If the Chancellor tells us the UK can't afford public spending, she is right. The Conservatives should use the opportunity to promote lasting change, better to serve the public and avoid disaster.
At first sight it seems astonishing that our NI reserves picture turns from one that is increasing from £42bn to £105bn between 2020 to 2030 only to then almost instantaneously reverse from £105bn to £0bn between 2030 to 2042.
The annual increase and decrease rates of £6.3bn and £8.8bn are probably not alarming based on the amount of NI collected each year (I do not know the figures but I guess that a typical employee has a joint employee/employer NI contribution of £3k and there may be 25m of them in the population creating a new NI fund of £75bn each year. Most of which is instantaneously spent.)
A spike in 2030 might be understandable if we had a birth spike in 1962, which I am not aware of, but if the steady state NI collection is £75bn per year then we only need to up it to £83.8bn per year to flatten the graph. I realise that this is asking working people to chip in an extra £350 per year but I would expect this Labour administration to demand that pensioners no longer pay no NI in retirement but continue to pay NI because “it pays for the NHS which you still use but now to a disproportionate effect”.
But I am still intrigued as to why there is an almost instantaneous rate change of £15bn per year in around 2030.
An excellent observation Ian. I confess I took this Government Actuaries Department analysis at face value. Now I’m thinking, “who audits the auditors?”
Steve, thankyou for your article. Very little divides us philosophically and the James Burnham book you recommend is such an important book, especially as it influenced Orwell's writing.
Having said that, it feels there is a subject I have not heard you cover. Perhaps 12 months ago I asked a parliamentary colleague of yours at a Question and Answer session what can be done about "The Blob". He seemed to not recognise the point I was making, and this is my fear. Your ideas are great but I am not sure the Conservatives have a clue of what they are up against.
Sorry if you have covered this elsewhere and I simply haven't seen it.
The trainwreck is happening in slow motion & will be be terrible. Yet it is also strangely fascinating, particularly when pondered with a background soundtrack of MMT bloviation no less absurd than flat earth theory.
It feels like things are going to reach a critical point before the 2040s.
How can we recover? Some quick notes on things which seem unusual about the UK: -
1/ Energy costs are an input to most other goods and services. Energy is extraordinarily expensive in the UK by global standards. Roughly twice what it costs in the US, Australia or France and six times what it costs in China. I fear Ed Miliband is going to make things even worse and then blame a conspiracy of energy companies and speculators.
In the UK it's around 20% of the population. In the US, Canada and Poland it's around 13%. Spain 9%. In Romania and Hungary it's under 5%. Why do we think this is?
4/ All of the above would be concerning alone.. but some of the apparently 'healthier' countries are also in the process of going bust (e.g. US) although perhaps for different reasons.
On Trident, the practical reality at present appears to be that a nuclear power can wage unrestricted conventional warfare against a non-nuclear power. Surrendering Trident would enhance our dependency on NATO and the USA. That appears risky!
You have experience dealing with real foreign policy as it happens, I don't and only try to form an impression from what I read in the media, so forgive me if these points sounds naive: -
1/ As long as we meet our NATO spending commitments and let America continue to have military bases on UK soil, anybody looking to attack the UK would still expect retaliation from America. In the case of a nuclear armed power, we'd always have been dependent on America if it came to it, no?
2/ Continuing to spend 2% of GDP on defence, but all of it on conventional forces, might have a different demand stimulus effect on the UK economy in terms of employment and industrial capacity.
Are Canada and Japan really more dependent on the US than us at the moment?
That's true, but the majority of non-nuclear powers also haven't been invaded since ww2 so I'm not sure if it's a great rationale for spending all that money.
Sound money, small government and balanced budgets are something we haven’t heard for decades. However, Milei does offer hope that the state can be rolled back, chronic deficits can be rapidly turned into surpluses and basket case currencies can be made sound.
I don't think there's much confidence on either side of the house that this can be sold to the public and that's why so many are keen to delegate decision making to 'expert' bodies like the BoE and OBR; senior politicians on both sides have a sense of what is coming and they want to say they're simply following impartial, expert guidance.
Steve. Thank you. I am particularly interested in this kind of analysis. It is quite a technical subject and, with that in mind, what I am curious to ask you is when you discuss this critical issue with fellow politicians and treasury officials etc. – what is their reaction. Do they say: yes, Steve you are right, we need to be making plans to address this starting now and not waiting until 2044. Or do their eyes glaze over and say they are too busy printing money to think about it. Or maybe they do get it but don’t want to face up to it – preferring to conveniently shelve it as a problem for tomorrow’s generation to deal with.
As you point out, under Labour the hole is about to get bigger. Inflation will be tricky to hold at 2% from now on - especially if we are handing out public sector pay rises of 5.5% without any need for productivity improvements. The private sector is likely to follow suit.
