London Daily

Focus on the big picture.
Friday, Feb 20, 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
UK Confirms Preferential U.S. Trading Terms Will Continue After Supreme Court Tariff Ruling
U.S. and U.K. to Hold Talks on Diego Garcia as Iran Objects to Potential Military Use
UK Officials Weigh Possible Changes to Prince Andrew’s Position in Line of Succession Amid Ongoing Scrutiny
British Police Probe Epstein’s UK Airport Links and Expand High-Profile Inquiries
Early 2026 Data Suggests Tentative Recovery for UK Businesses and Households
UK Introduces Digital-First Passport Rules for Dual Citizens in Border Control Overhaul
Unable to Access Live Financial Data for January UK Surplus Report
UK ‘Working Closely with US’ to Assess Impact of Supreme Court Tariff Ruling
Trump Criticises UK Decision to Restrict Use of Bases in Potential Iran Strike Scenario
UK Foreign Secretary and U.S. State Chief Hold Strategic Talks as Tensions Rise Over Joint Air Base
Nordic Fracture: How Criminal Scandals and Toxic Ties are Dismantling the Norwegian Crown
US Supreme Court Voids Trump’s Emergency Tariff Plan, Reshaping Trade Power and Fiscal Risk
King Charles III Opens London Fashion Week as Royal Family Faces Fresh Scrutiny
Trump’s Evolving Stance on UK Chagos Islands Deal Draws Renewed Scrutiny
House Democrat Says Former UK Ambassador Unable to Testify in Congressional Epstein Inquiry
No Record of Prince Andrew Arrest in UK as Claims Circulate Online
UK Has Not Granted US Approval to Launch Iran Strikes from RAF Bases, Government Confirms
AI Pricing Pressure Mounts as Chinese Models Undercut US Rivals and Margin Risks Grow
Global Counsel, Advisory Firm Co-Founded by Lord Mandelson, Enters Administration After Client Exodus
London High Court dispute over Ricardo Salinas’s $400mn Elektra share-backed bitcoin loan
UK Intensifies Efforts to Secure Saudi Investment in Next-Generation Fighter Jet Programme
Former Student Files Civil Claim Against UK Authorities After Rape Charges Against Peers Are Dropped
Archer Aviation Chooses Bristol for New UK Engineering Hub to Drive Electric Air Taxi Expansion
UK Sees Surge in Medical Device Testing as Government Pushes Global Competitiveness
UK Competition Watchdog Flags Concerns Over Proposed Getty Images–Shutterstock Merger
Trump Reasserts Opposition to UK Chagos Islands Proposal, Urges Stronger Strategic Alignment
Greek Prime Minister Kyriakos Mitsotakis advocates for a ban on minors using social media.
Liberal Senator Michaelia Cash Accuses Prime Minister of Lying to Australians
Meanwhile in Time Square, NYC One of the most famous landmarks
Jensen Huang just told the story of how Elon Musk became NVIDIA’s very first customer for their powerful AI supercomputer
A Lunar New Year event in Taiwan briefly came to a halt after a temple official standing beside President Lai Ching‑te suddenly vomited, splashing Lai’s clothing
Jillian Michaels reveals Bill Gates’ $55 million investment in mRNA vaccines turned into over $1 billion.
Ex-Prince Andrew Mountbatten-Windsor's arrested
Former British Prince Andrew Arrested on Suspicion of Misconduct in Public Office
Four Chagos Islanders Establish Permanent Settlement on Atoll
Unitree Robotics founder Wang Xingxing showcases future robot deployment during Spring Festival Gala.
UK Inflation Slows Sharply in January, Strengthening Case for Bank of England Rate Cut
Hide the truth, fake the facts, pretend the opposite, Britain is as usual
France President Macron says Free Speech is Bull Sh!t
Viktor Orbán getting massive praise for keeping Hungary safe, rich and migrant-free!
UK Inflation Falls to Ten-Month Low, Markets Anticipate Interest Rate Cut
UK House Prices Climb 2.4% in December as Market Shows Signs of Stabilisation
BAE Systems Predicts Sustained Expansion as Defence Orders Reach Record High
Pro-Palestine Activists Cleared of Burglary Charges Over Break-In at UK Israeli Arms Facility
Former Reform UK Councillors Form New Local Group Amid Party Fragmentation
Reform UK Pledges to Retain Britain’s Budget Watchdog as It Seeks Broader Economic Credibility
Miliband Defends UK-California Clean Energy Pact After Sharp Criticism by Trump
University of Kentucky to Host 2026 Summer Camps Fair Connecting Families with Local Programmes
UK Police Forces Assess Claims Jeffrey Epstein Used Stansted Airport Flights in Trafficking Network
UK-Focused Equity ETF FLGB Climbs to Fresh 52-Week Peak on Strong Market Sentiment
×