The Milei Effect
Plus: The latest Government borrowing figures
In today’s newsletter:
Should we look to Argentina?
The Government’s latest borrowing figures
Is the triple lock on pensions unsustainable?
Too often, the best ideas – those we research and champion at the IEA – are not the ones that win votes. The classical liberal case for lower spending, a smaller state, and freer markets rarely tops the manifesto pledges of major parties. Instead, we get an arms race for how much money each can spend on what they deem as the voters’ priorities: most regularly the NHS, welfare, pensions.
So it was striking this week to hear Conservative Party leader Kemi Badenoch claim that Javier Milei, Argentina’s libertarian, state-slashing president, is her ‘template’. Milei is no consensus politician, he’s not (just) a performative actor. When he wields his chainsaw, he means it. He abolished half of his government’s departments immediately on entering office, deregulated key markets, overhauled import restrictions, and slashed funding to provinces. The list goes on.
While the acknowledgement of Milei’s success so far by any British politician is promising, it would be wrong to get too excited about a libertarian revolution at home. Badenoch is saying many of the right things, about needing to stop the salami-slicing of government and instead reassess what the state should and shouldn’t do, but are the voters ready to accept such radicalism? And is a political party on the brink of extinction ready to take the risk?
Political incentives are stubborn things. A party that flinches at touching the pensions triple lock doesn't seem likely to campaign on Milei-style state retrenchment. But as Niall Ferguson noted this week, Milei’s agenda isn’t just working – it’s popular. Politically painful reform is paying off both in economic metrics and public support. Does that mean Badenoch, or maybe Farage or even an emboldened Starmer, can afford to think more radically?
Maybe not. After all, while the UK economy has seen better days, we aren’t quite at Peronist levels of hyperinflation yet. Voters may yet still choose a comfier pension over necessary but initially difficult action. But politicians beware, this way of thinking is how we end up back at decline management. We are almost as close to Argentina in terms of GDP per capita as we are to the US.
The truth is, Britain does need radical solutions if we are to return dynamism – and the prosperity that follows – back to these shores. We will keep working here at the IEA to provide the ideas and make the case for what those reforms might look like.
Callum Price
Director of Communications
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IEA Podcast: Executive Director Tom Clougherty, Editorial Director Kristian Niemietz, and Head of Media Reem Ibrahim discuss the government's fiscal position (and what tax increases might follow), whether Milei provides a ‘template’ for British policymakers, and the alarming rise in support for communism and fascism among young Britons – IEA YouTube
Borrowing figures make tax rises inevitable
Commenting on the latest Government borrowing figures, Executive Director Tom Clougherty said:
The latest borrowing figures underline what many of us already thought – that the government is almost certain to announce another set of tax increases at the Autumn Budget.
Given the country's deepening economic malaise, high borrowing costs, and the government's failure to implement even minor spending cuts, it is hard to see another way out – unless the Chancellor decides to relax her fiscal rules.
That, however, would risk an adverse market reaction, and could make a bad situation worse.
I expect that tax allowances and thresholds will continue to be frozen for years to come, even as inflation remains above target. Many more people are going to end up paying higher rates of tax without getting any richer in real terms.
But it seems unlikely that will be enough. The question is whether the government will drop its core tax pledge, and raise a broad-based tax like income tax, national insurance or VAT, or whether it will attempt another stealth tax raid, targeting businesses and savers.
Either course risks further depressing a weak economy. The better approach would be to build a consensus renewed spending restraint, while also making a much more concerted effort to pursue cost-free, pro-growth regulatory reforms.
Britain is drowning in debt as UK borrowing soars and pressure grows for major tax hikes, The Daily Mail
The 5 ways to protect your money from Rachel Reeves' tax raids, The Daily Express
News and Views
Does Britain need a Milei?, Executive Director Tom Clougherty appeared on Times Radio.
Head of Media Reem Ibrahim appeared on BBC Newsnight alongside Lord Kim Darroch, former Ambassador to the US Joel Pollak, host of The News Agents podcast Jon Sopel, and BBC Presenter Matt Chorley. Watch on BBC iPlayer, or listen on BBC Sounds.
Do OAPs deserve more financial support? Head of Media Reem Ibrahim appeared on Good Morning Britain.
