What makes a scenario persuasive?

If we accept that the future is undetermined, and if we accept that a plurality of futures can emerge from our present state, then how do we distinguish between competing visions of the future? We don't have perfect foresight, despite, on occasion, an 'official future' being given to us as a planning assumption for our future thinking. In which case, if there is no 'true' view of the future, then surely we have to fall back upon those futures which we find more persuasive as a technique to discern the signal from the noise. What is it, then, that makes one scenario more persuasive than others?

The futures cone might help us to order our thinking in this area. To start with, in order to be persuasive, the future has to be possible rather than impossible. There is a sequence whereby impossible futures become possible, but from the immediate future horizon, we have to accept the impossibility of some futures. For example, some science fiction writers talk of inter-stellar travel using 'faster than light' drives of some sort. Given the current state of our technology, and barring the possibility of humanity being gifted such technology, these futures seem impossible for the immediate future. That impossibility could change in the future, but from the perspective of the present, such futures are unlikely to be too persuasive.

If we travel further into the cone, we move from the realms of possibility to the realms of plausibility. If one future is possible because it might happen, another becomes plausible because it could happen. We are now starting to enter an area where we find some futures likely and others less so. We make no comment on the degree of likelihood in this zone, we just note, in an ordinal way, that some futures are more likely than others. The more likely the future is, the more persuasive we are bound to find it. Of course, the assessment of likelihood is a question of subjective probability, which accounts for different people viewing the same scenario with different degrees of persuasion.

The question of subjective probabilities pulls us from the area of plausible futures to the area of probable futures. In this case, we are a bit more certain about a set of future outcomes. Once again, the probabilities are likely to be subjective, but we are at the point where we can be fairly sure of ourselves because we see the set of future events as fairly likely to happen. The danger here is hubris, which encourages us to abandon any lingering uncertainty about the future. This is the zone in which 'official futures' are created.

The final category of futures we need to consider in this context are projected futures. These are futures that arise on the assumption of ceteris paribus, that things more or less progress as they are progressing now. There is a degree of persuasiveness about these futures, particularly in the very near term future, where it is not unreasonable to assume that most things are set. Change takes time to implement and to have an impact. In this moment, ceteris paribus is not a wholly unreasonable assumption. This can make some projected futures fairly persuasive.

What about preferred futures? We have separated preferred futures form the other categories because they blend a mix of likelihood and desire. These are the futures that we want to happen, which may or may not be influenced by their likelihood. These are the futures from which a compelling vision of the future may emerge. Or they may be the futures where we simply disappear in a cloud of wishful thinking.

As with all things, much depends upon out motives. If we are using futures as an aid to strategic planning, then we are likely to dwell in the area of probable and plausible futures, with the occasional excursion into the realms of possible futures as wild card exercises. If, on the other hand, we are using futures as a device for transformational change, then we are less likely to focus on the likelihood of a set of futures than their desirability. We will find some futures more desirable than others and that desirability enters into our appraisal of which futures we find more convincing. We can try to guard against this bias, but bias and choice are part of the human condition, so they can't be eliminated entirely. 

It is, however, an argument in favour of a diverse range of participation in transformative and normative futures. This is hard to achieve in practice because some interest group is bound to be overlooked. A set of scenarios derived from too narrow a base are unlikely to be too persuasive. So what does make a scenario convincing? A more likely and a more desirable scenario will undoubtedly be more persuasive than one that is neither. This is all part of telling a better story.

Stephen Aguilar-Millan

© The European Futures Observatory 2021

How do you measure a return on investment for foresight?

Let's just suppose that we agree that foresight ought to have a return on investment. In that case, how would we go about measuring such a thing? It is entirely possible that we could devise new models of foresight evaluation, but a shorter route would be to take existing models of investment appraisal and to adapt them for the purposes of foresight evaluation. The financial community has a long history of doing just this. Would to be possible to commandeer some of their models to put to work in evaluating foresight?

We have stated before that one of the objections to using foresight as a better aid to strategic planning is the utilitarian nature of the methods used. However, in this case, they can also be a strength. We can readily see that it is worth undertaking a project if the benefits outweigh the costs. It is also true in reverse, an activity is not worth undertaking if the costs outweigh its benefits. In commercial language, it fails to meet the action threshold. There are problems with these approaches, but let's set those aside for the moment to focus on the core of the technique. It might help to examine the cost side of the equation before going on to review the question of appraising the benefits.

