Maq Masi
Two recent interventions crystallised the debate that will define Britain’s fiscal future. Boris Johnson, on GB News, called for defence spending at 3% of GDP and argued that trimming the welfare budget is the only way to pay for it. Jacob Rees-Mogg, on his YouTube channel, made the libertarian case that high corporate taxes stifle growth and that reducing welfare is the definitive route to balancing the state’s books.
Their logic seems straightforward: spend more on defence, spend less on welfare, cut taxes, and growth will follow.
This essay argues that framing is fundamentally mistaken. It treats Britain’s economy as a zero-sum game when the real problem is productivity. Shrinking the social safety net does not save money—it weakens the workforce and diminishes long-term productive capacity. True national strength comes not from a leaner welfare state, but from expanding the economic frontier by investing in the people who drive it.
Britain is growing again. The economy expanded by 0.6% in the first quarter of 2026, making us one of the strongest-performing G7 economies. Yet something feels off. Productivity remains stubbornly weak. Public debt hovers near 100% of GDP. Living standards are under pressure. Many families are still feeling the pinch, businesses remain cautious, and local authorities struggle to maintain essential services.
This contradiction—growth without prosperity—is the key to understanding Britain’s real challenge. The question is not whether we are growing, but whether today’s growth is laying the foundations for tomorrow’s prosperity.
Much of our political debate fixates on annual Budget decisions: Should taxes rise? Should welfare shrink? Should borrowing increase? These questions obscure a deeper truth. Britain does not primarily suffer from a taxation problem or a spending problem. It suffers from a productivity problem.
Productivity—output per hour worked—determines wages, living standards, and tax revenues. Countries become richer not because governments tax more, but because workers produce more value. Since 2008, UK productivity has grown at just 0.4% per year, compared to 2.2% in the decade before the financial crisis. This gap—equivalent to roughly £10,000 per worker per year in lost output—explains why wages have stagnated, investment has lagged, and public finances remain strained.
The Johnson-Rees-Mogg prescription treats welfare as pure consumption—a cost to be minimised. But this ignores a foundational reality: welfare is partly an investment in human capital. When governments cut housing assistance, income support, or healthcare access, the consequences hit the workplace. Worker illness goes untreated. Absenteeism spikes. Financial anxiety fuels high turnover and low morale. Mental health issues—now the primary cause of long-term sickness among under-50s—worsen.
Research consistently shows that financial insecurity directly damages productivity. The Institute for Fiscal Studies has noted that welfare spending on health, disability, and in-work support often produces measurable economic returns. By starving the workforce of stability, aggressive welfare reduction creates the very outcome it purports to fix: a weaker, less competitive economy.
Of course, not all welfare is investment. Poorly targeted spending that creates dependency or fails to improve outcomes should be reformed. But treating the entire welfare budget as a drain on growth is intellectually lazy. The question is not whether welfare should increase or decrease, but whether it strengthens Britain’s future productive capacity.
The government is trying to achieve three objectives simultaneously. First, restore fiscal sustainability—markets demand credible plans to stabilise debt. Second, increase defence capability—geopolitical instability demands sustained investment. NATO allies have agreed to push defence spending to 3.5% of GDP by 2035, requiring an additional £40bn annually, more than the combined budgets of the Home Office and Ministry of Justice. Third, protect public services—healthcare, education, and infrastructure need urgent renewal after years of underfunding.
Each objective is individually desirable. Together, they create unavoidable tension. Increasing defence without raising taxes means cuts elsewhere. Protecting services while maintaining discipline may require borrowing. Austerity risks undermining growth. The orthodox approach insists on a zero-sum trade-off. But this assumes the economic pie is fixed. It is not. The choices made within this trilemma will determine whether the economy grows or shrinks in the decades ahead.
To break free from this stagnation trap, we must think differently. Instead of asking, “How much should government spend?” we should ask, “What type of spending expands Britain’s future productive capacity?”
There is a crucial distinction between consumption spending—resources used up in the present, like day-to-day operating costs—and investment spending, which expands productive capacity over the long term. Investment includes physical assets like transport links and research facilities, and crucially, human capital via education, healthcare, and social resilience.