Rachel Reeves urged to halt 'wealth exodus' with immediate action, Executive Director Tom Clougherty, The Express
But Tom Clougherty of the Institute of Economic Affairs warned a wealth tax would be “disaster for Britain” which would trigger “capital flight”.
He said: “It would also paint a terrible picture of the kind of economy we are turning into – and risk undermining investment and growth for years to come. I imagine the speculation alone is already having a negative effect.
“I understand the politics of the situation, but there’s a strong case for the Government ruling the idea out altogether right now.”
Former Goldman Sachs Chief Economist Lord O'Neill: Why Britain is Stagnant | IEA Interview, Executive Director Tom Clougherty interviews Lord Jim O'Neill, IEA YouTube
If Labour wants growth, it should scrap the Employment Rights Bill, Director of Communications Callum Price, ConservativeHome
The Labour Party made two key promises at the last election. The first was to prioritise economic growth. The second was to not tax working people. There are good arguments to say that neither promise has been kept.
Clearly other priorities have taken precedence for much of their first year in office over economic growth. Some for good reason, such as a renewed focus on defence spending. Others less so, such as a renewed focus on keeping their backbenchers onside.
Stalin's Economic Nightmare | Part 2 | Rise & Fall of the Soviet Economy, Managing Editor Daniel Freeman interviews Aymen Aulaiwi, IEA YouTube
Poor savings rates and inflation wipe 11p off every £1, Economics Fellow Julian Jessop was quoted in The Times
Julian Jessop from the Institute of Economic Affairs, a free-market think tank, said: “The appropriate ‘neutral’ interest rate should not just depend on what is best for households. A common rule of thumb is that the real interest rate should be set equal to the potential growth rate of the economy, which would point to a rate below 2 per cent.
“What’s more, the Bank’s main job is to control inflation. If this means that interest rates have to be significantly higher than the neutral level for a prolonged period, or significantly lower, then so be it.”
Axe the triple lock? Head of Media Reem Ibrahim appeared on Channel 5.
The underground tobacco trade is thriving in Britain, Head of Lifestyle Economics Christopher Snowdon, The Critic
A study published last week estimated that 26.8 billion cigarettes are smoked each year in the UK. The state-funded pressure group Action on Smoking and Health (ASH) described this as a “staggering figure” and claimed that it was a “stark reminder of the deadly toll of inaction”. Seizing the opportunity to remind people about the ludicrous Tobacco and Vapes Bill, they said: “Everyday that passes without this legislation is a day lost in protecting our children from addiction and improving public health.”
What CapX is reading this summer, Kristian Niemietz, Reem Ibrahim, and Matthew Bowles gave their reading recommendations for this summer, CapX
A Brief History of the Soviet Economy - Part 2
This is the second in a three-part series exploring the history of the Soviet economy and its modern revival.
The Bosnian Case for Decentralisation
The Whetstone Freedom Fund (WFF) is an international initiative founded by the Institute of Economic Affairs in honour of the late Linda Whetstone, to support classical liberal ideas around the world. Each month on Insider we take a deep dive into the countries and partnerships which are being supported by the WFF.
