Britain enters recession, claiming Russia is to blame
These are the words with which the Admiral’s son, Chancellor of the Exchequer Jeremy Hunt, suggested compatriots should face the economic storm. It should be understood that the first wave hit the island back in late September. It was brought on by the previous Prime Minister, Liz Truss. In one fell swoop, almost £30 billion washed into the abyss. This money was spent on stabilising Britain’s financial market. Opposition shadow finance minister Rachel Reeves believes the people of the country are now facing a “bill for the economic carnage” perpetrated by Liz Truss and her team.
The Office for Budget Responsibility, which independently analyses Britain’s public finances and economy, predicts that the recession will last until the end of 2024 and that real incomes will fall by more than seven per cent, leaving around half a million people out of work. These are the worst figures since the middle of the last century. It is understandable that in such a situation it is easy and convenient for the British Cabinet to blame Russia. But there is no direct correlation, apart from Britain’s own policy of prolonging the Ukrainian conflict, imposing sanctions on Russia and rejecting Russian hydrocarbons. Of particular note is the sabotage of the Nord Streams, which London has categorically denied any involvement in.
In reality, Britain is confronted with a combination of factors. First and foremost is Brexit. Experts at the Centre for European Reform in London estimate that the British economy was 5.2 per cent smaller last year than it would have been if it had remained in the EU, resulting in a loss of £31 billion. In addition, Britain’s public debt increased by more than £400 billion during the pandemic and now accounts for more than 99 per cent of the country’s GDP. Much of this borrowing took place under the administration of Rishi Sunak, who was Chancellor of the Exchequer at the time. Finally, there is the energy crisis. It started in Britain as early as the summer of 2021, long before the outbreak of hostilities in Ukraine. It was preceded by a long period of stagnation in the British economy, which began with the global crisis in 2008. All this has led to the British entering recession ahead of their counterparts on the continent and are expected to be the last to emerge from it.
This week inflation on the island broke a 40-year record of 11.1 per cent. Economists recall the 1976 crisis when Britain had to turn to the International Monetary Fund for financial assistance. The IMF provided the then record $3.9 billion to bail out the British economy, but in return demanded social spending cuts and a 20 percent budget deficit, and London had to accept. The Sunack government now considers inflation to be enemy number one and is inviting the country to accept his cabinet’s “difficult decisions”.
The ruling Conservatives, who have replaced three prime ministers in less than six months, this week dished out another zigzag. On Thursday, Chancellor of the Exchequer Jeremy Hunt announced new budget parameters. His plan calls for public spending cuts totalling £30 billion and a £25 billion increase in tax receipts. As expected, among those being asked to tighten their belts, the reaction to such a proposal was negative. “Hunt took less than an hour to hand down a death sentence to the hopes of an entire generation,” The Telegraph commented on the Chancellor’s hotly anticipated report, explaining its grim conclusion by saying that the middle class, especially the generation of thirty- and forty-somethings, would take the brunt of the blow. The Resolution Foundation think-tank’s calculations show that British workers are living in a period of stagnant real earnings and may reach their 2008 ‘pre-crisis’ level at best in 2027.
There are an increasing number of Britons who have first-hand experience of the recession. High energy prices are causing small and medium-sized businesses to close here and there – especially in the provincial towns. Owners of small companies, engaged in repair and replacement of gas boilers, universally complain about the fact that they have drastically reduced number of customers: all save money, some do not even turn on the heating in their homes to reduce bills, thankfully this year’s autumn is warm enough. But the cold weather is already starting to set in. The price ceiling for the electricity consumed by households will be 20 per cent higher from April – this is also part of the cost-cutting plan announced by the government.
The Prime Minister has already declared to Britons: “Don’t expect the state to solve all the problems”. Sunak, whose family fortune is about a billion pounds, is accused of simply not understanding how the rest of the country lives. He’s not going anywhere, it will all be explained to him very soon. The unions are now more active than ever. In mid-December, strikes of civil servants will begin: employees of the Department of Transport, the Border Agency and the Ministry of Internal Affairs in general. They will continue for a month and will be one of the most unpleasant presents during the Christmas holidays, with disruption to transport hubs, ports and airports expected. Civil Servants Union (PCS) general secretary Mark Serwotka has outlined the main demands as being for wage increases in line with inflation and pension reforms:
“Our union members are not happy. They saved the country during the pandemic, but instead of gratitude the government shows indifference to them.”
The government has pledged not to cut spending on the health care system and even to add a little to save British medicine from the systemic crisis that has been dragging on for years. But these promises are met with a wry smirk: “The national health system has already lost seven billion pounds this year because of inflation. The extra £3.3 billion allocated doesn’t even cover half of that loss,” writes doctor Rachel Clarke. For the first time in its more than century-old history, the Royal College of Nursing’s professional nursing union has gone on strike, demanding a pay rise of five per cent above the consumer price index, which stood at 14.2 per cent in October. That is effectively a one-fifth (20 per cent) increase in pay – exactly the rate at which professional nurses’ incomes in Britain have fallen over the past decade, according to estimates by the consultancy firm London Economics.
The government does not yet intend to make concessions. The head of the Department of Health, Stephen Barclay, has said that such an increase “will turbocharge the inflation we are trying to curb”. The union’s response has not been long in coming: “Britain’s health and social care system is in crisis – waiting times for health care are at an all-time high, there are huge waiting lists of people who have been missing specialist consultations for months and winter is coming. There is a catastrophic shortage of nurses, which became apparent during the pandemic. There are about 60,000 vacancies in health and social care today.” This autumn Britain recorded an anti-record when patients had to wait 12 hours for their turn in the emergency room.
The coming winter promises to be a hot one for the British cabinet because of the protests. The Sunack government is hoping to curb inflation, but it is not certain that the measures the cabinet is proposing will lead to the target. Some economists suggest it is not enough “to restore confidence in the UK’s creditworthiness”. Others, on the contrary, believe that excessive spending cuts and tax increases will worsen an already crisis situation. Paul Johnson, director of the Institute for Fiscal Studies in London, put it succinctly: “The truth is that we are getting much poorer, and it’s a long, hard and unpleasant journey.”
Alexander Khabarov, RIA Novosti