“A voice spoke unto me and said, ‘Sit back and take it easy for things could be worse’. And I did sit back, and I did take it easy and, behold, things did become worse”. Thus, another little vignette from the miserable 1970s finds itself applicable to Britain of today. On Thursday, the new Chancellor of the Exchequer Jeremy Hunt, whose name has repeatedly and embarrassingly been mispronounced by both radio and TV journalists, gave his much-anticipated Autumn Statement which was important and as impactful as an actual Spring Budget. It was my fellow Teenage Scribbler, Bill Blain, who reported it as a strychnine-coated sugar lump and in that he was right.
Where Billy and I disagree is that he, being more instinctively of the centre-left persuasion than myself, primarily saw the aspect of Hunt doing his best to rearrange the deckchairs on the Titanic. I am slightly less critical for the hand he has been dealt has not come entirely from the misdeeds of his Tory predecessors but from a country which appears to have forgotten that there is no magic money tree, that the government has no money of its own and that all it can do is to re-distribute to the people what it has already taken from them and that there is a school of thought which, equally wrongly, believes in the flawless efficiency of markets.
Let’s get one thing quite clear: In good times the Left and the Right can argue all they like about how the cake is to be shared. But when there is next to no cake left, neither of them has a magic formula for making it re-appear. I recall the cry of “Austerity doesn’t work” when George Osborne was Chancellor in David Cameron’s first coalition government which was elected during the darkest days of the Global Financial Crisis, or GFC. I was never quite sure what that meant. Austerity is not here to work or not to work. It is an acknowledgement that the books are in a critical imbalance, that the country is living beyond its means and that cost control is urgently of the order. Understanding that the imbalance becomes most obvious when there is weakness in the economy and when fiscal revenue is stalling is not all that hard to grasp. Keynes 101 explains that governments should run a surplus during economic upswings so that there is a reserve which can be pumped into the economy during downturns. It used to be termed “saving for a rainy day”.
I never quite felt comfortable with Osborne although I must remind in his favour that he succeeded the two Scotsmen Gordon Brown and Alistair Darling as Chancellor, the former of whom had been addicted to the eye-watering taxes which were being paid by the City and which he treated as a benefit in eternity. It was he, Gordon Brown, who had been invited on 5 April, 2004, to open Lehman Brothers’ new European HQ at 25, Bank Street in Canary Wharf and who said: “I would like to pay tribute to the contribution you and your company make to the prosperity of Britain. During its one-hundred-and-fifty-year history, Lehman Brothers has always been an innovator, financing new ideas and inventions before many others even began to realise their potential. And it is part of the greatness not just of Lehman Brothers but of the City of London, that as the world economy has opened up, you have succeeded not by sheltering your share of a small protected national market but always by striving for a greater and greater share of the growing global market.” And he handed out the dosh left, right and centre with the now legendary rider that he would annually raise investment in services – never expenditure, always investment – “by 3% in real terms”.
Brown made two fundamental errors, the second of which has just been mentioned and which was to assume that the good times will roll on forever. The first, however, was to forget that to large parts of the population, today’s benefit becomes tomorrow’s entitlement, and this was the very same error made a little over a decade later by Prime Minister Rishi Sunak when he was himself Chancellor under Boris Johnson and through the darkest days of the Covid pandemic. As often as commentators raised the point that all the pandemic support ranging from furlough payments to cost of mass inoculation would soon have to be paid for, as quickly as it was forgotten.
Some dreadful mistakes were made, not least of all by Sunak who evidently vastly overestimated to what extent “We’re all in this together” would generate solidarity and war spirit and how quickly the speedily cobbled together emergency funding programmes would be systematically and in spectacular size defrauded. Sunak is no angel. A career at Goldman Sachs and in politics doesn’t breed all-out altruists but he still appears to fundamentally believe in the goodness of the human spirit. That might exist, but when it comes to people awaiting government handouts it quickly evaporates. For better or for worse, the fiscal largesse of the pandemic has left a greater culture of entitlement. The dream of European style social welfare on American style taxation lives on; it is embedded not in party political ideology but in the people as a whole and anybody who dares raise the point that it simply doesn’t work that way is quickly shouted down.
The Office for Budget Responsibility – a creation of George Osborne’s – is predicting that the tax burden will hit a record high of 37.5% as a share of GDP in 2024-25. Taxes as a share of the economy will rise to 36.4% of GDP this year and 37.4% in 2023-24, breaking the previous record. This compares to the 46.2% in France and 42.4% in Italy (2020 figures), both of which on top of that run significantly higher debt/GDP ratios to the UK. What you pay for is what you get and this country, along with many of its Western industrialised peers has for too long been getting far more than it has paid for. That any attempt to reduce the economy’s reliance for growth on the government’s deficit spending rather than citizen-created value added will lead to a “right sizing” – or recession if you prefer – is axiomatic, and yet there exists a deeply ingrained culture of denial.
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