London Daily

Focus on the big picture.
Monday, Jun 29, 2026

Debt may be cheap, but the UK's poor productivity will cost us dear

Debt may be cheap, but the UK's poor productivity will cost us dear

Thinktanks urging cuts in business taxes seem to forget that many industries which once powered growth are now dying
The strangely easy agreement between economists of right and left that the chancellor should set aside concerns about Britain’s rising debt levels still holds seven months after the first Covid-19 lockdown was imposed.

Thatcherite free-market thinktanks sing the same carefree song as Keynesian academics when debate turns to the size of this year’s public spending deficit. There are differences in tone and it goes without saying that all would want money spent wisely, but their efforts focus on competing proposals for growth.

If only that were true inside the Tory party, be that members or backbenchers. Listen to what they say about the economy, and it is like the 2008 financial crash never happened. Public sector spending is still being likened to a household’s finances, where the aim must be a balanced budget.

Even worse, the household analogy has another group of subscribers and they sit inside the Treasury. Much of the pressure on Rishi Sunak to cut back support for the economy and limit borrowing also comes from officials in the department’s Great George Street HQ. They wring their hands in terror remembering how the rocketing deficits of the past 100 years have left the nation in hock to foreign governments or international investors.

Anyone who thinks the Treasury happily borrowed through the first and second world wars and gaily went cap in hand to the International Monetary Fund in the mid-1970s needs to check their facts.

Their concerns were twofold. First, the amount of money sloshing around the global financial system then was scarce and therefore came at a high cost. Second, former and declining colonial powers don’t have the productive engine of entrepreneurs and skilled workers that allow an economy to power its way out of a crisis.

The first of these concerns has evaporated. Seventy years of accumulated post-war savings, whether stashed in western pension funds or the sovereign wealth funds of oil-rich nations, means that the price of borrowing has fallen to almost zero.

This development has become the focus of the anti-austerians and the main plank of any argument in favour of higher public spending. And it is an important element of any attempt to persuade the Treasury to loosen the purse strings.

On its own, though, it is not enough. There remains the gloomy assessment of Britain’s productive capacity. Leftist economists will point to the period of expansion after the last world war and argue that it justifies renewed high levels of public spending, nationalisation and state-backed industrialisation, though the 2020 version would be a climate-friendly initiative.

Yet the 1950s was a period of austerity and relative industrial decline. The hourly output of workers fell relative to our major competitors, and all it took was a quadrupling of the oil price in 1974 to plunge the UK into deep financial trouble.

A second wave of growth took hold from the 1980s to the early noughties. While there is much to say about this period – from Thatcher’s fire sale of assets to the consumer borrowing binge in the early part of this century that artificially boosted growth – the main point today is that many of the industries that drove this growth are now dying or in retreat.

From the oil and gas sector to the carmakers and previously stellar finance industry, the UK relies on wealth generators that have either a limited future or none at all.

From the Treasury’s perspective, the launchpad for recovery is in a terrible state – worse than most ministers, and many thinktanks, realise. Whether it is finding new industries to supersede the old, rescuing those affected by Covid or supporting firms through a tough Brexit transition, the cost of aiming billions of pounds at a particular target and missing will be too high.

The Institute of Economic Affairs has urged the chancellor to use business tax cuts to rekindle the entrepreneurialism of the Thatcher decade, arguing that that would generate enough growth to bring down the deficit, and pay for extra welfare, investment in the regions and all the other things on MPs’ wish list.

According to the left, the same trick can be pulled off by lashings of government investment. Yet when so much growth has been generated by foreign managements and foreign investment, the Treasury view is that spending must be careful. As such, it is almost inevitable that recovery will take a decade or longer.

