Cutting the cost of government is the only solution to this crisis

A little over a year ago, The Spectator printed a cover story about the risk of inflation. Britain, we argued, was hugely vulnerable: the national debt was structured in such a way that even a small uptick in inflation followed by a rise in interest rates would inflict immense damage on public finances. The conventional wisdom was that there was no such risk, that rates would be ‘low for long’. But what if this consensus was wrong? The Financial Times took the unusual step of writing a story about our story. ‘The Spectator joins the inflation doom-mongers,’ it announced.

‘Doom’ was pushing it a bit: we simply sought to underline the complacency with which governments, central banks and many analysts viewed the economic horizon. Lack of concern about inflation was all the more dangerous because it helped justify the spending, borrowing and money-printing of the post-crash years – and the response to the pandemic. It confirmed that any belief that a ‘modern monetary theory’ had done away with the need to balance budgets was misguided. As it turns out, basic economic rules always applied. The big spenders ended up unleashing forces that they have since struggled to control, or even understand.

Yes, the problem is global. Joe Biden borrowed a trillion dollars and spent it on a rebounding American economy, which was always going to have risks for the world economy. But Britain was just as bad, extending lockdowns for far longer than was necessary and printing £400 billion to pay for it, while all the time saying that inflation would not return. In November, the Bank of England thought that inflation would peak at 5 per cent, more than double its target. In February, it thought 7 per cent. Now it says 11 per cent, and even this might not be the worst of it.