We're Running Out of Money

The Budget shambles showed the full extent of Britain's economic weakness

Towering Columns

In The Times, Juliet Samuel says Reeves has fallen back on pumping the economy with welfare spending, abandoning any real commitment to growth.

The main governing principle of this budget, aside from its wholesale and unnecessary surrender to Labour’s back benches, was supposedly fiscal responsibility. But even this rests upon a sleight of hand. While the extra welfare spending flows out of the national coffers immediately, the tax rises come in slowly. Modest cuts to departmental spending, such as they are, are supposed to happen right at the end of the parliament. So we’re meant to believe that Reeves is going to borrow more now, then go back to austerity right before the next election. And even if these measures do go ahead, the OBR says there’s only a 59 per cent chance she’ll meet her fiscal targets — but, to channel Chris Morris, there’s only a 10 per cent chance of that.

In Reeves’s first budget, one could argue that it was politically wise for her to come into office with a big bang of spending for the NHS, neutralising that issue at least temporarily. You could perhaps argue that, even though she immediately and brazenly broke her manifesto promise not to raise national insurance, she was at least putting half the proceeds into public investment, a serious down payment on that new economic model she talked about in Washington.

But with her second attempt, there can be no illusions. The vision of a left-wing government that deploys state power to build faster, incentivise innovation, revive our industrial base, secure our supply chains and protect jobs by uprating Britain’s competitiveness never came to anything more than a single speech. The sum total of Labour’s real vision for the country is higher taxes for bigger handouts.

On Substack, Andrew O’Brien declares we are now in the age of Insecuronomics, with the Budget making Britain reliant on borrowing record sums from overseas.

More worrying is how we are paying for all of this spending. In the short-term we are not really paying for it at all. Our trade deficit is going to be wider at the end of the Parliament than it was at the beginning. We export less than we import. In 2024, we spent £50bn more on imports than we did in exports in 2024. So that’s £50bn heading out the door. By 2030, we will be spending £79bn more on imports than we did in exports. The gap between what imports and exports will increase by 45% over the Parliament.

So far, so bad. But it gets worse. In 2024, we needed to borrow £171bn to pay for the UK’s borrowing, nearly all was the government’s debt. However, higher household and corporate saving could cover most (64%) of our borrowing needs. By 2030, however, although the government need for finance has come down, households and corporates in the UK are now having to borrow from overseas too. Every part of our economy will be going cap in hand to the rest of the world. From 2025 to 2030, the UK is going to need to borrow £667bn from our friends (and not so friends) from overseas.

This borrowing is not free. Our homes, our businesses, our utilities and our future tax revenue (through gilts) are promised in return. The return from these things is what our friends from abroad are interested in. From 2025 to 2030, £372bn is going to leave the UK through higher dividends, debt payments and sales of assets. This is over three and half times the levels of the last Parliament. Our current account balance is going be 1.5% of GDP higher in 2030 than it was in 2024. If we didn’t do this, inflation would skyrocket, making the energy price spike look like a tea party.

In The Telegraph, Allister Heath says the Budget marked the end of property-owning democracy and a victory for socialism.

This is the final death of Thatcherism, of the British dream, of the idea that ordinary people, through hard work, can climb the property ladder: Reeves is the most anti-capitalist and anti-aspiration Chancellor since Denis Healey. She will destroy incentives to extend or refurbish high-end properties – woe betide anybody whose home rises too much in value – cripple the top of the property market and chase away yet more successful people from the UK.

Many on the radical Left believe they are entitled to confiscate privately owned assets, for any reason, and are finally getting their way. They believe that it is “unfair” people don’t pay more tax if they own an expensive home. But why should anybody pay any tax on their property at all, other than a basic fee for local services? It’s legally theirs, so they should not have to hand over any money to keep hold of it. In a conservative and capitalist society, property is a foundational, natural right, not a privilege. Where are the human rights lawyers when we need them?

The logical extension of Reeves’ property tax grab is that the state will eventually start to expropriate a percentage of bank accounts and pension pots too, at least those deemed “too large”.

