A Penny in the Pound

Then: bam

In March 2008, the Treasury still described the British economy as stable and resilient. Within months, the financial system was being held up by the state. The government cut VAT from 17.5% to 15%, brought investment forward and eventually committed support whose maximum contingent exposure approached £955bn. That figure was not £955bn lost: much of it was guarantees and insurance, while cash borrowing for interventions was far smaller. But it captured the scale of the danger.

The deficit reached 10.2% of GDP in 2009–10. Public debt rose from 35.5% of GDP before the crash to 64.4% two years later. The country had not merely suffered a recession; it had inherited a different fiscal world.

Austerity and the first great switch

George Osborne’s 2010 emergency Budget answered the crash with a long squeeze. VAT rose to 20%. Unprotected departments faced average real cuts of about 19% over four years. The argument was that lower borrowing would restore confidence and create room for private growth.

Some measures were politically easy to see: a higher personal allowance, a lower top rate of income tax, later promises of lower corporation tax. The costs were dispersed across departmental settlements, local government, welfare and years of lost capacity. A tax cut could be announced in one sentence. A council’s slow collapse required a decade to notice.

“The deficit has halved”

David Cameron’s claim was not simply invented. The deficit—the annual gap between spending and revenue—fell from 10.2% of GDP in 2009–10 to 5.2% in 2014–15. As a share of GDP, it had roughly halved.

But the debt—the accumulated stock—rose from 64.4% to 81.1% over the same period. The sentence worked because “deficit” sounded like “debt”. The flow improved; the stock kept climbing. A technically defensible claim created a materially misleading impression.

Budgets as a repeating loop

Brexit: the growth promise without the engine

Brexit enlarged the claim. Outside the EU, Britain would become more agile, more productive and more prosperous. Boris Johnson made the promise explicit in 2021: a “high-wage, high-skill, high-productivity” economy, achieved without returning to the old model.

It made political sense because it answered the central post-crash failure. Britain had spent a decade arguing over the deficit while productivity, investment and real pay disappointed. Brexit was sold not merely as sovereignty but as the route back to growth.

And here is the part that still sticks. Johnson entered Downing Street after the 2019 election as though history had granted him ten comfortable years: a huge majority, a defeated opposition, Brexit “done”. Three months later, Covid tore up the script. The supposed runway vanished before the government had even left the terminal.

The pandemic was a genuine external shock. Protecting incomes and businesses required enormous borrowing; policy measures added roughly £344bn to borrowing. But the shock landed on an economy that was already structurally weak. It did not create the low-investment, low-productivity model. It exposed it.

The Office for Budget Responsibility’s standing assumption is that Brexit will leave long-run productivity around 4% lower than continued EU membership would have done. That is a modelled comparison, not a number directly observed in the world. Yet the direction of travel is unmistakable: the promised growth dividend has not arrived.

The mini-budget: when the story met the market

Liz Truss and Kwasi Kwarteng took the low-tax growth story to its most aggressive conclusion. Their September 2022 plan abolished the 45p rate, accelerated a basic-rate cut and cancelled planned corporation-tax and National Insurance rises—without an accompanying OBR forecast.

Sterling fell, gilt yields jumped, mortgage products disappeared and the Bank of England intervened in the bond market. Most of the measures were reversed. The episode did not prove that every tax cut is wrong. It proved that a slogan is not a growth strategy, and that unfunded promises become brutally expensive when credibility breaks.

Jeremy Hunt’s pennies

Jeremy Hunt restored stability, then returned to the familiar sale. Employee National Insurance fell from 12% to 10% and then 8%. For a worker on £35,400, the two cuts were worth more than £900 a year. That was real money.

But income-tax and National Insurance thresholds remained frozen. As nominal wages rose, more income crossed fixed tax lines. The OBR estimated that the freezes and reductions then in place would raise about £44.6bn a year by the end of its forecast. Even after Hunt’s NI cuts, the combined policy package still increased receipts by an estimated £19.7bn in 2028–29 compared with indexation.

These figures describe different things and should not be divided into one another: the first is an example household; the others are economy-wide annual revenue estimates. Their contrast is the point. The giveaway is personal and legible. The take is aggregate and obscure.

The triple lock is insurance against a weak economy

The State Pension triple lock is usually discussed as a contest between generous pensioners and burdened workers. That is too shallow. Its history is another version of the same story: Britain allowed the economic foundation to weaken, then constructed an annual mechanism to stop people falling through it.

In 1980, the earnings link was removed and the basic State Pension was generally uprated with prices instead. Pensioners remained protected against inflation, but they stopped sharing automatically in rising national earnings. The pension fell from about 26% of average full-time earnings in 1979 to roughly 16% between 2000 and 2010.

