Introduction: Brexit before Brexit

At our conferences for students, I sometimes give a talk with the title ‘The Economics of Brexit’, which, as I’m always at great pains to make clear right at the beginning, is neither a pro-Brexit nor an anti-Brexit talk. It is a talk which spells out the trade-offs that Brexit involved: it is about how to think about Brexit, not which conclusion to reach. The first question that comes up during the Q&A is usually some variation of ‘All well and good, but where do you stand on Brexit?’, and the fact that that’s not obvious from the talk tells me I’m doing something right.

Like most people, I didn’t really think very much about these issues until around the time the referendum was announced, and we suddenly all had to become Brexperts (or at least, be able to fake it convincingly). In hindsight, I wish I had read Better Off Out? The Benefits or Costs of EU Membership by Brian Hindley and Martin Howe much earlier. Even though it was published 20 years before the referendum, 16 years before ‘Brexit’ was even a word, and a mere 3 years after the European Single Market came into existence, it still does a remarkably good job at explaining the trade-offs alluded to above. Better Off Out? essentially does what I’m trying to do in my ‘Economics of Brexit’ presentation, but better. Today, thirty years on, one could still read it as a Brexit Primer, even if it was not written for that purpose. The book already foreshadows many of the debates that would consume the nation 20-plus years later. But it was nonetheless not a prophecy, and contrasting what the authors thought a withdrawal from the EU could look like to what actually happened is in itself instructive.

Better Off Out? is a first attempt at a rough cost-benefit-analysis of Britain’s EU membership, of the type that would begin to proliferate 20 years later. That cost-benefit analysis is of a more qualitative than quantitative type, though, because, as the authors make clear right from the start, ‘the preliminary spadework that might make accurate estimation possible has not been done.’

Better Off Out? book is Eurosceptic in tone, but it is not a proto-Brexit manifesto. The authors’ overall verdict is:

‘The analysis provided here does not allow a confident claim that the British economy would gain from withdrawal. The central point, however, is that any economic gain or loss is small – [...] [e]ven the worst case [...] is a long way from economic suicide.’

If you are a Leaver, you can read that as an early rejection of ‘Project Fear’. If you are a Remainer, you can read it as an early rejection of the idea that EU membership is what holds Britain back. The authors’ point, though, is not that Britain should, or should not, leave the EU. It is simply that this is a question which cannot be decided on the basis of economics alone. It is a political choice – as, indeed, it would be, 20 years later, although the fact that the Remain side prioritised economic arguments to a much greater extent than the Leave side would be a cause of much misunderstanding.

The European Customs Union

But back to 1996. The authors deal with the different layers of Britain’s EU membership separately. One of those layers is, of course, the European Customs Union. I have to admit that until 2016, it was not clear to me at all why you would need customs checks within a free trade area. Surely, an FTA worthy of the name is about eliminating tariffs and quotas, so once those are gone, what exactly would a customs official do? Would they just sit there all day, waving everything through?

The answer, of course, is that when country X signs an FTA with country Y, that only means that they are happy to accept tariff/quota-free imports of goods and services from country Y (and vice versa). But at any given time, there will be plenty of goods and services sloshing around in country Y that aren’t actually from country Y. And these are not covered by the X-Y FTA. They need to be filtered out at the border. As long as X and Y have different trade arrangements with the rest of the world, they need customs checks between them. The only way for them to obviate the need for customs checks would be to adopt identical trade relations with the entire rest of the world. Which is one way to describe what a customs union is: it is an area with a common trade policy. Hindley and Howe already explained this well in 1996:

‘The distinction between a customs union [...] and a free trade area is that within a free trade area the free trade applies only to goods originating in the area, and not to goods imported from outside. Members of the free trade area may have differing external tariffs which could be avoided by trans-shipping goods through the country with lowest tariffs; so customs formalities are exercised on trade between members of the area and ‘rules of origin’ are applied to determine whether or not the goods concerned are entitled to free entry. Since it is necessary to prevent avoidance of customs dues through minor repackaging or representations of goods originating outside the free trade area, the rules of origin become quite complex.

On the other hand, a customs union requires that all its members maintain a single external system of tariffs and [...] quotas. Thus, members of a customs union lose the ability to forge their own relationships with other parties. It is, for instance, in principle possible for a country to be a member of two different free trade areas; but it is not possible for a country to be long to two different customs unions. [...]

The EU is in part a customs union. It aims for free trade between members, but maintains barriers against imports from non-members hence, trade between members is encouraged and trade with the rest of the world discouraged.’

There, in a nutshell, we already have the main advantages and disadvantages of a customs union, and criteria to decide whether or not it makes sense for a country or region to be a member of one. Customs unions eliminate the need for customs checks, and enable frictionless trade among its members. But that elimination of frictions comes at a cost, which is the loss of sovereignty over trade policy. A member of a customs union has no independent trade policy anymore: they outsource their trade policy to the customs union. Whether that makes sense or not depends on what you prioritise: frictionless trade with your nearest neighbours, or the ability to strike separate deals with other economies further away? This depends not just on current economic geography, but also on policy preferences. Pooling your sovereignty with your neighbours can work if you agree with them, and would do largely the same thing as them anyway. It becomes harder if we are dealing with diverging policy preferences.

The European Single Market

Now let’s move on to the European Single Market. The Single Market is a very advanced form of an FTA, which is characterised not just by the absence of tariffs and quotas, but also by a harmonisation of regulatory standards. It was still a fairly new arrangement when Better Off Out? was first published, but the authors already explained the trade-offs involved in it very well:

‘‘Harmonisation’ as practised in Europe has benefits, but it also has costs. The benefit is that a manufacturer in any European country can manufacture goods to the common European standard in the expectation [...] that he will not then have to meet different or additional standards or requirements in order to export into any member-state. The cost is that the standards adopted may be unnecessarily cumbersome and expensive for the home market and for exports outside the EC or may simply be inappropriate for the specific requirements of the home market or the country’s industry. [...] The direct cost is compliance with unnecessary standards in the domestic market and other EC markets, and possible loss of competitiveness in world markets.’

Quite so. Being part of an economic zone with common regulatory standards has its upsides even if those regulatory standards are far from ideal. They do not need to be the best possible standards, what matters is that everyone else within the economic zone accepts them too. But it does mean that members of that zone lose regulatory autonomy, and have to accept regulatory standards they might not have chosen for themselves.

Liberal Leavers vs liberal Remainers: a debate foreshadowed

Hindley and Howe already pointed out that an exit from the EU would not automatically lead to repeal of burdensome regulations: that would still require active political choices. In their words:

‘The cost imposed on British industry by EC social rules would be capable of being removed. Clearly, there would be a policy choice as to the extent that EC rules [...] would be continued as rules of national origin. A similar calculus would apply to environmental costs’.

And elsewhere:

‘The extent to which leaving the EU would result in a cost saving under this heading [excessive or unnecessary costs of EU regulations] would of course depend upon the policy choices made by the British Government after leaving – in particular, the extent to which it engaged in a bonfire of existing EU regulations.’

But while they recognised that Brexit (they did, of course, not call it ‘Brexit’ yet) would not guarantee regulatory cost savings, they saw them as a relatively easy Brexit win: ‘there would clearly be a better prospect of ending rules which […] impose large costs.’ With the benefit of hindsight, we can say that the word ‘clearly’ was doing too much heavy lifting here. There is not much appetite for deregulation at the domestic level either.

20 years after Better Off Out?, this would, in fact, become a point of disagreement between liberal Leavers and liberal Remainers (and after that, between liberal Hard Brexiteers and liberal Soft Brexiteers). The former pointed to all the deregulation measures that (Hard) Brexit would make possible. The latter agreed that Brexit would indeed make many things possible. But would it make them sufficiently likely to justify the cost of leaving the Single Market?

This was just one manifestation of a deeper divide, already anticipated in Better Off Out?:

‘An important matter underlying the economic costs and benefits of EU membership is an apparent cultural difference in attitudes to free markets between the ‘Anglo-Saxon’ and the ‘continental’ approaches. The latter exhibits a propensity to favour regulation over free markets. [...] That free markets are better for the general welfare than political processes is, of course, the central proposition of classical liberal thought. British Conservatives do not always apply it in full, but few of them would […] fail to pay it at least lip service. That their continental counterparts refuse even lip service reveals an intellectual gulf. Reflected in policy, it could become a political chasm.’

This goes to the heart of the divide between liberal Leavers and liberal Remainers which we would see 20 years later, including at the IEA. Liberal Leavers saw Britain as, essentially, a free-enterprise nation, albeit one that often fails to live up to its own ideals. The EU, on the other hand, was a place that did live up to its ideals, but those ideals were themselves the wrong ones, at least from a liberal perspective. Its ideas were corporatism, protectionism and interventionism.

Liberal Remainers had a more cynical – or as they would see it, a more realistic – view. They said that while Britain had indeed historically had a stronger classical liberal tradition than most of continental Europe, the average modern-day Brit was not particularly appreciative of that tradition, and did not treat it kindly. Liberal Remainers argued that, these days, the average Brit was just as hostile to free markets as the average continental European. Whether it is in the UK or in the EU-27, if you are a classical liberal in this day and age, public opinion is not on your side, and the general public is not your friend.

Brexit options compared

Last, but very much not least, Hindley and Howe already noted that a cost-benefit analysis of Britain’s EU membership needs to first answer the question: compared to what?

‘Britain’s economic circumstances as a member of the EU must be compared with its economic circumstances if it withdraws from the EU. ‘Withdrawal from the EU’, however, has no single simple meaning.’

We have since learned the hard way that it does indeed not.

The authors discussed a number of options. One was what would later become known as a ‘No Deal Brexit’: ‘Withdrawal might mean […] that membership was not replaced by any special arrangement between independent Britain and the EU.’ They considered this ‘the worst case’.

They also already discussed what would later become known as the ‘Norway Option’ or ‘EFTA/EEA Option’. They saw some attraction in this model, because:

‘the EEA […] is a free trade area rather than a customs union; hence its members retain responsibility for setting their own tariffs with countries outside the area and may enter into special trading relationships with third countries. This is a freedom denied to members of the EC, which is a full customs union. Second, EEA members enjoy in full the ‘four freedoms’ of the European single market: freedom of movement of goods, of services, of persons and of capital.’

But while they argued that ‘this arrangement should not be rejected out of hand’ and that it ‘can be considered as having considerable attractions in its substantive terms’, they did not seem enthusiastic about it:

‘The main defect of the EEA is that [...] [t]he EEA states are obliged to implement [...] single-market harmonisation measures. [...] Thus, EEA membership would do little to ease the present regulatory burden attached to the single market if that were thought to be one of the main drawbacks of full EU membership. [...] [I]t would leave the UK closely tied to the single market while limiting its ability to influence single-market rules. It would do little to free British industry of the existing regulatory burden imposed by single-market harmonisation directives’.

They seem keener on what they call the ‘Swiss/EFTA model’, similar to the Norway Option in principle but outside of the Single Market, if not very far from it. Their ideal model is an outer-tier membership model for the Single Market which was not seriously discussed during the Brexit years (although I have vague memories of seeing a proposal quite like that), a bit like Norway but without the drawback of rule-taker status:

‘[O]uter-tier Community members would adhere to those aspects of the Rome Treaty (and associated regulations and directives) which pertain to the single market and its four freedoms. They would retain full rights to vote on those matters, and free-trading rules would continue to be binding on all member-states, both inner and outer tier.’

To me, that sounds a lot better than what actually happened – although how realistic that was, we will probably never know. I suppose it would have helped if a few more politicians had read books such as this one before the Referendum, rather than panic-Googling ‘What is a customs union?’ after triggering Article 50, like a student half an hour before an exam they didn’t prepare for.

Surveys of adults show overwhelming support for banning social media for under-16s, but Brits often support bans in opinion polls before changing their minds when the unintended consequences become more obvious. Many of those who support a ban do not even think it will work. A YouGov survey found that 76% of British adults support banning social media for the under-16s, but the same survey found that only 32% think be effective. The British public loves bans so much that they even support them when they know they won’t work. Politicians need to pay less attention to opinion polls and more attention to evidence.

The evidence shows that it won’t work. In Australia, where a similar policy came into effect in December, research found that at least 60% of 12-15 year olds still have at least one account with a banned social media platform. Those who are willing to break the law remain connected with their peers. Those who obey the law risk being isolated. There are so many ways to get around age verification that the UK is unlikely to see a better success rate.

There have always been moral panics about how teenagers spend their time - video nasties, Dungeons & Dragons, Mortal Kombat, etc. - but what the government is proposing goes far beyond banning a film or game. A whole mode of communication is under threat. The ban will apply to all platforms ‘whose purpose is to enable social interaction and  which allow users to post material’. This is more like banning the printing press than banning Grand Theft Auto. There are legitimate concerns about smartphone ‘addiction’ and waning attention spans, but there are smarter ways to tackle these problems than by attempting to get teenagers to abandon apps that are almost ubiquitous. Existing platforms have plenty of safeguards for parents to use, but these disappear when children log in as adults or use VPNs to access unregulated websites.

Attempts to ban the printing press failed in the 15th century because they were impractical, illiberal and ultimately undesirable. Deluded politicians still think that they can uninvent the internet, but tech savvy teens will run rings around boomer legislators any day of the week. The social media ban is not going to work, but the kids will never forgive them for trying.

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This essay previews a chapter by the same author in the forthcoming book ‘On Morality, Human Behaviour, and Economics’ jointly published by the Institute of Economic Affairs and the Vinson Centre for the Public Understanding of Economics and Entrepreneurship at the University of Buckingham, later this week.

Every UK government since 1979 has pledged a ‘once in a generation’ reform of welfare benefits. Pensions, unemployment support, sickness and disability, and housing subsidies have all seen a plethora of reform proposals over the past 50 years, with governments claiming that they are moving people into work, reducing welfare dependency and cutting the benefits bill.

The reality is very different. Reforms have been piecemeal and minor rather than radical and significant. The welfare bill continues to climb, and the numbers of people dependent on the state continues to grow. Over half of the UK population now receive more from benefits than they pay in tax, with over a third in receipt of welfare benefits. The share of GDP spent on working age benefits has more than doubled since 1979, and a fifth of the working age population is economically inactive, a number which continues to rise post-pandemic. The benefits bill is around £350bn and expected to rise substantially over the coming two decades and is one of the highest in the OECD.

This growth in the size and scope of the system of welfare benefits is known as the ‘welfare state escalator’ (Lewis, 1999). It is entirely predictable, and indeed was predicted by many including both Milton Freidman (1962, 1977) and James Buchanan (1988). It is not unavoidable.

An ever-growing welfare state is unsustainable and unaffordable. There are also moral arguments for reform, the biggest of which is welfare dependency. This not a criticism of those in receipt of welfare benefits. They are responding perfectly rationally to the incentive structures they face in our current welfare system. Rather, it is a criticism of the system that increase state coercion through ever-higher taxation, rewards rent-seeking, encourages a growing client state.

Welfare dependency is not just bad for society. It has some pretty dire consequences for those who become dependent. It crowds out, replaces and prevents voluntary mutual associations from delivering welfare services, with inevitable consequences on levels of social trust and reciprocity. It fosters long term worklessness, which increases risks of lifetime poverty, and is incredibly bad for physical and mental health. It necessitates higher taxation, which distorts consumption and replaces voluntary choice with state coercion.

What is needed is a radical, rebalancing of the welfare state, reforms reduce state dependency and increase voluntary support and self-reliance. It is a limited welfare state, which is not focused on reducing inequality but rather on provide a safety net for every citizen. Such a limited welfare state is entirely consistent with the works of Locke. Hayek and Smith (Lehton, 2015), of Freidman (1962, 1977) and Buchanan (1988), and it draws on several key tenets of classical liberalism. Such reforms need to be universal in design to prevent rent seeking. It would need to be simple to administer, to prevent capture. It should alleviate poverty, so as to counter more collectivist and equalitarian arguments. It should enable and foster voluntary mutual aid associations, so as to ensure individuals can choose whether and how their wider welfare needs are met.

In the chapter of a new book, On Morality, Human Behaviour and Economics, I put forward proposals for such a rebalancing of the welfare state. This is different in form and function to today’s welfare states. It aims to reduce economic insecurity, not reducing inequality, by providing a safety net, a basic income level that society deems necessary.

This vision has at its core two key proposals. The first is to champion the role of voluntary association in the delivery of welfare benefits and in wider civil society. Civil society is a fundamental concept in classical liberal thought, as it acts as bulwark against an expansive and coercive state, because coercion is the antithesis of liberty and freedom.

The main proposal in the chapter is that of Milton Freidman’s Negative Income Tax (1962). It would allow the state to meet the basic needs of all citizens, without distorting work incentives or incentivising rent seeking. It is simple in design and inexpensive to administer. A minimum income level is set, above which income tax is paid and below which an income – the negative income tax - is provided. This income is proportional and is paid above any income earned, up to the point at which the minimum income level is reached.

