Liam Halligan is an economist, author and broadcaster and the newly announced Director of the Centre for Policy Studies.
I’m a natural optimist – and remain convinced that Britain is still a great place to live and work. This country still boasts a clutch of world-class companies and top universities, along with great scientific and artistic acumen. And – crucially – the UK is lucky to play host to thousands of small and medium-sized enterprises (SMEs) run by talented, driven entrepreneurs.
But it strikes me that for quite a few years now, any economic success we have had in Britain has been despite rather than because of government policies. For decades, under the Tories, and now Labour especially, the state has been getting bigger – it is now not only far too intrusive but unaffordable to an extent that is imperilling the UK’s financial stability.
Britain’s tax burden surged during my childhood, reaching 34 per cent of GDP after the 1976 IMF bail-out. Taxation fell steadily during the 1980s, thanks to Margaret Thatcher, all the way down to 28 per cent of national income by the early 1990s.
The tax take rose again under New Labour, reaching 33 per cent of GDP in the aftermath of the 2008 global financial crisis and remained on a broadly upward trajectory during fourteen years of Tory-led rule. By the time Keir Starmer entered office in August 2024, the tax burden was 35 per cent of GDP – already approaching a post-war high, in part due to runaway government spending during the Covid pandemic.
But this Labour government, of course, is expanding the size of the state far more. Under Rachel Reeves, Britain’s tax burden rose faster than in any other major economy, the former Chancellor imposing close to £80bn of annual tax rises during her time at the Treasury.
Now around 38 per cent of GDP, already a new post-war high, Britain’s tax burden is now set to rise even more. The IMF is forecasting, based on Office for Budget Responsibility (OBR) data, that tax revenues will surge to 41 per cent of national income by 2031 – unprecedented territory for the UK.
Sky-high tax is throttling growth and enterprise. GDP rose by just 0.3 per cent in 2023, 1.1 per cent in 2024 and 1.0 per cent in 2025. Burdened by huge debts, and the highest state interest payments in the developed world, Britain is locked in a “high-debt, high-tax, low-growth doom loop” – with the debt interest bill spiralling as the national debt rises as a share of GDP.
That helps explain why business sentiment has nose-dived to pandemic-era levels, with over half of business owners expecting the economy to get worse. It’s a major reason, along with Labour’s trade-union-backed employment legislation, why many firms have imposed a hiring freeze, with unemployment now pushing two million, a million-plus Neets and youth unemployment at an eleven-year high.
Labour’s only response – more spending, fuelled by yet more tax and borrowing – is pushing up the cost of government borrowing even more, raising credit costs across the economy while putting our national balance sheet under serious pressure.
At the start of this Parliament, the OBR forecast additional borrowing of £323bn by 2028/29. But Labour’s growth-crushing policies have pushed that same official five-year borrowing forecast to £583bn – 80 per cent more.
More and more economists now warn of fiscal meltdown – not least because trade unions and economically-illiterate Labour MPs and activists, having installed Andy Burnham in Downing Street, are pushing for borrowing and spending to increase further still.
Any additional spending, of course, will be funded by yet more borrowing and further tax rises – intensifying the doom loop. And so the combination of low growth, ever rising borrowing and an increasing tax burden intensifies, piling further pressure on consumer and business sentiment so sapping growth even more.
So what to do?
Britain needs to get our public finance back under control, not least by tackling runaway welfare spending. We’ve got to get the economy moving – a huge part of the answer to our fiscal woes is growth, sparked by less regulation, lower energy bills, an end to planning gridlock and more vocational training.
And, given the size of our bloated state, if ever there was a time over the last half century that tax cuts were needed, that time is now. The reality is, though, that the UK’s public finances are so fragile, with debt service costs so high and financial markets so fraught, that any policies construed as “upfront unfunded tax cuts” could easily spark a fully-blown sovereign bond crisis.
This is why, if a centre-right government wins the next election, it is absolutely vital tax cuts aren’t just accompanied by serious spending controls. The consolidation now needs to come first.
After years of fiscal mismanagement, multiple changes to the fiscal rules and weak political leadership, Britain has quite simply lost the right for our fiscal forecasts and spending cut pledges to be taken seriously by international capital markets. So fiscal consolidation first, then tax cuts once the spending controls are in place.
When Keir Starmer took office, with a huge Commons majority, many commentators compared that moment to 1997. The conventional wisdom among the great sages of broadsheet journalism was that “the adults would soon be back in charge” and “Britain would now enjoy an extended period of political and fiscal stability”.
I thought that was total nonsense – which is why, the month before Starmer took office, I recounted the UK’s 1976 International Monetary Fund bailout, warning that “The Ghosts of the 1970s” would haunt Labour’s (so-called) economic resurrection”. Those were challenging times – and only a policy revolution saved us. We need a similar revolution now
As a young academic and think-tanker during the early 1990s, and later as a political journalist, I absorbed how the power of ideas saved Britain from economic ruin – ideas forged at the Centre for Policy Studies, where I will next week become the new Director. The UK is in desperate need of a resurgence in free-market ideas and policies and the CPS – Britain’s leading centre-right think tank – has a crucial role to play.
For me this is personal. My father, the eldest of five, came to the UK from the West of Ireland as a boy in the 1950s. Britain was tough for the Irish, but he was smart and hard-working. Martin Halligan built a construction business – never more than a dozen men and a few vans – almost getting wiped out during the mid- and late-70s madness. That’s why I studied economics. And, having grown up in a small business environment, I know where growth and prosperity come from.
While I’ll continue to write my Telegraph column each week, while recording the Planet Normal podcast with fellow columnist Allison Pearson, my focus over the next few years will be ensuring the CPS does everything it can to push UK policymaking away from big state welfarism and towards the dynamic, low-regulation, growth-oriented measures we so desperately need.
Over the last decade, Rob Colvile has done a huge amount to bolster the CPS’s reputation. He has been a superb CPS Director and I’m delighted he is staying with us part-time, focussing on SMEs and entrepreneurship.
Over the summer, I read “Just in Time” – a no-holds-barred account of how a think tank’s ideas can transform an entire nation’s political economy. It was written by businessman turned political strategist John Hoskyns, who helped kickstart the CPS back in the mid-1970s.
Hoskyns tells the story of how the CPS became the intellectual powerhouse that engineered Thatcherism – and rescued Britain from torpor, dirigisme and economic stagnation. The book – full of drama, human endeavour and lessons for today – is hugely inspiring and deserves to be re-published.
“The most important guarantee of freedom is that government is limited” as Hayek taught us. The UK needs to heed that lesson right now – and I’m determined to make sure that the CPS helps to make that happen.