Rishi Sunak left D-Day celebrations early, got caught in the rain and came under fire for some of the Treasury’s tax rise predictions. Labour babbled about “change” while repeating fanciful figures about “investment” in the NHS and the creation of “green jobs”. Meanwhile, the Liberal Democrats have survived the last six weeks by having a blast at CenterParcs.
Throughout the election campaign, the main parties have been furiously arguing over trivialities and setting up photo opportunities straight out of a Tony Blair playbook. But behind this election lies an ugly truth: Britain is much closer to bankruptcy than our political elites are willing to admit. Worse still, no one wants to talk about it.
Now that the campaign is over, it’s worth taking a look at the statistics that really matter. Unfortunately, they make for sobering reading. Taxes are already at a 70-year high, and we’re still nowhere near balancing the books.
According to the Office for Budget Responsibility (OBR), we will add £87 billion to the national debt over the course of this year, or around 3% of GDP. And this is happening at a time when the economy is recovering and the Government is pushing through a series of punitive tax rises.
At this point in the cycle we should be paying back our debt, not accumulating more. According to the Resolution Foundation, our debt to GDP ratio is close to 100% and has tripled in the 16 years to 2023, the largest increase in peacetime. We are very close to the 112% level that led to two humiliating downgrades of France’s credit rating in the past six months.
It doesn’t stop there. We’re still racking up huge off-balance sheet debts. For example? There’s already £200bn of outstanding student debt, projected to rise to over £400bn by the 2040s. Few believe graduates will earn enough to repay their loans in full, especially since our zero-growth economy isn’t creating any new professional jobs to absorb it all.
We are responsible for around £2.6 trillion of ‘unfunded’ public sector pension entitlements. As the government employs more and more people – we added 135,000 more to the government payroll in the year to September 2023 – that figure will continue to grow. We are legally obliged to meet the net zero target, which the OBR calculates could add at least £300 billion to government costs over three decades. In Wales, a staggering 28 per cent of working-age people now receive benefits and rely on the state to support them, and the figures are not much better in the rest of the country.
A few minor changes to the tax system, such as restricting tax evasion or being tougher on non-residents, will make no difference. As the OBR has noted, the tax burden is set to rise to 37.7% of GDP by 2027-28, the highest level in our history. Of course, you could argue that a handful of European countries have managed to squeeze more out of their exhausted citizens, but there is no empirical evidence that this is possible in the UK.
Anyone trying to argue that we are still “undertaxed” compared to the rest of Europe, in the words of Labour advisor and former HMRC boss Sir Edward Troup, should explain that no-one has ever managed to extract more than 40% of GDP from taxpayers in the past. Incredibly, even Labour chancellors of the 1970s, such as Denis Healey, collected less than Jeremy Hunt is now receiving, after he (badly) promised to tax the rich “until the cores squeak”.
Britain is entering uncharted financial waters. We are faced with extra spending on health and social care as the population ages. We have record economic recession and people who are neither in work nor looking for work need to be supported in some way. We have stagnant productivity – but we can only achieve real growth by increasing output. The ‘peace dividend’ is over. Politicians of all stripes are dead set on spending hundreds of billions on net zero.
And yet, we are at or near our taxable limit. There is only so much the country can handle before entrepreneurs start moving elsewhere, companies move, and individuals retire early. Have any politicians been honest about the situation we are in during this election campaign and the really tough decisions that need to be made to pull us out of this stupor?
In late June, the Institute for Fiscal Studies (IFS) published research into these outrageous spending demands. It argued that there was a “conspiracy of silence” and that “painful choices” were being ignored. Strangely, while the IFS is revered by a political class that serves as a lip service to “evidence-based” policy-making, its report has been ignored with depressing predictability. No one wants to talk about it. Why? Maybe we are in collective denial. Maybe the reality of our situation is just too harsh.
But this can’t continue for long. With the UK facing a financial crisis, the global economy looks as volatile as ever. The US under President Biden has ridden an unprecedented wave of government borrowing, but the sugar rush is now wearing off and our biggest trading partner could be in recession by the end of the year. The eurozone looks incapable of sustained growth and could be headed back into crisis at any time if France enters a debt crisis.
China’s economy is no longer expanding as it did a decade ago, and a wave of cheap goods could soon undermine British and European industry. As we discovered during Truss’ short-lived premiership, Britain is vulnerable to a collapse of confidence in the bond market.
The Bank of England has lost all credibility, we don’t have the luxury of printing a world reserve currency, and we don’t have the vastness of the euro to protect us. If the bond markets still decide not to fund our delusional belief that we are a rich country, we will be headed straight for a catastrophic financial collapse.
Here’s what politicians aren’t telling us: Britain is dangerously close to national bankruptcy. All it takes is a mild global downturn to push us over the edge. And no one dares to talk about it. This was the biggest of many deceptions throughout this election.