Brexit and the waning days of the United Kingdom

[Tamas]

Plus if they believe the BofE's projections inflation is meant to be back to 3% and falling by the end of this year - although it's not clear the BofE believes their own projections which is a slight concern.

No way that's happening.

[Sheilbh]

Intereting take on RH's point around the pensioner base of the Tories - but also just the long term implications of that for the UK. Especially as basically for the entire post-war our tax take floats around 30-35% of GDP which is far higher than the US, but far lower than most of Europe and we're now at the top edge of that. I'm not sure if we will push on into a newer higher base/range of tax take.

The other point I wonder with all the demographics - and it'll be interesting to see what the census says - but we have a history of underestimating how much the population will grow. We have no idea how many people there are who live in the UK between censuses and just guess it based on variouis estimates. My understanding is that a lot of academics actually think, based on the settled scheme applications, that we've been underestimating the population by about 10% and the UK population is already over 70 million.

That could have a huge impact because the people who tend to be missed are working age - basically if you're a child, parent or a pensioner it's relatively likely that you have regular enough interactions with the state that the estimates are pretty accurate, it's the 20-60 year olds we're less sure on. Weirdly this has been a big issue in estimating vaccine up-take because there's multiple official sources which differ quite wildly on how many people there are in the country it makes estimating what % of each group has had the vaccine more difficult to work out (but they're more accurate and converge for the elderly which is the most important thing).

And the key challenge now is the same as for every government since the financial crisis which is solving productivity (I think housing and building is a big part of that), but the other point of the economy moving to lower taxed areas (like the self-employed, moving from fuel duty etc) is really important. I think we need to maybe re-think taxing from a model that was quite twentieth century - focusing on employed labour and income, plus certain types of consumption - to taxing wealth and other types of consumption/use (e.g. road use pricing v fuel duty; online shopping v in-person; change in how cities/workspaces are used/develop):

The rise of high-tax Britain
Though the Conservatives still lionise Margaret Thatcher, they are raising taxes to the highest level since the early 1950s – and those who stand to benefit are the party's core, older voters.
By Duncan Weldon

The modern Conservatives still aspire to be the party of Margaret Thatcher. Speeches and manifestos are peppered with references to the virtues of low taxes, deregulation and the spirit of free enterprise and individual liberty. But it increasingly resembles an ageing Anglican congregation. While some true believers remain, most are drawn to the services more by habit than conviction and are happy enough to mumble along to the hymns on a Sunday morning without ever listening to the message.

Rishi Sunak, their trendy new vicar, certainly gives a good sermon. "My goal," the Chancellor announced at his last Budget, "is to reduce taxes." He trotted out all the old 1980s favourites: "I want this to be a society that rewards energy, ingenuity and inventiveness. A society that rewards work." Gesturing to his colleagues, he declared that "this is what we believe on this side of the House."

But over the course of 2021, Sunak announced the steepest set of annual tax rises since the early 1990s. The UK tax take is set to rise from 33.5 per cent of GDP before the pandemic to 36.2 per cent by the mid-2020s. That will be the highest share of national income taken by the state since the early 1950s (see chart). Corporation tax is rising from 19 per cent to 25 per cent, income tax thresholds are being frozen in cash terms – dragging more workers into higher bands – and this April's National Insurance increase (from 12 per cent to 13.25 per cent) will cost a worker earning £30,000 an extra £214 a year.

Britain, despite being in its 12th year of Conservative-led government, is becoming a high-tax country. The planned tax rises over the rest of this parliament will take the United Kingdom from the bottom third of the OECD group of advanced economies, in terms of tax levels, to the top half.

While many Conservatives are uncomfortable with this direction of travel and some blame the supposedly spendthrift Boris Johnson, this pattern owes little to the whims of the Prime Minister or his predecessors. The trend towards a higher tax burden is being driven by longer-term demographic, political and economic factors.

Despite the Conservatives' tax-cutting instincts, their recent historical record in office is more ambiguous than they like to think. Margaret Thatcher may have slashed the rates of income and corporation tax in the 1980s but she almost doubled VAT from 8 per cent to 15 per cent.

