Can We Fix Britain?

The next four years will see the emergence of postwar Britain's successor state

Towering columns

For The Times, Juliet Samuel picks apart the Government’s Industrial Strategy and explains why Labour will fail to build a new economic model.

Even without the self-sabotage of terrible energy policy, tax assaults and regulatory barriers, British industry is coming under ever-greater pressure from Chinese over-production. Clearly, we can never compete directly with China on scale. In just four or five years of promoting “guidance funds”, the public-private investment vehicles that have propelled Chinese production to the forefront of many fields, Beijing is estimated to have raised $1 trillion, or 5 per cent of GDP. That doesn’t count the vast amounts it ploughs into research, infrastructure, old-fashioned metal bashing and smelting subsidies.

But we could have a more modest goal of bringing public spending on grants, guarantees, direct investments and R&D up to levels seen in South Korea, Sweden or Israel, estimated to be around 2 to 5 per cent of GDP and further amplified by private investment. For such ventures to work, the government must be willing to let commercial managers take decisions about public money, have some initiatives fail while others make large fortunes and protect nascent technologies from foreign competition with tariffs where necessary.

There’s a reason why we aren’t doing this, however: Labour’s heart isn’t really in it. Just consider how its MPs, historically the representatives of industrial workers, are spending their time this week. Instead of ferociously critiquing the government’s latest industrial strategy they are engaged in a fight to keep paying out more money to people not to work.

At UnHerd, Mary Harrington reflects on how the British administrative bureaucracy was created by the pressures of total war and has only endured by extracting wealth.

For the retooling of Britain’s wartime administration as a vector for transformation in peacetime also meant continuing the approach to public spending that had characterised Britain at war. That is: we sold stuff to fund it. The wartime fire-sales began in 1940, with the Ships for Bases deal that traded 50 obsolete American warships for 99-year leases on territory in Newfoundland and the Caribbean that would be used as US military bases. This programme of selling off the empire by degrees would continue, for example in US pressure on Churchill to abandon the “imperial preference” trade tariff system, as a condition of US loans desperately needed to avert military defeat.

This great sell-off continued in the war’s aftermath, as a means of funding Beveridge’s vision. As historian James Barr notes, again under pressure from the US, while seeking the $3.5 billion reconstruction loan that Attlee’s government needed to realise its welfare programme, the British government began by degrees to cede control of Mandatory Palestine. Still there never seemed to be enough money; more auctions followed. When oil and gas was discovered in the North Sea, Thatcher used it to fund her programme of de-industrialisation, leaving whole towns and cities dependent on welfare, all funded by the oil bonanza. By contrast, the Norwegian government used the proceeds to create a national sovereign wealth fund, to safeguard that wealth for future generations.

More recent governments have scraped about ever more desperately for assets that can be liquidated to keep things going. Public utilities, railways, flagship companies and grand buildings have raised a few quid here and there, all of which then promptly vanishes into the same ever-expanding maw. This perpetual crisis has been rendered still more acute by the implosion of another unexamined assumption of the postwar era: that the native population would continue to grow. Instead, Britain’s native population has been shrinking since 1973, meaning a welfare programme that was never very affordable to begin with is now making ever more demanding calls on a dwindling working-age tax base.

At The Critic, Fred Sculthorp takes a deep dive into the implications of the economic and cultural battlelines that define Birmingham’s fight for renewal.

The city, since its reinvention under New Labour, has put its chips on being a place for consultancy, creativity and conferences. It has made impressive progress in its “skills agenda”, but nearly three in ten of its age 16–64 population are economically inactive. Since the collapse of its car industry, Birmingham has been subject to a process of mythologising — usually by outsiders — to provide it with the identity needed to flourish in 21st century Britain. This has also made it a canvas for political projection: levelling up, take back control, diversity. Nothing quite seems to stick…

…Next year the search to shape this story will face its biggest challenge yet. Squeezed by revenge and hubris, the old bastion of the Labour Right is predicted to be wiped out and replaced by a fragmented city that foreshadows the coming realignment of 2029. Reform is expected to roll in from its successes in nearby Staffordshire, taking the white working-class exurbs marooned around the sites of old industry. The Lib Dems will inherit the leafy streets and gentrified Victorian enclaves. Jeremy Corbyn’s new party is said to be aiming to build upon the dramatic swings of Gaza Independents, who have already sent five MPs across the country to Westminster and now threaten to topple the city’s remaining Labour grandees in the inner suburbs.

The city’s growth engine and makeover may well be indifferent to the shock of this realignment. The billions of pounds tied up in development and investment are to build the future that was imagined in the last decade. The Birmingham of 2050 is poised to be an alien place to the newly-discovered Blue Labour-inspired rhetorical flourishes of Starmerism — and, indeed, to Reform, with its lip service to the politics of national interest, re-industrialisation and restriction of immigration.

For The Times, Sebastian Payne uses the example of Thames Water to explain how free markets can only be defended when they are also held accountable.

