A poorer future for Britain awaits

Many commentators, perhaps epitomised by British intellectual Perry Anderson in a mammoth new essay in the New Left Review, have compared the current morass to that of the 1950s. The problems then were remarkably similar.

First, a growing realisation of economic decline relative to competitors abroad. Second, popular discredit, amid scandals and divisions, of the Conservative Party’s government, culminating in its passage from Harold Macmillan to Douglas Home. Third, economic divergence from Europe after Britain was precluded joining the European common market having been vetoed by France. And finally, widespread disaffection with, and ridicule of, the hierarchical social order presiding over these misfortunes. Prince Harry is playing to script.

Yet the revived talk of national decline obscures that things have changed since then, except for the worse. Britain is becoming poorer and increasingly detached from its wealthy G7 peers. The extent of its decoupling from the economic development of other rich countries is well captured by data for median household income per person — a good measure of “average” living standards. Up to 2009 the UK ranked ahead of Germany and France. Now it has fallen behind, only marginally ahead of traditional laggard Italy.

Essentially the problem is one of productivity. Anderson concludes that “between 2007 and 2016 there was a labour-productivity standstill without historical precedent, at a miserable 0.09% a year, costing an output shortfall estimated at close to 20% of the pre-financial crisis trend. As for growth, over the same period the per capita increase in GDP was just 0.19% a year”. 

In another exhaustive study, economists Nick Crafts and Terence Mills write that the current productivity slowdown in the UK is the worst in the past 250 years.

A concise explanation of this productivity crisis is elusive. Fundamentally it seems to be the accumulated consequences of a sustained failure to invest. Investment as a percentage of GDP is barely at 15%, well below that of France, Germany and the US. Similarly research and development spending is far below its peers. Crafts and Mills point out that in addition to this, three more specific factors – the ebbing away of the tech boom, the financial crisis which hit the critical UK financial sector disproportionately hard and, in the recent past, Brexit – have compounded this crisis.

Unfortunately though the tedious debates regarding the effects of Brexit between “Remoaners” and “Brexiteers” do not help clarify the alarming reality of the situation. Brexit is clearly a net negative for the UK economy, but its effects have not yet been fully felt (and will not for several years). However, what is so corrosive is that these discussions obfuscate almost all of the truly fundamental problems afflicting the economy, which have been in evidence for much of the past two decades, if not before.

Public policy, meanwhile, has been far more destructive. The austerity policy of the Tory government following the financial crisis eroded the state apparatus, exemplified by the failing National Health Service. Twelve years on from the start of austerity the data paint a damning picture, from stagnant wages and frozen productivity to rising chronic illness and a health service on its knees. Writing in the Financial Times, John Burn-Murdoch points out that life expectancy has stagnated, with Britain arcing away below most other developed countries, and avoidable mortality — premature deaths that should not occur with timely and effective healthcare — is now the highest level among its peers, other than the opioid-afflicted US.

The current Tory government has shown zero inclination to tackle these structural challenges.

Instead, in the midst of the worst cost of livings crisis in 60 years, the Sunak administration is determined to battle the unions in their desperate plea for reasonable wages, roiling the nation with endless strikes. No amount of extra maths lessons will make any difference.

The long-term implications are disastrous. No longer within the safety net of the Common Market, perhaps the best that can be hoped for is that the UK once again becomes the “Sick Man of Europe”. It could however be far worse. An impoverished future — socially, economically and politically – awaits. BM/DM