By Graham Vanbergen: I have argued many times that the way the British state is managed should be reformed. Public health and education, in particular, should not be in the hands of politicians with short-term horizons. Against peer nations, both public health and education standards have fallen in Britain in recent years, especially since 2010. But you could argue the same in many other areas where politicians have truly failed us as a nation over the decades. It has led to a decline in all sorts of metrics – including the fragile states index.

In little more than two years, the UK economy and public finances have felt the consequences of a global health crisis caused by Covid-19, a global security crisis sparked by Russia’s invasion of Ukraine, and a global energy crisis brought about by both. In a little over a decade, we have also felt the economic and fiscal consequences of a global financial crisis and the uncertainty created by the UK’s decision to leave the EU – the disastrous austerity policy that followed the former and negotiation failures of the latter.

In the decades ahead, governments in the UK and around the world face perhaps the still greater economic and fiscal challenges of addressing climate change, the fiscal costs of population ageing, and managing all these pressures and risks against a backdrop of potentially weaker productivity growth, higher levels of public debt, and rising interest rates.

In Britain though, we seem to be doing worse than we should. Two paragraphs from recent Office for Budget Responsibility reports say a lot about our prospects.

 

Riskier world and ageing population ultimately leave the public finances on unsustainable path

It is hard to escape the conclusion that the world is becoming a riskier place. The past two decades have seen a global financial crisis, a global health crisis, and a global energy crisis triggered by Russia’s invasion of Ukraine. These global shocks add to ageing and other domestic cost pressures to place public debt on an unsustainable path and projected to surpass 250 per cent of GDP over the long term. This all adds up to a challenging outlook for this and future governments as they steer the UK economy and public finances in the years ahead.

Higher inflation pushes debt interest spending up sharply

The budget deficit continued to fall in May, with year-to-date borrowing of £35.9 billion down £6.4 billion on last year. But it was £6.4 billion above our most recent forecast profile. This overshoot reflects both lower receipts and higher spending – with debt interest spending in the year to date a fifth higher than forecast thanks to the jump in RPI inflation. With the Bank of England now expecting CPI inflation to reach 11 per cent later this year, debt interest can be expected to continue to overshoot our forecast.

 

Both of these statements make it quite clear that Britain is on an unsustainable path. Political and economic instability is a dangerous cocktail. The global financial crisis has led to all sorts of unexpected outcomes. In Britain, there was widespread anger that the government had made things much worse. That anger led directly to a significant change of attitude – and that change was enough to tip the balance of the EU referendum. Those ‘left-behinds’ ended up becoming a vote-winning ‘levelling-up’ agenda by Boris Johnson. It’s a social and economic policy that has failure written all over it.

But there’s worse. As a direct result of Brexit, of what has happened since and of Boris Johnson and his aggressive and divisive rhetoric – Britain has since descended the rankings of stable states in the world. As of 2022, Britain now sits at position number 25, straddled between the Czech Republic and Malta and well behind Uraguay and Slovenia on the Fragile States Index. There are 16 European countries ahead of Britain. Even riot battered France with its emergent right-wing parties electorally snapping at Macron’s heels is five places ahead.

Liz Truss will not bring that stability. Her economic policies are a swing back to Conservative values – but that’s it – it’s a drastic move from where we were just two months ago. It’s as if the Tories really don’t know how to handle the economy – or politics for that matter.

It is yet to be seen what happens in the Conservative party now. But after 12 years, four PM’s, our fourteenth minister for housing, ninth for education, ninth for justice and eighth for work and pensions, seventh Foreign Secretary, sixth Chancellor and five Home Secretaries – who would bet on stability? It is numbers like these that tells us what more fragile states look like.