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While the lucky few left Tuesday night’s City AM Awards with a gleaming trophy, the evening’s other takeaway came in the form of a stimulating and provocative speech by Andy Haldane.
The former Bank of England Chief Economist said that two decades of economic and social shocks – from the financial crash and subsequent Euro crisis to Covid and Donald Trump’s tariffs – have left individuals, governments and investors hunkering down to avoid risk. These shocks, or collection of “nasties” as Haldane described them, have led to a world defined by risk aversion.
He described this as a perfectly natural inclination, but warned that the mindset has caused terrible damage, ranging from depressed business investment over decades to the erosion of UK equities on the balance sheets of UK pension funds. Strikingly, he drew a parallel with the time of the Great Depression and what economist John Maynard Keynes called “the paradox of thrift” – where, in Haldane’s words, “too much of a good thing, thrift, becomes a bad thing, depression.” The question Haldane posed to the room was how we could go about breaking “the cycle of doom and gloom” and the toxic relationship between uncertainty, risk aversion and low growth?
Different people will have different answers to this question, often depending on their political priorities. For Haldane, part of the answer is to be found in revitalising a risk appetite across regulators, investors and government. He also called for a more robust industrial strategy; something the government plans to unveil shortly.
But allow me to stray from Haldane’s remarks and suggest another, vital part of this equation: tax.
The UK is at risk of buckling under the current record-high tax burden, a burden that seems to increase inexorably regardless of which party is in power. We are way past the point where a slither here and a tweak there could really move the needle; bold and substantial reform is needed in order to grow the economy and make life easier for individuals and businesses.
This is a matter of risk appetite, too, because major reform to taxation and public spending priorities needs democratic consent. If a different kind of economy is to emerge, it must be fought for. Arguments must be made, and won. It’s not clear who in British politics is up for that fight, or whether the country even wants to have it, but it must form part of the debate that Haldane has so eloquently triggered.
