at least flag the tax cutting intention; come the Budget next spring, it may already be too late credibly to be announcing pre-election giveaways.
For now, taxes are rising strongly, not falling – as is apparent from the latest data on the public finances, with receipts for July quite a bit better than the Office for Budget Responsibility thought they would be. So far this fiscal year, borrowing is £11.3bn less than would be consistent with the OBR’s projections, or enough to cut the basic rate of income tax by 2p in the pound.
But let’s not get carried away; borrowing is also £13.7bn higher than the same period last year. Like a constantly receding horizon, the point at which we start to make serious inroads into the nation’s debt mountain is never quite reached, and if there is a recession coming, then it will be another couple of steps back again. Downing Street likes to frame today’s rising tax burden – already set to be the heaviest since the Second World War – as a necessary corrective to the fiscal madness of Liz Truss, or a kind of purgatory that we must all suffer until credibility is fully restored. And on many measures, the position does indeed continue to look perilous. Thanks to elevated inflation, the debt interest burden is still rising precipitously, eating up precious taxpayer pounds that might otherwise be spent on better schools, hospitals, roads and defence, or – heaven forbid – letting us keep a bit more of our money. Ministers virtually bankrupted the country protecting people first from the ravages of the pandemic and then the punishment of sky-high energy prices.
Admirable though it may be to now don the hairshirt by way of penance, it doesn’t poll well with the voters, who have become used to the idea that the magic money tree will always provide. Not any more. The time honoured palliative of repeated doses of monetary stimulus has been fully used up. Persistent inflation has put paid to all further relief. There is nothing left to hide behind; the UK’s underlying economic weaknesses are revealed in all their ugly detail.
Yet merely contrasting the Government’s supposed fiscal responsibility with the Opposition’s presumed and likely profligacy is unlikely to hack it at the ballot box. Nor is lurching to the Right in today’s culture wars, though this might at least save the Tory Party from the irrelevance that has befallen much of the traditional centre right on the Continent. By seeking to appease the Left, these once mighty centre right political forces have created a void into which has stepped the likes of Germany’s AfD. That could easily be the fate awaiting the UK’s Conservatives, even if Britain’s first past the post electoral system makes it less likely. For now, Reform – the successor to UKIP and the Brexit Party – poses little threat. Even so, something plainly has to be done to get Britain out of its slow burn economic malaise, or eventually the likes of Reform may indeed get their chance. Right now, ministers are struggling to deliver a credible way forward.
Things seem to be on the slide more or less everywhere. Some blame Brexit, an all consuming, oxygen draining process which has sucked the life blood out of almost everything else. Certainly it hasn’t helped, and alarmingly, might even be the final death blow for Britain’s volume car industry, which is falling perilously behind its Continental peers in the dash to go electric. The great irony here is that we already buy more EVs than any other European country bar Germany, yet it looks less and less likely that we’ll be actually making them. Rules of origin make it more attractive for multinational players to focus future investment on the Continent. Turbocharged by the low cost coal fired energy that Britain has banned, the Chinese assault on the UK market also looks increasingly hard to counter. Once the petrol engine is outlawed – currently scheduled for 2030 – it’s curtains for what remains.
Yet Britain’s economic woes long pre-date Brexit, the vote for which was more of a symptom of those weaknesses than a cause. Rather, we must seek explanations in an increasingly uncompetitive tax system, in oppressive and mounting levels of regulation, in the quagmire of UK planning laws, and in a hopelessly unproductive public sector. I marvel at Britain’s apparently growing success in the creative and tech industries, for in large parts of the economy it’s hard to get anything done at all. London, the beating heart of the UK economy, continues to thrive on its global standing, and its unmatched position at the international crossroads of commerce. Friends from overseas constantly tell me what an amazing and uniquely vibrant city it is. But for how much longer, given the mounting barriers to enterprise? Past momentum can only take you so far.
Downing Street is playing down hopes of tax cuts in the Autumn Statement for fear of giving false hope. Even a quite mild recession would at a stroke eliminate any headroom the Chancellor might have within his own already very loose fiscal rules. Hunt has made a virtue of parsimony, contrasting it with the implausible “all things to all men” flip-flopping of the Labour party. But after 13 years of going nowhere, you need something a little more uplifting as an electoral message than simply that of being not quite as bad as the other lot. When staring defeat in the face you’ve got nothing to lose by taking risks, even when it comes to the public finances. There are ways of doing it which are not going to upset the entire apple cart. It’s time to throw caution to the winds and roll the dice. As I say, what have they got to lose?