This approach is best suited to what the evaluator community calls project evaluation. When reviewing the prospective costs of a project, the starting point has to be what it is that the project hopes to achieve. What is it examining? Over what time horizon? With what deliverables in mind? So many foresight projects go astray because this clear vision of what the project is about is absent at the beginning. A degree of clarity is needed at the outset because that will dominate the structure - and the cost base - of the whole project ahead.

If you are certain what it is that you want to look at, the next question to resolve is who is to be involved in the process. In many respects, that is a question of determining which stakeholders have a voice in the process, and which stakeholders are not consulted. In some projects the core stakeholders appear obvious, in others less so. Those close to the subject being reviewed might expect a voice, whilst those affected by it remotely may not. This involves a balancing act for the project managers. On the one hand, a more diverse group will yield more robust results. On the other hand, including too many voices will reduce the effectiveness of the core of the project. In this sense, a camel is a horse designed by a committee.

At some point the project will have to take a view on tool selection. If we have defined the problem to be examined, if we have determined who will be conducting the examination, we then have to take a view on how the examination will be conducted. This is the point at which we encounter the question of uncertainty. We want to choose the right tool for the job, but we cannot know for sure a priori which is the right tool for the job. We can only say that, on a balance of probabilities that a given tool is likely to yield useful results. 

This is where the staffing question and the tool selection issue start to become inter-dependent. Some tools require a wider input than others, Some tools require a more intensive time cost than others. It is at this point that we may have to scale back our ambitions for the project because the budget won't support the initial scale of those ambitions. The process of adjustment may tend to be adaptive in how it rolls out. However, if the project is to go ahead, then eventually a compromise will be reached on the cost side. It is then we can turn to the prospective benefits.

We have already stated that the project will have a focus in the future. This could be a forecast of a future state or, more likely, the discernment of the broad contours of the future. The project is likely to aim at producing insights into the future from which we can profit by preparing for that future today. This is an area which can prove to be quite problematic. 

To start with, our view of how the future might unfold could be wrong. There is considerable uncertainty about future states. The prospective benefits to our actions are remote - they lie a long way off from the present - and may not be clearly defined. The benefits are likely to be less quantifiable than the costs and the impact of our actions might not be experienced in quite the way we previously anticipated. We could do the right thing for the wrong reasons and the wrong thing for the right reasons. There is no way of knowing a priori exactly how things will turn out. The future out-turn could be broadly in line with our original thoughts or it could quite equally be very different. The right foresight tools should enhance the likelihood of the former and lessen the chance of the latter, but nothing is guaranteed.

If foresight is a means to gauge a volatile, uncertain, complex, and adaptive world; then the tools it uses are likely to reflect that state of being. This means that when we measure the return on investment on foresight, we ought to include a statement to the effect that the process contains a wide margin of error. At the end of the day it will be up to the client to determine whether or not a specific project is likely to provide sufficient benefits to justify the cost. What the foresight professional can do is to help frame that judgement in a fairly systematic way.

Stephen Aguilar-Millan

© The European Futures Observatory 2021

Should foresight have a return on investment?

This is a peculiarly phrased question, but it is one that is worth bearing with. It highlights a key issue in our motivation for undertaking foresight. There are various motivations for undertaking foresight. One motive could be that it would help to produce decisions that more closely align with where we want to be in the future - an aid to better strategic planning. Another motive could be to use foresight to build a better world - as a vehicle for a transformative future. There are more motives for undertaking foresight, but I want to focus on just these two because they have the feel of polar opposites from which we might learn something. Let's start with the former motivation before looking at the latter.

Foresight as an aid to better strategic planning is unfashionable in some quarters and very fashionable in others. It tends to be sought after in the corporate world, where the futurist is often asked to make the 'business case' for foresight. In terms of justification, we are entering the world of cost-benefit analysis. Where a return from an activity has to be shown in excess of the cost of undertaking it. In this sense, foresight needs to have a return on investment, even if we can't quite quantify those costs and benefits, and despite the eventual costs and benefits existing in an uncertain future. 

The underlying philosophy of this approach is utilitarianism - the social good is enhanced when the greatest benefit accrues to the greatest number of beneficiaries. It is the core philosophy underlying much theoretical economics and it has a number of flaws. To start with, the beneficiaries are not identified. One could argue that unborn generations ought to considered as beneficiaries with an equivalence to current ones. There has been a move in this direction in recent policy developments. However, the most damaging criticism of this approach is that is does not factor in individual rights and has the potential to be the source of grave injustices. The partiality of whose voice counts - and those who are excluded - is the core argument against this approach.

