My least favourite definition of insanity is the one, often attributed to Albert Einstein, about "doing the same thing over and over and expecting different results". Huh? Life is contingent. We get different results from the same inputs all the time.
When it comes to fiscal policy, it is difficult to accuse Britain of doing much of the same thing. In the last 15 years we've tried Osbornite austerity, exit from the European Union, Johnsonian cakeism, Trussite tax cuts, Hunt's tax cuts and now Reeves's big spending, big taxing, big borrowing Budget. Yet, the same result keeps occurring: disposable income barely budges.
The Office for Budget Responsibility forecasts that real household disposable income per person – a key measure of living standards – will grow by an average of just over half a per cent a year in the next few years, equating to £700 per person between 2024 and 2029. That is abysmal. It is only barely higher than the 0.3 per cent of the last parliament and the joint-lowest on record, which came in the parliament before that. Are you sensing a pattern?
It wasn't always like this. As the Resolution Foundation think tank points out, under the previous Labour government, incomes rose by an average of 1.9 per cent on an annualised basis. That equates to an overall boost of £5,400 per person between 1997 and 2010 – and that in a period which included the financial crisis itself! Clearly, something happened after 2008 that permanently hobbled the UK's productivity growth, from which so much else has flowed.
The Budget was in some ways a bold first step by a new chancellor. It raised taxes by roughly £40 billion while delivering a substantial cash injection into the National Health Service and Ministry of Justice, two parts of the public realm in desperate need of recapitalisation. It also witnessed a big change to the government's fiscal rules to increase the scope for public investment.
What it did not do, however, is lift the fundamental malaise afflicting the UK economy. Indeed, it did not even grapple with question of why? Why has the natural growth rate fallen from 2.5 per cent to 1.5 per cent? What sacrifices and reforms would would be required to lift it back up and who would have to make them? That is asking a lot from one fiscal event, but it would be a start.
The UK economy has endured waves of exogenous shocks since even the Global Financial Crisis, including Brexit, Covid-19 and Russia's full-scale invasion of Ukraine. The risk is that, without a diagnosis and something akin to surgery, we go limping on until the next black swan event occurs. At which point, we raise taxes, cut spending, and wonder why we can't afford nice things.
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