Yet in the last few months in the UK we have seen a remarkable internal coup, where the Prime Minister has resigned and been replaced not by another senior minister but by a city mayor who had to win a by-election before he could stage a bloodless [1] takeover. Not only did the UK Prime Minister Keir Starmer lose his job, but also the Chancellor Rachel Reeves. It was both a rather unusual and also very significant event.

Now there are many reasons why MPs decided that Starmer had to be replaced, despite leading Labour to an unprecedented election victory just two years earlier. I will not go through a list of his policy mistakes because others have done this many times over. However I would argue that nothing on that list quite justifies the end result. In my view most MPs were happy to see a bloodless takeover by Andy Burnham for reasons of simple self-preservation. Although governments in mid-term often suffer in opinion polls and local elections, the scale of the deterioration in Labour’s support under Starmer was too alarming.

Once again there are various reasons why Labour’s polling collapsed. For a start it didn’t start that strong. Labour won so many seats in parliament with an unusually low vote share because the Conservative party lost so much support to Farage and Reform on the right, and in the centre to the more socially liberal Liberal Democrats. But I think a good case can be made that the main reason Labour support collapsed so much after the election was that voters on the liberal left - normally Labour’s core support - abandoned the party to either not vote or vote for the Greens, Liberal Democrats or Scottish or Welsh nationalists.

The reason why many of Labour’s core electorate deserted the party, as I outlined many times before it happened, was that Starmer chose to adopt on social issues like immigration and asylum a pretty illiberal policy stance and rhetoric. Starmer’s own speech in May last year, which I blogged about here, was indicative of how far the government seemed prepared to go in a doomed attempt to win votes from right wing populists. It was this social rather than economic positioning that led to Starmer’s downfall. [2]

For that reason, I think it is fair to say that voters on the left in the UK were critical in bringing down Prime Minister Starmer. Labour’s popularity since Burnham’s takeover has improved significantly, in large part because a lot of those votes have come back to Labour. How permanent that return will be will depend on what Burnham does over the next year rather than what he says.

In the US there are no significant third parties like the Greens or Liberal Democrats, and any left liberal voter worth their salt right now would vote Democrat to help defeat Trump and a Republican party that seems happy to let the US be a fascist state. Instead the relevant action there is in primaries, where Democrat voters get to choose their candidate. One notable feature of some of these primaries is that candidates very much to the left of the party have been winning. Some are members of Democratic Socialists of America or DSA, whose membership has increased dramatically in the last decade.

At the moment numbers remain modest, but according to some CBS analysis candidates endorsed by either the DSA or another leftish group, Justice Democrats, have won two thirds of the House primaries in which they have competed. In addition others not formally connected to these groups, like Abdul El-Sayed in the senate race for Michigan, have won campaigning on similar left wing issues.

In many ways none of this should be surprising, and nor is it very new. Joe Biden’s main challenger for the presidential nomination was Bernie Sanders. As President Biden often sought to include rather than exclude the party’s left in formulating various policies. Although US growth has been relatively strong, much of that has gone to the wealthy as the profit share has increased and the wage share fallen. (Something, incidentally, that has not happened in the UK.) Often the politics that suffers when right wing populism gains strength is the centre, as can be seen most dramatically in France. However the centre often survives because enough voters on the left believe, rightly or wrongly, that politicians from the centre are more likely to be able to stop a right wing populist victory than politicians from the left.

What Starmer’s fate shows is that there are limits to that argument. An uncharismatic leader from the centre, who attempts to defeat the right by adopting or validating the right’s own rhetoric, can alienate voters on the left sufficiently that others in the party believe that leader can no longer win, and needs to be replaced by someone who is or appears to be more left wing. The relevant comparison to Starmer’s fall in the UK in the US is not the 2026 midterms, but the contest for who will run for President in 2028.

In the UK the key issue that alienated core Labour supporters from their leadership was immigration and asylum, and the rhetoric and policies the Labour government adopted on this issue. Is there an issue in the US where enough Democrat voters could become alienated from the party leadership’s position? There is plenty of choice, but one issue where Democrat voters seem seriously adrift from their leadership right now involves Israel.

In a poll in July, just over 50% of Democrat voters said they believed that Israel’s actions in Gaza amounted to genocide. A more recent poll that looked at Democrats likely to vote in the first six ballots to decide the next Democratic Presidential nominee found overwhelming majorities believing that Israel was guilty of genocide, and that therefore the US should cut off arms sales. Yet rather than bending towards this shift in opinion among its supporters, parts of the Democratic party leadership seems to be reaffirming its support for Israel’s actions. There appear to be influential Democrats who would rather see Democratic candidates on the left, or those who acknowledge Israel’s genocide, defeated even if it means a Republiucan victory. (There are UK parallels with Corbyn’s 2019 defeat to right wing populist Johnson here.) There are various reasons why a gap has opened up between Democratic voters and politicians on this issue, one of which is simply inertia.

Elections are not generally decided on foreign policy issues, but equally foreign policy does not generally include arming a country that is believed to be carrying out a genocide. This would not be the first time that foreign wars have split the Democratic party. Those in both the US and UK who believe that their supporters on the left are both an annoyance and a liability in winning elections should take note of Keir Starmer’s demise.

[1] By bloodless I mean without a contest election.

[2] The position of Starmer’s senior political advisor, before he resigned months ahead of Starmer, is often called Blue Labour, and is generally understood to combine traditional left wing Labour positions on economic issues (eg pro-worker and union, open to public ownership of key utilities) with a much more conservative position on social issues like immigration.

Celebrities by definition are individuals the public are interested in, but there is an important distinction between what people are interested in and what is called the public interest. People love gossip, but that does not mean that the individual the gossip is about loses their human rights. Human rights exist in part to protect individuals from the wishes of the masses.

Consider now someone who is not a politician or celebrity, but who has a minor public presence. Imagine an academic, for example, that writes a blog and the occasional article for public consumption, and who has sometimes advised political parties. In other words someone like myself. Suppose they write something in their blog that is controversial in some quarters, or embarrassing to some politician, or suppose what they write is misquoted by a Prime Minister and they complain. As a result of these activities, certain newspapers that are allied to those politicians decide to see if they can discredit the academic in some way. There follows a series of articles about the academic in which events or facts in their past are used selectively with the aim of discrediting them in the reader’s eye. Is that OK, and if it is not, why?

You could say that by doing anything public, particularly doing something of political interest, means that the academic is fair game for the media. But that very phrase ‘fair game’ is revealing. There is a power asymmetry here. Media outlets are very powerful organisations, because their audience is far greater than any academic’s blog and what they write has far greater influence. The academic doesn’t get a right of reply to what the newspapers say. There are legal options in certain cases, but these are limited and very expensive. So it is quite possible for the press to unjustifiably ruin this academic’s reputation, and there is currently no recourse readily available to the individual that has been wrongly represented by the press that will have the same impact as the original articles attacking them.

I think most people would agree that such an outcome is very unfair, and if it happened an injustice had been done. The academic has been targeted and misrepresented just because they had opinions or expertise that was politically awkward for certain media outlets. This outcome is perfectly possible today because large sections of our media have power without any accountability. They are not regulated in any meaningful way.

Now suppose that in the course of the newspaper’s digging they uncover that the academic had done something that an academic should not do. As a result, the academic loses their job. The newspaper can legitimately claim that they have exposed some wrongdoing, even if their motives for doing so are dubious. The academic and others can blame the newspaper in this case, but I doubt that would generate much public sympathy.

But what if the newspaper decides to continue their attacks on the individual after they lose their job, perhaps because it generates clicks, because it’s August or because the newspaper wants to deter other academics from attacking their politics or politicians. None of these are good reasons for hounding someone who has just lost their job. This is unfair and cruel. We are back to power without accountability. [1]

Why should newspapers, almost uniquely in the UK, be organisations that are unaccountable for what they do? A glib answer is to uphold press freedom. But those who use that term should always be asked ‘freedom to do what’. Freedom to hound a vulnerable individual because that is what readers are interested in? A better answer is that any accountability would put constraints on newspapers’ actions that would be against the public interest. In particular, any framework of accountability would need to be set up by the government, and that would threaten the freedom of the press to hold the government to account.

As an all encompassing defence this is nonsense. Suppose, for example, there was a press regulator independent of the government who could, when a newspaper publishes more than one article attacking the reputation of an individual who is not a politician, demand that this individual be given the right of reply (directly or indirectly) in the pages of that newspaper. In what way does that inhibit the newspaper from holding the government to account? In what way does it inhibit the newspaper in any way? apart perhaps from ensuring their journalism is not obviously flawed

What I have said about the imbalance of power between the media and an individual also applies to groups of individuals. It is routine for the right wing press to focus on crimes committed by immigrants or non-white criminals, because this gives the impression that foreigners or non-whites are more likely to commit crimes than they actually are. One anonymous person who follows me on X has taken to regularly sending me posts about individual crimes committed by immigrants. And for many that tactic works, of course, which may be why the press does it.

In these circumstances a regulator could insist that representatives of the groups the newspaper is trying to denigrate have some form of voice within the pages of that newspaper. These representatives could simply present the statistical evidence rather than the selected individual cases, and any caveats associated with that data. Once again, this would not deter the newspaper from holding the government to account. [2]

Protecting individuals and groups of individuals from being unjustly maligned by the UK press and media more generally does nothing to restrict the freedom of press where it matters. But what does restrict the ability of the media to hold politicians and others to account is when the media is controlled by wealthy individuals with clear political interests. In that situation the press can fail to hold the government, certain politicians or those with power to account.