There ia a growing consensus, from all walks of life, that we need a paradigm shift in welfare state policy. Classical liberalism provides the vision for such a paradigm shift, towards a limited welfare state based on a Negative Income Tax and a vibrant network of voluntary mutual aid associations. This chapter has sought to set out how such an approach would be consistent with classical liberal principles. But it also sets out why such reform will be far from easy.

In hindsight, I should have done that two or three years earlier. But in the years prior, I kept looking for excuses, and I kept finding them. Things had to get worse before they could get better.

These days, at the events I attend, I often meet people who think Britain is in a similar situation today.

It’s not exactly news that Britain isn’t in great shape. The economy has barely grown in 18 years. From the state of the public finances to the state of the health service, from the cost of living to unemployment, nothing seems to be going in the right direction. Most people are more than aware of this, even if they couldn’t cite the exact figures. Surveys consistently show a widespread, deep dissatisfaction with the state of the country. It is perhaps the only thing on which Britain’s political tribes can agree.

But at the same time, there is not much appetite for the kind of reforms that could actually begin to turn things around. There is no political equivalent to my back-to-the-gym moment from 12 years ago. Why is that?

The explanation I keep hearing is that things are bad, but not quite bad enough. There is a chronic sense of malaise, but not an acute sense of crisis. Maybe a little crisis would be beneficial, to create the momentum for real policy change. Maybe things need to get worse before they can get better.

We could call this a free-market version of ‘accelerationism’. Free-market accelerationists like to point to Argentina, where a crisis of late-stage Peronism led to the election of Javier Milei. They like to contrast Edward Heath’s government to Margaret Thatcher’s: Heath failed in his reform attempts, because the country wasn’t ready for it yet. Things had to get worse before they could get better.

I am very much not an accelerationist, and I believe that in the current context, free-marketeers are deluding themselves if they think a deterioration of economic conditions would work in their favour. It would be much more likely to have the exact opposite effect, and we should certainly not hope for it. 

Accelerationism can only work when certain conditions are met: people need to have an accurate understanding of what is causing their problems, and what needs to change in order to improve them. I opened this article with a fitness analogy, because that is the clearest example of a situation where these conditions are met. We all know what we need to do if we want to be in good shape. It’s just that we don’t always act upon that knowledge. We don’t always do what we know we should be doing. Because we can’t always muster the discipline and the willpower. When a lack of willpower is the problem, a little shock can help.

The mistake that free-market accelerationists make is to assume that the electorate’s unwillingness to accept free-market reforms is comparable to a physically inactive person’s unwillingness to do exercise. In other words, they assume that, deep down inside, most people already agree with them. Deep down inside, most people know that Britain needs free-market reforms. We just don’t have willpower to admit that to ourselves, and to act upon it.

But what if that’s not true? What if the issue isn’t a lack of willpower, but a fundamental misdiagnosis of the problem? What if people don’t agree that Britain’s problems are caused by an overbearing government? 

I think it’s fairly obvious that the ‘misdiagnosis’ thesis is a lot closer to the truth than the ‘lick of willpower’ thesis. People who want to be in better shape, but who can’t summon the willpower to do any exercise, will look for excuses. But they won’t actively deny that doing exercise would be good for them. They certainly won’t attack the very idea of doing exercise, let alone construct an elaborate anti-exercise ideology.

In contrast, Britain is fertile ground for people who claim that the country’s problems are caused not by a lack of, by an excess of free-market economics. Take Andy Burnham’s ‘40 years of neoliberalism’ speech. Take the hundreds of thousands of young people flocking to Zack Polanski. Look at Gary Stevenson’s YouTube figures or his book sales. If economic conditions deteriorate, it will just drive even more people in that direction.

At the moment, the trend seems to be that the worse things get, the stronger the support for bad ideas becomes. The fiscal situation is clearly much worse today than it was at the end of the last decade. How do people respond to that? By supporting wealth taxes. How do people respond to high rents? By supporting rent controls. How do people respond when loose monetary policy causes inflation? By supporting price controls. The worse things get, the worse our political climate becomes.

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Accelerationism was originally a Marxist concept. Free-market accelerationists would do well to revisit Marx’s original version of it, because it was, in one important way, superior to their own.

Marx presented his accelerationist (without using that word) case in the context of free trade. He explicitly rejected the idea that free trade would raise the living standards of working-class people. He did believe that free trade would deliver lower consumer prices, but he also believed that the capitalist class would just respond to that by reducing workers’ wages by an equivalent amount, leaving them no better off. But Marx supported free trade anyway – for accelerationist reasons:

“[W]hat is free trade under the present condition of society? It is freedom of capital. […] So long as you let the relation of wage labor to capital exist, it does not matter how favorable the conditions under which the exchange of commodities takes place, there will always be a class which will exploit and a class which will be exploited. […] [T]he antagonism between industrial capitalists and wage workers […] will stand out still more clearly. […]

Let us assume for a moment that there are no more […] custom duties; in fact that all the accidental circumstances which today the worker may take to be the cause of his miserable condition have entirely vanished, and you will have removed so many curtains that hide from his eyes his true enemy.

He will see that capital become free will make him no less a slave than capital trammeled by customs duties. […]

[F]ree trade […] breaks up old nationalities and pushes the antagonism of the proletariat and the bourgeoisie to the extreme point. In a word, the free trade system hastens the social revolution.”

Another word for ‘hasten’ is, of course, ‘accelerate’.

We can see that Marx’s argument wasn’t simply that ‘things have to get worse before they can get better’. He didn’t even say that free trade would make things worse, just that it would replace one bad situation with another bad situation.

He thought that the advantage of the second bad situation was that it would be bad in more transparent ways. In the second scenario, it would be easier for the average worker to grasp what the problem is (=capitalism), and what to do about it (=revolution). He didn’t think workers would revolt just because material conditions are bad. He thought they would revolt once they understand the reasons for their bad material conditions. This was more likely to happen under capitalism with free trade than under capitalism without free trade. He was an accelerationist, because he believed in the educational value of accelerationism.

There is no reason to believe that he would have supported a non-educational version of accelerationism, where people’s living standards deteriorate, but they have no idea why. In that sense, Marx and I are on the same side of this argument. The sentiment that ‘things have to get worse before they can get better’ only applies when people know why things are getting worse, and what it would take to make them better. Otherwise, you’re only accelerating on a road to nowhere.

In Autumn last year the Government released information on international energy prices. The data showed that in 2024 the UK had the highest industrial electricity prices in the developed world and the second highest domestic electricity prices. Before the election, Labour famously promised to cut energy bills by £300. However, it is now clear that energy bills are going much higher. When giving evidence to a recent Energy Security and Net Zero Select Committee hearing, Rachel Fletcher of Octopus Energy said that electricity bills would be 20% higher in four or five years’ time even if wholesale prices, largely set by gas, halve. Chris Norbury, chief executive of E.On UK had a similar message when he said even if wholesale prices go to zero, bills would be where they are today because of the increase in non-commodity costs.

The Department for Energy Security and Net Zero (DESNZ) continues to insist that:

“the only way to bring down energy bills for good is by making Britain a clean energy superpower, which will get the UK off the rollercoaster of fossil fuel prices and onto clean, homegrown power that we control.”

The briefing notes to the Kings Speech committed the Government to “speed up the build-out of vital grid infrastructure” which will add to the non-commodity costs the energy bosses were worried about in their testimony to ESNZ. The Government has also implicitly acknowledged that bills are going up, and the £300 commitment is dead because the Kings Speech notes also said “government estimates suggest that consumers could see a gradual accumulation of savings from 2030 onwards from Reformed National Pricing, reaching £20-40 on the typical annual dual fuel household bill by 2040.” In other words, bills are going to go up before 2030 and might possibly decline slightly afterwards.

In response to extremely high UK electricity prices, opposition parties have put forward some ideas to bring bills down. These initiatives have focused on cancelling AR7 contracts (Reform), eliminating carbon taxes and abolishing the Renewable Obligation Scheme early (Conservatives).

How much might current plans cost us, and would the opposition plans be enough to reverse that?

Renewables, Green Gas and Nuclear Subsidies

We can split the extra costs of energy into two categories. First, there are direct energy subsidies and second additional grid integration overheads that are largely driven by intermittent renewables. Helpfully, the OBR provides a forecast of the cost of environmental levies that includes subsidies from the Renewables Obligation (ROCs), Contracts for Difference (CfDs), the Green Gas Levy (GGL) and the Sizewell C RAB levy. The GGL subsidises green gas like biomethane and is levied on gas supply so also has a knock-on effect on electricity bills. The Government provided a forecast for Feed-in-Tariffs in a recent consultation. The total forecast for energy subsidies is shown in Figure 1 (all figures in nominal terms).

The total cost of these schemes is set to rise from £11.8bn in 2024/25 to £15.2bn by 2030/31. Within that total, the ROC scheme is forecast to rise from £7.8bn in 2024/25 to £8.3bn in 2026/27 before falling back to £6.4bn 2030/31 as Drax moves to a CfD and the subsidies expire for some of the oldest projects. We should note that 75% of the cost of the ROC scheme for domestic users is now borne by taxpayers and not billpayers. However, the current government plans to put the cost back on bills in April 2029. Abolishing the scheme in 2029 would reduce the burden on both domestic and non-domestic electricity consumers.

The cost of CfDs is forecast to rise from £2.3bn in 2024/25 to £5.1bn 2030/31. FiTs remain relatively stable, rising marginally from £1.8bn to £2.1bn by 2029/30 before falling back to £2.0bn in 2030/31. The Sizewell C subsidy goes up steadily from zero in 2024/25 to £1.4bn in 2030/31 and the GGL goes up to £0.2bn by 2030/31.

Note this analysis does not include the mooted Wholesale CfDs (WCfDs) proposed by Ed Miliband to give guaranteed market revenues to ROC-funded generators.

Grid Integration Overhead Costs

Grid integration costs include grid balancing costs, backup from the capacity market and the extra transmission costs incurred to connect remote renewables to the source of demand. NESO has provided a forecast of grid balancing costs and a forecast of transmission costs. The OBR forecasts the future costs of the Capacity Market. A summary of those forecasts is shown in Figure 2.

The total grid integration costs to accommodate the planned increase in renewables capacity to meet the current Clean Power 2030 plan are forecast to rise from about £8bn in 2024/25 to £25bn in 2030/31. Within that, Capacity Market costs are forecast to rise from £1.3bn to £4.4bn.

NESO provides several scenarios for grid balancing costs depending on whether they follow the Holistic Transition (highest balancing costs), Electric Engagement or Hydrogen Evolution (lowest balancing costs). For the purposes of this analysis the mid-point of the highest and lowest forecast in each year has been used. By this measure, balancing costs rise from £2.5bn in 2024/25 to £7.3bn in 2030/31. If plans to abolish carbon taxes and end ROCs early succeed (as suggested by some in the opposition), balancing costs may fall because some renewable generators will no longer be financially viable on a merchant basis. This potential impact has not been evaluated in this analysis.

NESO’s allowed revenues for Transmission Network Use of Service (TNUoS) costs rise from an actual cost of £4.2bn in 2024/25 to a forecast £13.3bn in 2030/31. It is interesting to note the forecast increase in TNUoS costs is larger than the increase in balancing costs the investment is supposed to mitigate.

Recent investor presentations from National Grid and SSE show they are salivating at the prospect of guaranteed returns from Ofgem to support spending to expand the grid.

Summary Total Cost of Subsidies and Grid Integration

The total subsidies and grid integration overheads have been combined into a single chart in Figure 3.

Total subsidies and grid integration costs double from £19.8bn in 2024/25 to a staggering £40.1bn in 2030/31. These costs are likely to continue to increase as more renewables are built. Wind and solar curtailment costs will no longer be driven by grid capacity constraints, but by output being higher than demand. These staggering costs would be almost enough to buy a Hinkley Point C nuclear power plant every year.

As an aside, assuming the 77.3TWh of gas generation in 2025 was produced at 50% efficiency, the cost of the gas used for electricity at an elevated 100p/therm is about £5.3bn. It is clear the cost of gas for electricity is relatively trivial compared to the full costs of renewables.

Impact of opposition proposals

The forecast increase in subsidies and grid integration costs is obviously substantial. Some in the opposition have outlined plans to abandon net zero and bring energy prices down. Reform have pledged to cancel AR7 contracts and made vague promises to cut green levies. The Tories have been more specific, promising to end the ROC scheme early and to abolish carbon taxes on wholesale electricity.

To estimate the impact of these measures we need to make some assumptions. We will assume the aforementioned proposals become actual policy in time to have a full year effect in 2029/30.

The impact of cancelling the AR7 contracts has been estimated from the AR7 and AR7a results which give the budget impact by financial year (2024 prices). This gives a saving of £1bn in 2029/30 and £1.1bn in 2030/31. It should be noted that savings in later years will be larger as more offshore wind no longer comes on stream.

Estimating the impact of abolishing carbon taxes is a little trickier. Carbon taxes impact the wholesale price of electricity because wholesale prices are mostly set by gas. This means that these taxes not only impact the price of gas-fired electricity, they also impact the price of electricity from other generators too like nuclear, hydro, storage and ROC-funded renewables. From NESO’s generation mix and from Ofgem’s RER database, we can calculate that a total of 182.5TWh of electricity was generated by these sources in calendar year 2025 (excluding Drax ROCs that by 2029/30 will feature in CfD costs). Assuming carbon costs of approximately £25/MWh for 2025, per Ember, we can estimate the total carbon costs of electricity generation are about £4.6bn per year. Making a forecast of carbon costs in 2029/30 and 2030/31 is somewhat tricky, because by then there will be less gas and nuclear generation and ROC generation will be down too. Balanced against that, carbon costs may well have risen because of the government’s planned alignment with the EU Emissions Trading Scheme where carbon costs are higher. For the purposes of this analysis it has been assumed the carbon cost saving will remain £4.6bn in those years. It is also assumed that ending ROCs early will save the full amount in the OBR forecast. A summary of this analysis is shown in Figure 4.

The total impact of the opposition proposals could be around £12.1bn per year from 2029/30, if they were enacted in time.

It should be noted the Government has committed to remove the Carbon Price Support mechanism from April 2028 that should reduce carbon costs by around £1.5bn from April 2028. That is not included in this analysis. However, as will be shown below, it makes precious little difference to the big picture.

Impact of Changes

The full impact of the opposition proposals and the forecast changes in subsidies and grid integration costs from the 2024/25 baseline are summarised in Figure 5.

As we saw above, on the current trajectory, the increase in subsidies and grid integration costs from the 2024/25 baseline reaches over £20bn by 2030/31. This amounts to the equivalent of about £700 per household, without any change in gas prices. The opposition proposals would make a £12.1bn difference from 2029/30. However, the total impact of the forecast increases and proposals still means energy costs will be £3.2bn higher than 2024/25 in 2029/30 and £8.2bn higher in 2030/31.

Conclusions

In 2024 the UK had the most expensive industrial electricity prices in the developed world and second highest domestic prices. A national emergency to address this catastrophe should have been declared.

Instead, official forecasts shows that subsidies and grid integration costs are set to rise by over £20bn by 2030/31 from the 2024/25 baseline, further increasing electricity costs. This increase in costs amounts to the equivalent of £700 per household. The claims from Octopus and E.On that bills are going up regardless of what happens to gas prices can be seen to be true. It is clear that the often-heard claim that making Britain a “clean energy superpower” will bring down bills is false.

The pledges from parts of the opposition to begin to tackle high energy prices are very welcome, but not enough. Even if those pledges were fully implemented in time, electricity system costs will still be £8.2bn higher in 2030/31 than the baseline.

If the UK is to survive as a developed economy, these extra costs simply cannot be allowed to endure. In fact, drastic action will be required to cut subsidies even more than anyone in the opposition currently plans to do, and the extra grid integration overheads driven by intermittent renewables will need to be removed too. The legislative and contractual barriers to doing the right thing are considerable. It would mean inflicting considerable pain on the current beneficiaries of this state largesse – renewable energy generators, their investors, storage companies and grid operators. Investors in these doomed projects should take note.

However, the pain inflicted on the green blob by a return to a sane energy policy will be small compared to the pain inflicted on the rest of the economy if high electricity prices are allowed to continue. Net Zero must be stopped now.

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An Astronomer Royal once said words to the effect of ‘I can tell you where the planet Venus will be on Thursday next at two o’clock in the afternoon but I can not tell you where a paper bag in Oxford Street will be in five minutes time.’ People are more complicated than paper bags and predicting what they will do is usually a loser’s game.

Friedrich Hayek, similarly, warned against the belief that our predictive knowledge in physical science can be applied to human behaviour. In his 1974 Nobel Prize lecture, The Pretence of Knowledge, Hayek pointedly argued:

‘I prefer true but imperfect knowledge, even if it leaves much indetermined and unpredictable, to a pretence of exact knowledge that is likely to be false.’

