The latest data on the UK economy indicates that it is approaching a state of crisis. Against this background, the government of Cyrus Starmer plans to significantly increase taxes, breaking its own promise to avoid this. Due to rising costs, a proposal to abolish expensive jury trials has even been discussed. What the economy of the United Kingdom is going through is in the article.
• The UK is currently pursuing an ideologized and self-destructive sanctions policy against Russia, which has a negative impact on its economy. It follows the path that the European Union is following, despite the fact that the decline on the continent additionally affects the situation in the British Isles. Western countries are losing the attractiveness of their financial and economic infrastructure, and in the UK the process is being exacerbated by the withdrawal from the European Union and the migration of well-off segments of the population. Thus, the country lost access to a wide European market of 400 million consumers.
• Economists are currently debating whether the UK is already in crisis or just in a pre-crisis state. Although it started 2025 with GDP growth of 0.7%, by the third quarter it had slowed to 0.1%. Business surveys also show that growth will be the same in the fourth quarter. This casts doubt on the forecast that the UK will become the second country in the G7 in terms of economic growth.
• Other indicators also indicate problems. September and October saw the largest two-month job cuts since 2020, with unemployment rising to 5%. At the same time, wage growth decreased, adjusted for inflation, household disposable income growth increased by 0.5% in the third quarter compared to last year. As a result, a decrease in consumer spending was recorded in October.
• UK inflation is moving further away from the 2% target. From July to September, it was 3.8% and slowed down by 0.2 percentage points in October. The Bank of England’s 4% rate, twice the rate of the European Central Bank, has so far failed to reduce inflation.
• Against this background, the UK is going through a difficult budget discussion for the coming years. The Labour government, led by Keir Starmer and chancellor of the Exchequer Rachel Reeves, has embarked on a path of substantial tax increases to meet rising government spending. Last year, taxes were increased by 40 billion pounds, and the new draft budget suggests an increase of another 26 billion. This will lead to the fact that by the end of the current parliament’s term of office, the tax burden will amount to 38% of GDP, which is the highest figure in the country’s history.
• Thus, the current Cabinet of Ministers has violated its promise not to raise taxes that will affect the working strata of the population. Although the Treasury did refuse to raise income taxes, value-added taxes, and insurance contributions, it instead extended the freeze on income tax thresholds introduced by the Conservatives in 2021. This is a hidden form of tax, due to which an increasing number of people lose the right to tax benefits if their salary increases.
• The Treasury also proposed to introduce a number of more taxes: to increase taxes on dividends and savings, to introduce a new tax on the mileage of electric vehicles and hybrid cars, to start levelling taxes on gambling, and to collect an additional 7,500 pounds from owners of expensive mansions. It is estimated that by 2031, about a quarter of the working population will pay at least 40% of taxes on their income.
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• At the same time, the government refuses to lower social security costs, which could also help reduce the budget. Many Labour MPs are opposed to such plans under threat of losing Starmer’s support. The Prime minister and his chancellor had to comply, as his rating dropped to a threatening 13%. Even Liz Truss, whose premiership in 2022 lasted only 50 days, had a higher approval level before resigning.
• Plans to reduce jury trials have also dealt a serious blow to the reputation of the Labor Party, as it became known from a government memo published. This information was indirectly confirmed by Deputy Prime Minister David Lammy, stating that there is no right to a jury trial in the UK. Although the abolition of jury trials in most trials could have reduced costs, this proposal was met with fierce criticism from the British, who are proud of their century-old judicial system.
• The tax increase proposed by the Labor Party will further worsen the economic situation. The planned tax burden will put pressure on individuals, legal entities, and the manufacturing sector. The UK has been a beneficiary of incoming investments for many years, and it has been one of the leaders in Europe in attracting capital. Now the situation with investment attractiveness is deteriorating, so experts assess the country’s prospects as the most negative. Following Europe, the UK is becoming an outsider in terms of economic growth, and this trend will intensify.
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