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Last week, the Office for Budget Responsibility released its latest “Fiscal risks and sustainability [ [link removed] ]” report. As usual, it made for sobering reading.
The most important takeaway is that the OBR sees public spending rising from 45 to 60 percent of GDP over the next 50 years, thanks largely to the fiscal impact of an ageing population and rising debt costs, while tax revenue flat-lines at about 40 percent of GDP. The result is public debt spiralling to three times national output.
Of course, any such modelling is very sensitive to the assumptions behind it. But even if the details should be taken with a pinch of salt, the underlying reality – that we are running a pay-as-you-go welfare state with a rising number of retirees for every worker – cannot be ignored.
Covering a 15 percent of GDP fiscal gap with increased taxes isn't a realistic prospect. The whole hard-left tax agenda would only get you a fraction of the way there. It would actually take something like doubling income tax and national insurance for everyone – and hoping people don't just stop working.
On the spending side, it is fairly obvious where we want to end up – but much harder to work out how to get there. Essentially, we need to shift to a pre-funded [ [link removed] ] model [ [link removed] ] for various old age benefits, so that spending on the elderly is funded from balances accumulated (and invested) during people's working lives. The trouble is the transition – how do you manage young workers paying simultaneously for today's OAPs while also funding their own retirement?
Perhaps the most striking thing in the OBR report, though, is the following conclusion on productivity growth: "A full 1 percentage point increase, equivalent to a return to pre-financial crisis rates of productivity growth, could keep debt below 100 per cent of GDP throughout the next 50 years."
In other words, get back to where we were 15 years ago in terms of economic growth, and the fiscal sustainability problem largely goes away. That this is not every government's biggest priority – not just rhetorically, but in terms of concrete action – will never cease to amaze me.
A new essay by Sam Bowman, Ben Southwood, and Samuel Hughes – released this week to much online acclaim – suggests going for growth need not even be that hard. The central claim of their "Foundations [ [link removed] ]" is that much of our growth-sapping lack of investment has one simple cause: the fact that our planning system and other regulatory structures systematically prevent profitable investments (in real estate, energy, and transport infrastructure) from taking place.
In the short run, a huge amount of market-driven economic activity simply doesn't take place. Longer term, we are left with expensive, unreliable energy that undermines industry, housing costs that leave people little to spend or invest elsewhere, and fewer of the agglomeration effects that drive innovation and productivity in modern economies.
The government's new plan for urban densification [ [link removed] ] – trailed in the press this weekend – is a very good start, and potentially heralds a more radical approach than I expected. But if we want to return to robust growth and avert long-run fiscal disaster, it will need to be accompanied by a much wider programme of land-use and (crucially) energy market liberalisation.
Tom Clougherty
IEA Executive Director & Ralph Harris Fellow
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“Scrapping” the NHS & the Gender Pay Gap Myth [ [link removed] ], IEA Podcast, [ [link removed] ] Acting Director of Communications Reem Ibrahim, Executive Director Tom Clougherty, and Editorial Director Kristian Niemietz, IEA YouTube [ [link removed] ]
Replace the NHS to save lives, says new IEA paper
Reforming the National Health Service into a social health insurance (SHI) system could boost UK health outcomes to European levels.
There has been a huge shift in public opinion, with Britons now increasingly likely to say the NHS is worse than healthcare systems in other European countries.
In the last year before Covid, the UK had the second-highest rate of treatable avoidable mortality Western Europe.
The NHS has consistently ranked poorly in international comparisons for decades.
In terms of clinical outcomes, other systems tend to outperform the NHS, and they have done so for as long as we have data. This is not simply the result of better funding.
Countries including the Netherlands, the Czech Republic, Slovakia, and (the former) East Germany have already reformed NHS-type systems into SHI systems.
“Want Better British Healthcare? Watch This Now [ [link removed] ]”, [ [link removed] ]IEA YouTube [ [link removed] ]
The IEA’s report was featured in a debate on the Jeremy Vine Show [ [link removed] ] on Channel 5:
‘Scrap NHS to halt high levels of deaths that are avoidable’ [ [link removed] ], IEA research in The Telegraph [ [link removed] ].
“Should we replace the NHS?”, IEA Editorial Director Kristian Niemietz on LBC:
“Replace the NHS with social health insurance” [ [link removed] ], IEA research in the Express [ [link removed] ].
Replace the NHS with Social Health Insurance says think tank [ [link removed] ], IEA research in City AM [ [link removed] ].
“Older and poorer” – the UK’s future? [ [link removed] ], IEA research referenced in CityAM [ [link removed] ].
“The charts show that the NHS should be privatised”, [ [link removed] ] IEA research in the Telegraph [ [link removed] ].
The report was also referenced in GB News [ [link removed] ], Times Radio, LBC, BBC Radio Bristol, and in About Manchester [ [link removed] ], the Carer [ [link removed] ], Mahalsa [ [link removed] ], and the Daily Brit [ [link removed] ].
News, Views & Upcoming Events
“Reeves’s ‘£10bn windfall’ explained – and why it won’t reverse winter fuel cut” [ [link removed] ], IEA Economics Fellow Julian Jessop referenced in iNews [ [link removed] ]
“Let’s be honest… the government is gaslighting us on working from home [ [link removed] ]”, IEA Public Policy Fellow Matthew Lesh, CityAM [ [link removed] ]
“If the BBC is as great as you say it is, why do we force people to pay for it? [ [link removed] ]”, IEA Acting Director of Communications Reem Ibrahim, GB News [ [link removed] ]
“Pandemic to Inflation: Unraveling the Pandemic's Monetary Meltdown [ [link removed] ]”, IEA YouTube [ [link removed] ]
“Yes, the UK needs more investment – just not necessarily by government [ [link removed] ]”, IEA Economics Fellow Julian Jessop, CityAM [ [link removed] ]
“Labour's WFH overhaul could harm British firms: French-style worker's rights plans will see Brits getting the 'right to switch off' and ignore bosses - but government insists productivity will be boosted [ [link removed] ]”, IEA Executive Director Tom Clougherty referenced in the Daily Mail [ [link removed] ]
“Brexit Britain smashes eurozone in key metric as EU wages flounder” [ [link removed] ], IEA Economics Fellow Julian Jessop referenced in the Express [ [link removed] ]:
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