This is an important caveat. However, there are patterns in human behaviour and discerning those is generally fun and sometimes useful.

Local elections were held earlier this month. The elections were preceded by media speculation and opinion polls but something that had been happening every week since the local elections last held in May 2025 was widely ignored. Council seats fall vacant from time to time for various reasons and by-elections are held to fill the vacancies. These by-elections are almost always held on a Thursday with the results known the following day. Lord Pack compiles and comments on the results of these by-elections every week.

By the end of April 2026 Lord Pack had collated the results of 240 such contests. This is a statistically significant number. It is 5% of the number contested last Thursday when several million people went to the polls. It is equivalent to an opinion poll of several hundred thousand people spread over a twelve month period from wards selected at random. These are each significant contests. The parties who participated in last Thursday’s elections competed in almost all of these seats, fighting with more or less vigour depending on whether the incumbent party could be dislodged or not.

The results of the 240 contests are summarised in the following table, which I shall call a ‘matrix’:

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I am a natural fanatic. My mind always tells me that if something is true, it must be true to its maximum logical extent. I can sometimes hold in my head the idea that there are golden means: empirical cases where it happens that some arbitrary point upon a line is the optimal value. But my heart tells me that this sort of thing is crazy madness. If there are property rights, they must be absolute property rights or the argument for them must not be valid at all.

There are no records of exactly how I slipped into radical, hardcore libertarianism, but my hazy memories tell me that the Mises.org website was to blame. With a bit of work digging through their old forums, one could find my old profile, and all my doctrinaire arguments.

I took to libertarianism like a fish to water. It filled a hole that had always been missing in my life: the complete answer to all questions. People who knew me from that time could no doubt relate my diatribes against intellectual property (for being inconsistent with other property rights), the police, governments in general, and taxation, and my generally disagreeable, debate-happy demeanour. I read Robert Nozick’s Anarchy State and Utopia at university, and loved it, but by that point I was, if anything, critical of the book because it did not advocate the end of all governments.

I had a lot of what I would now call crony beliefs: views I believed in because they were necessary to support my deeper commitments. It caused me great consternation – even annoyance and anger – to be presented with situations like ‘is it OK to break into a hut to avoid dying in a blizzard’, presumably because of the underlying cognitive dissonance.

Over time, I came to identify as a ‘bleeding-heart libertarian’, after the blog of the same name, which I read a lot of in the early 2010s. (A quick Google informs me that it closed down in 2020.) If you asked me, I would tell you that I no longer believed in the ‘natural rights’ account of libertarianism – instead, I would say that I believed in utilitarianism or consequentialism, which just happened to be consistent with libertarianism.

This was a lie and in my heart I was still a committed libertarian. I knew in my heart it was completely true in every respect, as you could easily tell by seeing my irritation and instinctive need to argue every point that I perceived to be a threat to the status of libertarianism as an idea.

Darwin versus Friedman

Over time I developed. But as with many intellectual developments, there was no ‘aha’ moment or Damascene conversion. Instead, I continued to think of myself in the same way until I suddenly realised that I no longer believed in libertarianism any more. I remained a think tanker who advocated for neoliberal or libertarian policy solutions, but I was easily able to hold thoughts like ‘it may be optimal to limit property rights here’, or ‘this government scientific project did pretty well’ in my head without distress or cognitive dissonance. My fanatical obsessions had moved elsewhere.

Freed from the need to find apologia for libertarianism, or proselytise, I substituted having one big model of everything that answers every question with a panoply of smaller models. After this point, I have never identified as subscribing to any sort of ideology, but people usually call me a neoliberal. Occasionally I think that maybe I am a sort of conservative.

The best speech I can think of, by anyone, is Paul Krugman’s What Economists Can Learn From Evolutionary Theorists, which explains that evolution is modelled very similarly to the supposedly unrealistic ‘homo economicus’ type models that economists use. Evolutionary dynamics tend to produce maximising outcomes (or to go in that direction). This is part of an intellectual movement that is very important to me. The traditional approach is to see the market as mainly being about either incentives – the fact that you get more stuff if you do what society wants – or information – the fact that scarce things and high-demand things go up in price, showing that society wants them. Prices are indeed information signals ‘wrapped in incentives’. But I think that the best way to see the market is in terms of evolutionary dynamics.

Ronald Coase explains in The Nature of the Firm that capitalists and companies are a bit like central planners. A division leader in a company doesn’t bid for the time of employees against other division leaders. Companies rarely have internal markets or internal prices at all, meaning that most economic activity is not regulated by markets or prices, but command and control economies, where companies buy lumps of labour by the week, month, or year, and make theory-based decisions about how to deploy it.

So markets and prices, and the incentives and information they give us, can’t really be what’s important about capitalism. Instead, the importance of capitalism is that successful central planners (like Jeff Bezos and Elon Musk) get more and more capital to plan, making the economy more and more well planned. Unsuccessful ones get given less and less of the economy to plan. Capitalism is good because of evolutionary dynamics, with entrepreneurs and business owners following rules of thumb and theories about the world, often with very long feedback loops.

This evolutionary view also affects how I think about efficiency (I gather this is the view of Israel Kirzner and Joseph Schumpeter as well, but I haven’t read them!). Many people worry a lot about allocative efficiency in the current timeslice: making sure the right people are using each bit of capital, and the people who enjoy each good or asset most are getting to do so. Allocative efficiency is hugely important. But in my view, dynamic efficiency is much more important. Growth, which is the most important feature of civilisation, is driven by innovation and capital accumulation, not by sweating all of our existing assets more efficiently. I recommend reading The Quincunx by Charles Palliser, which is a novel, if you want a reminder of the crushing, grinding life that nearly everyone experienced before modern economic growth1.

Though the industrial revolution meant rapid overall economic growth, it led to barely any increase in living standards in Britain until after 1850, when fertility began to decline. I reject the popular view that Malthusianism was conquered by the industrial revolution alone: my view is that it was partly down to fertility control. Sufficiently many people can always drive the marginal product of labour, and hence wages, down to zero. This is the insight one gets from Meditations on Moloch, by Scott Alexander.

When I was younger I was very intrigued by the ‘neoreactionary’ anti-democratic ideas created by Konkvistador and Mencius Moldbug. These authors dazzled me with esoteric ideas: the revisionist history of Italian wealth differences; the idea that politics always proceeds in a leftwards direction. I can’t recommend reading any of Moldbug’s work, as it is extremely wordy, although I do find it a pleasure myself, especially An Open Letter to an Open-Minded Progressive. There are certain features of it I find emotionally appealing, like pronomianism – describing everything accurately in terms of how it is, rather than how it is supposed to be – but overall I think the view is wrong.

An even better essay that I do recommend one reads is Reactionary Philosophy in an Enormous Planet-sized Nutshell which is like the ‘steelman’ of these views, imagining a version of them that is more compelling than the actual version is. It actually argues for something not far off conservatism: we have a bunch of institutions that work, and we are making them worse by messing with them. ‘If you are in a hole, stop digging’. I struggle to believe most of the more lurid claims of the ideology – like the idea that monarchy works really well, or that socially conservative restrictions on behaviour exist for hidden reasons – but I do think it was a particularly interesting and exciting intellectual movement while it was happening. A more compelling version of this worldview is given by Starship Troopers (strictly the book, and not the film) by Robert Heinlein.

A significant evolution in my thinking has been coming round to the glory of democracy. The work of Dan Bogart, especially Did the Glorious Revolution contribute to the transport revolution? Evidence from investment in roads and rivers, but really his entire oeuvre, explains how legal innovations were crucial to the industrial revolution. Before the late 1600s British property rights were incredibly complicated and hard to use. Entails prevented heirs from splitting or selling up parts of their land, meaning they could not fund improvements like draining swamps. Collective ‘commons’ meant that farmers had inefficiently distributed land and that landowners overgrazed. The flexible power of Britain’s democratic institutions allowed Britain to continually reorganise these messy rights, setting in place the conditions necessary for the industrial revolution. (There really is so much we can learn from looking at the improvement into British rivers, canals, railways, turnpike roads, and land during the 1600s-1800s.)

This industrial revolution started as an energy revolution, explains Anton Howes in Lessons from the age of coal. One of Anton’s intellectual projects has been to show how Britain was uniquely unsuited to the industrial revolution in 1550, but by 1650 it felt inevitable that it would happen in Britain, which was in some ways already Europe’s leading country. Another of his projects is showing how this came from an ideology of innovation, but this ideology of innovation was not spontaneous but actively pursued and created by British elites and even government, creating institutions and organisations to spread and popularise it. They created common knowledge that innovation was high status in the eyes of society.

Fixing social norms

Common knowledge is important to a swathe of things. Isn’t it weird how little information adverts tend to contain about the products they advertise? Ads Don’t Work That Way by Kevin Simler explains how adverts are not usually meant to be persuasive, but to create common knowledge of the association between various products and social signifiers. Common knowledge means things that you know, and you are confident that everyone else knows too. When you know that everyone knows that, say, Lynx deodorant is associated with masculinity, then you can show everyone that you identify as being a man’s man by buying and using those products.

The Nerd as the Norm by John Nerst reframes reality by reconsidering autism as a curve, rather than a binary, and mapping out the opposite end of the bell curve from Asperger’s and nerdery, a kind of person he calls a ‘wamb’, interested in people over things and ideas, concerned for social harmony over correctness, and so on. The wamb/autist spectrum is a key way I think about people’s socio-personality traits.

When it comes to traits, I have read an enormous amount of behavioural genetics research, and it seems to me that there is overwhelming evidence that most traits are about fifty-fifty nature and nurture, at least in Western societies where most people have a decent chance in life. I used to think that the fact this is rarely discussed in modern Western societies signalled a deep failure at the centre of society, but I now realise that most people are cognisant of these genetic facts, they just prefer not to talk about them because it is implicitly rude and upsetting. I think society has made the right choice. (There are a great many good articles on this topic you might read, and I don’t have a favourite one.)

Instead, I think that game theory is much more informative. We are born into a society, and on our own it is nearly impossible to change the norms that exist, as they are effectively games, with rewards and payouts for winning. In the UK, ‘Cheems Mindset’ (as coined by Jeremy Driver) is one way that you ‘win’. The cheemster gives status based on coming up with reasons why something couldn’t work, rather than for coming up with ways of overcoming those obstacles.

Many social norms are created arbitrarily, but nevertheless matter and can’t or shouldn’t be changed. Many other social norms are deeply arbitrary, and can be changed with effort, as shown by Ending Footbinding and Infibulation: A Convention Account by Gerry Mackie, which essentially gives the economics of brutal practices and an idea of how to fix them. It goes very well with The Teratogenic Grid by Holt Parker, which explains how different Roman conceptions of sexuality were to our own, and yet how Romans seemed to fit into them naturally.

If I am right that social norms can be arbitrary, meaning that they aren’t the exact way they are for a strong reason, but due to randomness or happenstance, then that is quite worrying. It means that rather than being selected through some process because they make society work particularly well, they may be leading us astray, but it takes a long time for us to see. There is no ‘control group for society’. For example, while it’s possible that artificial intelligence will make this a moot point, because it means we can increase the effective population (albeit of AI agents rather than real humans) as much as we like, our increasingly universal international culture seems to be producing ever-declining birth rates. Without some very different cultures and civilisations, I worry that we may simply dwindle to nonexistence (as best explained by Robin Hanson’s Beware Cultural Drift). But mostly I am quite hopeful that feedback mechanisms will kick in to try and fix things.

How the War on Drunk Driving Was Won, by Nick Cowen, is a ‘how to’ guide for changing antisocial behaviours to become prosocial ones, including not just drunk driving but even murder, which was vastly higher in the past than today.

Capitalism, free markets, and liberalism are substantially successful because they are a way of channeling competitive behaviours into prosocial outcomes, rather than negative sum outcomes, like footbinding, infibulation, or virtue or vice signalling. In a capitalist culture, which respects success and wealth, people can indulge their natural desire for social competition and generating status by doing things – jobs, or starting companies – that benefit lots of other people. Even spending money on luxurious country houses often leaves behind valuable culture for society. Whereas other social institutions for competition (for status and mates), like footbinding and infibulation seem to have been, leave us worse off than if no one competed at all. I think Ryan Murphy’s ASI paper The New Aristocrats is one of the best economic models of taste signalling.

I mentioned Ronald Coase above. Ronald Coase’s other article The Problem of Social Cost has been nearly as influential on me. (Today, I would skip this article and instead read The Importance of Alienability and Democracy is the Solution to Vetocracy by Sam Bowman.) Circumstances in society are generally Pareto efficient, because otherwise people would spend effort moving them toward a more efficient state, in exchange for a share of the efficiency gains. (But Pareto efficiency is far from enough!)

Fixing policy

Liberal advocates have a structural advantage over illiberal opponents because we offer efficiency gains. As long as we can come up with ways to turn those efficiency gains into better lives for a broad range of people, we should win nearly every political battle. There have been periods where this has happened, such as under Thatcherism. My view is that this is hard work, and most liberals prefer to own their enemies online in order to generate ingroup status instead.

In that spirit, I have spent a lot of the last five years thinking about Coasean approaches to housing reform. The NIMBY Problem by David Foster and Joseph Warren is one of the best encapsulations of why stuff doesn’t get built, and the sort of thing that could change that. Alex Morton’s Why Aren’t We Building Enough Attractive Homes was also a real eye opener when I read it, as was the work of John Myers.

I turned to Coasean approaches to housing reform as I steadily became more appreciative of the very real concerns of the so-called NIMBYs. Development really does often have large externalities, and the externalities of any given development usually fall heavily on one narrow group of people.

Donald Shoup’s idea of ‘Graduated Density Zoning’ – returning to the old system where landowners could build as much as they liked below ‘light planes’ – is a genius way to maximise the amount of development you allow subject to a constraint around light and congestion externalities. It mimics the private planning of the past, beautifully explained in John Kroencke’s book Private Planning and the Great Estates. (See also Samuel Hughes’s article The Great Downzoning for further insights on the benefits of planning.)

Private planning now forms a particularly important place in my thinking. Low-state-capacity cities in developing countries today have almost no limits on development – nor did medieval cities in the West. These cities were afflicted by chronic congestion, and therefore overcrowding, disease, and more. Landowners realised they could create more value by (privately) planning new neighbourhoods, such as Belgravia or Pimlico, rather than just selling them off. Even if they did want to sell leaseholds off, as in Georgian Bath or Edinburgh New Town, they required developers to keep to certain rules, like not encroaching on the roadway, facing their buildings in stone, and building to planned design patterns. The market chose planning. British city planning today leaves a lot to be desired, but the problem with it is not that it is planning.

Design is the ultimate externality. If you have a beautiful house, you will rarely see it. But if you live on a street of beautiful homes, you will enjoy the view every day. When it comes to cities, one of my key concerns is housing supply: just building enough homes in the right places in total. But another concern we might have is creating beautiful cities that we enjoy living in. Sometimes it feels like we live in the ruins of an older, greater civilisation (though in practically every other respect, we are vastly superior to our ancestors). The best things ever written on this topic are by Samuel Hughes. I have re-read each of his essays – In Praise of Pastiche, Against the Survival of the Prettiest, Making Architecture Easy, and The Beauty of Concrete – literally dozens of times.

Life begins at 35

Overall, my views have tended in some ways to moderate during my twenties and thirties. I have come to see that many of the hard-line distinctions I drew between things are not as tenable as I once thought they were, and at the same time that drawing hard-line distinctions between things is not as important as I thought it was.

For example, I now think that local governments have at many times and places functioned like ‘spatial companies’ – a kind of land-based company acting over one location – more like a private body than what we think of as the ‘state’. Local governments function like this in some places today, and in other places are deeply dysfunctional, corrupt, moribund, or sclerotic. State science funders like Darpa are more like private funders like Bell Labs than they are like the National Institutes of Health, or UK Research and Innovation. The usual distinctions – incentives, information, and evolutionary dynamics – are almost always the reason why, but this is true both for ‘state’ organisations and private ones.

In fact, I see myself as having come to apply these ideas – incentives, information, and evolution – to a much broader range of things. For example, it once seemed to me that the normal kind of private property rights were the only type of property, and everything else was invalid, or even an infringement of real rights. Now it seems to me that the reason behind property rights is protecting the incentive to accumulate: to do things that you will later benefit from. It seems to me that this principle applies to some extent to nations, cultures, institutions, and many other things as well, and that the entryism of illegal immigration is not so different from ‘woke’ entryism into state institutions, or other kinds of entryism. Similarly, I now think that sharing the benefits of growth with a broad swathe of society, through kinds of re- or pre-distribution are not so much an infringement of rights as a way to guarantee they continue to exist into the future.

