Listening to Chancellor Phillip Hammond this morning was quite puzzling to me. So as he confidently pursues a policy of “wage restraint” as a means of “living within the UK’s means, even in the context of rising inflation, Hammond remains puzzled that productivity has been falling rapidly over the past decade. Funny that! For centuries, workers have been assumed to work more for more money & NOT less for less money. Added to that Hammond insists that for austerity to end the deficit must be eliminated and the debt drawn down significantly. But if the main source of government revenue is taxation and with the Tory instinct being towards low taxation to encourage corporates to hire labour then we seem as an economy to be reliant on a low and falling tax base. Also with interest rates worldwide set to rise that means U.K’s debt will continue to rise in the context of a falling U.K. tax base.
A helpful analogy for this conundrum: Say you have a high paid banking job with accompanying champagne lifestyle all paid by credit card on which the bare minimum monthly is paid and then suddenly losing that big job and then getting a zero hours contract packing boxes at Amazon yet still trying to pay off that humongous credit card.