Are we finally breaking out of our high-debt, high-spending doom loop?
Treasury and pensions minister Torsten Bell has been crowing about the IMF’s latest World Economic Outlook, which singles out the UK among the G7 for its commitment to getting its finances under control. He wrote on Substack: ‘This is UK fiscal exceptionalism of a very different kind from that offered by Liz Truss.’
The only trouble is, a big chunk of that consolidation is effectively fictional: Rachel Reeves pencilled in large spending cuts for the end of this Parliament to make the sums add up for big public sector spending increases in the early years. It’s all in line with our badly designed fiscal rules, but if you really believe Labour are going to start taking an axe to spending in the run-up to a general election, then I admire your optimism.
My colleague Daniel Herring has written about this fiscal fiction for CapX today – and why the rules reward chancellors for promising cuts, never for delivering them.
Below you’ll find all the latest pieces from CapX, plus what we’re reading from around the web.
Marc Sidwell
Editor, CapX
Today’s Takes
Fresh thinking from CapX
The IMF has fallen for Labour’s fiscal fiction
Daniel Herring
‘You have to have somewhat heroic levels of trust to believe that Labour ministers will stick to these spending plans.’
The IMF managing director has praised the UK for being the one country where action to reduce the deficit has been taken decisively. That may be true on paper. But why would Labour keep its promises to consolidate Britain’s broken finances, given the massive pressure to increase state spending from all sides? The Chancellor needs to make real commitments, and he should be held accountable to them. Read More
Burnham’s EU dream would be a nightmare
Harry Phibbs
‘We would be expected to abolish the pound and join the euro. We would be obliged to accept free movement. We would have to scrap our independent trade deals.’
Andy Burnham is talking about rejoining the EU, despite promising the exact opposite during the Makerfield by-election. Reversing Brexit would be very expensive: with the bloc’s spending skyrocketing, our membership costs would as well. Not to mention the punitive measures we would face to disincentivise others considering leaving. Read More
Britain's knowledge workers are being taxed away
Nima Sanandaji
‘Even Slovenia is ahead of the UK, with just above 9% of the population employed in brain business jobs.’
The UK has a high percentage of workers in knowledge-intensive jobs. At least, if you compare us to other large European countries like France, Spain and Italy. But we are falling behind smaller countries like Ireland and Switzerland, which attract top talent thanks to their low tax rates. Read More
The Capitalist: Robert Tombs on Britain’s legacy
Why has it become a reflex for Britain to emphasise the worst of our history while neglecting the best?
This week on The Capitalist, I spoke to Robert Tombs, emeritus professor of French history at Cambridge and author of The English and Their History, about Our Islands’ Story, the new book he has written with Nigel Biggar. It’s out next week.
We discussed why the history of empire and slavery has come to crowd out everything else, why Britain’s part in abolition gets so little attention and what the empire did for global trade. We also covered why he thinks the institutions are now too captured for the free market of ideas to fix things on its own, and why he fears Britain’s precious inheritance of free speech and thought is under threat.
Best of the Web
The strange irony of Britain's surprising growth
Annabel Denham, The Telegraph 🔒
‘Economic forecasts are as unreliable as betting tips. They are frequently revised. Remember too that we had a hot summer and the World Cup, both of which would have boosted retail even if Zack Polanski had been in charge.’
The IMF has upgraded its growth forecast for the UK, despite our huge welfare expenditure and the global effects of the Iran war. Why? Maybe it’s a side-benefit of our recent political chaos. When Keir Starmer resigned in July, it threw Westminster into disarray, interrupting policy announcements and ministerial initiatives. And as our European neighbours show, state inactivity and a growing economy are not at odds. Prosperity comes from millions of people working and investing. It’s not bestowed on us by politicians and bureaucrats. Read More
Stop making the tax system more complex
Ben Ramanauskas, ConservativeHome
‘The next Conservative government needs to resist the urge to muck about with the tax system. Instead it should focus on simplifying it.’
Andrew Griffith recently announced that if the Tories were to win the next general election, they would halve employers’ National Insurance for 21- to 24-year-olds. But this would add to the complexity of the UK tax system, making it harder for firms to comply with and for the state to administer. It’s good that Griffith acknowledges how terrible NI is, but he should aim to scrap it for everyone, not make it even more complicated. Read More
Central planning hasn't made China rich
Stat of the Day
And if you want more...
– Deirdre McCloskey versus the statists (The Daily Economy)
– Too many of our taxes make no sense (City AM)
– Winnie-the-Pooh is our national bear (The Spectator)
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