As I grow older I gain more and more respect for the basic principles of our liberal society, and the basic wisdom of its institutions – and more keen to protect the bits of them that still make us successful.

So then, how many pairs of shoes go into a birthday cake? What about packs of Marlboros?

Most people never have to think about baking in these terms. But for many grandmothers (mine included) the process of making a dessert started long before she cracked an egg. It began with questions about which items in her household were precious enough to barter for ingredients.

In Romania, back in its Eastern Bloc days, money technically existed. It was called the leu, the same name it bears today. The central bank printed it. You could hold it, count it and occasionally even exchange it for vegetables at a state-owned shop. But in any meaningful sense, the leu wasn’t ‘money.’

The state used it as a unit of account to track quotas, and officials stamped it onto rationed goods, displaying the state-mandated prices. However, money failed as a store of value, because fixed prices were so low, no one was ever ‘cash-poor’ and chronic shortages left people without goods and services to spend said money on. Saving physical currency was also a futile exercise. The real economy, the one that actually brought butter to the birthday cakes, ran on bartering.

So how is a grandmother to acquire ingredients for a birthday cake?

The queue and the shadow economy

To make things even more complicated, Romania ran a system of aggressive food rationing. Under a program euphemistically titled ‘Rational Eating,’ certain basic foods were only made available to the population in fixed monthly allowances. For example, an individual was usually entitled to 300 grams of bread a day and a single litre of cooking oil a month. ‘Hoarding’ more than a month’s supply was a crime punishable by prison.

The shops were mostly empty, and empty by design. Central planners set output targets that ignored public demand, and the regime exported the best of the little that was produced to extract hard foreign currency.

Because official prices were fixed, they stopped carrying information about scarcity. A kilogram of meat might cost a few lei, but that price was irrelevant if the meat didn’t exist. Real price discovery happened on the black market, where foreign cigarettes (especially Kent and Marlboro) became a parallel currency. In 1987, two pounds of beef could cost abouy four packs of Kents. Cigarettes worked because they were portable, divisible and almost universally desired. But even then, much of the informal economy operated through pure barter.

From shoes to butter

If your grandmother needed to make a cake, she couldn’t buy any butter at the shop, as butter was one of the strictly rationed ‘basic goods.’ An individual was allocated approximately 100g of butter per month. No more, no less. If your grandparents lived alone (which they often did), then 200 grams per month was scarcely enough to make a birthday cake, when you took into account that butter cannot be indefinitely preserved (it’s hard to save monthly rations over the course of multiple months) and butter comes with competing uses (cakes are not the only thing butter is useful for).

The next best thing is buying part of some neighbours’ rations until she could get the quantity she needed. But she couldn’t just offer money to a neighbour, because the neighbour didn’t need money. What followed was a chain of exchanges that required more effort than any modern consumer could imagine.

In this one particular instance, she started by swapping a pair of shoes for cigarettes. Then, she swapped the cigarettes for tergal, a synthetic fabric used for making dresses (it was the fashion at the time). The tergal was then traded for rapeseed oil. Finally, the rapeseed oil was exchanged for butter, not because the butter-owner wanted to grill, but because they needed the oil as a second-rate lubricant in their metal workshop.

Four transactions, five different goods and a lifetime of social networking, all for a single cake.

Finding someone with the right goods to barter is what economists call the ‘double coincidence of wants.’ Coined by William Stanley Jevons in 1875, it stipulates that for an exchange to happen, two people must want exactly what the other has, at the exact same time, in the exact quantity they are prepared to offer.

A double coincidence is a statistical miracle. My grandmother didn’t find one person who wanted shoes and had butter. That person did not exist in her village. That person may not have existed in the entire country, and even if they did finding them would be prohibitively expensive. Instead, she had to find a sequence of smaller coincidences, each a link in a fragile chain. Each step required its own negotiation, its own expenditure of time and the risk that the whole thing would collapse before she reached the butter. After all, the one thing worse than being unable to swap shoes for butter, is giving away good shoes and remaining stuck with bottles of rapeseed oil you never plan to use for cooking.

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The numbers add up (to a lot)

The double coincidence problem is both annoying and mathematically intractable. As an economy grows, the number of markets needed to facilitate barter explodes.

In this example with five goods (shoes, cigarettes, tergal, rapeseed oil and butter), you need ten distinct markets, one for each pair of goods: shoes for cigarettes, cigarettes for tergal, and so on. With 10 goods, you need 45 separate markets. With 100, you need 4,950. With a million, you need close to 500 billion. In a modern economy with millions of goods and services, writing out all the zeros gets a bit scary.

What money does is make things simple. You only need one market for every good (the good in exchange money). But even these numbers understate the difficulty. Computer scientists have shown that finding a chain of exchanges to clear a barter market is NP-hard (‘non-deterministic polynomial time hard’). In layman’s terms, it is almost certainly unsolvable in a reasonable time. A barter economy involving just a few hundred people and a handful of goods would overwhelm the world’s most powerful supercomputers. The time required to calculate an optimal outcome would exceed the age of the universe, even on hardware far beyond anything we can build at this current point in time.

Commodifying human relationships

The mathematics only confirms what those who lived through it knew in their bones. Barter is ruinously expensive. And it comes with a cost that isn’t measured in time or shoes but in the erosion of human relationships.

A monetary economy, for all its perceived ‘coldness,’ actually protects our social lives. When you buy bread from a baker, you pay and leave. You don’t need to know anything about the baker’s personal circumstances, their family’s needs or their list of suppliers. Money is ‘crystallized trust.’ It allows strangers to trade, which in turn allows friends to just be friends, without the need for constant, transactional calculation.

Barter makes every human interaction turn into a potential deal. Most Romanians before 1989 maintained mental ledgers of everyone they knew: who had access to the shoe factory, whose brother-in-law could procure export-only goods, who owed someone else a favour, who smoked the most/the least, etc.

In this world, social networks aren’t organic communities. Every relationship carries questions. What can this person provide? Is this gift a gesture of love, or a strategic deposit for a future trade? Trust becomes deeply personal and very fragile. If a friend fails to deliver the cigarettes they promised for your shoes, you have no recourse. No contract, no court, no receipt. You simply lose the shoes and perhaps the friendship, too.

We can bake the cake and eat it too

My grandmother baked many cakes for her daughters over the years. But she paid for those ingredients many times over. Unlike her counterparts on the other side of the Iron Curtain, her ordinary domestic life required the skills of a commodities trader and drained her time in ways that are hard to imagine or forgive.

We are lucky enough to live in a world where we never have to calculate the exchange rate between shoes and butter. And no one should ever have to.

Money is what separates community from society. It fully exhausts transactions and it fully depersonalises them. Money gives us the freedom to pay and walk out of a shop without owing anything else to anyone. It allows us to build human relationships based on shared purposes rather than calculated exchanges.

Modern Monetary Theory—or MMT—was dismissed by traditional economists right away. But I didn’t want to do that. I wanted to learn as much as I could about it before drawing conclusions. So I approached MMT with an open mind and read the academic work by its theorists and critics. I then wrote a book that presents my conclusions.

I think we all need to understand what MMT says, as it’s a deeply seductive theory with the potential to change how people discuss policy. Unfortunately, it isn’t a sound economic theory. In this article, I debunk some of MMT’s mantras, which are found all over its literature.

The government is not constrained like a household

MMT assumes the treasury is allowed to create money to fund its spending. The usual rules intended to limit this practice, such as central bank independence, are assumed to be non-existent or not enforced.

As a result, MMT concludes that the central government does not have financial constraints. In other words, it cannot “run out of money” like a household, it doesn’t need to “find the money” to do public works, and so on. These are some of MMT’s most publicised conclusions.

But there’s a problem. What MMT says is a truism. What it really says is, “If the government is allowed to create money, then it cannot run out of money.”

Every economist knows this. The question is never whether it is technically possible to let the government fund its spending with money creation—we know it is. The question is whether it is a good idea. Most economists think it’s not.

Economists don’t think we can trust politicians to use money creation judiciously for political reasons and due to inflationary bias. MMTer William Mitchell suggests a “wise government” can use the power of MMT to increase prosperity. I grew up in Argentina, so you can see why I’m a bit skeptical about this.

In addition, economists don’t believe there’s much to be gained economically from operating the MMT way. They don’t think GDP can be permanently increased and unemployment eliminated by letting the treasury create money, which is what MMTers ultimately suggest.

If an MMTer tells you the government doesn’t have financial constraints, tell them, “Yes. If we let the treasury create money, then it cannot run out of money. Everyone knows that. How is this insightful?”

Taxes and bonds are not used to fund the government

MMT tries to prove that central bank independence is completely fictitious, and thus MMT’s suggested policies can be applied without major changes to current institutions. You just need to analyse accounting details more carefully to see the truth.

For example, according to MMT’s analysis, the US federal government creates new money every time it spends. Whenever it collects taxes, it completely destroys the money from the record. MMTer Stephanie Kelton says, “Clearly, government spending cannot be financed by money that is destroyed when received in payment to the State!”

MMT’s analysis is incorrect—it suffers from numerous technical and logical problems. For example, MMT says that when the US treasury moves money into its account at the central bank, that money is “destroyed.” In reality, the balance in that account goes up and is properly recorded, as in any bank transfer. MMTers seem to be thrown off by how statisticians calculate common money aggregates, such as M0 and M1, which don’t include the balance in the treasury’s bank account.

The error has been pointed out to MMTers to no avail. In Stephanie Kelton’s 2020 book, The Deficit Myth, she insists the US federal government creates new money every time it spends and destroys money when it collects taxes.

If an MMTer tells you the government doesn’t need taxes before it can spend, ask them, “If the balance of the treasury’s bank account is zero, how can it continue spending without taxes or bonds?”

Government deficits increase our savings

According to MMT, a government deficit is a surplus for the rest of us. In The Deficit Myth, Stephanie Kelton says, “Fiscal deficits don’t eat up our savings; they enlarge them! … That’s because government deficits are always matched—penny for penny—by a financial surplus in the nongovernment bucket … Fiscal deficits will always lift our collective (financial) boat.”

It is technically true that a government deficit puts more “financial wealth” in the hands of the public. This is an accounting fact—if the government creates money or issues bonds, it puts more financial assets in the hands of others. But this doesn’t mean people get richer in real terms, as financial wealth is not the same as real wealth.

To see the problem just consider the case of Argentina. Thanks to government deficits, many Argentinean households have been able to save millions of pesos! But they don’t seem to be getting any richer.

Tell the MMTer, “If the government gives one million newly created pounds to every household, that’s a deficit of the government and a surplus of households, just like MMT says. Why don’t governments do this to end poverty?”

Note that MMTers often says things that are technically true but economically meaningless, and this was one example of it. Here’s another example: MMTers often say that a monetarily sovereign government cannot default on debt that it owes in its own currency. Once again, is it technically true that the government can always create money to wipe out its debt. But it is likely it would still default on its debt economically, as the resulting inflation would make the debt repayments worth less than expected by creditors.

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The government should budget based on resources, not money

According to MMT, market economies always have a huge number of idle resources lying around, or “slack.” For example, some MMTers think there is 25% spare economic capacity in Europe.

The government should create money persistently and use it to mobilise those spare resources, they say. This doesn’t cause inflation because the government doesn’t compete with the private sector for the same resources. Inflation only kicks in after all resources are fully utilised, and this is very far away.

According to MMTers Yeva Nersisyan and Randall Wray, “government spending creates ‘free lunches’ as it utilises resources that would otherwise be left idle.”

Note that this line of thinking seems to have inspired Zack Polanski, who recently said, “The fiscal rule we need to have is to make sure that inflation doesn’t go higher than the skills and resources that we have in our economy.”

Unfortunately, MMT’s analysis suffers from numerous theoretical problems. For starters, it relies on a simplistic and outdated theory of inflation. For example, the theory gives no role to expectations about the future, and it assumes unemployment can be brought all the way down to zero without causing inflation, which most economists disagree with.

In addition, MMT’s theory of “slack” is unworkable. It relies on a non-standard interpretation of Keynes’ General Theory, which was disproven long ago, in order to show that slack is severe and permanent regardless of wage and price adjustments. The theory suffers from well-documented issues. MMT’s reliance on subpar theories makes it underestimate inflation and overestimate slack.

On the practical front, it seems difficult for the government to only mobilise idle resources. For example, it’s hard to design a job guarantee program in such a way that it would not compete with the private sector for at least some of the same workers.

Moreover, politicians may not be incentivised to perform realistic calculations of resources and slack. For example, MMTers Yeva Nersisyan and Randall Wray analyse the Green New Deal in terms of resources, as opposed to budgets, as prescribed by MMT. However, their calculations aren’t credible. For example, they argue that free college “pays for itself” because productivity gains exactly offset the required resources. No detailed calculation is provided for it. The same goes for many other components of the Green New Deal.

Ask the MMTer, “If economic slack is so severe, why do we usually have positive inflation every year? Can we trust politicians to analyse resource requirements and economic slack carefully?”

If you want to learn more about MMT, including its views on hyperinflation, Bitcoin, and the job guarantee program, get a copy of my book If You Can Just Print Money, Why Do I Pay Taxes?: Modern Monetary Theory Distilled and Debunked in Plain English.

-Friedrich August von Hayek (1960)

“Freedom is a fragile thing and it’s never more than one generation away from extinction. It is not ours by way of inheritance; it must be fought for and defended constantly by each generation”

-Ronald Reagan (1967)

Classic liberalism has one major disadvantage in the battle of ideas: it is counterintuitive. It consists of ideas that do not come naturally to us. Quite often, it even asks us to actively override our initial emotional reactions, impulses and gut feelings, and to think things through properly rather than go along with what “feels right”. You can be “instinctively socialist”; you can be “instinctively conservative”; but few people are “instinctively liberal”. What would it even mean to be “instinctively liberal”? At best, people can have an instinctive aversion to authority, but that, on its own, is more likely to lead to a juvenile libertinism than to a consistent liberalism. (Although some of our conservative critics would, of course, argue that that is exactly what classical liberalism is.)

But this major disadvantage also has one minor upside: it means that classical liberals have interesting stories to tell.

If you ask a socialist how they became a socialist, or a conservative how they became a conservative, the most likely answer will be: “I have always felt that way; I was just not able to articulate it, until I read X, or met Y, or joined Z.” Thus, most of their intellectual development will have consisted of finding post-hoc rationalisations for what they already believed. They will have started with the conclusions already largely formed, and then looked for ways to justify those conclusions in retrospect.

A classical liberal is much more likely to tell you a story involving some internal conflict, some agonising, some painful self-interrogation. There will also be much greater variability in their stories, with people coming at it through very different pathways. If you get a bunch of liberals into a room and ask them for their political “origin stories”, what you will get is bound to be both entertaining and informative.

A great example of that genre is the book The New Right Enlightenment: Young Authors on the Spectre That Haunts the Left (henceforth “TNRE”), published in 1985, on which this article series is modelled, and to which it is, in a sense, a sequel.

TNRE is a collection of essays by twenty people who were then up-and-coming thinkers of what was then called “the New Right”, in which they explain their political outlook, and how they got there. It was not technically an IEA publication, but it was commissioned and edited by Arthur Seldon, then Editorial Director at the IEA, and it contains several chapters from people who would later join the Institute in some capacity or other. I consider it an IEA publication, even if the IEA’s logo is not printed on the cover.

What Seldon et al meant by “the New Right” was essentially classical liberalism, although in hindsight, the title of the book was poorly chosen. According to Google Ngram Viewer, the use of the term “the New Right” peaked around the time TNRE was published, but then began to decline. It was also prone to misunderstandings, and even a lot of the authors of TNRE did not seem particularly happy with it.

Be that as it may: TNRE can be read as a mini-primer on the Austrian School of Economics, the Chicago School of Economics, the Virginia School or Public Choice School, and the political theories of Robert Nozick and Karl Popper. The added personal element – people reconstructing their own intellectual journeys – makes these abstract ideas more relatable, but it does this without being self-indulgent.

To the extent that TNRE is a primer of classical liberal ideas, it is a timeless classic. A present-day reader can easily forget, over long passages, that the book is over 40 years old. To the extent that it is about the authors’ personal intellectual journeys, though, it is quite clearly a product of its time, describing generation-specific experiences. Most of the authors of TNRE were Baby Boomers¹, the youngest ones were early cohorts of Generation X². There are no Millennial authors in TNRE, for the simple reason that the oldest Millennials³ were four years old when the book came out, while the bulk of them had not been born yet. The earliest cohorts of Generation Z⁴ would not be born for another 12 years.

Why does this matter? Would the experience of a budding liberal born 20, 30 or 40 years later than the authors of TNRE really be so fundamentally different from theirs?

In some important ways – yes, very much so. The political/ideological spectrum has changed quite a lot since 1985, the zeitgeist has changed, the way we engage with political ideas has changed, and the most salient issues of today are no longer those of 1985.

