Jeremy's Blog 15th July 2022: Government Faces the Winter
This article by Jeremy Moody first appeared in the CAAV e-Briefing of 14th July 2022
History can rhyme. The Downing Street storm broke and the Prime Minister is now a caretaker awaiting his successor. It is a century long echo of the removal of Lloyd George as Prime Minister by the Carlton Club Conservative Party meeting in 1922, Stanley Baldwin saying “a dynamic force was a terrible thing” destroying political parties.
With tax cuts now canvassed as freely as tree planting in the last general election, politics seems to remain more focused on symbols than considered solutions that demand care in implementation. Simply cutting taxes would not, of itself, create growth while a Government reliant on heavier borrowing is reliant on “the kindness of strangers”.
Last week’s Office of Budget Responsibility report paints a stark picture:
- in 2002, government debt stood at 28 per cent of GDP, the deficit was about 0.5 per
cent of GDP, growth was 2.75 per cent and inflation 1.3 per cent
- debt was then projected to be 40 per cent of GDP in 2022, now expected to be more than twice that at 96 per cent of GDP
- an older population with fewer working and a more expensive health service see debt forecast to be in the range of 270 to 320 per cent GDP by 2070.
Shocks and a warming climate compound that. Russia’s invasion of Ukraine cannot be the last shock after the financial crisis and the pandemic. More and larger trouble may be stored in China, perhaps even the USA.
More immediately, the challenging winter, inflation and a possible recession calls on political leadership. Food basket inflation is forecast above 10 per cent and power costs are a potent pressure. Grain drying and irrigation this summer are more costly. Continental countries talk of gas rationing as the move from Russian gas bites on German households and business with competition for scarce supplies.
Rising external costs make us poorer; perhaps poorer than we have yet recognised. Economic growth would more easily pay the taxes to meet the growing demands for services from health to defence. A strong economy adds strength to all endeavours while politics become more fraught in times of stagnation or worse.
The answer is in productivity, requiring innovation and skills and so an attractive framework for business investment, a problem for today, not to be left till tomorrow. Tax design and planning policies would lay the foundations but assuring their stability is more important than gimmicks.
Agriculture has its part to play in this, not only for farming prosperity but, as the Climate Change Committee is adamant, to enable mitigation including land use change. It looks for average wheat yields to rise from 8t/ha to 11 by 2050, indicating the challenge for which we have to find the tools.