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In today’s newsletter:
Should we look to Argentina?
The Government’s latest borrowing figures
Is the triple lock on pensions unsustainable?
Too often, the best ideas – those we research and champion at the IEA – are not the ones that win votes. The classical liberal case for lower spending, a smaller state, and freer markets rarely tops the manifesto pledges of major parties. Instead, we get an arms race for how much money each can spend on what they deem as the voters’ priorities: most regularly the NHS, welfare, pensions.
So it was striking this week to hear Conservative Party leader Kemi Badenoch claim that Javier Milei, Argentina’s libertarian, state-slashing president, is her ‘template’. Milei is no consensus politician, he’s not (just) a performative actor. When he wields his chainsaw, he means it. He abolished half of his government’s departments immediately on entering office, deregulated key markets, overhauled import restrictions, and slashed funding to provinces. The list goes on.
While the acknowledgement of Milei’s success so far by any British politician is promising, it would be wrong to get too excited about a libertarian revolution at home. Badenoch is saying many of the right things, about needing to stop the salami-slicing of government and instead reassess what the state should and shouldn’t do, but are the voters ready to accept such radicalism? And is a political party on the brink of extinction ready to take the risk?
Political incentives are stubborn things. A party that flinches at touching the pensions triple lock doesn't seem likely to campaign on Milei-style state retrenchment. But as Niall Ferguson noted this week, Milei’s agenda isn’t just working – it’s popular. Politically painful reform is paying off both in economic metrics and public support. Does that mean Badenoch, or maybe Farage or even an emboldened Starmer, can afford to think more radically?
Maybe not. After all, while the UK economy has seen better days, we aren’t quite at Peronist levels of hyperinflation yet. Voters may yet still choose a comfier pension over necessary but initially difficult action. But politicians beware, this way of thinking is how we end up back at decline management. We are almost as close to Argentina in terms of GDP per capita as we are to the US.
The truth is, Britain does need radical solutions if we are to return dynamism – and the prosperity that follows – back to these shores. We will keep working here at the IEA to provide the ideas and make the case for what those reforms might look like.
Callum Price
Director of Communications
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IEA Podcast: Executive Director Tom Clougherty, Editorial Director Kristian Niemietz, and Head of Media Reem Ibrahim discuss the government's fiscal position (and what tax increases might follow), whether Milei provides a ‘template’ for British policymakers, and the alarming rise in support for communism and fascism among young Britons – IEA YouTube [ [link removed] ]
Borrowing figures make tax rises inevitable
Commenting on the latest Government borrowing figures, Executive Director Tom Clougherty said:
The latest borrowing figures underline what many of us already thought – that the government is almost certain to announce another set of tax increases at the Autumn Budget.
Given the country's deepening economic malaise, high borrowing costs, and the government's failure to implement even minor spending cuts, it is hard to see another way out – unless the Chancellor decides to relax her fiscal rules.
That, however, would risk an adverse market reaction, and could make a bad situation worse.
I expect that tax allowances and thresholds will continue to be frozen for years to come, even as inflation remains above target. Many more people are going to end up paying higher rates of tax without getting any richer in real terms.
But it seems unlikely that will be enough. The question is whether the government will drop its core tax pledge, and raise a broad-based tax like income tax, national insurance or VAT, or whether it will attempt another stealth tax raid, targeting businesses and savers.
Either course risks further depressing a weak economy. The better approach would be to build a consensus renewed spending restraint, while also making a much more concerted effort to pursue cost-free, pro-growth regulatory reforms.
Reeves admits taxes are too high [ [link removed] ], The Telegraph [ [link removed] ]
Britain is drowning in debt as UK borrowing soars and pressure grows for major tax hikes, [ [link removed] ]The Daily Mail [ [link removed] ]
The 5 ways to protect your money from Rachel Reeves' tax raids, [ [link removed] ]The Daily Express [ [link removed] ]
News and Views
Does Britain need a Milei? [ [link removed] ], Executive Director Tom Clougherty appeared on Times Radio [ [link removed] ].
Head of Media Reem Ibrahim appeared on BBC Newsnight [ [link removed] ] alongside Lord Kim Darroch, former Ambassador to the US Joel Pollak, host of The News Agents podcast Jon Sopel, and BBC Presenter Matt Chorley. Watch on BBC iPlayer [ [link removed] ], or listen on BBC Sounds [ [link removed] ].
Do OAPs deserve more financial support? [ [link removed] ] Head of Media Reem Ibrahim appeared on Good Morning Britain [ [link removed] ].
Rachel Reeves urged to halt 'wealth exodus' with immediate action [ [link removed] ], Executive Director Tom Clougherty, The Express [ [link removed] ]
But Tom Clougherty of the Institute of Economic Affairs warned a wealth tax would be “disaster for Britain” which would trigger “capital flight”.
He said: “It would also paint a terrible picture of the kind of economy we are turning into – and risk undermining investment and growth for years to come. I imagine the speculation alone is already having a negative effect.
“I understand the politics of the situation, but there’s a strong case for the Government ruling the idea out altogether right now.”
Former Goldman Sachs Chief Economist Lord O'Neill: Why Britain is Stagnant | IEA Interview [ [link removed] ], Executive Director Tom Clougherty interviews Lord Jim O'Neill, IEA YouTube [ [link removed] ]
If Labour wants growth, it should scrap the Employment Rights Bill [ [link removed] ], Director of Communications Callum Price, ConservativeHome [ [link removed] ]
The Labour Party made two key promises at the last election. The first was to prioritise economic growth. The second was to not tax working people. There are good arguments to say that neither promise has been kept.
Clearly other priorities have taken precedence for much of their first year in office over economic growth. Some for good reason, such as a renewed focus on defence spending. Others less so, such as a renewed focus on keeping their backbenchers onside.
Stalin's Economic Nightmare | Part 2 | Rise & Fall of the Soviet Economy [ [link removed] ], Managing Editor Daniel Freeman interviews Aymen Aulaiwi, IEA YouTube [ [link removed] ]
Poor savings rates and inflation wipe 11p off every £1, [ [link removed] ] Economics Fellow Julian Jessop was quoted in The Times [ [link removed] ]
Julian Jessop from the Institute of Economic Affairs, a free-market think tank, said: “The appropriate ‘neutral’ interest rate should not just depend on what is best for households. A common rule of thumb is that the real interest rate should be set equal to the potential growth rate of the economy, which would point to a rate below 2 per cent.
“What’s more, the Bank’s main job is to control inflation. If this means that interest rates have to be significantly higher than the neutral level for a prolonged period, or significantly lower, then so be it.”
Axe the triple lock? [ [link removed] ] Head of Media Reem Ibrahim appeared on Channel 5 [ [link removed] ].
The underground tobacco trade is thriving in Britain [ [link removed] ], Head of Lifestyle Economics Christopher Snowdon, The Critic [ [link removed] ]
A study [ [link removed] ] published last week estimated that 26.8 billion cigarettes are smoked each year in the UK. The state-funded pressure group Action on Smoking and Health (ASH) described [ [link removed] ] this as a “staggering figure” and claimed that it was a “stark reminder of the deadly toll of inaction”. Seizing the opportunity to remind people about the ludicrous Tobacco and Vapes Bill, they said: “Everyday that passes without this legislation is a day lost in protecting our children from addiction and improving public health.”
What CapX is reading this summer [ [link removed] ], Kristian Niemietz, Reem Ibrahim, and Matthew Bowles gave their reading recommendations for this summer, CapX [ [link removed] ]
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