The Moneysavingexpert Economy

I have spent rather a lot of time in recent weeks thinking about models. No, not those sorts of models... economic models. More specifically, I’ve been pondering a question we don’t ask ourselves all that much in Britain: what is this country’s economic model?

Partly this is a consequence of researching an essay I wrote for the New Statesman this week in my guise as author of Trade World. But partly it’s because I’ve spent the past week at the International Monetary Fund’s annual meetings in Bangkok where this topic hangs over much of the discussion. Indeed, as you’ll see a little further down, one of the most important policymakers in India is thinking about precisely these issues too.

What, if anything, are the guiding policies a country tries to adhere to when deciding economic policy? This is or ought to be one of the most important of all political economy topics. What guides our economic interventions? What goals are we seeking in our tax and spending policies?

Remember all that talk, back when the UK left the EU, about us becoming “Singapore-on-Thames”? Well, what is that if not an economic model? But what if Britain’s economic model is something else, and what if that economic model just so happens to be in deep trouble? What if our inability to even define our economic models makes us even more oblivious to the danger that model puts us in?

So... what is Britain’s model? How does it compare with, say, China, whose industrial strategy model puts extraordinary effort into building new physical manufacturing industries and encouraging them to export. Well, the best way to think of Britain’s economic model is what, for want of a better phrase, I think of as the Moneysavingexpert.

If you are not from the UK you may not have heard of this website but it’s a genius product. Set up by former journalist Martin Lewis, it is a compendium of tips on how to save money: by changing your energy contract, by getting a new credit card and then flipping to a different one to maximise the free offers, by nabbing a cheap broadband deal. Lewis has become one of, if not the greatest of all British national treasures in recent years, in large part by standing up for consumers in an era of rising costs. So I use the analogy with some caution (all power to you Martin!).

But while trying to find the cheapest deal makes plenty of sense at the consumer level, I would say there are profound question marks over whether it makes sense as a guiding principle for economic policy. That, anyway, is the core point at the heart of the New Statesman essay. An excerpt:

We don’t spend all that much time in this country pondering the nature of our economy; it’s just not very, well, British. That Whitehall struggles to put a name to it might lead you to assume that the UK’s economic strategy is more of an anti-strategy, a sort of muddling along, with the odd intervention here and there.Except that this isn’t quite right, because even a policy of benign neglect is still a policy. In truth, Britain does have an economic strategy, even if it is never put into writing. Perhaps the best way to describe it is as the MoneySavingExpert model.The country’s guiding principle, from the Thatcher years to the Blair ones and all the way through to Starmer, has mostly been to try to optimise economic policy to make stuff as cheap as possible. Some other countries – most notably China and Germany – have prioritised manufacturers and exporters. In Britain, the government’s focus has long been the consumer – its goal has been to try to reduce costs for households. So utilities were privatised and bills regulated; an entire market was built around encouraging consumers to switch. While other countries deployed industrial strategy to protect national champions and favour particular sectors, Britain’s approach has been monomaniacally focused on consumer prices.In the MoneySavingExpert economy, where something is made doesn’t really matter too much. What is considered most important is how much the product costs and whether it could be bought cheaper from elsewhere. And in a world where shipping costs were falling, freedom of navigation was a given and you could always presume that something you ordered from the other side of the world would turn up at a click of a button, such a strategy looked rather astute.Cheap goods meant that for years many households enjoyed unprecedented boosts to their standard of living. That the goods in question invariably came from overseas, accelerating the decline of Britain’s manufacturing sector, was by the by. Cheap deals ruled the roost.There is much to be said for encouraging consumers to switch utility providers if they can save a few pounds. All power to such a crusade. But it’s questionable whether this is really the most sophisticated principle for how to run a country. More to the point, there is a fundamental problem at the heart of this economic model, which is that, for all those cheap imports, life in Britain is hardly cheap. Consider the cost of housing or childcare or, the most glaring example of all, energy.

Why does this matter so much today? In large part because the world of the early 2000s looks to be turning. We are living in a world where geography is reasserting itself, where the structure of supply chains (not just for sexy things like rare earths but for everything) is relevant to economic policy and where countries are taking radical action to erect barriers and regulations to protect their industries. Yet, so far at least, it’s not altogether clear that UK policymakers have assimilated this sea-change.

For all that Rachel Reeves said she wanted her time in the Treasury to be defined by what she called “Securonomics” - the reassertion of geography in economics (in a nutshell) in practice, it is very hard to detect evidence of securonomics in her actual policy. As I wrote a while back, one possibility is she never really believed in this; but the other possibility is that in essence her efforts to try to turn the oil tanker of UK economic policy away from the moneysavingexpert model were thwarted, perhaps by the Whitehall “blob”, perhaps by her cabinet colleagues.

