Tory leadership race has created a surplus of Twitternomics
Are unfunded tax cuts inflationary? Should we worry about the UK debt stock nearing the same size as the economy? Such questions have sparked long Twitter threads that have generated even longer threads in response (Photo by Jonathan Hordle / ITV via Getty Images)
Economics really has become the new battleground for armchair commentators.
Are unfunded tax cuts inflationary? Should we worry about the UK debt stock nearing the same size as the economy?
Such questions have sparked long Twitter threads that have generated even longer threads in response.
Who’d have thought the dismal science was so interesting to so many?
Nonetheless, these are important issues that need to be ironed out as they influence the welfare of us all.
Figures from the Office for National Statistics out yesterday estimated Britain’s debt interest bill hit a record of over £19bn last month.
A big number, yes, but not without its caveats.
Bumper inflation has driven our interest bill higher. Investors need to be compensated for any risk they take on when buying something.
So, we created inflation-linked gilts. These instruments reduce the risk of investors losing money (in real terms) if the income they receive on this debt trails inflation by tying their payments to the retail price index.
As inflation has trended higher, so have gilt holders’ compensation, ballooning our interest bill. Simple.
Experts have argued we shouldn’t worry too much about these growing liabilities as they are spread over many years.
Nonetheless, we are on the hook for that money – at some point. A big inflation surge over the coming months will keep pushing the interest bill higher. As will higher interest rates.
Both sides of that argument would agree on how to ease debt anxieties – boosting growth.
Whoever wins out of Truss and Sunak needs to deliver a shot in the arm to the UK’s economy.
Lifting business investment out of the doldrums will provide an immediate jolt to our productivity and growth malaise.
It would also reduce the risk of future inflation by strengthening the supply side of our economy.