UK: In just a few weeks, the British economy could be in the doldrums and much stronger leadership will be needed

 

What is happening right now is deeply worrying because the times of easy money could be coming to an abrupt end. The issue is not just rising inflation. The issue is that salaries and pensions have been pegged to inflationary pressures. 

At this point in time, asking for salary rises pegged to inflation could itself be a force towards more inflation and more borrowing when interest payments will be taking their toll on public finances.

And what if, as expected, the Treasury does not agree to salary increases that it could hardly afford? Would the state sector be ground to a halt? It is understandable that public workers that are seeing their incomes devalued are prone to ask for salary rises. Having said that, those in charge know full well that public finances have been drained and that any monies to pay for higher salaries will come from additional borrowing at a time when interest rates are going up and from an increase in taxation.

If energy is the main driver when it comes to inflationary pressures, then more energy will have to be produced and to do so all the promises in terms of a reduction of the use of fossil fuels will have be put aside. In the 1970s, Britain was almost brought down to its knees and the country was working just a few days a week. The issue was then energy or lack of it. Today, the issue is the price of it. Whoever takes the reins of power in September will have to make difficult choices. Doing less to save energy is not an option. Slowing down the British economy by enforcing energy savings will make matters a lot worse. 

We learnt from the imposed Covid lockdown leading to lack of economic activity that slowing down the British economy will cost livelihoods: businesses will be closed down and an undetermined number of jobs will be lost. Companies that generate little or no revenue at all have no reason to maintain jobs. Less economic activity endangers jobs and produces less tax revenues. If you slow down an aircraft in plain flight the time comes when the only way is down. We cannot have yet another loss of economic activity. We need energy and we need energy wherever we can find it. If foreign oil and gas producers don't want or cannot provide additional oil and gas, Britain will have to become self-sufficient and all options should be on the cards, including fracking.

Whoever is chosen as Prime Minister will have to make hard choices and implement decisions that will prove to be as unpopular as fundamentally necessary. Whether Rishi Sunak or Liz Truss is in command, he or she will have to forget about popularity contests. The popularity contest is only there to get one of them elected. Real governance demands dogged determination to do what is right.