Britain is living beyond its means, dependent on inflows of foreign capital to cover daily spending. It has a structural current account deficit of 3pc of GDP.
It has a headline inflation rate of 10.5pc and a stubborn core rate of 6.3pc that stands out among OECD peers, and which cannot be explained by Vladimir Putin’s energy war.
We are more at risk than others of a wage-price spiral that erodes social and economic stability. It is a national story of excess consumption and inadequate investment.
The UK is still on probation after the global "gilts strike" in September. Part of that traumatic episode stemmed from a chain reaction in the hedging derivatives of the pensions industry, arguably a storm in a teacup.
But part was a specific refusal by the bond vigilantes to finance large tax cuts and untargeted spending in an economy running at full capacity - or to finance “fiscal hooliganism” in the words of one German official.
Whatever sympathies one may have for the Trussites of the Conservative Growth Group, there is no responsible case for cutting taxes on income or consumption against this macroeconomic background.
Whatever is gained from the countercyclical stimulus is more than lost on higher bond yields, higher mortgage rates and higher refinancing costs for companies, as well as higher Treasury payments on inflation-linked gilts. Rishi Sunak is surely right: we are not “idiots”.
By the same token, however much one applauds his efforts to restore fiscal credibility, the defensive caretaker austerity of his government is no answer either.
Business investment has crashed. In the fourth quarter of last year it was still 8.1pc below pre-pandemic levels in nominal terms, and worse in real terms.
“Investors are freezing up and the heart of the problem is that we don’t have a plan,” Tony Danker, the CBI’s director-general, told me in Davos.
It beggars belief that the Government is about to compound this destructive state of affairs by raising corporation tax six percentage points to 25pc, without extending the investment superdeduction to cushion the blow.
The UK will slip from the fifth most competitive tax system in the OECD for capital investment to 30th place, near the bottom of the pack with Mexico and Greece. The marginal effective tax rate - which is what matters - will go through the roof.
The Tax Foundation says the UK has long had a “strikingly ungenerous approach to capital cost recovery” and this makes matters enormously worse for no compelling fiscal purpose.
Ultimately, it raises no money. The academic scholarship is clear: uncompetitive rates deter foreign investment by multinationals and lead instead to a smaller economy than would otherwise occur, shrinking the nominal tax base.
“It attacks internationally mobile capital. The amount of revenue raised diminishes each year. After nine years it turns fiscally negative,” said Douglas McWilliams from the Centre for Economics and Business Research.
It is beyond depressing that Dame Kate Bingham, architect of the UK’s vaccination strategy, is warning that the UK’s hopes of becoming a science superpower is slipping away because of a decision to cut R&D tax credits for small hi-tech companies, the primary driver of recent innovation.
“I don’t think it’s an overstatement to say that the UK life sciences industry is in crisis,” said Guy Oliver from the biopharma group Ipsen.
“Belgium and the UK both say they want to be life sciences superpowers. The difference is that in the UK, the actions are not following the rhetoric,” he told The Pharma Letter website.
The Government has misread the market message of September’s fiscal blow-up. The UK public debt ratio is at the lower end of the G7 bloc, and far below Japan, the US, Italy or France, according to IMF data.
There is no external constraint on the UK’s ability to borrow for purposes that nourish the supply side of the economy and raise trend-growth over time.
Markets know the difference between a spending project with a fiscal multiplier above 1.0 - one that pays for itself - and debt-funded fiscal wastage scattered to the four winds. Trussonomics was punished because it mixed the two.
There is a larger point. The US, the EU, China and Japan are mobilising their industrial resources and capital reserves for a $2 trillion (£1.6 trillion) arms race in green technology, radically changing the contours of the world economy.
It is the biggest game in the global economic village by far - bigger even than artificial intelligence - and there is scant evidence that the Sunak government is facing up to the enormity of what is happening, or even fully understands it.
“The UK could lead the world on green growth as we did in setting net zero targets. But we’re on the verge of being relegated from the Champions League by the Americans and the Europeans,” said Mr Danker in a speech earlier this week, laying out the CBI’s industrial strategy.
“We’re behind the Germans on heat-pumps, insulation and building retrofits, the French on EV charging infrastructure, and the US on operational carbon capture and storage projects – despite the UK’s North Sea advantage. We’re lagging all three on hydrogen funding. This is stunning to many who rightly felt clean energy was ours to own,” he said.
Why were there just 9,000 public charge points installed last year for electric vehicles, bringing the total to a miserable 37,000 when the smaller Netherlands has 90,000? The network is badly lagging the EV rollout and cutting across the UK’s fading bid to be a world player in post-carbon transport. It is a public policy fiasco.
The Biden Administration’s Inflation Reduction Act is the most consequential legislation in the Western world since FDR’s New Deal in the 1930s.
It is a $370bn blast of tax credits and subsidies for hydrogen, solar, wind, nuclear, energy storage, EVs, carbon capture and the gamut of clean industries. It is further backed by his $1 trillion Infrastructure Act, earmarked for smart grids, clean rail expansion, charging networks, and so forth.
Needless to say, it has taken on a protectionist character. Joe Biden has dressed up his trade policy as a new form of globalisation for workers. Where that stretches credulity, he falls back on national security exemptions.
The EU is more or less matching the US with its own clutch of green deals, and now a waiver of state aid rules, opening the way for a blizzard of subsidies.
Britain can either copy these big beasts or try to navigate the reefs as a free-market outsider, opting for a surgical industrial strategy that plays to our strengths - green finance in the City, nuclear fusion, fuel cells, electrolysers, carbon capture and off-shore wind. But it cannot sit back and pretend that this industrial arms race is not happening. To do that is to commit national economic suicide.
We know more or less what underpins a small successful modern economy. It is Stem education: science, technology, engineering and mathematics.
We know too that recent stars - the Nordics, Switzerland, South Korea - spend 4pc of GDP or more on public investment through thick and thin.
Get that right and then let the Smithian hand of private enterprise sort out the winners. We don’t need white elephants, let alone the EU’s ruinous bid for parity in advanced semiconductors.
Cuts in personal taxation are a false answer at this juncture. But the austerity squeeze on research and business investment is even worse. Our limited funds must be directed at the one goal of nurturing the productive base of the British economy. Otherwise the world is going to eat our lunch.
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