The Great British Doom Loop

Reeves's Spending Review failed to break from a broken economic model that spends too much and invests too little

Towering columns

At ConservativeHome, Gavin Rice looks at how Labour’s economic policy fails to rebuild Britain’s productive capacity.

Radical supply-side reform is needed to tackle these state-imposed barriers to growth. Rather than pursuing abundance, the UK is choosing to consign itself to penury. Petrol has been poured on the fire of stagnant living standards with mass migration of historically unprecedented levels – a ruse through which the economy can be made to look like it’s growing while pressure on housing, public services, infrastructure and the social fabric increases – whilst the underlying demographic trend means that pensions and the NHS will only continue to become more expensive.

But the liberalisation argument is only one part of the story. A major additional reason for Britain’s underperformance is that – as noted by Kemi Badenoch – the country is deindustrialising at breakneck speed. Hobbled by energy costs, output from energy intensive industries (EIIs) has fallen by a third in three years. This matters because production and manufacturing industries are often the most productive and, crucially, experience the fastest productivity growth, because growth in total factor productivity (TFP) tends to be most pronounced in the types of industry that can apply capital to innovation through productive investment – in automation, skills, software, machines and R&D. British manufacturing has collapsed to less than nine per cent of GDP – one of the lowest rates in the OECD…

…It’s widely assumed that Britain’s collapse in industrial output and share of global trade is because importing manufactures is simply more efficient – that the market dictates that the optimal place for production is elsewhere. As argued by Michael Pettis, Steve Miran, Matthew Klein and others, Western deindustrialisation is just as much a consequence of mercantilist policies pursued by Beijing. This is not comparative advantage, however, but comparative distortion. Britain doesn’t get to not have an industrial policy – and it would be suicidal for us simply to accept one dictating by Xi Jinping. Instead, we must seek to invest and produce more.

For the Financial Times, Martin Wolf makes the case for consolidating pension funds to bring about more productive investment.

This broad theme of consolidation makes sense, because there are economies of scale and scope in managing pension funds. Such consolidation will, not least, help ensure better management of risk and so greater investment in innovative investments. Today, according to the workplace pensions road map, 2,000 DB schemes hold a mere £10bn in assets between them. Again, there are currently many DC schemes with fewer than 100 members.

This links to a controversial issue: the role of pension funds in promoting economic growth. There exists a view that there should be no bias towards investment in domestic productive assets. There exists, too, a parallel view that the best thing to do is to invest in index-tracking funds…

…This should be done, albeit with care and caution. But it has to be done. It can only be done by big schemes and large funds able to operate in a highly professional way. These reports are right also to emphasise that a focus on higher returns will deliver better pensions to savers. It will be necessary to raise savings rates as well. Contribution rates are far, far too low. UK national savings rates are also far too low. Raising the former is a necessary step towards raising the latter. These big issues will be a part of the next stage of the pensions review, which is to focus on the adequacy of retirement incomes.

For The Telegraph, Guy Dampier thinks we should be toughening the rules against rough sleeping instead of repealing them.

Far from being too harsh, the Vagrancy Act is insufficient. A Portuguese criminal, who had already been jailed in his home country, was able to frustrate warrants for him to be moved on by simply moving his tent around. He was eventually arrested 11 times, for crimes like selling drugs, money laundering, and possessing firearms. The Human Rights Act has also frustrated the authorities, as they can be barred from entering tents because that would be a breach of the right to privacy in the “home”.

Many of the homeless are EU citizens, with data from the Greater London Authority showing that the most numerous foreign nationality are Romanians. They benefit from the generosity of the EU Settlement Scheme – entirely unreciprocated by the EU – so that even if they are destitute, they cannot be removed to their home countries like other foreign nationals. There are also increasing numbers of Eritreans, which may be down to small boat crossings, as human rights laws make it nearly impossible to deport them.

This faux compassion exposes the homeless to the dangers of living on the streets and the public to the danger of people who may be habitual criminals, drug dealers, or alcoholics. As has been seen in places like San Francisco, tent cities become magnets for dangerous and illegal behaviour. It would be much better to ensure those with substance abuse issues are put into secure treatment, those who have slipped between the cracks are helped into accommodation, while destitute foreigners are sent home.

