THE economy is on everyone’s mind as we feel the impact of change. Inflation in the UK stands at 10.1 per cent.

The Bank of England interest rate was raised by 0.5 percentage points to 1.75 per cent at the beginning of August. Inflation is rising in large part due to the significant increase in energy bills (and to a lesser extent food) over the last few months – driven by the impact blow the war in Ukraine has inflicted on international markets.

Inflation and interest rates have an inverse relationship, so therefore if one is high, the other is usually low. This is why raising interest rates (as the Bank of England has done 6 times since December 21) can be used to lower inflation. This impacts people’s borrowing and spending ability. These need to be in balance so savers and investors are incentivised while the cost of living is kept in check.

It is worth some historical contextualisation. The reality is that we have seen incredibly low inflation since the mid-1990s, and especially over the last decade. Prior to this, from the mid-1960s onwards, higher inflation was the norm, with it peaking at 24 per cent in 1975.

Many of us will remember the very high interest rates that went with it!  This isn’t a new phenomenon by any means. We should also remember that this isn’t just a UK problem; it’s a worldwide problem. Alongside the UK rate, all of the G7 countries have seen significant increases in their inflation rates.

Shocks to the global economy have happened before and then, as now, with the right action recovery follows.

But we can’t hope to improve the economy if we are not taking steps to grow it. This means we need interest rates and a tax system that reward investment in technology, infrastructure and people driving down the relative cost of living and growing wages. Wealth creation comes from the private sector, which therefore needs to be a much larger part of our economy.

To the surprise of many in 2021, the UK had the highest GDP growth in the G7 at 7.4 per cent, particularly given in 2020 it saw the largest decline. The way back to prosperity is through greater productivity.

Taxes from the private sector provide the core funding for public services. Our public sector needs to be efficient and deliver good quality service for which government need to be held accountable.

As of March 2022, there were approximately 479,000 civil servants, 91,000 more than in 2016. Clearly the focus now post-Brexit and post-Covid must be to cut waste and roles which we don’t need and don’t directly deliver public benefits, while investing in more jobs that we do need and do deliver public benefits we all value including doctors, nurses and teachers. Taxpayers’ money must be spent wisely.

The new prime minister will have their work cut out. The immediate test will be how effectively he or she delivers short term relief, not just to the poorest in our society (whose benefits are largely inflation proofed already) but those just about managing, including those on in work benefits. Whether it is through tax cuts or subsidies we will find out on 6 September, well before the energy cap change is implemented in October.

But there are endemic road blocks to growth and prosperity which need urgent attention. Red tape and bureaucracy must be axed. The regulators and the bank of England need a shake-up, a new rule book rebalancing the markets to make them fair for consumers.

They need more teeth – and must be better held to account. Technology must play a greater role in delivering security of supply in core resources, including food, water and energy. The real cost of these resources must drive the price. Linking all energy pricing to global oil and gas prices cannot be the future.

And that’s just for starters…..

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