So while the price of debt is important, glib and uninformed exhortations for tax cuts or extra spending won’t reassure the Treasury unless deep-seated weaknesses in the UK’s engine of private sector growth are tackled too.
Newsletter

Related Articles

0:00
0:00
Close
UK Launches New Measures to Improve Safety Standards in Night-Time Venues
UK Tightens Import Rules for Low-Value Parcels to Support Domestic Retailers
UK Launches £85 Million Obesity Care Programme Targeting Early Intervention Projects
UK Commits Up to $26 Million to Ebola Response in Democratic Republic of Congo
Security Industry Authority Flags Safety Failures in Night-Time Economy Inspections
Cambridge South Railway Station Opens After £250 Million Investment
UK Moves to Close Import Duty Loophole for Small Parcels by 2028
UK Invests £85 Million in Projects to Transform Obesity Care
Berkeley Group Warns London Housebuilding Falling Far Short of Demand
UK Council Tax Arrears Rise to £9.3 Billion Amid Ongoing Household Financial Strain
Markets Watch Political Transition as Andy Burnham Emerges as Labour Leadership Frontrunner
Extreme Heat Raises Long-Term Risks for UK Inflation and Productivity, Analysts Warn
UK Health Alerts Extended as Record June Heatwave Grips England
UK Parliament Faces High-Stakes Week of Spending, Security and Industrial Legislation
UK Repeals Vagrancy Act Ending Criminalisation of Rough Sleeping in England and Wales
GB News Pundit Charged With Fraud Over Alleged Conduct as Former Labour Adviser
Reform UK Gains Parliamentary Visibility in First Senedd Opposition Appearance
Metropolitan Police Arrest Man on Suspicion of Attempted Murder After London Car Incident
Ocado Chief Executive Tim Steiner Faces Scrutiny Over £100 Million Remuneration Package
British Chambers of Commerce Downgrades UK Growth Outlook to 0.9 Percent for 2026
Nottingham University Hospitals Maternity Failings Trigger Renewed Calls for Public Inquiry
Severe Heatwave Disrupts UK Transport Networks and Strains Public Services Across England
Labour Leadership Transition Raises Prospect of Andy Burnham Becoming UK Prime Minister
UK Government Confirms Further Medicine Price Concessions for Community Pharmacies in June
British Chambers of Commerce Calls for Public Procurement Reform to Boost Regional Growth
Thousands Mark Armed Forces Day Across the United Kingdom With National Parades and Flypasts
Man Arrested in Ealing on Suspicion of Attempted Murder After Vehicle Ramming Incident Injures Five
Cambridge South Station Opens With £250 Million Investment to Strengthen Life Sciences Corridor
UK Heat-Health Alerts Extended Across England as High Temperatures Persist
Thames Water and Energy Operators Warn of Peak Demand Risks During UK Heatwave
Government Conference Highlights Push for Evidence-Led Policy Across UK Public Sector
Insolvency Service Reports Improved Confidence in UK Insolvency System
Security Industry Authority Finds Widespread Safety Failures in UK Night-Time Economy
Nigel Farage Expands Anti-WHO Campaign Into United States With New Lobbying Structure
Home Secretary Seema Mahmood Unveils New Safe Routes Plan for Asylum Seekers
UK Government Warns of Peak Electricity and Water Pressure Amid Ongoing Heatwave
New Nuclear Plant in Wales Named Gwyndod Power Station as Energy Strategy Advances
UK Announces First Major Hydropower Projects in Four Decades to Expand Renewable Capacity
Thirteen Men Charged in Major UK Sexual Abuse Case as Investigation Continues
UK Launches Cross-Sector Climate Security Taskforce Linking Environment and National Security
UN Secretary-General António Guterres Calls for Urgent Global Methane Emissions Cuts in London
World Bank Approves $1 Billion UK-Backed Financing Package for Ukraine Recovery
UK Pledges Emergency Aid and Rescue Team Deployment to Earthquake-Hit Venezuela
Bank of England Holds Interest Rates at 3.75 Percent for Fourth Straight Meeting
Record-Breaking Heatwave Puts Strain on UK Health Services and Energy Networks
London Ambulance Service Sees Record Emergency Demand as Heatwave Intensifies
British Chambers of Commerce Warns of Prolonged Weak Investment Climate Through 2027
Bank of England Holds Interest Rates as Inflation Risks Persist
UK Construction Sector Faces One Percent Contraction Amid Cost and Investment Pressures
Former DUP Leader Sir Jeffrey Donaldson Convicted of Sexual Offences
×