Britain has had Conservative-led government for the best part of 15 years, and run a budget deficit for all but one of them — despite the aspiration in the party’s 2010 manifesto to “eliminate the bulk of the structural deficit over a Parliament”.
Events have put pay to that hope of a balanced budget. Few then would have foreseen Brexit — and then the worst worldwide pandemic in a century, plus Putin’s bloody invasion of Ukraine. So recent governments have borrowed money and raised taxes — as well as cutting public spending in one of those years. That’s understandable. But these emergency measures risk hardening into permanent facts. We’ve avoided that fate in the past by growing our way out of higher debt and taxes.
But we’re not doing the same now. In only one year since the financial crash has Britain’s economy grown faster than before it (excepting the freak circumstances of the bounceback from Covid).
Our tax burden is projected soon to reach its highest level for 50 years. Our debt is very close to exceeding GDP, for the first time in some 60 years. Public spending reached over a trillion pounds in 2020/21.
We face a triple whammy of higher spending, taxes and debt — all at once: in short, absolute decline. A similar fate confronted us in the late 1970s, but Margaret Thatcher’s governments helped to grow Britain out of it.
However, there is a crucial difference between that era and ours: demography. Our fertility rate has fallen from a high of 2.8 children per mother in 1963 to 1.7 today — part of a wider story of European demographic decline.
No wonder “the major trend of the past 70 years has been a steady increase in the share of government spending devoted to health and a corresponding decrease in the share devoted to defence”, as the Institute for Fiscal Studies reports.
Running out of options
Britain is greying: healthcare and pensions spending now consumes some £260 billion — roughly a quarter of the total. And when a country’s birthrate falls and its population ages, as ours is, it has three options, if its economy is to grow.
First, for its people to work longer. Second, to import workers — in other words, to go for more immigration. Finally, to cut public spending.
We’re already working longer. Successive governments have raised the age at which the state pension is received. Can it be raised further? Perhaps, but voter resistance may prevent repeated rises. Besides, it’s uncertain whether societies with ageing populations are capable of sustaining growth whose proceeds are fairly shared.
We’re already importing labour. Indeed, net immigration is at record levels. Can we take more? Yes in some cases, no in many others — the greater number, if public opinion is any guide. Furthermore, while migration raises growth in overall terms, it doesn’t necessarily raise growth per head, let alone ensure that the taxes which it helps to generate are shared fairly.
Can public spending be cut? The IFS points out that Conservative-led governments since 2010 “have acted to keep total public spending relatively flat in real terms”. But the pressure on it from healthcare and pensions spending is relentless and, like western governments elsewhere, our recent ones haven’t found ways of reducing its propensity to rise.
The long emergency
Against the current backdrop of higher consumer spending, the prospect of Britain in absolute decline may seem remote. After all, our country has a lot going for it: our strengths in financial services, life sciences, the best of our universities, green investment, much sport, the arts and culture, legal services, soft power.
Nonetheless, the challenge is urgent. The Office for Budget Responsibility’s Fiscal Risks and Sustainability reports convey a sense of its scale. They suggest that the costs of meeting our pensions and healthcare commitments will double as a percentage of GDP over the next 50 years.
At current levels of tax, the borrowing required to fund them would surge to 310 per cent of GDP by 2070 — the highest levels in our history. It’s hard to see how that would be sustainable.
It’s a statement of the obvious that no-one can know the state of Britain in 50 years time. Perhaps AI will unleash a productivity miracle. Such a fourth route out of demographic decline may indeed open up. But there is no guarantee that its proceeds will be shared fairly if it does — in other words, that Britain “levels up”. And faster growth may not come. Recent advances (smartphones, “the internet of things”, protease inhibitors) haven’t produced the same rates of growth as previous waves (cars, washing machines, penicillin.)
The failing status quo
Conservatives of all kinds will recoil at this prospect of spending, taxes and debt chasing each other upwards until the inevitable crash. It will unite in believing that the state is too big and too weak, that it should be smaller and stronger — and that we must bring that tax and debt trajectory down before it brings us all down.
The analysis and programmes of others will focus on institutional failure. Our political parties are being hollowed out. So is Parliament — as it increasingly becomes a platform for local campaigners, rather than a forum to meet national challenges. Whitehall as well as Westminster is failing Britain. This has a profound effect on place (parts of the country are permanently in recession) and on people — not least on the willingness of our best and brightest to stand for public office.
For who would blithely volunteer to become a “politically exposed person” — and so open themselves up to restrictions on earning, trolls, curtailed banking, IPSA, unsocial hours, stalkers, family separation and the Standards Commissioner?
Reducing the supply of government and reducing the demand
Others still in the conservative family will seek ways, in response, of reducing the supply of government — without which lower taxes won’t happen.
We believe that less supply of government will be very hard to achieve without there first being less demand. So the limited but important aim of our current ConHome project is to develop a programme to reduce demand for government. This site will run an article a day about it for the next fortnight.
First, we will deal with alternatives of which some are necessary but none sufficient: the abandonment of entire government functions, “austerity”, efficiency savings, “starving the beast” and “going for growth” — i.e: cutting taxes but not spending.
Next, we will turn to reducing demand. How can it be done? Take two children of similar ages and dispositions. One grows up with strong parenting, has a good education and then goes on to rewarding work. The other doesn’t. Which do you think is more likely to draw on youth offending services, probation, prison, debt counselling, mental health provision, substance abuse help, state benefits — and the health service?
To identify the second kid is, at least potentially, an act of social justice — not judgementalism. To help him and others has been the great work over the years of Iain Duncan Smith and the Centre for Social Justice that he set up.
ConHome is a website, not a think-tank. We don’t have the resource to develop a programme for families, education and work all at once.
So we concentrate for the moment on ways of strengthening families, civil society and government, so that demand for the latter is reduced. We’re grateful to all our contributors and columnists for their ideas and support.