In the 1990s, as chancellor, Ken Clarke imposed the biggest tax rises since the Second World War to reduce the budget deficit. Two decades later, George Osborne may have increased the personal allowance to £11,500 and cut corporation tax but he also increased VAT from 17.5 per cent to 20 per cent. Yet even if the Conservatives' low tax credentials are not quite as pristine as they wish to claim, the 2020s still appear to be a decisive break.

Partially, of course, this is a consequence of the Covid-19 pandemic. In 2020 Britain experienced its deepest recession in at least a century. But the government, like other states around the world, moved quickly to shield households and firms from the impact. Tax cuts, grants and cheap government-backed loans for firms, combined with the furlough scheme (the government in effect paid workers not to work), meant that, despite a collapse in economic output, the rise in unemployment was contained, the hit to household incomes was limited and business failures remained low. The impact of the recession was most visible on the public finances with the deficit rising to its highest-ever peacetime level (£323bn or 15.1 per cent of GDP) and the ratio of government debt to GDP growing from around 80 per cent to almost 100 per cent over the course of just 12 months.

But while the pandemic may have supercharged a trend, the path being taken was already clear. The last pre-pandemic Budget projected taxes rising to their highest share of GDP since the early 1970s. One underlying reason for higher taxes is weaker economic growth.

Before the 2008 financial crisis it was widely assumed that the trend growth rate of the British economy was around 2.75 per cent. That is to say, a combination of population growth and rising productivity (the ability to get more output from any given level of inputs) would allow the economy to grow by that much in a "normal" year without any danger of overheating or rising inflation. But over the past decade that trend rate has been closer to 1.5 per cent, and forecasters such as the Office for Budget Responsibility (OBR) and the Bank of England have gradually given up hope that the old normal is ever coming back.

Had wages grown at their pre-financial crisis pace of around 4 per cent per year, rather than their post-2008 rate of around 2 per cent, more money would have flowed into the Exchequer each month in the form of income tax payments and National Insurance contributions. A decade of lost income growth for workers has also meant a decade of lost revenues for the Treasury. And then there is the effect of Brexit, which the OBR projects will reduce GDP by around 4 per cent over the medium term, further reducing tax receipts.

All things being equal, to use an economist's favourite phrase, anaemic growth equals anaemic tax revenues. But all things are rarely equal. Changes in the structure of the economy and the labour market over the past 20 years have made even the disappointing growth the country has experienced less tax-generating than it once was.

The share of retail spending carried out online rather than at physical shops rose from less than 5 per cent before 2008 to almost 20 per cent on the eve of the pandemic. Even with physical retailers now free of Covid restrictions, around a third of retail spending remains online. Such spending is more likely to find its way to global tech giants which tend to pay lower corporation rates and generate far less in the way of business rates because of the smaller premises they require.

In the two decades before the pandemic, the number of self-employed workers rose, from around 12 per cent of the workforce to more than 15 per cent. Trade unions and campaigners called much of this growth "bogus", but whether genuine or not it was hardly great news for Her Majesty's Revenue and Customs: the self-employed pay considerably lower National Insurance contributions.

Higher energy bills in the months ahead, as the domestic price cap is raised by £693 in April, will create another headache for the Treasury. Domestic energy attracts a VAT rate of 5 per cent rather than the 20 per cent charged on most items. A family whose energy expenditure rises by £500 and that reduces its discretionary purchases by the same amount could end up paying £75 less tax despite making no change in its overall spending.

Weak growth, and less tax-rich growth, does not have to equal higher tax rates. The response could well be lower public spending or higher government borrowing. But politics has effectively closed both options for the Conservatives.

The modern Conservative electoral coalition is rather different from its 1980s ancestor. While it was possible to govern Britain from the centre right in the 1980s by arguing for lower taxes and lower spending, that is a trickier proposition today. Britain is an older country now and age has become the single greatest predictor of voting behaviour. At the 2019 general election the Conservatives beat Labour by 62 per cent to 18 per cent among the over-65s, by 49 per cent to 27 per cent among 55- to 64 year-olds and by 43 per cent to 35 per cent among 45- to 54-year olds. The older the average age of a seat's constituents, the more likely it was to swing towards the Conservatives.

