Most Western countries did similar, pushing the mountain of global public and private debt to $226 trillion. The average public debt was 99% of GDP, where the UK is in the table of indebted countries. That debt is now becoming more expensive to finance and the budget forecasts will head towards £100bn a year – more than double the defense department’s almost £50bn annual running costs.
War in Ukraine
Energy makes up only 7% of the goods and services included in the inflation basket. But because energy prices rose by around 60% over a 12-month period, they directly contributed around 4 percentage points to the UK’s 10.1% inflation rate. Households and businesses have been paying double the usual amount for their gas and electricity, curbing business investment and consumer spending. Bombed buildings in the besieged southern port city of Mariupol, Ukraine, March 2022. Photo: Alexander Ermochenko/Reuters It was expected to be temporary last year when energy prices first started to rise, but the war in Ukraine meant the situation lasted much longer and fueled transport and food costs. To prevent rising energy bills, the government has pledged to spend around £60bn by next April and many billions more after that, although how much is not yet known. This transition bill adds to the UK’s debts, but its temporary nature means the funds are not considered part of the current spending deficit.
Brexit
The Office for Budget Responsibility, which will be at the center of the budget this week when it provides independent economic forecasts to guide Treasury policies, said Brexit represents a permanent 4% hit to the economy. Research last month by the Economic and Social Research Institute of Ireland (ESRI) found that trade from the UK to the EU had fallen by 16% to levels expected had Brexit not happened. Meanwhile, trade from the EU to the UK was even lower, down 20% by the same measure. Research published in the summer by LSE economists estimated that labor productivity – a key measure of output per hour worked – would fall by 1.3% by 2030. It blamed a reduction in the openness of the UK economy after Brexit, equivalent to losing a quarter of the yield gains of the past decade. Around 500,000 foreign workers who in 2019 were expected to be part of the UK workforce in 2022 are now living elsewhere, denying businesses many of the skilled workers they relied on.
Trusonomics
Liz Truss’s budget will be blamed for damaging the economy. Photo: Anadolu Agency/Getty Images The infamous budget hastily concocted by Kwasi Kwarteng and Liz Truss is expected to be on Hunt’s list of things to blame. Two aspects of the budget remain – reversing the 1.25% rise in national insurance and cutting stamp duty on house purchases. The cost of these two measures is estimated to be around £20 billion. Another £10bn loss can be attributed to higher interest rates caused by a financial panic that followed the Truss Budget. The bill will ultimately be much higher, according to many economists, after the latest GDP data showed a collapse in business investment in the third quarter, which the Truss group led for half of the year. The loss of confidence among businesses cannot be attributed to the sudden change of course brought about by Truss and Kwarteng, but the long-term damage to the UK’s industrial base could be worse as a result of their actions.
The Bank of England
The Bank of England kept guessing with last-minute policy decisions. Photo: Tolga Akmen/EPA Many in the Tory party have accused the central bank of failing in its task of keeping inflation low. They say sharper interest rate hikes earlier in the year would reduce demand for goods and services, limiting price increases. But the government’s last-minute policy decisions dating back to when the leave regime was due to expire kept the bank guessing and forced the monetary policy committee to be cautious about rate hikes that could trigger a recession. The Ukraine war and the Truss budget forced its hand, and now the central bank is accused of causing a long recession through excessive interest rate hikes. Many public services fell into disrepair during David Cameron’s coalition government. Photo: Neil Mockford/Getty Images
The Cameron/Osborne years
The coalition government’s austerity and post-2015 Conservative administrations have allowed many public services to be destroyed. The NHS was ill-prepared for the pandemic and it has become clear that the lack of relaxation in the health system has caused a huge negative impact on the economy. The Health Foundation’s analysis found that by the second quarter of 2022, 200,000 older workers (ages 50 to 69) had left work due to ill health since the start of the pandemic. In total, around 600,000 UK workers who would otherwise be looking for work have dropped out of the labor market, reducing the supply of skilled people and hampering economic growth.
