The Elites Got the Economy Wrong but The Autumn Budget Is the Final Nail in The Coffin
The grey suits will have us believe cutting the top rate of tax by 5pc is evil while the alternative - austerity is ‘compassionate’ and ‘adult’ even though it doesn't solve our long-standing problems.
The UK economy is in a precarious position. Inflation is rising, wage growth is stagnating, and the budget deficit is widening. The UK's debt burden is also increasing, putting further strain on the economy.
The cause of the economic problems is the cost of lockdowns and the loss of market confidence as a result of budget deficits and spiralling net national debt. Liz Truss and Kwasi Kwarteng attempted to reverse the UK's economic fortunes with a mini-budget that was focused on growth and investment, but it was risky. Jeremy Hunt and Rishi Sunak will unveil their autumn budget on 17 November, which is expected to include tax rises and spending cuts.
There are four main problems with the UK economy: inflation, wage depression, budget deficits, and debt. Let's take a closer look at each of these problems and how they're impacting the UK economy.
Inflation: Inflation in the UK has been rising steadily since 2016. It reached 3% in September 2020, its highest level since 2012 before absolutely spirally this year. This rise in inflation is largely due to the cost of lockdown measures. As a result of these factors, prices for goods and services have been rising faster than wages, which has put pressure on household budgets.
Wage Depression: Wage growth in the UK has been sluggish since 2008. Real wages (wages adjusted for inflation) are still below their pre-crisis levels. This wage stagnation has made it difficult for households to keep up with rising living costs. And it's one of the reasons why consumer spending has been weak in recent years.
Budget Deficits: The UK government has run a budget deficit (the difference between government spending and revenue) every year since 2009/10. The deficit reached £39 billion (5% of GDP) in 2019/20. This high level of borrowing is unsustainable in the long run and risks driving up interest rates, which would further damage the economy.
Debt: The UK's national debt (the total amount of money owed by the government) currently stands at £2 trillion (90% of GDP). This is up from £1 trillion (60% of GDP) in 2010/11. The high level of debt is a concern because it makes the economy vulnerable to interest rate hikes and increases the risk of a fiscal crisis (a situation where the government cannot afford to pay its debts).
These troublesome economic conditions have had two significant negative outputs.
Low Growth: One of the main challenges/obstacles to getting out of the economic crisis is low growth. Low growth means that there isn't enough economic activity taking place, which can lead to higher unemployment levels and lower tax revenues.
Low Productivity: Another challenge/obstacle to getting out of the economic crisis is low productivity. Low productivity levels mean that businesses aren't able to produce as much output per worker, which can lead to higher costs and lower profits.
What Caused These Economic Problems?
Two main factors have contributed to these economic problems: lockdown measures, which in turn lead to loss of market confidence, Let's take closer look at each these factors.
Lockdown Measures: The cost of lockdowns has been significant both for businesses and consumers. Businesses have borne the brunt of lost revenue due to forced closures while consumers have seen their disposable incomes shrink due to job losses and reduced working hours. The cost of these lockdowns has weighed heavily on economic growth prospects in recent months.
Loss of Market Confidence: The UK's budget deficit and spiralling national debt have caused investors to lose confidence in the country's economic prospects. As a result, interest rates on government bonds have risen sharply, making it more expensive for the government to borrow money. This loss of market confidence has also made it difficult for businesses to raise capital investment, further damaging economic growth prospects.
All feels familiar, right?
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