Older voters have long skewed to the right in Britain, but the age divide has never been so extreme. Nor, until recently, did the underlying demographics of the electorate allow for a party to rely so heavily on older voters. In the mid-1980s, at the height of Thatcher's electoral hegemony, those of pensionable age represented around 15 per cent of the population compared with around 20 per cent today. That share is forecast to rise towards 25 per cent by the mid-2030s. Differential turnouts by age magnify the impact. Margaret Thatcher won older voters but to retain power she needed to maintain the support of a substantial proportion of the working-age population; Boris Johnson has less need of them. Indeed, Labour led the Tories among the latter at the 2019 general election. The problem, for a party supposedly wedded to low taxes, is that older voters are rather keen on some types of government spending.

The Tories' new electoral base – home-owning older voters who have either retired or are approaching retirement – have a different attitude to tax and spending from the Thatcherites of the 1980s. They may not like the notion of government spending in the abstract but they certainly do not want spending on the NHS, pensions or social care to be cut back. And such spending is an ever-larger part of Britain's state. As the OBR noted last year, the overall size of the state is forecast to be around 42 per cent of GDP in 2024-25, strikingly similar to its pre-Thatcherite level in 1978-79. But while health, social care and pensioner welfare represented less than a quarter of government spending in 1979, they will account for more than a third by the mid-2020s.

Even during the austerity years of the 2010s, NHS spending was protected in real terms and the state pension was "triple locked": rising in line with average wage growth, inflation or 2.5 per cent (whichever was highest). Pensioner benefits were excluded from the benefits freeze. Osborne, like Thatcher, could always find less politically salient areas of public spending to reduce (most notably, local government). But a decade of tight spending reviews for non-health and pensioner-related departments have left little room for further cuts.

All of this long pre-dates Boris Johnson's own brand of Conservativism. Some Tory MPs place the blame for higher taxes on him. They fear he is a soft populist who gives way too easily on spending and is too keen on grands projets. He did, after all, commission a report on building a bridge from the British mainland to Northern Ireland. And his taste in wallpaper is hardly indicative of one careful with money.

But it is the need to keep an ageing voting base on-side that has caused higher spending, rather than Johnson's pet projects. Most of the much-touted spending due to be lavished on the Red Wall seats won from Labour takes the form of investment rather than day-to-day spending and, under Sunak's fiscal rules, it can be funded from borrowing rather than taxation. It is hard to see how a Johnson successor could cut public spending significantly without disappointing the Tories' core electoral coalition.

The other route to the Tories reclaiming their tax-cutting reputation would be simply to accept the resulting deficits and higher government debt ratios. Donald Trump and Ronald Reagan did just that. Sunak, driven by both a conviction that high borrowing represents a potential economic vulnerability and the desire to maintain a political dividing line with Labour, seems genuine in his claim that he is a fiscal conservative. Indeed, the revealed preference of his actions is that he values a "balanced budget" over lower taxes. But as long as the Tories remain wedded to such fiscal orthodoxy, Osborne's agenda of low taxes, low spending and low deficits will give way to Sunak's one of higher taxes, higher spending and low deficits.

The politics of taxation in the 2020s is set to be radically different from that of the previous four decades. With the Conservatives unable to promise cuts credibly and Labour supportive of a larger and more active state, the debate will move from the overall level of taxation to its balance. Labour notably opposed the National Insurance increase last year, arguing instead for new taxes on the well-off and firms; party outriders look to wealth and property taxes as an alternative to raising revenue from middle and low earners after a lost decade for living standards.

Higher-tax Britain, then, is here to stay. The question in the 2020s will be: who pays?

Duncan Weldon is the writer of the Value Added Newsletter at Substack and the author of "Two Hundred Years of Muddling Through" (Little, Brown).

[Syt]

Well John Bercow sure has an opinion about Johnson:

https://twitter.com/bmay/status/1493337398520033282?s=20&t=JDgJaDXLbhRbo3DmLejElA



(Regardless of what you think of Bercow, I find myself in agreement there. )

[Josquius]

Weird to see a post about population growth. Just this morning I was reading about how the UK population is now shrinking.

