We have yet to learn the real lessons of the sclerotic 70s

We must tighten our belts and work harder, not reach for the playbook from that most dismal of decades

Inflation is spiralling out of control. There are shortages of energy. The unions are constantly threatening strikes, there is a jubilee, and even Abba are playing live again, or at least their avatars are. There is a very 1970s feel to the country right now, whether it is economic, cultural or political. We are facing many of the same challenges we faced five decades ago. And from higher taxes, to endless budgets, to bailouts and rescues, we are reaching for many of the same solutions.

There is a problem, however, and it is far from a minor one. While we may be re-living the 70s, we have so far learnt none of its real lessons. We overcame the crisis of that decade by tightening our belts, by limiting government spending, by freeing up the supply side, by controlling the money supply, and by encouraging people and companies to work harder and produce more. So far, there is no sign of any of that – instead we are simply trying to keep the “something for nothing” gravy train going forever.

At a Cabinet meeting this month, Boris Johnson, the Prime Minister, is reported to have said the “problem is no one here is old enough to remember the 1970s”. That is perhaps only to be expected. You have to be well into your 60s to recollect the decade as anything other than school lunches and birthday parties. Still, we are back where we were when the Queen was only celebrating a mere 25 years on the throne. We have stagflation, a toxic mix of rising prices and stagnant growth; we have government debts that are running out of control; we have trade unions riding high on a wave of militancy; we have an energy crisis; and we are witnessing a collapse in living standards that is unprecedented in the last quarter century. It is not exactly the same. The 1970s were also characterised by mass unemployment.

By contrast, in the UK of the 2020s we still have record numbers of people in work. That aside, however, we face the same challenges. The trouble is, while Johnson may well be right that people can’t remember it, that is not the real problem. It is this: we have yet to learn the real lessons of that decade – and how to get out of the mess.

In 1976 two Oxford University economists, Robert Bacon and Walter Eltis, published a hugely influential book called Britain’s Economic Problem: Too Few Producers.

“The ‘Bacon and Eltis thesis’, as it is known, has been one of the most influential attempts to explain the relatively slow post-war growth of the British economy,” wrote the economic historian Robert Skidelsky in a foreword to its third edition. “It was a sophisticated variation of the traditional view that the more of a nation’s resources the state took in taxes, the less would be left over for producing wealth.”

In a nutshell, it argued that the state was consuming so much of the country’s output that it was impossible for the private sector to support it.

There is a message in that for the 2020s. While employment may be at record levels, the blunt truth is that we are not producing enough, nor are enough people working. There has been a significant, and worrying, drop in the numbers of people employed, especially at the two extreme ends of the spectrum. Since the start of the Covid pandemic, the number of over-65s in work has fallen by 8 per cent, while the number of people between 16 and 24 working has fallen by 3 per cent. Just as significantly, fewer of them than ever are working in the private sector (or what Bacon and Eltis five decades ago would have called the “productive sector”). From March 2020 to December 2021, the number working in the private sector fell by 2.1 per cent, while the those in the public sector rose by 4.7 per cent.

Just like 50 years ago, we have too few people producing any real wealth, and far too many people consuming it. The result? We don’t make enough to meet demand. With every emergency statement, and screeching about-turn, the Government makes that worse.

If it has set itself the explicit mission of discouraging work and enterprise, it could hardly be making a better job of it. It has put up National Insurance, an across the board tax on work that deters companies from creating jobs, and workers from taking them when they do. It is about to push through a massive increase in corporation tax that will discourage investment and hammer profits (and, no, fiddly deductions for investment don’t wipe out the disincentive). It has succumbed to the populist idea that “windfall” profits can automatically be taxed, rather than distributed to shareholders as a reward for taking risks.

It has persecuted the self-employed, always the hardest-working hustlers in the economy, with rules so complex that even government departments are breaking them. It has allowed a work-from-home culture to flourish even though everyone knows it is less productive. And it has allowed the public sector to grow, unchecked, even though there is no evidence we need a lot more pen pushers, and quite a bit of evidence that we don’t.

The result? Fewer people are working, and those that are working don’t produce enough. By the end of the 1970s, we had worked out that the only way out of the mess we were in was to work harder, to deregulate and to reform the supply side so that we could produce more. We are a long way from that right now – and until we figure it out we’ll have the dismal 70s on an endlessly replayed loop.

The Government persecutes the self-employed, always the hardest-working hustlers in the economy