Some new faces, same old problems

The first, and I think it's obvious to virtually everyone, is that we want to live beyond our means.

We are living beyond our means.

We wish to import more than we export.

We wish to borrow to pay for public expenditure.

And we all would like tax cuts as well as lots and lots of giveaways.

Of course, who wouldn't like to have VAT taken off, electricity, and indeed a number of other things? We like it.

We always have this preference for wanting to have both lower taxes and more public spending.

And the art of government is the art of how to balance that, and that's the challenge that confronts the new prime minister and the new chancellor, just like it did at the previous ones.

And if you look at the desire to live beyond our means, you can see it writ large.

It is reflected in the continuing current deficit that the government runs.

So much for balancing the books in current terms.

We're miles off.

It can be seen in the growing national debt.

And it can be seen in the current account deficit on the balance of payments.

And this all has consequences.

Maybe one of the consequences is that we have amongst the highest interest rates in the developed world.

You're On the ascent of the new Prime Minister, the rate on 10 years' gilts went to 5%, in fact, above it.

It may vary around that, but the really important thing is to see how fundamentally different that is for the British economy compared with our European neighbours, or indeed the US, though the US interest rate is pretty high too.

And every time that interest rate kicks up, It means that the third most important item, the third biggest item of public expenditure, debt interest, just keeps going up.

And you have to ask yourself, well, why do, essentially, foreigners not want to lend to the British government, or indeed to wider British industry, without having a premium on their cost of capital? It's pretty obvious.

In the case of external finance coming into the UK, the exchange rate can only be held up by running a big premium of the interest rate to Germany and the Europeans.

It was ever thus, but it's bigger now than ever before.

So that's one reason.