The tories reliance on pensioners is very firm. Its the main reason they were able to secure many ex working class towns.

[Sheilbh]

Weird to see a post about population growth. Just this morning I was reading about how the UK population is now shrinking.

The birthrate is down but net migration is up. The ONS projection is that we'll basically hit 70 million around 2030 - but there are a number of statisticians who actually think we've already hit it As I say I think a key factor was with the settled status applications it turns out the number of EU citizens in the UK was about double what we thought, so it depends how much you think there's undercounting across different groups.

There's nothing new in that - over half or the population growth in the last 30 years has been migration, not births. But it's projected to increase as a share of growth. But it's worth noting that the ONS's population projection has more reasonable immigration figures now - but it's still about half the actual observed net migration (and not unrelatedly ONS projections have in the past pretty wildly undershot actual population growth).

Although one reason for growth slowing is that a lot of assumptions about life expectancy continuing to increase seem to have been wrong (basically we're still around 80-85). Which makes me wonder if we need to re-think some of the pensions reforms/way we approach (and tax) pensions.

It reinforces that point Robert Colville made that a lot of the modern state's efficiency is basically down to database quality and if the relevant datasets talk to each other - and in the UK we have no real idea how many people live here

[Sheilbh]

Yaaaay! Excellent podcast Bad Gays are doing a two-parter on Cressida Dick

Episode one was out today and about the broad Met Police background.

Included the incredible and fascinating history of female police officers in the UK, which mentioned several other people who could be profiled on Bad Gays.

It turns out it basically started from Suffragists and with two women in particular - one who seemed away of class and gender issues in promoting a women's police force and the coercive power of the police. There was inevitably a power struggle over the direction of the "Women's Police Service" and, also inevitably, it was not won by her, but by an upper-class lesbian who later became a fascist (and - plus ca change - started in animal rights campaigning before moving onto the right to vote for women like her)

She'd been excluded from the commission on women in policing because the chairman disliked lesbians - and particularly her - but this was fine because she actually thought there should be an entirely separate female police force anyway rather than women and men in the same force.

She mainly focused the WPS on vice policing and basically cracking down on the loose morals of working class women. They also worked with the Royal Irish Constabulary and the black and tans, helped strike break during the General Strike and advised the British Army of the Rhine in the 1920s on policing. The ever-so slightly fascist uniform:


Women were also incorporated into the Met a little bit later but roughly in parallel to this auxiliary police force - apparently the Daily Mail were absolutely thrilled with this because men are naturally inclined to mercy, while women will stick to any task they're given without any such mercy

I'm now incredibly interested and want to read a whole book about this.

Strongly recommend it - there's lots more of interest in the run up of what the Met was at the point Dick joined - and a little on Dick's class position. It's almost as if the Met isn't a very good organisation

[Admiral Yi]

Prince Andrew has just settled with Virginia Giuffre.

[mongers]

Prince Andrew has just settled with Virginia Giuffre.

Why can't we just banish him?

[Sheilbh]

Noone'd take him?

[mongers]

Noone'd take him?

No obscure little Caribbean island?

edit:
Oops I see why that might not work.

[The Brain]

Prince Andrew has just settled with Virginia Giuffre.

Why can't we just banish him?

You need a priest with true faith.

[HVC]

Prince Andrew has just settled with Virginia Giuffre.

Guess Charles is the favourite now

[Sheilbh]

I've mentioned before but I think the government's talk about re-balancing the right to privacy v free speech is pretty important - even if loads of people freaked out when they said it. Especially now:

Bloomberg Loses U.K. Supreme Court Case on Privacy
By
Ellen Milligan
16 February 2022, 10:37 GMT
@ellenmilligann

Bloomberg LP lost a U.K. top court ruling on whether a person being investigated for a crime can have a reasonable expectation of privacy.

The country's Supreme Court judges unanimously upheld a lower court's decision on Wednesday, rejecting Bloomberg's appeal. The case related to an article that published the name of an individual under criminal investigation for corruption.

"We are disappointed by the court's decision, which we believe prevents journalists from doing one of the most essential aspects of their job: putting the conduct of companies and individuals under appropriate scrutiny and protecting the public from possible misconduct," a Bloomberg News spokesperson said.