By way of contrast, foresight as a transformational device starts with the individual as the core of its focus. This approach tends to be seen more in community and governmental settings, usually by those who wish to effect profound change. In this case, a project will be endorsed if it can be shown to lead to a better world. It needs to show an absolute positive impact to be worth undertaking. In this sense, a project doesn't necessarily need to show a return on investment. It only needs to show a positive impact.

The problem with this approach lies with how the positive impact is ascertained and in whose interest the positive impact accrues. This is a fairly serious issue. The transformational approach is being adopted to the issue of climate change, which can help to expose some of the flaws arising fro this approach. It is generally accepted that climate mitigation is a good thing and that we need to act today to ensure a better tomorrow. 

Laying aside the issue of whether or not that is true, it does create a distributional problem over who bears the costs of mitigation. So far, where mitigation policies have been implemented, it is the poorer elements in society who have had to bear the greater cost of climate mitigation. This exposes the problem at the heart of the transformational approach. Unless each and every person affected by the policy is consulted, the approach is delivered as a top down policy that has a tone of authoritarianism about it. The 'Guardians' deliver policy to the masses. It exposes the connection between Futurism and Fascism that futurists strive to deny. 

This leaves us in an unhappy place. On the one hand we have an approach that is infused with a corporate bean-counters mentality. On the other hand we have an approach where the great and the good tell the rest of society how they ought to live their lives. In practice, most of us try to find a pragmatic compromise in order to avoid an extreme position. A more balanced approach might be the best way to deal with the question. Should foresight have a return on investment? In a corporate setting it probably should. In a community setting it probably shouldn't.

Stephen Aguilar-Millan

© The European Futures Observatory 2021

How Can We Game A Future Economy?

We have previously written about the possibility of joining together a sequence of games to generate a set of nested games (see here for more detail). In pursuit of that objective, we have now played one of the middle games to see how it all unfolds. The basic premise is that a set of geopolitical events drives movements in the financial markets. There is a set of actors who can influence outcomes within those markets, and that provides the basis for the game. To complete the description, the game then provides a set of market outcomes which can be used as inputs into a game examining how individual firms respond to rapidly moving markets. 

We played the middle game where geopolitics is driving market movements and where actors can respond and influence those market movements. The geopolitical frame we chose was 'The Belarussian Right Hook' (see here for more detail). To recap, the setting is that Russia uses the cover of wargames in Belarus as a launch pad to complete an invasion and absorption of Ukraine. Initially, things go well, but then they start to go off plan. NATO becomes involved, highlighting a tension between NATO and the institutions of the European Union. Eventually the US becomes involved. As that happens, China becomes a bit more aggressive in East Asia. The scenario ends with Russia expelled from Ukraine - but not Crimea - and European (but not necessarily NATO) forces in Smolensk, along the line of the Dnepr River. This represented a 30 day time frame of geopolitical drama.

Within that framework, the markets fluctuated wildly. We played with five actors, representing an amalgam of the Central Banks and Treasuries of the US, the ECB, China, Russia, and Japan. Each player was given a set of indices that they had to defend and a range of instruments to use in defending them. Collaborative play was encouraged and the players took to supporting each other in their game play. The players are gamers and not Central Bankers, so they brought to the game a more general knowledge than that of subject experts. The first four turns were played as part of a session delivered to the Edinburgh Futurists, with the remaining six turns played by e-mail after the event.

The broad results of the game were both interesting and instructive. The players rather rapidly formed two groups. The US, ECB, and Japan on one side (the Allies); Russia and China on the other side. If anything, China and Russia did a bit better than the Allies. To a certain extent, the game deepened the dependency of Russia on sales of hydrocarbons and minerals to China through long term contracts for supply at favourable rates, whilst driving the spot prices for hydrocarbons and minerals on the world markets to prohibitive levels. The Commodities Metals Index rose from 100 to 124 and the price of oil rose from $50 per barrel to $80 per barrel. Further along the value chain, the Chinese Overseas Trade Index rose from 100 to 107 and the Shanghai Composite Index rose from 3,500 to 3,579. From the Russian and Chinese perspective, the geopolitical adventure was good for business.

