By anyone’s calculations, we are on an unsustainable path – this political cowardice must end
09 July 2025
Daily Telegraph
More than a century ago, the Government made a deal with us all: in return for extra taxation, we would be looked after in ill-health, old age, employment and unemployment.
Spearheaded by David Lloyd George and Winston Churchill, the founding of Britain’s welfare state and invention of National Insurance over the first decades of the 20th century was nothing short of revolutionary. Aneurin Bevan’s NHS followed in 1948, offering healthcare free at the point of use to all UK residents.
Today, the social safety net has expanded to include parental leave, winter fuel payments, child and housing benefits and income support, among many others.
At the heart of this system remains the central premise from the Government that we are rich enough as a nation that nobody should live in poverty.
As Lloyd George said of the 1909 People’s Budget: “This is a war Budget. It is for raising money to wage implacable warfare against poverty and squalidness.”
But over the generations since, the fight has become unaffordable.
A century of exogenous shocks has combined with a growing and ageing population, slowing economic growth and an ever-widening belief of what we’re owed from the state to threaten that noble promise.
At the turn of the 20th century, our population was just shy of 40 million – next year it’s set to hit 70 million. In the past 20 years, we’ve endured a global financial crisis, a pandemic and an energy crisis, all of which resulted in enormous amounts of government borrowing to keep the lights on.
We celebrate GDP growth of 0.2pc while more than a hundred Labour backbenchers mobilise against their own government for trying to tighten up disability benefits.
Against all odds, it’s the Office for Budget Responsibility (OBR) that has laid the dire situation bare.
On Tuesday, the OBR published a report which declared the nation was in a “vulnerable” economic position. Our deficit is well above the average for an advanced economy, our debt is the fourth highest among advanced European economies and our borrowing costs are the third highest of an advanced economy globally.
Try as we might, nothing has tempered these risks over the past 15 years. Underlying debt has risen by 24pc of GDP in that time – since 2005 it’s risen by 60pc of GDP. Every year since 2020, the OBR’s debt forecasts for the UK have risen. We can assume that trend won’t be broken under this Government for reasons internal and external.
Borrowing costs are rising around the globe with little sign of abating, while geopolitical tensions are the most volatile they’ve been for years. Donald Trump’s tariffs will be implemented over the coming months, upending the global trade system the West has benefited from for decades, and every nation is being forced to spend more money on defence.
Within our borders, successive governments have baulked at the task at hand. As the OBR writes: “Planned tax rises have been reversed, and, more significantly, planned spending reductions have been abandoned.”
Taxes are already at their highest relative level since 1950 – there’s not much room left to squeeze until our pips squeak.
And that’s only the situation as it stands.
The state pension alone is set to cost more than 9pc of annual GDP by the time I get there, if the past decade is anything to go by, while the death of the defined benefit pension will massively reduce the number of large buyers of gilts.
The cost of servicing the Government’s debt will only increase as uncertainty continues to grow – a one percentage point increase in gilt yields adds roughly £30bn to the national debt.
Were the Government to be forced into renationalising the water companies, decades of mismanagement would cost us a net £78bn to repurchase these debt-laden businesses.
That’s not to mention climate change, which the OBR predicts could lower our GDP by 8pc, while adding debt to the national balance sheet worth 56pc of GDP by the 2070s. Even if they’ve over-egged this five times over, that’s still a GDP hit of 1.6pc with an increase to debt of more than £300bn.
By anyone’s calculations, we are on an unsustainable path.
Let me be clear: I believe wholeheartedly in the notion of a welfare state, but in order to maintain the most important elements of the system, we need to have a difficult conversation that nobody wants.
Even Rachel Reeves’s attempt to tinker with minutiae like the winter fuel payments was shut down by Keir Starmer when he saw an opinion poll for an election four years hence.
The core of the problem is that none of us want to admit the promises we were born into were false. We’ve all grown up knowing there is a state pension waiting for us when we’re old, the NHS when we’re ill and payments when we’re in dire straits. But something has to give – and it will be deeply unpopular.
Gold-plated public sector pensions obviously need reform, but this is far from bold enough.
Perhaps the answer is the end of universality, with every single benefit – including pensions and the NHS – means-tested. Perhaps it’s the end of one major strand of government support. Perhaps everything becomes less generous.
Until we ask the question, we’ll never know the answer.
Whichever government sets us on the right course is signing its own death warrant – but it will be for the good of us all.
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