At The Critic, Will Solfiac explains how the emergence of the Yookay has made it impossible to ignore the true realities of multiculturalism.

The opposing vision of multiculturalism has been one of impending doom and collapse that draws on the worst pathologies of the new Britain — of grooming gangs, crime, Islamism, terrorism, and the looming spectre of civil war. Multiculturalism’s advocates generally dismiss this vision as non-representative, as a catastrophising viewpoint only taken seriously by overly online Americans. Regarding its most fiery forms, they are right to do so.

The yookay, though, is something else: it is neither the vibrant vision that advocates are thinking of when they use the word “multiculturalism”, but nor is it one of societal collapse and ethnic conflict. The yookay is grotty, banal, and above all real. It is the emerging Britain that is generally unseen and unrepresented, precisely because it is not compelling either in a positive or a negative way. The more yookay a place is, the less likely it is to be on the cultural radar. If somewhere like Brixton represents the imagined multicultural community, the yookay represents the real one — and every year it becomes more representative of the country as a whole…

…More stereotypically yookay-like is somewhere like Ipswich, with its combined American-candy-and-vape shops on the high street next to the Ipswich Bazaar urging you to get your sacrificial sheep order in for Qurbani. Places like this are what I think really defines the yookay — right on the transition line. David Goodhart talked of somewheres and anywheres. He was referring to people, but the dichotomy can also be applied to places. Southall, or Bury Park in Luton, is a somewhere (else) of a sort, while “anywhere” implies a sort of rootless and aspirational global cosmopolitanism. The places that are most yookay though are not really either of these things; we could, at the risk of stretching Goodhart’s system too much, describe them as “nowheres”.

At ConservativeHome, Peter Franklin considers how an Anglofuturist approach could revive the right of centre and get Britain building again.

It could be argued that modernity is disposable by design. And yet, when the fancy takes, us we can build great works. Take the miracle of Singapore — which built itself up from a colonial backwater to a high tech city state in just a few decades. Or the 48,000 kilometres of high speed rail in China — most of which was built since the millennium. Or the extraordinary endeavours of Elon Musk. Even if he doesn’t achieve his ambition of dying on Mars, Musk has already revolutionised the economics of spaceflight. Meanwhile his other companies have accelerated progress on electric vehicles, robotics, satellite communications and brain/machine interfaces.

That’s not just economically important — it’s politically significant too. Musk and Trump may have fallen out, but their partnership was crucial to the outcome of last year’s presidential election. Compared to 2020 there was a huge increase in the number of young men voting Republican — from 41% to 56%. This wasn’t just a reaction against the suffocating, anti-masculine wokeness of the Democrats — it was also because Trump supporters offered an alternative, technology-driven vision of progress; for instance, in viral videos like this one, which intercuts Trumpian rhetoric with clips of SpaceX rocket launches…

…What we need, therefore, is an Anglofuturist approach to bring about the necessary change — levelling the mistakes of the mid-20th century and building a beautiful neighbourhood in its place. At sufficient (but gentle) density, we could provide the housing that young people desperately need while creating enough value to generously compensate existing residents. In other words, wins all round. Indeed, scaled up across the city, the effective size of our capital could be greatly increased without taking an inch of greenbelt or building a single tower block. Obviously, this would require a revolution in political courage and competence, but if Baron Haussmann could transform 19th century Paris, then, surely, we can do the same for 21st century London.

In The Spectator World, Jon Lonsdale argues that the alliance between the Tech Right and MAGA will survive the messy breakup between Trump and Musk.

One definition of the tech right is simply “Technology people who aren’t crazy leftists.” Many in this group shifted right because of the excesses of wokeness and DEI within Silicon Valley. The dysfunction of far-left culture, which attacks merit and excellence, created a lot of apostates. Some were Democrats until quite recently! For my part, I was raised in the tradition of liberty, with an education that included not just Ayn Rand and Milton Friedman, but also Edmund Burke and G.K. Chesterton. Not to insult my friends, but I am not a recent convert. But it’s undeniable that the last decade with its nonsense has red-pilled a lot of leaders in the tech world.

