There can hardly be a household or business in Britain that will not be faced with higher bills imminently.
The list of added costs is a long and demoralising one, especially because it mostly comprises items that are simply unavoidable: council tax; energy tariffs; water charges; broadband and phone subscriptions; the television licence; the road fund licence; stamp duty up – and, most important of all – the 2 per cent hike in employers’ national insurance contributions and the continuing freeze on personal income tax thresholds.
Inflation, according to the Office for Budget Responsibility (OBR), will probably peak at 4.1 per cent in July – and remain above the official target of 2 per cent until 2026.
Of course, there are two sides to every set of accounts. For some families, there will be compensatory increases in income. Thanks to the “triple lock”, the state pension is up by 4.1 per cent. Around 170,000 younger people will see a rise in the minimum wage, bringing it to 60 per cent of median wage – and, because of persistent labour shortages, a two-earner household will see its income from employment up by 5.8 per cent, safely ahead of general price rises. It is the equivalent of about £3,500, even after the freeze in tax thresholds is taken into account.
Overall, on paper, the balance doesn’t look too bad. Sir Keir Starmer has been making the most of the prospective increase in real incomes for many families. However, those increases in wages also represent an increase in costs to business, as do the “jobs tax” employer NICs – and, to a lesser extent, the extra responsibilities entailed in the Employment Rights Bill, which will also become law later this year. The uncomfortable fact is that improvements in productivity are not keeping up with wages and are thus unsustainable in the longer term. Unemployment is already forecast by the OBR to edge up, even with almost a million 18- to 24-year-olds not in education, employment or training.
For most people and businesses, life still feels like a struggle and there is no sense of any light at the end of the fiscal tunnel. Living standards have stagnated for many years and the chancellor’s efforts to repair the public finances have met with only mixed success. The promise of growth has not yet materialised. Brexit – and the huge public debt run up during the Covid pandemic – continue to drag the economy down. Now, the prospect of a global trade war will further dampen hopes of anything like a strong recovery – as an unusually open economy, the UK has more to lose than most from disruption in world trade and investment flows.
The prime minister and his chancellor, in particular, need to give the public a sense of better times to come and that the hardships of recent years – unprecedented since the end of the Second World War – are being shouldered as part of some wider cause.
There are things to be optimistic about and the government could – and should – highlight them, as well as continuing to make the case for placing the public finances in a secure foundation in a troubled world (and one that demands better defences). The planning reforms and investment in infrastructure will, in due course, provide a substantial improvement in economic performance, lifting the trend rate of growth by as much as 0.5 per cent by the early 2030s.
On a similar timescale, artificial intelligence and other new technologies will also have a transformational effect, just as the arrival of the internet did in the earlier part of this century. Despite some very valid warnings about skills shortages, more than a million new homes will probably be finished by the time of the next election: a record rate.
The NHS seems to be slowly healing. Relations with Europe, if only because of Donald Trump’s betrayal of the West, have improved immeasurably, and may yet lead to a closer economic partnership, driven by necessity as well as the palpable failures of Brexit.
The D:Ream hit “Things Can Only Get Better” was Labour’s brightly optimistic theme tune for its successful 1997 election campaign. It is fair to say that things haven’t quite lived up to those heady expectations, but the job of a national leader is to keep the faith and confidence of a people in difficult moments with the promise – a credible promise – of better, happier, easier times ahead.
While the chancellor – not the most effective of political communicators – gets on with the hard slog of fixing the public finances, a little prime ministerial optimism would not go amiss.
