Budget test for Hunt: does the Treasury grasp the enormity of global events?

This is Iain Martin’s weekly newsletter, exclusively for Reaction subscribers.

Ask a business or political journalist in Britain to name their least favourite day of the year and there is a good chance many will say “Budget Day”, which falls this Wednesday. Once the Chancellor of the Exchequer sits down, having delivered his speech at lunchtime in the House of Commons, many millions of words will be written by us hacks in the hours that follow. Endless graphics will be created to go with the news and analysis. The collective output is highly impressive in terms of speed and scale.

How much of it is read though? At The Scotsman newspaper I recall an editorial conference two decades ago in which we debated whether to put the bulk of the coverage in the main paper, or instead create a separate section where most of the Budget coverage could be siloed. The deputy editor, a gruff Greenock Morton FC fan from Cumbernauld, favoured a pull-out, or as he described it, “a 24 page pull-out, cut out and throw away section.” Harsh. In the end I think we went for a pull-out section and masses of Budget coverage in the main paper as well.

The volume of coverage is a legacy of the long gone days when the Budget was a commercial opportunity for newspapers. The British have this strange tradition of a single Budget day, when all tax decisions are announced. Pre-television, if you wanted to know what the measures unveiled by the Chancellor cost you and your household, you needed a newspaper to guide you through the changes. I remember in the 1970s my father taking our transistor radio into the office with him so he could listen to the Budget live and work out the impact of Denis Healey on the family finances.

Jeremy Hunt will no doubt be measured across the media next week on a similar basis, viewed through the national prism of household finances. Scorecards involving income tax and fuel tax will be constructed. This year it is fiddling around the edges.

What really matters on Wednesday is whether or not Hunt and the Treasury have understood the enormity of the threat to future prosperity flowing from the US decision to subside American industry and suck investment out of Europe on a multi-trillion dollar scale. The EU cannot respond in kind, as it lacks deep, integrated capital markets to put rocket boosters under state aid. And the UK will get squeezed badly in this too.

Subscribers to my newsletter will be familiar with this theme (sorry) but I’m keeping going because it is the biggest story. Those few of us banging on about it feel like characters from those dramatisations of the financial crisis, pointing at graphs in late 2006 and telling people to wake up.

This is not to say the pain of the cost of living crisis and the immediate prospects for squeezed households are irrelevant. That pain is as nothing, though, compared to what is coming thanks to America’s subsidy policies that will remove investment, factories and jobs from the EU and UK. VW paused a new European batteries factory this week and announced it was considering going to the US for subsidies. The UK Institute of Directors is the latest organisation to implore the government to respond to American subsidies and tax breaks.

The test of this Budget is this. Can the Chancellor show he understands what is happening and find a way to explain it to head in the sand Westminster? In an hour-long speech, at least a quarter should be devoted to explaining the geopolitical and investment context and announcing incentives to invest in Britain.

Sadly, it seems the government will not listen to complaints about its plans to put up corporation tax to 25%, a hike at just the wrong moment. At a bare minimum they could restrict the raise to 21%, matching the US. The chances of keeping the UK rate at 19% are zero it seems, such is the Chancellor’s determination to go all the way to 25%. The Treasury conviction is that last Autumn’s shenanigan’s under Liz Truss make higher taxes a public good in and of themselves always and forever.

Circumstances have changed, and fast. America has, perhaps accidentally, unleashed the prospect of industrial and economic havoc on Europe, just when it is demanding its European allies side with it against authoritarian China.

There is the tantalising prospect of the Biden administration realising it has made a mistake and making a deal to prevent a split in the West. Not by scrapping the Inflation Reduction Act subsidies, or the Chips Act prioritising microchip production in the US. That u-turn is not going to happen.

Instead, perhaps the EU and the UK will be offered something short of a free trade deal with the US. Preferential trade terms sanctioned by the White House, which controls trade policy, could be feasible. Although the UK can lobby for “carve-outs”, as it and the EU are doing privately, the Chancellor cannot rely on concessions and should maximise incentives on Wednesday ahead of what is going to be an almighty scramble for investment across the West.

In addition it makes the Treasury quibbling over a few billion of demands for increased defence expenditure from the MoD look silly when the government says it wants a new national focus on science and technology. As the dominance of the West coast of America and the rise of Israel as a tech power demonstrate, defence is often the driver in the development of a nation’s technology capacity, industrial clout and nuclear expertise.

This is the real context of the Budget this week. Jeremy Hunt has steadied the ship. Can he steer it quickly in a new direction?

In non-Match of the Day news…

I must apologise for having almost no opinions on the story dominating the news in Britain today. The BBC has suspended Gary Lineker for expressing liberal political opinions about migration. The former footballer is, or was, host of Match of the Day, a television programme. The world of football – whatever that means – is supposedly in uproar. Lineker’s fans on the left are presenting him as a free speech martyr. His critics on the right say he had to go on the basis he is annoying. If the situation had been reversed, and Lineker had criticised migrants and backed the government, he would be attacked by the left and supported by people on the right. Meanwhile, in lesser news items, China this week brokered a deal between Saudi Arabia and Iran, another sign the Chinese Communist Party is building an authoritarian bloc that includes Russia. And Saudi is using its leverage to worry the US and get more out of it on defence. Oh, and this week Silicon Valley Bank collapsed, raising fears of financial contagion and recession in a US economy that is already overheating.

Why has the social media mental health epidemic produced no meaningful political action?

What are you reading this on? There’s a good chance this newsletter is being beamed at you on your smartphone, a powerful mini computer that would have seemed far-fetched just thirty years ago.

