London Daily

Focus on the big picture.
Tuesday, Mar 17, 2026

We won’t like any of the four painful ways out of our economic nightmare

We won’t like any of the four painful ways out of our economic nightmare

We’ve always known that politicians promise too much and deliver too little. But the gap between promises and delivery is a lot wider than it once was. It’s not so much that politicians have become more foolish over time (although, in some cases, that might well be true).

It’s that living standards are not rising like they once were. That means slower growth in tax revenues, bigger constraints on public spending and, all too frequently, a lurch back into painful austerity.

It’s another way of saying Jeremy Hunt’s hairshirt Autumn Statement has been many years in the making. Consider the pace at which per capita incomes have risen over time. Between the Sixties and the Nineties, the average gain per decade was around 24 per cent. Thereafter, however, economic progress has been thoroughly disappointing: an income gain of only eight per cent in the Noughties and a mere six per cent in the 10 years ending in 2021.

It’s easy enough to say that such disappointment results from a refusal to pull the macroeconomic levers hard enough in the right direction. Yet for much of the last two decades, interest rates in the UK and elsewhere have been at rock bottom and, for more than a decade, the Bank of England was in the business of printing money through so-called quantitative easing.

Equally, however, there have been periods of extraordinary fiscal generosity, thanks to Gordon Brown and, more recently, Rishi Sunak (the latter, in part, a response to the economic costs of the pandemic).

Overall, both taxes and public spending are set to take up bigger shares of the economy than at any other point since the Fifties, which is another way of saying the economy is simply not expanding at a fast enough rate.

From here, fiscal pressures will only get bigger. In the near term, the interest paid on government debt is set to rise further thanks partly to the Bank of England’s fight against inflation. The Government will likely struggle to contain public sector pay. Longer term, more resources will have to be devoted to health and social care: our population is ageing.



Investors knew all this when Kwasi Kwarteng came up with his ill-advised “experiment”. If fiscal pressures were only likely to get worse, why head down a tax cutting rabbit hole? The answer, apparently, was that lower taxes would boost economic growth. Kwarteng claimed his actions would raise annual growth from a little over one per cent to around 2.5 per cent.

This was wishful thinking. Economic growth can’t just be created via a tax-cutting magic wand. Any government serious about raising long-term growth needs to think about the fundamental building blocks that lead to higher productivity, starting with education and then the kinds of investments that allow people and jobs to be better connected: improved cross-country rail, bus and road connections, more social housing in otherwise expensive neighbourhoods, greater opportunities for retraining in a world of rapid technological advance.

Even so, there are limits. The growth rates of old may simply no longer be attainable: globalisation is heading into reverse; trade deals are proving tricky to negotiate; and inflation is a more awkward foe than many imagined.

An increase to the energy price cap in April could see the cost of heating the average home doubling since last April, a charity has warned


Ultimately, we need honesty regarding our future economic prospects. We might want high levels of social spending alongside low levels of taxation yet we cannot have both. Dealing with this wishful inconsistency is, however, politically tricky. Options include raising the retirement age a long way, increasing immigration to provide the workers to look after us in our old age, shoving taxes up even more to meet tomorrow’s bills, or allowing inflation to destroy our savings. Each of these will be opposed. At least one, however, is eventually likely to transpire.

Yes, we could get lucky. The energy transition may drive the marginal cost of renewable energy very far down, a potential “manna from heaven” moment for the British economy. In the meantime, however, we may have to accept that political promises are far less credible than they used to be. Politicians may be an optimistic bunch but they should be steeling themselves for the disappointments ahead.

