Nick O’Donovan
The UK has spent the last fifteen years locked in a low-investment, low-growth holding pattern of its own making. Since the 2019 election, changes in the national and global economic environment have rendered it increasingly difficult to break out of this self-inflicted stagnation. But these constraints are ultimately political, rather than economic: the next government will be able to change course, if it has the political appetite to do so.
***
Whatever the result of the upcoming general election, the challenges facing the UK economy will remain largely unchanged. Since the global financial crisis, the country has been stuck in a pattern of managed stagnation, in which disappointing growth has caused public finances to deteriorate, prompting politicians to respond by lowering levels of social investment. The result has been crumbling infrastructure, poorer levels of public health and less innovation, all of which have contributed to a slowdown in UK productivity growth, in turn leading to further economic stagnation.
For much of the 2010s, this was a trajectory that UK political leaders chose, rather than a course of action that was forced on them. Monetary sovereignty, a favourable debt maturity profile, low interest rates and a low inflationary environment meant that the UK had substantial leeway to borrow and spend its way out of the slump.[1] The 2019 general election represented a belated recognition of these possibilities. Despite ongoing deterioration in the UK’s public debt to GDP ratio over the decade following the financial crisis, Boris Johnson campaigned on a pledge to break free from his predecessors’ austerity agenda, promising massive increases in public investment.
Five years later, however, many of the macroeconomic conditions underpinning this course correction have disappeared. Successive crises have called into question the global supply chains and financial flows on which economic growth has long been predicated. Inflation has returned, bringing with it higher interest rates, at the same time as government has taken on more debt to fund responses to the COVID-19 pandemic and the cost-of-living crisis precipitated by the Russian invasion of Ukraine. The need for elevated levels of public spending and taxation looks set to continue in the face of ongoing geopolitical tensions as well as the rapidly worsening ecological emergency, even before any money can be set aside for repairing the damage done to the public realm over more than a decade of neglect.[2] Whereas in the 2010s, the fiscal constraints facing the UK government were largely self-imposed, by the mid-2020s, they have solidified into something far harder to escape. Increasingly, the UK appears to be stuck in a doom-loop: the government cannot rebuild public services and infrastructure because the UK economy is not growing fast enough, yet lack of public investment in human and physical capital only serves to entrench the UK’s economic stagnation and vulnerability to crisis.
Policy debates among progressives have not always kept pace with this paradigm shift. Strategies for liberating funds for social investment championed by the left during the 2010s – such as increased borrowing, progressive taxation or novel forms of monetary intervention – stimulated aggregate demand at the same time as they raised money for public spending. In the demand-deficient 2010s, this was a feature not a bug: the stimulus would help to mobilise unused and underused resources in the real economy. But the constraints facing the UK in the mid-2020s are different – and may require a different approach.
A short-lived victory
On the eve of the pandemic, it appeared that progressives had finally won the argument against austerity. Both Labour and the Conservatives fought the 2019 general election promising substantially higher levels of public investment than the UK had witnessed over the preceding decade, funded for the most part through additional borrowing. The new fiscal rules proposed by Boris Johnson’s victorious Conservative Party abandoned his predecessors’ ambition of seeing debt-to-GDP ratios falling. In his March 2020 Budget speech, then-Chancellor Rishi Sunak pledged to deliver the highest level of public net investment since 1955, with £600bn allocated over the following five years.
