Twelve reasons to fear the future

Our resident doom-monger frets about the state of Britain in the years ahead!

Last week, my friend and colleague Harvey Jones wrote Ten reasons you need to cheer up, in which he listed 10 reasons to be cheerful about the state of the nation and its finances.

In the interests of balance, I aim to present the counter-argument, so here are 12 reasons why you should be worried about the UK, both now and in the future (in A-Z order):

1. Baby boomers are retiring

'Baby boomers' -- the generation of workers born in the post-World War II baby boom -- are starting to retire. Men born in 1946 will hit 65 this year and qualify for their state pensions, while women born in 1951 start claiming in 2011.

Thanks to this baby boom of the Forties and Fifties, it's estimated that 1.4 million older people will start claiming state and other pensions over the next five years. This wave of retired boomers is going to put yet more strain on our nation's fragile finances for decades to come.

2. Consumer confidence remains weak

When we feel confident about the present and the future, we spend more. Equally, when we're worried, we spend less -- and a wide range of businesses suffer.

Consumer confidence, as measured by the Nationwide BS index, slumped to an all-time low of 40 in February, before bouncing back. It hit 44 in April and 55 in May, but this was still nine points below May 2010's reading of 64. This index never fell below 80 from May 2004 until January 2008, so it remains well below the heights seen in the boom years.

3. Disposable incomes are falling

In the year to May 2011, average earnings including bonuses rose by a mere 2.3%, which is well behind the current rate of inflation (see point five below).

4. House prices remain too high

At the end of 2009, we Brits had £3.8 trillion invested in residential property, according to the Office for National Statistics. Incredibly, this accounted for more than half (53%) of our total net wealth of £7.2 trillion.

Although house prices are falling -- they slid 3% in the ten months to June 2011, according to the Halifax -- they remain too high in historical terms. With too much of our wealth tied up in over-priced property, this creates problems for businesses, reduces labour mobility and prices out first-time buyers.

5. Inflation is too high

Inflation tracks the increase in the cost of living. In the year to June, the Consumer Prices Index (CPI) measure was 4.2%, versus 5% for the Retail Prices Index (RPI).

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Thus, in order to keep pace with the RPI, your wages and savings needed to have gone up by 5% in the past 12 months. If they didn't, then your pay and savings are shrinking in real terms (after inflation). Ouch!

6. More high-street horrors

In recent months, more and more high-street retailers have been shutting up shop. In the last week of June alone, Habitat, Jane Norman and the group behind Moben Kitchens and Dolphin Bathrooms all bit the dust.

With consumers tightening their belts, the value and volumes of retail sales dropped by 1.4% between April and May. What's more, growth in retail sales could stay weak for some time, leading to more high-street names going to the wall.

7. National debt is rising fast

Our national debt -- as measured by the UK's public sector net debt -- hit £921 billion at the end of May, which is a record high. What's more, the Office for Budget Responsibility predicts that this will rise by £10 billion a month in 2011/12. In other words, Britain is deeply overdrawn and getting more into debt by the minute.

8. Pensions are in a mess

On 30 June, around 750,000 public-sector workers -- including teachers, police support staff and civil servants -- went on strike in protest at proposed cuts to their pensions. The government wants to reduce the costs of these pensions by increasing retirement ages, demanding higher contributions from workers, reducing their benefits and inflation-proofing.

9. Personal debt is too high

Since the credit crunch, our appetite for borrowing has fallen back, plus banks and building societies have tightened their lending criteria. Even so, personal debt has continued to creep up in the four years since the credit crunch hit in 2007.

At the end of May, personal debt including mortgages stood at £1,452 billion. This is just £11 billion below the peak of £1,463 billion reached at the end of January 2010. Although this figure has fallen in 18 of the past 31 months, I'd prefer it if Britain's borrowers reduced what they owe at a faster rate.

10. Savings ratio is falling

The savings ratio measures the proportion of our take-home pay which we save. When times are tough -- as they have been since 2008 -- we tend to save more.

Sadly, the savings ratio has been sliding since it peaked at 7.5% in mid-2009. In the first quarter of this year, it slipped to 4.6%, from 5.1% in the final quarter of 2010. Personally, I'd be happier if we Brits were saving more to cope with unexpected shocks.

11. The state is too large

Of course, it is the private sector which creates all Britain's wealth, so an ever-larger state acts as a 'dead hand' on British businesses. Thus, one big problem for today's coalition government is that the state grew enormously during 13 years of Labour rule, with a million extra jobs added to the public sector.

In the UK, state spending accounts for around half of our GDP (gross domestic product, or national output). Reducing this to the 40% level seen in the US and other developed nations would make British businesses more competitive on a world scale.

12. Unemployment is still high

In the three months to May, unemployment fell by 26,000 to 2.45 million. Unfortunately, the whole of this fall (and more) was accounted for by an increase of 35,000 in the number of 16 to 24 year olds entering full-time education.

Today, the unemployment rate is 7.7 per cent of the economically active population, against just 5% in November 2007. Clearly, hundreds of thousands of Brits still struggle to find work.

In summary, the UK isn't in the best of financial health. Furthermore, there needs to be a better balance between saving and investing on one hand and borrowing and spending on the other.

Therefore, if you want a brighter future, then make sure that your own personal finances are in tip-top condition!

More: Start saving for a rainy day | Why big savers may be at risk | Homeowners face two years of payment shocks