‘I told you so’ – the most irritating four words in the English language, dripping with self-satisfaction and schadenfreude. So, forgive me. A year ago I – or rather, ‘we’, the House of Lords Economic Affairs Committee of which I was chair – told you, the great British public, that the UK risked economic catastrophe. A cross-party group including Corbynites and Thatcherites, we came to one crushing conclusion: unless this government took tough decisions this Parliament, the UK’s sky-high debt might well become unsustainable.
A year on, what had been the subject of intense but largely ignored scrutiny in Lords’ Committee Room 2A has, at last, become the dominating issue. Being interviewed at Labour conference this morning, Chancellor Rachel Reeves has dared the country to ‘judge me on my record’. But as the red ink continues to rise and the drip of bad economic statistics turns into a flood, our Nostradamus forecast is sadly becoming more likely by the day. You cannot escape depressing articles about OBR forecasts, fiscal rules, and debt measures. Do you know your PSND from your PSNFL?
Get ready for years of economic and political agony
So let’s blow away the statistical, acronym-filled fog and focus on just two numbers. The first is 156: the government’s mammoth working majority. That figure, however, gives only the illusion of power. Keir Starmer is not master of his own ship. The Prime Minister lost control over his economic policy when his MPs forced him to drop plans to cut welfare spending earlier this year.
That revolt was just the start. Mainstream Labour wants to spend more – especially on welfare, by abolishing the two-child benefit limit – and pay for it by whacking up taxes even higher. Far from worrying about the rising tide of debt, their cheerleader Andy Burnham thinks ‘we’ve got to get beyond this thing of being in hock to the bond markets’.
That brings us to the second number: £111 billion – the forecast cost of servicing the UK debt in 2025, which Burnham thinks higher taxes and spending will ‘get beyond’. But bond traders think otherwise. Putting up taxes even higher will suffocate the growth the UK so badly needs to service its debt, let alone pay for increased defence spending, an ageing population or a creaking NHS. Instead of higher spending, they want the bloody stumps of tough spending cuts.
So this is war. Spenders versus cutters, Burnhamites versus the Bond market, 156 versus £111 billion. Who will win?
November’s budget will be the next battle. The Burnhamites will win, rejoicing at higher taxes on banks, gambling and the so-called wealthy. The bond markets will not react violently – they are already in the brace position, ready for bad news. But as each week passes, the cost of servicing our debt will notch up as the denizens of the City and Wall Street see growing risks in the UK economy. And suddenly, something we have not factored in – a cyber attack, an oil shock, ‘events, dear boy, events’ – will bring everything to a juddering halt.
So unlike the market blowout that followed Liz Truss’s budget, this Budget will be a slow puncture. But the ending will be the same. The cost of servicing our debt will rocket, leaving the Chancellor with no choice but to scuttle back to parliament, teary-eyed, cleaver in hand, to announce a raft of spending cuts.
And what will happen then? The Labour left won’t vote en bloc against the painful necessity of cuts. Nor will they vote with the opposition parties in the inevitable vote of confidence and bring down their government. Why? A hardened Conservative whip once told me about what he called the ‘brown box moment’. When confronted with the prospect of a general election in which rebellious government MPs face certain electoral oblivion, the thought of having to pack up their Westminster offices means they quickly forget all those ‘values that brought me into politics’. How much better to swallow one’s principles, vote for the unthinkable, pocket a few months’ more salary and postpone the inevitable kick in the ballots.
So get ready for years of economic and political agony, during which we will have to suffer and pay for a government twisting in the wind, unable and unwilling to do what is required to address the mess we are in: to rewrite fundamentally the role and responsibilities of the state versus that of the individual. Power will lie not in the City of Westminster but the City of London: the winner of this war will be that ‘thing’ called the bond market. The government, cutting just enough to satisfy the traders, will stagger on until it is put out of its misery at the next general election.
In that election, my money – if Reeves has not taxed it away – is on the electorate blowing the doors off the political consensus that has lasted for a generation. Radical reform – of welfare, immigration, how we pay for the NHS and education – will no longer be off limits but will become mainstream opinion, as people realise we can’t go on increasing taxes to pay for ever higher spending. People will vote for the party that understands Britain isn’t working at any level and has a clear, honest, bold plan to address it.
Maybe Reeves will surprise us all, and in some Clark Kent moment will become the brave, reforming Chancellor that Britain so badly needs, using Labour’s massive majority to restructure welfare and bring spending under control. We might then just avoid the gathering storm – and, in a year or so’s time, I will not be writing ‘I told you so…’
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