If this was simply a matter of technologists redpilled by the insane left, you could be forgiven to think that issues such as immigration and tariffs, or disputes between Trump and Elon, could break it all up. Surely, that is what the left hopes to see. But a deeper trend in society defines the real “tech right”: the US innovation world is no longer mostly about the internet. We’re building in the real world, trying to fix substantive areas of our society. What forms the deeper substance of the tech right is an optimism about what we can achieve for the entire country, and an opposition to the mountain of cronyist left-wing rules and regulations that have made it so hard, and are being used by special interests trying to stop us…

…Insofar as the tech right is focused on building things for America, solving problems for our citizens and improving their families’ lives, there will be a continued natural alliance with MAGA. We have massive cost diseases in the West: costs rise in areas where the government dominates and technology competition is low. Housing, healthcare, defense and education are a few examples. The Bureau of Labor Statistics’ “Chart of the Century” expresses this clearer than any words can. Government regulation raises prices; technology lowers prices.

Wonky thinking

At Oxford this week, Dominic Cummings delivered a Pharos Lecture on the system failures that blight Western countries. Cummings provided his analysis of how this happened and why we need to fundamentally reshape how government operates.

You have to consider the regime as a complex system, and there is no single magic thing that you can do to change it. Asking the old people to change the institutions will fail. Just putting new people in the old institutions will also fail. You have to change the people, the ideas, the institutions and the tools altogether.

It’s a system that’s coming apart in Whitehall and it needs to be replaced by a different system. So the first thing is that, for a very long time, the government has not controlled the government. This is the first thing that needs to change. If you look back 200 odd years to 1795 under William Pitt, you see a regime that took elite talent very seriously but took individual responsibility for projects very seriously. It understood the connections between how government buys things and the science and technology ecosystem necessary for building long-term capabilities. Pitt had real meetings in No. 10 Downing Street, not the fake scripted meetings now, where the conclusions are written by officials before the meeting ever happens. That’s not a parody from Westminster. That is actually the process for how modern government works. The big battle in Whitehall over power is not what people say in meetings, which are largely fake and irrelevant. The battle for power in Whitehall is about who gets to write the conclusions of what the Prime Minister says before the meeting starts. That’s not how Pitt did things, but it’s how it’s how Whitehall works now.

Back then, technologists and entrepreneurs could build great things fast and at scale because of wise procurement, which was taken extremely seriously. parliament threw people in jail during the Napoleonic Wars for procuring cannons. In stark contrast to how, after Covid, those responsible for procurement scandals were all obviously promoted. So the Whitehall in 1795 was more like Space X 2025 than Whitehall 2025 is. All of these different aspects therefore have to be systematically reversed if you’re going to actually have a serious government and a different political regime…

…I think the essential concept of permanent civil servants, which was started in the 1850s, is at the root of a lot of the problems. The civil service system has become a closed caste system with Brahmins and untouchables. The Brahmins are insiders promoted through the system, regardless of failure. Look at our current Cabinet Secretary; he was responsible for pandemic preparation and planning. Of course, therefore, the old system has not fired him. It’s promoted him. It’s given him honours. And it’s now put him in charge of the entire civil service.

The Untouchables are the roughly 100 per cent of the world’s most effective people, none of whom could be hired inside Whitehall by ministers. And the insane HR system means that everybody changes jobs every two years, roughly. So if you’re sitting in No. 10, you have a series of meetings with someone in charge of, for example, Chinese cyber operations. And you talk to them and you talk to them. You have meeting after meeting, and then suddenly this person vanishes completely and some new person arrives in No. 10 and you say: ‘Oh, hello, who are you?’. And they say: ‘Oh, I’m so-and-so’. And you say: ‘Oh, right. Okay. Um, so what are you doing?’. ‘Oh, I’ve been in charge of special educational needs for the last two years’. ‘Oh, right. Okay. You’re now in charge of Chinese cyber operations?’. ‘Yeah’.

