UK election draws a veil of silence over bitter economic truths
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Things must not go on as they have been. The test of the UK’s democracy is whether that reality is recognised and options for improvement discussed. That, one might have thought, is what a general election is for. But political commentators mostly seem to agree that this is hopelessly naive: the electorate does not want to be told the truth and could not understand it if they were. They should be kept in the dark and fed on manure, like the mushrooms they are. This is what the sophisticated political gurus advise. What has been the result? Disenchantment. Any political system, especially a democracy, has to deliver results.
Has it done so? Here is a simple answer: according to the IMF, real GDP per head in the UK fell by 0.2 per cent between 2019 and 2023. Of significant economies, only Germany (a fall of 1 per cent) and Canada (one of 1.4 per cent) did worse. In the longer term, the country suffers from a pernicious combination of relatively high inequality with relatively weak economic growth, as the Resolution Foundation’s Ending Stagnation report, published last year, demonstrated.
It might be naive to expect the government to recognise how hard things have been or the opposition to admit how tough the road ahead will be. But what is happening, instead, is what the Institute for Fiscal Studies calls a “conspiracy of silence”. Both of the main parties are committed to the same fiscal rules. The goal of having net public debt (excluding the Bank of England) fall in the fifth, and final, year of the forecast shared by both main parties is only likely to be met with either a savage squeeze on public spending or tax increases. Indeed, the latter are already baked into the government’s plans, given its decision not to uprate thresholds for inflation. Rishi Sunak makes much of prospective Labour tax increases. But his government is itself committed to a form of stealth taxation.
An honest political process would start by admitting that there will have to be tax increases if the country is to deliver the public services it has promised. In effect, there is a simple choice: raise taxes or slash spending. There should at least be an open discussion of what spending might be cut and what taxes might be raised. It is also essential to discuss clearly how far reforms might soften the harshness of the choices, by raising the quality of services or the amount of needed revenue. Such a discussion should also cover essential elements in a growth strategy.
This debate will not happen now. But a few good ideas might yet emerge, if only after the campaign, on the principle of pas devant les enfants. Here are three that would make good sense. There are more, including getting closer to the EU.
First, liberalise planning restrictions. Yes, that will create a backlash. But the country’s inability to build anything is not just an embarrassment, but a disgrace. Building infrastructure is far more expensive, in time and money, than in comparable countries.
Second, reform property taxation and planning restrictions, together. Suppose local authorities were encouraged to designate land for development and allowed to tax property on the basis of the resulting much higher site values. That would motivate rapid development. The resulting increases in revenue could be used either to finance new local infrastructure or to lower local taxation. Site value taxation could also replace council tax, which is not only highly regressive as currently structured, but is based on valuations that are more than three decades old.
Third, encourage a substantial rise in pension savings, which are currently far too low. This is particularly true for the self-employed. But even employees in today’s defined contribution pension schemes are saving far too little. Thus, there is a minimum mandatory contribution level of 8 per cent, of which at least 3 per cent must come from the employer. This is too little to deliver a decent pension. In a country with a very low national savings rate, the case for raising the mandated level is even stronger. This could be put into effect with automatic annual rises of, say, a percentage point over a period of years.
My supposition is that it would be easier to implement radical ideas if they were in a manifesto. We shall soon see whether there is any appetite for this. But assume that, as the polls suggest, Labour achieves a huge majority. Assume, too, that the Conservatives will be promptly swallowed up in a battle over just how reactionary to become. That might present a notable, possibly even unique, opportunity for reform.
The election campaign may well remain the depressing event it is. But the country cannot afford an equally depressing government afterwards.
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