To think the UK economy is utterly broken…

[Paul2023]

Things were never the same after the crash of 2007/2008. Austerity was imposed with the Conservatives in 2010 and things never really recovered after that.

Of course we had Brexit and the pandemic.

We’ve had best part of 15 years of cuts to public services, of which we saw services decimated. We’re now seeing the results.

The Bank of England continues to raise interest rates, yet inflation still ain’t coming down fast enough. Yet, most people with mortgages and who privately rent ( which is most of the population) will be poorer as a result of this.

I think the county is in denial. The economy is in a poor state and I don’t think anyone in government ( who ever it is) has the answer. It’s just a case of sticking plasters over the wounds to fight another day.

Here’s an email a poster got from his father , from another forum I’m on;

“I hate to be the bearer of bad news, but someone must point out the grim truth facing the UK; we're going bust.

The UK has just hit a new and totally unwanted milestone, as the country now owes more money than its entire economy is worth - and it’s only going to grow as government borrowing continues to soar. The UK is particularly vulnerable because much of our debt is linked to inflation, and the cost of it rises with prices. Inflation is not stabilising because of wage demands, pension and supply chain increases.

It's a major symbolic moment but one that is in danger of getting lost, as the cost-of-living crisis rages unchecked

and homeowners panic over how they're going to pay their soaring mortgage bills.

The government continues to spend a lot more than the nation collectively earns, forcing it to fund everyday spending by borrowing money.

Taxes may be at a 70-year high – and set to rise even higher – but it's still not enough. As the nation gets sicker and older, the shortfall will grow.

We’re a nation in denial. So are France, Italy and even the US, but that doesn't make it right!”

Im just so scared for the future of our kids that I really can’t see how things will ever really get better. There’s going to be a bigger population of older people and less people paying tax. It explains why the government is so keen to get older people back into work!

Does anyone else really worry about the state of the UK?

Were variable rates more popular in the 80s and 90s then?

From an economist (former BoE) the model the BoE use now has become somewhat out of date, in his view due to the change. Ie many more on fixed than previously

I haven’t looked up the exact numbers though

The base rate could hit 6% by later this year. It hasn’t been at 6% since 2001.

What a ridiculous comment. Other countries have the same issues. It's a worldwide thing.

What’s ridiculous?

The UK is a wealthy country with a strong economy. Every developed country in the world has inflation, housing, aging population etc issues. There's nothing broken or wrong with a UK economy we are just going through a natural part of the economic boom and bust cycle. We are most likely doing better than most.

Compare :

"Things were never the same after the crash of 2007/2008. Austerity was imposed with the Conservatives in 2010 and things never really recovered after that.

Of course we had Brexit and the pandemic.

We’ve had best part of 15 years of cuts to public services, of which we saw services decimated. We’re now seeing the results."

With :

“I hate to be the bearer of bad news, but someone must point out the grim truth facing the UK; we're going bust.

The UK has just hit a new and totally unwanted milestone, as the country now owes more money than its entire economy is worth - and it’s only going to grow as government borrowing continues to soar. The UK is particularly vulnerable because much of our debt is linked to inflation, and the cost of it rises with prices. Inflation is not stabilising because of wage demands, pension and supply chain increases."

So here is a question. If the Tories hadn't done austerity during the 2010s, would we owe more or less money than we do now ? Or to put it more simply, would we be more or less bust ?

There are three arguments to this. One is that the government money spent increases GDP, boosts growth, and that growth compensates for the debt. I am yet to be convinced because I don't believe any government spends money to best effect (in fact quite the opposite).

The other is that austerity actually may have cut services, but actually got us to a much better fiscal position that we would have been in otherwise and that if the Tories hadn't done austerity then the load put on the economy by covid would have really trashed our debt levels (in fact if Corbyn had got in a while before covid then it would have been really interesting to see where our debt levels would have got to, since he proposed much higher spending levels than say Johnson in his budgets).

The third is we could have used taxation rather than borrowing to fund spending instead of austerity. Given the complaints people have about taxation at the moment, its not clear to me that that would have been very popular, and anyway that isn't (supposed to be) part of Tory ideology, tax and spend are not what people voted for when they put the Tories in power.

Personally I think the austerity through the early 2010s was a good example of Keynesian economics - reining in government spending when in economic terms things were "relatively" OK. GDP growth during that period was pretty stunted, but we never dipped into a prolonged recession. Services obviously got badly hit, but as you say - we are getting poorer. The consequences of being poorer are you can afford less, unless you are either willing to pay more (few people seem to be) or borrow more and put it on the kids slate.

They were the only rates. There were no fixes or trackers then.