The future of the UK economy, and indeed most western economies, is looking rather bleak at the moment.

Fundamentally, British Government has three major problems economically:

1. High Debt, both sovereign and personal
2. High Inflation
3. High Taxation

It is basically a doom loop of which there is only one way out, that is slashing the size of the state; everything from regulation to public spending and taxation. However, the problem is corruption and ideological (feminist) social programmes that we see in the main ideological battle between NATO and Russia.

Firstly, UK sovereign debt is running at around 86% of GDP at about £2.3trn[1] with the current Bank of England base interest rate 1.25% [2]. In conjunction we also have inflation, the official figures at least, at 9.1%.[3] Though from the prices in the supermarket alone, it stands to reason that the inflation actual inflation figure is probably at least double. Asda’s sales figures suggest that discretionary household income has dropped by 17.8%, after the purchase of essentials and the payment of taxes.[4]

Inflation it seems is being driven by two main components. Firstly, quantitative easing (QE) since the financial crash of 2008. This policy was undertaken in order to stimulate the economy and get people borrowing and spending again, whilst at the same time driving down the interest rates. Then, again with the CoVID-19 pandemic the government just turned on the money printer, as it colloquially known, but its more complicated than just printing money.[5] The net result is that it has completely debased the pound to a point of worthlessness. Even though the government says it is raising the national living wage; it actually isn’t. The real purpose is to try and cover the debasing and devaluing of the pound. The best way I can describe it, is like the economy working off a, publicly, false set of data. In our minds we are thinking how wonderful our pay rises are – when it is more like a mitigation of a pay-cut by stealth. House prices, for example, haven’t risen that much since 2008, it is the pound that has gone the other way. How long before £1million will only buy you a loaf of bread?

The second driver of inflation is of course fuel prices. Not many people understand this, but logistics is the backbone of any economy. Logistics, whether by air, land, or sea, costs a lot of money in fuel, only those who work in the industry actually fully appreciate this. The more the price of fuel increases, either by disastrous foreign policy decisions or general supply and demand, so does the price of goods in order to cover the cost of fuel.

What can the government do about it? Traditionally, if inflation starts growing too fast the government will raise interest rates. However, there is one slight problem – debt. Both public and personal debt is so high that raising interest rates makes the debt unserviceable.

For instance, if Dave and Louise took out a variable rate mortgage and were paying £500pcm, with the Bank of England base rate at 1%. The Bank of England raising interest rates to 1.25%, that monthly payment goes up to £625pcm. If interest rates were to rise to 2%, and it isn’t unlikely, then that payment goes up to £1000pcm. The weekly average of household discretionary income, according to Asda, is £202,[6] is then slashed.

Already, as you can see from the chart on page 7, lower and middle classes are really starting feel the pinch. That is before any further rate rises.

In all likelihood, this will lead to a massive housing market crash, repossessions and homelessness.

Basically, the Government and the Bank of England cannot raise interest rates without causing an economic crash and sending hardworking folks onto the streets (but maybe that is the WEF plan). But if it doesn’t raise interest rates, then the price of essentials keeps going up and people can’t afford to live, eat or pay the mortgage and/or rent, causing an economic crash.

The final option is slashing taxes. My back of the envelope calculations of the overall “non-discretionary” taxation level for the individual is about 50-60%. That is excluding business rates and corporation tax. My calculations include VAT, income tax, national insurance, council tax and fuel tax. Though, there are a number of additional discretionary and stealth taxes such as those on sugar, tobacco and alcohol. I have seen other calculations that puts the overall taxation level closer to 70%.

So cutting taxes is the answer? Yes, but with fundamental economic reform. Cutting taxes means cutting most of government spending, especially those on pointless social programmes. Much of what the government does can be taken up by the private sector, and will do a better job. Any business owner will tell you that if you don’t look after your clients and suppliers… you go bust.

The opposition to cuts in public spending will be strong, especially cuts in the NHS and foreign aid and elsewhere. People on left of politics may say, tax the rich even more. All that does is add to the economic woes of the whole country, as it also leads to a downsizing and a slowing down of trade.

Governments, political parties, and indeed we the people; have to make a choice. Economic calamity and its resultant poverty or an end to the welfare state.

Notes

[1] (UK Government, 2022)

[2] (Bank of England, 2022)

[3] (UK Government, 2022)

[4] (ASDA Stores Ltd, 2022)

[5] (Coffin, 2019)

[6] (Centre for Economics and Business Research, 2022)

Bibliography

ASDA Stores Ltd. 2022. Inflation drives disposable income to its lowest ever level as shoppers find ways to spend less. ASDA Corporate. [Online] 24 June 2022. [Cited: 2022 July 05.] https://corporate.asda.com/newsroom/2022/06/24/inflation-drives-disposable-income-to-its-lowest-ever-level-as-shoppers-find-ways-to-spend-less.

Bank of England. 2022. Bank Rate increased to 1.25% – June 2022. Bank of England. [Online] 16 June 2022. [Cited: 2022 July 05.] https://www.bankofengland.co.uk/monetary-policy-summary-and-minutes/2022/june-2022.

Centre for Economics and Business Research. 2022. Asda Income Tracker. Asda Corporate. [Online] 24 June 2022. [Cited: 2022 July 05.] https://corporate.asda.com/media-library/document/asda-income-tracker-june-2022/_proxyDocument?id=00000181-a12d-dc46-a1e3-e3fd51d90000.

Coffin, Richard. 2019. What is Quanitative Easing? YouTube. [Online] 13 December 2019. [Cited: 2022 July 05.] https://www.youtube.com/watch?v=llslyXPu6wI.

UK Government. 2022. Consumer price inflation, UK: May 2022. Office for National Statistics. [Online] 22 June 2022. [Cited: 2022 July 05.] https://www.ons.gov.uk/economy/inflationandpriceindices/bulletins/consumerpriceinflation/may2022.

—. 2022. UK Government Debt and Deficit: December 2021. Office for National Statistics. [Online] 29 April 2022. [Cited: 2022 July 05.] https://www.ons.gov.uk/economy/governmentpublicsectorandtaxes/publicspending/bulletins/ukgovernmentdebtanddeficitforeurostatmaast/december2021.