The bleak future of the UK’s public finances can be summed up in a few statistics. For the financial year just ended, the Office for National Statistics’ provisional estimate for the government’s deficit – the gap between income and expenditure – is £151.9 billion. The Office for Budget Responsibility’s estimate is that spending on welfare (including the state pension) will rise from £313 billion in 2024/25 to £377 billion in 2029/30 in today’s money – an increase of £64 billion. The government, meanwhile, has proposed changes to the welfare system, reducing Personal Independence Payments (PIPs) which it hopes will save £4.8 billion a year.
The electoral winners will be the party which promises to bring order back to the public finances
These changes have been opposed by 42 Labour MPs who have written to the chief whip to object, although it is reported that a further 100 of them – more than enough to wipe out the government’s majority – have also expressed their intention to rebel. The government also intends to spend £1 billion a year on a back-to-work scheme which it claims will mitigate the fall in benefits for many people. But, like the government’s other efforts to grow its way out of fiscal disaster, it looks like under-delivering: the Learning and Work Institute claims that it will only help 70,000 people back into work by the end of the current Parliament in 2029.
The government, in other words, is only fishing around in the shallows when it comes to trying to rein in public spending. The savings it aims to make will hardly make a dent in the expected increase in the welfare bill.
And yet even those modest savings seem to be politically impossible. We have a party in power, many of whose MPs will not tolerate any cuts to welfare whatsoever. They are not interested in the figures showing that the government is living well beyond its means. They are driven purely by emotion, and by the sense of entitlement and rights. Inasmuch as they are interested in the public finances at all, they imagine that the vast gap can be filled by more taxes where ‘those with the broadest shoulders bear the burden’, especially a wealth tax – in spite of gathering evidence that many of those with broad shoulders have been fleeing the country.
Look rationally at the figures above and there is only one reasonable conclusion: that, barring a sudden change of attitude on the part of those in power, Britain is heading for national bankruptcy. We are going to be in the position that Greece and Spain were in back in 2011. Only in our case there will be no European Central Bank to bail us out.
Maybe the IMF will help, just as it did in the 1970s, but if it does, any rescue package will come with demands for very serious cuts which will make the ‘Tory austerity’ of the 2010s seem extremely mild. Benefits will have to be slashed and whole areas of government spending abandoned.
Global bond investors have already shown signs that they are losing faith in the ability of the UK government to repay its debts. They are demanding interest rates which exceed those demanded in the wake of Kwasi Kwarteng’s infamous mini Budget in 2022. At some point they will call time for good on Britain’s loose fiscal policy – at which point the political landscape is going to change totally. As in 2010, the electoral winners will be the party which promises to bring order back to the public finances and help Britain recover from what will be a very deep national embarrassment. I don’t think it will be the Labour party.
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