A rise in inflation will be the likely outcome. Trouble is, due to the size of our debt, we’re almost at the point where we can no longer afford to increase interest rates to the level required to cool inflation. The debt is now controlling us.
Seems to me that, currently, there are no votes to be had for addressing the problem now and perhaps it is too big an issue for one political party to resolve. Each new incoming government just lazily blames its predecessor.
It frustrates me we’ve allowed the narrative to take hold that the recent inflation and subsequent interest rate rises was a combination of the Tories trashing the economy, Liz Truss crashing the economy and Vladimir Putin. Very little mention that the major cause of inflation was the £400bn of QE required to pay for the lockdowns. Apart from a few noble commentators, very little effort was made to explain to the public that you cannot have your furlough, bounce back loans or whatever without paying a price for it somewhere down the line. Inflation and higher mortgages would have happened if Labour had been in charge. In fact, it could have been worse as they would have locked down harder and longer. End result, people really do think there is such a thing as a free lunch and we, the Conservative Party, have taken the hit for it. Let’s be honest though, if the roles were reversed, we would have been blaming Labour.
Some people tell me that the voting public are not capable of understanding, it’s all too difficult. Well, I think we need to find a way of explaining the issues you describe, and the measures required to correct the problem. If we don’t the outcome will be as you predict – a massive inflation resulting in 99% of the population becoming significantly poorer.
As you would expect, I have discussed this widely and it is understood by few. Where exceptionally a senior figure has understood, it has not been a good time to address it - it never is.
This is why crisis seems likely but I intend to keep pushing at the door: it is surprising how over 14 years the ground has become more fertile, even as people don't really want this to distract from whatever their preferred priority is. When I was first elected, I naively thought explanation and reason could lead to a solution in enough time. Now I think the challenge is to create wide enough understanding that when disaster strikes, the diagnosis is correct.
I am minded of the old saying that people will do the right thing, once all other options have been exhausted.
Very happy to be a more specific about individuals when we are next in private conversation!
I think chart 2.1 needs more explanation.
At first sight it seems astonishing that our NI reserves picture turns from one that is increasing from £42bn to £105bn between 2020 to 2030 only to then almost instantaneously reverse from £105bn to £0bn between 2030 to 2042.
The annual increase and decrease rates of £6.3bn and £8.8bn are probably not alarming based on the amount of NI collected each year (I do not know the figures but I guess that a typical employee has a joint employee/employer NI contribution of £3k and there may be 25m of them in the population creating a new NI fund of £75bn each year. Most of which is instantaneously spent.)
A spike in 2030 might be understandable if we had a birth spike in 1962, which I am not aware of, but if the steady state NI collection is £75bn per year then we only need to up it to £83.8bn per year to flatten the graph. I realise that this is asking working people to chip in an extra £350 per year but I would expect this Labour administration to demand that pensioners no longer pay no NI in retirement but continue to pay NI because “it pays for the NHS which you still use but now to a disproportionate effect”.
But I am still intrigued as to why there is an almost instantaneous rate change of £15bn per year in around 2030.
An excellent observation Ian. I confess I took this Government Actuaries Department analysis at face value. Now I’m thinking, “who audits the auditors?”
Ah I tried to be an actuary but found it to be too interesting.
Steve, thankyou for your article. Very little divides us philosophically and the James Burnham book you recommend is such an important book, especially as it influenced Orwell's writing.
Having said that, it feels there is a subject I have not heard you cover. Perhaps 12 months ago I asked a parliamentary colleague of yours at a Question and Answer session what can be done about "The Blob". He seemed to not recognise the point I was making, and this is my fear. Your ideas are great but I am not sure the Conservatives have a clue of what they are up against.
Sorry if you have covered this elsewhere and I simply haven't seen it.
Thank you - it is something I will come back to gladly.
The trainwreck is happening in slow motion & will be be terrible. Yet it is also strangely fascinating, particularly when pondered with a background soundtrack of MMT bloviation no less absurd than flat earth theory.
I for one will not be holding out for a state pension. Thanks for the very well explained article
Thank you!
It feels like things are going to reach a critical point before the 2040s.
How can we recover? Some quick notes on things which seem unusual about the UK: -
1/ Energy costs are an input to most other goods and services. Energy is extraordinarily expensive in the UK by global standards. Roughly twice what it costs in the US, Australia or France and six times what it costs in China. I fear Ed Miliband is going to make things even worse and then blame a conspiracy of energy companies and speculators.
https://www.statista.com/statistics/263492/electricity-prices-in-selected-countries/
2/ We probably can't afford Trident any more. It's long past time to let go of being a superpower.
3/ It seems like a difficult conversation about the UK's level of long-term disability has been avoided for too long.
https://unstats.un.org/unsd/demographic-social/sconcerns/disability/statistics/countries#!/home
In the UK it's around 20% of the population. In the US, Canada and Poland it's around 13%. Spain 9%. In Romania and Hungary it's under 5%. Why do we think this is?