These plans were formulated against a backdrop of low inflation and low interest rates, both in the UK and internationally. Over the 2010s, despite public sector net debt as a percentage of GDP hitting levels that had not been seen since the early 1960s, debt interest costs actually fell relative to GDP. Interest rates on newly-issued UK government bonds declined steadily over the same period. This was in part a reflection of the relative risk profile of UK government debt. Unlike many of its neighbours, the UK had retained monetary sovereignty rather than joining the Eurozone, significantly reducing its risk of debt default while also limiting its exposure to the European sovereign debt crises of the early part of the decade. But the UK’s ability to borrow and invest cheaply during this period also reflected benign international conditions. The integration of Eastern Europe and Asia into global value chains following the end of the Cold War heralded an era of low prices driven by low-cost outputs from emerging economies.[3] A ‘global savings glut’ rendered borrowing cheap, driven by growing cash reserves in the non-financial corporate sector, reflecting preferences for hoarding money rather than investing in expanding production.[4] Higher levels of savings in many fast-growing developing countries also contributed to lower interest rates, as governments built foreign-exchange reserves to insulate themselves against sudden outflows of foreign capital (inspired in part by the vulnerabilities revealed during the emerging market crises of the late 1990s), adopting export-driven economic models that implied a constrained level of domestic consumption.[5] The result was a world in which the growth of savings tended to outstrip investment opportunities and in which money was cheap – for those households, firms and governments deemed creditworthy enough to access it, at least.
The global financial crisis, the credit crunch and the subsequent austerity agenda depressed government and household spending, further restricting demand. Lower levels of spending meant that there was insufficient domestic demand to inspire business investment – and, with many other economies adopting a similarly austere approach, international demand did not come to the rescue via export channels. But this also meant that the UK government could have borrowed cheaply, had it been willing to buck this trend. The lack of inflation during this period, despite high employment levels and low interest rates, suggested that productive resources remained either unused or underused – implying that there was untapped potential for growth, if only policymakers could find the tools to unlock it.
The policy tools popularised by the left during the 2010s were designed to do precisely that. In different ways, additional borrowing, higher levels of progressive taxation and unconventional monetary policies would provide the government with the money needed to reverse the damage done to public services and infrastructure, while also stimulating aggregate demand to encourage more effective and extensive use of available resources. Global lack of demand for both capital and goods meant that the UK could borrow cheaply from international financial markets and import cheaply from overseas. Taxing high-income households would raise money for public investment while also stimulating economic activity: wealthier individuals have a lower marginal propensity to consume than their less affluent counterparts, so shifting money from the private savings of richer households to public investment would have increased demand and output in the economy as a whole. Similar logic applied to taxing the profits of cash-rich corporations. Unconventional uses of monetary policy, such as the distribution of ‘helicopter money’ to poorer individuals or using quantitative easing techniques to finance public sector capital investments, could have further stimulated demand while building resilience at the level of both households and the nation.[6] All of these policy tools combined stimulus and investment in ways that could have pushed the UK economy onto a higher-productivity, higher-growth trajectory.
Admittedly, these arguments remained politically toxic in the UK for much of the 2010s. The austerity agenda appealed to popular understandings of household budgeting, messages that were reinforced by the media as well as by establishment institutions such as the Treasury and the Bank of England.[7] But as the squeeze on public services became increasingly obvious, as expansionary fiscal contraction failed to unlock growth, media commentary, establishment analysis and public opinion began to shift. Progressive policies for breaking free from the UK’s low-growth, low-investment equilibrium began to be seen for what they were: an economic and political free lunch. Increasing social investment would require minimal pain, as underutilised domestic resources and low-cost overseas resources could be mobilised in the short-term, and these investments would pay for themselves over the medium- to long-term by boosting UK activity and productivity levels. Politically, only a small (albeit vocal) proportion of the population would be burdened by increases in top rates of tax. Any rise in price levels resulting from higher borrowing or money creation would be shortlived, not to mention barely noticeable against a backdrop of ‘lower for longer’ inflation and interest rates.
The supply crunch
Over the last five years, however, the nature of the constraints facing the UK economy have changed. Current economic capacity no longer clearly outstrips existing demand. Pandemic-era lockdowns suppressed consumer spending, but they also allowed more fortunate households to build up substantial cash reserves. The relaxation of restrictions in affluent (and inoculated) countries released this pent-up demand, while shutdowns in other parts of the world (most notably, in China) were still restricting production. Global supply chains that had historically been managed on a just-in-time basis took several months to unblock. These constraints meant that, by the start of 2022, inflationary pressures were already mounting. In the final three months of 2021, annualised quarterly CPI inflation rates hit 9.89% in the US, 8.24% in the UK and 6.57% in the Eurozone.[8] This shock might have proved temporary, lasting only as long as it took supply chains to reform and lockdown-era savings to dissipate. However, the Russian invasion of Ukraine that began in February 2022 threw markets into disarray once more. Western efforts to isolate the Russian economy, combined with the destruction wrought in Ukraine itself, pushed up prices in key sectors such as energy and agriculture, ultimately feeding through into higher inflation across the board.
