In the ‘Divine Comedy’, Dante tells the story of the hero being led through the Nine Circles of Hell by the spirit of the ancient poet Virgil. This week, it’s our very own Britain that must begin its journey out of the Nine Circles of Fiscal Hell, with the role of guide played by Chancellor Rachel Reeves.
‘Yeah yeah, we know this is a grim inheritance’ people tend to respond, but then we are quick to move on. It’s an understandable impulse, but it risks leaving us all surprised or disappointed that there isn’t a quick fix to all this. When the government talks of a Decade of Renewal, they’re not joking.
But this is no counsel of despair. As the historian Max Hastings observes in The Times this week: “No voter, whatever our allegiance, has much current cause for rejoicing. Our task as citizens — indeed, our duty — is to avoid succumbing to mere vacuous despair. Instead, we should keep trying to help things turn out a little better than we fear, on both sides of the House.”
We all need this to work. The alternative is a collapse into populism and a further cycle of decline. By recognising the nine distinct problems we face, we can gain greater insight into the challenges this government must navigate.
The circles of fiscal hell
Let me divide the nine circles into three groups. The first group are the Fiscal Horrors.
We begin on the first circle where we find the Pre-Election Traps. Here the previous government set a trap with real cuts to unprotected departments all the way to 2028 and a further cut to public investment. How did Labour avoid the trap? By pretending they hadn’t noticed it and proceeding on their merry way. This is the trap that makes Paul Johnson of the Institute of Fiscal Studies really cross. This specific problem was predictable, he fumes (not unreasonably).
The second circle is the Hidden Horrors. This is the further £22 billion blackhole in the public finances that were hidden before the Election.
Paul Johnson agrees. In his recent ‘Expert Factor’ podcast he says: “It is the case, I think, that the current government will face pressures in the order of £20bn more than was completely evident this year pre-election… more than was completely evident in the numbers they inherited” – although he adds they should have anticipated some public pay pressures.
The third circle contains the Double Headed Fiscal Hell Hound. One head spews forth the highest tax levels for 70 years, while the second taunts us with debt approaching 100% of GDP. These are both far higher than incoming governments faced in 1997 or 2010. You have to reach back most of the way to WWII to find Britain’s public finances so comprehensively wrecked.
The next group comprise the Broke and the Broken.
We begin in the fourth circle with the Walking Wounded: the public services. The highest waiting lists in the NHS ever. Schools literally crumbling. Full prisons. You know this one.
The fifth circle contains the Living Dead. Are they still alive or just shambling forward in the appearance of life? Or to put it in financial terms – are they bankrupt already? Here we find tortured universities, local authorities and the like. Central government cut grants to local authorities for years. Local government cut everything they weren’t obliged by statute to deliver. Now there’s nothing left to cut. 12 councils declared bankruptcy since 2018, with more at death’s door today.
The sixth circle contains the Spectres of Past Sins. Here we find sins of past administrations for which this government may now need to provide compensation: Contaminated blood. Horizon Post Office scandal. Grenfell. WASPI women. £10bn here, £10bn there. Sooner or later you’re talking about serious money.
Now we arrive at the final group: the layers of Structural Misery.
READ MORE: Budget 2024: ‘We can avoid taxing workers by hiking capital gains tax’
On the seventh circle reside the Long-term Pressures we’ve known about for some time. The Ageing population means for each person of working age, there are more retired people to provide for. For the NHS just to stand still, it needs a real increase in its budget of 4% every year. Meanwhile, Climate Change has moved from a ‘future risk’ to real costs today as we grapple with the increase in extreme weather events. The OBR estimate the cost of illness, age, climate will triple our debt levels over the next 50 years.
The eighth circle are New Challenges. Front and centre is geopolitical risk. Since the end of the Cold War, we have enjoyed a ‘peace dividend’ where we could cut spending on Defence to fund schools and hospitals without raising taxes. That has now gone sharply into reverse with the wide recognition we need to raise Defence spending to 2.5% or more. No small beer.
Finally, there are The Endless Flats. Imagine it, standing in a featureless wasteland with nothing in any direction. These are the Flats of Productivity (flat for a decade), the Flats of Investment (flat since Brexit) and the Flat Real Incomes (no higher than 15 years ago). We need the courage to build something productive on these plains or Britain will remain shackled to a flat economy.
Fixing the future
It may sound like I’m feeling pessimistic, but in truth it’s quite the opposite. On his entry to hell, Dante famously saw the sign: ‘Abandon all hope, ye who enter here’.
But we’re in the opposite place. For the first time in a decade, there is hope.
Why? The move to address Britain’s long-term failure through investment is THE most important thing to fix growth, productivity and living standards. And it looks to be core to Reeves’ budget this week.
So I say: ‘Abandon pessimism, ye who enter’. The turnaround has begun.
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