4/ All of the above would be concerning alone.. but some of the apparently 'healthier' countries are also in the process of going bust (e.g. US) although perhaps for different reasons.
Good stuff.
On Trident, the practical reality at present appears to be that a nuclear power can wage unrestricted conventional warfare against a non-nuclear power. Surrendering Trident would enhance our dependency on NATO and the USA. That appears risky!
You have experience dealing with real foreign policy as it happens, I don't and only try to form an impression from what I read in the media, so forgive me if these points sounds naive: -
1/ As long as we meet our NATO spending commitments and let America continue to have military bases on UK soil, anybody looking to attack the UK would still expect retaliation from America. In the case of a nuclear armed power, we'd always have been dependent on America if it came to it, no?
2/ Continuing to spend 2% of GDP on defence, but all of it on conventional forces, might have a different demand stimulus effect on the UK economy in terms of employment and industrial capacity.
Are Canada and Japan really more dependent on the US than us at the moment?
These are good points but I think I ought to avoid elaborating my concerns about the potential fragility of NATO.
To your second point: to date, no nuclear power has been invaded, at least not militarily.
That's true, but the majority of non-nuclear powers also haven't been invaded since ww2 so I'm not sure if it's a great rationale for spending all that money.
Sound money, small government and balanced budgets are something we haven’t heard for decades. However, Milei does offer hope that the state can be rolled back, chronic deficits can be rapidly turned into surpluses and basket case currencies can be made sound.
Let’s hope so!
So what argument will convince the public of the need for the changes on the scale you (implicitly in this article) envisage?
I think I’ll come back to that. I’m not pretending it will be easy.
I don't think there's much confidence on either side of the house that this can be sold to the public and that's why so many are keen to delegate decision making to 'expert' bodies like the BoE and OBR; senior politicians on both sides have a sense of what is coming and they want to say they're simply following impartial, expert guidance.
Doubtless you are right. Until the public and the media are asking better questions.
We face a very serious problem.
Steve. Thank you. I am particularly interested in this kind of analysis. It is quite a technical subject and, with that in mind, what I am curious to ask you is when you discuss this critical issue with fellow politicians and treasury officials etc. – what is their reaction. Do they say: yes, Steve you are right, we need to be making plans to address this starting now and not waiting until 2044. Or do their eyes glaze over and say they are too busy printing money to think about it. Or maybe they do get it but don’t want to face up to it – preferring to conveniently shelve it as a problem for tomorrow’s generation to deal with.
As you point out, under Labour the hole is about to get bigger. Inflation will be tricky to hold at 2% from now on - especially if we are handing out public sector pay rises of 5.5% without any need for productivity improvements. The private sector is likely to follow suit.
A rise in inflation will be the likely outcome. Trouble is, due to the size of our debt, we’re almost at the point where we can no longer afford to increase interest rates to the level required to cool inflation. The debt is now controlling us.
Seems to me that, currently, there are no votes to be had for addressing the problem now and perhaps it is too big an issue for one political party to resolve. Each new incoming government just lazily blames its predecessor.
It frustrates me we’ve allowed the narrative to take hold that the recent inflation and subsequent interest rate rises was a combination of the Tories trashing the economy, Liz Truss crashing the economy and Vladimir Putin. Very little mention that the major cause of inflation was the £400bn of QE required to pay for the lockdowns. Apart from a few noble commentators, very little effort was made to explain to the public that you cannot have your furlough, bounce back loans or whatever without paying a price for it somewhere down the line. Inflation and higher mortgages would have happened if Labour had been in charge. In fact, it could have been worse as they would have locked down harder and longer. End result, people really do think there is such a thing as a free lunch and we, the Conservative Party, have taken the hit for it. Let’s be honest though, if the roles were reversed, we would have been blaming Labour.
Some people tell me that the voting public are not capable of understanding, it’s all too difficult. Well, I think we need to find a way of explaining the issues you describe, and the measures required to correct the problem. If we don’t the outcome will be as you predict – a massive inflation resulting in 99% of the population becoming significantly poorer.
Thanks David!
As you would expect, I have discussed this widely and it is understood by few. Where exceptionally a senior figure has understood, it has not been a good time to address it - it never is.
This is why crisis seems likely but I intend to keep pushing at the door: it is surprising how over 14 years the ground has become more fertile, even as people don't really want this to distract from whatever their preferred priority is. When I was first elected, I naively thought explanation and reason could lead to a solution in enough time. Now I think the challenge is to create wide enough understanding that when disaster strikes, the diagnosis is correct.
I am minded of the old saying that people will do the right thing, once all other options have been exhausted.
Very happy to be a more specific about individuals when we are next in private conversation!