The worst of this inflationary surge appears to be over, as bottlenecks in supply chains are addressed, higher interest rates curb demand, and as economies adapt to new higher price levels. Yet, there are reasons to believe that the next ten years will not mark a return to the benign economic conditions of the 2010s: namely, to a demand-constrained, low interest rate, low inflation environment with an abundance of untapped economic capacity.
New geopolitical threats are forcing Western governments to reappraise their security needs and defence budgets. There is a risk of the war in Ukraine escalating into a wider European conflict and of the Israeli invasion of Gaza spiralling into a wider Middle Eastern conflict, both of which would divert more resources towards defence spending as well as causing additional disruption to global trade. Even without further military escalations, persistent geopolitical uncertainty has already led businesses and governments to reconsider their reliance on foreign partners, with a trend towards reshoring, nearshoring and/or friendshoring of critical capabilities ranging from energy generation to microchip manufacture. The ongoing decoupling of Western economies from China – led by the US, but involving many of its allies to at least some extent – acts as a drag on the economic growth of all concerned, reversing the globalisation of supply chains that underpinned the low-inflation environment of the pre-pandemic era.
The burgeoning climate crisis will place additional demands on the global economy and on public finances. Meeting net-zero targets will require massive investments in energy generation (solar, wind, nuclear and so forth), in energy distribution (increasing the capacity of electricity grids and building new energy storage facilities), and in energy saving (such as home insulation and new public transport infrastructures). Attempts to incentivise and regulate the private sector to invest in the green transition run into commitment problems: how can investors be reassured that that the regulations, carbon prices and/or taxes required to render green alternatives relatively profitable will remain in place over the lifespan of an investment? It is highly likely that governments themselves will need to find additional resources to oversee and part-finance the industrial transformations required to decarbonise their economies. At the same time, increasingly frequent climate-related catastrophes (floods, droughts, heatwaves, wildfires, crop failures, hurricanes) will confront governments with demands for compensation on the part of affected populations, as well as demands for adaptation and mitigation measures to lessen the impact of the next such catastrophe.[9]
These new demands have coincided with a weakening in the fiscal position of many countries. The costs of responding to the global financial crisis, the pandemic and the Russian invasion of Ukraine within less than fifteen years, coupled with the economic stagnation caused by the austerity agenda of the 2010s, have left most affluent democracies heavily indebted. Although the cost of servicing public debts is falling as the bulge in inflation passes through, interest rates still look likely to settle above the low levels seen in the 2010s, limiting governments’ capacity to borrow. The scale of underlying debt levels relative to GDP means that any future spikes in borrowing costs will consume an outsize quantity of public resources.
The UK is in a particularly precarious fiscal position. This may come as a surprise on a superficial reading of borrowing data. Although the national debt has reached levels not seen since the early 1960s, it nevertheless compares favourably to most other G7 countries. The maturity profile of UK debt appears relatively healthy too: median maturity dates of government bonds have increased slightly since the start of the financial crisis, meaning the UK is under less immediate pressure to refinance its debts at high short-term interest rates. These appearances are however deceptive. As a result of quantitative easing, the Bank of England owns around a third of UK debt, with its portfolio weighted towards longer-dated gilts. Because interest on these debts is paid by government to itself, they do not affect the overall financial position of the public sector as a whole – but the central bank reserves that were used to purchase these gilts from commercial institutions in the first instance attract interest at the Bank of England base rate, an expense that is ultimately borne by taxpayers. Conversely, those gilts that do impact on the government’s overall financial position are disproportionately short-dated, requiring refinancing within a relatively short time horizon, meaning that government will confront the additional costs of higher interest rates sooner than would otherwise have been the case. Furthermore, the UK is unique in having issued a significant proportion of its debt in the form of inflation-linked government bonds, severely curtailing its ability to inflate away its own liabilities. Index-linked gilts account for around a quarter of the UK’s bonds: approximately double the rate found in Italy and France, three times the rate found in the US and five times the rate found in Germany. As a result of the peculiarities of its debt structure, the UK’s public finances are unusually sensitive to interest rate changes. As of 2022, around half the UK’s overall liabilities would respond to any interest rate increase within two years.[10] Shifts towards a supply-constrained environment of higher inflation and higher interest rates are thus particularly problematic for UK policymakers.