Reeves is violating every principle of just taxation. Wealth taxes are “dry”, a disaster for the asset-rich but cash-poor, such as pensioners who bought their home decades ago and have accidentally become paper millionaires. To avoid such people having to sell family homes to pay her abhorrent levy, and the accompanying PR nightmare, Reeves is likely to introduce another sinister innovation. She may allow her tax to be “rolled up” and paid when pensioners die, or when they choose to sell their home. This sets another terrible precedent: the Chancellor no longer needs to consider affordability when determining tax. She can simply punish people as harshly as she wishes, and then collect the cash when they die. Her new tax – a toxic mix of two hated levies, council tax and IHT – is equivalent to detonating a time bomb under Middle England.

Socialism is back, and the property-owning democracy is out. Labour has declared war on social mobility, on petit bourgeois values, on the consumer society and on conservative Britain. Starmer and Reeves’s mission was to keep Labour MPs on side. They are about to find out that the rest of the country has no time for their deranged, embittered class warfare.

In UnHerd, Yuan Yi Zhu says financial pressures are now driving the call to abolish trial by jury, a foundation of the British legal system.

It would be one thing if, having decided that the jury was an institution not adapted to modern conditions, the Justice Secretary made the principled decision to abolish it. This view is not without supporters. Lord Bramwell, one of the most distinguished jurists of the Victorian period, once said that, “If juries had to give reasons for their verdict, trial by jury would not last five years.” In fact, it is a crime in England to disclose the deliberations of a jury, which to cynics only confirms the truth of Bramwell’s quip.

But this is Britain in 2025. Lammy needs to abolish juries because there is no money for the legal system, which means that courtrooms sit empty while criminal trials are scheduled for the next decade.

Juries are expensive and time-consuming; hiring judges is also expensive, but they aren’t messy like juries. They won’t collapse trials by going home and looking up the defendant online. They won’t acquit people who throw monuments into a river or people who post threatening things online about asylum seekers. For a Prime Minister who thinks ID cards are a sure vote winner, abolishing juries must seem like a quite clever thing to try.

In The Financial Times, Martin Wolf makes the case that this Budget has stored up risks for the future, wasting an opportunity to use Labour’s large parliamentary majority to reform the economy.

Strikingly, as the OBR notes, the forecast for public sector net borrowing is also worse now than it was in March for every year, apart from 2030 — not surprisingly, the year when targets bite. As the OBR also notes, the Budget delivers a frontloaded increase in spending of £9bn and a backloaded increase in taxes of £26bn. This is sweetness today and sourness tomorrow. That must reflect panic over the unhappiness of the Parliamentary Labour party. Will Reeves’ measures at least be enough to avoid any possibility of further need to raise taxes or slash spending? Possibly not. The OBR concludes that “the probability of meeting the fiscal mandate is 59 per cent, up from 54 per cent in March” — safer, but hardly safe.

What about the measures themselves? They are exactly as expected. Out of a net fiscal adjustment of £22.9bn for 2030-31, £12.7bn comes from freezes in personal tax thresholds, £2.6bn from national insurance contributions on salary-sacrifice schemes, £2.2bn from increases in income taxes on property, savings and dividends and so on and so forth. This sort of scattershot approach is what chancellors do who have no sense of what a good tax system would look like, or lack the courage to attempt radical reforms but desperately need to raise revenue. It was entirely predictable. But how ministers can say with a straight face that using inflation to raise effective tax rates in an arbitrary way is protecting “working people” from higher tax is beyond me.

What is depressing is that a government with a huge majority dares to do so little to transform economic prospects. It is easy to imagine far more irresponsible budgets than this. But the OBR is right that it will not have any positive effect on growth or the efficiency of the tax system. Moreover, it leaves a risky fiscal position, with persistently high debt and already high interest rates. The government could have done better. Indeed, it should have done better.

In The Spectator, James Kirkup says we will see fewer people in work at the end of the parliament than at the beginning.

Work is good. Work generates wealth, makes people happier and, maybe, delivers salvation. The Protestant work ethic is much disputed among sociologists and economic historians, but most people accept that some level of work is both necessary and desirable. This makes it all the more troubling that, buried in the OBR data under the Budget, are signposts to a future Britain where fewer people work at all – and where those who do are working less.

