Britain’s economy is slipping into a deepening crisis to match the 1970s

In jacking up taxes and slashing investment, Hunt risks further undermining our competitiveness

‘As if to highlight the malaise, Britain lost its position as Europe’s biggest stock market, with Paris edging ahead’

Just about everything in Britain these days seems to be in decline or otherwise going to hell in a handcart. This is not just the faintly suspect, why-oh-why complaint of a late-middle aged man, nostalgically yearning for the more optimistic, bygone times of his youth.

It is overwhelmingly borne out by the facts: increasingly paralysed by strike action, idleness and bureaucratic obstruction, the UK economy is once more slipping into the sea, just as it was in the 1970s, with hopelessly poor levels of productivity, plunging relative living standards and crumbling infrastructure.

It almost beggars belief that the profound loss of international competitiveness, which defined that troubled decade, should now be repeating itself. It’s going to require similar shock therapy to once more pull things back from the brink.

Yet there is as yet little sign of the political appetite, let alone will, for it, or indeed wider recognition of quite how parlous the UK’S position truly is.

Jeremy Hunt, the Chancellor, talks of “eye-watering decisions” having to be made in Thursday’s Autumn Statement to set things right in the public finances. His calculation is that he must overcompensate, or go further than is strictly necessary, to reverse the damage to credibility inflicted by his predecessor, Kwasi Kwarteng.

Just as Kwarteng went too far, too fast in loosening the fiscal purse strings, the danger is that Hunt, his hand forced by the grimly downbeat forecasts of the OBR, over tightens and only further entrenches Britain’s already daunting economic weaknesses.

The lessons of the past few months have been brutal ones. It is not as if the UK is objectively any more insolvent as a nation than much of the rest of Europe, or even the US, where if anything public debt metrics look even more troubling.

But there is a crucial difference: Europe is underwritten by hair-shirted Germany and its northern satellites, while the US has the world’s dominant reserve currency and can therefore borrow with impunity almost however bad the public finances look.

The UK, by contrast, is on its own. It also has massive household debt and a yawning current account deficit to maintain. Ever since Brexit, international investors have had a downer on the UK. Britain must therefore work doubly hard to convince investors it is still a going concern.

Yet in jacking up taxes and slashing investment spending to shore up fiscal credibility, the Chancellor risks further undermining international competitiveness. He’s caught between a rock and a hard place. The markets demand that he goes hard; the politics that he goes soft; and the economy that in seeking to satisfy the markets he does as little damage as possible.

Regrettably, it is the economy that is the biggest loser in this three-way tug of war. From tax to business investment and R&D, and from education and training to infrastructure and planning, never mind the self-inflicted blow to trade with Europe, Britain is in a downward spiral from which there appears little prospect of escape.

As if to highlight the deterioration, Britain this week lost its position as Europe’s biggest stock market, with Paris edging ahead for the first time.

Nowhere is the sense of things falling apart more acute than in healthcare. Britain has the highest percentage of adults unable to access needed healthcare in Europe bar Estonia.

With near-record low joblessness and record high vacancies, employment would seem to be one of the few remaining bright spots in the economy. Yet scratch the surface and even here things look deeply worrying. According to the latest labour market statistics, economic inactivity due to long-term ill health is still rising long after the pandemic ended and is now above 2.5m for the first time on record.

Almost unbelievably, nearly a quarter of our working age population is reported to have some form of longterm illness or disability that in most cases prevents them from working.

Alone in the G7, Britain’s economy has yet to recover to its pre-pandemic size, this despite the highest level of spending as a share of GDP on the pandemic of any OECD nation other than Canada, including £29.5bn on the NHS’S entirely useless attempt at Test and Trace. The waste and corruption was off the scale and, if any indication of the way public money is more widely spent, a damning indictment of Britain’s once enviable reputation for careful husbandry.

Something has to be done about sustainability in the public finances, no doubt about it, but to be winning back fiscal respectability at the cost of further undermining international competitiveness by jacking up taxes is not obviously the best way of going about it.

The Us-based Tax Foundation has crunched the numbers and, in its latest annual International Tax Competitiveness Index, ranks Britain a lowly 26 out of 38 OECD nations. But this was before the latest reversals in tax policy. As things now stand, the super-deductions corporation tax regime is about to end and the headline rate of corporation tax to rise to 25pc.

According to calculations by the Centre for Policy Studies think tank, these changes will relegate Britain to 33rd both in the overall and corporation tax rankings. Add in all the other ideas for higher taxes that have been floated in recent weeks, including aligning capital gains and income tax rates, and Britain would sink further still.

Some things, you might have thought, could be easily fixed, yet Britain seems almost deliberately to go out of its way to disadvantage itself. Witness the hugely costly and entirely unnecessary insistence that UK retail banking be “ring fenced” from other banking activities, a decision that has arguably made the banking system less safe, not more so as intended.

Meanwhile, the UK is busy squandering its European lead in wind power with regulatory obstruction that means it can take up to 11 and a half years, according to Octopus Energy, for a new offshore wind farm to come on stream from inception to completion. In the US and China, it is more like one year.

If it were not all so depressing, it would be laughable. Get the public finances back on track by all means. But don’t believe this will answer the nation’s deepening sense of crisis. This requires a much more imaginative approach to policy.