These straitened circumstances mean that many of the tools championed by progressives over the 2010s will no longer work as well as their advocates previously anticipated. Although borrowing, progressive taxation and unconventional monetary policy could still free up additional funds for public spending, spare capacity in the real economy has shrunk. Previously unused and underutilised economic resources are already in greater demand in the UK and internationally, as governments across the world confront the need to invest in defence and the green transition. The productive potential of the global economy has fallen as supply chains unravel, meaning that it is less able to satisfy existing levels of demand from households, firms and governments. And this reduction in capacity has been particularly acute in the UK, where a hard Brexit has imposed additional barriers to trade with our closest neighbours and allies, and where the physical and social infrastructure that underpins economic activity (from roads and railways to nursery provision, schools and healthcare) has been weakened by years of underinvestment. Keynes’ dictum that ‘anything we can actually do, we can afford’ is a salutary reminder that the financial constraints facing policymakers are ultimately arbitrary – but it also reminds us that anything we cannot actually do, we cannot afford to do, irrespective of how much money we can mobilise.[11] With interest rates high and inflation proving slow to fall, with UK unemployment levels low by historical standards and large numbers of unfilled job vacancies, there is a far greater likelihood that repairing public services and infrastructure will require reallocating already in-demand resources, rather than utilising spare capacity.[12]
In practical terms, that means that a proportion of increased public investment must come at the expense of everyday consumption – which raises the question of how those cuts in consumption are to be distributed. Progressives will instinctively seek to impose the biggest burdens on those with the broadest shoulders, and rightly so. But here the disconnect between the money needed to pay for investment and the resources needed to deliver investment becomes clear. Faced with higher tax bills, affluent households have more latitude to reduce saving and maintain their consumption levels than their poorer counterparts. If those tax revenues are then ploughed into public investment, this will boost overall aggregate demand, as higher investment will not be matched by corresponding reductions in consumption. Absent underutilised factors of production available to satisfy this increased demand, the consequences will be inflationary, pushing up prices for average families and hitting the poorest the hardest. The Bank of England may respond by raising interest rates – which tend to penalise homeowners with outstanding mortgages (usually working age) rather than wealthier (and usually older) individuals who own property outright. It is certainly possible to tax the income and wealth of the rich at high enough rates to curb their consumption, but governments may find themselves unable to invest all the additional money they raise. Put bluntly, though the rich may be rich enough to pay for social investment, they may not be consuming enough for curbs on their consumption to free up the spare capacity that social investment requires.
A new toolkit
Over the medium term, social investment coupled with wider economic reforms should result in a virtuous circle, leading to a more productive economy that is better able both to satisfy consumption needs and to deliver further productivity-enhancing investments. But in the short term, mobilising the resources necessary to set this process in motion will require difficult trade-offs. Breaking out of the low-investment, low-growth doom-loop in which the UK economy seems trapped is harder today than it would have been in the 2010s – harder, but by no means impossible. What is needed is a new policy toolkit that will enable government to navigate these trade-offs in a careful and deliberate fashion: to determine whose consumption must fall, by how much and for how long, in order to free up capacity for investment.
