According to the media, it is 1972 all over again and the parallels are uncanny. Apparently, the new chancellor Kwasi Kwarteng has just delivered a mini budget which is likely to outdo that of his Conservative predecessor Anthony Barber in its recklessness. The BBC can barely contain its excitement: listening to Evan Davis on Radio 4, Sir Keir Starmer is now the hero of the hour. A hyper-ventilating Ed Milliband told us the UK is going to be "saved" by going carbon neutral by 2030. Evan asked how, and Ed said the "numbers had been verified". Amazingly, this assertion seemed to satisfy the reporter. Political quackery and chicanery are now so widespread that they have lost their capacity to shock.
All around is change but things still seem to be the same. Even the old names of the seventies like Rolls Royce are on the skids once more. For the striking coal miners, read the current public sector. Large sections of it are dis-functional or "working to rule": the NHS, the police, the courts and officials who are "remote-working". Others are already taking industrial action (the trains and the Post Office), in an attempt to defy even the most modest reforms. Mark Serwotka of the civil service union is the new Jack Jones. Inflation is trending up sharply after a period of unprecedented monetary and fiscal stimulation. On this there has been a negligible return unless you have been lucky enough to own a residential property, mortgaged or otherwise. But now, interest rates are rising fast, and it is clear that all those buzzy little "Fintechs" could soon be the equivalent of the secondary banks that required the "Threadneedle Street Lifeboat" in 1973.
Once again, the UK seems to be caught up in the backwash of a sharp change of course in US monetary policy. Having been held up by the natural resource sectors, the UK stock market is beginning to join the global rout and even the trajectory of the correction is looking like that followed by the course of the 'seventies bear market. Ominously, the £ is back to its 1985 post war low against the $ and some think that it will have to reach parity if the UK is to recover competitiveness.
There is not (yet) an acceleration in official unemployment. Indeed, there are 1.7m job vacancies. Yet what do you call those 5.5m households in receipt of some form of unemployment and/or means tested benefit (exclusive of the state pension and child allowance)? There is not (yet), a prices and incomes policy unless you are in Scotland (where rents have been "temporarily" fixed, but the costs associated with property ownership continue to float). However, there is now heavy state intervention to support consumers against the oil and gas price "shock". For the Yom Kippur War, read the Ukraine. For the Class War read the Culture War.
Most of the more parochial of these comparisons with the early seventies miss the bigger picture. The UK has been caught up, like everywhere else, in a long overdue and global re-pricing of risk. You do not need to be a "neo-con" to see that the social democratic model that has been in place for most of the post War period in Europe is under severe pressure. In the UK, which is particularly poorly placed, it is close to disintegration.
Arguably, the underpinning of economic growth of the last 15 years is even flimsier, once the effect of immigration is excluded. The importation of large cohorts of unskilled or under-skilled labour has provided a useful fig-leaf behind which the UK economy has ticked over. The official class likes it because it has allowed the urgent need for difficult reforms to be deferred. But GDP per capita has risen by a mere £1,000 since 2007 to £32,555. Large scale immigration has also come at a heavy cost to the UK's social services, a factor which clearly informed the decision of many to vote to leave the EU as a way of "controlling our borders". Bafflingly for the Left, there has even been a perceptible increase in the number of first- generation immigrants deserting it. As in the USA, these folk do not want their hard- won security undermined by newer arrivals.
The biggest threat to the UK's prosperity and harmony is the sheer size, cost, intrusiveness and uselessness of the state. Indeed, parts of it give every impression of trying to thwart decisions which have already been democratically decided. Central government taxes now account for 37% of GDP and in the year 2020 to 2021 it further borrowed the equivalent of 15% of GDP. Total central government debt exceeds £2.3tn, close to 100% of GDP. Yes, Covid cost a lot of money, but the trend of fiscal incontinence was in place long before the Wuhan laboratory blew up. Even under the so-called "austerity" of George Osborne, the debt burden never dropped below 75%.
By far the biggest drain on resources is "our" NHS (GC), a system of healthcare provision that no other country emulates. Its status is totemic, yet the faith placed upon it has long defied rationality. During Covid, the government's entire strategy was predicated on a determination that its bed spaces were not filled too quickly. No expense was spared: £15bn on PPE (£3bn of it unusable) and £37bn squandered on Test & Trace. Billions more was spent requisitioning private sector bed space that was then not used. The Army was conscripted to build Nightingale hospitals that stood idle as soon as they were up. We were told that the NHS remained "open for business". Yet now its waiting lists exceed 6.8m people in England alone. Think about that. Very nearly 10% of the UK population is effectively hors de combat. The BBC and the Times tells us that the markets have a downer on Kwasi Kwarteng's "giveaway" budget. No, they don't. What the markets have a downer on is uncapped government spending dominated by a healthcare system that has been unable to prevent vast swathes of the population from being economically inactive and which is incompetently managed, impervious to reform, and which is well on the way to bankrupting the UK.
The markets have also noticed that of the developed economies, the structure of the UK's is perhaps the least able to cope with the global re-pricing of risk. Naturally, the lazy will identify BREXIT as the main culprit, but the UK has been living beyond its means for years and the last time the country recorded a current account surplus was when John Major was in Downing Street. The deficit has now ballooned out to over 8% of GDP - that isn't BREXIT, so much as what happens when you needlessly keep the productive parts of an economy in suspended animation for the best part of two years and are then forced to satisfy the pent- up demand from overseas. You can't really export NHS administrators, of which there are nearly half a million.
Despite all the guff about "the enterprise economy"; "investing in innovation"; "education, education, education" and "hard working families", the dynamics of UK economic growth have been increasingly corroded by financial speculation in the supply side and welfarism on the demand side. The ratio of university graduates to those with a practical technical qualification is approaching 100:1. Growth has been characterised by offshoring, de-skilling, green washing, large scale immigration and the further shrinkage of the manufacturing base. This accounts for little more than 11% of the economy, or 4% if construction is excluded. The UK buys in over half its food from abroad, yet domestic agriculture and fishery are mere rounding errors in the national accounts. Instead, the economy has been financialised to a massive degree. The UK is essentially an agency economy that has lucked out on its time zone and is heavily dependent on activity elsewhere. The wealth that has accrued has been juiced by ultra- low interest rates and fiscal incontinence. It has then been thrown at a property market as sclerotic as any on the planet.
The year 1806 marked the comprehensive defeat of geo-politically isolated and economically backward Prussia by Napoleonic France at the Battles of Jena and Auerstedt. It was a watershed moment in German history as the country was overrun, dismembered and forced to pay a gargantuan indemnity. Faced with ruin, the residual Prussian state underwent a radical transformation. The Stein/Hardenberg/Humboldt reforms took on vested interests, galvanised the education system, introduced a genuine meritocracy in the selection of officers and public officials and re-oriented the political direction of the country. Public administration was professionalised. It was also hugely de-centralised with appointment determined by competence rather than political connection or cronyism. Everywhere "the indifferent state, so hostile to change of any sort" was challenged. Stein's great insight was that a servile population, so dependent on the whim of remote officials and producer interests, did not make for a dynamic or patriotic one.
Today the state of the UK is not Ted Heath's Britain of 1972. It is that of 1806 Prussia under Frederick William III and we are also staring down a barrel.
