9th August 2026
Britain has spent two decades trying to repair its public finances, raise more revenue, control spending and manage an ever-growing national debt.
Yet the underlying economy has become remarkably weak.
The real problem may not be that governments have failed to collect enough money but that Britain has failed to generate enough economic growth to make the tax burden sustainable.
There is something uncomfortable about looking back over the past 20 years of the British economy.
In 2007, Britain was still experiencing reasonably strong economic growth.
Then came the financial crisis.
Since then there have been austerity, Brexit, the pandemic, the energy crisis, inflation, rising interest rates and increasingly expensive government borrowing.
Through all of this, governments have repeatedly tried to balance the books.
Taxes have risen.
Tax allowances have been frozen.
Thresholds have been tightened.
National Insurance has changed.
Corporation tax has moved.
Business taxes have increased.
Fiscal rules have become increasingly important to government policy.
And yet the underlying economic problem remains.
Britain isn't growing fast enough.
The lost productivity decade — and more
The most important statistic may not actually be GDP.
It is productivity.
Productivity measures how much output is produced for each hour worked.
If productivity rises strongly, wages can rise, businesses can become more profitable and the Government can collect more tax without necessarily increasing tax rates.
That is the virtuous circle.
But Britain lost much of that momentum after the financial crisis.
The Office for Budget Responsibility says UK productivity growth averaged 2.1% a year between 1998 and 2007.
Between 2010 and 2019 it averaged only 0.6%.
Between 2020 and 2024 it averaged just 0.4%.
The OBR describes the slowdown as clearly much more severe after 2008.
That is the real economic story.
Britain didn't suddenly become incapable of producing economic output.
It became much less successful at producing more output from the resources it already had.
The debt has risen enormously
Meanwhile, the public finances have moved in the opposite direction.
General government gross debt was equivalent to about 42% of GDP in 2007.
It rose dramatically during the financial crisis and subsequent years.
By 2010 it was about 74%.
By 2020 it reached around 101%.
In 2025 it was still around 100.5% of GDP.
That tells us something important.
Despite years of governments talking about getting debt under control, Britain has not returned to anything like the debt position it enjoyed before the financial crisis.
And taxpayers have carried more of the burden
This is where ordinary people can understandably become frustrated.
If the economy is growing rapidly, increasing tax revenue can happen almost naturally.
More people work.
Businesses make more money.
Wages increase.
Consumption rises.
Property values increase.
Companies invest.
The tax base expands.
Government can collect more without constantly increasing rates.
But if economic growth is weak, governments face a much more difficult choice.
They can:
cut spending
or
raise taxes
or
borrow more
or
grow the economy.
The first three are relatively straightforward.
The fourth is extraordinarily difficult.
And Britain has struggled with it.
Balancing the books isn't the same as fixing the economy
This distinction is crucial.
A government can balance its budget.
But a balanced budget doesn't necessarily mean the economy is healthy.
Imagine a household earning £30,000 a year.
It cuts spending, sells possessions and stops making investments.
Eventually it balances its finances.
But it hasn't necessarily become richer.
It has simply become poorer more slowly.
The same principle can apply to an economy.
Fiscal discipline is important.
But fiscal discipline without productivity growth can become an exercise in managing decline.
The taxpayer becomes the shock absorber
Over the past 20 years, taxpayers have increasingly become one of the mechanisms through which governments manage economic pressures.
When government spending rises, taxes eventually have to rise or borrowing has to increase.
When debt interest becomes more expensive, money has to be found somewhere else.
When the economy is weak, governments look for additional revenue.
And when thresholds are frozen while wages rise, people can move into higher tax bands without the tax rates themselves changing.
This creates what many people experience as a gradual tax squeeze.
The Government doesn't necessarily announce:
"We are raising your tax rate."
Instead, it can allow inflation and wage growth to push more income into taxation.
The result can feel exactly the same to the taxpayer.
But higher taxes can create another problem
Taxes are necessary.
There is no serious argument that Britain could operate without taxation.
The issue is what happens when taxation becomes increasingly important to compensate for weak economic growth.
At some point, higher taxation can affect incentives.
A business may postpone investment.
An individual may decide additional work isn't worthwhile.
An entrepreneur may decide to invest elsewhere.
An international company may choose another country.
A skilled worker may move overseas.
These effects aren't always enormous.
But when productivity growth is already weak, policymakers should be extremely careful about creating additional barriers to investment and work.
Britain has a productivity problem, not simply a spending problem
This is perhaps where the political debate has gone wrong.
The argument is often presented as:
Government spends too much.
Or:
Government taxes too much.
Or:
Government doesn't spend enough.
But underneath all three arguments is a more fundamental question:
Why isn't Britain producing substantially more wealth?
If productivity were growing at the rates seen before 2008, the fiscal position could look very different.
Businesses would have greater profits.
Wages could be higher.
Employment could be more productive.
The tax base would be larger.
And the Government could collect more revenue without necessarily increasing tax rates.
GDP can hide the problem
There is another reason why GDP headlines can be misleading.