Tax rises may be part of the solution. Unfortunately, tax rises narrowly targeted at the wealthiest individuals and highest earners are less effective at curbing household consumption than broader-based alternatives. But reducing the everyday expenditures of a wide cross-section of the population during a cost-of-living crisis will be highly contentious, to say the least. Since 2022, all but the most affluent working-age households have been forced to tighten their belts in response to higher energy costs and wider price rises. Many already face higher tax bills from the freezing of income tax thresholds introduced in the 2021 Spring Budget, and these recent squeezes on spending power take place against a backdrop of long-term wage stagnation.
However, a significant minority of the UK population has seen its spending power safeguarded for much of the post-financial crisis period: namely, retirees. Accounting for around a fifth of the population, pensioners’ ratio of consumption to income is above the national average. Higher taxes on pensioners should thus produce meaningful reductions in demand. Retirees also pay less tax on average than working-age households at any given level of income: once individuals reach the state pension age, they no longer pay national insurance on their earnings, and many sources of retiree income (such as pensions, investments and rental properties) are exempt from social contributions altogether. Extending a modest national insurance charge to all these forms of income would raise government revenues while also helping to redirect societal resources away from everyday consumption, creating space for longer-term investment.
Rebalancing the tax burden in this way has potential to appeal across party-political lines. In recent months, senior Conservatives have condemned the tax system’s bias against work. Admittedly, Jeremy Hunt and Rishi Sunak have attempted to remedy this unfairness by cutting national insurance, a tax on earnings that is not paid on passive income. But the same logic could also justify extending national insurance to sources of income other than earnings – as the former Conservative MP Matthew Parris proposed in the midst of the Covid-19 pandemic.[13] Indeed, this approach was championed by Sunak during his own time as Chancellor. Sunak’s short-lived Health and Social Care Levy was initially structured as a surcharge on national insurance, but unlike a conventional national insurance increase, it was to be levied on the earnings of individuals who had reached state pension age as well as on the earnings of their younger peers. An increase in taxes paid on dividends, another category of income normally outside the scope of national insurance, also formed part of the package of revenue-raising measures included in Sunak’s 2021 reform.[14]
There is a growing awareness across the political spectrum that the UK cannot keep ‘hosing money at pensioners’ – to quote the deputy editor of the ConservativeHome website.[15] The post-2010 programme of redistributing public resources to older voters at the expense of younger individuals has likely contributed to the UK’s productivity slowdown: in comparison to pensioners, more of the expenditure of working-age households constitutes a form of human capital investment, enhancing the health, education, security and wellbeing of the current and future workforce.[16] An extension of national insurance charges to all forms of income is only one way in which this generational imbalance might be corrected. Other possibilities might include a levy on drawdowns from tax-privileged pension savings and payments from pension schemes, or means-tested reductions in the generosity of state pensions, or a tax surcharge once individuals’ lifetime income exceeds a certain threshold.[17] Whatever the mechanism chosen, curbing older people’s consumption in order to liberate resources for public investment could be one way of breaking out of the UK’s low-growth trajectory in the supply-constrained circumstances of the mid-2020s.
Encouraging retirement savings among working-age individuals – for example, by raising the pension auto-enrolment minimum contribution rate – could complement curbs on the spending power of pensioners. This would enable workers today to accumulate larger pension entitlements, offsetting any reduction in their future retirement income resulting from changes to retiree taxes and benefits. More importantly, any increase in the savings rate would imply less household expenditure here and now, creating capacity for the public and private investment needed to shift the UK on to a higher growth trajectory. Countries that save more tend to invest more, and the UK savings rate is extremely low by international standards.[18] Deferring consumption through higher savings may prove more politically palatable than curbing consumption through higher taxes, linking the sacrifices needed today to a personal stake in a more prosperous future.
