The economy: how 14 years of Tory rule have changed Britain – in the charts

Prices are still rising

If one phrase sums up how Britain has suffered in the years since the Covid pandemic, it is the «cost of living crisis».

A combination of the pandemic and the war in Ukraine sent prices soaring, especially for food, energy and heating.

Inflation peaked in October 2022 at 11.1%. It has fallen since then, with a few bumps in the road, helping Rishi Sunak deliver on his promise to halve inflation by 2023.

However, food prices remain 20% above July 2021 levels and household budgets remain stretched.

As a demonstration, let’s look at the cost of a household staple: spaghetti bolognese, using individual item prices according to the ONS basket of goods.

Using this measure, we can compare what it would have cost to make a spaghetti bolognese for a family of four six years ago: £8.44 in May 2018.

Food prices peaked later than overall inflation. In June last year, the ingredients that make up an abundance of cleaners hit £10.35 before falling back to £10.15 last month.

Interest rates may decrease

Interest rates were high in the 1980s when property prices were low. Prices fell in the 00s while house prices rose. Then came the financial crisis of 2008 and the cost of borrowing fell to almost zero. The rise in inflation during 2021 caused a round of interest rate hikes to 5.25%.

Now we have the worst of all worlds – high interest rates and stratospheric house prices.

After the recent drop in inflation, the bet is that Bank of England officials could start cutting interest rates in September and possibly again in December to 4.75%.

Other factors prompting action by the central bank are figures showing the economy is growing slowly and unemployment is rising – both legacies of conservative governments that, over 14 years, favored austerity over investment.

Lower interest rates will give the economy a much-needed boost, but it’s not a done deal. There are risks from the global economy and domestic price pressures. A widening conflict in the Middle East could push oil prices higher, while a loss for Ukraine could prompt a return to higher food and energy bills.

Government borrowing remains high

Britain’s borrowing has fallen sharply as a percentage of national income, or gross domestic product (GDP), since the first half of the last century, when it was plunged to pay the costs of two world wars. In the 1990s, then-chancellor Gordon Brown ran surplus budgets – meaning the government spent less than it took in in taxes – and reduced the overall level of debt to less than 50% of GDP. It recovered from the 2008 financial crash to more than 100% and is now 97%, according to the latest official figures.

Successive Conservative-led governments failed to bring the ratio close to pre-crash levels.

Economists are divided about how much debt is too much. Labor is worried about criticism that it will be promiscuous in government and has vowed to maintain a Conservative budget rule that forces the chancellor to reduce the debt-to-GDP ratio in the final year of a five-year forecast.

France has a debt-to-GDP ratio of 114% and, without spending cuts of 10 billion euros, is headed for 117%. Credit rating agencies, which monitor debt levels, have judged that 117% would be too high and downgraded France, effectively warning investors that the country is more likely to default on its debt. Not long after the last landing, Emmanuel Macron called early elections in France.

Are recessions a thing of the past?

When an economy shrinks for two consecutive quarters, it is considered to be in recession. Some economists take a stricter view. The National Institute for Economic and Social Research says there should be a contraction over a full year, which rules out a drop in 2023, when the economy shrank between June and December but grew slightly throughout the year.

There was a big contraction in the spring of 2020 affected by Covid, but the economic shutdown was government-ordered and there were plenty of subsidies around to help businesses and households. The government also softened the blow to incomes during the recession of 2009. So, since the 1990 recession, people have not been allowed to survive without much government intervention. In the aftermath, tens of thousands lost their homes and many businesses were destroyed.

Recessions are not always far away. They tend to come when businesses have run out of money after borrowing too much to grow. They cannot keep repeating the same trick, especially when interest rates rise. But many other factors can also intervene.

The last 14 years have shown that shocks can come from left field and the government needs to be better prepared than it was in 2020.

There is a group of economists who believe that recessions are associated with excessive property prices and occur in 18-year cycles. They’ve been right about the last two at least. If we consider the 2023 and 2020 signings as caused by the pandemic, the next team will arrive in 2026.

Reliance on the food bank has increased

More importantly, while prices rose, wages remained stagnant, leading to record numbers of people relying on food banks. The Trussell Trust, which is the UK’s largest food bank charity, has seen its business grow rapidly. From the number of food banks to the number of emergency packs, they provide a sad record of the UK’s growing number of poor families.

Many of the people who visit food banks are in work, but their low wages can’t stretch to cover the bills. Not only consumer prices have increased, but also taxes, rents and mortgages.

Council tax has been on a rollercoaster ride since 2010. First it was frozen, then from 2016 it rose by 5% a year, before a social care top-up in 2020 capped the rise at 3% (in total , the bills still increased by 5%) .

Across all taxes, the overall level is heading to the highest level since World War II under current government plans. Mortgage and rent bills have also increased. The latest official figures show that rent inflation is at a record high, while those who need to remortgage could face doubling or tripling their monthly interest payments.

Figures from homelessness charity Crisis show the number of people sleeping rough is now 61% higher than it was 10 years ago and 120% higher than when data collection began in 2010.