‘Clearly very big decisions are going to have to be taken about [the very big structural headwinds facing public finances].’

Andrew Bailey, Governor of the Bank of England

In his meeting with the Treasury Select Committee last week, Andrew Bailey set out these ‘very big structural headwinds’ as climate change, an ageing population, and the end of the ‘post-Cold War dividend’ in defence spending.

His warning underlined the Office for Budget Responsibility's warning last year that public debt over the next fifty years would nearly triple to 270% of GDP without action being taken to improve the country's health and lift productivity growth.

No wonder Rachel Reeves is putting so much emphasis on growth.

The problem is, however, that the main measure of growth, GDP or ‘Gross Domestic Product’, is fast losing its relevance as a feature of everyday life, as low-cost or free technology has done away with a reliance on so many basic physical activities, such as excess travel or printed media. Meanwhile, wherever possible, automation is replacing manual labour, and this will have been accelerated by the Chancellor’s own imposition of a substantial increase in Employer’s National Insurance in her recent Budget.

As our economy is increasingly demonetized by all these technical developments, the precarious state of public finances is fast becoming a relic of old-world thinking where so much of GDP was composed of basic needs, which do not in themselves add much to the quality of life — such as, for example, excess travel for ‘in-person’ meetings.

We first commented on this on 20th April 2020 at the start of the pandemic, explaining how the chronic deflationary period leading up to that point reflected continuous technological demonetization (the use of technology to make a product or service cheaper or free, or indeed to wholly remove the need for a product or service with a monetary value: thereby excluding that element from measures of economic turnover). Much has happened to disguise the situation since then, with supply disruption caused by the pandemic and energy price increases caused by the conflict in Ukraine pushing a temporary spike in inflation, which may now be prolonged by Trump’s tariffs.

But the underlying systemic demonetization resulting from the technological and automation transformation continues remorselessly; you only have to look at the European Central Bank making its fifth interest rate cut ‘in an attempt to kick-start its economy’ to see that the long-term deflationary pressures remain. This does not bode well for GDP growth. Meanwhile the growth and inflation seen in the U.S. over the past ten years has only occurred as a result of doubling its national debt.

In our commentary of 20th April 2020, we called for a new metric for determining progress with the well-being of the human race, and to look again for a ‘Quality of Life’ Index. That remains a worthy objective — but it won't help Rachel Reeves in her struggle with excess levels of public debt or Donald Trump, although he probably thinks he can export his national debt problems by imposing huge tariffs on imports.

Also, the search for an aggregate Quality of Life Index won't tackle the huge inequalities which continue to plague modern society, fifty years after Sir Keith Joseph spoke of breaking the cycle of deprivation.

We therefore need a solution, both to excess reliance on public finance/debt and to the chronic level of deprivation across so much of our populations, which will only get worse as automation continues to steal people’s jobs and their prospects of meaningful employment in the future.

The problems may have arisen from widespread political misunderstanding of how economics is being changed by technology and by the role of technology in the workplace and everyday life. However, the solutions can also be found in technology, which remains the key driver for huge advances in wealth creation.

The kernel in our search for solutions lies in equity ownership of these technology drivers, so that we can transition to a state where people across the world can participate in its wealth creation and governance. In our search for a more egalitarian form of capitalism, we call this ‘Stock for Data and Creativity’, and we have made significant progress in researching this over the past year.

Governments both here and across the world recognise the key role of Artificial Intelligence for moving forward: witness Sir Keir Starmer’s focus on AI, Donald Trump's announcement of the $500bn Stargate enterprise, and the disruption caused by China's DeepSeek model, which is covered in several of our programmes this week.

But Government must also appreciate the need to move away from a culture of welfare subservience and universal benefits in order to grasp the opportunity to remove their reliance on excess public finance. Its work on finding innovative ways for benefiting from technology must embrace a transition away from its welfare ideology and towards widespread public participation in technological wealth creation, because it is only through acquiring a sense of ownership that we build a sense of responsibility.

It remains the case, however, that although the kernel in this search for solutions is equity ownership, that will be well-protected by strong resistance to dilution of that ownership.

Following the recent BBC programme ‘Nobel Minds’, I wrote to Sir Geoffrey Hinton, the ‘Godfather of AI’, to explain the progress we have made with ‘Stock for Data’ and to seek his views. His very understandable response was, ‘I don't think the big companies will ever give stock for data unless it's mandated by the government’.

This calls for a sea-change in the approach taken by Government to resolving our major public finance problems. Instead of an exclusive dependence on restoring economic growth, which may be illusory due to the reasons stated above, Government should partner with our research programme to find the blend of answers to questions such as:

  • How to develop a fair basis for rewarding technological digestion of data and creativity;
  • How to enable access to technological advancements across society;
  • How to resolve the linked issue of relaxing copyright rules, from which tech giants yearn to benefit;
  • How to address the global spread of technology businesses, their governing nationalities, and their international customer bases; and
  • How to build governance and administration structures to enable widespread equity participation.

One would expect that Government will wish to share in the resultant participation, but they should not seek to do so on an exclusive or intermediary basis. Meanwhile, the significant reduction in welfare outflows as populations start to see the benefits of their participation in this wealth creation will enable public finances to move steadily into surplus, so that in due course we can move back from the brink of collapsing public finances.

Gavin Oldham OBE

Share Radio