In the US today we have, at best, a right wing populist government that acts very much like a plutocracy, where particular very wealthy individuals can be given or exert great power. Trump’s second term has not just created a plutocracy, but has brought with it a spate of purchases by the very wealthy of US media outlets. As there is nothing to suggest that US media has suddenly become more profitable, this rather suggests that media ownership is often about getting power and influence rather than just making money. [3] A common model for right wing populism involves state control of the media not through direct ownership or censorship, but through media ownership by wealthy individuals linked to or aligned with the government.

Exactly the same pattern could be repeated in the UK, as the role of wealthy individuals in politics here continues to grow rapidly. This is why in the UK and elsewhere good media regulation has become an essential part of having an effective democracy. Without it, we risk having a democracy in name only, where the reality is that money can buy a wealthy individual the equivalent of a great many thousands of votes, as well as the means to intimidate or harm anyone who gets in their way or in their friend’s way, or just to make a political point. [4]

Sir Brian Leveson began his inquiry by asking ‘who guards the guardians’, with the idea that the press were a key part of the UK’s guardians of democracy. In the US under what many would currently call the fascist administration of Donald Trump, you would have to ask how good a job the media there has done at guarding democracy. Parts of the US media have actively facilitated that fascist takeover, along with the election denying, blatant corruption on a massive scale, state violence, unprovoked military aggression and vote suppression that has gone along with it. Perhaps this is what can happen when no one guards the guardians, as currently happens with the UK press.

[1] Of course the case that you know I’m alluding to here was far, far worse than a maligned academic blogger. The motive for much of the huge volume of articles attacking Arday after he resigned was not to expose or deter academic plagiarism, but to use him as a proxy for an attack on EDI. In other words he was attacked because he was black. We know this partly because there have been plenty of plagiarism cases in the past that have not generated anything like this level of coverage, and also because of what many of those articles actually said.

Was this done because newspaper journalists, editors and owners are racist, or just because it furthered a particular political agenda that they supported? I have no idea, although I can think of another example that is consistent with racism. Perhaps the more relevant point to make is that at present there is nothing stopping a wealthy racist from buying a newspaper and then deliberately targeting non-white individuals. Nothing in our current system of press non-regulation would stop that happening.

[2] The attacks on Arday were also inevitably attacks on black academics in general, with the insinuation that they got their posts because of EDI rather than on merit. In my own experience as an academic on appointment boards I have never known EDI to be used to select a candidate who was not the best on purely meritocratic grounds, which is as it is intended to be. In addition the incentive to improve a department’s research profile is infinitely stronger than anything in EDI.

The quality of most of the journalism in this instance, in terms of having any understanding of how academia works, seems to be pretty poor. In the case of Cambridge about 0.4% of professors at Cambridge are black, which is a simple statistic that exposes how ludicrous these attacks on EDI in newspapers are. To say there is “some circumstantial evidence” that EDI was critical in this appointment seems to amount to (1) EDI exists (2) Cambridge University made a lot of Arday’s appointment after the decision was made (surprise, surprise given the above) and (3) universities were very woke in 2023! In other words no evidence at all.

[3] What has happened in the US is just another indication that newspapers are not ourely profit maximising organisations, but that they are also a way of giving the owner considerable political power.

[4] This media also has the ability to drown out good ideas by constantly resurrecting zombie ideas.

Robert Shrimsley asks where is a modern day Thatcher to fight what Burnham hopes to do? Most politicians on the right nowadays seem keener on fighting culture wars and immigrants, in a kind of horrific beauty contest to see who can be nastier to asylum seekers, Muslims or other minorities. Indeed you can argue, as I have done in the past, that right wing populism is the inevitable legacy of neoliberalism in practice.

However there is another reason why there is no current equivalent of Thatcher, and that is because defending neoliberalism today is too hard an ask. So many of the claims made under the banner of neoliberalism thirty years ago are clearly questionable at best and in some cases clearly untrue.

I have argued elsewhere that neoliberalism in practice, or neoliberalism in government, is essentially about acting in the interests of business and those that run them. I prefer this definition to anything involving markets because I think it is more accurate in describing what neoliberal governments do. Of course neoliberal politicians and neoliberal advocates more generally extol the virtues of free markets when arguing against regulations, for example, but not when it comes to breaking up monopolies or large firms. As Ronald Coase pointed out, the firm is in many ways an alternative to the transaction costs that would be incurred by numerous markets.

It is more widely recognised that definitions of neoliberalism based around a smaller, less active state are also inadequate. Neoliberal governments actively used legislation to diminish the power of trade unions, for example, because this was in the interests of business.

The central claim of neoliberalism is that if governments supported the interests of business in general [1] then society as well as business would benefit. Businesses dislike regulations and taxes imposed on them, so the claim is that if these regulations and taxes were reduced then businesses will grow faster leading to a general increase in prosperity. It is that corporations or privately owned businesses are better at providing goods and services than the government, so where possible the government should privatise or out source such activities to the private sector. Those who run firms need strong incentives, so taxes on high incomes should be reduced.

With the advent of Thatcher and Reagan these neoliberal claims were difficult to evaluate empirically, and support tended to focus on the inadequacies of the governments they were replacing. That is no longer the case. We can directly compare the experience before and after the 1980s, and see whether the neoliberal arguments hold up.

For example we can compare rates of economic growth, or growth in living standards, before and after the early 1980s, as Michael Jacobs does here. For the UK the simple comparison suggests neoliberalism reduced growth rates, although as Michael says we cannot know what would have happened if neoliberalism had never happened. I have noted in the past that this simple comparison is likely to be unfair to neoliberalism because the pre-neoliberal years benefited from a recovery from the devastation of WWII.

What about comparisons between more or less neoliberal economies over a common time period? If you asked what the greatest economic success story of recent times has been, I think it would have to be China. A lot of that is due to China’s integration into globalisation, and its adoption of a market economy, but the Chinese economy can hardly be described as neoliberal. The Chinese state maintains far more economic control than it ever did in the pre-1980s UK, for example, but this has not appeared to inhibit its continuing growth and development. Today China is also at the forefront of innovation. [2]

A clear empirical refutation of neoliberal claims that regulations inhibit growth and should therefore be reduced is the Global Financial Crisis of 2008/9. Deregulation of the financial sectors in the US and most of Europe brought economic disaster. It is a testament to the continuing power and influence of neoliberal ideology that even today politicians on the right and centre call for a reduction in red tape as a means to promote growth, with hardly anyone noting that is what was said about the financial sector before the GFC. Nevertheless it is hard to argue that stronger financial market regulation could have either avoided the crisis or greatly reduced its impact, and that the neoliberal ideology of deregulation was at least in part responsible for letting that crisis happen.

Of course one failure of deregulation, however large, does not imply that all regulations are always beneficial. But neoliberal governments did not argue that regulations should be judged on their merits, but rather that regulations were almost always bad for growth and bad for society. The Global Financial Crisis shows that argument to be wrong. Other examples of where deregulation has had harmful effects are not hard to find.

While regulations are often essential in particular industries and markets (as economists without a political axe to grind have always understood, of course [3]), we are becoming increasingly aware that if left to itself the private sector can sacrifice the future for the present. While thoughtful neoliberals have never denied the existence of market externalities, in practice neoliberal politicians tend to downplay their existence. Climate Change has been described as the greatest market failure ever seen. Government action, particularly through promoting in various ways innovations in green energy (see [2]), has been essential to reducing carbon emissions, although we still do not know if it has been too little too late. [4] Those promoting neoliberalism have often impeded rather than helped this endeavour to save human civilisation as we know it.

The idea that private sector ownership will always produce better outcomes than social (government) control has been dealt a severe blow in the UK by developments in the water industry. It is not my area of expertise, and it may be that the true story is not as simple as it appears, but in this particular case the combination of private ownership of a natural monopoly plus external regulation has produced a crisis today on various levels. It is another example of why any serious attempt to resell neoliberalism faces a tough task.

Finally, a key part of the neoliberal revolution in both the UK and US was a substantial reduction in taxes on top incomes and also on profits. The idea was that the more business leaders and firms are given financial incentives, the more wealth they will create for society as a whole (‘trickle down economics’). Few would dispute that incentives are important, but whether they remain important to those already on very high incomes is questionable.

Instead these tax reductions seem to have had a significant incentive effect on firms and CEO behaviour in a more negative direction. When taxes had been very high, there was not much point in CEOs devoting much effort into raising their salary. When taxes fell, that was no longer the case, and since the 1980s we have seen a significant rise in CEO pre-tax salaries relative to the average wage (from around x20 in the 1970s to x130 today.) This is a result of the combination of incentives and the bargaining power of CEOs, rather than any increase in CEO productivity. In the US a reduction in top taxes may also have led to a marked rise in the share of dividends in national income.

The net effect has been to reverse the post-war trend of a declining income share for the top 1% or 0.1%. The growth figures cited above suggest that this increasing share has come at the expense of the rest of the population. The most marked impact of this increased inequality has been the involvement of some wealthy individuals in right wing politics, most notably in the US. This is one of the direct links between neoliberalism and the rise of a right wing populist plutocracy. One of the strongest arguments against neoliberalism is that it opened the door to Trump and populist plutocracy.

None of this implies that neoliberalism has no redeeming features, or that regulation and public ownership are always optimal. What it means is that the focus is on the form of interventions that the government can make, rather than whether any intervention is necessary. It is about the type of industrial policy, rather than whether there should be an industrial policy at all. It is about the best way the public can regain control over natural monopolies, which may or may not include ownership. These will be the important debates of Burnham’s premiership.

Of course losing the intellectual argument doesn’t mean that neoliberal ideas will disappear from public debate. The right’s dominance of the media, and the fact that a minority have done extremely well out of neoliberalism, will ensure that these tropes never go away. But it does mean that the interesting debates will be elsewhere, involving how best to unpick neoliberalism’s legacy.

