8 October, 2025
First of all, a disclaimer:
Nothing I say in the following piece is to be interpreted, or imply, that I in any way support acts of violence, race hatred, discrimination or exhortation to use anything other than a peaceful expression of one’s views.
Here are a few interesting facts from the UK. I won’t go on about Mandelson, undeclared contributions to a Labour support group (£750,000) or a late-night call by police on a man who tweeted F… Islam and a few other choice (but non-racist) quotes. After dragging him down to the local police station it turns out he suffered from Tourette’s syndrome!
On to other things. Before I discuss the desperate economic situation in the UK, I will disclose a little of my background. I have an MBA (A- average), a master’s in entrepreneurship (distinction) and a doctorate in small and medium business development and finance. I have also spent time on post-graduate research in the rise of conflict and its impact on the social cohesion of a country.
The UK economy is rapidly going down the toilet, with the cost of government borrowing being worse than most of the Western nations.
The price of 10-year bonds on 7 October 2025 was as follows:
UK 4.726% (October 2015 1.81%, UK Government Debt Management Office – DMO)
Australia 4.355%
USA 4.124%
France 3.570%
Greece 3.421%
Netherlands 2.877%
Germany 2.7094%
Japan 1.681%
Switzerland 0.3100%
In August 2025, the UK inflation rate was 3-8% (although the food inflation rate was 4.9%, a rate which was greeted with derision and disbelief by many commentators).
In September 2025 the UK bank rate was 4.0%.
In July 2025 the unemployment rate was 4.70%.
In June 2025 the annual GDP growth rate was 1.4%
In July 2025 the Youth Unemployment rate was 11.6%
Source: https://tradingeconomics.com/bonds.
The Labour Government is panicking. To keep its left-wing happy, it upped the minimum wage and is moving towards abolishing youth rates, with pay for 16–18 year olds still being lower than national minimum wage. But with the differential narrowing, it is not surprising that this, coupled with rises in employers’ national insurance rates, has resulted in a slowing of the supply of apprenticeships. The NZ rate is 12.9 per cent.
Many of the young are on sickness benefit, with payment rates being higher than unemployment benefit.
Since the Covid-19 pandemic, there has been a significant rise in the number of people getting health-related benefits. In England and Wales, four million 16- to 64-year-olds (1 in 10) now claim either disability or incapacity benefits, up from 2.8 million in 2019 (1 in 13). One potential contributor to these trends is worsening health. In this report, we consider what we can learn from various sources about what has happened to working-age health since the pandemic, taking into account the difficulties surveys have had over the past few years.
More than half of the rise in 16- to 64-year-olds claiming disability benefits since the pandemic is due to more claims relating to mental health or behavioural conditions. 1.3 million people claim disability benefits primarily for mental health or behavioural conditions – 44 per cent of all claimants. A recent DWP survey suggests 86 per cent of incapacity and disability benefit claimants report having a mental health condition (even if it is not their primary condition).
In 2023–24, the UK government spent £48 billion on working-age health-related benefits. This is 1.7 per cent of GDP and £12 billion more in real terms than it spent on them in 2019–20. Official forecasts from the Office for Budget Responsibility (OBR) suggest that spending on health related benefits will grow further in real terms to £67 billion in 2029–30.
These recent spending increases are accounted for by a significant rise in the number of people claiming these benefits. In England and Wales, four million working-age adults (one in 10) now claim either disability or incapacity benefits, up from 2.8 million in 2019 (one in 13).
Source. The role of changing health in rising health-related benefit claims Eduin Latimer Sam Ray-Chaudhuri Tom Waters Copy-edited by Judith Payne Published by The Institute for Fiscal Studies © The Institute for Fiscal Studies, March 2025
So we have a country where the economic indicators are worsening, the cost of social welfare is rising dramatically and the funding requirements are increasing beyond the government’s ability to control them.
Add to this the impact of funding the massive immigration (legal and illegal) and we seem to have few options. The UK can borrow the money to fund the benefits and running the state, increase taxation and/or reduce the social welfare outgoings. All of these carry significant political consequences.
As shown above, the cost of funding borrowings by the UK Government is becoming increasingly expensive. The tax level in the UK is already putting the average person (whomever that is) under pressure due to the inflation rate and low wage increases. Any further increase in taxation on businesses, especially on SMEs will result in more unemployment, with a corresponding increase in social welfare payments and a lower effective tax take. The Laffer Curve will have gone past its sweet spot.
The third option is to cut the welfare payments or at least try to get them back to pre-Covid levels. This is anathema for a faction-ridden Labour party and will increase both the internal and external pressure on the prime minister and the chancellor of the exchequer. There will be increasing discontent from the electorate and the Labour party plotters will increase their activity. All eyes will be on the budget, which is due on 26 November.
Especially interested in the budget will be the small and medium enterprises (SMEs) who have borne the brunt of the economic crisis and downturn in business activity. I have seen more SMEs coming on the market, with owners retiring early or businesses becoming under pressure and being marketed for sale due to declining profitability.
Anecdotally, I have been talking to consultants, accountants and insolvency practitioners, and all confirm that the SME sector is coming under pressure and they forecast an increase in insolvency.
This is dangerous for the economy because:
· At the start of 2024 there were 5.45 million small businesses (with 0 to 49 employees), 99.2 per cent of the total business population. SMEs account for 99.8 per cent of the business population (5.5 million businesses).
· SMEs account for three-fifths of the employment and around half of turnover in the UK private sector.
· Total employment in SMEs was 16.6 million (60 per cent of the total), whilst turnover was estimated at £2.8 trillion (52 per cent).
· Employment in small businesses (with 0 to 49 employees) was 13.0 million (47 per cent of the total), with a turnover of £1.8 trillion (36 per cent).
Source Federation for Small Business report 2024.
The government issued a report on the small business sector in 2024/5.
Sustained growth is uncommon for SMEs, with only 14.5 per cent of firms achieving sustained growth between 2020 and 2023. Prior performance is a weak indicator of future growth. Nearly half (45.5 per cent) of those businesses that had experienced a reduction in their employee numbers in 2022 subsequently increased employment in 2023. Expectations of employment growth tend to be unrealised for many small businesses. Around half (49.3 per cent) of the businesses that said that they had expectations of employment growth in 2022 actually achieved this in 2023. SMEs face a number of barriers to achieving growth, with level of energy prices (56 per cent), competition (48 per cent), taxation (45 per cent), regulations and red tape (41 per cent) and staff recruitment and skills (40 per cent) cited as major obstacles to success by SME employers in 2023.
Source Backing your business, Department of Trade and Industry UK, 2024/5.
All this points to the dangers of major difficulties for SMEs and the impact on the UK economy if the sector becomes distressed. With more taxation, regulations and employee rights and benefits being loaded onto the sector, it will come under further pressure and, given the overall economic outlook for the UK, an economic disaster would not be surprising.