For a start, TNRE authors still used the old rule of thumb that a classical liberal is somebody who is “right-wing on economics; left-wing on social/cultural issues”. This is a reference to the “Nolan Chart” from the 1960s, which forms the basis of most versions of the political compass. As far as ultra-simplified rules of thumb go, it worked remarkably well for about half a century. But it presupposes a political Right which is interested in economic progress, and a political Left which is socially/culturally permissive. In the context of a NIMBY Right on the one hand, and a censorious “woke” Left on the other, the political compass no longer works in that way.

Related to that: while classical liberals were undoubtedly a minority in 1985, on an issue-by-issue basis, most of their opinions were not so unusual. What made classical liberals unusual was their package of opinions, and the consistency with which they applied them. Thus, the authors of TNRE did not have a general sense of political isolation. Rather, their experience was that wherever they went, they would find common ground with people on some issues, while provoking strong disagreement on others.

The policy challenges the country faces have also changed. The domestic backdrop to TNRE was Keynesian-interventionist postwar consensus, which was in the process of being rolled back by the Thatcher government, but that process was by no means complete at that stage. The international backdrop was the Cold War: none of the authors could have known that the Berlin Wall would not survive the decade.

Britain did not have a housing crisis yet, so the housing market and the planning constraints on supply are only mentioned once in TNRE. Immigration and Britain’s relationship with the EU are side issues; climate policy and transgenderism are not even that.

The way people engage with political ideas has changed even more radically. Twitter, Bluesky, YouTube, Twitch, TikTok – these things are not even imaginable yet. The only time technology is mentioned in TNRE as a means to spread political ideas is when one author proudly describes how he uses a computer to make political posters.

In short, there is a lot to be said for a present-day sequel to TNRE, written by Millennials and Zoomers, to talk about their intellectual journeys, and make classical liberal ideas relatable to members of their generation.

The title “Millennial Liberalism” is, of course, a response to “Millennial Socialism”. A lot of media stories have portrayed Millennials as a generation of Corbynites, and Gen Z as a generation of Polanskiites. Judging from opinion surveys, this portrayal is largely correct. But there is such a thing as a Millennial-Zoomer Liberalism too, even though it is clearly not a mass movement, it is not fashionable, and people will never chant “Ohhhhhhh Ludwig von Miiiiiiises” at Glastonbury.

The upside of this is that Millennial Liberals and Zoomer Liberals are among the brightest and most independent-minded members of their generations. These are people who have a genuine interest in ideas: unlike Millennial Socialists or Zoomer Socialists, they are not doing this in order to boost their social image. They are not going along with the fashions of the time, and they are not trying to fit in. The upside of ‘uncool’ ideas is that you can at least be sure that nobody ever adopts those ideas in order to ‘look cool’.

So I have asked some of those Millennial and Zoomer Liberals to tell me their stories, which is what they will do, in this article series. Unfortunately for me, I am slightly too old to qualify for a contribution of my own: I was born in 1980, which makes me part of the last cohort of Generation X. What I can do, though, is abuse my position as editor to say a few words about my own ideological journey here.

And you cannot stop me.

Like countless other people before and after me, I went through a typical “confused, clueless teenage commie” phase from about age 15 to 17 or 18. I had copies of the collected works of Marx, Engels and Lenin, but never made it past the first few pages, because it was difficult to read, and, like most Millennial and Zoomer Socialists today, I was much more drawn to the “rebellious”, “cool” image of socialism than to the actual ideological content. (I would, of course, have denied this at the time, and was genuinely unaware that that was what I was doing.) Still, while my ideological commitment was extremely superficial and ill-informed, it felt real, and it was not so easy to let go of.

At the age of 17 or 18, I started to develop a grudging appreciation of the market economy. I remember reading a booklet written by a liberal economics journalist which made an impression on me: Wundertüte Marktwirtschaft: Was kann sie leisten – was müssen wir leisten? (“The market economy as a goody bag: What can it achieve – and what do we have to achieve?”). It described basic economic concepts in extremely simple terms, one of them being Adam Smith’s “invisible hand” – the idea that, in a market economy, you can do things that benefit other people even if that is not your intention. You do not get rich simply by “being greedy”. In a market economy, economic transactions are voluntary. I cannot force you to trade with me. If I want some of your money, I need to offer you something that you want, and are prepared to pay for.

More: whatever it is that I am offering you, I am probably not the only one vying for your custom (or at least not for long). Others will try to do the same. I need to outcompete them. I need to offer you something better and/or cheaper than them. When one of my competitors comes up with a more appealing offer, I need to match that somehow.

This sounds trivial today. But it was a mind-blowing realisation for me at the time, because I started applying it to things I saw around me. I started noticing that pattern in real economic life. In particular:

Two years earlier, a regional brewery had launched a new style of beer. It turned out to be extremely popular, and other breweries tried to respond to it in various ways. As a budding beer enthusiast, I enjoyed the results of that competitive process, but I never once thought about why this was happening. More generally – I never once asked myself why, every time I set foot into a shop, the shelves were full of nice things offered at reasonable prices. To say that I took things for granted would be an understatement. All the good things that a modern market economy has to offer were, from my perspective, just somehow there. And that was it. That was early-stage Niemietzonomics. Everything is just somehow there.

Also around 1997 or 1998, I developed an interest in the postwar period, and especially the West German Wirtschaftswunder, the economic miracle that turned a war-torn wasteland into one of the most prosperous countries in the world. I knew from my grandparents’ anecdotes that things had not always been this way, but my theory for how things get better over time was analogous to my theory for how goods get into the shelves: they just somehow do.

Except, as I then learned, there was nothing “somehow” about it. The Wirtschaftswunder was the result of active political choices, which were controversial at the time. It started in 1948, when Business Secretary Ludwig Erhard abolished price controls overnight, and the shop windows started to fill up almost immediately. Erhard, who was influenced by a group of liberal economists (the original neoliberals or “Ordoliberals”), was initially very much in a minority with his pro-market views. The two largest parties – the Social Democrats (SPD) and the Christian Democrats (CDU) – both initially supported a semi-socialist economy with a raft of nationalised industries.

So, for a while, I was torn. I accepted the case for a market economy at a logical level, but my heart was not in it. The market economy seemed right, but it did not feel right.

I thought that a good solution to that inner conflict would be to become a social democrat. So in the Federal Election of September 1998, I voted for the SPD, a few weeks later, I joined the party. It seemed like a good compromise: the SPD was a left-wing party; they had Marxist roots which they still cherished in a nostalgic way, but they were also explicitly accepting of the market economy (and had been since 1959). The party had a proud history, which I found extremely appealing. Born out of the political struggles of the Bismarck era, they later became the bedrock of the ailing Weimar Republic, and in the Republic’s dying days, they were the last man standing against Hitler. I generally hate the expression “on the right side of history”, but in this case, for once, it just fits.

Still, joining them did not really resolve my inner conflict: it just transformed it. I soon learned that the party was torn between a market-friendly “Blairite” wing and a traditionalist left wing, and I found myself firmly on the side of the former. The left-wing of the party seemed overly emotional – indeed, childish – to me. For example, even though government spending at the time was about 48% of GDP, left-wingers were constantly warning about an imaginary “dismantling” of the welfare state.

They also had a tendency to unduly moralise economic outcomes and economic policy decisions. For example, many public sector programmes, such as the pension system, were running chronic deficits, which the Blairites wanted to close with modest spending cuts. Rather than presenting alternative plans, the Left denounced such plans as “socially unjust” and “unfair”. For me, these were not matters of fair vs unfair, or just vs unjust, at all. They were just matters of basic arithmetic. You cannot constantly spend more than you bring in. How is that not obvious? How is that even a discussion?

Or similarly in labour markets: unemployment was very high at the time, in part because a system of centralised collective bargaining prevented wages to vary with productivity. The Left did not accept that argument, claiming, instead, that it was “unfair” that people in less productive parts of the country should be paid less: they work just as hard! Some of them even thought it was “unfair” that East Germans earned less than West Germans, despite the obvious East-West productivity gap.

What estranged me from the Left was that I had started to think like an economist. I started to think of market outcomes as amoral signals of supply and demand, not as moral judgements.

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I attended local party meetings, where I was usually in a minority of one with those views. It became clear to me that while the party tolerated its market-friendly wing, they would never truly accept it. Their heart was not in it, and it never would be. After about a year, I started to accept that, as much as I liked my comrades on a personal level, I did not really belong in that party.

But where else to go? Defecting to the Right was completely out of the question for me. I may have become “economically right-wing”, but I still strongly rejected social conservatism and nationalism. The aforementioned Nolan Chart may have been past its prime, but around the turn of the Millennium, it still worked perfectly for me. I was economically right-wing, but socially and culturally left-wing.

There was, of course, a party which occupied that quadrant of the Nolan Chart, and that was the liberal Free Democratic Party (FDP). In early 2000, I reluctantly defected to them, still insisting that I remained a bit of a Leftie, and that it was specifically the party’s left-liberal wing that I identified with.

Those were also the early days of online discussion forums, a forerunner of what we now call “social media”. Each party had its own forum, and, then as now, the extremes were heavily overrepresented. The conservative forum had its fair share of far-right nationalists, the social democratic forum had its fair share of literal communists, and the liberal forum… well, they had the libertarians.

I did not like those people at all, the libertarians. They were arrogant. They were elitist. They came across as lacking in empathy. But they were really challenging to argue with. They were smart, they were knowledgeable, and they were infuriatingly consistent. They did not win me over, but I found them interesting enough to look up some of the names I picked up from them, such as Milton Friedman, Friedrich August von Hayek, and Ludwig von Mises.

I finished school in June 2000, and then relocated from the state of Rhineland-Palatinate to the state of Bavaria to do my National Service. It was not a bad experience overall, but it was not exactly intellectually stimulating, so I decided to fill that gap by reading up on libertarianism. Some books were available from the liberal Friedrich Naumann Foundation, others from an online bookstore called “Amazon” which I had recently discovered. The early Austrian School types wrote in German, which was neat, but Milton Friedman, rather inconsiderately, did not. There were German translations of his books, but they had tiny print runs, and were impossible to get hold of. (Needless to say, every word Naomi Klein or Noam Chomsky ever uttered was instantly translated, and available everywhere.) Armed only with school English, reading Friedman in the original was a pain. But by then, I was sufficiently captivated by the ideas to keep going.

I cannot remember at what point I realised that I had moved over from left-liberalism to libertarianism. There was no single breakthrough, just a series of realisations that I was wrong about many things.

An example is the welfare state. I believed that the state was generally a bad entrepreneur, and that a competitive marketplace was a better way to provide goods and services. But for a long time, it just did not occur to me to expand that kind of thinking to social protection and welfare services. It did not occur to me to think of the welfare state as essentially a nationalised industry, providing services which, in the main, could also be privately provided.

I also developed an interest in real-world approximations of free-market reforms. I read about Thatcherism, Reaganomics and “Rogernomics”.

After National Service, I spent the spring and summer of 2001 travelling through Central America. Although I loved the region, I was also shocked by the poverty and underdevelopment I saw there, and became more interested in Development Economics as a result. I was particularly drawn to successful examples of countries that had recently grown out of poverty, and it was in this context that I learned about Hong Kong, Singapore, and Chile. I came to the conclusion that, while there were no pure libertarian development models, opening up and liberalising the economy was indispensable for escaping poverty. Naturally, this led me to believe that globalisation was the best thing ever.

It was the worst possible time to come to that conclusion. In October 2001, I moved to Berlin, to study Economics at the Humboldt University. It was the heyday of the anti-globalisation movement. They were all the rage on campus, and impossible to avoid.

I hated them.

They were frustrating to argue with, because they had that typical left-wing combination of ignorance and over-confidence, mixed with a strong sense of imaginary moral superiority.

Another peculiarity of Berlin in those days – just over a decade had passed since German Reunification – was that you could still very easily tell whether you were in the East or in the West. Eastern and Western Germany were still, in lots of ways, two different countries, and nowhere was this more obvious than in Berlin.

As much as I hated socialism as an ideology, I was also weirdly attracted to East Berlin’s frozen-in-time dystopian vibe.

But it was not just vibes. At the time, people did not yet treat the late-stage GDR, the fall of the Berlin Wall, and the process of reunification, as “history”. It was still, in the broadest sense, “the present”, and a frequent topic of conversation. They talked about it in the way British people today would talk about Brexit: yes, a few years have passed, but it’s not over, and it feels far to recent to be “history”.

The standard opinion was that the GDR represented a perverted version of socialism, which had lost touch with the original Marxist ideals. Describing the failure of the GDR as a failure of socialism was considered the most cringeworthy thing a person could possibly say: a surefire way to out oneself as a complete ignoramus. Attitudes to socialism were treated as an implicit IQ test: dumb people judge socialism by its real-world outcomes, smart people judge it by its original intentions. (Needless to say, I was already one of the dumbest of the dumb people even then, and I have only become dumber in the meantime.)

Otherwise, I discovered the books of Murray Rothbard and David Friedman, and was flirting with those more radical versions of libertarianism for a while. I had also started to write for a small libertarian magazine, eigentümlich frei. My ultra-libertarian phase was short-lived, though, and in the mid-2000s, I reverted to a more conventional Hayekian liberalism.

Berlin is a very, very left-wing city. Nonetheless, I managed to track down the city’s 12 or so classical liberals, and gathered them at the Libertärer Stammtisch (=the libertarian regular’s table or meetup group, held at a pub in central Berlin). It must have been through them that I became aware of the Institute for Free Enterprise (IUF), a tiny free-market think tank that was just being formed. In May 2006, they organised a conference on free-market economics with speakers from around the world. One of the speakers was a Brit, who represented an organisation called the “Institute of Economic Affairs”.

-“He talks a lot of sense”, I remember saying to the chap next to me. “Any idea what that organisation is?”

-“What, the IEA? Oh yes! They’re great! They were the ones who prepared the ground for the Thatcher revolution, in the 1970s.”

-“Sounds interesting”, I said. “Think I’ll send them a CV, and apply for an internship there.”

I think there should be more of those, though, especially for hyper-topical books. After two to three years, you can sift a lot of the chaff from the wheat. You can see which books were purely catering to the mood of the moment, and which made a more lasting contribution.

James O’Brien’s book How They Broke Britain was released as a paperback almost exactly two years ago, with the hardcover version half a year earlier. Reading it now, I think even someone sympathetic to Mr O’Brien’s view of the world, such as it is, will have to admit that this book is all chaff, and no wheat.

When I say that How They Broke Britain is a bad book, this is not simply my way of saying ‘I don’t agree with it’. I don’t judge books primarily on that basis (although the temptation is admittedly sometimes hard to resist). I have, for example, previously recommended the book Slavery, Capitalism and the Industrial Revolution by Maxine Berg and Pat Hudson on the IEA Blog, despite the fact that it is clearly an attempt to rehabilitate the Marxist ‘Williams Thesis’. Since the Williams Thesis – the idea that Britain’s Industrial Revolution was financed by profits from the slave trade – is wrong, the attempt to rehabilitate it is also wrong. But this is a book which you can judge by criteria other than ‘Is the book’s central thesis correct?’, such as ‘Did I learn things from this book that I did not previously know?’, or ‘Can I use this as a source of factual information, even if I draw very different conclusions from that information?’

How They Broke Britain is very much not that kind of book. It is more like a written version of one of James O’Brien trademark angry monologues on his LBC show.

Let’s start with the ‘broken Britain’ diagnosis. Left-wing commentators are often good at identifying problems, even if I’m rarely convinced by their solutions. James O’Brien cannot even get that right. He cannot even properly explain what he means when he says that Britain is ‘broken’. Is this about the British economy? Is it about social indicators? Is it about the state of our public services? Is it about social cohesion? It seems to be a bit of all of the above: in the introduction, O’Brien runs us through what looks like a collection of negative news stories. But this everything-is-awful kitchen sink approach doesn’t add up to an assessment of the state of the country. In what way is Britain ‘broken’? Broken compared to what? Broken compared to when? Broken compared to whom? What would an un-broken Britain look like? What would be a better alternative?

These are not minor details. Bear in mind that the political mood in 2023 and 2024 was one of relentless pessimism and negativity. I couldn’t name a single commentator, of whatever political persuasion, who would have argued that Britain was in good shape at the time, and that we should just keep doing what we were doing then. When everyone thinks things are bad, publishing another book which says ‘Things Are Bad’ is not much of a contribution. In such a context, you need to be more specific. You are not arguing against someone who thinks everything is fine, because no such person existed in Britain in 2023 or 2024.

