As twelfth night is almost upon us and the hurly burly of the holidays calms down, we can now reflect upon Christmas and the New Year. The Christmas season should be an upbeat time for the British economy, with cheerfully ringing tills echoing across the country. But, for business owners this year, the festive celebrations have felt more than a little hollow. For many of them know that reality is going to bite – and hard – in 2025.
Why? Ask Rachel Reeves. The Chancellor's hopelessly ham-fisted October Budget put such a stranglehold on business, that many are wondering how she or Prime Minister Sir Keir Starmer can possibly survive until the end of 2025 – let alone until the next election.
The impact is already disastrous. The economy shrank unexpectedly for the second month in a row in October and inflation is rising at its fastest pace for eight months. These official figures showed there was zero growth from July to September – even though Britain was the fastest growing economy in the G7 group of developed nations just six months ago.
The response from businesses has been damning. The Confederation of British Industry has said the economy is headed for “the worst of all worlds” while the British Retail Consortium is bracing for a January spending squeeze. But I fear that a recession – which many economists are certain is looming next year – will be the least of our worries. Instead we risk being plunged into an era of chaos and rampant 'stagflation' not seen since the 1970s.
It may seem fanciful to suggest that despite a thumping majority and four-and-a-half years still to go until the next General Election, both Messrs. Starmer and Reeves could possibly be at risk. But so bad is the situation that these remain febrile political times. Labour's majority is fragile and shallow. It would not take much for the Party's already restless backbenchers to rise up – just as the Conservatives did to overthrow Boris Johnson and Liz Truss.
MPs are sharpening their knives and the disastrous economy may offer the perfect chance to wield them. That alone should make Rachel Reeves and Keir Starmer tremble.
At its core, Ms Reeves's Budget was a Marxist-inspired, back-to-the-seventies exercise in Statism. Under her doctrine, only the State can deliver the growth that Labor promised to prioritize in the run-up to the last election. Business, it seems, exists only to be soaked for record tax increases, National Insurance contributions and tougher employment laws.
The public sector, meanwhile, is frittering away all this extra cash on bumper pay deals – without giving a jot in return to the British economy. The result has been a huge burden on all companies – particularly the 85% of British businesses that are family-owned or run. These are typically the innovators, risk-takers and disruptors – and the most likely to trigger real economic growth. They are also the backbone of the economy and employ the majority of people.
But instead of being nurtured and encouraged, they've been hammered. As a result, they are not hiring new workers, not giving pay rises and are even laying people off as they batten down the hatches ahead of next year. Worse, they are deferring plans to invest in new technology, machinery or products for their businesses which – as any expert will tell you – is the one activity most likely to deliver the economic growth this country so desperately needs.
Messrs Starmer and Reeves came into office promising to build links with businesses, turbocharge economic growth and not increase taxes for working people. Instead they have kicked entrepreneurs in the teeth. Put simply, what Britain's businesses needed from Labor was precisely the opposite of Rachel Reeves's Budget. Running a business is a big financial risk – but it's a risk that should be encouraged because the rewards for bosses, workers and the country at large can be so great.
The way to encourage investment is to make the risk worthwhile, by lowering business taxes and reducing red tape. Profit is good. It's the only way to drive real economic growth. By contrast I fear that in repeating the Marxist follies of the 1970s, the government is driving the country back to the smoldering remnants of that grim decade.
Already the city is giving its verdict. The Government's bond prices are now even higher than they were after Liz Truss's disastrous mini-budget – which helped put Labor in No10 in the first place. It seems clear we are heading for an economic recession in 2025. But the worrying rise in the inflation figures suggest we may be headed for something far worse – the return of a full-blown economic crisis. Stagflation – the combination of a stagnant economy and runaway inflation – is every economist's nightmare.
Small-scale tinkering around the edges will have no discernible effect and only deep, painful cuts in the size of the state will be able to put the nation back on a sustainable footing. These are the choices Margaret Thatcher was forced to take to remedy the calamitous economic situation she inherited in 1979, for which she is still vilified by Lefties today. And it is the sort of action that no Labor prime minister or chancellor will possibly survive given the party's debt to the trade union movement. It is not too late for Starmer or Reeves to mitigate the damage they have wrought – as long as they see sense.
The first and most effective option would be to take a different approach to Net Zero. Britain currently has the most expensive electricity in the developed world – with the price cap set to rise again next month to 24.86p per kwh – while taxpayers and consumers subsidize green energy. Reversing this would cut business costs at a stroke and provide an immediate boost to economic growth.
Second, Labor should channel the money from their resentful tax increases to productive private enterprise – which, as any decent economist understands, is far more effective at delivering growth than any State enterprise. One way they could do this while keeping their backbenchers happy would be by taking a cue from the Left's economic hero John Maynard Keynes. It was Keynes who recognized that building Britain's infrastructure – such as roads, schools and hospitals – would boost economic activity.
These haloes provided employment and a modicum of growth in the Great Depression. This time these measures must come through enterprise – not the state. After all, profit is the key to investment. Without this, growth will not materialize and the government will have killed the golden goose. The courage and vision to take long-term spending decisions that benefit workers, businesses and the country at large too often go missing in tough economic times – particularly when the Treasury is keen to veto anything deemed unessential.
While these measures would still fall short of boosting growth to world-wide levels, if the government takes these actions and rows back on its increases to business and inheritance taxes, at least then the dreaded situation of stagflation may yet be avoided. But if Starmer and Reeves continue as they are – fiddling around the edges while crippling businesses with new taxes and employment regulation – then their reign will unravel much sooner than they imagine. Worse of all, if they do drive us back to Seventies-style stagflation, then the mess the next government inherits will make the early years of Margaret Thatcher's premiership look like a honeymoon. And for businesses? They'll be lucky if they have even survived.
John Longworth is chairman of the Independent Business Network of family businesses