The true cost of a decade of lost growth under the Tories
If a week is a long time in politics, 14 years is an aeon. How will history judge the last decade and a half of Tory rule?
The Tories can boast very low levels of unemployment but this is offset by the burgeoning number of “economically inactive” working age adults adding to a crisis in the welfare state.
Other countries have higher budget deficits, more national debt and weaker growth outlooks. But few of the UK’s peers suffer as we do from all these ailments simultaneously.
Growth
The first place to start in assessing the track record of the Conservative Party over the past decade and a half must be economic growth. This has been anaemic at best.
The credit crunch that followed the collapse of Lehman Brothers in 2008 brought the global economy to its knees. The UK, with an outsized financial sector, suffered more than most. Many countries slipped into a deep recession, which reached its nadir around the middle of 2009. But the UK struggled more than most to pull itself out of the trough. It took the US, for example, until mid-2011 to recover all its lost ground. The UK needed another two years.
And growth has been sluggish at best ever since. The US economy grew by 89.3 per cent in nominal terms between the start of 2010 and the end of 2023, according to the Federal Reserve. The UK, meanwhile, managed just 71.2 per cent. That’s an 18.1 percentage point gap. The total value of the UK economy was £2.67 trillion in 2023, according to the US Federal Reserve. Had our growth kept pace with America’s since 2010, it would have been closer to £2.9 trillion.
That is a gulf of £280 billion per year. The entire NHS budget is £166 billion a year.
And the discrepancy is widening. Adjusted for inflation, UK gross domestic product (GDP) grew by just 0.1 per cent in 2023 – the country’s worst performance since 2009. By contrast, the US economy grew by 2.5 per cent last year. In mid-February, the Office for National Statistics announced the UK had dipped into another (albeit shallow) recession.
Migration
Even the anaemic top line growth in GDP since 2013 overstates the UK’s recent economic performance. Last year, real-terms average pay was at the same level as it was in 2008. Productivity growth has stalled.
Only unprecedented levels of migration are picking up the slack.
Annual net migration in 2010 was 252,000. Despite Lord Cameron’s initial pledge to get net migration down to the “tens of thousands”, and a barrage of similar promises from his successors, official estimates show that the figure hit 672,000 in the year to June 2023. As a result, GDP per capita has actually gone backwards.
Stagnating wages
The failure to promote productivity has seen real wages (which take inflation into account) flatline. Pay packets grew by an average of 33 per cent a decade from 1970 to 2007 but shrank in the 2010s. All of the country’s other problems flow from this sin.
Higher taxes
Without sustained economic growth to boost revenues and swell the Treasury coffers, successive governments have had to increase taxes by raising rates or stealthily freezing thresholds and letting inflation drag more people into high brackets instead.
National Accounts taxes, including income tax, National Insurance (NI), VAT and others, as a share of GDP – is on course to swell to its highest level since the Second World War.
Last year, this ratio came to around 24 per cent across the Atlantic, according to Washington’s Bureau of Economic Analysis, and 36 per cent here at home. This is territory unexplored since 1949 when the country needed rebuilding from rubble and the NHS was barely a year old. The Office for Budget Responsibility (OBR) currently expects the tax burden to hit almost 38 per cent by 2028.
Last month, The Telegraph revealed that frozen income tax thresholds alone will cost a high-earning couple on £70,000 a year each roughly £30,000 between 2021 and 2028.
Without the need for the PR disaster of upping a tax rate, the OBR believes the maintaining of income tax and NI thresholds in this way will raise over £200 billion for the Treasury within five years.
Welcome as a fresh 2pc cut in National Insurance may be, the combined savings of £785 for 2024-25 for someone on £35,000 must be balanced against the £532 lost because of income tax threshold freezes alone. By 2027-28, stealth taxes will negate all savings.
Greater Spending
Yet an ageing population means increased costs. The proportion of Britons aged 65 or older increased from 16.4 per cent to 18.6 per cent between 2011 and 2021. There are 11 million pensioners in the UK and likely to be 13 million by 2031.
The UK’s welfare bill for the last financial year was £341 billion, or 29 per cent of the total £1.19 trillion budget. And the biggest share of this was £124 billion in state pension payments, which are famously protected by the triple lock.
The amount the UK spends on healthcare increased from 9.7 per cent to 11.3 per cent of GDP between 2010 and 2022. But we appear to be getting less bang for our buck.
The NHS waiting list is currently over 7.6 million people long. Rishi Sunak pledged to cut it last year and failed. Now even the most optimistic prediction from the Institute for Fiscal Studies forecasts it will be down to 5.2 million by the end of 2027 – still 600,000 higher than it was in December 2019.
Overall satisfaction with the NHS had fallen to 29 per cent in 2022 – down from 70 per cent in 2010 and the lowest level since the poll began in 1983, according to the National Centre for Social Research’s most recent British Social Attitudes survey.
More borrowing
Even ever-rising taxes cannot cope with these outflows. In his first major speech as prime minister in 2010, David Cameron sought to draw a contrast to the supposed profligacy of the Brown years and paint the Conservatives as sound stewards of the economy. “We have become indebted on an unprecedented scale,” he said. “Our huge public debt is the clearest manifestation of our economic mistakes – the glaring warning sign overhead telling us we have taken the wrong route.” But borrowing has risen hugely in the last 14 years.
The UK’s public sector net debt as a proportion of GDP jumped from 35.6 per cent to 64.7 per cent between 2008 and 2010 as Gordon Brown and Alistair Darling, the then chancellor, struggled to contain the fallout from the financial crisis. However, the ratio has kept growing ever since and is forecast to hit 97.9 per cent this year.
The UK is now wedged firmly between high taxes and high indebtedness. Business investment has plateaued since 2016, public investment is lower than in similar countries, the stock market is treading water, productivity growth is still at 2008 levels and average real wages have been flatlining for 15 years.
When the Tories took power in 2010, Liam Byrne, Labour’s outgoing chief secretary to the Treasury, famously left a jokey note reading: “I’m afraid there is no money!” Few are joking about the situation today.