[1] Not the interests of some firms against the interests of other firms, which is what often happens in a right wing populist plutocracy.

[2] To take one example, China is now at the frontier in terms of solar energy production. A recent paper examines how this was achieved as a result of competing innovation subsidies between Chinese cities.

[3] I talk about why economics is essential to any intellectual critique of neoliberalism here

[4] As Mariana Mazzucato has pointed out for the US, rather than the state ‘getting in the way’ of innovation it has often been the driver of innovation.

I could put the question more generally. The US right now is often described as an oligarchy, where particular business interests have a pretty direct influence on the government and the policies it promotes. I prefer to use the term plutocracy rather than oligarchy, because the former makes clear that we are discussing an oligarchy based on wealth. In what way is this very different from neoliberalism in practice, which I have described as an ideology that puts the interests of corporations above those of the general population?

When I began to explore the rise of populism and plutocracy in the UK and US many years ago (see Chapter 9 here, for example), I drew a big distinction between policies that favoured all (or almost all) capital and policies that favoured one part of capital at the expense of others. Pretty well all businesses benefited from the decline in trade union power under neoliberalism, for example. However if we take the case of energy, for every oil company wanting to slow or even stop the introduction of renewables, there are producers of clean energy that would lose out. Furthermore, business as a whole would prefer the more stable and probably cheaper energy that a green transition would bring. In extremis, pursuing the interests of fossil fuel companies could bring about the widespread destruction of aggregate capital, not because of competition with other capital but because of climate change.

Alternatively, take Brexit. It is true that certain business leaders helped campaign for Brexit, sometimes because it was in their financial interest. But there is little doubt that the majority of businesses in the UK opposed Brexit, even if they were a little tentative in voicing their opposition very loudly. While with net zero you could argue that oil companies have more financial clout than companies producing clean energy, this was not the case with Brexit. As I noted in this post, right wing populism (and the fascism that it has developed into in the US) is typically very bad for the economy as a whole, and pretty bad for aggregate profitability as well.

For this reason I don’t think it is very informative to say we are where we are today because we have been following the interests of aggregate capital or the capitalist class. That does not imply, of course, that particular parts of that class, that we might call a plutocracy, are not a very important part of the rise of right wing populism. However even here you can tell two very different stories about the linkage between right wing populists and plutocracy.

The first puts plutocracy in the driving seat. It notes, for example, that neoliberalism led to growing wealth at the very top, reversing a post war trend of falling top income and wealth shares created by social democracy. Perhaps the majority of the new billionaire class are not overtly politically active, but a minority will be, and their politics are much more likely to be right than left wing. By decreasing the safeguards that had previously existed, neoliberalism allows politically motivated billionaires to directly influence politics and policy, inevitably shifting it to the right.

However it is also possible to tell a very different story. Take the US for example. There you could argue that the shift from class based politics towards culture wars came from politicians on the right, who found pursuing neoliberal objectives increasingly unpopular. This gave power to the section of the electorate who were very socially conservative and/or racist, a minority who were able to dominate the Republican party through in particular the primary system. Donald Trump emerged because he appealed to that minority of the electorate. Trump is inherently corrupt, which to some extent forces billionaires to become politically involved to curry favour and protect their business interests.

I think both stories are correct, and there isn’t a fundamental contradiction between them. What both stories have in common is seeing the neoliberalism of Thatcher or Reagan as a kind of transitional state, which paved the way for both the emergence of populism as a dominant force in right wing politics and enabled the emergence of a politically powerful plutocracy that would support that populism. Another way of putting this is that it was liberal social democracy that limited the ability of wealth to influence politics and also limited the influence of right wing populism on the political right, and when neoliberalism swept social democracy to one side it allowed both to emerge.

One area where rich individuals undoubtedly play a causal role is through media ownership. To go back to the issue of climate change and net zero, then the short answer to why the UK Tory party has abandoned net zero is simply Rupert Murdoch. As one climate scientist said, “It’s hard to think of another person who has single-handedly done more to muddy the public’s understanding of climate change.” Since the end of 2024 there has been an explosion in the number of editorials in the UK right wing press criticising net zero and the minister who was in charge of that policy, Ed Miliband. That explosion began before the Tories abandoned net zero in March 2025.

Media barons like Murdoch are a good example of the distinction between plutocratic power and class power. While they are likely to promote policies and politicians who support capital in general [1], they can just as easily support policies and politicians that benefit one part of capital but harm other parts, and perhaps also work against the majority of businesses. For example in the UK the strongest and perhaps most influential supporters of Brexit were the right wing press, but Brexit has been bad for UK companies and UK profitability as a whole.

Murdoch’s relationship with Trump is also instructive. Trump at various points has not been Murdoch’s choice to lead the Republican party, and some sources report him as describing Trump as “a [expletive] idiot”, although he had denied this. Trump’s emergence as the leading Republican candidate in the 2016 election, together with his anti-immigration stance, was largely driven by the Republican base rather than media propaganda. (See here, for example.) Only after his victory in those primaries became clear did Murdoch form a close alliance with Trump.

This also has some relevance to a different debate, about whether right wing populism is an ideology or just a means of obtaining or retaining power. Right wing populism, despite going under many different party banners in different countries, seems to share a large number of common characteristics, such as rhetoric pitching ‘the people’ against ruling elites, stigmatising minorities, particularly immigrants, and hostility to democratic pluralism (alternative centres of power). This might indicate a common ideology.

However, while some billionaires who support right wing populism seem to share at least parts of this ideology (Elon Musk, for example), this is not the case for others. Jeff Bezos, for example, appears to hold rather different political views, and clashed with Trump during his first term, but chose to form an alliance during Trump’s second term in office. This suggests a more instrumental rather than ideological support for right wing populism.

I think it is perfectly possible to treat right wing populism as an ideology, just as it is possible to see its close relation fascism as an ideology. Both emphasise the importance of an authoritarian leader who embodies the will of the people, and have a nativist definition of ‘the people’ and therefore an intolerance of outsiders. That ideology is likely to appeal to people, including very wealthy people, who hold very socially conservative, racist and/or authoritarian views. Equally, however, it is quite possible for political or business actors to use that appeal in an instrumental way to obtain power and influence. Indeed, two features of populist governments may make at least the appearance of support a necessity for many businesses: the vanity of the political leader and endemic corruption.

Is capital better off under right wing populism than neoliberalism? I think the answer has to be a clear no, if macroeconomic aggregates mean anything. Partly because of the policies right wing populists pursue (e.g. curbs on movements of goods and labour), and partly because it is a much more inefficient method of government (relying too much on the wisdom of a leader, and ignoring expertise). But some parts of capital, through influence or corruption, may do better. In particular, if some feel that the alternative to right wing populism is stringent regulation of their business they may decide that they are better off supporting right wing populists that will allow them to be part of a plutocracy that shares some of the populist’s power.

_{[1] An important distinction implicit in this argument is between neoliberalism as an ideology of government and particular neoliberal policies. In my view Brexit makes it impossible to argue that the UK government remained neoliberal, because Brexit was harmful to much of UK business and corporations. However many neoliberal policies will still be pursued by a right wing populist government that is supported by a plutocracy.}

It is far from unusual for right wing populist parties to ignore evidence in formulating their policies. They often deride expertise (experts are part of the despised elite, and universities are full of lefties etc), and appeal instead to common sense (the reasoning of the people). In an interesting substack, Joseph Heath relates this to Kahneman’s idea of fast and slow thinking.

While I think there is some truth in this, the example of climate change suggests it is not the full story. It is not obvious what common sense about climate change is, and as I noted above most people can observe (directly or indirectly) the evidence of climate change, if not its man made origins. So climate change denial is hardly common sense.

An alternative to the idea that right wing populists appeal to fast (intuitive) thinking is that they instead appeal to wishful thinking. At the level of right wing populists themselves, it is very convenient for them to deny the implications of climate change because the fossil fuel industry will then become rather generous with donations. At the voter level wishful thinking kicks in when mitigating climate change appears to cost money or involve unwelcome change. [1]

From a UK point of view, an interesting development over the last decade or less has been the attitude of the Conservative party to climate change. There used to be a degree of cross party consensus between Labour and the Conservatives on this issue, even if in reality Conservatives were less keen. (Cameron famously talked in private about ‘Green Crap’.) More recently, however, the Conservatives have explicitly abandoned their commitment to net zero. They want to repeal the 2008 Climate Change Act, get rid of carbon taxes and advocate for more extraction of fossil fuels.

While this change in attitude and policy is very regrettable, it really shouldn’t come as a great surprise. I would argue that the Conservative party has for some time been highly susceptible to wishful thinking and inclined to ignore evidence. In particular on two occasions over the last twenty years they have followed their own wishful thinking rather than evidence with disastrous results for the country.

The first is austerity after the Global Financial Crisis. The wishful thinking involved here had two aspects. The first was the belief that the size of the state could be reduced without cutting the responsibilities of the state. The second was the belief that the biggest recession since WWII was a perfectly good time to embark on a massive programme of fiscal consolidation (aka austerity).

The first aspect of their wishful thinking has been so all-pervasive on the political right that it might seem odd to say that it represents a failure to look at evidence rather than just an opinion, but the evidence is pretty clear. Take the NHS for example. After 2010 spending on the NHS was held flat as a share of GDP. But just a brief look at historic trends and trends in other countries would show that spending on health has tended to rise over time since WWII, in part because of an aging population.

Perhaps talk of ‘protecting’ NHS services was just propaganda, and austerity represented a deliberate attempt to squeeze spending based on a belief that this would force improvements in efficiency. More generally, right wing papers were often full of examples of alleged inefficiencies in state spending. But if this was the belief, then rising waiting lists that emerged pretty soon after austerity began should have led to a rethink. It did not.

