ONE OF my friends is a joker. He sent me this from Starmer’s X account a few days ago proclaiming the Good News of Labour.
‘The Tories left us with a £22bn black hole. My government has fixed the foundations of our economy. We now have the fastest growth in the G8, four interest rate cuts and we have signed three trade deals to protect jobs and put more money in your pockets. Keir Starmer 9/6/2025’
Does our Prime Minister really believe this nonsense, or is it just part of the spin and optics he thinks will impress us? If he does believe it he is deluded.
I have followed and written on the British economy for over 30 years and believe me, while there has been a steady erosion in the edifice over the last 20 or so of those years, we are now reaching a point which is close to terminal. The foundations are built on sand.
To cap Starmer’s amusing alchemy was Rachel Reeves’s statement in the Commons on Wednesday outlining her spending plans for 2025-6. Listening to her toss money around you would have thought the patient had a strong bank account, not that it was on its knees.
There is a complete misunderstanding here as to how economies become healthy, sustainable and prosperous. The Reeves view seems to be she knows best and the orchestra requires her conducting. Every assumption she made strengthened the state and weakened the private sector. Central spending was to increase, employment legislation to tighten yet further, weakly costed and largely unviable infrastructure projects announced and yet more money into pet projects and net zero fantasy.
Public spending remains out of control and will continue to grow at 2.3 per cent in real terms, a rate much faster than the private sector and that is from a base where public spending is already not far off half the entire economy.
Reeves’s spending plans amount to the State spending a staggering £48,000 for each of the 28million households in the land. £48,000 – imagine! I would be fascinated as to what proportion of readers believe they are even getting half that amount in ‘value back’. This extraordinary largesse is despite the fact that the national debt has increased eightfold since Tony Blair came to power in 1997. Eight times for exactly what?
Reeves’s statement was full of factual errors. Her starting assumption that there was a £22billion hole is utter fiction. The hole is more like £200billion in excess spending after inflation since Johnson became Prime Minister in 2020. (Total managed expenditure £888billion 2019-20, forecast £1,389billion current year, Office for Budget Responsibility – nominal numbers before inflation) And she wishes to increase that imbalance further.
Moreover Reeves continues to peddle the myth of austerity. The trouble is that this fiction, repeated so often, gains traction. As a matter of record, how could there conceivably have been any austerity when the state has increased from a third of the economy under Blair to almost half today? The austerity has entirely been in the private sector as absurdly poor policy decisions on spending, tax, regulation, net zero, the lot have been taken by successive governments.
Each decision has the false underlying assumption that we the State benevolently know best. It’s a complete fallacy. Successful economies are built on strong foundations of trust and consistency of law, moral foundations based on family, community and mutual trust, non-arbitrary tax and regulation and a strong competitive private sector. All of these factors have been greatly, and in some cases deliberately, eroded.
The unfortunate truth is Britain is no longer in any material sense a free-market economy. It is one of the most directed command economies in the world. There are a few nations whose state spending exceeds the 45 per cent that is the UK’s figure (France, Belgium and Italy come to mind) but the UK state is some 10 points higher than OECD averages and often twice the size of Asian competitors who are catching up to the UK rather quickly. As corrosive as the scale of the state is, the degree of control even over notionally private sectors is every bit as damaging.
A few examples:
Energy policy is entirely under direct state control, with disastrous effects – domestic energy pricing is several times that of the US.
The banking sector is regulated to an inch of its life, as is the City.
Employment terms are also highly dictated from minimum wage legislation to diversity targets and contextual offers.
Transport policy is hardly free. Look at the railways.
Private education is marginalised and bullied as the state does not like competition.
Even agriculture is under the regulatory and tax thumb.
The unfortunate truth is the unfettered private sector in the UK is now tiny, perhaps less than a third of the entire economy. It is not a coincidence that as this highly productive free market sector has shrunk, so our economy has withered and growth stagnated.
Consider when was the last time any significant manufacturer listed on the London Stock Exchange over the last 20 years? I can barely think of one. Come to mention it, with the honourable exceptions of the recent tech float Raspberry Pie and the drinks manufacture Fever Tree, when was the last time any UK company in any productive sector floated excluding government outsourcing companies, or some public sector-backed consultancy? Doubtless there are one or two, but a very few. Contrast this with the US where literally hundreds of true private-sector start-ups have blossomed over the same period.
I have followed a very simple personal investment philosophy over my career. Never invest in anything where the Government is the substantial customer or regulatory controller. The reasoning was simple. Their decisions are often arbitrary and open to review. They are what one might call an exogenous factor; in plain English unpredictable and unreliable. This philosophy has broadly served me well. Unfortunately the entire UK economy is now becoming the plaything of the State. Until there is a change of philosophy, and we must urgently pray that there is, Britain is thus largely uninvestible. Far better opportunities, sadly, exist elsewhere.
