Rachel Reeves faces a £20bn black hole in the public finances due to soaring interest rates and crumbling economic growth, economists at JP Morgan have warned.
Rising borrowing costs in financial markets have raised fears that the Chancellor will have to hold an emergency Budget in March to set out plans to raise taxes or slash spending to cover higher interest spending.
But Allan Monks, economist at the investment bank, warns that the economy has hit a wall, in part due to Ms Reeves’s National Insurance raid which has trashed business confidence. Slower growth will in turn lead to lower tax revenues and more borrowing.
As some – not just me – are musing. There’s really only one way out of this. Slash the state.
And it doesn;t have to be slash what the state spends either. Tho’, of course, that would be nice. It has to be slash what the state does. That is, stop the state from stopping anyone doing anything. Kill the bureaucracy which makes growth impossible, there will be more growth and a 2 to 3% real GDP rise a year for a decade or two will make everything wholly affordable.
Kill the regulatory state that is.
Now, I’d prefer a smaller state overall, obviously. But the above is the minimum necessary to get out of this mess.
There was a report (Guido? that Reeves had held a meeting with regulators to discuss how to create growth, no private industry involved. Its clear that we have the most statist government since probable just after WW2.
This govt seems incapable of thinking outside the state and we all know where that leads.
They act like every £ of spending is somehow sacred. So they’re bound to double down on failure. Look out for more tax rises and borrowing.
BiND – yes, Guido. The meeting, in Downing Street was with a cluster of govt regulating bodies: ofgen, ofwat, ofetc.
We live in the dawn of a new economic experiment: growth through regulation.
More borrowing leads to higher interest rates, which results in higher government costs (paying the interest), so leads to less money to spend, so leads to more borrowing, which leads to higher intertest rates, which results in….
These people believe that the state is the economy and want to reduce the private sector to zero.
Because they will not look outside that box they will not consider that their policies are wrong. It was always be because of something or someone out of their control. It’ll be blamed on Trump soon.
They will always believe they just need to push more, clamp down on dissent more, tax more and then we will get over the hurdle and it will be communist utopia.
“ These people believe that the state is the economy and want to reduce the private sector to zero.
Because they will not look outside that box they will not consider that their policies are wrong. It was always be because of something or someone out of their control.”
Their equivalents in Germany have decided, despite the latest evidence from Buenos Aires, to double down on rent controls as cure for a housing shortage and high rents.
We live in the dawn of a new economic experiment: growth through regulation.
It’s become clear that the progressive bureaucrats and human rights lawyers who rule us are trying to legislate and regulate a permanent new reality into existence. I am reminded of the Indiana State Legislature’s attempt to legislate on the value of pi.
” Look out for more tax rises and borrowing.”
They can’t. If they tax more the markets will assume lower economic activity and lower tax revenues from existing taxes, and borrowing rates will rise even more, blowing the budget yet again. And more borrowing will mean more gilt issuance and rising rates again. Either way is a downward spiral.
I reckon their Get Out of Jail Free card will be the interest paid on banks BoE balances – if they stop paying that it’ll save tens of billions. And they can argue they are ‘aligning themselves with EU practice’ as the ECB doesn’t pay interest on its balances.
We’re nearly at the end of their no-cars-no-heating-no-lighting-own-nothing-can’t-travel-can’t-eat-meat-die-in-your-home-or-in-hospital-if-we-off-you-with-morphine-or-maybe-even-in-jail-agenda2030 experiment, but not in a good way.
Balance the books?
Easy
No foreign aid.
No department of culture media and sport.
Sell the BBC, I’m sure since the PM and reeves et al are such good mates with BlackRock, they’ll give us a good price. They can then sell subscriptions.
Stop putting up migrants in hotels. Cheap tent barracks in fields. If they’re really fleeing persecution, they won’t mind.
More can be thought of quite easily
What Chernyy Drakon said. Its trivially easy to solve the UKs problems. Repeal the Climate Change Act. Repeal the Equality Act. Leave the EHCR. Start fracking (give frackers the same statutory powers that utilities have to install their infrastructure). Repeal all the eco bollocks that prevents development.
Doesn’t require a single benefit or pension to be cut. There’s so much fat on the State’s bloated carcase there are huge savings to be made that will finance tax cuts, which coupled with mass deregulation will turbo charge the economy within months, there’s massive amounts of work that people want to do but just can’t because of all the rules stopping them. Or are put off from even trying because who wants to wade through bureaucratic treacle to get a business going only to be taxed to hell anyway?
When all your opponents are hell bent on implementing policies that are pretty much designed to create stagnation it makes your job simple – virtually everything you do in the right direction will have positive impacts, and quickly too.
“These people believe that the state is the economy”
Worse than that: they believe the state is the country.
Something “not working” never stopped commies in the past. Will be the same for this lot.
Occam’s razor, meet Millei’s chainsaw.
‘There’s really only one way out of this. Slash the state.’
Nope. Sure, it’s the right thing to do, but it’s too late. Lo Stato has so completely screwed over the markets, especially energy, that no one is going to invest in UK. Capital is gone. The thing that made Britain different economically was capital. Money was available to pursue ideas and markets. It’s over. The money is still there, but people won’t invest it domestically.
Suppose UK were to slash the state, as they should. It will take many YEARS before investors trust the government.
Perhaps Milei might flee to the UK after the Argies finally get tired of him. And become leader of the Tories. Or Labour.
Then he could apply his state slashing abilities to do as Jim suggests. But he’d need to make sure he was able to flee to the US or the EU or somewhere when you Brits decided you’d finally had enough of him!!
“Cheap tent barracks in fields.”
To be specific, on Hampstead heath.
I was wondering if one of the reasons they hate Trump is that he will take a lot of their excuses away, end Ukraine and Gaza conflicts and not start any new wars, repeal all the eco bollocks and show it has no impact on climate and so on
“Something “not working” never stopped commies in the past. Will be the same for this lot.”
The Commies had the common sense to create a proper police state with plenty of paramilitary and armed forces to back it up (and didn’t bother with any of that rule of law shtick). The current lot have got maybe a 100k police force (many of whom are diversity hires and virtually useless in a ruck) and an army that would fit in a match box (and might not decide to side with a Left wing government bent on controlling the masses either). There’s tens of millions of the masses and few hundred thousand (max) of forces the State can command. If the Left decide to go full retard and really piss everyone off, they won’t be able to maintain control. Its why they shit themselves over Southport, they are very aware how easily they could be overrun. We’ve seen what happened in Sri Lanka and Bangladesh when you push the people too far, that could happen here, the veneer of civilisation is wearing very thin.
No-one likes to have their grift publicly exposed, and then their income removed from them. They complain loudly. Exhibit A: Murphy. And if Trump manages to do all that then that’s an awful lot of grift exposed. $trillions. Redirecting that to something productive would be globally transforming.
Funny how she inherited a £20 billion black hole, filled it ,and now has another one…
£20 billion? That’s chump change. The USA is looking at trillion-dollar black holes.
Dear Mr Worstall
“Well done Rachel, well done”
Well done indeed. She is working to plan – crash the economy.
Trebles all round.
DP
“She is working to plan – crash the economy.”
Really? In what Machiavellian world does crashing the economy help her and her party?
Dear Jim @ January 19, 2025 at 6:29 pm
Make Britain poor again – the sick man of Europe™ 2.0 – to be ‘saved’ by re-joining the eu, but on ruinous terms.
Within the eu there will be rich pickings for her and her party.
DP
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