The second aspect involved, as best as I can tell, a faith that monetary policy would be able to counteract the impact on aggregate demand of any fiscal consolidation. When interest rates hit their lower bound in 2009 that belief should have been discarded, but it wasn’t because justifying austerity on the basis of scaremongering about the budget deficit was just too attractive politically. Austerity went against what all the economics textbooks said and the majority of economists advised, a majority that became overwhelming within a few years.

The second example of wishful thinking that was disastrous for the UK was Brexit. Here the advice of economics textbooks and academics was even more overwhelming, but those pushing Brexit wished it away as ‘Project Fear’. Now you could argue that I’m being a little unfair here, because the parliamentary Conservative party was split on the issue. I would respond that it is a mistake to see the Conservative party just in terms of the views of its MPs. The party in the media (the right wing press) and at key moments the membership are also very powerful, and both were fully behind Brexit. Of course since the left the EU it has become fatal for a Tory MP to question Brexit, despite all the accumulating evidence of the harm that leaving the EU has done to the UK.

There are many other examples, of course. It would also be silly to argue that wishful thinking didn’t occur on the political centre or left, but it is difficult to think of similar examples where that wishful thinking had such a devastating result for the UK economy. You can blame the Brown/Blair government for deregulating financial services before the Global Financial Crisis, but it is harder to suggest that they did this in the face of the majority of expert opinion advising the contrary. (Expert opinion isn’t always right!)

Why the Conservative party should be so susceptible to wishful thinking is too big a question to answer here, and one I’m not sure I’m qualified to answer. Again, however, it is important to note that the party is more than just its MPs. Those MPs and their leader are at some point chosen by party members and are heavily influenced by a right wing press, a media that has never been known for its objectivity in looking at evidence.

Will Dunn notes the similarities between Trump and Kemi Badenoch here. That piece was written before Badenoch said she would purge Conservative candidates who supported a net zero policy, much like one of her predecessors purged candidates who didn’t support Brexit. It seems that denying bits of reality you don’t like is no longer just a fault, but has become an essential qualification for being involved with the Conservative party.

Among too many of those who comment on politics in the UK, right wing populism is seen as Farage, Reform and those parties and politicians to the right of both. This is a huge mistake. Right wing populism has for some time been integral to the UK’s mainstream right wing party. If support for Reform continues to decline, and the Conservatives overtake it in the polls, the threat of right wing populism in the UK will simply have changed the banner under which it marches. In this sense the UK is very like the US, where right wing populism is now the politics of the right.

[1] A third possibility relates to collective action. Perhaps social conservatives are more inclined to be free-riders, hoping someone, or some other country, will sort the problem out.

You have also probably read plenty of pieces speculating about what Andy Burnham will do as Prime Minister, or what he should do. But here also it is important to see the political context. Burnham has at most three years before the next election, and so his overriding priority will undoubtedly be to do things that enhance his government’s popularity. In a political system that works that would be the same as enacting good policies, but we are still in the same system that allowed Brexit to happen. As a result, popular policies and good policies are very different things. (For example, a year ago a majority of people supported keeping the two child limit on welfare benefits.)

It is true that Starmer’s Labour in government was far too focused on how policies played in the short term. But this was a mistake for two reasons. First, when his government came into power, it did have the chance to undertake major reforms that would have future benefits even if they were immediately unpopular. It did very little of that (and that little often came from ministers that No.10 briefed against), and instead lost popularity by enacting more minor policies that were very unpopular, like ending the Winter Fuel Allowance. Second, Starmer’s government was inept at boosting its poll ratings. By affirming the right’s socially conservative agenda they increased the Reform vote and alienated their core support.

Given the failures of his predecessor, Burnham doesn’t have the luxury of championing major policies that are unpopular in the short term. For example, I argued strongly in this blog that taxes on working people needed to rise, and that the benefits of this in terms of better public services would within five years outweigh any short term unpopularity. But today that trade-off looks much less favourable.

The set of popular policies that are also good for the country is not empty, but once we take into account the ability of certain groups to make a lot of noise then that set is pretty small. However what Burnham can do is set in place three key processes which can begin to improve the UK’s political system. It may take a second term for the benefits of these measures to be felt, or even be enacted, but they need to be started now for this to happen. These are all things Burnham has supported in the past, so he has a strong motive to put them in place.

1. Changing FPTP

Many have noted that the First Past the Post system of electing a government is a recipe for chronic instability in a multi-party system. Of course FPTP was meant to stop a multi-party system coming about, but it failed to do that for one simple reason: the rise of right wing populism. Right wing populism just doesn’t split the political right, but it also fragments the centre and left. As the Conservatives go for ever more socially conservative policies to compete with Reform, more liberal but economically right wing voters choose the Liberal Democrats. As Labour attempts not to offend left leaning socially conservative voters, they are in danger of alienating their core socially liberal vote that can then move to the Green party.

I argue here that the rise of right wing populism is a consequence of a change in what the political elite considers acceptable, rather than a drift in voters’ attitudes. It will take decades rather than years to replace the political and social norms against racist and dehumanising rhetoric and policy, and that cannot happen with the Conservative party under its current leadership. That in turn means that there will always be a political party promoting far right social policies with a core vote of over 20%, and with the possibility of that vote going high enough to win a general election under FPTP. This is an intolerable outcome for two reasons. First, the majority of voters do not support far right social policies. Second, right wing populists in power tend to dismantle key parts of a pluralist democracy, and in extremis can end democracy itself.

Unless you support right wing populism, this is in my view an utterly compelling reason to get rid of FPTP. Having FPTP is like having a Brexit referendum every five years where you need only around 30% rather than 50% to choose major policies that will harm almost everyone in the country. The Starmer government was prepared to keep FPTP because they were happy to play high stakes poker to avoid making compromises with others. Hopefully Labour under Burnham will be a little more sensible. But another lesson of Brexit is what a disaster ending something without a clear idea of what replaces it can be. Burnham can start the process of ending FPTP by setting up some kind of Commission to establish the best replacement for it.

2. Restoring Leveson Two and Ofcom

The right wing press in this country increasingly owes its power not to the size of its direct readership, but the influence it has on the broadcast media and the political elite. Brexit would not have happened without the right wing press. In addition we now have the problem of billionaires doing to social media what wealthy newpaper owner so: distorting the information it provides to boost their own political agenda and to generate misinformation. This is an environment in which evidence based policy has little chance.

Two things need to happen for this influence to diminish. First, the right wing press needs to be held publicly accountable. The original Levenson inquiry did that very effectively, and that was precisely why that press lobbied so hard to prevent the planned follow-up happening. That Starmer decided to shelve Leveson Two inreturn for extremely small change was a clear indication of the mindset that would eventually bring him down. We can only hope that Burnham doesn’t allow his own preferences expressed before he became PM to be sacrificed to threats or bribery from press barons.

Putting the spotlight on the practices of the right wing press will provide political capital for more long term media reform, and in particular in dealing with misinformation generated by social media. Burnham needs to appoint a Secretary of State for Science, Innovation and Technology who has the will to take bold action and the ability to fight the attacks that will inevitably come their way.

3. Devolving power and money to the English regions

Essential for economic revival (alongside more EU integration) is growth in the UK’s major cities other than London. The UK has exceptionally high regional inequality in terms of productivity and therefore wages, which is partly a legacy of the UK’s early embrace of neoliberalism. I am convinced a lot of the reason cities outside London are so unproductive is because of poor transport infrastructure., Part of that is also a legacy of neoliberalism, but it also reflects that power and decisions are made in London. As Stephen Bush notes, power in England is unusually centralised, with in particular local government becoming less and less able to do stuff without centrally provided money and approval.

As Burnham’s speech yesterday made clear, greater devolution is at the centre of Burnham’s vision. But the idea that the cities outside London should be able to have the money and the power to make substantial investments to improve their transport infrastructure will horrify the Treasury. No.10 North may have the responsibility, but the Treasury will always control the purse strings. To achieve his ambition Burnham requires a Chancellor who has the experience and determination to overcome Treasury fears and ensure devolution happens.

None of the three areas above are among the major concerns of most voters, so Burnham should be able to start the process of reform off without worrying too much about the impact that will have on his chances of winning the next election. However the political right knows what a threat the first two at least will be, and also how to use rural areas to attack the third, so they will do all they can to prevent anything happening. Hopefully Burnham will understand that the right wing press and social media will also do everything they can to stop him winning the next election anyway, so attempting to minimise negative media coverage from these sources by appeasing the right is worse than pointless.

For example, if the government were to start borrowing more to increase public spending, interest rates in the bond market might well rise, but this is only because additional public spending would generally increase the demand for resources, putting upward pressure on inflation. The government should worry about raising inflation, not the bond market anticipating this.

I think this argument is basically correct, but it needs a bit of elaboration. In particular, while arbitrage means the bond market is generally a predictor of future inflationary pressure, there are circumstances in which other factors might influence interest rates because arbitrage breaks down, as it threatened to do when the pandemic hit, or after the Truss fiscal event. In this post I will explore those possibilities, and suggest once again the government has little to worry about as long as the central bank is doing its job. In addition I want to explain why these basic truths are hardly ever acknowledged in the media, because acting as if the bond market is a vengeful god is just too attractive for most journalists.

Bond rates are interest rates on long term assets, so they depend on what investors think future interest rates on shorter term assets will be. If the two get out of line then there is an expected profit opportunity, and arbitrage is the process which drives those opportunities to virtually zero. As short term interest rates are set by the central bank, then the main influence on bond market rates are expectations about what the central bank will do in the future, which in turn primarily depends on what inflation will do in the future.

