- Fiscal tightening plus high interest rates is a dreadful combination
- Young adults in Britain remain trapped in a permanent adolescence
- What is infuriating about this is that it really does not need to be this way
Source - CAPX 17/11/22
The last time a set of books looked this bad was – well, this week, when we finally got a glimpse into the black hole left by FTX losing several billion down the back of the world’s largest sofa. Britain’s young people can at least reflect that they are probably in better shape than FTX CEO Sam Bankman-Fried. That is, unfortunately, the full extent of the good news.
Today’s Autumn Statement was the latest confirmation that at some point British politicians replaced the idea that ‘people should be able to live well’ with ‘pensioners should be able to live well, and damn the rest’. You are expected to scrimp, save, forgo the pleasures of youth, postpone having a family, and possibly never have one, in order that your money and earnings can be directed to the most noble cause there is: propping up the value of rental properties, and paying for the healthcare and pensions of Boomers.
Attempting fiscal consolidation in a recession while the Bank of England braces itself to drag interest rates to new highs is an insane combination. Jeremy Hunt would be hard-pressed to inflict more damage on the economy if he’d set out with that explicit goal. Forget the mini-budget. Forget the March budget. The tax burden is going up to its highest level since WW2, all while services face real terms cuts in spending.
Next year is going to be the worst for living standards on record. By the time 2025 rolls around, we will be 7% poorer, and the economy will be roughly the same size as it was in 2019. And with the economy set to enter the longest recession on record, the Government knows where its priorities lie.
If you are under the age of 50, you will continue to live in a state where you pay Scandinavian taxes in order to receive American services. And if you’re over state pension age, you will receive the largest cash increase ever awarded, as the Government shreds the rest of the country in order to fund the triple lock. The only ‘rabbits’ pulled from the Chancellor’s hat was more money shovelled into the furnace of the NHS and the social care sector; services used disproportionately by the elderly.
We are speeding past ‘eating the seedcorn’ in favour of ‘Saturn devouring his son’. As Stafford Beer pointed out, the purpose of a system is what it does. Britain, as a system, takes its young people, and extracts their labour in order to service their feudal overlords. There is nothing particularly new about this, other than that it is now covered with a thin veneer of democratic legitimacy. The people voted for this, after all, and what does it matter if a near absolute majority of those voting happen to be over 55? Who cares if those paying the costs voted against it in shocking numbers?
The Autumn Statement hits working families with blow after blow. Income and national insurance thresholds are frozen, effectively charging people far more in tax for a given level of real income. Council taxes will rise by 5% across much of the country. Capital gains will be charged on the vast majority of your profitable transactions. Electric vehicles will face full Vehicle Excise Duty. And for those hoping that investment might deliver the productivity gains Britain so badly needs, inflation will be allowed to eat away at capital budgets as well.
Sure, it’s blatantly short-term. The Government is still going to rack up debts as the number of pensioners grows. Millennials – used to being referred to as young people – are now not so young. They should be buying homes and starting families. The Government should support this not simply because it forms a vital part of the welfare of its population, but because it will need future citizens to pay taxes. Instead, the Conservative Party is doubling down on its belief that it can win the votes of the elderly, and govern by their needs alone.
What is infuriating about this is that it really does not need to be this way.
The ‘black hole’ Hunt’s plan is meant to plug is entirely based upon the government’s self-imposed fiscal targets, and anaemic growth forecasts driven in part by the war in Ukraine. A shock of this magnitude is exactly the sort of scenario under which borrowing to smooth the impact is acceptable; there is a middle path between Truss’s spending spree and further consolidation. For all that the mini-Budget backfired, there was at least one good point buried within it: if you can grow the economy, you can spend a lot more without having to raise tax rates or fiddle with thresholds.
There is room for the Government to deliver economic growth, to have Britain catch up to its wealthiest peers. Planning reform, childcare reform, the much promised but much delayed bonfire of burdensome European regulations, cuts to corporation tax, and an attempt to undo the vast growth in the state that occurred over the last two years. Instead, the Conservatives are conserving their own dysfunction.
It is common for voices on the left to follow each fiscal statement with an analysis of the ‘class war’ inflicted by the government on Britain’s poorest. They would be better advised to look along demographic lines; what is happening to you is generational theft, pure and simple.
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