Another possibility for reallocating resources from consumption to public investment involves reducing the amount of interest that the Bank of England pays on commercial banks’ reserves. As mentioned above, quantitative easing dramatically expanded the volume of reserves that commercial banks held at the Bank of England, as these central bank-created reserves were used to buy UK government debt back from private investors. Since interest rates began to rise, the Bank’s policy of paying interest on those reserves has resulted in the taxpayer subsidising the commercial banking sector. Shifting to a tiered model of interest payments on reserves (as already practiced by the European Central Bank, among others) would reduce this subsidy, saving government substantial amounts of money.[19] Precisely how this public saving will affect private consumption is a more complex question, and will depend on how this subsidy reduction feeds through to commercial banks’ various stakeholders (such as savers, borrowers and shareholders, as well as bankers themselves). Assuming a relatively uncompetitive banking sector in which insiders have the power to protect their own financial position, it is conceivable that the losers will be average households forced to pay higher interest rates on their mortgages and/or receive lower interest rates on their deposits. Although this is not an outcome that progressives might prefer or that politicians might wish to highlight, it could lead to broad-based curbs on household consumption, liberating economic resources for investment at the same time as increasing the funds available to government.
Rather than reducing consumer spending through higher levels of tax and saving, policymakers might also tolerate a higher rate of inflation while rebalancing aggregate demand towards investment. A growing number of experts have called for the UK’s inflation target to be increased from its existing 2% level.[20] Rising prices mean lower real wages: other things being equal, this will equate to reduced household expenditure, creating scope for increases in investment while keeping overall aggregate demand stable. (Faster price increases might have supply-side benefits too, potentially boosting productivity by encouraging workers to move jobs under conditions where wages are ‘sticky’.[21])
As with any option for breaking out of the UK’s low-growth trajectory under present conditions, tolerating higher inflation is not pain-free. Price rises generally hit poorer households the hardest. While inflation may encourage some people to seek higher-paying work in more productive sectors of the economy, not everyone will find better jobs, and even those who do may experience high levels of stress and hardship in the process. Policymakers adopting this strategy for breaking out of the UK’s low-growth, low-investment trajectory will need to ensure that the social safety net is strengthened to protect the most vulnerable. Higher inflation also means that government must spend proportionately more money on public services, salaries and infrastructure in order to achieve the step-change in social investment that it desires. Nevertheless, running the economy hot offers another means of curbing consumption to make room for investment.
Finally, despite the constraints that weigh on the UK economy today, policymakers should remain alert to possible shifts in the wider economic landscape. At particular times and in particular places, there may still be opportunities to fund public investment in ways that simultaneously stimulate growth. Some localities may still be characterised by unused and underused resources that could be mobilised by geographically-targeted increases in demand.[22] Internationally, it is not inconceivable that regime change in Russia and Western rapprochement with China might defuse geopolitical tensions and prompt a reversal of economic de-globalisation – perhaps leading to a return to the ‘new normal’ of the 2010s, with inflation and interest rates once again expected to remain ‘lower for longer’, implying untapped capacity for governments willing to invest.[23] Even today, tools such as progressive taxation can still play a part in funding social investment: after all, wealthier households’ lower marginal propensity to consume does not equate to a zero marginal propensity to consume. Nevertheless, there are reasons to suspect that these tools alone might not support all the investment activity that a fundamental change in the UK’s social and economic trajectory will require propensity to consume.
A political choice
Breaking free from the managed stagnation that has afflicted the UK since the global financial crisis is harder now than it would have been in the 2010s. Politically speaking, increased borrowing, unconventional monetary policy or taxes on wealthier households are all much easier to ‘sell’ than broader-based taxes, higher interest rates or higher inflation. Economically speaking, mobilising underutilised domestic resources or taking advantage of excess global capacity require fewer trade-offs than reallocating labour and capital from one activity to another.
The missed opportunities of the post-financial crisis era were ‘an act of historic negligence’, as Rachel Reeves rightly pointed out in her March 2024 Mais Lecture.[24] But criticising past decisions cannot turn back the clock. For the most part, the UK’s economic potential will require time and resources to unlock: investments in healthcare to reverse rising economic inactivity rates; investments in education to retrain workers for new roles in a more sustainable economy; investments in housing and transport to connect people to better job opportunities; investments in state capacity to empower all levels of government to play a more strategic role in encouraging economic development. Mobilising the resources needed for these investments in the mid-2020s will require difficult short-term trade-offs, even though rebuilding the UK’s physical and social infrastructure will reap dividends over the longer term.