Any price that depends so heavily on expectations is likely to be quite volatile. This volatility is a gift to political journalists. If some political event happens, then there is a good chance that bond market rates will have subsequently risen, so they can write a story about that political event spooking the markets. That may be fair enough if that political event increases the chance that future inflationary pressure, but equally the movement in rates could be about something completely different. As Dominic Caddick notes, there were plenty of headlines about a ‘Burnham premium’ when rates rose in the early days of the Makerfield election, but no headlines when rates subsequently fell even though expectations he would win increased over time. Remember that most of the time no one actually knows why market rates move on a day to day basis.

Politicians and the public can safely ignore modest short term volatility in bond market interest rates. If more sustained increases in rates are due to growing expected future inflationary pressure then they should worry, but not because of what the markets are doing. They should worry because inflationary pressure is a problem in itself. Even if the central bank manages to suppress that pressure by raising interest rates, in normal circumstances higher interest rates discourage private investment and therefore longer term economic growth.

Doesn’t the link between bond market rates and the cost of borrowing mean that governments should worry about the markets whatever the reason that rates are moving? No, because the interest rate the government pays on much of its debt is fixed at the time the debt is issued, so rising rates only affect the much smaller amount of new borrowing. As a result the only reason governments should take note of the bond markets is if the markets are making intelligent guesses about future inflationary pressure.

A consequence of arbitrage is that the supply and demand for government debt is irrelevant to what the current market interest rate on government debt is, or more accurately demand for debt will adjust to ensure arbitrage holds. That in turn means that the budget deficit, which is a key determinant of the supply of new government bonds, is also irrelevant. Government deficits were highest after the Global Financial Crisis and interest rates steadily fell. Now of course current and future deficits, if they reflect additional government spending or cuts in tax rates, may indicate higher future inflationary pressure, so in those circumstances journalists are only half wrong if they write that higher deficits are increasing bond rates. But if deficits are rising because the economy is weakening then higher deficits will not raise bond market rates.

What is never the case for an economy like the UK is that interest rate movements reflect worries about government default. A country with its own central bank that borrows in its own currency cannot be forced to default by the markets, and debt would have to be orders of magnitude above current levels before any rational advanced economy government actually chose to default.

Arbitrage works most of the time, but sometimes it doesn’t, and those sometimes are the times we may well remember. Two related things can interfere with arbitrage: uncertainty and thin markets. If uncertainty about future short term interest rates increase, then the risk of holding long term government debt increases relative to holding shorter term assets, which means that investors will require a risk premium to hold longer term assets like government debt, and in extremis may decide to withdraw from the market altogether.

This is what happened during the onset of the pandemic in Spring 2020, when the markets stopped buying the debt of most governments completely. In its place central banks bought government debt instead (Quantitative Easing). With a recession likely, the last thing inflation targeting central banks wanted was surging longer term interest rates. Sometimes, however, uncertainty can be increased by government actions or inaction, and the central bank may be understandably reluctant to shield the government from the consequences of its own actions. That was a key factor in what happened after the Truss fiscal event, but before looking at that we also need to talk about thin markets.

Arbitrage works when there are lots and lots of potential buyers of government debt, so demand for debt can rise and fall depending on what the profit opportunities are. But occasionally that isn’t the case for UK government debt. These occasions are most likely to occur at times of high uncertainty, when lots of potential buyers stay out of the market because they are risk averse. The clearest case of that was in the final stages of the crisis following the Truss fiscal event, when for reasons I won’t go into rising rates meant pension funds had to sell off a large quantity of government debt very quickly. Supply increased, but because of heightened uncertainty caused by the fiscal event the demand to meet at rates implied by arbitrage wasn’t there, so rates rose. (My discussion of the market reaction to that event is here.)

On that occasion too the Bank of England stepped in and bought government debt. But its actions were limited, because it didn’t want to shield the government from the consequences of its own irresponsibility in announcing tax cuts whilst giving no clear indications of what spending cuts would be made, if any. This government irresponsibility meant it was quite right to call part of the rising level of bond market interest rates a ‘moron premium’.

These events, and what happened at the start of the pandemic, tells us that the Bank is prepared to intervene to restore arbitrage when the market is thin or external events create intense uncertainty, but not if greater uncertainty is created by the government itself fuelling inflationary pressure. Whether that warrants claims that the Bank ‘brought down the Truss government’ I will leave you to decide.

So do governments need to worry about the bond markets because sometimes arbitrage fails? Again the answer is no, because the central bank will intervene on those occasions. The exception is where greater uncertainty is caused by the government itself, but governments should worry about that in any case. Once again the bond market is just an indicator of underlying problems, and not in itself a constraint on what the government can do.

Why is it so rare for the media to acknowledge any of this, and act as if the bond market is some vengeful god that could strike at any point? First, when a Labour government is in power it suits journalists on the right to do this. Second, most people have no idea what arbitrage is and so it is much easier to pretend the actions of the bond market are mysterious and, for political journalists, highly political. As a consequence, journalists hardly ever acknowledge that the ‘market experts’ they like to quote have no secret knowledge about why rates move, and work for firms that make more money when governments tighten fiscal policy.

All this means policy that is based only on fears about the bond market, or worse still about what journalists are writing about the bond market, will be bad policy. Andy Burnham was right that governments should not be in hock to the bond markets. Ironically this will also become one of the first tests of Burnham’s leadership. Will he appoint the obviously best candidate as Chancellor, or will he succumb to pressure from the media and market pundits to appoint someone more to their liking.

There has always been a minority of people who, other things being equal, would support a party of the far right that promoted extreme socially conservative and authoritarian views and which encouraged social division. A much smaller minority of that minority are prepared to use violence. Those who went from house to house in Bellfast, pulling those who were not white on to the streets and burning their houses, did not have ‘legitimate concerns’. They were not fed up with lack of action on immigration, as a Times editorial absurdly suggested, because immigration has come right down. Belfast is not ‘flooded’ with asylum seekers, who comprise less than 1% of the population. Instead the rioters are the equivalent of football hooligans who wanted to start fights with supporters of the other side, or who used to glory in sectarian violence. People who used to be members of the UVA, the BNP, or before that the National Front. For some in unionist areas, non-whites are the new Catholics.

What has changed is that the leader of the political party with the most support in the UK incites this violence by calling for “pure cold rage.” What has changed is that every party on the political right is calling for large scale deportations including British citizens. That the right wing press, that once would have not been associated with such politicians or with any suggestions of inciting violence, now appear to show no such inhibitions. That the BBC actively attempts to attract viewers from a far right political party. That the departing chair of the media regulator describes Reform’s TV channel as covering the agenda of the majority. That the most widely used social media website should deliberately amplify calls by Moscow supported Tommy Robinson to protest against this “invader attack”, and a US Vice President who talks about a mass invasion of migrants. None of these actors care that they are inciting race riots, and some positively welcome it.

All these changes have eroded the social norms we used to have against racism, dehumanising minorities or exploiting tragic crimes for political ends. The situation has become a lot worse in the last few years in part because the fascist government in the US is actively promoting the UK far right, and because the UK Labour party foolishly thought they could diminish the popularity of the far right by parroting its language and policies.

The politicians of the far right will carry on competing amongst themselves about who can be the most barbaric. The right wing press is not going to change. Its wealthy owners have fully bought into the idea that encouraging social division is the best way of protecting their wealth. The countries that have actively encouraged the far right in the UK are not going to stop what has so far been a very successful strategy for them.

The only way we can stop this rapid decline into division and violence is for the political centre to stand up for the moral principles most people follow, and ensure the institutions that it can influence do the same. Condemning the rioters is easy, but this alone will achieve very little. Condemning the consequences without addressing the causes is bad politics and bad government.

Claims by those in the right wing media and by right wing politicians that immigrants are much more like;y to commit crimes need to be debunked by all politicians who are not on the populist right. The evidence is there, so why not use it. It is so easy for the media to give the impression that violent crime is unusually associated with immigrants or asylum seekers by publicising the cases that are and ignoring the much greater number that are not. [1] Media that does this needs to be condemned for doing so. Media and politicians that use individual crimes to push their political agenda should be condemned for doing so. Such actions exploit the victims of those crimes.

Draw a clear line between concerns about levels of immigration on the one hand (while also noting that immigration levels have come right down) and the dehumanisation of the immigrants who do come here on the other. In many ways what we see today can be traced back to May’s ‘hostile environment’: the immoral idea that treating badly immigrants who are here and trying to make a new life will discourage others from coming. Making it much more difficult formigrants to become UK citizens is part of that dehumanisation.

The absence of any of this kind of push back against the far right coming from politicians in government right now, and particularly from the Prime Minister, is part of our immediate problem. One of the jobs of a national leader is to be seen to lead when the social fabric is threatened by a minority intent on intimidation and violence. At the very least stop the government exclusively using social media companies that help incite riots. It needs to stop formulating policy as if immigrants or asylum seekers are always a problem.

Those working in the media have responsibility too. The broadcast media needs to stop calling race riots ‘immigration protests’. The media regulator needs to stop a news channel pushing a far right agenda and conspiracy nonsense. The broadcast media needs to be properly regulated, or it will become like our press, where those with extreme wealth can have extreme influence. What Musk has done to the most widely used social media platform is an excellent example of why those crying ‘freedom of speech’ to prevent regulation are talking nonsense. As I argued here (see also Geoff Mulgan here) free speech should not override the right not to be lied to.

Ironically, what the political centre needs to do is to start reflecting the views of the majority of people in the country. It is not hard to imagine a UK where politicians in the centre were joining those on the left in setting out basic moral principles and calling out those that flouted them, and then to observe that a clear majority of people support these politicians of the centre and left. Farage’s call for pure cold rage was politically risky in that respect, and reflects a tendency of far right populists to go over the top and lose popular support as a result. (Whether they are more or less dangerous as a result is another question.) Very few voters approve of rioting, particularly rioting that involves picking on people based on the colour of their skin, and that includes people in Belfast.

