Economic Trade-offs for the next government

[funduffer]

The IFS have produced a paper describing the constraints and trade-offs the next government will have to make to improve the prospects of the UK economy. They urge the next government to be honest with the UK public on the painful trade-offs we will have to make on tax, public spending and debt levels.

https://ifs.org.uk/publications/constra ... government

The UK finds itself in an unfortunate economic and fiscal bind. Living standards have endured an unprecedentedly long stagnation. Taxes are at record levels for the UK (though remain low-to-middling by European standards). Public services are showing visible signs of strain and are, in many cases, performing less well than they were in 2010. Further tax rises and further cuts for most public services are built into current plans. But on official forecasts, this is only just enough to stabilise government debt as a fraction of national income.

Which option would you pick if you were the next Chancellor of the Exchequer?

[kempiejon]

They urge the next government to be honest with the UK public on the painful trade-offs we will have to make on tax, public spending and debt levels.

Ah bless.

[Oggy]

There are no options. The UK is goosed. Like the alcoholic who refuses to accept they are an alcoholic, most people refuse to appreciate what folk like the IFS are telling them and are happy to continue living in complete denial of the dire economic situation. Either that or it is someone else's problem or they simply don't understand the economic mess we are in. No chancellor will ever commit political suicide by telling folk what they don't want to hear, so the train of delusion will carry on regardless until it hits the buffers, and that will be painful for sure.

[funduffer]

I see Option 2 is the most popular.

I added option 2, but quite frankly it is cakeism. To reduce taxes, cut public spending and maintain or reduce debt/GDP ratio will be impossible in my view. The cuts in public spending would be just too deep and society would likely fall apart.

The current Tory trajectory is to increase taxes, try and cut public spending whilst slightly reducing debt/GDP ratio. Even that is proving very unpopular.

FD

[Dod101]

Option 2 was the George Osborne option and that did not get him very far and did not get the economy very far either. Option 1 seems to me to be the only realistic one.

According to the IFS our taxes are low to middling by European standards and we are doing rather better than say Germany and France. I think there is no option but for an incoming government to increase taxes. Labour will do that anyway if only to try to stabilise the public services.

Dod

[JohnB]

increase, increase, level

[funduffer]

Perhaps interesting to note that the USA under Biden have gone down the route of broadly maintaining tax take, increasing public spending and allowing debt/GDP to rise (to over 130%). Option 4.

They have a very good growth rate (3.3% latest) as a consequence.

[Adamski]

I chose something else.

There are things which could grow GDP but which are politically impossible here, so won't happen. Don't shoot the messenger!

* rejoin the EU, which would include Euro and Shengen

* cut out of work benefits including disabled, cut state pension, push back pension age

* big infrastructure projects hs2, hs3, motorways, build new towns like Milton Keynes

* encourage skilled migration from the EU

* build urban cities for growing population (China has ghost cities, but increases gdp!!)

Any politican suggesting these things would be out on their ear

[Tedx]

We could:

* Become self sufficient (or even a net exporter) in green energy.

* Electrify our transport system

* Revolutionise our agriculture to grow more food for ourselves

* Automate & modernise large parts of industry.

* Overhaul our health service and set in place a plan to care for our elderly.

* Build hundreds of thousands of energy efficient houses.

* Replant our woodlands, clean our rivers. Clean up our coast lines.

* Clean our cities.

* Overhaul our schools and adopt modern AI assisted learning.

* Overhaul and simplify our tax system.

* Provide jobs for everyone who wants one


We could do that.

[scotview]

Perhaps interesting to note that the USA under Biden have gone down the route of broadly maintaining tax take, increasing public spending and allowing debt/GDP to rise (to over 130%). Option 4.

They have a very good growth rate (3.3% latest) as a consequence.

By extension, if Biden increased debt to GDP to say 180% would their growth turn out be about 8% and would that be a good thing? So just ramp up borrowing and everything gets better ?

I cannot figure out how this works.

[88V8]

Perhaps interesting to note that the USA under Biden have gone down the route of broadly maintaining tax take, increasing public spending and allowing debt/GDP to rise (to over 130%). Option 4.
They have a very good growth rate (3.3% latest) as a consequence.

By extension, if Biden increased debt to GDP to say 180% would their growth turn out be about 8% and would that be a good thing? So just ramp up borrowing and everything gets better ?
I cannot figure out how this works.

Can.
Kick.
Road.

V8

[gryffron]

Perhaps interesting to note that the USA under Biden have gone down the route of broadly maintaining tax take, increasing public spending and allowing debt/GDP to rise (to over 130%). Option 4.
They have a very good growth rate (3.3% latest) as a consequence.

By extension, if Biden increased debt to GDP to say 180% would their growth turn out be about 8% and would that be a good thing? So just ramp up borrowing and everything gets better ?
I cannot figure out how this works.

It’s easy to boost GDP with borrowing. Especially in UK where ALL govt spend counts towards GDP.

Whether this is “good” depends on whether the GDP boost is sustainable, when the borrowing stops but the debt remains.
Borrowing to build profitable factories, efficient power stations, educate the population etc, is likely to be sustainable.
Borrowing to employ Street Play Organisers or Diversity coordinators (or even to provide care or healthcare to the elderly - sorry) is unlikely to provide sustainable advantage.

Problem is, politicians (of all nationalities and leanings) are not good at “investing” for sustainable advantage. They tend to do what buys them votes (short term) rather than what brings economic advantage (long term).

Gryff

[dealtn]

We could do that.

How are "we" paying for that?

[Urbandreamer]

We could do that.

How are "we" paying for that?

To some extent by NOT paying for it.

Shall we start at the top?