The fact that the next government will face difficult trade-offs does not mean that it is left with no alternatives. Even under today’s constraints, there are ways that a future government could begin to repair the public realm and rebuild public services, charting a course towards a greener and more resilient economy. Policymakers have tools at their disposal that can help shift resources away from consumption towards investment. Using these tools will come at a political cost – although failing to address the UK’s decaying public services and fraying social settlement is hardly a risk-free electoral strategy either.[25]
That the Labour leadership does not want to acknowledge difficult trade-offs in the prelude to an election campaign is understandable, especially when their Conservative opponents are operating in a fiscal fantasy land where taxes can be lowered and defence spending increased without any negative consequences for public services. There is merit to Labour’s argument that post-Brexit political instability has damaged the UK economy, and that a Labour government with a secure majority will benefit from catch-up growth that will increase overall capacity. There is merit, too, to waiting to see precisely how the national and global picture looks post-election before concluding that more painful policies are warranted. Should Labour win the upcoming election, however, it will need to stop deferring and start delivering, under circumstances not of its own choosing. Voters will judge the next government on its ability to rebuild public services and thereby extricate the UK from its current low-growth, low investment trajectory – irrespective of how politically difficult that task might prove.
Nick O’Donovan is a Senior Lecturer in Economics at Keele University, and author of Pursuing the Knowledge Economy: A Sympathetic History of High-Skill, High-Wage Hubris.
[1] Simon Wren-Lewis, “Lessons from failure: fiscal policy, indulgence and ideology”, National Institute Economic Review 217 (2011): R31-R46.
[2] Gavin Kelly and Nick Pearce, “‘Riders on the Storm’: what would a Labour government face?”, Renewal 31:3 (2023).
[3] Charles Goodhart and Manoj Pradhan. The great demographic reversal: Ageing societies, waning inequality, and an inflation revival. Palgrave Macmillan, 2020.
[4] Ben Bernanke, The global saving glut and the US current account deficit. No. 77. Board of Governors of the Federal Reserve System (US), 2005.
[5] Matthew C. Klein and Michael Pettis, Trade wars are class wars: How rising inequality distorts the global economy and threatens international peace. Yale University Press, 2020; Lucio Baccaro, Mark Blyth, and Jonas Pontusson, eds. Diminishing returns: The new politics of growth and stagnation. Oxford University Press, 2022.
[6] Eric Lonergan and Mark Blyth, Angrynomics, Agenda Publishing (2020).
[7] See e.g. Gordon Brown, My life, our times. Random House, 2017.
[8] Ben Bernanke and Olivier Blanchard, “Analysing the inflation burst in eleven economies”, pp291-304 in Monetary Policy Responses to the Post-Pandemic Inflation, CEPR Press (2024).
[9] Colin Hay, “The’New Orleans effect’: The future of the welfare state as collective insurance against uninsurable risk”, Renewal 31, no. 3 (2023).
[10] OBR, Fiscal risks and sustainability report, July 2023.
[11] From a 1942 BBC address, in John Maynard Keynes, Collected Writings vol. XXVII, Palgrave Macmillan (1980): 270.
[12] Chris Dillow, “Some Defunct Economist”, Stumbling and Mumbling, 13 April 2024 (available at: https://stumblingandmumbling.typepad.com/stumbling_and_mumbling/2024/04/some-defunct-economist.html).
[13] Matthew Parris, “Oldies should cough up to fund the recovery”, The Times, 19 June 2020.