A strategy that attacks rather than appeases right wing dehumanisation would be popular, and it could also be effective at discouraging support for the far right, just as it once used to be. The direct influence of the right wing press is not what it once was. Social media can be regulated. We got here not because this strategy of confronting attempts to divide and dehumanise failed, but because the UK’s political elite, first on the right and then in the centre, decided the strategy should be abandoned. Often they did this because it was in their own political interests to do so. In many past posts I have outlined when and how that transformation took place, and Daniel Trilling in his new book “If We Tolerate This” does something very similar. Just as the UK’s political elite started this, it can and has to end it.

[1] As the Migration Observatory notes, neither immigrants nor asylum seekers were associated with statistically significant changes in violent crime. As they note, any analysis of those who commit crimes requires looking at all potential causes, like age and labour market position. It is telling that those politicians who like to link crime with skin colour, religion or culture prefer to use individual cases rather than well researched evidence.

The paper from the “Labour Growth Group” is written by Mark McVitie with Chris Curtis MP. Its overall theme can be summed up by the following quotation:

“Britain has become an economy where position too often pays better than action and contribution. We call this the extraction economy: a settlement in which holding scarce assets, protected licences, legal leverage, regulatory position or the power to shape and navigate broken systems can pay better than working, building, investing, caring, competing or taking productive risk.”

This is a call to prioritise socially productive activity over rent seeking that will be familiar to many, including economists. The paper argues that to achieve this requires a shift “from a distributive state to a capable one: the democratic choices of the people delivered by a state that can choose, build, enforce, reshape markets.” The paper argues that the UK state contains the power to act capably, and implies that the reasons it doesn’t lie in political attitudes.

The paper does have two important, although familiar, suggestions as to how to get the state to be more capable and less managerial. The first is to give the Prime Minister more resources, by building a Department for the Prime Minister. The second is to devolve power regionally, and in particular financial power, which this government has begun to do. (If Manchesterism is anything it is this.) While I strongly agree with the second proposal, I was not convinced either would in themselves necessarily achieve a more capable state. The paper says that centralisation means that “organised interests need capture fewer decision points”, but equally organised interests may find it easier to dominate local and less powerful politicians, or even play one region off against another. That criticism does not imply that financial devolution is wrong, but that it is right for different reasons.

More generally, if I ask myself why this Labour government has been such a disappointment over the last two years, I’m not sure I would answer that at an institutional rather than personal level. Its major mistake, it seems to me, has been a wish not to upset most social and political groups, leading to an inability to make key reforms. This helps produce an excessive deference to the status quo. It is the mindset of an opposition facing an unpopular government, not a government determined to pursue its own vision. (Ironically one group the government has felt free to offend have been its core supporters, which has led to its current downfall.) To quote from the paper: “The British state increasingly … treats conflict between objectives as an administrative problem to be managed, rather than a political choice to be made. The consequence is paralysis, not balance.” This seems like a criticism of political leadership rather than institutional structure.

Of course there are limits on what it is possible for Labour insiders to say publicly in this respect. However on one important point in the paper I clearly disagree. To quote: “The tax burden as a whole is unsustainably high, in time the economic benefit of this programme should provide scope to reduce it, but for the time being we believe the burden must first shift from the payslip.”

The overall tax burden is historically high, but this is true in most countries and the main reason for it is the same: a growing demand from an ageing and wealthier population for health services. That cannot be wished away. What is not historically high and what is certainly not unsustainably high, is taxes coming from the payslip. As the IFS shows, UK tax revenue is lower than in most Western European countries, and in particular the UK raises far less from employees’ social security contributions than other countries. While the overall tax burden has been increasing, since the early 1980s taxes in median earnings have been falling almost steadily (see this post and the chart from the Resolution Foundation reproduced there).

The second paper is by Louise Haigh. There are clear commonalities with the Growth Group paper. For example “we must look to reduce regulatory barriers, especially those that are holding back new and innovative businesses wishing to scale up.” Labour’s reforms of the planning system are praised by both papers, and as Ben Zaranko points out this parallels US arguments around “abundance”.

While the Growth Group paper sees the central problem as vested interests around rent seeking holding back growth, Haigh focuses on short-termism.

“A central weakness in the UK’s economic model is the systematic undervaluation of what might be termed “preventative” investment – spending that reduces future fiscal pressures while raising long-term growth. Our institutions, appraisal frameworks, and political incentives are poorly configured to recognise these benefits, tending instead to favour interventions with immediate, easily measurable returns.”

But isn’t it the high cost of borrowing that is currently holding back investment?

“It is therefore possible for two things to be true at once: that the current institutional framework is ill-suited to supporting long-term growth, and that the immediate constraint on government action is the cost of borrowing in financial markets. A credible reform agenda must address both – improving the framework over time while demonstrating, in the near term, that public investment will strengthen, rather than weaken, fiscal sustainability.”

I agree with Haigh about the importance of public investment. Public investment is often complimentary to private investment, so increasing the former should help raise the latter.

Where I would have a different view is on the details of how you achieve that. The key fiscal rule, the golden rule, already excludes public investment, and I have written chapter and verse on why it is essential that it should. The other fiscal rule (falling debt to GDP) doesn’t, but I have also long argued that this second fiscal rule is not fit for purpose and should be simply abolished. Once this is done, public investment decisions would be unconstrained by fiscal rules, which is a much more straightforward way of achieving the goal that Haigh wants. Typically when she became Chancellor Reeves tinkered with the fiscal rules in a way that wasn’t very controversial, rather than making more radical but logical changes.

In contrast, the paper’s suggestion of extending the time horizon of these rules from five to ten years, while allowing more of the benefits of public investment to become apparent, makes targets too easy to game by governments, leading to the rules losing credibility. Five years is about right, because in OBR forecasts the economy pretty well always returns to trend within five years, yet it is also sufficiently close that it is hard to game (unless you don’t believe you will win an upcoming election!). I also don’t think taking away responsibility for growth from the Treasury works, as I discussed in the context of the Kerslake review here. It is perfectly possible for a Chancellor to override traditional Treasury concerns, as Gordon Brown showed.

What I think it is also important to acknowledge, and which too many within Labour including these authors avoid acknowledging, is that the main reason our public services are weaker than in other Western European countries is not because of our fiscal rules or Treasury attitudes or vested interests but simply because we put less resources into them by paying less tax. Take the health service for example. The only hope we have of stemming the growing demand for health services is to focus more on prevention, which however it is classified is a form of investment. This is an age old message pushed by expert after expert. But it doesn’t happen at scale, and will not happen, as long as the resources going into NHS front line services are tightly squeezed.

Where I do agree with Haigh is that decisions about selling the Bank of England’s large quantity of public debt (the result of earlier Quantitative Easing) should not be in the hands of the Bank. When short term interest rates are free to move, the Bank’s debt sales have fiscal consequences rather than implications for inflation and are therefore should be a Treasury concern. Making it so would not compromise central bank independence in any meaningful way.

Given that the Bank is not only making government borrowing more expensive by selling its debt now, but also by selling the debt when it’s relatively cheap making a capital loss, unlike other central banks, it is surprising that the Chancellor has not done anything about this. It emphasises the point I made earlier that the government is unduly cautious about doing anything that might upset the status quo. When so many voters feel that nothing works in the UK, what you don’t need is a government that only offers small change.

In contrast I do think a lot of the problems we see in the UK Labour party today stem from Osborne’s successful devastation of public services, and it is less clear they would have happened anyway. A Conservative cutting public services to numbers way below what the public were comfortable with should have been a gift to Labour of course. So I think the story of how it turned out otherwise is worth spelling out.

It is easy to forget how almost universal the belief was in the UK media during the austerity years that reducing the budget deficit had to be the major macroeconomic priority. Basic macroeconomics, understood since Keynes, said that when interest rates were stuck at their lower bound cutting the deficit would damage a recovery. This was ignored, despite it being in the worst recession since WWII. We now know, from empirical work at the IMF, that trying to cut the deficit in this situation not only prolonged the recession but in all likelihood made the public finances worse in the medium term as well!

As few now defend Osborne’s policy today, it is easy to forget how much it seemed to be common sense to the media and large parts of the electorate at the time. I invented the term ‘mediamacro’ to describe this. In contrast a majority of academic economists opposed austerity as it began, unsurprisingly given it violated what we all taught, and this majority grew steadily over the next few years as the damage became clear and the intellectual arguments for austerity collapsed, but none of that made much impression on the media.

The result was that Labour in opposition found their arguments against Osborne’s policy were getting nowhere, and so they were gradually discarded. [1] Despite UK workers facing a cost of living crisis at least as bad if not worse than over the last few years, the Conservatives won the 2015 election, and the media’s promotion of austerity played a key part in that. The reaction to this among many prominent Labour figures was to almost completely accept the case for Osborne’s austerity. Ironically, just when public opinion was finally beginning to turn against what Osborne had been doing, it looked as if Labour’s senior politicians were heading in the wrong direction.

I thought at the time and still think this is the essential background to understanding the election of Jeremy Corbyn as leader in 2015. A majority of Labour members hated austerity for good reason, and were dismayed at seeing their party leaders be equivocal at best. Corbyn was the only one of the four candidates who clearly opposed austerity, and as a result he won overwhelmingly. It is silly to blame this result on ‘entryism’, although that is less true of his re-election in 2016.

So I think it is fair to say that it was austerity, and the failure of Labour to dent the media consensus that austerity was necessary, that led to the four years in which the left led the Labour party. Of course that doesn’t excuse the Labour leadership that came before him for their appeasement of austerity, but I hope it makes it a little more understandable. Equally it is unconvincing to suggest that most of this pre-Corbyn leadership actually wanted a smaller state, after they spent years in government doing the opposite.

