That the UK has run out of money for its needs must be the grim realisation that underpins the national budget this week. There are signs that the new Chancellor of the Exchequer, John Healey, is indeed ingesting this message – yet Mr Healey must go further to level with the country.
The national debt hit £3 trillion ($4 trillion) last week. The budget is expected to lay out the need to borrow more than £330 million in the year from April. Meanwhile, the government is spending more than £100 million repaying debt every year.
These grim statistics come at time of already increased taxation. In the coming months, previously announced new taxation is already expected to bite on both wealth and profits. After a number of years when income was targeted, the latest measures tap out the money people own, on top of earnings.
The result so far is an exodus of high earners and increasing signs that certain types of jobs are no longer being created because the cost of paying taxes on labour is deterring businesses from adding to the workforce. For example, consider the coincidence of two pressures on the bank sector revealed last week.
The speculation about a higher bank tax, to capture the proceeds of higher interest rates, is rife. Barclays, one of the country’s largest banks, said it will reduce its headcount by 5,000 to reflect the changing needs of embedding AI in its system.
Another straw in the wind: there were an estimated 645,000 people aged 90 years and over in the UK last year, an increase of 55 per cent since 2005. The tax changes already set to come in before Wednesday’s budget also target this portion of the population. Any unused pensions of those who die over 75 will be heavily taxed from now on.
The diagnosis for the UK is complicated by just where the tax proceeds are going. The country is spending heavily on those in need of the sick and others needing welfare. By contrast, other government services such as education are being slimmed down by necessity.
The big elephant in the room is that the government must spend more on defence. This is largely because wars are seen as encroaching fast on the UK’s global space. Mr Healey knows this because he resigned as the defence secretary in the previous government, under Keir Starmer, over its failure to fund defence.
The crimp on how to contain spending has not been resolved. Instead, a tax drive that doesn’t seem to fit with the British way anymore – such as inspecting private property to assess if it is worth £2 million, and therefore, eligible for extra taxes – is gaining momentum.
Prime Minister Andy Burnham has framed his challenge as a 10-year programme to transform the country. The approach he wants to take is having the state mobilise its assets for the public good.
To make a break with tax and spend, as he does this, would entail leading a radical government. No wonder Mr Burnham sees the need for stealth in these early days. He is barely three months into the job.
There is a danger in not tackling spending or addressing how to accommodate an ageing population and a workforce shaped by changing technology. Those are the strategic needs that are not being addressed right now. Having a first budget is a moment of asserting its authority for a new government.
It is true that the Labour party, under its previous leadership, was dedicated to balancing its books at a time when economic growth was faltering. As Mr Healey reduces his headroom between forecast-borrowing and revenues, he will know how difficult that literal balancing act has become.
For Mr Burnham, the lessons are clear. There will need to be a dedicated defence build-up in the years to come. Alongside this, he has a legacy priority of ensuring state-provided long-term care for the elderly, such as those swelling numbers of nonagenarians. The only way to fund that is to return directly to raise taxes on earnings.
To secure a mandate for those measures, he will need his message of hope to generate faster growth and – more importantly – win an election with a commitment to do so.
Until that point, he will remain caught in a political trap where he can’t address the big questions. And the country’s strategic traps will remain glaringly exposed.