Britain's population changes.
If GDP increases by 1%, but the population increases by 1%, GDP per person hasn't improved.
That is why GDP per head is particularly important when discussing living standards.
The latest ONS figures show how weak the recent picture has been.
Real GDP per head grew by 1.0% in 2025, after falling by 1.0% in 2023 and 0.1% in 2024.
That is hardly the kind of sustained improvement that transforms living standards.
What happened after 2007?
There isn't one single explanation.
Several major shocks hit Britain.
2008-09 — The financial crisis
The banking crisis produced the deepest recession for decades.
Banks failed or required support.
Credit contracted.
Businesses reduced investment.
Government borrowing exploded.
The financial system survived, but the economy never returned to its previous productivity trajectory.
2010 onwards — Austerity
The Coalition Government embarked on substantial fiscal consolidation.
The objective was to restore confidence in the public finances and reduce borrowing.
There was a strong argument for doing so.
But the consequence was that government spending became constrained at precisely the time when Britain needed investment and productivity improvements.
The debate over whether austerity was necessary or excessively restrictive will continue.
But the outcome is clear:
Britain did not return to its pre-2008 productivity performance.
2016 onwards — Brexit uncertainty
The Brexit referendum introduced another major change.
Businesses had to adapt to new trading arrangements.
Investment decisions were affected by uncertainty.
Trade relationships changed.
Brexit is not responsible for all of Britain's weak growth.
But it added another structural adjustment to an economy that was already struggling with productivity.
2020 — Covid
The pandemic produced an extraordinary economic collapse.
Government borrowed hundreds of billions to support households and businesses.
That was an exceptional response to an exceptional crisis.
But it left the country with another enormous increase in debt.
2021-23 — Energy and inflation
The war in Ukraine and the resulting energy shock pushed inflation sharply higher.
Government support helped households and businesses through the crisis.
But again, borrowing and government spending increased.
Then interest rates rose.
And the cost of servicing government debt became much more significant.
The vicious circle
Britain therefore finds itself in a difficult position.
Weak productivity
Weak economic growth
Weak growth in the tax base
Pressure for higher taxes
Less room for private investment and consumption
Weak investment
Weak productivity
And the circle continues.
The answer isn't necessarily lower taxes everywhere.
Nor is it simply more government spending.
The answer is to break the circle.
What should Britain do differently?
The first priority should be remarkably simple:
Make productivity the central economic target
Not GDP alone.
Not the unemployment rate alone.
Not the size of government.
Not whether a particular fiscal rule has been met.
The question should be:
Are we becoming better at producing more with the resources we have?
That means measuring productivity across industries and regions and identifying where Britain is falling behind.
Invest in infrastructure
Britain has spent years talking about infrastructure.
But businesses cannot become more productive if they cannot move goods efficiently, obtain reliable electricity, access fast broadband or build suitable premises.
Infrastructure isn't simply a cost.
It is an economic asset.
Better roads, railways, ports, electricity networks, digital infrastructure and housing can increase the productive capacity of the economy.
Build more houses
Housing deserves particular attention.
High housing costs don't simply hurt households.
They also affect the economy.
Workers cannot easily move to areas where jobs are available.
Young people spend more of their income on accommodation.
Businesses face pressure to increase wages simply because employees cannot afford local housing.
Construction itself also creates employment and investment.
A country that cannot build enough homes in the places where people need to live has created an economic bottleneck.
Reform planning
Planning reform could be one of Britain's most powerful growth policies.
If businesses can build factories, offices and warehouses more quickly, investment becomes easier.
If housing can be built where it is needed, labour mobility improves.
If infrastructure projects can be delivered faster, capital spending becomes more productive.
Britain doesn't necessarily need more announcements.
It needs to become better at actually building things.
Encourage business investment
Private investment is crucial to productivity.
Businesses need reasons to buy:
machinery;
software;
robotics;
artificial intelligence;
vehicles;
buildings;
research equipment;
energy-efficient technology.
The tax system should encourage productive investment rather than constantly changing the rules.
Businesses can cope with high taxes more easily than they can cope with uncertainty.
Use AI as a productivity opportunity
This may be Britain's biggest opportunity.
Artificial intelligence could potentially increase productivity across enormous parts of the economy.
It could help:
small businesses;
accountants;
engineers;
manufacturers;
farmers;
retailers;
public services;
lawyers;
designers;
programmers;
administrators.
But the Government shouldn't simply encourage people to "use AI".
It should encourage businesses to redesign how work is done using AI.
The biggest productivity gains may come not from making existing processes slightly faster but from eliminating unnecessary processes altogether.
Rebuild technical education
This connects directly with our recent articles.
Britain has spent decades expanding university education.
But productivity requires technicians as well as graduates.
Germany's apprenticeship system demonstrates the value of combining education with employment.
Britain needs more highly skilled:
engineers;
technicians;
electricians;
mechanics;
construction specialists;
manufacturing workers;
digital specialists.