In opposition Labour under Corbyn and Shadow Chancellor John McDonnell did make good on the promise of ruling out a repeat of 2010 austerity. Although McDonnell accepted (rightly in my view) the need for a fiscal rule, these would not apply when interest rates were stuck at their lower bound, which they had been since 2009. The media at the time called this a ‘loophole’, of course, but something like it is now standard in most UK fiscal rules adopted in recent years. In the recession that came with the pandemic Sunak made no attempt to pretend that the budget deficit was the priority, and instead enacted a (probably overgenerous) fiscal stimulus package, which was the opposite of the policy advocated by Osborne in 2009.

It also became clear, pretty quickly after Corbyn’s election, that there were those on the right of the Labour party that would never accept a party led from the left, and who were prepared to see a Conservative government as a price worth paying for taking control of the Labour party away from the left. They had expected this to happen in 2017, and were rather shocked when it didn’t, but they organised with the help of the media to ensure it happened in 2019.

That is not to suggest that this right wing faction was responsible for Corbyn’s 2019 defeat. Actual and potential Labour voters were overwhelmingly against Brexit, and as it became clear from 2016 to 2019 what Brexit under the Conservatives would entail, this opposition grew more impassioned. Corbyn was slow to respond to this, which neither pleased Remainers or (when he finally did) Leavers. But the reality probably was that there was very little Corbyn could have done that would have prevented Johnson winning in 2019.

Defeat, together with the anti-Brexit views of most Labour party members, meant that the left were unlikely to win the contest for his successor in 2020. Morgan McSweeney from Labour’s right found their ideal candidate in Keir Starmer. He was a relatively new MP without a public record of clear policy positions, and he promised to unify the party with a platform that was pretty left wing.

Whether Starmer always intended to renege on this platform, or whether it was McSweeney’s influence that persuaded him to do so, we will probably never know, although plenty of people will tell you they do. In an important sense it doesn’t matter. Either Starmer was always part of the right wing faction that intended to bring Corbyn down, or he was politically naive and therefore easily persuaded by the man who got him elected to allow a purge of the left [2] once he had won, but the result was the same. Neither alternative reflects well on Starmer.

Purging the left didn’t have an immediate electoral cost while the Conservatives were in power, as it was the Conservatives who badly lost the election in 2024 rather than Labour winning a great victory. Labour won with just 34% of the vote, having been over 40% in the polls a month before. However, once in government the influence of McSweeney, and the political weakness of Starmer, began to have serious costs. Just as the far right faction had had contempt for the left during the Corbyn years, when in power they seemed to have a similar indifference to voters with socially liberal views. In McSweeney’s case this reflected a Blue Labour ideology, which combined modestly left wing economic policies with pretty socially conservative policies on asylum and immigration.

This position was the worst of all worlds for the Labour government to take. Copying Reform on immigration and asylum just legitimised and reinforced Reform’s appeal, while at the same time alienating much of Labour’s core vote. Labour in government has lost voters on both sides, although more to the left than the right. Disastrous Council election results inevitably followed, as many of us said they would. (I initially made this point a year ago.) It is true that Starmer has made plenty of other mistakes, but it is far from clear that these mistakes are similar in magnitude to those made by Johnson and Truss. It is best to ignore the preoccupations of the media here. What gives the media licence to pretend otherwise is Labour’s terrible poll position, which reflects losing votes to their left as well as to the right.

In this respect Labour and Starmer’s current precarious position is a direct result of being led by the right wing faction that wanted Corbyn out at all costs, a faction that gained control because of Corbyn’s victory in 2015, a victory which in turn owed a great deal to Osborne’s austerity policy and the Labour leadership’s powerlessness to strongly oppose it. What we are seeing today, therefore, is a direct consequence of that austerity policy and the support it received in the media. Furthermore, it is not obvious how all this would have happened without Osborne’s austerity and the media’s promotion of it.

Of course setting this out does not imply that any of it was unavoidable. Labour could have fought austerity in a more knowledgeable way (see footnote 1.) The media should have been more interested in what academics said and paid less attention to central bankers who had axes to grind and market analysts who had a vested interest in austerity [3]. Lexit was always a dumb idea. Those on Labour’s right who wanted Johnson rather than Corbyn in 2019 gave us a version of Brexit that has produced the economic stagnation that limits what Starmer can do today. While some Labour voters are socially conservative, it was always obvious the majority are not and would not remain passive as Labour trotted out Reform cliches and lies. Yet historical analysis involves recognising actors as they are rather than how you would like them to be. In this respect it is ironic that Osborne’s austerity not only screwed up the economy and public services until this day, but it has also inflicted severe political damage on the Labour party.

[1] If I wanted to be critical, I would say that the weakness of Labour opposition to austerity owes something to a mistake made in government, by a new Chancellor preoccupied by rescuing the banks and strongly influenced by the Treasury’s fear of rising budget deficits. The policy message then should have involved clear priorities: first deal with getting the economy completely out of the deepest recession since WWII, and only once the recovery was almost complete and interest rates were rising to start dealing with whatever excessive budget deficit remained.

But Labour’s plans to reduce the deficit when in government meant its message in opposition, faced with a Conservative government determined to cut spending even when the economic recovery never came, was weak. As growth stagnated from 2010 to 2012, instead of saying this was because the government was focused on the wrong problem they instead just said it was going too fast. Instead of confronting with basic Keynesian economic a media convinced that deficit reduction was necessary, Labour’s message seemed tame and failed to convince many.

However, so total was the media’s conviction that Osborne was right that I doubt that even this superior messaging in government and then opposition would have made that much of a difference to Labour’s fortunes at the time.

[2] Of course there have always been battles between left and right within Labour. However figures like Corbyn were tolerated by Blair, but not by Starmer. In reality there is a significant proportion of voters who are socially liberal and economically left wing, and if they don’t feel represented by the Labour party then they are easily lost to a dynamic party that does embody their views.

[3] Austerity killed the recovery meaning that short term interest rates would be stuck at their lower bound for a long time, meaning longer term interest rates fell and bond prises rose. As Toby Nangle points out the bond markets cheered, because rising gilt prices produce good returns. Taking macroeconomic advice from bond market traders is like taking advice on how to deal with pandemics from undertakers.

However what really convinced me he was right was that he referenced a paper I wrote some time ago. It was about what I call the knowledge transmission mechanism between academics and policymakers, and how it had failed when the world outside China turned to fiscal austerity in 2010. It convinced me because I would never write that kind of paper today. The idea that we should presume politicians might be interested in, or still less follow, an academic consensus seems very old fashioned and rather naive today.

Perhaps we were spoiled by the Brown era (I think it was mainly Brown, not Blair). I note in my paper that my own example of the knowledge transition mechanism working really well was the Treasury analysis behind the five tests for deciding on whether the UK should adopt the Euro in 2003, for which David Ramsden should take a lot of the credit. After these years when evidence-based policy making was the ideal, it was a genuine puzzle as to why the Western world had collectively decided to ignore basic macroeconomics and cut government spending in the middle of the worst recession since WWII when interest rates were stuck at their lower bound. Yet from today’s perspective, where everything from harvesting policy-based evidence to simple lying is so endemic, it all seems much less of a puzzle.

The Brexit referendum was decisive in this respect. The winning side didn’t talk about a trade-off between sovereignty and the economy, but instead argued that Brexit would have overall economic benefits. Around 2010 there had been some serious and high profile economists arguing for quick deficit reduction, although still a minority that became pretty small in size as time went on. In contrast in 2016 there was as much a consensus among economists as you will ever get that Brexit would significantly harm the economy. Yet the Leave side got away with Project Fear because the media let them.

The press was overwhelmingly pro-Brexit, and being the propaganda outlets they are, the truth didn’t bother them. The broadcast media, led by the BBC, decided that ‘balance’ was more important than the truth, and didn’t even attempt to explain why Brexit would be bad for UK growth. Now that these negative economic effects are plain for pretty well everyone to see, including most voters, those who should be hanging their heads in shame alongside the Brexiters are those in the broadcast media who failed to fulfil their mandate of informing viewers. But they are not, of course, because things have only become worse since 2016.

Brexit marked the first triumph of populism in the UK. It was immediately after Brexit that we had newspaper headlines condemning judges upholding the very reasonable law that the executive couldn’t just close down parliament when convenient. The judges were going against the ‘will of the people’ the papers claimed in typical populist fashion. This makes it obvious, to me at least, that one reason, perhaps the reason, that politics in the UK and elsewhere has become significantly more dumb is the ascendancy of right wing populism.

One of the features of the austerity period was the absence of balance in political reporting. The broadcast media quickly decided that the rising budget deficit was the major economic problem, and it was really quite hard for opposing voices to get a look in. The media made it hard for opposition Labour voices to argue that the government was going too fast, too hard on cuts, so Labour eventually gave up. In part my paper was an attempt to explain why most journalists in the broadcast media thought it was so obvious that austerity was necessary.

Politics in the broadcast media is dominated by political journalists, and they should be seen as part rather than being apart from the political club made up of the executive, MPs and those who work for them. Balance for the broadcast media invariably means reflecting the balance among Westminster politicians, with outsiders treated badly. [1] The main exception to this rule is the influence of the right wing press (particularly if those running the BBC have been appointed by the populist right, as is the case today), and I argue in my paper a more minor exception are institutions like central banks. What doesn’t count nearly so much for the media, beyond any direct influence on politicians, is expertise in academia and elsewhere. Hence the media consensus that austerity was necessary, and ignoring the reality that Brexit was bound to hit the UK economy.