A better, if less sexy, argument is improved regulation. If utilities are to stay in the private sector, they must work for the billpayers above all else. The quango Ofwat was founded to ensure that the privatised water companies did just that; a task at which it has failed abysmally. A solution, thankfully, is coming together: Sir Jon Cunliffe, one of the wise men who steered the UK through the financial crisis, is delving into the whole sector. He believes privatisation per se is not to blame; the problems lie in a toxic combination of constant policy changes, bad management and convoluted regulation without a clear purpose. His work is vital.

Free marketers need an answer to the Thames Water dilemma because people are angry as hell. Particularly the poor consumers, faced with ever climbing bills and turd-filled waterways, who have little way to signal their desire for change. The last survey on water ownership in 2023 suggested that 69 per cent were in favour of nationalisation, with just 8 per cent favouring the private sector. It is almost certain that support for a change in ownership model would be higher now.

Those who think this would be the wrong course, making the state even larger than it already is, need a new story to tell. They need a narrative explaining the difference between bad corporatism and good capitalism. They need to explain why a restructured, better-run Thames Water in the private sector is more desirable than ministers in Whitehall ruminating over what to do about the algae in bloom at the Coppermills treatment works. They need to accept that Thatcherism was liberal capitalism, not pure libertarianism.

At ConservativeHome, Simon Dudley argues that Britain needs to build much more than 300,000 new homes a year to get growth going again.

We’ve heard it for years: 300,000 homes a year. It’s become political wallpaper – the assumed benchmark for ambition on housing. But that number, repeated so often it’s practically sacred, is simply not enough. If we’re serious about fixing Britain’s housing crisis – a crisis that is throttling productivity, crushing aspiration, and blighting lives – we need to start thinking far, far bigger.

The Centre for Cities’ infamous housebuilding crisis report makes this painfully clear. Britain has a backlog of 4.3 million missing homes compared to the average European country. To clear this in 25 years, we’d need to build 442,000 homes a year. To clear it in a decade? 654,000 homes a year in England alone. Let that sink in. And then ask yourself why is the Labour Government, with its supposed zeal for housebuilding, clinging to 300,000? Why is their housing minister – Matthew Pennycook – still afraid to call himself a YIMBY?…

…It may come as a shock to some, but the public, contrary to the received wisdom in Whitehall, likes new homes – when they come with vision, infrastructure, and design. But they are sick of political cowardice and bureaucratic inertia. Some will say immigration is the real problem – and they’re right to point out that both legal and illegal migration have been allowed to reach completely unmanageable, unacceptable levels. But even if we returned to sane, sustainable net migration levels tomorrow, we’d still face a colossal housing deficit built up over decades. This crisis wasn’t caused by newcomers – it was caused by a broken planning system and decades of political failure to build.

At The Spectator, John Jenkins dismantles the arguments in favour of a formal definition of Islamophobia being adopted by the state.

Hatred of and discrimination against Muslims are emphatically wrong – but are already illegal. It therefore remains unclear to me exactly what the definitional, policy or legal problem might be that a new, government sponsored definition of Islamophobia is trying to address. What then is its purpose? The government has periodically insisted that it will be ‘non-statutory‘ and will maintain freedom of speech. The current TORs for your Working Group make the same claim. But they also explicitly talk about determining the ‘appropriate and sensitive language‘ for discussing issues in this space. And the aim of many of the activists who seek such a definition is clearly to achieve legal enforceability.

Whether a definition is legally binding or not, of course, the impact is clear. You will recall that Sir Trevor Phillips (whom I note you have also invited to speak to the Working Group) was suspended from the Labour Party in 2020 for ‘Islamophobia’. The suspension was both absurd and later lifted. But it illustrates the problem.

Whatever form of words is chosen, and whatever legal status it has to start with, any definition will have serious consequences. It will almost certainly turbocharge ‘cancel culture’. Indeed, I have heard it described as potentially the most retrograde step in this country since Sir Robert Walpole’s government in 1737 granted the Lord Chamberlain’s office powers to licence theatrical scripts. And it will inevitably reduce social trust and heighten social tensions. In this regard, the debate over whether a definition would be legally binding is something of a red herring. Its effect would inevitably be to shrink even further the space for open debate.

Wonky thinking

Onward has published The Anti-Social Contract: Renewing Our Social Contract by Phoebe Arslanagić-Little and Laurence Fredricks. The authors discuss how Britain has become “no country for young people” with rising house prices, scarce childcare, and falling fertility rates. But the young are also forced to subsidise older, more affluent generations. Bold reform is needed to solve the demographic crisis and save the centre-right from oblivion.

The British electorate is increasingly elderly: 19% of the population was aged 65 or over in 2022 and that is projected to rise to 27% by 2072. Older voters have become increasingly electorally powerful, because there are more of them and also because they are more likely to vote and to do so consistently.

This makes taking the decision to rebalancing our fraying social contract, some of which must include stopping or reducing wealth transfers towards older people, politically very difficult. This challenge encourages inertia among politicians and policymakers, who are wary of being punished at the ballot box for introducing reforms that reduce older people’s entitlements.

