Fiscal Policy in the United Kingdom: Profligacy, Dishonesty, and Dependency

March 25, 2025 by Dan Mitchell @ International Liberty

Last decade, three things made me optimistic about the United Kingdom.

1. A lengthy period of spending restraint from 2010-2019.
2. Voters chose in 2016 to escape the European Union.
3. Boris Johnson was elected to deliver Brexit in 2019.

Sadly, I was hopelessly naive. I thought Brexit was going to deliver “Singapore-on-Thames.” In reality, Boris Johnson’s election began a period of reckless fiscal profligacy.

It began with the pandemic, but this chart (based on IMF data) shows that politicians used COVID as an excuse to permanently expand the fiscal burden of government.

As you can see, the last two Tory leaders have been irresponsible, and the new Labour leader is just as bad.

I’m motivated to address this issue today because of a jaw-dropping report from the BBC.

The Labour Party’s Chancellor of the Exchequer (the person in charge of fiscal policy, akin to combing Treasury Secretary of OMB Director in the United States) actually is claiming that the tax-and-spend era has ended.

Here are some excerpts.

Chancellor Rachel Reeves has ruled out “tax and spend” policies, signalling that she will neither raise taxes nor government budgets in her critical Spring Statement… “We can’t tax and spend our way to higher living standards and better public services. That’s not available in the world we live in today,” she said. In her autumn Budget, Reeves increased the levels of tax and public spending significantly – paid for largely through extra taxes on businesses… She said there was “real growth” in spending for each of the next few years “but not at the levels that we were able to deliver under the last Labour government.”

What utter nonsense.

She says that she has “ruled out” big government, but that’s exactly what she has already delivered.

And the fact that the new budget supposedly won’t have additional tax increases and spending increases is hardly evidence of fiscal rectitude. It’s more akin to a python not hunting today because it just swallowed a deer yesterday.

Heck, she even admits that the inflation-adjusted spending burden will continue to climb over the next few years.

I’ll close with some news about the U.K. that is even more troubling. Here’s a chart, courtesy of Samuel Gregg from the American Institute for Economic Research, showing that the majority of the country is now trapped in dependency.

At the risk of understatement, this is terrible news. Not as bad as the numbers that Javier Milei is trying to fix in Argentina, but still very grim.

It’s the 17th Theorem of Government, right before our eyes. Combined with the 20th Theorem of Government, so it’s probably just a matter of time before there’s an economic and fiscal crisis.