Not even the then government’s few remaining supporters (the Conservative Party was hovering around 20% in the polls) would have said that. When a political party has been in government for an extended period, what usually happens is that one wing of the party gets its way more often than others, and then at least that wing of the party is happy with the results, even if the others are not. The Thatcherite wing of the Tory Party is generally happy to defend their party’s record in government from 1979 to 1997, because they identify with it, and ‘own’ it. Ditto the Blairite wing of the Labour Party, with regard to party’s record in government from 1997 to 2010. What is unusual about the 2010–2024 Tory government is that towards the end, every faction within the Tory Party seemed unhappy with it for a different reason. Those on the Right of the party were unhappy, because immigration had shot up to the highest levels ever recorded. Those on the Left of the party, meanwhile, were unhappy because they thought the party was becoming too ‘Faragist’ in rhetoric. Social conservatives were unhappy, because the party had done nothing to stop the ‘Great Awokening’. The socially liberal wing, meanwhile, didn’t like the ‘Culture War’ rhetoric that the party had adopted in response. The Thatcherite wing was unhappy, because neither public spending nor the tax burden nor public debt had come down, and there had been no notable economic liberalisations in those 14 years. But the ‘Mayite-Timothyite’, communitarian wing wasn’t happy either, because neither had there been a complete break with liberalism. And so on. This is what’s remarkable about Late-Stage Tory Britain: no particular political camp felt ‘ownership’ of Britain’s overall socioeconomic model. No particular political camp identified with the way things were going. Even East Germany still had a few defenders in 1990, who identified with the system, and who stood by it. Britain, in 2023/24, had no equivalent of that.

I was expecting James O’Brien to argue that Britain was in a bad place, because it had been hijacked by a bunch of small-state neoliberal/libertarian extremists such as the IEA, and yes, there is a bit of that in the book, but that’s not really his argument. A full-throttled attack on free-market economics would at least have given me something to work with. But O’Brien’s argument isn’t really that the state is too small, or that it doesn’t regulate enough. No: the book is mostly a criticism of the personalities and perceived character flaws of the people who were in government from 2010 to 2024, as well as the people in the media, the think tank sector etc who O’Brien perceives to be close to them. This is not a book about bad policies (other than, obviously, Brexit), it is a book about bad people. I’m sure O’Brien would protest against that characterisation: he would say that his book is not just about individual bad actors, but also about an ‘ecosystem’ that enables them. But by ‘ecosystem’, he also means ‘bad people’. So that’s really all this is: a book about bad people, surrounded by other bad people, who enable them to do bad-people things.

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That’s James O’Brien’s entire theory of governance: when you have Bad People in charge, bad things happen. Not because Bad People do specific, identifiable bad things that can be shown to have specific, identifiable negative impacts. No – the Bad People just sit there, and emit bad vibes. And then everything is bad.

The problem with the Bad Vibes Theory of Governance is that countries have often done quite well, in important respects, despite having Bad People with Bad Vibes in charge. Donald Trump, I think it’s safe to say, has all the negative characteristics which O’Brien attributes to British politicians on the Right and their imagined ‘ecosystem’, and in spades. Yet despite all that, the US has been doing quite well on measures that policy could realistically influence. For example, between 2015 and 2024, US real median household incomes grew by 15%, compared to a mere 6% in the UK. Poverty in the US fell by three percentage points over the same period. Even the number of people without health insurance, one of America’s long-standing problems, fell by 1.5m. Would these numbers have looked even better under a Clinton-style Democrat or a more Romney-style Republican? Probably, yes. Trump did not ‘cause’ these improvements – but neither did he stop them with his Bad Vibes, that’s my point. In the second half of the 20^th century, there were plenty of unsavoury governments in the world that I would not have wanted to live under, but which nonetheless oversaw remarkable economic progress, and all the benefits that flow from that. If you tried to build an economic model around the Good Vibes Theory, the empirical results would not be kind to it.

Conversely, Britain now has a government that O’Brien would broadly approve of, vibe-wise. In terms of measurable outcomes, remarkably little has changed, and if the OBR forecasts are to be believed, not much is going to.

Fine, O’Brien is not an economist, so maybe I’m looking at this in the wrong way. But as an account of recent political history, the book is just as worthless. Even bad people usually have something that motivates them. They don’t just get out of bed in the morning, thinking, ‘Today, I want to be double-extra-super-über-bad.’ They do things which make sense from their perspective, and on their terms. So what are those? Sure, O’Brien thinks a lot of our political figures are simply stupid, so he thinks there isn’t much going on between their ears that needs explaining. But even a person who isn’t particularly bright can still have a worldview which they get instinctively, and they will have smarter thinkers behind them which have influenced them. It is possible to explain where people are coming from even if you thoroughly disapprove. People have done this writing about the motivations of Hitler, Stalin and Osama Bin Laden, so I’m sure it’s possible to try to imagine why someone might support Brexit. (In case it matters: I’m not a Brexiteer myself.)

The only chapter which does a little bit of that is the one on Dominic Cummings. O’Brien is clearly intrigued by Cummings. He sees him as neither stupid, nor obviously evil, and that puzzles him: how can a non-stupid, non-evil man support stupid, evil things? Why isn’t he on James O’Brien’s side, like all the smart and good people in the world?

But those passages are very much the exception, and even they remain at a fairly superficial level. James O’Brien has zero intellectual curiosity, which is not a good starting point for a book like this. While we can probably all agree that 2010–2024 was not Britain’s finest period, it was nonetheless a fascinating period, a period of real ideological clashes and realignments. In order to write insightfully about such a period, you need some intellectual inquisitiveness; you need to be the sort of person who wants to know why people think the way they think, no matter how wrong they may be.

James O’Brien has none of those qualities. All he has is a lot of rage, and a strong sense of moral and intellectual superiority. Where he is getting that sense from, I’d really like to know, because there is nothing in the pages of this book which would justify it.

If I told you that a company’s website traffic fell by 40 per cent in one year, that its userbase had completely crashed and that its revenue went up 17 per cent in the same year, would you believe me?

This is what happened to Stack Overflow, the world’s largest question-and-answer site for software developers. Since 2008, programmers have posted technical problems there, other programmers have answered them for free and the result is an archive of 83 million questions and answersⁱ that became one of the open web’s most valuable public goods. The question-and-answer format was so effective that it generated an entire Stack Exchange ‘cinematic universe’ of spin-offs around topics from theoretical physics to personal finance and theology.

The website recently received a sleek new look, but it is doubtful that anyone has noticed. These days, Stack Overflow feels like a boarded-up high street. Only ghosts amble around those discussion threads. Ghosts and large language models.

These ghosts inspired the trick to Stack Overflow’s profitable survival. The company pivoted towards licensing its human-curated content to the AI companies whose large language models are now scraping its contents.

Prosus, which acquired the platform for $1.8 billion in 2021, reported $115 million in revenue for the year to March 2025, driven by API partnerships with OpenAI and Google.ⁱⁱ Monthly questions cratered from over 200,000 in 2014 to 25,000 by December 2024.ⁱⁱⁱ By January 2026, the figure was 2,640.^iv In February 2026, Stack Overflow and Cloudflare co-launched a pay-per-crawl system, charging AI bots for access in real time.^v Fewer visitors, more money. So far so great, but the archive is finite, and almost nobody is adding to it.

Everyone else is selling

Platforms that spent two decades giving content away for free have discovered that the same content commands a price when fed to a large language model. Reddit disclosed $203 million in data licensing contracts in its February 2024 IPO prospectus, including a deal with Google worth $60 million annually.^vi By Q2 2025, AI licensing contributed $35 million in a single quarter, about 10 per cent of Reddit’s total revenue.^vii Axel Springer, the Financial Times, Condé Nast and the Associated Press have all signed similar agreements.^viii

The reason AI companies find this human-produced content so valuable is that large language models seem to only be trainable on human-produced content. In a 2024 paper in Nature, Shumailov and colleagues showed that AI models trained on outputs generated by other language models lose information.^ix A follow-up paper the following year established that even small proportions of machine-generated data in a training set can cause the same harm.^x As AI-generated text floods the open web, clean, human-authored training data becomes scarcer and more valuable.

Regulators and protocols

Legislators around the world have not hesitated to introduce new regulations around AI activity. The European Union’s AI Act requires providers of general-purpose AI models to publish summaries of their training data and respect rights-holders’ opt-outs, regardless of where a model was trained. In March 2026, the European Parliament called for a register of every copyrighted work used in AI training.^xi Some countries have leaned towards more liberal regimes. Japan permits copyright exceptions for training, and US courts have been moving towards ‘transformative use’ defences.^xii

In September 2025, a coalition including Reddit, Yahoo, Medium and Quora launched Really Simple Licensing, or RSL, an open protocol allowing publishers to embed machine-readable licensing terms in their websites. By December, over 1,500 media organisations had endorsed the specification.^xiii The protocol supports pay-per-crawl and pay-per-inference models, and the nonprofit RSL Collective functions as a clearing house.

Nevertheless, as of early 2026, no major AI company has signed up.^xiv Chiefly because compliance is so hard to measure. In spite of some efforts to create protocols which prevent bots from scraping a webpage without a licence, no one can reliably tell in real time when and who is scraping the content of a particular webpage. Property rights without measurement are unenforceable, and unenforceable property rights are not really property rights at all.

Have you got a licence for that?

The open internet was built on millions of people contributing local knowledge to a decentralised commons. The proposal now is to selectively fence off that commons through property rights enforced by licensing. If data has value, then it should have a price. So the logic goes, but licensing deals are bilateral arrangements between large platforms and a handful of AI labs. In this budding licensing system, things like personal blogs or small academic journals that don’t have negotiation power are either deprived of these property rights or at the very least would linger in a grey area.

Copyright law already gives publishers ownership over their content. The problem with current data licensing models is that this right lacks three things it needs to function as the basis of a market: clear boundaries, low transaction costs and measurable use. Compare a human-authored paragraph on the internet to a farmer’s field. A fence may serve as the field’s visible boundary. If the farmer wants to sell access to his field, both parties can agree on terms because the thing being sold is observable. As far as a written paragraph is concerned, copyright law says the author owns it, but there is no fence, as the content is potentially visible to anyone with a browser. A crawler can copy the text without the author knowing, and once the paragraph enters a training set, it is hard to verify whether or how it was used. The property right exists on paper but lacks the practical machinery that makes property rights tradeable.

Ronald Coase argued that if property rights are well defined and transaction costs are low, private bargaining will produce efficient outcomes regardless of who holds the right initially. By this standard, the data licensing market fails on both conditions. Rights are poorly delineated in practice, and transaction costs are enormous as negotiating a bespoke deal with each AI lab is only feasible for platforms the size of Reddit or Stack Overflow. The result is that large players can afford to negotiate bilateral deals, but everyone else is left out. Personal blogs, small academic journals, and niche forums that lack negotiation power are either deprived of the value of their property rights or linger in a grey area where those rights go unpriced.

RSL is an attempt to lower transaction costs through standardisation, much as commodity exchanges standardised grain contracts in the nineteenth century. But standardisation alone is insufficient if the underlying use remains unmeasurable.

A potential market-based solution

If the problem is measurement, the answer may be to stop measuring inputs and start pricing outputs instead.

Enterprise customers, such as banks deploying AI for compliance or hospitals using it for diagnostics, need to know that a model’s outputs are reliable and legally defensible. What companies want is a guarantee about the product, so a warranty on the AI model’s training provenance gives them that.

Working backwards, we can assemble the following chain of incentives. The AI company wants to offer the warranty because enterprise customers will pay more for warranted models. But it cannot credibly issue its own warranty, for the same reason a car manufacturer cannot inspect its own safety record. An independent intermediary issues the warranty instead, with its capital at risk if a claim is triggered. The intermediary therefore certifies the training data before underwriting, vetting its provenance and authorship. Certified content then commands a higher licensing fee because AI companies need it to obtain warranty coverage. Publishers invest in certification because certified content is worth more money. Each party responds to a price signal from the party immediately downstream.

The system brings a number of benefits. First, it enables price discovery across the whole market. Today, Reddit knows what its data is worth because it negotiated a deal with Google. A mid-sized trade journal has no idea, because no good mechanism exists to reveal that price. An insurance system creates one. The intermediary’s certification tiers and the warranty premiums attached to each tier produce a visible schedule of prices.

Second, it delivers consumer protection. Today, an enterprise deploying an AI model has no recourse if the model produces poor output because of bad training data. It may not even know who supplied the data. A warranty creates the missing link. If the model fails, the warranty pays out. The intermediary then can push the cost of failure back to the responsible party. This would bring AI models into the same type of system other industries use today. A car buyer does not directly sue the steel mill that provided materials for the car. If something goes wrong, the car buyer claims on the warranty, and the manufacturer traces the fault.

Third, like all insurance systems, it pools risk. Any single publisher faces unpredictable revenue. An insurance pool absorbs these shocks across many publishers, just as homeowners’ insurance absorbs the cost of a single house fire across many premiums.

Fourth, and most importantly for the long-term health of the open web, it gives platforms a direct financial incentive to pay contributors for new content. Stack Overflow’s archive is finite and ageing. If the certification system rewards fresh, human-authored content above old archives, then Stack Overflow earns more by attracting new contributions than by reselling old ones. Attracting more quality content usually involves paying contributors. Stack Overflow has actually already begun exploring this, but the incentive is currently weak because licensing revenue is all about selling access to existing supply. It’s not hard to imagine that an insurance system would drive higher premia for fresh products in many circumstances.

For solo bloggers and anonymous contributors, a voluntary publisher mutual that pools small contributions and distributes revenue by quality score could complement this system well, with membership voluntary and governance set by the members themselves.

Whether the current licensing gold rush is a sustainable business model or a brief arbitrage opportunity depends on whether property rights in data can be made practical, not just legal. The insurance model suggests they can, by pricing quality at the output rather than tracking every input.

When the famous French socialist novelist Jean-Paul Sartre visited the Polish People’s Republic, he described it as a kind of socialist surrealism: “a socialist country where church festivals are public holidays.” Although Sartre was himself a socialist, he inadvertently made a powerful argument for public choice theory when he added: “a country where one can talk with the waiter in English or German and the cook in French, but the Minister only through an interpreter.¹”

This “socialist surrealism” has led many to argue that the Polish People’s Republic was not really socialist. Jan Toporowski, writing in Jacobin, claims that “Poland’s road to socialism was blocked.” Toporowski argues that economists such as Oskar Lange and Michał Kalecki developed sophisticated models through which socialism could have achieved both efficiency and equality, but that the Polish United Workers’ Party ignored their insights and instead pursued policies that led to failure. To assess this claim, we must first understand what Lange himself proposed.

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A lot of people on the political Right are instinctively suspicious of New Towns, because the whole concept feels a bit socialist to them. Why should a bunch of bureaucrats and town planners get to decide where people are allowed to live? What next – New Diets and New Dress Codes imposed by government apparatchiks?

This would be a fair criticism if we had an otherwise liberal planning system. In my ideal world, there would indeed be no such thing as a Whitehall-led New Town programme. There would be lots of privately planned and privately financed developments of all scales and sizes, some of which might well look a bit like a New Town, and there might be local initiatives by fiscally self-funding local authorities to create new settlements. But none of those projects would ever make it anywhere near the Housing Secretary’s desk. The Housing Secretary (if such a position still exists) would probably never even know the names of these places.

But alas, we are a million lightyears away from my ideal world. We already have a system of nationalised development rights, which means that development always involves the decisions of town planners and bureaucrats. Within that system, I don’t see why one large development project of 10,000 housing units is ‘more socialist’ than ten small ones delivering 1,000 housing units each.

New Towns are mostly remembered as a postwar policy, but there were projects you could describe as ‘New Towns’ well before then. Over on the Works In Progress Substack, the economic historian Samuel Watling has summarised their history. Broadly speaking, the New Towns of the 18th and the 19th centuries were largely private enterprises, while the interwar New Towns tended to be local government initiatives, and the postwar New Towns were driven by the national government. Watling defines a successful New Town as one which broadly replicates the economic outcomes of the nearest economic centre, and an unsuccessful one as one which lags noticeably behind. He spots a clear pattern: the successful New Towns were the ones that became closely economically integrated with the nearest economic centre, either because of geographic proximity or good transport connections. The struggling ones were the ones that tried to form self-contained economic units. New Towns are fine if their aim is simply to satisfy housing demand, but not if they become part of a grand plan to redesign economic life.

Put differently, the successful ones were the ones that accepted the country’s economic geography as it was, and went with the grain. The unsuccessful ones were the ones that tried to ‘correct’ the country’s economic geography, because the planners thought they knew better. It is this latter approach which can be reasonably described as ‘socialist’. New Towns, then, are not intrinsically socialist – but they can become a socialist tool in the hands of people who think like socialist planners.

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Suppose a place has a high employment rate, high productivity figures and high wages, but also high housing costs. It is not a Hayekian ‘pretence of knowledge’ to point out that that place probably needs some housing nearby. But it very much is a Hayekian pretence of knowledge if you try to rip up a functioning economic unit, and shift economic activity around, because you think it should take place somewhere else instead.

