IF YOU think things are bad now, believe me, things are only going to get worse. From the crater-like potholes in the road, to the forever waiting times at A&E, you can smell the decline in the air. Yes, this blog is going to be doom and gloom. This is not something I like to indulge in, despite what you might think, but nor can you live with your head in the sand. I have four children: on a micro level at least you have to be an optimist to do that sort of thing. But one must be a realist also, and the realist in me says I can’t see the kids staying here in their adult lives.
On Tuesday the front of the Times ran with this: ‘Britain’s prospects for growth have declined, leaving the chancellor with a multibillion-pound hole before the budget in March, the government’s spending watchdog has warned. In a private submission to the Treasury, the Office for Budget Responsibility told Jeremy Hunt that it overestimated the prospects for medium-term growth in the economy last year and it intends to revise its forecasts down.’
Now this story conveniently landed to head off calls for tax cuts, because we can’t have that. It also shows once again how useless the Office for Budget Responsibility is as they have repeatedly had to downgrade ‘forecasts’. However, you can’t ignore the obvious: the economy is weak. An even bleaker figure, which failed to make front-page headlines, was the new record amount of borrowing the UK completed in December: ‘Official figures showed yesterday that government borrowing shot up to record levels last month on the back of a climbing debt-interest bill and the cost of energy subsidies for households and businesses.’
The Times business pages reported that public sector borrowing hit £27.4billion, the highest for December since equivalent records began. It eclipsed the high borrowing of the pandemic and was far above economists’ expectations of £17.7billion. Government borrowing is now £9.8billion higher than projections from the OBR at the time of the Autumn Statement. Total UK borrowing stands at 99.5 per cent of GDP with the debt-to-GDP ratio at levels last seen in the early 1960s. Interest payments rose to £17.3billion (all my emphasis).
How do the OBR get away with this? How can their sums be out by £9.8 billion? Did the boffins at the OBR intentionally keep projections down in the last Autumn Statement? Or are they just really bad at maths?
Anyway, the figure to keep in mind is that UK borrowing stands at 99.5 per cent of GDP. This is not sustainable. Now bearing all this in mind I want you to think about nursery rhymes. Yes, there is a link because in the not-too-distant future very few parents will be singing them as the number of children decreases. Currently the UK fertility rate stands at 1.61 children per woman (2021), a slight increase on 1.58 the previous year.
Cutting to the chase here, a country with a fertility rate of 1.6 children, a mountain of debt and a rapidly ageing population combined with a nationalised health service is going to struggle long-term. Take A&E waiting times, which have been blamed for the recent excess deaths: ‘Weekly deaths have reached the highest level for two years as senior doctors warned that ‘dangerous’ A&E waits were killing hundreds of people.’
The Times: ‘Last year had the highest excess deaths total since 1951, excluding the pandemic years, with 51,000 more people dying than normal.’ The official stance is that Everything Else other than The Unmentionable is to blame for this. Kathy deals with the impact of The Unmentionable here, but even on the official narrative, excess deaths will only increase.
Do you think these numbers are going to improve in the short or even long term? No.
As the population ages, the tax burden on those working will only increase, and the number of workers will decrease. Anyone who has the skills and mobility to leave will do so, shrinking the tax base further. Who is going to stay and raise a family with the tax burden at its highest, regulation and red tape killing investment and the NHS and social care devouring more and more public money?
In short, in a few decades time the UK will be a massive old people’s home, with the necessary socialised health system and social care attached. You will witness schools closing, and fewer and fewer children in the children’s section of the library. In some areas, I reckon there will be hardly any children at all.
As American Enterprise Institute scholar Nicholas Eberstadt (whom I interviewed here in 2016) explains, in order to live with a 1.5 fertility rate, the country needs immigration and the economy needs to be dynamic, low-tax and with a light regulatory burden.
Does that sound like the UK economy to you?
I understand these problems are not unique to UK – all of Europe is suffering. But the UK is the only country with a universal, socialised health system (about which TCW is starting a five-part series today). Many blame Brexit for the current decline, but if withdrawing from a trade area is a bad idea, then locking down your entire economy for months on end can’t have been a good move either.
So, call me a super-forecaster or someone who reads the papers or a mother with worries on her mind, or someone with the January blues, but I think things are not so rosy for the UK economy or society.