In his early years as chancellor, Gordon Brown used to define his approach as “prudence for a purpose”. Jeremy Hunt’s could be described as “dullness for a purpose”. After Liz Truss’s farcical premiership, the overriding aim of the government has been to restore stability to the British economy and repair the Conservative Party’s poll ratings. Mr Hunt’s first Budget, which will be held on 15 March, has not been preceded by frenzied speculation – and that is how he would want it.
But though the market meltdown that accompanied Liz Truss and Kwasi Kwarteng’s emergency Budget in the autumn of 2022 is now a distant memory, it does not follow that all is well. The UK is the only G7 economy that has yet to regain its pre-pandemic peak and the only major country forecast by the IMF to suffer a recession this year. Under a more optimistic scenario Britain will merely stagnate, but household living standards are still likely to fall by the largest amount since records began in 1956-57.
Public services, meanwhile, are increasingly overwhelmed after years of underfunding and the biggest wave of strikes in decades. The challenge facing Mr Hunt is to address such pressures as he is assailed by demands from Tory MPs – including the unrepentant Ms Truss – for tax cuts.
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In his Budget, the Chancellor will rightly ignore their representations. Though the UK’s tax burden is forecast to rise to its highest level since the Second World War (37.1 per cent of GDP), it will remain below that of countries that are both wealthier and more equal: France (51.7 per cent), Sweden (49.9 per cent), Germany (46.3 per cent) and Canada (40.6 per cent). Mr Hunt’s planned rise in corporation tax from 19 per cent to 25 per cent will still leave the UK with one of the lowest rates in the G7.
The Chancellor will instead prioritise support for household living standards by extending the government’s energy price guarantee, originally due to end in April, for a further three months. This will ensure that annual energy bills remain at an average of £2,500 rather than rising to around £3,000.
But Britain requires an economic reset that goes far beyond such remedial action. The UK has consistently failed to develop a model to replace that which self-destructed during the 2008 financial crisis. The libertarian right and the socialist left both proposed radical alternatives before enduring political defeat. Is there a middle way?
In his essay in the 3 March issue of the New Statesman, Keir Starmer elaborated on his plan to deliver the highest sustained growth in the G7 as part of Labour’s “national missions”. This aim is a flawed one: the UK has no control over the growth rates of other economies and GDP is an imperfect metric. But Mr Starmer’s ambition does expose how far the UK has fallen. From 1990 to 2000 the UK had the highest per capita growth in the G7, while from 2000 to 2007 it had the second highest. In the years since 2007 only Italy has performed worse.
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Though Brexit is regularly cited as the cause of the UK’s malaise, the roots go deeper. Britain’s fundamental problems – dismal productivity, regional inequality, dilapidated infrastructure – long predate the EU referendum. Are either the Conservatives or Labour prepared to truly grapple with them?
By achieving a deal on Northern Ireland with the EU, Rishi Sunak confounded some of his doubters. But the agreement only sharpened the contradictions of his premiership. Here was a Brexiteer who hailed Northern Ireland’s “unbelievably special position”: access to the British market and the EU single market (for goods). In doing so, he merely highlighted the question of why the rest of the UK has an inferior arrangement. Does Mr Sunak have an economic vision beyond managed decline? If so, he is keeping it well hidden.
Labour will eventually have to confront the same questions. As John Gray notes in his essay on page 24, there is a quiet consensus between the two main parties on the fundamentals of economic policy: spending, taxation, public ownership and Europe. Why should anyone expect different results under a Labour government?
The British disease is the shared responsibility of both parties. Soon, rather than lamenting the errors of their predecessors, they will need to offer a cure.
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This article appears in the 08 Mar 2023 issue of the New Statesman, Why universities are making us stupid