I’m naturally grumpy, and it’s been getting worse of late. It comes naturally to an economist. We tend to look at difficult things like costs and benefits, trade-offs, pros and cons. Our political leaders seem less and less willing to acknowledge that such trade-offs even exist. Apparently, we can have our cake and eat it. Cakeism makes me very grumpy indeed.
A perennial favourite is the claim that tax cuts will “pay for themselves”. That is almost never true. Tax cuts may be good in their own right — more money in our pockets and potentially more growth, too — but they mean less money for government and, at some point, less spent on public services. It’s a trade-off, stupid. Not the sort the slogan to get one elected.
We’ve had a shower of cakeism recently. Both the 2019 Labour and Conservative manifestos were stuffed full of it. Both Conservative leadership contenders are guilty of it. They seem to think they can promise tax cuts without any hint that this might matter for the quality of public services or the level of borrowing and debt. Neither even seems to want to acknowledge that, without more money, runaway inflation will impose another dose of austerity on our public services.
Ms Truss and Mr Sunak are both promising to increase defence spending, to 3 per cent and 2.5 per cent of national income respectively. Yet on current government plans, defence spending will fall by 8 per cent by 2025. On current plans spending even on the NHS is due to fall between next year and the year after. I’m willing to bet a large sum of money that that is not what will in fact happen. To acknowledge that, though, is to acknowledge the need for more spending and hence more taxes or more borrowing — and that is not an option if you belong to the cakeist tendency.
Even without tax cuts the chances of meeting the Conservatives’ own manifesto commitments on the public finances look slim. The so-called fiscal headroom which is being merrily spent is largely illusory. We will need at least another £18 billion a year of spending on health, education and so on just to make up for the effects of inflation. There are choices to be made. Over the next few years, we can have some combination of sound public finances, a well-funded welfare state and tax cuts. We can’t have all three. To offer over £30 billion of immediate tax cuts without addressing any of that, let alone the fact it would add to inflationary pressures, should feel truly extraordinary. Sadly, it feels all too familiar.
Then there is the couching of radically expensive policies in terms which sound like they imply no cost. Ms Truss wants to get rid of the “green levy” on energy. To the extent that one can make any sense of that statement, it just means additional taxpayer funding without using those words. Keir Starmer has now suggested that we “suspend” the energy price cap. In other words, find £30 billion-plus to subsidise energy bills.
The fact remains that if we want to buy gas on the world market then we will have to pay a lot more for it than we have been used to. We are competing for that gas in a world in which demand is rising faster than supply. That’s why the price is rising.
Now I’m going to be really grumpy. That has just made us a whole lot poorer. That makes choices harder, and sensible judgments about trade-offs all the more important. One choice is indeed to spend tens of billions trying to shelter all of us, including the majority who are in a position to shoulder some of the additional cost. One consequence will be more demand than otherwise because the price we face will be lower. If all countries tried that, the price of gas would rise even further to try to choke off the demand that the world simply cannot meet.
Other choices are available. For example, given what we now know about energy prices and inflation, another £12 billion this year, on top of the £24 billion or so already committed, would achieve what the government was looking to do back in May — enough to broadly protect the poorest and give some help to everyone else.
I know we economists are railing against a natural human tendency. We want more houses, but not in our backyard. European levels of state provision for American levels of tax. No hosepipe bans, but no higher water bills. So, there is a reason for political cakeism: we are all cakeists now. That’s why the cakeist Jeremy Corbyn gave the distinctly savoury Theresa May such a shock in 2017 and why Boris Johnson, king of cake, so easily won the Tory leadership election and then the general election in 2019.
Campaigning may be all about promising instant gratification and the best of all possible worlds. Governing successfully is the polar opposite. Not only does it require acknowledging and explaining tough decisions and trade-offs, it often means eschewing instant gratification in favour of long-term planning for growth and stability.
There’s a video from 2010 going round social media in which Nick Clegg (remember him?) explains that more nuclear power can’t be an answer to problems in the energy sector because it wouldn’t come on stream until 2022. Well 2022 has now arrived, as inevitably will 2032 and then 2042. That shouldn’t take us by surprise.
Poor economic growth, more than a decade of stagnant living standards, a fragile energy sector, a water sector lacking resilience, creaking public services. That’s what cakeism buys you. Escaping this destructive cycle will require leadership from our politicians. It will also require us, the electorate, to show them we are willing to embrace this complexity and turn our backs on the purveyors of snake oil.
This column was first published in The Times and is reproduced here with kind permission.