Meanwhile, traditional workplace provision was retreating. The Pensions Commission reported in 2005 that private saving was in serious decline and that between nine and 12 million people were not saving enough for retirement. The reform designed in response combined a stronger state foundation with automatic workplace enrolment, later introduced from 2012. The triple lock, announced by the coalition in 2010 and operating from 2011, was the repair mechanism: the State Pension would rise by whichever was highest—earnings, inflation or 2.5%.

Here is the revealing part. The Institute for Fiscal Studies calculated that, had the triple lock operated during the relatively stable period from 1992 to the financial crash, it would have beaten simple earnings uprating in only one year. It became costly after 2011 because Britain lurched between weak earnings, inflation and crisis. One year prices jumped; another year wages rebounded; the 2.5% floor caught the weak years. Each increase remained embedded.

Britain does not simply suffer from too few jobs. Its employment rate was still about 75% in 2026. The problem is the quality and durability of the work underneath that headline: roughly 1.2 million people on zero-hours contracts; workers combining several small jobs; self-employed people outside automatic enrolment; and low earners whose individual job never crosses the £10,000 enrolment threshold.

Automatic enrolment has been a genuine success—about 90% of eligible employees were saving into a workplace pension in 2025—but eligibility is not adequacy. The revived Pensions Commission estimates that 15 million people are undersaving. More than three million self-employed people are putting nothing into a private pension. Renters are substantially more likely than owners to fall short of an adequate retirement income because the system still assumes housing costs largely disappear in old age.

This is why the State Pension carries so much political weight. It is not merely a reward for reaching retirement. It is the final protection for working lives that did not generate stable earnings, a paid-off home or a valuable occupational pension.

The lock has improved adequacy without abolishing poverty: the latest data put about 1.7 million pensioners—14%—in relative poverty after housing costs. At the same time, the average pensioner is now broadly as well off as the average working-age adult, while some retired households hold considerable property and pension wealth. There is no single pensioner condition. A universal uprating rule cannot distinguish the renter dependent on the State Pension from the mortgage-free household with a final-salary scheme.

The lock is changing because the ratchet has done its job

The existing triple lock will remain until April 2030. The announced replacement still protects pensioners: the State Pension will rise by inflation or 2.5%, whichever is higher, with an additional catch-up whenever necessary to preserve its value relative to average earnings over time.

That matters. It retains inflation protection and the long-term earnings link but removes the permanent double ratchet created when inflation spikes in one year and earnings rebound in the next. The IFS estimates that the old formula has added about £16bn a year to State Pension spending by 2026–27 compared with earnings uprating. Total State Pension spending is now roughly £154bn a year.

The government wants the eventual savings to support a National Care Service. Its estimate—£15bn a year by the end of the 2030s—is not money sitting ready in 2030. The IFS says the outcome is highly uncertain and the reform will not, by itself, pay for comprehensive social care. Tax rises, other savings or a slower rollout will still be required.

That brings us straight back to the Budget. The country can adjust the pension formula, but it cannot uprate its way out of weak productivity, insecure employment, inadequate housing and poor private saving. A genuinely gangbusters economy would make the earnings link do most of the work. Wages would rise, pension pots would accumulate and fewer people would approach retirement still paying market rent.

Every Chancellor can find a penny. None has found the missing growth.

Real pre-tax earnings in 2023–24 were only 1.6% above their 2007–08 level. Average household disposable income has grown by less than 0.5% a year since the crash. One Resolution Foundation counterfactual puts the gap between actual wages and their pre-crisis trajectory at £10,700 a year. That is not money removed from a payslip; it is a measure of prosperity that never materialised.

Recent statistical revisions suggest productivity between 2009 and 2019 was stronger than previously thought. Good. But the central fact survives the revision: post-crisis growth was materially weaker than the pre-crisis norm. Better measurement does not build a house, renew a railway or raise a wage.

The next argument

The temptation is to stage the old show again: mansion tax, triple lock, fuel duty, a threshold here, a relief there. Each is a legitimate policy question. None is a growth model.

Britain does not build enough homes. It does not invest consistently enough in infrastructure, skills or productive capacity. It taxes work clearly and wealth unevenly, then treats any attempt to discuss property or accumulated assets as political sacrilege. Parliament is far more comfortable raising money invisibly than telling powerful groups they will pay more.

The current government should not be judged against Budget gossip. Speculation is cheap. Judge the statement when it exists: what it raises, who pays, what remains protected and whether the plan can plausibly improve the economy’s productive capacity.

But the starting point must be honest. There is no more penny in the pound. No Chancellor can return Britain to prosperity by moving a rate down while freezing the line beneath it. If more tax is necessary, say so. If wealth should carry more of the burden, make the case. If growth is the answer, show the mechanism—not the slogan.

The red box can still produce a rabbit. What Britain needs is an economy.