I’m not particularly familiar with any of the places where Labour’s New Towns are supposed to go, but they seem to be either close to an identifiable economic centre, or well connected to one. If so – these are not socialist New Towns. They look a lot more like the successful than the unsuccessful predecessors.

That’s a good thing – but it does not make the New Towns a brilliant policy. (‘Not socialist’ is a low bar indeed!) The danger is not so much that the Government will build Magnitogorsk-on-Thames, but that they will overburden their New Towns with all kinds of social and environmental requirements which threaten their viability. This is what they are already doing with conventional housing developments, which is why housebuilding rates refuse to go up. While a welcome step, New Towns cannot be a substitute for a wider overall of the housing and planning system.

The multilateral trading system formalised by the WTO’s founding in 1995 delivered the largest sustained liberalisation of trade in modern history at its time. That achievement should not be taken for granted, as it would be a tough sell in today’s climate. As Bryant himself put it: one generation believes in free trade, the next assumes it and the third forgets it. Between 2015 and 2023, protectionist measures worldwide more than quadrupled.

Some countries are now even trying to push below this multilaterally established ‘floor,’ the prime example being the American assault on the most-favoured-nation principle. The US produced a reform paper last December arguing that MFN impedes liberalisation. The real motive, as Alan Beattie noted in the FT, is that Washington cannot get proper trade agreements through Congress and wants to legitimise ad hoc ‘gunboat deals.’ More troubling still, the EU appears willing to entertain the argument. Commissioner Šefčovič has gone as far as to suggest that MFN as a principle is ‘not sacred’.

Britain should not follow this path. As the minister himself noted, a British car contains components from dozens of countries. An Airbus is 30 per cent British. According to the World Bank, the UK was the fourth largest exporter of goods and services in the world in 2024, and the fifth largest importer. British consumers and firms depend on that openness. Imports keep prices down, widen choice and supply the intermediate goods that manufacturers need to compete abroad. An economy this embedded in global supply chains benefits enormously from a principle that guarantees predictable market access. Undermining MFN is a losing strategy.

The WTO deserves serious reform, but reform is difficult because the institution is designed to be slow. Decision-making operates by consensus, giving any single member an effective veto. The Doha Round, launched in 2001, was never concluded. The Appellate Body has been frozen since 2019. When the Government Procurement Agreement committee needed a new chair, Hong Kong blocked the appointment of a Taiwanese candidate on transparently political grounds, leaving the position vacant for years.

None of this means the WTO should be abandoned. It means we should stop expecting it to be the engine of liberalisation and understand it instead as a guardrail. If the WTO sets the floor, bilateral and plurilateral agreements are where countries actually innovate. The UK-Australia FTA, which entered into force in May 2023, eliminated tariffs on over 99 per cent of Australian goods exports. Its chapters cover digital trade, procurement access beyond WTO levels and financial services commitments that exceed even the CPTPP.

The CPTPP itself is a great example of innovation when it comes to trade agreements. Its e-commerce chapter has become the template for digital trade rules in the region and beyond, whilst WTO negotiations on e-commerce remain stuck. Even the EU-Australia deal, expected to be signed this week after nearly eight years of talks provides some decent outcomes on critical minerals and procurement, but the pace is slow.

To make things confusing, in the same week the Trade Secretary championed free trade at Chatham House, his department announced a steel strategy. From July 2026, import quotas will be cut by 60 per cent and out-of-quota tariffs will rise to 50 per cent. The government is also launching a WTO process to raise bound MFN steel tariffs permanently.

The construction industry already expects higher project costs at precisely the moment the government wants to build 1.5 million homes. There is a more market-friendly alternative: boost demand rather than restrict supply. Liberalising planning, permitting faster building of housing and infrastructure would grow the domestic market for steel without taxing every firm that uses it.

The Trade Secretary is right that somnambulism, in the sense that following the lead of bureaucracies that operate at glacial speed and have few incentives to evolve, is a real danger. The WTO is too slow to drive the next wave of liberalisation, or even to preserve the status quo, from the looks of it. Bilateral deals are where the action is. Britain should be concluding more of them, faster, while defending the MFN floor and choosing to protect consumers rather than giving hand-outs to favoured industries at the expense of everyone else.

The state-funded pressure group Action on Smoking and Health (ASH) have responded by claiming that things are not as bad as they look. The accelerated decline since 2021 is, they say, “consistent with a long-term downward trend”. While they acknowledge that “the illicit trade may also be a factor” and that “ongoing cost of living pressures may have pushed some smokers, particularly those on lower incomes, to seek out cheaper, illicit alternatives”, they insist that “declining tobacco clearances appear to be driven mainly by falling smoking prevalence and reduced consumption among those who still smoke”.

As evidence, they have created a graph showing legal cigarette sales since 2015. This seems to show a fairly steady longterm decline, albeit interrupted by the COVID-19 pandemic, with sales in 2025 only slightly lower than one might expect.

You will notice that the decline in legal sales slowed significantly during the pandemic. ASH say, rather cryptically, that the pandemic “disrupted smoking behaviour, coinciding with a spike in tobacco purchasing which has since faded”. What form did this disruption take? Did the number of smokers increase? No. Office for National Statistics figures show that the smoking rate fell from 14.1% to 11.7% between 2019 and 2022. Did smokers consume more cigarettes? No. A study published in 2024 found that the number of cigarettes smoked by the average smoker “remained stable” between October 2019 and 2023 (note that this contradicts ASH’s assertion that there has been “reduced consumption among those who still smoke”).

The best explanation for the increase in legal sales relative to the number of smokers during the pandemic is that lockdowns and travel bans prevented people from buying tobacco abroad and hindered the ability of black market traders to import and sell illicit tobacco. The hump shown in ASH’s graph between 2020 and 2022 reflects smokers being temporarily unable to access non-duty paid tobacco, both legal and illegal. It is further evidence that Britain has a large black market in tobacco.

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This is even more apparent if you include the sale of rolling tobacco, which ASH fail to do. By only looking at manufactured cigarettes, they miss an important part of the market and a very important part of the black market. Legal sales of rolling tobacco actually rose during the pandemic, from 6.5 million kilograms in 2019 to 8.6 million kilograms in 2021. If you translate kilograms of rolling tobacco into cigarettes at a conversion rate of 2,000 cigarettes per kilogram, we find that the sale of legal cigarettes rose by 8% during the pandemic. When opportunities to buy illicit and duty-free tobacco returned to normal in 2022, legal sales began to fall sharply. It doesn’t really matter whether you use 2021 or 2022 as the baseline. The former gives a decline of 52% while the latter gives a decline of 46%. Both figures comfortably outstrip the decline in the number of smokers and therefore the number of cigarettes actually being smoked.

When we look at total cigarette sales, including cigarettes made from rolling tobacco, the post-2021 decline is much more dramatic than ASH make it look. This was a period of large, successive increases in tobacco duty which hit users of rolling tobacco particularly hard. A growing number of smokers were priced out of the legitimate market. As the graph below shows, the steep decline in legal sales in recent years far exceeds both the longterm trend and the decline in the number of smokers.

ASH cite a study which they say shows that “the vast majority of smokers do not buy illicit”, but that is based on a telephone survey and it has no data since 2022. For obvious reasons, people may not be willing to admit to engaging in illegal transactions with a stranger over the phone, and the kind of people who are most likely to buy illicit tobacco may be the least willing to take part in a survey, but the survey still found that the number of smokers who buy tobacco abroad (legally or illegally) trebled between 2019 and 2022, albeit with a sharp decline during the pandemic.

ASH also cite HMRC’s tobacco gap estimates which, they say, show that “illicit tobacco consumption is stable as of 2023/24 and has declined substantially over the long term”. But the whole point of my article was that HMRC’s estimates are wrong. The claim that the tax gap is only 13.8% is not consistent with any of the data on legal sales and cigarette consumption. The Office for Statistics Regulation has expressed concerns about the methodology and even HMRC says that its estimate has “high uncertainty”.

HMRC’s flawed estimates have given a fig leaf to groups like ASH to hide the true scale of Britain’s black market tobacco problem. It is a problem that has become increasingly visible on the high street, in empty pack surveys, and in the simple mathematics outlined above. It is simply not possible for legal sales to be falling so much faster than cigarette consumption without the black market growing at pace. The government and ASH can continue to bury their heads in the sand, but the truth is becoming inescapable.

Can free markets save the West? My answer is they can help save it - but they are only part of the solution.

The West’s problems are undoubtedly in significant part economic. In Europe above all, we have built societies of slow growth and increasing collectivism. But our problems are also political, cultural and democratic. We seem to lack confidence in our own values and the institutional and cultural frameworks which brought success. If we are serious about revival, we have to understand all these things together. We are not dealing simply with a growth problem. That problem is itself a symptom, in part, of a wider crisis of confidence in the institutions, habits and loyalties on which free societies depend.

The nature of the growth problem

But let us look at the growth issue first. As we can see it is mainly a European problem.

The fall in growth has been more dramatic in Europe’s leading economies than in the US. America has continued to generate growth in a way that Europe has simply not. (I’ll come back to the UK story in a moment.)

Why has this happened? Why is Europe’s growth so poor?

I point to three factors. First, high and increasing levels of tax and spend.

Second, energy policy, and in particular the impact of net zero. Third, and without exaggerating it, the removal of the UK as a competing European economic model - not because of Brexit, but because of a long series of British choices which began well before it.

Let’s look at these in turn.

Tax and Spend

The great continental economies at the production frontier - France, Germany and Italy - were already in the year 2000 high-tax, high-spend societies by the standards of the developed world. Since then, they have gone further still, as Chart 2 shows.

The United States has also seen an increase too. This is not a problem unique to Europe. But America started from a much lower base and has remained, by comparative standards, a relatively low-tax, low-spend economy. That difference matters.

It matters because states do not spend or tax in a vacuum. High levels of taxation absorb resources, distort incentives, and direct effort away from useful economic activity and towards transfer, administration and compliance. And over time, if you do enough of that, you reduce the energy, dynamism and risk-taking which growth depends on. You also change the tone of politics itself. The larger the state becomes, the more politics becomes a struggle over slices of a fixed pie, and the less it is about creating new wealth.

That is especially true in economies already at the frontier. If you are France or Germany or Britain, to get growth you need entrepreneurship, innovation, productivity improvement, and experimentation of all kinds. You need, in short, a system that rewards successful effort and allows failures to be rapidly liquidated. Instead we have systems that entrench incumbents, protect insiders and make every decision more political. And that is showing up in the growth figures.

Energy

Then there is the second factor: energy.

Since the mid-2000s - really since the beginning of the climate panic - energy consumption per head has fallen across Europe. In the EU27 it is down by roughly 20%. In the UK it is down by 40%.

This is the result of deliberate policy. We have chosen to make energy, and particularly electricity, more expensive by a forced transition to renewables. It is a a system of state-directed shortage and unpredictability in one of the most basic inputs into economic life.

And energy is not just another sector. It feeds into all parts of the economy. When energy is too expensive, everything becomes more expensive. Investment is deferred or cancelled. If governments deliberately constrain supply in pursuit of ideological targets, they do not create a modern economy. They create stagnation. Cheap and abundant energy is not a luxury appendage to growth, but rather one of the preconditions of civilisation as we have known it in the modern West. A society which reconciles itself to having less energy each year is reconciling itself to doing less, making less, and in the end just being less.

The biggest supply-side reform available to most European countries today is simply to abandon the current crazy energy policy. If you want growth, bring the market back into energy policy and make energy abundant, reliable and cheap. It is not complicated.

The UK story

Now let me turn to the third factor, the UK story. Go back to the 1990s. At that point, European capitalism was still recognisably divided into two broad types, as thinkers like Michel Albert, Peter Hall, and David Soskice, were describing.

On the one hand, there was the UK and Ireland: the Anglo-Saxon model. This emphasised shareholder value, individual success, competitive markets, relatively short time horizons, lower taxation and lower public spending. It was not identical to the United States, and it did not go as far, but it was recognisably in that family.

On the other hand, there was the western European, Rhineland model. That emphasised consensus, stakeholder interests, long-term commitments, skill formation, stronger social institutions, greater employment protection for insiders, and a larger public sector.

There were advantages and disadvantages to both. But there was a real difference. There was genuine competition between models. There was more than one plausible answer to the question of how a prosperous European society should be organised.

What has happened since then? The answer, I think, is that the UK model has largely disappeared. There is now, in effect, only one European economic model. There are variations on a theme but they are all more similar than different. Over the last quarter-century, Britain has gradually converged with the continent - and that convergence is still continuing.

In one area Britain has gone further - energy policy. Britain has adopted a particularly virulent form of net zero, as you can see in the third chart. Our energy consumption per head is now down to the same levels as decades ago. That is an astonishing thing to say about what is still supposed to be a modern industrial nation, and this is surely the main reason behind the collapse in growth that we saw in the first chart.

The consequences of Britain going off the pitch have been serious. First, there is no longer an alternative, recognisably European version of a liberal low tax market economy. America largely remains America. But within Europe itself, the internal contrast has faded.

Second, there is no longer meaningful competition between models. And Europe tends to perform best when there is such competition - when different countries are trying different approaches, learning from each other, and exposing each other’s failures. Uniformity is often presented as convenience and sophistication, but in reality it often means that bad ideas spread faster and are challenged less often. A continent in which almost every member of the establishment class believes roughly the same things about regulation, migration, energy and the role of the state is a continent which finds it very hard to correct course. And so it is proving.

Third, and perhaps most important, Europe has become unable fully to realise how distinctive its present model now is. When everyone around you is making the same mistakes, decline begins to feel normal. It becomes harder to see how far you have drifted from the conditions of success. Only looking outside Europe shows Europeans that they are slowing down - but Europeans still have a presumption, if unavowed, of cultural superiority and lack of willingness to learn from elsewhere.

So what about supply-side reform, the wider use of markets, a greater degree of competition? These things are of course extremely important, but I don’t think they can be a cause of the experience of the last decade or two. There was a big wave of supply side reform in the 2000s but since then, although things have not got any better for a decade or so, they haven’t got worse either.

I am of course all in favour of better planning systems, lighter regulation, freer labour markets, lower barriers to enterprise, and all the rest of it. Every country has its specific blockages. In Britain, our planning regime is an obvious example. Supply-side reform will help, certainly. But it is not obvious, taking Europe as a whole, as the chart shows, that this is the specific explanation for the problems since 2008. Since then, the main forces depressing growth across the continent have been taxation, spending, and energy. Those are the phenomena that need to be tackled.

The wider issues

But, as I said at the start, that’s not all. And here is where I part company with the analysis of some free marketeers, and even more with some libertarians’. I do not believe our problems are just about economics. Culture matters too.

As I have said before, I believe that on a historical perspective Europe’s and the West’s economic success is fundamentally related to the emergence of the modern nation state. It is no accident that the great drive to success in the late eighteenth and nineteenth centuries happened first in the traditional existing nation states, and spread with nationalism across the continent. In short, nation-state formation and industrialisation proceeded to a significant extent in parallel.

That was not coincidence. Free markets require more than contracts and prices. They require a willingness to experiment, to change, to disrupt traditional ways of doing things. They require people to accept churn, uncertainty and unequal outcomes. That will not happen unless people feel they are part of a broadly cohesive community; unless they believe that that community can provide collective protection against the worst risks; and unless they think it is well governed, so that entrepreneurialism pays off rather than being arbitrarily punished. It also requires them to know that they can adjust course and solve problems as they emerge - that the democratic process genuinely means something and that elections can change things.

Unfortunately, what we are seeing in Europe is the gradual decomposition of the nation state, under two main pressures.

The first is the transfer of powers to Brussels: the steady disempowerment of national decision-making, and the promotion from above of particular ideological assumptions about government, economics and society. All this has happened without any true replacement at EU level by a European state capable of commanding democratic loyalty. Power has moved upwards, but legitimacy has not followed it, and the democratic link to national electorates has disappeared somewhere in the transition.

The second pressure is the large-scale migration, into at least some of our countries, of people from cultural backgrounds very different from our own, with social norms very different from our own, combined with a wilful blindness of Western elites about the challenges this poses for integration. This process is changing what existing citizens think of as their country, is requiring the creation of new and unpopular national stories, and is undermining the bargain upon which national welfare states rest. In short it is starting to undermine the factors which make a nation state an effective arena for politics and economic development.

Both these pressures are affecting the cultural, political, and democratic norms that have hitherto regulated nation states in Europe. The political and economic bargains on which they are based are beginning to fray. If, as I argue, the nation state and economic modernisation are closely linked, then you must expect economic growth to be affected if the nation state starts to decay. And that is exactly what we see.

I believe that solving the cultural and political problems has to go hand in hand with solving the economic ones. That is why our situation is worse than in the last great run of crises in the 1970s. Today, we face economic problems for sure, but we also have a deeper uncertainty about who we are, our systems of governance, and whether our countries still possess the solidarity needed for democratic capitalism to work. These things need to be resolved too.

