I’m getting a bit fed up with people not actually understanding how our economy differs from their wallet so here’s some pointers and random thoughts about where we are and why it is bad...

High street: Labour introduced higher recommended personal borrowing allowances leading to a credit boom amongst the population. This kept the high street chugging away. At the same time, big high street chains became more and more reliant on banks giving them loans so they could order vast quantities of stock, sometimes pooling their resources, so they could sell lots of crap really cheaply. This is why Woolworths and Fopp went bankrupt, the banks crashed, refused to give them credit to continue operating and they couldn’t meet their demands.

The high street has to charge more for products than internet stores which more often than not operate out of tax havens. So the banks were plugging their gap in profits by allowing them cheap credit to operate at almost a loss. A ploy which would never work. Expect another bunch of bankrupcies as this is still going on.

People spent up to their limits on credit cards and are now saddled with debt. The UK population owes private credit companies roughly 1.5 trillion dollars. This is unprecedented.

So people are not buying as much now, not because as is widely reported people are being frugal what with the economy and the like, but because they have less money to spend as they have to service their debts.

We no longer have a culture of saving, so this coupled with a requirement of a minimum of 10% deposits for mortgages means no new housebuying.

Our budget deficit is big. This is the difference between what the government takes in tax and what it spends every year. Unfortunately, if we spend less, we take less. This works for two reasons:

The state — This is big. But all the actual work is done by private companies who pay tax and their employees who pay tax. So when the government talks of huge inefficiencies in the NHS for example, what they really mean is the parts that they haven’t privatised yet. Which is pretty much direct healthcare and not actually very inefficient at all. Most of the money is wasted paying private companies for services, the biggest of these being the PFI scheme, launched under the previous Tory government and ringfenced for 20+ years for each hospital built. Trusts have no choice but to pay that money and are finding it’s coming at the expense of nurses.

Because almost all the publically funded/owned utilities and services have now been sold off, there’s no way to buy ourselves out of this one. What’s left isn’t truly public as often it’s made up of private companies doing the work. So the government scraps a wasteful IT scheme, fair enough, it saves us money, right? But how much money exactly, given this money was going to a private company that pays tax and its employees who also pay tax.

The government is I hope working this out. Every time they make a cut they lessen their revenue by a %age of that cut.

We cannot afford another banking crash, yet we’re headed that way.