Opinion: Britain's doom loop has begun. The signs are everywhere

By ALEX BRUMMER, CITY EDITOR

Published: | Updated:

Rachel Reeves ’s bizarre breakfast-time address in Downing Street on Tuesday surprised and bemused financial analysts in equal measure. They were surprised because it is rare – if not unprecedented – for a Chancellor to make a public announcement so close to the Budget. And bemused, because, aside from projecting gloom, Reeves had nothing fresh to say. Her curious intervention has been described as an exercise in ‘pitch rolling’, preparing the public for a jump in income taxes on November 26 –another punch to the guts for an economy already on its knees.

Rachel Reeves ’s bizarre breakfast-time address in Downing Street on Tuesday surprised and bemused financial analysts in equal measure. They were surprised because it is rare – if not unprecedented – for a Chancellor to make a public announcement so close to the Budget. And bemused, because, aside from projecting gloom, Reeves had nothing fresh to say. Her curious intervention has been described as an exercise in ‘pitch rolling’, preparing the public for a jump in income taxes on November 26 –another punch to the guts for an economy already on its knees.

My deeper concern, though, is what it reveals about the socialist creed that infects every economic decision this government makes. Labour’s disastrous belief that ministers always know best is trapping the British people and our most productive businesses in a never-ending round of tax increases and higher prices – a ‘doom loop’. Our bloated state will continue swelling even as the private sector –which generates the wealth in the first place – withers away. This government has zero appetite for cutting the size of the state – despite a national debt which, already at £2.9 trillion, is heading towards 100 per cent of our national output, meaning the public sector will soon consume every penny Britain earns.

My deeper concern, though, is what it reveals about the socialist creed that infects every economic decision this government makes. Labour’s disastrous belief that ministers always know best is trapping the British people and our most productive businesses in a never-ending round of tax increases and higher prices – a ‘doom loop’. Our bloated state will continue swelling even as the private sector –which generates the wealth in the first place – withers away. This government has zero appetite for cutting the size of the state – despite a national debt which, already at £2.9 trillion, is heading towards 100 per cent of our national output, meaning the public sector will soon consume every penny Britain earns.

For all Ms Reeves’s vows to put the national finances on a ‘stable footing’, Labour is pumping ever more cash into the great state boondoggle and charging the private sector for the privilege. This week’s Bill to re-nationalise rail franchises by creating ‘Great British Railways’ is a troubling case in point. The idea that an overburdened government struggling with an enormous sink hole in public finances might prove a fit steward of the railways belongs in cloud cuckoo land. The costs are vast. At a stroke, the public purse will be responsible for establishing a new headquarters in Derby and a ticketing service with a £360 billion price tag.

For all Ms Reeves’s vows to put the national finances on a ‘stable footing’, Labour is pumping ever more cash into the great state boondoggle and charging the private sector for the privilege. This week’s Bill to re-nationalise rail franchises by creating ‘Great British Railways’ is a troubling case in point. The idea that an overburdened government struggling with an enormous sink hole in public finances might prove a fit steward of the railways belongs in cloud cuckoo land. The costs are vast. At a stroke, the public purse will be responsible for establishing a new headquarters in Derby and a ticketing service with a £360 billion price tag.

A rail system fully restored to public ownership will add a further 100,000 workers to the state payroll. Yet when it comes to future spending on trains and infrastructure, railways will find themselves in direct competition with the NHS, schools and the welfare system for cash. No prizes for guessing who, in a Labour Cabinet, will win that battle. Meanwhile, the Chancellor must recognise that the £29 billion of extra funding given to Health Secretary Wes Streeting and the NHS in last October’s Budget barely moved the dial on the quality of patient care. Most was gobbled up by avaricious unions. Junior doctors (now ‘resident’ doctors) are already back for more, with a five-day strike set to start on November 14.

A rail system fully restored to public ownership will add a further 100,000 workers to the state payroll. Yet when it comes to future spending on trains and infrastructure, railways will find themselves in direct competition with the NHS, schools and the welfare system for cash. No prizes for guessing who, in a Labour Cabinet, will win that battle. Meanwhile, the Chancellor must recognise that the £29 billion of extra funding given to Health Secretary Wes Streeting and the NHS in last October’s Budget barely moved the dial on the quality of patient care. Most was gobbled up by avaricious unions. Junior doctors (now ‘resident’ doctors) are already back for more, with a five-day strike set to start on November 14.

Reeves boasts Labour’s cash splurge has cut waiting lists by 200,000 since it came to power last July. What she neglects to point out is that, as of this September, there remain 7.41 million people on the waiting list. A shocking 191,500 patients are waiting more than a year to be seen. Pouring money into public services without defined productivity agreements is a horrendous waste of money. It is a microcosm of what is wrong with statist Britain. EY, the consultants formerly known as Ernst & Young, calculate weak public sector productivity is costing the UK an outrageous £80 billion a year. As employers group the CBI warns today: ‘We need to take tough decisions now or risk a downward spiral that sees us robbing Peter to pay Paul just to fund normal government expenditure and puts our growth prospects in peril.’

Reeves boasts Labour’s cash splurge has cut waiting lists by 200,000 since it came to power last July. What she neglects to point out is that, as of this September, there remain 7.41 million people on the waiting list. A shocking 191,500 patients are waiting more than a year to be seen. Pouring money into public services without defined productivity agreements is a horrendous waste of money. It is a microcosm of what is wrong with statist Britain. EY, the consultants formerly known as Ernst & Young, calculate weak public sector productivity is costing the UK an outrageous £80 billion a year. As employers group the CBI warns today: ‘We need to take tough decisions now or risk a downward spiral that sees us robbing Peter to pay Paul just to fund normal government expenditure and puts our growth prospects in peril.’