…. I posted that before going on to explain…. Look, the only reason they have done what they have done is because they were so boxed in that had no other choice. And to be totally frank, they had to just cut and slash and yes, decapitate to sell themselves to the IMF for a handout! They haven’t fixed anything! They fell of the cliff like lemmings and hit the safety bag at the foot. You couldn’t really hit much more than that rock bottom!… and Kemi is seriously contemplating that!???….No wonder we are all turning like a pin ball in a pin ball machine, looking to the next idiotic leader to bounce off onto something else for ideas snd answers! But. as they are all bloody useless, inept and frankly stupid and idiotic! I can’t be any more blunt! They individually chase popularity and votes by tapping in to peoples bigotry and inabilities who, frankly are also bewilderingly and equally devoid of ideas who as it seems, will follow anyone who has a sympathetic voice for their main gripe. Whether it’s the boats, the economy, Islam, Gaza or antisemitism. It’s a mess and everyone is looking the wrong way instead of looking in the opposite direction, for the right way and for the right answers we are all desperately craving to find. The future isn’t an Argentinian way! Or cuts to our pensioners or disabled and it’s not right if left wing it’s just the correct answer! Our democracy is the best form of governance. It’s not a fascist or a communist, it’s not listening to more idiots. It’s about using your own God given brains to see what is happening, why it’s happening and what needs to be done to change what’s happening! Not continuing what’s wrongly happened and keep doing more of the same thing! Stop looking for others to have the answer and stop looking at old economists views as they are just that! Out of date! Break down what is happening that you want to change. And decide on a course of good choices for all!…. Let’s start with the boats! We can’t have an invasion! So physically stop them! Put a physical boom down the Chanel to stop the boats! Patrolled at each end by the navy or border force. Tell France they are going back! The irony is, if France kept a strict border their side, they probably wouldn’t come in the first place! we don’t need a Court of human rights in Strasbourg! We have our own court system. So do what Trump does, build a wall and send em back! Only allow applied for migration for those who we need! And not an extended family! Unless they can benefit us! I don’t like Trumps views but even a broken clock is right twice a day! Our society is Christian. I’m all for people being free to decide their religion or not! But if they are not willing to live or follow our society and its rules then they should be deported or jailed when inciting hate or breaking laws or bitting the hand that feeds them. And for Gaza, two wrongs never make a right! Hamas were diabolical. And they started this whole war. Their society needs policing by the west or other Islamic stated to kick out Hamas and Hezbollah! But do I blame Israel! No! They suffered fear and hate for years! We are a modern planet. This form of hatred perpetuated by Iran and others must be beaten. There lies the true fight for Israel. And can you blame them? They have lived in fear for decades. And suffered enough. The final straw was the October abominations. How often do you pull the tigers tail before it turns and bits your head off! You can’t defend the indefensible. But we must take care of the true civilian people of Gaza and Iran. They are innocents of their rulers. But, let’s put right our economy and we can put our Country back on track. Our governments vision is so narrow it’s blinding! Why they allow us to suffer as if it’s right is staggering! A pension that gives less than half of a minimum wage is just astounding! And why should we accept austerity as if we have to suffer whilst the bankers and rich have our money to dig on is immoral but moreover undemocratic. We’re not short of money, there is around £19trillion out there! It’s just it’s not in the pot! We citizens are devoid of it whilst our money is held in the main outside our country! And outside our grasp . So we end up borrowing it back! And what do they want yes more back from interest! Do we get poorer. No wonder we can’t pay our way! No to cuts, no to insufficient wages! We need better pay. To achieve this we want to reinstate exchange controls. Basically keeping ALL our money within UK Bank. No longer allow money to go abroad. Stop bankers using our money like it’s theirs to gamble snd cream off the top. If we had a proper pension we wouldn’t need any other pensions! And we should all own water, electric gas and telephones and WiFi snd broadband and coal, steel, oil snd anything else that’s ours! We used to own NHS, ( no private hospitals filled with NHS’s staff) British rail, British leyland, NatWest and given em all away! …. Why? We should all benefit from their ownership again. Not because it’s socialism but because it’s best for us all! Now how do we pay for it! We’ll have a new digital currency. No more cash! We don’t need it. Make all swap their money for digital money. And see where it all comes from! See who has it and why? Then put a spend by date on all or part of that new money, so we are assured it’s going to come back again and in time and making sure we have a tsunami of tax revenue for us to have great benefits and pensions and higher wages fairly representing exchange of work, and just have one tax VAT!… we won’t need anything else. We can have more money to enjoy and live! At last we’ll have a proper wage! Too much money is held by too few people. That’s unfair and undemocratic. I’m all for earning as much as we can but we have to spend it to enjoy it. We need one bank to facilitate it. Not use it! We need one pension not many! We need one water company one electric and one gas company. All homes must have insulation, solar, heat source options and windmills locally! Keep it free! All because we can if we control the money within uk. If we want to sell abroad then they can buy with uk bank account money which in turn can buy their goods and do gave equal trade policy! Thats our way out of this mess. Use our money for us. Not them!
Great piece Callum. It highlights our governments dilemma. OMG! …..What on Gods earth are we all doing!!!! We are so devoid of answers that they are seriously looking at the basket case that is Argentina for inspiration!!