Strategic Design

Constraints

Policy design that incorporates cross domain design and strategic sequencing is always desirable but becomes essential for overcoming barriers in today’s constrained fiscal and political environment.

The UK, like many other developed countries, faces a combination of capacity, revenue, and debt constraints that appear to limit the options for progress in the face of an array of risks described by the OBR as “daunting”¹. Creating fiscal space to address those risks is made more difficult by cost of living pressures that constrain political options, rising debt sustainability concerns that limit additional borrowing, and tax takes that are already at peace time highs.

Recognising these constraints as real barriers requires strategic policy design to shape the sequencing and interaction of measures to open up possibilities.

Cross Domain

Set against those constraints, each of these reforms looks unachievable on its own, and the programme as a whole looks blocked.

The block dissolves under a macro view that designs and sequences the reforms together. By interleaving taxes with correlated, cost-reducing expenditure across the four domains it spans (the composition of collective support, the tax system, democratic practice, and the governance of the commons), reforms that are impossible alone become possible in combination. The signature move is to programme reductions in the cost of living that offset the impact on disposable incomes of the tax increases. This works because services displace more household cost than the same money would as cash, the efficiency set out in the Services principle above.

This inverts the conventional order, treating social investment as the foundation of economic strength rather than its consequence. That case has been made formally in the UK by the British Academy's working group with HM Treasury and the Department for Business and Trade ²; Prosperity 2030 takes it as given and demonstrates the coordination that makes it actionable. Coordinated this way, the reforms open social, political, fiscal, and practical room to act, and their successful delivery would restore credibility to democratic governance at a moment of mounting geopolitical, technological, and environmental risk.

Broadening provision also builds resilience that developed economies need in any case, and building it now retires liabilities that will otherwise fall due later: the deferred costs of ageing, climate, and the next shock that hangs over every developed nation's long-term accounts. The prize at the end of it is a developed nation living within its means, monetarily and environmentally, for the first time. If the UK were to become the first developed country to get a grip on its public finances, every bond trader in the world would notice. UK debt would move from one of the highest risks in the G7 to amongst the safest assets on the planet. The interest saved could, on its own, cover the UK's NATO spending commitment – a benefit beyond the programme's core case that is not included in the fiscal accounting.

One Step at a Time

At each stage in this prototype programme, an incremental change is made that correlates reductions in the costs of living, spread as broadly as possible across the population, with matched funding aligned with the purpose of the policy. In the first year of the P2030 programme, all new revenues are used to fund new services. Spending is gradually tapered down relative to taxes as the programme progresses, which opens up fiscal space later. At steady state, half of new revenues are used to fund the services and another quarter used for capital improvements, leaving 22% of new revenues as fiscal space for unaddressed priorities for which taxation alone would be unpalatable.

Confidence Building

Policies that immediately impact citizens’ lived experience, demonstrate collective capacity, and drive down the cost of basic living, are required to overcome the loss of confidence that has accumulated in recent years.

Increasing social and political confidence in the feasibility of the programme, and the capacity to deliver results, is specifically incorporated into the policy design. Many UK citizens have lost faith that the government can do anything well, according to recent polls. Failures in basic utilities like water, political scandals, and delays to reforms, have all contributed to a loss of confidence. Trust in the government’s ability to improve things is low, with net scores of around minus 50 on its abilities to deliver on time and on budget³. As a result, 36 per cent of voters express a preference for cuts to tax and spending, compared with only 30 per cent wanting more spending and higher taxes. Acknowledging this starting point means purposefully sequencing policies to progressively increase public confidence.

The trust deficit is not just a UK problem. As the OECD notes: “Well-designed rules and institutions remain essential for fiscal sustainability, but they are no longer sufficient. Governments are being asked to manage long-term fiscal risks in an environment where public trust and people’s willingness to tolerate trade-offs are low.”⁴

The policy programme considers each of these factors at each stage in the sequence, asking, will it:

• Build sufficient social and political support for the next stage?
• Is it sufficiently practical that it can be implemented with a high degree of confidence?
• Strengthen reciprocity?
• Build physical capacity for resilience?
• Foster social structures to support cohesion and collective decision-taking?
• Have a matched funding stream?

Delivery Capability

A reform programme of this scale depends on a centre of government able to deliver in parallel across multiple domains. The British state, despite being the most centralised in Europe, has accumulated institutional habits that can defeat structural reform. A combination of market mantra and fiscal pressure has bred a culture that seeks to achieve nothing directly, and everything without a budget. The P2030 programme provides the opportunity to break that culture, and reforming the structures that hold it in place, as a condition of its delivery. The specifics of that reform are properly the work of the elected government carrying the P2030 mandate; this report does not prescribe them.