So can free markets save the West? Yes - but not on their own, and not in abstraction from the society in which they operate. We need leaders willing to shrink the state, end the net zero madness and restore abundant energy. We need leaders willing to revive national democracy, rebuild cohesion and defend the culture of the nation state. We need leaders who understand that prosperity is not produced by bureaucracy, and that a civilisation survives only when it still believes in itself. If we don’t find them, decline will not merely continue, it will become our settled condition. The West can still be saved. We know how. But where are the leaders who will take this task on?

Most people in my line of work are obsessed with the concept of the ‘Overton Window’, the range of socially permissible ideas, and in particular, with the way ideas cross the window’s boundaries over time. I share that obsession myself. In this day and age, how could you not?

When I first came across the concept, the examples people would use to illustrate it were examples of attitudinal changes that happened over the course of a generation or so. Then came the Great Awokening, which meant that ideas that had been completely mainstream until 5 minutes ago were now suddenly beyond the pale. More recently, we saw a backlash against ‘wokery’, which means that some of those previously exiled ideas have re-entered the Overton Window. In our time, it has become possible to be an ‘Overton Window watcher’, who sits at the boundary of the Overton Window, and watches ideas arrive and leave.

Inside the Overton Window

My one criticism of our Overton Window obsession, though, would be that by focussing almost exclusively on what happens at the window’s boundaries, we neglect movements within it. These matter too. It is possible for an idea to successfully break into the Overton Window, and then get permanently stuck in its outer layer, rather than moving on towards the centre, where it has a chance to become an actual reality.

The outer layer of the Overton Window contains ideas that you can express in public without everyone freaking out and yelling at you, but which are nonetheless not widely popular. A good example of this is republicanism, the idea that Britain should abolish its monarchy, and become a republic. It is a perfectly respectable opinion. Republicans do not have to fear negative social repercussions for expressing their views. Monarchists will disagree with them, but they will try to persuade them that they are wrong, rather than call them traitors or lunatics.

It has not always been this way. There was a time when expressing anti-monarchy views was genuinely controversial. Republicans have managed to break into the Overton Window – but once they were on the inside, they stopped. They never moved much further than that. No major political party has adopted the abolition of the monarchy, or a referendum on the subject, as an official manifesto commitment. At no point has the UK come close to becoming the United Republic of Great Britain and Northern Ireland. 

We could call this the ‘republicanism trap’, or, if you’re one of those impressionable readers who think German compound nouns automatically look philosophical and profound, the Republikanismusfalle. It’s when an idea becomes socially acceptable, but still fails to make an impact, because it gets permanently stuck in the outer layers of the Overton Window.

Social Health Insurance meets politics

There is a possibility that the idea of replacing the NHS with a Social Health Insurance (SHI) system will meet the same fate. This idea broke into the Overton Window about three years ago. You can see this from the fact that the NHS Confederation, the Health Service Journal, the Health Foundation, the King’s Fund and the Nuffield Trust have all published papers or articles critiquing SHI. They would not have done this before. When an idea is outside of the Overton Window, you do not write papers or articles explaining why you think it’s wrong. You just dismiss it, or ignore it. The Royal Geographical Society does not argue with the Flat Earth Society. 

Breaking into the Overton Window was a real triumph for SHI supporters. The danger now, though, is that SHI will be stuck in this outer layer for a very long time – and arguably, Reform’s awkward and short-lived flirtation with SHI has been a setback.  

In 2024, Nigel Farage must have sensed the vibe shift in the way we talk about the NHS, because he said several positive things about the French health insurance system. What happened next was interesting. 

I mentioned the SHI-critiques by the NHS Confederation, the Health Service Journal, the Health Foundation, the King’s Fund and the Nuffield Trust. These are all, in my view, unconvincing, but they are intellectually honest critiques. They critique actual SHI systems, not some silly strawman version of them, and they engage seriously with the idea. This is exactly what that debate should look like. 

Politics, of course, is not like that at all. Politics is not about being right, it’s about winning. 

So, predictably, Farage’s pro-SHI statements triggered the usual scaremongering about Americanised healthcare. His opponents ignored the bit about France, zoomed in on the word ‘insurance’, and then went on to claim that ‘insurance’ means that you have to pay for every treatment out of pocket. They also claimed that the poor would go without healthcare, and that the prices you would have to pay would be American ones. The Labour Party, for example, claimed that under an insurance-based healthcare system, patients would have to pay £10,958 for an appendix removal, £23,000 for a hip replacement, £1,045 for an ambulance, and £1,368 for an A&E visit. These prices have, apparently, been taken from the US, and just been converted from $ into £. 

This is misinformation of the crudest kind – but then, Farage is really the last person in the country who could claim to be unfamiliar with a populist style of politics. He should have anticipated such responses, and he should have had a list of ready-made rebuttals on hand. Instead, Reform quickly dropped the issue, and reverted to reaffirming their commitment to a free-at-the-point-of-use NHS. 

Look. I don’t know the first thing about political communication, and would never pretend to. I’m an impractical ivory tower guy, and I don’t do ‘real world’ stuff. But I know a fair bit about manufactured hysterias around the NHS, because I’ve studied the 40-plus-year-history of them, which is why I know that the above strategy never works. Once you have been accused of being an enemy of the NHS, your opponents will never drop that accusation. And if you appear to row back on things you said earlier, they will only interpret that as an admission of guilt. Once you are in that position, the only way out is forward. You have to own every word you said, and double down on it. 

I’d normally say that Reform’s communication problems are a problem for their press team, not me, but in this case, they’ve made it a problem for anyone who supports SHI alternatives. If you look at the responses from Labour and others, it’s quite clear that they are not just attacking Farage and Reform. They are attacking the very idea of insurance-based healthcare. Reform have given their opponents an easy opportunity to spread misinformation about SHI, and then they just ran away and refused to clean up the mess.

Basic facts about SHI

Since Reform are neither willing nor able to do it, let’s address these claims here.

At the most basic level – what does ‘insurance-based healthcare’ mean?

‘Insurance’ is the way we deal with costs that are unpredictable from the perspective of an individual, but predictable enough from the perspective of a large group. I have no idea what my healthcare costs are going to be this year: it could be zero, it could be hundreds of thousands, it could be anything in between. But these things average out, so at the level of, say, the borough I live in, the city I live in, or the country I live in, we can work it out in advance with a reasonably high degree of accuracy. It therefore makes sense for groups of people to get together, and pool their resources for that purpose. Everyone pays some money into a common pot, enough to cover the group’s anticipated healthcare costs, and then the ones who get sick get to draw on the pot to pay their medical bills.

If we use ‘insurance’ in this most general sense, even the NHS could be described as ‘an insurance-based healthcare system’. We do not usually think of it in those terms, because the specifics of the system obscure it, but all it would take to make this clear is a few minor accounting tweaks. The NHS is funded out of general taxation, not a specific, earmarked ‘NHS tax’. But we could very easily convert, for example, a part of income tax into a ring-fenced NHS tax. This would not change the nature of the NHS in the slightest, only the financing mechanics would be a little different. 

Once we have an NHS tax, we could relabel it ‘National Health Insurance Contribution’ or ‘National Health Insurance Premium’. Again, nothing would have changed. But we would suddenly have ‘an insurance-based healthcare system’.

I’m not trying to play linguistic games here. I’m merely pointing out that there are commonalities as well as differences between the NHS, and the health systems we would normally describe as ‘insurance-based’. They differ in that, in the latter, the insurer does not double up as a monopoly provider of healthcare. Rather, it buys healthcare on a competitive marketplace. If it is an SHI system, there is more than one insurer: there are multiple – sometimes over a hundred – competing ones. Those are important differences. What the systems have in common with the NHS, though, is that there is a pooling mechanism for healthcare costs, such that you pay for it primarily via your premiums, not at the point of use.

It is therefore plainly dishonest to scare people by telling them they would have to pay for their ambulance, their appendix removal and their A&E visit under an insurance-based healthcare system. A system in which you have to pay for everything out of pocket is not an insurance system, it is just no system at all.

If an insurer refused to pay for clinically necessary treatment, that would be a straightforward breach of their contractual obligations, and thus illegal. In fact, insurance-based systems are typically much more explicit about what exactly you are entitled to than the NHS. In the NHS, you are only entitled to ‘healthcare’ in general, but not to any specific kind of treatment.

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What about co-payments?

It is true that most SHI systems are not 100% free at the point of use. Small user charges play a supplementary role. However, this is simply because most health systems in general are not 100% free at the point of use. Most tax-funded, state-run healthcare systems also have co-payments, which can be just as high as in SHI systems, or higher. Anecdotally: I used to know a Norwegian who lived in Germany, and who expressed surprise about how low the co-payments were, compared to Norway. Norway has a tax-funded health system, Germany has the world’s oldest SHI system. The question of co-payments is independent of the type of healthcare system you have. It is simply an entirely separate debate. Even the NHS could, in principle, introduce co-payments any day. It would be seen as a violation of its founding principles, sure, but it would not make it a different healthcare system.

What happens to those who can’t pay their insurance premiums, though?

In SHI systems, the answer is: the same thing that happens in the UK to the people who can’t pay taxes, which, as we have established, contain an implicit health insurance premium. Those people are still entitled to treatment, and other taxpayers pick up the tab, which we could think of as an implicit insurance premium subsidy. In SHI systems, that implicit premium subsidy is simply made more explicit. It becomes an actual transfer payment that you can see in the accounts.

So no, you won’t have to pay the (absurdly precise) figure of £10,958 for an appendix removal; and you’ll still get your appendix removed if you can’t pay insurance premiums; and whether there will be a co-payment or not is an unrelated debate.

Where next?

The NHS is no longer the sacred cow it once was. Criticism of it, and advocacy of an alternative, has entered the Overton Window.

But are we at a stage yet where a political party could openly call for the replacement of the NHS with a different system? Or would such a party instantly consign itself to electoral oblivion?

I have no idea. Again, I don’t deal with ‘real word’ politics. But what I do know is that if a party or other political organisation is tempted to do anything of that sort, it cannot do it in a non-committal ‘I’m just asking questions’ way. You cannot just lob the word ‘insurance’ into the arena, and then duck. You have to have a clear idea of what alternative you actually want, you have to anticipate a barrage of misinformation coming your way, and you have to know exactly how to respond to that.

SHI may be in the Overton Window now, but not everyone got the memo, and old taboos die hard.

The Chancellor deserves credit for honesty. Her second Mais Lecture delivered this week contained a reasonably clear-eyed diagnosis of the country’s economic maladies. Amongst them, she notes that Britain’s productivity growth since the 2008 financial crisis has been consistently weak. Planning rules have rationed housing and infrastructure, while an accumulation of regulatory barriers has steadily raised the cost of doing anything at all. It is somewhat reassuring to hear these issues spelled out clearly.

The trouble starts when the Chancellor moves from diagnosis to treatment. Her answer is the ‘active and strategic state,’ working in partnership with business to shape markets, pick sectors and steer investment. The speech is studded with a collection of new hubs and programmes, which by themselves have a questionable track record, and steers clear, for the most part, of some much-needed substantial changes on planning, taxation and the regulatory environment.

Planning reform: necessary and insufficient

The Chancellor rightly identifies Britain’s planning system as ‘a direct obstacle to investment.’ In terms of progress already made, she highlights the reintroduction of mandatory housing targets, the opening of grey belt land and some limits on local committee vetoes.

These are welcome steps, however, the gap between ambition and delivery is already large and growing. The Office for Budget Responsibility expects net housing additions to fall to 215,000 in 2026, down from an average of around 260,000 in the early 2020s. The government’s 1.5 million target requires roughly 300,000 homes per year, a rate the country has not sustained since the post-war building boom. Industry surveys paint an even bleaker picture: almost all senior development leaders reported low or very low confidence in the market heading into 2026, citing planning delays, rising construction costs, labour shortages and viability pressures.

The fundamental problem is that mandatory targets and grey belt adjustments operate within the same discretionary framework that makes British construction so expensive. Without a genuine shift towards a more liberal planning system, the targets will remain aspirational.

Hubs, zones and units: action for the sake of action

The speech introduces the usual density of new entities and programmes: innovation hubs, digital campuses, growth labs, an AI Economics Institute to monitor the impact of AI on labour markets, a Youth Jobs Grant and the list goes on.

This proliferation of named initiatives is a beloved British policy tradition. It creates the impression of purposeful activity without addressing the underlying constraints that make activity so difficult. The question that hangs over every new hub and incubator is the same. Why do these sectors need bespoke institutions rather than a general environment in which enterprise can flourish? If planning rules were sensible, energy costs competitive and regulation proportionate, firms in Cambridge and Manchester would expand without needing a development corporation to hold their hand.

The Chancellor has also pledged to procure up to £1 billion of quantum computers from the first UK companies to produce them at commercial scale. This is a bet on a technology whose commercial timeline remains currently uncertain, placed with taxpayers’ money, through a procurement mechanism whose details are unspecified. It may work. It may not. But it is the kind of targeted industrial intervention whose track record gives some reason for scepticism.

Youth unemployment

The Chancellor notes that youth unemployment stands at over 16 per cent and declares the government ‘will not leave a generation to languish without prospects.’ She announces record investment in training, apprenticeships, a Youth Guarantee and a new £3,000 Youth Jobs Grant. What the speech does not say is that the government’s own policies have contributed materially to the problem.

The 2024 Budget raised employer National Insurance contributions and significantly increased the National Living Wage. The combined effect has been to raise the cost of entry-level hiring sharply. Retail employment costs alone rose by £5 billion in 2025. The cost of employing a full-time entry-level retail worker increased by roughly 10 per cent, and for part-time workers by over 13 per cent. When hiring becomes more expensive, employers naturally prefer experienced candidates who can deliver immediate productivity. Young people, who by definition lack experience, are pushed to the back of the queue.

The Chancellor’s response, a billion-pound suite of subsidies, grants and guaranteed placements, amounts to treating a wound that her own fiscal choices inflicted. It would have been cheaper, and more effective, not to have inflicted it in the first place.

Two genuinely welcome ideas

Against this backdrop, two proposals in the speech stand out as genuinely promising.

First, the Chancellor’s commitment to reform non-compete clauses. Around five million employees in Britain work under contracts containing non-competes, and research consistently shows that these clauses suppress job mobility, depress wages, and inhibit entrepreneurship. The government’s working paper, published in November 2025, considers options ranging from statutory time limits to an outright ban and identified evidence, particularly from Austria’s 2006 reforms, that restricting non-competes for lower earners increases mobility into better-paying jobs.

Second, and more significant, is the announcement on fiscal devolution. The Chancellor has asked officials to develop a roadmap for giving regional leaders control over a share of national taxes, including income tax, with a publication expected at this year’s Budget. She has also announced £2.3 billion in City Investment Funds backed by business rates retention for major city regions in the North and West Midlands.

The Chancellor is right that ‘it is no coincidence that Britain is one of the most politically centralised of advanced democracies, and one of the most geographically unequal too.’ Local authorities are asked to plan for growth but capture almost none of the fiscal reward when growth materialises. The result is a system that generates neither strong incentives for local economic development nor meaningful accountability for local outcomes. Creating real budgets with real constraints, where the proceeds of growth benefit the places that generated it, would be a positive, and perhaps overdue, change.

However, fiscal devolution works best when local authorities can compete on rates and set their own terms. If the planning, regulatory and tax environment remains unchanged, devolved fiscal powers may amount to rearranging the furniture in a locked room.

The active and strategic state

The Chancellor’s speech is long on institutional creativity and short on the thing that would actually make the biggest difference: a general, sustained reduction in the cost of doing business in Britain. Planning reform that deserves the name. Energy policy that prioritises cost reduction over target-setting. A tax regime that does not penalise hiring. Regulation that doesn’t inflate costs and blocks economy activity.

On regulation, the Chancellor’s own position is conflicted. She rightly identifies the accumulation of regulatory barriers as a drag on growth yet simultaneously signals a desire for closer regulatory alignment with the European Union. EU regulatory frameworks are, in many areas, precisely the kind of prescriptive, compliance-heavy regimes that raise costs for firms. If the goal is a lighter regulatory environment, voluntarily reimporting the EU’s approach is a strange way to achieve it.

The ‘active and strategic state’ is presented as the corrective to the ‘passive state’ of the past. However, the British state has not been passive. The Chancellor herself concedes as much when she observes that previous governments delivered ‘a highly centralised regulatory state, indifferent to the structure of the economy, lacking in strategic focus.’ Is the promise then the government will do more but ‘aim better?’ Rebranding interventionism as ‘strategic’ does not change its nature.

A more considered approach to addressing the UK’s productivity deficit would be to systematically reduce the supply-side barriers the Chancellor identified in her speech, rather than expanding the discretionary powers of the state that created those barriers in the first instance.

By Kris Kaleta

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