The Tories must grasp the nettle of reform

‘Middle England is set for a shock.” So runs the Institute for Fiscal Studies’ bleak assessment of the Autumn Statement. The bare facts are dismal. Borrowing is high, debt is high, tax is high yet public services are creaking. Forecasts suggest that servicing the national debt will soon cost £100billion a year, more than twice the defence budget. Over time, the tax burden will rise by a massive 4 per cent of GDP. Those on middle incomes will feel the pain most sharply, as they are dragged into higher tax bands. Living standards are set to crash, with wages lagging inflation and household disposable income falling by 7 per cent in the next two years.

Perhaps most dispiriting of all, this bust comes not after a wild boom but after a lost decade in which incomes flatlined. The stultification of the 2010s is now projected to extend well into another decade. That is if matters do not get worse. “On some measures, people may be an astonishing 30 per cent worse off than we might have expected had pre-financial crisis trends continued through to the mid-2020s,” notes the IFS. Such a betrayal of capitalism’s essential promise, that life gets better, and that those who come after us get richer, is unlikely to be without political consequence.

Faced with such a dire outlook, it would be comforting to think that the Government has a bold plan for re-energising the economy. After the traumas that greeted the last intervention by a Conservative chancellor, however, Rishi Sunak and Jeremy Hunt have erred on the side of caution, in an attempt to rebuild the party’s reputation as competent administrators of the public finances.

That might be understandable. Yet it amounts to a strategy of sitting tight and hoping for the best. True, the current global gloom may begin to lift: the war in Ukraine may end, energy prices and inflation may retreat, and the outlook could improve as the next election approaches. But hope is no substitute for action. The global situation may get worse. What, then, for a Chancellor who this week postponed most of the tough decisions on government expenditure until after 2024? Instead, it was the same old targets, the workers of Middle Britain, who found their pockets picked.

The essential question now is whether the Government wants merely to manage decline, or turn away from it. If it is to be the latter, three nettles need to be grasped. The first, most obviously, is economic growth. Happily, even in these hard times, the Chancellor is determined to fund the foundations of better productivity: infrastructure and education. His focus on energy security is also welcome, given how exposed Britain has become to volatile shifts in international markets.

But growth is not just about power stations and rail lines. It is also about fostering an enterprising spirit, about making it easier to start and grow companies, and about rewarding – not punishing – those who do so. As the founder of two successful businesses himself, Mr Hunt knows the value of such entrepreneurialism. In the months ahead, the Chancellor needs to elaborate a real growth strategy that counteracts the effects of his tax rises.

The second is the NHS, which is more obviously failing with each day that passes. Research revealed this week how far it has fallen behind its targets. Faced with more than seven million on waiting lists, it is doing less today than it was in 2019, despite receiving more money from taxpayers. The result is economically as well as medically crippling as a backlog of chronically unwell patients find themselves too sick to work.

Many others will have far less justified claims to long-term sickness benefit. Welfare is the final area in desperate need of reform. At a time of severe labour shortages, it is morally wrong that so many Britons of working age are on benefits rather than in employment. It is also entrenching the country’s dependence on maintaining high levels of immigration.

This situation – ever fewer British workers being squeezed ever harder to pay ever bigger bills for expanding welfare and an inefficient health service – is a recipe for long-term economic decline and political oblivion. Growth, the NHS and welfare must be tackled, not avoided.

Of course, any one of these areas represents a vast political challenge. But the Government has a large majority and increasingly little to lose. Better to stir up the blood, remember what the Conservative Party is for, and get on with the job.