Rishi Sunak left the D-Day celebrations early, got caught in the rain and was criticised for some Treasury predictions about tax rises. The Labour Party droned on about “change” and endlessly repeated some imaginary numbers about “investing” in the NHS and creating “green jobs”. Meanwhile, the Lib Dems have sailed on for the past six weeks with fun days out at CenterParcs.
During the election campaign, the main parties have argued furiously about trivialities and created photo opportunities straight out of the Tony Blair playbook. Yet there is an ugly truth behind this election: Britain is much closer to bankruptcy than our political elites are willing to admit. Worse still, no one wants to talk about it.
Now that the campaign is over, it’s worth taking a look at the statistics that really matter. Unfortunately, they’re sobering to read. Taxes are already at their highest level in 70 years, and yet we’re still nowhere near balanced accounts.
Over the course of this year, we will add another £87 billion, or around 3% of GDP, to the national debt, according to the Office for Budget Responsibility (OBR). And this is happening at a time when the economy is recovering and the government has implemented a series of hefty tax rises.
We should be paying down debt at this point in the cycle, not piling on more debt. Our debt-to-GDP ratio is close to 100% and has tripled in the 16 years to 2023, according to the Resolution Foundation, the biggest increase in peacetime history. We are very close to the 112% level that has just led to France’s humiliating downgrade, twice in the last six months.
And it doesn’t stop there. We continue to rack up huge off-balance sheet debts. Like what? There’s already £200 billion in outstanding student loans, and that’s expected to rise to over £400 billion by the 2040s. Few people believe that graduates will earn enough to repay their loans in full, especially as our zero-growth economy is creating barely any new professional jobs to absorb them all.
We are responsible for around £2.6 trillion of “unfunded” public sector pension entitlements. As the state continues to employ more people – we added another 135,000 people to the government payroll in the year to September 2023 – that figure will grow ever larger. We are legally required to meet a net zero target, which the OBR has calculated could add at least another £300 billion to the cost of government over three decades. In Wales, a staggering 28 per cent of working-age people are now on benefits, relying on the state to support them, and the figures are little better in the rest of the country.
A few minor tweaks to the tax system, such as tackling tax avoidance or cracking down on non-doms, won’t make a difference. As the OBR has pointed out, the tax burden is expected to rise to 37.7 per cent of GDP in 2027-28, the highest level in our history. Sure, you could argue that a handful of European countries are managing to squeeze more out of their tired citizens, but there’s no empirical evidence that’s possible in the UK.
Anyone who claims that we are still “under-taxed” compared with much of the rest of Europe, to paraphrase Labour adviser and former HMRC boss Sir Edward Troup, needs to explain why no-one has managed to extract more than 40% of GDP from the taxpayer in the past. It is rather incredible that even Labour Chancellors of the 1970s, such as Denis Healey, who (in)famously promised to tax the rich “until the pips squeak”, have collected less than Jeremy Hunt does now.
Britain is entering uncharted fiscal waters. We are facing additional spending on health and social care as our population ages. We have record levels of economic inactivity and those who are neither looking for work nor in work need to be supported somehow. We have stagnant productivity but only by increasing output can we achieve real growth. The ‘peace dividend’ is over. Politicians from all walks of life are determined to waste hundreds of billions on net zero.
And yet we are at, or close to, our tax cap. The country can only cope with entrepreneurs moving elsewhere, businesses relocating and individuals taking early retirement. Were politicians honest during this election campaign about the state we are in and the really tough decisions that need to be made to get us out of this lethargy?
In late June, the Institute for Fiscal Studies (IFS) published research into these fearsome spending demands. It claimed that there was a “conspiracy of silence” and that “painful choices” were being ignored. Strangely enough, given that the IFS report is revered by a political class that pays lip service to “evidence-based” policymaking, it was ignored with depressing predictability. No one wants to talk about it. Why? Perhaps we are in collective denial. Perhaps the reality of our plight is too harsh.
But this cannot last. The UK is facing a budget crisis, while the global economy looks as precarious as ever. The US, under President Biden, has undergone a wave of unprecedented government borrowing, but the sugar rush is now wearing off and our largest trading partner may well enter a recession by the end of the year. The eurozone looks incapable of sustainable growth and could fall back into crisis at any time, not least if France enters a debt crisis.
The Chinese economy is not growing like it did a decade ago, and a wave of cheap goods could soon undermine British and European manufacturing. As we discovered during Truss’s short-lived premiership, the UK is vulnerable to a collapse in bond market confidence.
The Bank of England has little credibility left, we do not have the luxury of printing the world reserve currency, nor do we have the sheer size of the Euro to protect us. If the bond markets decide not to finance our delusion that we are still a rich country, then we will be heading straight for a catastrophic financial crash.
So here’s what politicians aren’t telling us: the UK is perilously close to national bankruptcy. It could take only a mild global downturn to push us over the edge. And no one dares mention it. Of the many deceptions of this election, this was the biggest.