Russia beggared it's customers in Europe and the US. This was reflected in the falls in the stock indices over the 30 day period. The S&P 500 fell from 30,000 to 19,425; the Stoxx 600 fell from 400 to 191; and the Nikkei 225 fell from 27,750 to 17,610. This had repercussions in the bond markets and the global currency markets. The 10 Year US Treasury went from 1.00% to 0.83%, reflecting it's safe haven status; the 10 Year German Bund went from -0.50% to -0.83%, representing a loss of confidence that induced large doses of QE; whilst the 10 Year Japanese Bond went from 0.25% to 0.17%, representing a loss of faith in equities. As for currencies, the WSJ $ Index rose from 100 to 133, again highlighting the safe haven status of the US Dollar, whilst the Euro moved from €1.25 to the $  to €0.91 to the $. There was a lot of selling of Euros. From the perspective of the Allies, war in Europe was not at all good for their economies.

I think that we can draw some tentative conclusions at this point. The most obvious conclusion is that war is an expensive business, not only in human and financial terms, but also in terms of opportunities forgone. It is much better to stay out of a conflict than to rush into one. That isn't always possible and in the game the US was drawn into this conflict rather reluctantly. However, once the conflict was started, the Allies readily acted in concert and Russia acted to gain support from China, who was more than willing to provide it. This is a conclusion we have drawn from other games, to an extent that we now see this as something of a default future. Towards the end of the game, US involvement in Europe created room for a bit of Chinese adventurism in East Asia. A Chinese expeditionary force had set sail into the East China Sea, possibly towards the Senkaku Islands, possibly towards Taiwan. This is one potential continuation point for the game.

The end of the game left us in a position where the economies of the Allies needed a cessation of hostilities. The unresolved questions of Kaliningrad and Crimea had been left on the table. There was also a question over Belarus that we didn't really tease out. In terms of development, I think we can take this game in two possible directions. The first is to play out the Hedge Fund game - the final tier in the nested game system. That would be a fun thing to do. The second possibility would be to game the peace conference and throw in the thorny questions of Kaliningrad, Crimea, and Belarus. That would make a great matrix game for the future.

On the whole, I'm pleased with the progress that we have made. We are starting to generate sets of games that dovetail into each other quite well. They are generating some interesting ideas for spin-off games, and we starting to reach a wider audience. I guess that's a cue for more of the same.

Stephen Aguilar-Millan

© The European Futures Observatory 2021

Why are some foresight tools more equal than others?

My work has recently brought me into contact with the world of academic foresight. The group I am working with includes not only futurists, but also people from other disciplines. The focus of the work is on foresight, so those from other disciplines are asking the not unreasonable question of foresight is about? One answer placed me in contact with Popper's Foresight Diamond (see picture), which, I have to admit, I had never encountered prior to this work. I'll leave why that is as a question for later. My first reaction to the analysis was one of deep unease.

This was followed by reference to a piece that suggested that the point of foresight was to predict change (don't agree with that) and how foresight tools are useful for thinking about the future (agree with that). In this particular piece, the author then goes on to reference the Three Horizons Model and Causal Layered Analysis. This left me deeply dissatisfied and extremely uncomfortable. It is worth tracking the source of this discomfort.

The second piece gave me a better clue to the source of the discomfort than the first, but let's start a bit further back. What is the point of foresight? For the insights into a range of emergent futures that they can provide. How do we unlock those insights? By using a range of foresight tools developed for that purpose. The key point is the range of tools because that suggests an intention worth uncovering. Tools are used because they are useful. A tool that has little utility is a fairly poor tool. It follows that if the purpose of foresight is to be useful, then it needs to embrace tools that have a high degree of utility and to discard tools that have little utility. This is right to the point.

The second piece was binary. Only the 3H Model and CLA were mentioned. The two are not equivalent in practice. The 3H Model is encountered more frequently in practice nowadays, but, outside of the public sector and a few voluntary agencies, CLA is hardly encountered at all. In the private sector it is extremely rare to encounter CLA. Why is that? I think that it can be ascribed to three factors. First, there is the relative complexity of the competing models. CLA intentionally delves into complex layers of meaning and intention. This is intuitively difficult to grasp and needs a great deal of explanation just to arrive at the starting point of a project. The 3H Model is simple and intuitive as a descriptor of change. There is the present (Horizon 1), the future (Horizon 3), and the transition between now and then (Horizon 2). Nothing more complex is needed to understand the model and it can start straight away.

