The most ideologically left-wing UK government since the 1970s is making ever higher borrowing and spending commitments, cheered on by practically the entire political and media class despite the now screamingly obvious dangers. Yet a situation that is unsustainable will ultimately not be sustained. And when the reckoning comes, it will be the least-well off who suffer the most.
Thank you for putting pen to paper so powerfully. It seems such an existential crisis that, for the good those of us bystanders and the UK in general, your next piece might be to set out your thoughts on a roadmap out of this.
Liam, I completely agree with you but it's worse than that I'm afraid. We have a Labour Front Bench that has never worked in the Private sector filled with:
1. Professional Politicians/SPADs (any number of economically clueless new Labour MPs on BBC2 Politics Live)
2. Trade Unionists (Deputy PM)
3. Quangos / Charities / Pressure Groups (Education Sec/DWP Under Sec)
4. Apparatus of Government including the Treasury (Chancellor/Home Sec)
And they then have the temerity to tell Businesses what is good for them... They are completely hypocritical when it comes to:
i. Public Sector spending (now 45% of GDP) and value for money (Oxymoron)
ii. The civil service workforce (c20% of total) and appalling Public Sector productivity (below 1997 levels) and DB Pensions ratchets leaving future generations "skint": and That's before we get to
iii. Inimical to growth policies (increasing Employers NI)
iv. The fact that 54% of the population take out more in public services than pay in tax and then squeezing those who put in, more and more: and
v. A belief in a Magic Money Tree that doesn't exist. The retreat on Winter Fuel & benefit reform has been abject
This ends two ways:
A. As you say a Fiscal event a la Truss which if we have more "turbulence" could be sooner than we think: or
B. A Thatcher moment where a Leader takes the country in a completely new direction ... Obviously Trump is not the exemplar, but what about Milei in Argentina, is there anything we could learn from them?
Since cutting government spending, Xavier Milei has been in the fortunate position of being able to rest on his laurels, as the Argentine economy is now allegedly growing at a rate of 8% per annum. That is no small achievement. Reducing government spending and borrowing produces tangible results. It is quite clearly visible in Argentina today.
Powerful analysis- so why, given this information must be available to the other politicians, do they stand by mute and complicit in enabling this carnage to plough on?
Your opening question is the really relevant one, and who is brave enough face reality? I'm no economist but it's been apparent even to a layman such as myself that this will not end well. Another aspect to all this is the huge and expanding public pensions bill, so much of local council funding goes on this and no one seems to care.
Reeves is now planning super pensions that must invest larger proportions in UK companies. Given the likelihood of a proper UK crisis more savings will be exposed.
Liam I have been listening and sometimes have taken your advice on investments for more years than I care to think about, your advice and words of wisdom are like gold and can be banked on, what I can't understand is why do we have a ‘supposed intelligent chancellor’, not my words, who seems intent on bankrupting the country by borrowing more and more, she must know what the result will ultimately be, by taxing everyone more and more and pouring it into holes that she'll never ever fill. A sure way to stiffle growth is to kill off enterprise and businesses, in the long run if taxes were to be reduced for both employees and employers money would filter down into the economy and the treasury by spending and investment, I would say that it's ‘not rocket science’ but perhaps it is and that's why this useless chancellor cannot get to grips with it 🤬
Prioritising ideology / fantasy over reality has been a trend in Westminster for too long. We see it in energy policy, defence and foreign policy… the list goes on and on.
A great article. Thanks for writing this. I feel as though I’m not alone in my assessment of the UK economy. I’m actually shocked that this has gone on as long as it has without some sort of financial crisis in the bond markets. I foresee another sovereign debt crisis coming, but instead of just the PIIGS, this time it will be the UK, France and previously top rated economies.
Do the politicians, advisors and the Blob really have no grip on basic economics, or are they just riding the wave until it crashes and then they will go on the after dinner speaking circuit leaving someone else to clear up the mess? Too many people are now used to a nanny state where they receive constant handouts and we provide ‘free’ healthcare and education to anyone who rocks up, but we have fewer and fewer tax payer to pay for it.
More and more City folk are moving to the Middle East for financial and lifestyle reasons. Safe streets and low to zero taxes. The Government doesn’t even mention that this is happening.
Let’s watch this space and see how the markets react tomorrow.
My late father always said that Labour was the party of tax and spend. He died last year in February, before this current government of monumental ineptitude was elected and set about destroying the economy with a wrecking ball. I am glad he never had to live through this Labour economic tragedy again. I remember the 70s and what we are seeing today is arguably worse by a factor of several magnitudes. The fact that nobody is talking about the cost of servicing the national debt is insane. It should and must be the first and most important topic of conversation when discussing the current political and economic situation. Ignore it at your peril.
I don't think the gravity of the situation escapes the politicians involved.
but there's little they can do about it, and they need to be elected in 4 years, so why not kick the can down the road?
i completely agree with you "proper crisis" statement.
I believe that only when the possibility to borrow would evaporate - can they afford to cut spending. as Hemingway put is you go bankrupt "Gradually and Then Suddenly". at some point those holding the long gilts will realize they are holding the least attractive debt of nations who try to meet their obligations. the market would not stabilize before someone who is more concerned about stabilization than re-election replaces the incumbents.
maybe this time, unlike the liz case, they'll demand also some mechanism to prevent this saga to repeat in 3 years.
Thank you for putting pen to paper so powerfully. It seems such an existential crisis that, for the good those of us bystanders and the UK in general, your next piece might be to set out your thoughts on a roadmap out of this.
We need the Fiscal event to get out of it - otherwise it's death by a thousand cuts...