The Office for Budget Responsibility says the labour force participation rate is forecast to fall ever so slightly, from 63.5 per cent in 2024 to 63.4 per cent in 2029. A tenth of a percentage point over five years is not huge. But thinking about the economic future, does anyone think that Britain needs the share of the population that’s not working to be rising?

And the OBR’s footnotes tell a sobering story: participation is falling because Britain is ageing and getting sicker. Long-term sickness keeps rising and is pushing up incapacity benefit caseloads. This is not the country becoming more efficient and so able to make do with fewer workers; it’s a nation quietly becoming less able to work.

In UnHerd, Henry Hill says the flight of young professionals is masking the UK’s ongoing high levels of immigration.

But the overall numbers are still very high. According to the Office for National Statistics (ONS), just under 900,000 people immigrated to Britain in the year after last year’s election. The reason the net figure looks so comparably reasonable is due to emigration.

This poses problems, however. Firstly, a substantial share of current emigration involves EU citizens who arrived in the UK before Brexit. This is a trend that will eventually run its course, which is why the watchdog actually predicts net migration to start rising again by 2029. Secondly, another slice of emigrants are British nationals leaving the country; in the latest figures, this is about 250,000 people.

Some of this will be natural and untroubling. But to the extent it represents productive people leaving the country, for example high earners driven away by raised taxes or young professionals such as doctors seeking better opportunities overseas, it is a poor indicator of national health to which more attention should be paid.

Likewise, it means that cutting net immigration by itself will not, and should not, allay the concerns of voters concerned about integration and the pace of cultural change. If Britain imported one million new people every year but waved goodbye to one million Britons, net immigration would be zero. Yet the pace of change would be double what it would be if all the Brits stayed here and net immigration was one million.

Wonky Thinking

Guido Fawkes provides a comprehensive list of Think Tank responses to what it calls the “Binfire Budget”.

Britain Remade’s Sam Richards said: “The shambles surrounding the launch of this miserable Budget should not distract from the Government’s abject failure to deliver their number one priority: economic growth.”

The Centre for Social Justice blasted the “Buckeroo Budget”, with policy director Joe Shalam saying: “A government with a majority of 169 has set out a Budget penned by its backbenchers. But throwing money at the problem, paid for by a squeeze on the workers and savers of middle England, will eventually cause a kick.”

Onward’s director Simon Clarke said: “Today’s Budget compounds the damage inflicted a year ago: slower growth and lower productivity alongside higher taxes and more welfare spending.”

The Institute of Directors‘ Anna Leach said: “This Budget does not substantively change the UK’s growth outlook. Public spending is higher, and business investment even lower than before. The scaling back of National Insurance relief on pension contributions – even while the government has launched its Pension Commission – will undermine retirement savings and the very investment pools that we need, as well as heaping further costs on employment.”

In a guest post for Eric Kaufmann’s Centre for Heterodox Social Science, Robin Young analyses the economic effects of Diversity, Equity and Inclusion policies and their impact on the economy. Young argues that they have significantly contributed to the reduction in growth since the financial crisis.

Over the past 15 years, the UK’s economic performance has sharply declined. Between 1960 and 2010, UK GDP per worker (productivity) grew by an average of 2% annually, but since 2010 it has fallen to less than 0.7% annually. Two major recessions marked this period: the 2008 Global Financial Crisis (GFC), which took 5½ years for activity to return to pre-GFC levels; and the 2020 pandemic, which triggered a steep V-shaped recession.

These events mark the beginning of each recession, but the decline in trend growth requires further explanation. Other factors, beyond the UK’s dependence on financial services, include demographic issues, a shift towards an IT era, Brexit, and specific microeconomic challenges. Nevertheless, many of these are longstanding, gradual issues, some of which predate the GFC. Notably, the rise of the DEI complex occurred shortly after the start of the GFC, and the pandemic coincided with a more intense surge of DEI advocacy following George Floyd’s death in May 2020.

Disentangling the macroeconomic effects of these events is challenging, considering that expenditure on DEI programmes is minor compared to the size of the UK economy. However, the impact of the DEI complex extends beyond spending on DEI initiatives, subtly but significantly affecting potential growth through increased regulation, bureaucratic oversight, and a misallocation of resources. Additionally, there is little evidence supporting a ‘diversity dividend’ in terms of improved corporate productivity, performance, or profitability.