An apprentice who becomes highly productive at 21 may contribute more to the economy than someone who spends additional years collecting qualifications they don't actually need.
Use AI to expand education
The education system itself could become much cheaper and more flexible.
A young person could combine:
work + apprenticeship + AI learning + formal qualifications.
That could produce a workforce that continually develops skills rather than completing education at 21 and then gradually becoming less up to date.
Education should become a lifelong process.
Get economically inactive people back into work
Another enormous opportunity is Britain's economically inactive population.
Unemployment is only part of the story.
People who aren't actively seeking work are not counted as unemployed even though some may have the potential to work.
The latest labour-market figures show how significant economic inactivity remains.
That means Britain has a large pool of potential labour that could contribute more if barriers to employment were reduced.
That could involve:
better occupational health;
retraining;
flexible employment;
childcare;
transport;
support for older workers;
help for people with health limitations;
and better matching between skills and vacancies.
Stop measuring success only by government finances
A government can achieve a fiscal target while the economy underneath it deteriorates.
That is the danger.
The Treasury might celebrate reducing borrowing.
But if productivity is falling, investment is weak and living standards are stagnant, the underlying problem hasn't disappeared.
Britain needs economic accounts as well as government accounts.
The Government should publish a clear annual productivity and investment scorecard.
Something like:
Productivity growth
Business investment
Infrastructure investment
Housing construction
Export growth
GDP per head
Real wages
Employment
Economic inactivity
Regional productivity
Those figures would tell us much more about whether Britain is becoming richer.
What about tax cuts?
Tax cuts can help.
But tax cuts without reform can simply increase borrowing.
The important question is:
Which taxes most damage investment, work and entrepreneurship?
If there is limited money available for tax reductions, priority should be given to taxes that have the greatest effect on productive behaviour.
The objective shouldn't simply be:
"Make taxes lower."
It should be:
"Make the tax system more supportive of growth."
What about government spending?
The same principle applies.
Not all spending is equal.
£1 billion spent on bureaucracy is not necessarily equivalent to £1 billion spent on infrastructure.
£1 billion spent preventing people leaving the workforce may produce a different economic return from £1 billion spent elsewhere.
The Government should therefore ask of major spending programmes:
What economic return will this produce?
That doesn't mean reducing everything to pounds and pence.
Hospitals, schools and care services provide enormous social value.
But the economy ultimately has to generate the resources to pay for them.
Britain needs a different economic bargain
For much of the last 20 years the political argument has been about dividing a relatively slow-growing economic pie.
The Conservatives have argued about spending cuts.
Labour has argued about public services.
Governments of both parties have raised taxes when necessary.
But perhaps the bigger question has been neglected:
How do we make the pie substantially bigger?
That is the question Germany, the United States, China and other successful economies have repeatedly confronted through investment, technology, industrial policy, infrastructure and productivity.
Britain needs to do the same.
We cannot tax our way to prosperity
Taxation can redistribute wealth.
It can finance public services.
It can pay down debt.
It can influence behaviour.
But taxation itself does not create wealth.
Businesses create goods and services.
Workers create output.
Entrepreneurs create businesses.
Investment creates productive capacity.
Technology raises productivity.
Education creates skills.
Government creates the framework within which those things happen.
That distinction has become increasingly important.
The 20-year experiment has delivered a warning
Britain entered the financial crisis with government debt of roughly 42% of GDP.
It now sits around 100%.
Productivity growth has fallen from more than 2% a year before the crisis to a fraction of that.
GDP per head has struggled.
Taxation has become increasingly important to government finances.
And yet the country remains capable of innovation, entrepreneurship and world-leading businesses.
That suggests the problem isn't that Britain has lost its ability to succeed.
It may be that the economic framework has become too focused on managing scarcity rather than creating abundance.
A different approach
Perhaps Britain needs a simple change in priority.
Instead of asking:
"How much can we raise in tax?"
ask:
"How can we make the economy £100 billion larger?"
Instead of:
"How much can we cut from this department?"
ask:
"How can this department become 10% more productive?"
Instead of:
"How many university places can we provide?"
ask:
"What skills does the economy need?"
Instead of:
"How do we reduce unemployment?"
ask:
"How do we increase the number of people productively contributing to the economy?"
Instead of:
"How do we balance the books this year?"
ask:
"What will make the economy stronger for the next 20 years?"
That is a much harder challenge.
But it is probably the one Britain needs.
Britain doesn't have a shortage of money.
It has a shortage of economic growth relative to the demands being placed upon it.
For 20 years governments have repeatedly tried to manage the consequences — through spending restraint, borrowing, taxation and fiscal rules.
Perhaps the next 20 years need to be different.
The objective should not simply be to find new ways of extracting more from the existing economy.
It should be to make the existing economy dramatically more productive.
Because if Britain can achieve that, the tax system becomes easier to manage, public services become easier to fund, wages can rise, businesses can invest and living standards can improve.
And perhaps that is the lesson of the last two decades:
You cannot permanently balance the books by making the economy smaller, slower or more heavily taxed. Eventually, you have to make it grow.