Become self sufficient (or even a net exporter) in green energy.
Allow private investors to profit from such instead of using a "windfall tax" to prevent that.
Strange how investment in such has dried up.
Electrify our transport system
Maybe by keeping the previous target's instead of relaxing them?
Of course to some extent increased electrical requirement is dependent upon... see first.

We could argue similar simple solutions for most of them.
For example
Overhaul our schools and adopt modern AI assisted learning.
I don't know enough about the subject, but would be VERY surprised if lessons about remote learning could not be adopted from the times of Covid.

I think that you are possibly seeing money as a solution. Personally I think that we are in the state that we are because the government has thrown money at all issues.

[Lootman]

Option 2 was the George Osborne option and that did not get him very far and did not get the economy very far either. Option 1 seems to me to be the only realistic one.

According to the IFS our taxes are low to middling by European standards and we are doing rather better than say Germany and France. I think there is no option but for an incoming government to increase taxes. Labour will do that anyway if only to try to stabilise the public services.

But Labour is currently saying that it will not raise taxes, other than some tinkering with non-doms and private school fees, and maybe the odd windfall tax here and there. Moreover it is promising restraint on increasing debt.

So either taxes are not going up or Starmer is lying through his teeth.

And by the way I do not think that EU levels of taxation are some kind of target for UK tax levels. Some EU nations have 25% VAT and 60% income tax. Our taxes should be lower than theirs.

[funduffer]

It’s easy to boost GDP with borrowing. Especially in UK where ALL govt spend counts towards GDP.

Whether this is “good” depends on whether the GDP boost is sustainable, when the borrowing stops but the debt remains.
Borrowing to build profitable factories, efficient power stations, educate the population etc, is likely to be sustainable.
Borrowing to employ Street Play Organisers or Diversity coordinators (or even to provide care or healthcare to the elderly - sorry) is unlikely to provide sustainable advantage.

Problem is, politicians (of all nationalities and leanings) are not good at “investing” for sustainable advantage. They tend to do what buys them votes (short term) rather than what brings economic advantage (long term).

Gryff

Well yes, public investment , rather than just day-to-day spending, usually promotes growth. Unfortunately for the current government, they rely on the votes of the elderly who value social and health care. Also public investment is much easier to cut politically than day-to-day spending.

But you make a good point that public spending may or may not promote growth, depending on what it is spent on.

FD

[funduffer]

But Labour is currently saying that it will not raise taxes, other than some tinkering with non-doms and private school fees, and maybe the odd windfall tax here and there. Moreover it is promising restraint on increasing debt.

So either taxes are not going up or Starmer is lying through his teeth.

If Labour do nothing, taxes will rise due to the fiscal drag from frozen income tax allowances. What they are saying is taxes will not rise further (except for non-doms & public school VAT) and they want to bring debt/GDP down, just like the Conservatives.

On spending, they want to invest in green technology, but are struggling to find the money with the current trajectory of taxes, debt and feeble growth. Certainly not like Bidenomics - i.e. large upfront public investment to generate growth, with increased debt.

FD

[Dod101]

Option 2 was the George Osborne option and that did not get him very far and did not get the economy very far either. Option 1 seems to me to be the only realistic one.

According to the IFS our taxes are low to middling by European standards and we are doing rather better than say Germany and France. I think there is no option but for an incoming government to increase taxes. Labour will do that anyway if only to try to stabilise the public services.

But Labour is currently saying that it will not raise taxes, other than some tinkering with non-doms and private school fees, and maybe the odd windfall tax here and there. Moreover it is promising restraint on increasing debt.

So either taxes are not going up or Starmer is lying through his teeth.

And by the way I do not think that EU levels of taxation are some kind of target for UK tax levels. Some EU nations have 25% VAT and 60% income tax. Our taxes should be lower than theirs.

If Labour do not increase taxes and will be restrained in increasing debt how will they do any more than the current government? They will be under huge pressure from the unions to sort out public sector wage demands for a start and I imagine that they will probably take the easy way if they are not lying through their teeth and borrow a lot more.

Dod

[Lootman]

But Labour is currently saying that it will not raise taxes, other than some tinkering with non-doms and private school fees, and maybe the odd windfall tax here and there. Moreover it is promising restraint on increasing debt.

So either taxes are not going up or Starmer is lying through his teeth.

And by the way I do not think that EU levels of taxation are some kind of target for UK tax levels. Some EU nations have 25% VAT and 60% income tax. Our taxes should be lower than theirs.

If Labour do not increase taxes and will be restrained in increasing debt how will they do any more than the current government? They will be under huge pressure from the unions to sort out public sector wage demands for a start and I imagine that they will probably take the easy way if they are not lying through their teeth and borrow a lot more.

Agreed, Starmer is already setting up for huge fights between his reassuring position on fiscal restraint and the pent up demand from all the usual suspects (the NHS, councils, public sector workers and unions, welfare recipients etc.) to have money sprayed at them.

After years of criticising the Tories is he simply going to continue their austerity policies? Or break his own promises of financial prudence, and tax, borrow and spend?

Something is going to have to give. Should be fun finding out.

[TUK020]

We could:

* Become self sufficient (or even a net exporter) in green energy.

* Electrify our transport system

* Revolutionise our agriculture to grow more food for ourselves

* Automate & modernise large parts of industry.

* Overhaul our health service and set in place a plan to care for our elderly.

* Build hundreds of thousands of energy efficient houses.

* Replant our woodlands, clean our rivers. Clean up our coast lines.

* Clean our cities.

* Overhaul our schools and adopt modern AI assisted learning.

* Overhaul and simplify our tax system.

* Provide jobs for everyone who wants one


We could do that.

Ooohhh like this.
Assuming we can't do it all at once, what order of priority would you put them in?