The second problem area relates to what the models are looking at, their strategic intent. CLA aims to examine deeper layers of meaning that most commercial organisations are uninterested in exploring. They take the view that Jungian archetypes and bedrock stories might be interesting conversations, but they aren't exactly on message for the future running of the organisation. The 3H Model, by way of contrast, has the strategic problem as the centre of the exercise. It focuses on the problems that are worrying those who commissioned the investigation. That speaks to the third problem area - the cost of project. Because of the developmental time involved and the breadth of the staff whose input is needed on a project, CLA is far more expensive to deliver a project than the 3H Model. If resources are constrained, then the uncertainty over whether or not a tool will deliver a useful result can be minimised by using the less expensive model. The cost of writing off a project that delivered no appreciably valid or impactful results is lessened.

This is why the foresight diamond makes me feel so uneasy. It identifies a large number of foresight tools, but then ascribes to them a degree of equivalence that I consider false. I appreciate that an academic work has to include all possible outcomes for the sake of completeness. I imagine the peer reviewers looking carefully at what had been excluded. However, the final result is misleading because not all tools have an equivalence. Perhaps that's why I hadn't encountered the foresight diamond before? As a practitioner, it has very little of use for me. 

If the foresight diamond were to be reworked as a word cloud, with the size of the entry determined by the frequency that it is encountered in practice, then I wouldn't mind betting that virtually all of the diamond would be occupied by the 2x2 Matrix. The 2x2 Matrix is by far the most commonly encountered foresight tool. It is easy to understand, it is quick to deploy, and useful results can be derived with fairly minimal cost. Whereas the 3H Model might yield useful results over an afternoon, the 2x2 Matrix can yield useful results over a cup of tea. If a 2x2 Matrix doesn't yield useful results, you will have lost a tea break. If a CLA project doesn't yield useful results, you will have lost a much greater sum of resources, be they time or money. This is why I am rebelling against the foresight diamond. It creates a false equivalence between foresight tools.

Coming back to the original question, why are some foresight tools more equal than others? One reason is that some foresight tools have a much lower cost to generate more useful results than others. These are the ones more frequently encountered in practice. This helps managing the uncertainty around the ability of different tools to generate useful results because the cost of a write off of results that aren't useful is much lower. I'm afraid to say that, at the end of the day, money talks.

Stephen Aguilar-Millan

© The European Futures Observatory 2021

Are we the architects of our own future?

There tends to be two extremes of thought when it comes to agency about the future. There are those who believe that the future just happens to us, that there is little agency in the future we experience, and that the future can almost be random at times. At the other end of the spectrum are those who take the view that we have an high degree of agency in creating our own future. We can see things coming and prepare for them, we can control the factors of our lives that influence our future, and we can exercise choice over the options in front of us. Is one of these views correct? Or can we reconcile the position so that both can be correct?

It is useful to distinguish between microfutures and macrofutures. Microfutures are those aspects of the future that can be controlled through a degree of personal agency. It generally involves a degree of personal choice and whilst some choices close pathways into the future, that is a choice in which there is a high degree of personal agency. This ensures that the spread of choice you face can be very wide indeed. For example, in thinking about a career path, you could choose to become a doctor or you could choose to become an accountant. However, there are very few doctors who are qualified accountants, which suggests that if you choose one course of action, then the other becomes closed to you. It's not impossible to re-train from the one to the other, but it is very lengthy and expensive, which is possibly why so few do. Either way, as the future is malleable, we can prepare and plan for it. In this sense, there is a point to the study of the future. 

Macrofutures are something yet again. These are those aspects of the future where you cannot change anything. They simply happen to you. There is very little personal agency over macrofutures because they are caused by factors beyond your control. This makes the choices available to you very limited. For example, you might decide to buy a property in London, and then find that your firm wants you to move to Newcastle. The choice you then face is almost binary - change jobs or move to Newcastle. You could try to add in extra options, such as exploring the commute to Newcastle or weekly lodging in Newcastle. However, that is an attempt to take a macrofuture - one that is handed to you - and convert it into a microfuture - one that you can create. With macrofutures, the future is one that is given, almost like fate. In this sense, there is no point to the study of the future from a personal perspective because it will happen anyway.

This raises an important question about our ability to create our own future and the role that luck plays in this. Lucky chance can help or impede one's future. It can blow events to your favour and it can blow them to your disadvantage. Placing chance in the context of microfutures and macrofutures is an interesting exercise. Chance in microfutures is an element that you can prepare for and anticipate, either to enhance a positive turn of events or to counter a negative turn of events. The impact of chance in macrofutures - to the degree that it cannot be controlled by your agency - is an altogether different matter.