That is, unless we change tack now, we will be overwhelmed by debt. Reeves acknowledged on Tuesday that the UK already has ‘the highest borrowing costs of any G7 country’, with debt interest gobbling up £1 in every ten of tax. Yet, the Government’s answer is to load ever more taxes on the British people. This is bound to inhibit whatever growth the economy can muster, leading to lower government revenues – and ever higher borrowing. Ministers then wonder why anxious consumers are saving record amounts rather than spending, and why UK firms are shying away from new investment.

That is, unless we change tack now, we will be overwhelmed by debt. Reeves acknowledged on Tuesday that the UK already has ‘the highest borrowing costs of any G7 country’, with debt interest gobbling up £1 in every ten of tax. Yet, the Government’s answer is to load ever more taxes on the British people. This is bound to inhibit whatever growth the economy can muster, leading to lower government revenues – and ever higher borrowing. Ministers then wonder why anxious consumers are saving record amounts rather than spending, and why UK firms are shying away from new investment.

Some of our biggest corporations, such as drugs giants AstraZeneca and GlaxoSmithKline, are ploughing tens of billions into overseas investment rather than spend it on UK plc. Punishing success with higher corporate taxes, business rates and super-charged energy and environmental costs puts the brakes on future output. It is all the more frustrating the ‘black hole’, put at £30 billion or more, could be wiped away at a stroke had Labour – or big-spending Conservative governments – addressed the size and scale of the state. Since the pandemic, more than 600,000 people, including NHS employees, have been added to the public payroll.

Some of our biggest corporations, such as drugs giants AstraZeneca and GlaxoSmithKline, are ploughing tens of billions into overseas investment rather than spend it on UK plc. Punishing success with higher corporate taxes, business rates and super-charged energy and environmental costs puts the brakes on future output. It is all the more frustrating the ‘black hole’, put at £30 billion or more, could be wiped away at a stroke had Labour – or big-spending Conservative governments – addressed the size and scale of the state. Since the pandemic, more than 600,000 people, including NHS employees, have been added to the public payroll.

Since Labour’s election, 75,000 more have joined the public payroll. The impact for future generations will be devastating. Unlike those in the wealth-generating private sector, most state-sector staff enjoy generous pensions funded by day-to-day tax receipts. Public accounts show a future pension liability of £1.4 trillion and an annual cost of £7.9 billion. Everyone is suffering, from big companies to small and medium sized ones – and the British people. The last thing I would wish upon us is the kind of shock therapy forced on Greece in 2010/11 by the International Monetary Fund and European Union. Public sector salaries, including those of doctors, were cut to the bone.

Since Labour’s election, 75,000 more have joined the public payroll. The impact for future generations will be devastating. Unlike those in the wealth-generating private sector, most state-sector staff enjoy generous pensions funded by day-to-day tax receipts. Public accounts show a future pension liability of £1.4 trillion and an annual cost of £7.9 billion. Everyone is suffering, from big companies to small and medium sized ones – and the British people. The last thing I would wish upon us is the kind of shock therapy forced on Greece in 2010/11 by the International Monetary Fund and European Union. Public sector salaries, including those of doctors, were cut to the bone.

Reporting for the Daily Mail from Athens, I saw rioters rip up paving stones in Syntagma Square, the daubing of public buildings with anti-Europe, anti-government and anti-IMF graffiti. I talked to frustrated medics heading to the UK for a better wage. An internal devaluation which saw the scale of the state slashed, the welfare budget scythed and real wages cut led to a harsh downturn. Yet it was a cathartic moment for a country which had prioritised the state over private enterprise. And it worked. More than a decade on, Greece is among Europe’s fastest growing economies, expanding at 2.3 per cent a year – in sharp contrast to the stagnation of Europe’s richest countries.

Reporting for the Daily Mail from Athens, I saw rioters rip up paving stones in Syntagma Square, the daubing of public buildings with anti-Europe, anti-government and anti-IMF graffiti. I talked to frustrated medics heading to the UK for a better wage. An internal devaluation which saw the scale of the state slashed, the welfare budget scythed and real wages cut led to a harsh downturn. Yet it was a cathartic moment for a country which had prioritised the state over private enterprise. And it worked. More than a decade on, Greece is among Europe’s fastest growing economies, expanding at 2.3 per cent a year – in sharp contrast to the stagnation of Europe’s richest countries.

This also proves that economies function best without a vast public bureaucracy – and that big government and an unreformed benefits system are wasteful in the extreme. Working Britain and the productive parts of the economy are suffering the consequences of Labour’s long love affair with statism, the dead hand of a swollen public sector, and all the profligacy and grandiosity that entails. Unable to tackle a ballooning welfare budget, we are allowing millions of working-age Britons to live on the state. It is unsustainable. Keir Starmer and Rachel Reeves must recognise fiscal reality or risk condemning the country to penury. But I fear there’s little chance they will.

This also proves that economies function best without a vast public bureaucracy – and that big government and an unreformed benefits system are wasteful in the extreme. Working Britain and the productive parts of the economy are suffering the consequences of Labour’s long love affair with statism, the dead hand of a swollen public sector, and all the profligacy and grandiosity that entails. Unable to tackle a ballooning welfare budget, we are allowing millions of working-age Britons to live on the state. It is unsustainable. Keir Starmer and Rachel Reeves must recognise fiscal reality or risk condemning the country to penury. But I fear there’s little chance they will.

Rachel ReevesWes StreetingLabourNHS