Now? The smartphone looks a lot less wondrous if you read Jonathan Haidt’s latest Substack article about the teenage mental health epidemic and the rise of social media. The story was followed up in various places last week, including in the FT.

In essence, childhood has been transformed since the arrival of the smartphone and the rise of social media networks. In 2010, the photo and video-sharing network Instagram was launched. In 2011 the iPhone 4 (the first with a front-facing camera) was released.

The combination caused a revolution in teenage behaviour, with the young across and beyond the West spending hours each day on their phones, taking pictures of themselves and others, sharing and commenting on the images, faster and faster, socialising virtually rather than face to face in groups in real life.

In the last decade, the line from supposedly sophisticated tech gurus speaking at tech conferences has tended to be that there isn’t enough evidence to worry about the effects on mental health, especially in teenagers. I remember one guru with a beatific smile telling me how concerns on social media were overdone. There had been a panic about the rise of television in the mid to late 20th century. This panic about smartphones could be equally groundless. Couldn’t there be, it was said, another explanation for the sharp deterioration in teenage mental health? It was suggested perhaps children were getting depressed in greater numbers because of the financial crisis in 2008 and the austerity that followed, when their parents were under pressure financially.

In his long post, Haidt lays out the evidence and studies to date and very persuasively suggests there is now enough information in. If it had been austerity to blame, then the numbers on depression and mood would have stopped getting worse when economic growth returned. Economic growth came back, yet the numbers on teenage mental health kept getting worse.

Says Haidt: “A lot of new work has been published since 2019, and there has been a recent and surprising convergence among the leading opponents in the debate… There is now a great deal of evidence that social media is a substantial cause, not just a tiny correlate, of depression and anxiety, and therefore of behaviours related to depression and anxiety, including self-harm and suicide.”

It is surprising this is yet to register properly in political terms. Rightly, there is a live argument about clamping down on extreme harmful content, such as that relating to suicide and eating disorders.

The extreme harmful content, it turns out, is only one part of the problem. The content deemed non-harmful, the endless pictures and comments comparing and contrasting aesthetic appeal, lifestyle, are just as big a problem. That non-harmful content rewired childhood and the processes of socialisation. The non-harmful stuff can be very harmful if consumed in large quantities, and big tech depends on us all consuming ever more of it.

Haidt highlights numerous pieces of peer-researched work and includes numbers about youngsters in the UK that are deeply troubling. It’s worse the more time is spent on social media. Under the heading “Percent of teens depressed as a function of hours per weekday on social media” his graph shows that at half an hour of use a day 15% girls are depressed. At five hours a day it is almost 40%. Girls are far more prone to this than boys.

On a Twitter thread about the Haidt post someone said something that jolted me. Apologies, in the crazy Twitter blizzard I didn’t clock who it was. How can it be, he or she asked, that there has been so little attention paid politically to the way these apps signed up the under-16s and with a simple click allowed them to give away their data and be allowed access to highly addictive apps? The apps that are, it now appears, injurious to their mental health.

It is not hard to see how this could develop, with a new campaign against the harm done by social media overuse. Imagine an almighty, popular political storm with an even bigger legal backlash against the tech firms than the one taking place already.

For some reason the name Sir Nick Clegg springs to mind. The former deputy Prime Minister is President of Global Affairs at Facebook, owner of the site that critics of big tech portray as ground zero in the social media teenage mental health epidemic – Instagram.

What I’m watching

Wonderful rugby on television, pretty much all weekend. The Six Nations will make a welcome change from last weekend when on Sunday a devoted Manchester United fan forced me to watch his club play Liverpool (at football, not rugby). This great derby is a clash that should be enjoyable for a neutral, like me, and yet it was not. As a boy I liked Liverpool, because of Kenny Dalglish, the Scottish footballing genius who wore the number seven jersey. But I liked Man Utd too: it featured a lot of Scots in the 1970s and 1980s. Being so young and naive in the 1970s I failed until later to realise the extent to which the two clubs and their supporters hate each other.

That long legacy of animosity helps explain the extended celebrations undertaken by Liverpool fans when they thrashed Man Utd 7-0 last weekend. After the second goal went in, at the beginning of the second half, Man Utd’s players suffered a psychological collapse, the footballing equivalent of the events being experienced right now by the Scottish National Party as it attempts to choose a leader to replace outgoing First Minister Nicola Sturgeon.

Unlike with the SNP, the Man Utd disintegration was difficult to watch. The second half of the match at Anfield was like a long, gruelling, violent scene in the third series of police drama Happy Valley. Not only did the howls of despair from the Man Utd fan by my side make it difficult to concentrate. It was worse than that. So complete was the collapse and capitulation that I started to feel sorry for the Man Utd players.

Objectively, it makes no sense to feel sorry for players who are highly paid and pampered. A humiliating defeat will have taught them valuable lessons about life. Regardless, their bewilderment became pitiable. Their relatively new coach – the admirable Erik ten Hag – has turned the team around, or it looked as though he had turned it around until this game. And then along came their biggest rivals with seven goals, seven appropriately enough being the number on the back of the jersey worn by Liverpool legend Dalglish in the late 1970s and 1980s.

This weekend, Scotland’s rugby players and fans hope to avoid the grisly fate of Man Utd. My team Scotland takes on the world’s leading side, Ireland, at Murrayfield on Sunday. Kick off is at 15:00. Pray for us.

Before that, on Saturday Wales are in Italy with kick-off at 14:15. England host France at Twickenham, kicking off at 16:45. What a contest is in prospect.