In the environment of microfutures, a chance event can be moulded to suit your wishes. In a macrofuture environment, there is little you can do about it. You might want to insure against an adverse event, such as a fire or flood. Or you might want to ready yourself for an unfavourable event, such as your company moving production to the Far East, by staying attractive in the jobs market. In both cases, we are seeing again the conversion of a macrofuture into a microfuture. This is the process by which we can start to reconcile the apparent dichotomy between the two.

If we can adopt a process by which we convert macrofutures (things we can't control) into microfutures (things we can control), then we introduce a degree of agency to the process. It is in this way - the process of adaptation and preparation - that we can become the architects of our own future.

Stephen Aguilar-Millan

© The European Futures Observatory 2021

Carry On Spending

When I was growing up, an extremely popular sequence of films were the 'Carry On' films. They included a cast of staple actors, playing broadly similar characters, in mildly differing situations. They were a product of their times, and as a child I found them hilarious. In the humourless world of today, the films are denounced as misogynistic, racist, and homophobic - mainly because they are. However, they do occupy a niche in British folk memory that leaves them cherished by many. I was reminded of the Carry On films as I listened to the recent Chancellor's Budget speech.

As an economy, we are in trouble. Activity is currently in deep freeze. We are in yet another lockdown, with the prospects of relaxation not being fulfilled for some months to come. The scientists are warning of further waves of infection, which means that further lockdowns can't be ruled out. The vaccine roll out is going much better than we could have hoped for, but we don't know for how long it remains effective. These are not attractive prospects.

The fiscal response has been to provide financial support to households and businesses. This has been reasonably generous in historical terms. A furlough scheme has been introduced where 80% of salary has been funded by the state. For businesses, a series of very soft loans and grants of 80% of profits have been provided from public funds. And for those who have been made redundant, there has been an uplift to out of work state benefits for the crisis period. There have been some constituencies for whom the support has been less generous - company directors who pay themselves through dividends spring to mind - but there are very few who have received no support at all.

All of this funding was due to expire on March 31st. Many pointed to the sudden end to the support, especially as the country is still in lockdown and the ability to earn is very restricted. The Budget announced that most of the support will be extended into the autumn. This fits nicely into an official future in which all lockdown restrictions will be relaxed during the summer. The plan is to have the adult population vaccinated against the virus by the end of summer, allowing a relaxation of the economic restrictions. This will be followed by a short period in which levels of activity return to normal, and at the end of that, economic support will cease. That's the plan. Reality may turn out a bit different, but that's a conversation for another day.

As the Chancellor was rolling out this plan, many were asking how he intended the country to pay for it? And what would happen to the cost of public borrowing if inflation were to tick upwards in an appreciable way? The Budget went a little way to address these questions. A sequence of tax rises were announced - some explicit, such as a corporation tax rise, some stealthily, such as using fiscal drag to expand the tax base. Tucked into the small print were some proposals for public spending. There is, by and large, to be a public sector pay freeze for a number of years to come. This is using fiscal drag to achieve a reduction in public spending in real terms. 

There is a certain retro quality to the Budget. We are returning to the use of fiscal drag and cash limits, last seen in the 1980s, to restrain the public finances. As prices and salaries rise, and as the threshold at which tax is paid remains constant, and as the amount of public sector pay remains constant in cash terms, the politicians need do nothing. Inflation will impose the fiscal squeeze. The system has inflation at 2% built into it though the mandate for the Bank of England. But what if inflation takes off at an appreciable rate in excess of the policy target?

In many respects, the Chancellor has gambled that this happens. If inflation rises appreciably above the policy rate, the impact of the fiscal drag on taxation and cash limits on public spending will be that much more pronounced. It will help to pay down the public debt that much sooner. Of course, it will have a consequential impact on the cost of servicing that debt if interest rates are also forced to rise, but that may be a problem for another day. The average outstanding term for UK debt is 11.5 years. Rising interest rates are only a problem for future issuance, which is, on average, half a generation today.

And so we have returned to the Carry On farce of Treasury operations. We have a Budget that spends oodles of money immediately (Hooray!), that places tax increases on the villainous corporate sector (Hooray!), that introduces a stealth tax on the general public (Boo!), and which reduces public sector salaries in real terms in future years (Boo!). To top it all, the cost of this largesse is palmed off onto future generations through potentially higher borrowing costs (Aah!). Sometimes, politics is nothing more than a pantomime.

Stephen Aguilar-Millan

© The European Futures Observatory 2021