Liam, I completely agree with you but it's worse than that I'm afraid. We have a Labour Front Bench that has never worked in the Private sector filled with:
1. Professional Politicians/SPADs (any number of economically clueless new Labour MPs on BBC2 Politics Live)
2. Trade Unionists (Deputy PM)
3. Quangos / Charities / Pressure Groups (Education Sec/DWP Under Sec)
4. Apparatus of Government including the Treasury (Chancellor/Home Sec)
5. Qualified Lawyers (PM/Chief Sec to Treasury) / unqualified Lawyers (Business Sec)
6. Various other non-business "Klingons"
And they then have the temerity to tell Businesses what is good for them... They are completely hypocritical when it comes to:
i. Public Sector spending (now 45% of GDP) and value for money (Oxymoron)
ii. The civil service workforce (c20% of total) and appalling Public Sector productivity (below 1997 levels) and DB Pensions ratchets leaving future generations "skint": and That's before we get to
iii. Inimical to growth policies (increasing Employers NI)
iv. The fact that 54% of the population take out more in public services than pay in tax and then squeezing those who put in, more and more: and
v. A belief in a Magic Money Tree that doesn't exist. The retreat on Winter Fuel & benefit reform has been abject
This ends two ways:
A. As you say a Fiscal event a la Truss which if we have more "turbulence" could be sooner than we think: or
B. A Thatcher moment where a Leader takes the country in a completely new direction ... Obviously Trump is not the exemplar, but what about Milei in Argentina, is there anything we could learn from them?
Since cutting government spending, Xavier Milei has been in the fortunate position of being able to rest on his laurels, as the Argentine economy is now allegedly growing at a rate of 8% per annum. That is no small achievement. Reducing government spending and borrowing produces tangible results. It is quite clearly visible in Argentina today.
When the crash comes, as it surely will, how can this government then survive another 4 years?
Powerful analysis- so why, given this information must be available to the other politicians, do they stand by mute and complicit in enabling this carnage to plough on?
Your opening question is the really relevant one, and who is brave enough face reality? I'm no economist but it's been apparent even to a layman such as myself that this will not end well. Another aspect to all this is the huge and expanding public pensions bill, so much of local council funding goes on this and no one seems to care.
As Churchill I think said "Labour is only really good at spreading misery equally."
A really brutal expose of this useless government. Well done!
I will re-read many times I’m sure.
An excellently piece that even non economists (unlike yourself and Allison)
Apologies it sent mid sentence - How is it possible the politicians can still keep their heads in the sand with this looming crisis?
Reeves is now planning super pensions that must invest larger proportions in UK companies. Given the likelihood of a proper UK crisis more savings will be exposed.
Fascinating! I’m Harrison, an ex fine dining line cook. My stack "The Secret Ingredient" adapts hit restaurant recipes for easy home cooking.
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Can anybody explain to me the likely outcome of the base rate falling while bond yields climb?
Banner MSM headlines that the BoE is not nor ever has been “ independent”….
Liam I have been listening and sometimes have taken your advice on investments for more years than I care to think about, your advice and words of wisdom are like gold and can be banked on, what I can't understand is why do we have a ‘supposed intelligent chancellor’, not my words, who seems intent on bankrupting the country by borrowing more and more, she must know what the result will ultimately be, by taxing everyone more and more and pouring it into holes that she'll never ever fill. A sure way to stiffle growth is to kill off enterprise and businesses, in the long run if taxes were to be reduced for both employees and employers money would filter down into the economy and the treasury by spending and investment, I would say that it's ‘not rocket science’ but perhaps it is and that's why this useless chancellor cannot get to grips with it 🤬
Brilliant post! Thank you.
Prioritising ideology / fantasy over reality has been a trend in Westminster for too long. We see it in energy policy, defence and foreign policy… the list goes on and on.
A great article. Thanks for writing this. I feel as though I’m not alone in my assessment of the UK economy. I’m actually shocked that this has gone on as long as it has without some sort of financial crisis in the bond markets. I foresee another sovereign debt crisis coming, but instead of just the PIIGS, this time it will be the UK, France and previously top rated economies.
Do the politicians, advisors and the Blob really have no grip on basic economics, or are they just riding the wave until it crashes and then they will go on the after dinner speaking circuit leaving someone else to clear up the mess? Too many people are now used to a nanny state where they receive constant handouts and we provide ‘free’ healthcare and education to anyone who rocks up, but we have fewer and fewer tax payer to pay for it.
More and more City folk are moving to the Middle East for financial and lifestyle reasons. Safe streets and low to zero taxes. The Government doesn’t even mention that this is happening.
Let’s watch this space and see how the markets react tomorrow.
My late father always said that Labour was the party of tax and spend. He died last year in February, before this current government of monumental ineptitude was elected and set about destroying the economy with a wrecking ball. I am glad he never had to live through this Labour economic tragedy again. I remember the 70s and what we are seeing today is arguably worse by a factor of several magnitudes. The fact that nobody is talking about the cost of servicing the national debt is insane. It should and must be the first and most important topic of conversation when discussing the current political and economic situation. Ignore it at your peril.
I don't think the gravity of the situation escapes the politicians involved.
but there's little they can do about it, and they need to be elected in 4 years, so why not kick the can down the road?
i completely agree with you "proper crisis" statement.
I believe that only when the possibility to borrow would evaporate - can they afford to cut spending. as Hemingway put is you go bankrupt "Gradually and Then Suddenly". at some point those holding the long gilts will realize they are holding the least attractive debt of nations who try to meet their obligations. the market would not stabilize before someone who is more concerned about stabilization than re-election replaces the incumbents.
maybe this time, unlike the liz case, they'll demand also some mechanism to prevent this saga to repeat in 3 years.