Prologue

Events Since Publication of Volume One

The weeks between when Volume One was written and its launch were politically and economically active. (The further weeks more, that will take place between my writing these words and you, the reader, seeing them, will no doubt result in yet more change.) This short section is devoted to reviewing what changes have taken place so far since I wrote Volume One.

A new Labour government has come into power, with a large majority that will certainly see them through a five-year term. The new Chancellor, Rachel Reeves, had tweeted before Labour came to power, 'The lifeblood of economic growth is private sector investment which can create good jobs and spread productivity in every part of the country.' These words we can certainly agree with. They are better words than our previous Conservative government usually managed - although that is a low hurdle. She went on to say, 'I'm determined that the next Labour government is ready from day one to put our plan for growth into action.' Her words then, and since, have not, unfortunately, revealed the logic of what that growth plan involved.1

Let's look at progress on my three desiderata: smaller government, lower taxes, less regulation. First, what progress on reducing the size of the state? Remarkably, the new government came straight out of the box with one cut that I was gratified to see - one of my suggestions, removing winter fuel payments for those not in poverty. (Ignobly, I would have preferred that announcement had not been made so quickly, since as a result the book became available to the public only after Rachel Reeves had made her announcement, raising the possibility that I might have copied her and, in any event, making my suggestion far less interesting. But nonetheless, I approve of her action, of course.)

This was good news: a cut was being made in benefits. (Depressingly, the Conservative Party, maintaining its recently acquired modern reputation for fiscal incontinence, campaigned to restore them.) Labour's promising start was, however, obliterated by a flurry of expenditure commitments. More job destruction by raising the living wage by an above-inflation amount; a large increase to the state pension because of the commitment to stick with the pension triple lock; awarding public-sector workers well-above-inflation increases despite no increases in productivity.2 The number of civil servants earning over £100,000 has now gone up by 40 per cent to a total of almost 3,000.3 (Admittedly, most of that increase will have predated the new government.) Already overpaid rail workers received an 'above inflation' 15 per cent pay rise, but immediately after the £100 million award was announced, stated they will go on strike for three months in a dispute over working conditions.4 Other public-sector workers, having noted that militancy works, also announced industrial action to get equivalently high pay raises.5

The public sector's impunity is further demonstrated by the news that a number of arm's-length bodies, such as the Bank of England, now offer private healthcare as a benefit to their staff at a cost to the taxpayer of tens of millions of pounds.6 (So much for 'our' NHS!)

The cost of benefits continues to rise at a startling pace. The number of children under eighteen who are the subject of Disability Living Allowance claims has risen, since November 2019, from 534,000 to 730,000. Claims for neurodevelopmental conditions have gone up by a third to 337,000. Claims for ADHD are up to 72,000. The DWP is forecasting that almost 1 million under-sixteens will be in receipt of disability benefits by the end of the decade; the bill for health and disability payments to people of all ages is rising to some £100 billion a year.7 Some 7 per cent of schoolchildren were receiving disability benefits in 2022.

This is not some simple case of complaining that money is being paid out to undeserving malingerers; it is far too hard to come up with some magic measuring wand that will say which young person is truly in need of disability benefit and which person just needs their behaviour adjusting through appropriate discipline at home and at school. There is no doubt that approaches to teaching; dubious diets; and the giant disruption that took place during Covid have accustomed many children to the idea that they are incapable of sitting still in class, behaving themselves or absorbing what the teacher is saying - so they need not do any of these things, and their parents receive payments to reward their non-compliance. The fact that there is a financial benefit at the end always distorts behaviour, and in this case guides the parent towards medicalising the condition, rather than finding a family-based solution. It would take an educational giant to parse out the problem and resolve all competing claims; in Volume One and here, I take the simpler view that the money is just not there for all this. Rachel Reeves has been quoted as saying that 'if we cannot afford it, we cannot do it'.8 But they are doing it regardless. I agree that we cannot afford it. Unless we cut the coat of our compassion to the cloth of what we can afford, it is hard to see how we can get out of our economic problems. And for both children and adults, a 'tough love' (warm/strict) policy is the only way to get the numbers down.

At the time of writing, the autumn Budget has just arrived. Spending is up by almost 2 per cent, taxes ditto by £40 billion, with major increases in capital gains tax, inheritance tax, business windfall tax, and employer national insurance, all directly disincentivising business. Non-dom status is scrapped; more will leave.9 So no, taxes will not be going down. And in the meantime, the Office for Budget Responsibility (OBR) is going even further in ruling the roost with its strange modelling formulations - ones which, despite the exciting lead set by the Lib Dems on their 'remove VAT on sun cream' campaign, implicitly reject that there is economic benefit from reducing taxes, or that there will be negative consequences from increasing them. The growth metric remains GDP, not GDP per capita.

Again, all of this is the result of using the wrong paradigm. More expenditure is said to be necessary or inevitable, a 'black hole' is declared to exist - all culminating in the narrative that there is no alternative but to raise taxes. The Overton window does not, it seems, currently allow a narrative that says: we can't afford all this, so here's how we are going to cut this expenditure, and when we do reduce our spend further, it will allow us to cut taxes and thus promote growth, so that eventually we will be able to afford more benefits for our people.

And regulation? Depressingly, in the run-up to the recent election, all major parties proposed swathes of new rules and regulations. The Liberal Democrats proposed 128 new major regulations. The Green Party proposed 104. The Labour manifesto included sixty-two proposals to increase the regulatory burden (along with thirteen proposed reductions). The Institute for Economic Affairs (IEA) estimates a £1,000 per year cost to each household from the ban on new petrol and diesel cars, a £1 billion cost from the renters reform bill, an £80 million cost for the football regulator, £2 billion for the smoking ban and £664 million for the junk food advertising ban.10 Meanwhile, it's looking more and more like the new government won't allow much deviation from ongoing EU law across the UK (if only because of the ongoing malign influence of the Windsor Framework, which applies EU law to Northern Ireland; as a result, if we wish to preserve the union, we can't change things elsewhere across the UK). Blithely ignoring the clear public backlash against woke diversity initiatives, the civil service continues to double down on DEI. Diversity teams in various departments are being expanded, and pay rises are being offered to those who 'champion diversity'.11

What are the long-term expected outcomes from all this? It's going about as we might expect. Already, the UK's cash borrowing was £3 billion above the earlier OBR forecast in July 2024. Far from reducing electricity prices, the cost of 'renewables' is going up and up - costs which will come back to every household, but will also further drive manufacturing out of the country. The rich continue to decamp: Volume One described how every year, more and more millionaires had been leaving the UK. In 2022/23 that number was 4,200. Henley & Partners' annual report on wealth migration now tells us, startlingly, even before the Budget, that number has more than doubled, to 9,500 millionaires in 2023/24. This has to be shameful. The loss of capital, of entrepreneurial job-creators, of all sorts of tax revenue paid by those now departed is enormous; over the next few years we will find out what the negative impact was on tax revenues. The UK was for a century or more just about the top destination worldwide for millionaires. Now we are, astoundingly, the country with the second-highest...