So one possible contributor to the state of UK politics today apart from politicians themselves is the right wing media, and therefore its owners. The right wing media is hardly a source of informed and balanced commentary. To some extent that has always been true, but it does seem to have got worse over the last few decades: just look at the Daily Telegraph, or GB news. The transformation of social media, to the extent that it influences political debate and discourse, has been more dramatic, and is now clearly a source of simplistic views that tend to match those of its owners.

However I’m not sure these developments in the media should be seen as independent of the rise in right wing populism. According to the thesis I outlined here, there has always been a significant source of voters who would be attracted by right wing populist rhetoric. However after the defeat of fascism in WWII there was a social taboo among the mainstream political elite, including to some extent newspaper owners, against appealing to voters in this way. Fascism, after all, is just a more extreme version of right wing populism, and they both share a focus on blaming social and economic problems on racial or religious minorities. The reaction of Prime Minister Heath to Enoch Powell’s speech was a polar example of this taboo in action. The thesis is that what has changed over the last few decades, and led to rise in right wing populism in national politics, is the weakening of this elite taboo, allowing key mainstream parties or politicians to appeal to xenophobic and racist views and not be ostracised by other politicians or the media.

What caused this taboo to break down is open to debate. It could simply be the passage of time, with memories of 1930s fascism fading away. In the case of the UK it could involve a view among those wanting to further neoliberal policies that the EU stood in their way. It could be a realisation among proponents of neoliberalism (both politicians and media barons) that their ideas could no longer win elections, and that therefore neoliberal parties needed to switch to fighting culture wars. It was the Conservative party that pivoted to focusing on immigration under the previous Labour government, and whose leader now openly courts the Islamophobic vote. [2]

Why does the rise in right wing populism lead to a deterioration in the level of political debate, such that it can seem dumb or stupid, and certainly dishonest? We have clear evidence that right wing populists lie all the time, and far more than mainstream politicians. Their appeal lies not in their honesty, but their connection to xenophobia, racism and just fear of the new among some voters. But their policies to pander to this social conservatism have real economic costs, and they prefer to lie about these because it makes their emotional appeal more comfortable (and even authentic) to those it is designed for.

More generally, right wing populists don’t want power to make their section of the electorate (‘the people’) better off. Instead, they sell an emotional connection so they can gain power for its own sake, and/or to enact the policies that benefit themselves and those who fund them. Among the voters they want to attract, lying ‘for the cause’ can be seen as a virtue rather than a problem.

When right wing populists become significant political players, that can (and in the UK does) intimidate all other political actors. When Reform and the Tories argue that problems accessing public services is down to high levels of immigration, Labour feel compelled to do the same. (That is not to justify them doing so, of course. See footnote 2.) When key political actors are constantly lying and getting away with it, it becomes harder for the rest to tell difficult truths, or indeed to hold any kind of serious political conversation. When one side is telling voters they can always eat cake, it becomes hard to say that cake is off the menu.

[1] This is not to say that the broadcast media fails to hold individual politicians to account. It clearly does, and without it Boris Johnson might still be Prime Minister. What the broadcast media in the UK is unlikely to do is challenge the political consensus among most MPs, or between major parties.

[2] Austerity didn’t help, for two reasons. First, there is growing evidence that austerity makes many voters more receptive to right wing populist messages. For that reason holding the Brexit referendum at the end of a long period of austerity was playing into the hands of the Brexiters. Second and more specifically, the Labour party’s gradual acceptance of austerity from 2010 onwards, and particularly after losing the 2015 election, led to a rebellion among party members and the election of Corbyn. When Corbyn was defeated in 2019 the Labour right, strongly influenced by Blue Labour, took over. This then produced in 2024 a government that repeated right wing populist lies on immigration and asylum.

Governments around the world are cutting taxes on petrol or fuel, including in Germany, Italy, Spain and Canada. The UK government has come under pressure to do the same, which is hardly surprising as the crisis may leave the typical British household £500 worse off. But the problem with this approach should be pretty obvious. Prices are rising because there is a reduction in the amount of oil and gas being produced. Prices therefore need to rise to discourage the demand for oil and gas to avoid physical shortages. If governments take measures to subsidise prices by taxing fuel less, then demand is discouraged less and prices will need to rise further, or there will be rationing.

Each individual government is tempted to cut taxes on fuel, because if they alone did so then their consumers would benefit, and other countries would only suffer a small increase in global prices. But if all countries do the same the policy is self-defeating: prices simply rise further to offset the government subsidy. If many states cut taxes on fuel, consumers in the remaining countries face significantly higher prices as the global price tries to match demand to supply, or there is rationing.

In principle a much better way of protecting consumers from the impact of higher energy prices is to let those prices rise, and compensate consumers for some of their loss in real income by transferring cash to them. Consumers still have an incentive to economise on energy, but the hit to their real income is reduced. As I argued during the previous energy price hike, this approach seems natural if the excess profits of energy producers and electricity distributors [1] can be taxed, effectively transferring from the small number of winners to the many losers of the price hike.

However I suspect most economists would ask why the government needs to cushion the impact of higher energy and food prices for those who can afford those higher prices. Most would agree that it makes sense for the government to protect those who would suffer real hardship as a result of higher prices, but why go beyond that? If we abstract from issues of supporting aggregate demand, any government subsidy today has to be paid for by raising taxes or borrowing, and why should the government do either to shield consumers from higher prices?

That is my own instinctive position on government subsidies in response to a hike in energy and food prices. Yes, the government should protect those most in need, but otherwise it should not provide any compensation, and the government certainly shouldn’t cut fuel taxes. I think that is the right position if the government could direct help perfectly to those who need it. The problem arises because the government cannot easily do that.

As this instructive study from Levell, O’Connell and Smith at the IFS notes, those most affected by energy price hikes are not just those on low incomes. Indeed the correlation between hardship following an energy price increase and low incomes is pretty low. That makes the government’s normal benefits system a poor vehicle for supplying assistance to those who need it following an energy price hike.

So one justification for the government providing compensation for everyone is that you can be sure of getting help to those that really need it. The problem, of course, is that you are providing help to many more who don’t need it, and so the compensation is very expensive. This is what the last UK government under Sunak did during the previous energy price hike, and it cost a great deal of money. A better alternative is to attempt to use what data the government has to proxy household needs, but did the government put any resources into trying to do that after the last energy price hike?

Of course the most effective way of getting help to those who need it is to directly subsidise the price of fuel. As we have already noted, that has obvious costs (what economists call efficiency costs) in terms of preventing consumers switching away from using energy. The IFS study noted above finds those efficiency costs to be large, partly because they also find that consumers do manage to economise quite a lot on energy use when prices rise. But despite this, they still find that optimal policy involves some degree of direct price subsidy from the government, and of course how much that subsidy should be depends on how effectively the government can target those who really need help by other means.

All this implies that, in the absence of an effective way of targeting those most in need after an energy price hike, there is an economic case for both income compensation and even some energy price subsidy. Yet I suspect that while this matters for economists it has rather less influence on politicians. They will want to provide help for consumers in an attempt to show the government is on their side in trying to reduce the cost of living, and therefore encourage voters to let them remain in office after the next election.

What will matter much more for politicians than any economic analysis is the finding that the cost of living crisis of 2022-24 was associated with an unprecedented failure of incumbent governments to retain power in democratic elections. High prices were caused by the recovery from the pandemic and the Ukraine war, yet it is governments who seem to have been punished by the electorate. The message this sends to governments today is if you want to hold on to power you need to do everything you can to shield consumers from the impact of higher energy and food costs.

Should economics matter more in shaping policy, and provide a more effective bulwark against politicians acting in their own interests? I’ve talked about this many times before. In a media environment where political journalists rather than subject specialists cover these issues, and political journalists rank political contacts and relatively unimportant scandals over expertise and the major issues, expertise and policy analysis will always take second place. Economics is not unusual in this regard, as we saw with medical advice during the pandemic. It is why Brexit happened, and therefore why living standards are now so stagnant in the UK.

Were not fiscal rules meant to stop governments handing out money to make their reelection more likely? Fiscal rules can do this for permanent tax giveaways or spending increases, but in this case, as with the previous energy price hike and with the pandemic, we are talking about temporary fiscal handouts. Our fiscal rules focus on medium term deficits (or the change in debt), and so will not stop fiscal giveaways that increase the deficit for just one or two years.

Could fiscal rules be changed to be more short term? I suspect the frustration with the impact on public debt of government largess during the pandemic and the subsequent energy price hike led some to advise the new Chancellor to shorten the horizon for the main fiscal rule from five to three years, advice she unfortunately took. The problem is that fiscal rules that apply over the short term are bad fiscal rules, because they will either do considerable harm or be quickly abandoned.

Attempts to target deficits in the short term, or target the level of debt even in the medium term, leads to inappropriate and harmful volatility in taxation or spending decisions as the government responds to every externally driven shock to the public finances. The most obvious example is a fiscal rule to balance the budget each year, which will mean spending cuts or tax rises during recessions and the opposite during booms.

A better possibility is to give independent fiscal institutions more authority to critique government decisions, but as we should know (but some still pretend otherwise) the OBR has no such power. [2] An independent fiscal institution that can give policy advice is effectively a counterweight to the failure of the media to take expertise seriously. In its absence, politicians are going to come under great pressure to cut fuel taxes and compensate all consumers by too much, and they are likely to succumb to that pressure.

[1] Electricity distributors may make excess profits if prices are based on marginal costs, which typically reflect gas prices, while average costs rise much less because of renewable sources of energy. The government is looking to modify that link. Normally higher profits from higher prices encourages additional investment to increase future production, but because of climate change we don’t want additional investment in oil and gas production.

[2] The OBR can comment on how changes in energy prices impact the economy, but not on what the policy response should be, as a true fiscal watchdog would.