[14] Antony Seely and David Foster, Health and Social Care Levy: Research Briefing, House of Commons Library (2022). Available at: https://commonslibrary.parliament.uk/research-briefings/cdp-2021-0139/
[15] Henry Hill, “Hunt cannot hide behind the long run”, ConservativeHome, 13 July 2023 (available at: https://conservativehome.com/2023/07/13/hunt-cannot-hide-behind-the-long-run-a-conservative-pitch-to-younger-voters-needs-to-be-made-now/)
[16] Craig Berry and Nick O’Donovan, “Entrepreneurial egalitarianism: how inequality and insecurity stifle innovation, and what we can do about it”, UCL Institute for Innovation and Public Purpose Working Paper 2023-06 (2023). Available at: https://www.ucl.ac.uk/bartlett/public-purpose/publications/2023/apr/entrepreneurial-egalitarianism-how-inequality-and-insecurity-stifle-innovation
[17] See e.g. Nick O’Donovan, “A ‘lifetime income super-tax’ offers a new way to tax wealth and fix inequality”, The Conversation, 14 December 2018.
[18] Paul Brandily, Mimosa Distefano, Krishan Shah, Gregory Thwaites and Anna Valero, “Beyond Boosterism”, The Economy 2030 Inquiry. Available at: https://economy2030.resolutionfoundation.org/reports/beyond-boosterism/. As Brandily et al. point out, the UK’s low savings rate is set to decline yet further in the near future, as defined benefit pension schemes no longer need to extract additional contributions from their members in order to cover the deficits that resulted from the persistently low interest rate environment of the 2010s.
[19] Paul Tucker, Quantitative easing, monetary policy implementation and the public finances. IFS (2022); Simon Wren Lewis, “Should quantitative easing be reducing public services?”, Mainly Macro, 24 January 2023 (available at: https://mainlymacro.blogspot.com/2023/01/should-quantitative-easing-be-reducing.html); New Economics Foundation, “Government could save £55bn over the next five years by limiting Bank of England’s interest payments to commercial banks”, 14 November 2023 (available at: https://neweconomics.org/2023/11/government-could-save-55bn-over-next-five-years-by-limiting-bank-of-englands-interest-payments-to-commercial-banks).
[20] See e.g. Simon Pittaway and James Smith, “Built to last: towards a sustainable macroeconomic policy framework for the UK”, Economy 2030 Inquiry, October 2023 (available at: https://economy2030.resolutionfoundation.org/wp-content/uploads/2023/10/Built-to-last-report.pdf); Chris Dorrell, “Inflation target: Why economists think it’s time for a change”, CityAM, 24 October 2023 (available at: https://www.cityam.com/inflation-target-why-economists-think-its-time-for-a-change/); Louis-Philippe Rochon, “The damning truth about the UK’s 2% inflation target: it’s completely made up”, The Guardian, 1 February 2024 (available at: https://www.theguardian.com/commentisfree/2024/feb/01/the-damning-truth-about-the-uks-2-inflation-target-its-completely-made-up).
[21] George Akerlof, William Dickens and George Perry, “The macroeconomics of low inflation”, Brookings papers on economic activity 1996, no. 1 (1996): 1-76.
[22] Berry and O’Donovan, “Entrepreneurial egalitarianism”.
[23] Domenico Lombardi, Pierre Siklos and Samantha St. Amand, “A survey of the international evidence and lessons learned about unconventional monetary policies: Is a ‘new normal’in our future?”, Contemporary Topics in Finance: A Collection of Literature Surveys (2019): 11-40.
[24] Rachel Reeves, Mais Lecture (2024). Available at: https://labour.org.uk/updates/press-releases/rachel-reeves-mais-lecture/
[25] See e.g. Mathew Lawrence and Alfie Stirling, “The hammer and the anvil: crafting a new settlement”, Renewal, 6 October 2023 (available at: https://renewal.org.uk/the-hammer-and-the-anvil-the-same-forces-propelling-labour-to-office-risk-fatally-undermining-it-in-power/). Lawrence and Stirling are right to emphasise that the constraints facing the UK today are ultimately electoral rather than economic, although they downplay how the UK’s short-term economic predicament means that building a new social settlement might require curbing consumption of a broad swathe of voters, which also risks an electoral backlash.