A political and policy environment which is tilting decisively in favour of older cohorts has served to lock in wealth transfers to older age groups, as over the past decade, tax and benefit changes have reduced working-age incomes even as they have bolstered those of pensioners. Even transfers to older groups which are becoming fiscally unsustainable are politically near-impossible to unwind with even modest attempts to rebalance spending met with fierce resistance…

…Contrary to the myth of the “grey majority,” over-65s do not form a plurality in any UK constituency, according to Onward analysis. This myth has led politicians to believe reform is electoral suicide. But constituency data shows that younger and middle-aged voters remain an important share of the electorate who may vote for change that would impact them. Electoral geography and the distribution of voters offers openings for bold, future-oriented policymaking to renew the social contract.

But the language of tradeoffs must evolve. Rather than framing change as a loss to older voters, consensus-building must stress shared gains: intergenerational investment, long-term security, and a stronger social contract. Instead of framing transfers away from pensioner benefits as an absolute loss, the state must reaffirm that it is investing in the next generation so they can better support their parents and have more children. British politics must shift from defending current distributions to building mutual, long-term security.

Rebuilding the social contract requires confronting difficult trade-offs. But these should not be framed as zero-sum losses. Policies including the expansion of homeownership and supporting family formation are not just good for the young – they underpin a more resilient state that can care for an ageing society.

On his blog, Sir Dieter Helm scrutinises zonal pricing and its impact on UK energy policy. Professor Helm believes it will only add to the costs and intensify the lobbying from stakeholders without making Britain more energy secure. But it is the Government’s clean power goals that are truly warping policy out of shape.

Octopus makes the argument that only zonal pricing will make net zero cheap enough to be politically acceptable. This argument assumes that intermittent renewables are cheaper (“nine times cheaper”, according to the Secretary of State[2]) than the “high and volatile” prices and flexible alternative of gas (actually falling and stable).

The reality is quite different. The full system costs of intermittent wind include the costs of the remoter locations, the costs of balancing and batteries, the costs of the transmission infrastructure, and the costs of back-up generation, as reflected in the much higher total system installed capacity. Furthermore, the more intermittency brought onto the system by more offshore wind makes the costs proportionately higher.

This is not an argument against renewables, though it does alter the balance between renewables and nuclear, which is firm, high-density power in large units rather than intermittent, geographically dispersed low-density power. What the debate about zonal pricing reveals is that renewables in the wrong location are even more expensive, and that, contrary to the claims made by the government, we the consumers will have to pay more for our electricity, whilst still paying for a standby 35GW of gas capacity operating only 5% of the time in 2030. The full total system costs of renewables are much higher than we are told.

Zonal pricing may one day be worth the costs and disruption its introduction may cause. But for now, the locational issues are ones that can be dealt with otherwise, through spatial energy planning and the transmission charges reflecting distance, whilst the intermittency problems could be dealt with by the reform that REMA should have taken seriously: the firm power requirement at the heart of security of supply and the central issue for the new energy-intensive industries such as data centres. As to the consumer side and active demand, these are important aspects of managing an intermittent system, but first we need comprehensive smart meters that actually work.

The immediate problem facing government is how to achieve its 2030 target upon which it is fixated, and that will require a lot more generation very quickly. Zonal pricing is disruptive (it can’t be otherwise) and if politicians choose to rule out the two main implications – incentives to locate and differential regional pricing – then it is a luxury for which it can wait, and a luxury for which more serious consideration should be given to the alternative ways for dealing with the transmission costs and spatial planning.

As to the lobbying, it plagues energy policy. It always has. A little time spent reflecting on the smart meter debacle might encourage a more practical approach to the net zero target. After all, smart meters are a necessary condition for the government’s short-term targets; zonal pricing is not. If ministers wish to pursue a short-term (and probably unachievable) 2030 target, they should concentrate on the practical, ignore lobbying on all sides, and get back to the basics of ensuring security of supply and competitive prices alongside the dash for net zero.

Quick links

Keir Starmer announced that UK defence funding will hit 5% of GDP by 2035.

U-turning on welfare reform will wipe out a chunk of the Chancellor’s fiscal headroom and spook the bond market…

…while allowing incapacity benefits to continue surging ahead of rates for long-term health problems.

The US current account deficit jumped by 44.3% to an all-time high of $450.2 billion.

Nazi salutes and violent clashes occurred at a pro-Gaza protest in London…

…and the Home Office is investigating Palestine Action’s links to Iran.

Londoners are paying £216 extra a month in rent because of immigration since 2001.

Polling shows that 81% of people support deporting foreign criminals even if they are put at risk of torture.

Munira Mirza has launched Fix Britain to build a detailed blueprint for government.

Actress and campaigner Sophie Winkleman featured in a new film examining the harmful effects of smartphone-based childhood.

Exports of small packages from China to the UK were up 66% in May from a year earlier, reaching almost $2 billion.

Pro-Scottish independence X accounts went silent at the same time as Israeli air and cyber strikes against Iranian military and communications infrastructure.

Lib Dem council scrapped Bournemouth’s air show for being “too polluting”.

Young Conservatives defied Labour’s al fresco dining ban on Northcote Road.