• Andrew O'Brien

Book Review: The Dreadful Monster and Its Poor Relations by Julian Hoppit

This relatively short book gallops through the history of the British fiscal state, taking the reader from the first Act of Union in 1707 up to the present day. It’s an easy read and suitable for experts and lay readers.

The history of the British state is fascinating. The only constant is change. Britain went from a high-tax, high-spending state (relative to its peers) in the Hanoverian and Georgian periods, to a relatively low-tax, low-spending state in the Victorian period and then all the way back to high-tax, high-spending during the period after the Second World War, before an attempt to go back to those Victorian ideals during the Thatcher years.

Looking at the long term, I think that this book reveals a number of things about the nature of the British state that it is important for Conservatives to consider.

First of all, its resilience to economic shocks. Yes, there is a great deal of attention focused on the Truss budget and the fallout from the war in Ukraine, but Britain has been in much worse positions in the past (1780s, 1810s, 1920s, 1940s). The quest for revenue to pay for war and the debts that result from it, has been the engine of the British fiscal state. Fiscal conservatives will, understandably, be pulling their hair out at our current position. However, overcorrection can do more harm than good. This is not to say that no correction is needed and it also gives confidence that we can generate revenue through higher taxes, rather than assuming that everything needs to be made up through cuts.

For example, we should see the Victorian-period of the British fiscal state not as a high point, but as a lost generation. The state expanded, but not fast enough, leaving Britain to fall behind its competitors such as Germany – particularly in terms of education. By the time we realised that loss of advantage, it was hard to claw it back – a competitive disadvantage that we are still dealing with today. Britain has the ability to take its time in repaying its debts, the worst thing we can do is to underinvest in people and infrastructure that we will need in the future. A message we can only hope the present Chancellor and Prime Minister have learnt.

Secondly, the link between growth and levels of tax are simply not there. Part of the reason for the fallout from the Truss Budget was that markets do not drink the ideological Kool-Aid of those in the libertarian think tanks. Lower tax = higher growth may work in abstract terms, but the world is anything but as simple. The British state of the 18th Century was desperately squeezing revenue to pay for war and debts, yet this did not weaken the British economy because a great deal of investment went into infrastructure and expenditure that drove technical improvements and demand in the wider economy. The 19th Century was a period of ‘efficiencies’ and keeping tax as low as possible, and whilst the British economy improved dramatically, as we can see from the 18th Century this had little to do with the overall tax policy. Similarly, the dramatic increase in spending and taxation after the Second World War did not hold the economy back, Britain saw significant improvements in productivity and standards of living during that time. The underlying factors of the economy, levels of investment, human capital, quality of infrastructure, cheap sources of energy (e.g. coal in the 19th Century and North Sea Oil) are the fundamental drivers of the economy. Do not listen to those that want to pin all the blame on the state. The state should keep focused on those, adapting fiscal policy around these needs, rather than fetishising balanced budgets or targeting a certain tax to GDP ratio.

Thirdly, the British state has historically always been trying to “level up” the country. The idea that this is a recent effort (depending on your definition of recent, some think it is inter-war, others post-war, some can only remember back to New Labour) is a myth. The Board of Trustees for Fisheries, Manufacturers and Improvements to help stimulate the Scottish economy was set up in 1727. The British state was not stupid. The only way to generate revenue was to get all parts of the economy growing and contributing. This Board spent over £400,000 by 1815, equivalent to building six ships the quality of HMS Victory, which in turn were some of the biggest outlays of the state during this period. This is dwarfed by the £900,000 spent by the state on the Caledonian Canal. If there is one part of the Union that feels neglected by the state, it is not Scotland or even Ireland, but Wales. Considered an extension of England during this period, there was often no constituency to make the case for investing in the Principality. Critically, it was often Conservatives making the case for this expansive idea of the Union rather than the Liberals who wanted uniformity in tax and spending.

The interesting thing is not that the British state has sought to level up the country for over three hundred years, it’s that during that time the inequalities between the nations and regions of the United Kingdom have been so stubborn. The Scottish and Welsh surge during the Industrial Revolution (and with North Sea Oil) appear to be the exception not the rule. As readers of this blog will know, that is because state investment is a necessary but not sufficient driver of economic growth. The culture and patient of the private sector are as, if not more, important.

The British state, at its best, has been flexible and attentive to the needs of its regions whether that is sensitivity on taxing whisky; huge land purchases in Ireland or investment policies during the 1920s.

However, as political power has arguably become centralised in London (which in turn has moved away from a focus on defence and international affairs, towards economic management and public services), this has put more power into the hands of Whitehall officials that may not see the emotional case for the Union but instead see the headaches caused by the need to balance the books. This is where political leadership is so important. Ironically, it was the inflexibilities of Westminster and Whitehall during the period after the Second World War that have driven cries of inequity and strengthened the hands of independence movements (although, as Hoppit shows, there have always been cries of injustice). What may have been if North Sea Oil had been put into a special fund for investing in Scotland? What if variations in income tax had been allowed in the regions and nations to reflect the relative strength of those economies (something that even Pitt had grasped)? Who knows.

What Hoppit shows is that there is no easy solution to the problems the Union faces. Devolution, Hoppit notes, has created more problems than it has solved. Federalism, the siren call within Labour presently, could tear the Union apart rather than bringing it together. Hoppit’s book is a sobering analysis of the British fiscal state and something that should be on the desk of every policy making in Westminster and Whitehall.

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