The principle is simple. Cutting social infrastructure may balance this year’s budget, but it damages national productivity for generations. Strategic borrowing that maintains a healthy, productive population may increase the deficit today, but it expands the tax base and generates superior returns tomorrow. This is not fiscal recklessness. It is disciplined investment economics.
Rather than cutting welfare to fund defence, the next government should focus on reforms that expand productive capacity. A modernised Golden Rule would distinguish investment borrowing from consumption borrowing. Every major capital project should demonstrate a positive long-term return, undergo independent appraisal by the National Infrastructure Commission, and remain subject to OBR oversight. This approach would strengthen market confidence, not weaken it, because investors value credible institutions over arbitrary numerical targets.
Planning reform is equally essential. Britain’s planning laws are among the most restrictive in the developed world. Major infrastructure projects take years to approve. Housing shortages inflate labour costs and reduce mobility. Planning reform is not merely a housing issue—it is economic growth policy.
Fiscal devolution offers another route to higher productivity. Britain remains one of the most centralised economies in the developed world. Too many decisions affecting Manchester, Birmingham, and Newcastle are made in Whitehall. Local leaders understand regional priorities better than central government. Giving them more control over transport, skills, and infrastructure would enable tailored policy responses and stronger growth.
Britain must also seize the artificial intelligence opportunity. Our universities remain globally respected. Our financial sector possesses deep pools of investment capital. Our legal system is internationally trusted. Government’s role is to provide research funding, digital infrastructure, and regulatory certainty—not to pick winners, but to create conditions in which winners emerge.
Energy security is economic security. Investment in renewable energy, nuclear generation, and grid modernisation produces multiple benefits: energy independence, lower costs, reduced exposure to geopolitical shocks, and higher productivity. These investments are not merely climate policy—they are fundamental economic infrastructure.
The next government’s first 100 days should focus on establishing a credible long-term growth framework. Introduce a Modernised Golden Rule. Launch a National Productivity Strategy. Accelerate planning reform. Expand fiscal devolution. Develop an AI and innovation strategy. Publish a long-term infrastructure pipeline. None of these relies primarily on higher taxation or large-scale austerity. They seek to improve the productivity of every pound already spent.
The ultimate test of any government is not whether it achieves an arbitrary deficit target by cutting the social fabric. It is whether its fiscal choices expand or contract Britain’s future productive frontier.
The Johnson-Rees-Mogg prescription—cutting welfare to fund defence—is self-defeating. It relies on the illusion that capital will flourish in a society where the workforce is destabilised, insecure, and economically strained. National strength is not built on hollow sacrifice. It is a byproduct of domestic economic vitality. Protecting and investing in the health, stability, and productivity of the British workforce is the prerequisite for long-term prosperity.
The libertarian critique is not without merit. Excessive tax burdens can crowd out private investment. Poorly targeted welfare can create dependency. But the answer is not to dismantle the social state. It is to reform it intelligently—distinguishing investment from consumption, targeting support where it delivers returns, and creating conditions for sustainable growth.
History rarely remembers governments for balancing one year’s budget. It remembers those that laid the foundations for enduring prosperity. Britain’s economic future depends not on choosing between defence and welfare, but on expanding the productive frontier so that both can be afforded. That is the real lesson of the UK’s economic trilemma.
References
- Office for National Statistics, “GDP Monthly Estimates,” June 2026.
- Office for Budget Responsibility, “Economic and Fiscal Outlook,” March 2026.
- Institute for Fiscal Studies, “Green Budget,” October 2025.
- OECD, “Economic Surveys: United Kingdom,” 2025.
- International Monetary Fund, “United Kingdom: Article IV Consultation,” 2026.
- National Infrastructure Commission, “Second National Infrastructure Assessment,” 2025.
- Resolution Foundation, “Economy 2030 Inquiry,” 2025.
- HM Treasury, “Spending Review,” 2025.
- Institute for Government, “Fiscal Rules and Fiscal Credibility,” 2025.
- Boris Johnson, GB News interviews, June 2026.
- Sir Jacob Rees-Mogg, The Julia Hartley-Brewer Show, February 2026.
- Understanding Society, “Which policies can both boost growth and help people on low incomes?,” May 2026.
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