I think there’s probably something to the latter explanation. Try to get a new railway built in the UK and part of your problem isn’t the sheer cost of getting it built. It’s that there are so many obstacles thrown in your way by the Treasury, mostly in the form of cost-benefit calculations. Which comes back to an economic model in which cost savings are the North Star.

Here’s another bit from towards the end of the piece...

Andy Burnham tells us he intends to reindustrialise the UK. Then, sometimes in the same paragraph, he describes his regime as a cost-of-living government. Well, which is it to be? The net result of making more stuff domestically rather than buying it in cheaply from overseas will be to push up prices. He will have to choose one route or the other. It is hardly the only such dilemma. Does Britain lean towards Europe or America? Do we align economically with China, and favour cheap stuff over national security?All of which is to say, Burnham and his fellow politicians face some stark choices in the coming years. Economics is only the start of it. The entire services sector is also facing a breakneck disruption in the form of AI. Even if you don’t subscribe to the notion that the machines are about to make humanity extinct, at the very least this modern-day Industrial Revolution will have far-reaching consequences for work and the distribution of profits. And Britain’s part in this revolution hinges in large part on whether it can find a way to bring energy costs down, given the power-hungry nature of AI computing.And yet there is a jarring contrast between the scale of these challenges and the smallness of our political debate. Much of the newspaper coverage in the build-up to this government’s first Budget has fixated on the question of how much headroom John Healey will have against one of his fiscal rules, an oddly parochial topic given the precarity of the financial system.A far better question is whether Britain’s economic model is fit for purpose in the world of the late 2020s. The MoneySavingExpert strategy of choosing the product from wherever it could be sourced most cheaply might have made sense in a world of just-in-time supply chains, where inventories were derided and those who kept stockpiles of food and fuel dismissed as crazies. But how about in a world where geography is reasserting itself, where maritime chokepoints are being shuttered and where bond yields are signalling danger? Might it be that, all of a sudden, stockpiles of everything from diesel to food – “iron rations” as Keynes might have called them – are relevant all over again? Perhaps it is time to reconsider an economic model that precipitated the hollowing out of the country’s industrial heartlands, all in the pursuit of cheaper stuff.

Anyway, not long after having submitted these words to the New Statesman (again, please do read the full essay as there’s plenty more in there, including on energy, other economic pressures and a rather interesting John Maynard Keynes story) I sat down with V. Anantha Nageswaran, the Chief Economic Adviser to the Government of India.

If you’re not from India, you might not have encountered Nageswaran before but he is one of the most influential voices in Indian economic policy, not to mention a deep thinker about the modern world. We were talking on the fringes of the IMF meetings in Bangkok and, somewhat by coincidence, he made a rather similar point about economic models. I’ll leave you with his thoughts about this - the subtext being that this isn’t just a story about the UK - it’s a story being played out around the world. Models are being tested to destruction.

“Over the previous 35 to 40 years, until Covid happened, every economic shock was treated as an inadequate aggregate demand shock,” said Nageswaran. “So every economic crisis was dealt with through monetary and/or fiscal stimulus.

“As a result, no attention was paid to creating adequate supplies. Everything was concentrated in one country... They will do the manufacturing; we will do the financialisation.

“In the West, your country and the US specialised in financial services. You had a trade surplus in services, as did the United States, as does India. For the developed countries, the services surplus came from asset management, insurance, education, etc. That kind of specialisation.

“And manufacturing was concentrated in a few locations: China, Mexico, Bangladesh, Vietnam, you name them. That extreme specialisation rested on a few critical assumptions, and once they gave way, we are now seeing the clamour for resources.

“What happened was that every single economic shock, whether the 2001 tech bubble burst, the 2007–08 global financial crisis or the 2020 pandemic, was dealt with as a case of inadequate demand. You had monetary stimulus, you had fiscal stimulus. As a result you ended up enlarging your fiscal deficit and your current account deficit, which means you have to keep importing capital and goods from abroad. That is what is now resulting in these strange or inconsistent policy shifts.

“But if you look at it in this framework, the unifying theme is the clamour for resources... Physical things... The stuff you can touch and feel and use on a daily basis, which no amount of money printing or low interest rates can solve by themselves. That is the unifying theme, and unfortunately it will be the unifying theme for the next 20 or 30 years as well.”

PS yes, my framing of the UK’s economic model is intentionally provocative (this is the point)! But let me know what you think. Am I being unfair? And in what circumstances is it possible to shift a country's model from being focused mostly on reducing prices to one where prices come second to, say, security or the survival of particular industries? All comments/thoughts gratefully received, always.

PPS Click here for a full transcript of my wide-ranging conversation with Anantha Nageswaran. A rare insight into what leading minds in the Indian administration are thinking…