The economic cure for populism

New Statesman​

22-07-2025

Photo by Stefan Rousseau/Getty
If there is one theme that has featured most heavily in these columns over the last four years, it has been the dangers of right-wing populism. The destructiveness of Brexit, the dishonesty of Boris Johnson, the recklessness of Liz Truss, and the authoritarianism of Donald Trump have all been familiar themes.
It has to be said, however, that populism seems to be surviving my weekly onslaught. Reform UK leads in the opinion polls. The Conservative Party is led by someone who is half-tempted to turn her party into a fully-fledged populist party and who will likely soon be replaced by someone who will not hesitate in turning his party into a fully-fledged populist party. To the extent that President Trump is running into political difficulties, it is for being insufficiently committed to isolationism and conspiracy theories.
The public is angry, dissatisfied with the status quo. There is a market for politicians who can articulate that anger, identity something to blame, and promise simple answers to complex problems. And it cannot be a coincidence that the rise of this type of politics has occurred during a period of economic stagnation. There is much more to populism than this; it is at least as much a cultural phenomenon as an economic one. But it is also surely the case that the attraction of populism in the UK would diminish if, by the time we got to the next general election, living standards were rising and expected to continue to rise.
It is, therefore, an option for the Government to focus relentlessly on delivering economic growth as a means of achieving re-election (not to mention the more than incidental benefits to the country). Of course, many factors determine economic growth. Some of them can only be delivered in the long term; some – such as Trump's obsession with tariffs – are largely beyond the Government's control; some come at a very high political cost.
Let us, for a moment, assume that the Government is willing to risk these high political costs to deliver higher economic growth. What could it do?
Before making a few suggestions, what is not an option is an expanded borrow-to-invest strategy. Our current fiscal rules are already loose, in part to fund higher levels of capital spending. That is no bad thing, but remarkably little of that higher capital spending is going into the most economically beneficial areas, like transport or scientific research.
The markets are already nervous about our fiscal sustainability and we have the third-highest debt interest costs of any developed country. If the interest rates on our government debt were at the same levels as Germany, we would be paying £50bn a year less than we do. Rather than borrowing more, a credible plan for fiscal credibility is necessary to get those costs down. Contrary to the fashionable view that austerity is bad for growth, it is the loss of control of the public finances that is the real danger.
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This does mean reducing the costs of government both in the short term (the disability benefit bill cannot be allowed to grow at the current rate) and in the long run. For a start, a plan should be announced to get us off the pensions triple lock. Even with spending control, taxes will have to go up. The challenge is that the least unpopular taxes are the most economically damaging. Focusing on the rich goes down well with most of the public but drives away the mobile wealthy. At least a partial retreat on non-doms is necessary, and the idea of a wealth tax should be dismissed. If we need more revenue (and we do), use the main taxes for a broad-based increase.
The Government has made some progress on planning but even on this has recently retreated on environmental requirements. The real benefits of planning reform come from increasing the population of the highly productive parts of the country. This requires a substantial expansion of housebuilding in London (where next to no houses are being built) and the Ox-Cam corridor (where we should be massively ambitious), with spending on transport infrastructure focused there too. Ignore the complaints about the Treasury Green Book; we should invest where we get the best return. Economic growth should be prioritised ahead of reducing regional inequality.
And while I am being provocatively right wing (at least for a New Statesman column), we should also drop the onerous tax we place on developers that reduces housebuilding, namely the requirement to build large numbers of affordable homes. Just build more homes. Planning is one area where regulations have become too onerous. Rachel Reeves was right to highlight in her Mansion House speech last week that excessive regulation is stifling growth. Her rhetoric needs to be matched by implementation – including in the context of employment rights.
Returning to centrist dad mode, what about Brexit? Reduced access to our biggest trading market has proven to be a substantial drag anchor on our economy, predictably enough. The bolder and more ambitious the plans to restore a sensible relationship with the EU, the better. The economic gains will be worth upsetting a vociferous but shrinking minority.
Taken together, it would be an agenda that maximises our chances of delivery economic growth and, in the long term, defeating populism. Is it an agenda that a government, especially this Government, could deliver politically? Probably not. It reminds me that, as I conclude the last of these regular New Statesman columns, that it is a lot easier to write about politics than to be a practising politician.
[See also: Why is Boris Johnson so scared of Emmanuel Macron?]
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