Basically the position in the UK in relation to reporting on crimes is that pre-trial reporting about an investigation would breach the individual's right to privacy, during a trial there are strict contempt of court reporting restrictions, but you can report on it after a trial - when it's not really news. I'm not sure this is where we intended to get to but there is now a very, very high bar around privacy even for reporting in the public interest.

This is also something where I just think parliament needs to step in. There's  been a string of judgements where the courts have repeatedly downgraded the weight they give to the public interest in reporting v the private individual's interest in privacy. Now that it's got the Supreme Court endorsement it is going to be tough for media lawyers to be comfortable with reporting the truth if it's based on confidential communications/documents - even though it's true and reveals serious wrongdoing or suspicions of wrongdoing. For media lawyers/reporters this is a really big deal.

Separately but relatedly there's a pretty broad exemption to data protection law for journalism - but the UK regulator has published a draft \code of conduct in the area that is very detailed. I was at  a thing recently wherre a media lawyer said that not only is it utterly impractical and doesn't acknowledge the role of, say, freelancers, but it's the most detailed and restrictive set of pre-publication rules anyone has ever proposed for the press here. It goes far beyond the most far-reaching bits of Leveson. But it's an independent regulator doing their thing (and a little bit of empire building by them - stretching their jurisdiction as far as they can), so it's not really attracted much attention yet.

Overall the trend in this area is really worrying and I think we do need legislation to basically tell the courts they've gone done the wrong route and need to give more emphasis to the public interest, and that a broad exemption for journalism should mean a broad exemption. In terms of threats to our democratic norms it's less exciting than the freakout about the Tories (permanently) incipient fascism, but the stuff that's going on here by judges and regulators is, I think, a far more substantial risk - and obviously a profoundly unequal one because the people who'll be able to sue and get injunctions based on their privacy rights are the rich and powerful.

[garbon]

How does this square with then desire to collect endless private data with things like the online harms bill? Feels weird to have privacy rights championed for alleged criminals vs privacy of less importance for citizens viewing legal pornography.

[Sheilbh]

How does this square with then desire to collect endless private data with things like the online harms bill? Feels weird to have privacy rights championed for alleged criminals vs privacy of less importance for citizens viewing legal pornography.

I mean that law's an absolute mess and incredibly illiberal - what worries me about it is that it has support from all the parties.

There's the porn/age-gating issue, but there's also the ability for the (independent) regulator to fine the platforms up to 10% of their global revenue for allowing users to send "genuinely threatening" or "knowingly false" messages or messages that cause "harm" (which can include emotional distress) to people, especially on the basis of protected characteristics. I get the desire to want to deal with online death threats, hate and misinformation but I have a really fundamental objection to the general idea that the state can prosecute people or fine organisations for sending/allowing to be sent "legal but harmful" content to other adults.

The effect won't be lots of prosecutions or police enforcement - though there will be some, the police seem to like prosecuting people for bad tweets presumably because it doesn't involve much work - but the platforms taking a very restrictive/censorious approach in the UK to avoid liability.

Now how all of that sits with a government that bangs on about free speech and wants to push back against "wokeness", I've no idea. Similarly how we have this developing and very robust idea of privacy in relation to what the press can report (developed by the courts and regulators, not really legislation), but as you say the Online Safety Bill is very difficult.

But I really think we need a bit of a genuinely liberal, free speech push back in this country because there's lots of little incremental changes either through the courts or regulators, or just the madness of Online Safety Bill, that I think cumulatively will have an effect. I know that "free speech" is normally a joke because it's normally Piers Morgan storming off his TV show but I think it is an issue and becoming more of a worry. Not least because when we think about those rules around "legal but harmful" speech in the Online Safety Bill it will be interpreted by the same courts and regulators that have massively diminished the weight of public interest in reporting and free speech v harm to an individual's prviacy rights; I have no doubt that they would take the same direction with that law.

In this case for example a journalist could uncover serious wrongdoing about an individual but reporting that on its own could open them to defamation/libel claims. So normally a way that has helped is the defence of truth where they can say x person is under investigation for this. It's now likely unlawful to report that an individual is under investigation.