So the justification for the entire permanent civil service system is supposedly that it develops expertise. But the actual way in which it works now is pathologically hostile to actual expertise. It doesn’t let anyone develop expertise. And it forces people, if you want promotion and you want to get a pay rise, you have to do this constant zigzagging every two years up through the HR system. All of that needs to be completely swept away. It was created in the 1850s, and, in my opinion, it’s no coincidence that from the time that the so-called professional civil service took over, that marked the beginning of institutional dysfunction spreading throughout the Westminster system, because it became fundamentally impossible for elected ministers to change things by changing the people. And that’s really where I think responsibility and fake meetings started to take over.

In an essay for UnHerd, Rian Chad Whitton examines the growing disillusionment with Net Zero among elite business and policy circles. Rapid decarbonisation is contributing to the rising cost of living, falling living standards, and quickening deindustrialisation. Whitton argues that this failure is becoming clear for all to see and calls for a policy change based on energy realism.

In April, Tony Blair warned that the Net Zero push was, in its current form, “doomed to fail”. Voters, he said, “feel they’re being asked to make financial sacrifices and changes in lifestyle when they know the impact on global emissions is minimal”. Ask too much of voters, in other words, and they will punish the politicians who are driving down their living standards. They will fling out the baby as well as the tepid bathwater. In pragmatic spirit, Blair’s research institute called for acceptance of the temporary use of fossil fuels, and for the deployment of carbon-capture and other mitigation measures — as well as for the use of SMRs.

Naturally, Blair’s intervention incurred strong reactions. Critics of Net Zero were glad to see that a prominent figure of the centre-left had, at least partially, conceded to their arguments. Committed supporters of Net Zero saw it as a betrayal and another example of Blair being a closeted Right-winger. Internal Labour voices were apoplectic that their former leader decided to air his opinion on the eve of some particularly painful local elections.

But polling is on Blair’s side, with 59% of the public prioritising economic growth over net-zero policies. There is a shift among the elites, too, or at least the beginnings of one. Respectable voices have gradually become more openly sceptical of Net Zero. Paul Johnson, the former director of the Institute for Fiscal Studies, called for an “honest conversation about Net Zero” as early as 2023.

Dieter Helm, professor of economic policy at Oxford and a former senior government advisor, has heavily criticised the rollout of wind power and the offshoring of emissions via deindustrialisation. Javier Blas, probably the best-known energy and commodities columnist, has called for “electricity realism”. JP Morgan analyst Michael Cembalest, via his annual energy reviews, highlights the challenges of electrification.

Unlike Blair, these voices have not called for grand pivots to new technologies. Instead, they are asking that Net Zero be seen as what it is: a form of austerity, and not a catalyst for growth. One thing these elite voices share is incredulity at the claims of Net Zero advocates. The first claim is that renewables from wind and solar energy are cheap, even as their subsidised entry into the electricity mix correlates with the rise of British energy bills.

The second claim, that “green jobs” can revitalise Britain’s industrial base, is falling to pieces. Steel mills and chemical refineries are closing, but they are not being replaced with gigafactories and electric vehicle plants. Thirdly, there is the assertion that we can be a global leader and make a substantial change to emissions. But it is blindingly obvious our policies do not have any effect whatsoever on global emissions, which reach new records being set every year…

…Questions of whether this painful transition is being done well or not are perhaps less important than asking what it is all for. It is now clear that British carbon reductions have no bearing on global emissions. If Britain’s sum contribution is to deindustrialise while emissions increase globally, is our example really transferable to others?

Quick links

The UK economy shrank by 0.3% in April, its worst fall since October 2023…

…and data suggests that payroll employment fell by 109,000 in May.

The Spending Review has given the NHS a budget larger than the Portuguese economy…

…but the Government’s waiting time targets will still be missed.

The Home Office will be spending £2.5 billion annually on buying hotels and securing other accommodation for asylum seekers by 2029.

Denmark’s “zero refugee” policy cut asylum claims by 90%.

UN survey shows that two in five people over 50 do not have as many children as they wanted.

Nvidia’s Jensen Huang warned that the UK does not have the digital infrastructure to support an artificial intelligence boom.

Polling shows 28% of men aged 30 or under support Reform.

Only 32.7% of eight to eighteen-year-olds were reported as enjoying reading this year.

Nigel Farage pledged to reindustrialise Wales by reopening Port Talbot.

The bells of a West Yorkshire church fell silent following noise complaints.