Newsletter

Related Articles

0:00
0:00
Close
Western Allies Urge Restraint as Israel Weighs Expanded Ground Operation in Lebanon
Trump Warns NATO Faces ‘Very Bad’ Future Without Stronger Allied Support in Iran Conflict
UK Minister Says Britain Not Bound to Support Every Demand From U.S. President
Starmer Tells Trump Britain Will Not Be Drawn Into Wider Iran War
Starmer Tells Trump Britain Will Not Be Drawn Into Wider Iran War
UK Set to Introduce Steel Tariffs of Up to 50 Percent in New Industrial Strategy
European Governments Decline Trump’s Call to Send Warships to Reopen Strait of Hormuz
Fears Over Iran Conflict Weigh on UK Consumer Confidence
Starmer Says UK Working With Allies on Hormuz Shipping Plan After Trump Raises Pressure
Iran War and Energy Shock Shake Britain’s Economy and Political Debate
Deadly Meningitis Outbreak at UK University Leaves Two Dead and Several Seriously Ill
Deadly Meningitis Outbreak at UK University Leaves Two Dead and Several Seriously Ill
King Charles and Queen Camilla Share Personal Tributes to Their Mothers on UK Mother’s Day
Prince William Honors Princess Diana with Mother’s Day Tribute
UK Economy Stalls in January as Households Cut Back on Eating Out
AI-Generated Singer Becomes Viral Voice for Iranians With New Anthem
London Private Club Founder Plans Exclusive Palm Beach Venue Near Trump’s Mar-a-Lago
Ed Davey Urges Britain to Build Fully Independent Nuclear Missile Capability
What the UK Covid Inquiry Is and How It Investigates Britain’s Pandemic Response
What the UK Covid Inquiry Is and How It Investigates Britain’s Pandemic Response
US Treasury Links British Polo Patrons to Alleged Venezuelan Oil Proceeds Laundering Scheme
Hundreds Gather in London Despite Ban on Annual Pro-Palestinian March
Two Dead and Multiple Students Seriously Ill After Invasive Meningitis Outbreak at UK University
UK Considers Deploying Ships and Mine-Hunting Drones to Reopen Strait of Hormuz
Starmer and Trump Discuss Urgent Need to Reopen Strait of Hormuz Amid Escalating Iran Conflict
Prince Harry and Meghan Markle’s Planned Australia Visit Draws Mixed Reaction From Local Communities
Trump Calls on France and UK to Help Safeguard Strait of Hormuz Shipping Route
Boris Johnson Labels Bitcoin a ‘Ponzi Scheme’, Sparking Debate in Crypto World
UK Considers Targeted Aid for Vulnerable Households as Energy Costs Rise
Stellantis Urges Immediate Review of UK Electric Vehicle Sales Targets
Home Office Reverses Course to Allow Some Dual Nationals to Enter UK Using EU Passports
Reform UK Proposes Replacing Top Civil Servants With Officials Aligned to Government Agenda
Netflix Adds Critically Acclaimed ‘Best Film of 2025’ With Perfect Rotten Tomatoes Score
‘The Sums Don’t Add Up’: UK Farmers Hit by Soaring Costs as Iran War Disrupts Global Supplies
Confidential UK Biobank Health Records Found Online After Researchers Accidentally Expose Data
Trump Urges Britain and Allies to Deploy Warships to Safeguard Strait of Hormuz
Trump Urges Britain and Allies to Deploy Warships to Safeguard Strait of Hormuz
Middle East War Highlights Strategic Importance of Strong UK–Ireland Cooperation
Weak Growth Signals UK Economy Was Faltering Even Before Middle East Energy Shock
Marks & Spencer Tops UK Fashion Retail Rankings as Most Considered Brand
United States Launches Trade Investigation Into Allies Over Forced Labour Practices
United States Launches Trade Investigation Into Allies Over Forced Labour Practices
Russia Accuses Britain Over Storm Shadow Strike as London Reaffirms Ukraine’s Right to Self-Defence
Russia Accuses Britain Over Storm Shadow Strike as London Reaffirms Ukraine’s Right to Self-Defence
Royal Navy to Acquire Twenty Uncrewed Surface Vessels for Autonomous Warfare Testing
Russia Summons British and French Envoys After Ukrainian Storm Shadow Strike on Strategic Facility
Starmer Confirms Britain Will Maintain Sanctions on Russia Despite U.S. Policy Shift
UK Moves to Refine AI Definition in Investment Security Reform
UK Economy Stalls in January as Growth Unexpectedly Falls to Zero
Asian Energy Security Tested as Strait of Hormuz Disruption Threatens Oil Supplies
×