New research by the Centre for Clean Energy Innovation in the United States found that electricity demand for AI is rising rapidly and that without action the US could end up accidently killing its AI industry. The research recommends energy companies and tech businesses working together to shift AI energy demand to off-peak periods without damaging their businesses.

When change was slow, regulators and utilities could cope quite easily. But now change needs to be very fast. Utilities want to serve the new demand but are cautious about building out large new facilities without guarantees that demand will in fact be there when they come onstream in 5–10 years. After all, Google just announced that the energy cost per text query fell by 93 percent in 2024 alone; maybe all that demand will just never happen. And regulators are wary of adding huge new costs to the existing rate base, especially as costs come before the revenues do, thereby adding risk. Electricity prices are driven by multiple factors on both the supply and demand sides, and data center demand is only one variable among many; the drivers of electricity demand are in fact incredibly complex. But without new capacity, adding huge new demand to the grid will have inevitable consequences when supply is constrained in the short term (next 5–10 years): either prices go up, energy allocations move from existing consumers to new ones, or both.

Simply opening the door to new demand would be normal for most markets. Prices would go up for a bit, new supply would come online, a new competitive equilibrium would emerge. And in theory, that would work for electricity as well. Perhaps it should—but it doesn’t. Regulators are not prepared to let new entrants disrupt existing supply, as they are responsible for keeping prices stable as best they can, and are generally risk averse. The price of electricity has already been a sore point for politicians, and while AI companies have plenty of high-level friends, public perspectives are less positive. At the same time, environmentalists and other long-term foes of AI and innovation more broadly see this as an opportunity, and have pressured regulators to deny data center requests.1

But strangling AI by accident via electricity shortages is not smart, and won’t work—it simply hands advantages to other countries and encourages U.S.-based companies to go offshore where their energy needs will be met.

Book of the Week

In Breakneck, Dan Wang documents China’s megabuilding projects and how the US stopped investing in its infrastructure. Wang says the battle between China and America over the coming decades pits the “lawyerly society” against the “engineering state”.

We are now in an era where the two countries regard each other with suspicion, and often animosity. Like China, the United States is able to move fast and break people, dealing tremendous brutality at home and abroad when it feels threatened. A paramount question of our times is whether hostility between China and the United States can stay at a manageable simmer. Because it if boils over, they will devastate not only each other but also the world.

The best hedge I know against heightening tensions between the two superpowers is mutual curiosity. The more informed Americans are about Chinese, and vice versa, the more likely we are to stay out of trouble. The starkest contrast between the two countries is the competition that will define the twenty-first century: an American elite, made up of mostly lawyers, excelling at obstruction, versus a Chinese technocratic class, made up of mostly engineers, that excels at construction. That’s the big idea behind this book. It’s time for a new lens to understand the two superpowers: China is an engineering state, building big at breakneck speed, in contrast to the United States’ lawyerly society, blocking everything it can, good and bad.

Breakneck is the story of the Chinese state that yanked its people into modernity - an action rightfully envied by much of the world - using means that ran roughshod over many - an approach rightfully disdained by much of the world. It is also a reminder that the United States once knew the virtues of speed and ambitious construction. Traversing dazzling metropolises and gigantic factories, Breakneck will illuminate the astounding progress and the dark underbelly of the engineering state. The lawyerly society has virtues, too, to teach China. Each superpower offers a vision of how the other can be better, if only their leaders and peoples care to take more than a fleeting glance.

Quick Links

Labour u-turned on rights promised in its flagship employment bill.

Leaked documents from The Home Office show more than 53,000 illegal migrants are missing.

Freezing tax thresholds will hit higher rate taxpayers by £600 per year but additional rate taxpayers by £390.

But British basic rate taxpayers are still among the least taxed in the developed world.

Over 100,000 British nationals under the age of 35 have left the country.

Changes to the two-child welfare cap will disproportionately benefit migrants.

The Justice Secretary has proposed scrapping jury trials except for alleged rapists and killers.

House prices will rise but transactions will fall over the Parliament after the Budget.