GNU Dawn SA could have better economic prospects than Broken Britain

Did those South Africans who left for the UK make the wrong choice? Amid the farcical comedy of errors that has been the UK general election campaign of the past four weeks, one inconvenient truth has been studiously avoided by all parties: the dire state of not just the UK’s public finances, but its economy in general.

According to the IMF, real GDP per head in the UK fell by 0.2% between 2019 and 2023. Of significant economies, only Germany (a fall of 1%) and Canada (one of 1.4%) did worse. 

In the longer term, the country suffers from a toxic combination of relatively high inequality with relatively weak economic growth, as the Resolution Foundation’s Ending Stagnation report, published in 2023, demonstrated. British workers turn out less for every hour they work than their counterparts in other advanced economies such as the US, Germany and France. According to the latest figures from the Office for National Statistics, output per hour worked was just 0.6% above its pre-pandemic 2019 average in the first quarter of 2024.

That leaves the UK’s productivity on the same shallow upward trajectory that it has followed since the financial crisis, well below the trend that prevailed between the early 1970s and 2008. UK productivity has grown by just 0.4% annually in the years since the financial crisis, less than half the rate of the 25 richest OECD countries, according to the Resolution Foundation. UK household income, which used to be ahead of competitors such as France and Germany, now lags behind, and is only marginally ahead of Italy. A critical handbrake on investment is the chronically low savings and investment rate, which lags all its G7 peers at only 14%. Combined with consistent current account and budget deficits, the UK is just not producing enough to fund its consumption.

Furthermore, even after a decade of austerity the country’s public finances are in a parlous state due to the lavish relief packages offered during the Covid pandemic. Britain’s tax burden is at its highest level for 70 years and rising, debt is 90% of GDP and rising – and so are the pressures on public services. Waiting lists for the NHS are at all-time highs while the country’s Victorian infrastructure is crumbling. 

Politically, the years since Brexit have seen the once staid and stable Westminster system collapse in a seemingly never-ending churn of increasingly inept administrations. Until this much-ridiculed Tory campaign, the nadir seemed to be the disastrous 44-day spell in 10 Downing Street of Liz Truss in 2023, during which she almost crashed the UK economy with an unfunded package of tax cuts. Her government was famously outlasted by a lettuce.

The UK economy is broken. Theories abound as to exactly why; productivity before the financial crisis could have been artificially inflated by the burgeoning financial sector of the City of London, which has since faded compared with other former rivals such as New York. The construction and housing sector which boomed pre-2008 has crashed due to high interest rates. 

And, of course, there is Brexit; while impossible to know exactly the effects of it at this relatively early stage there can be no doubt it has made doing business and finding workers more expensive and more complicated. 

The government’s independent economic watchdog, the Office for Budget Responsibility, has predicted that Britain will suffer a 4% cut in its GDP due to leaving the common market. Relative to remaining in the EU, UK import and export volumes are 15% lower than if Brexit had not happened. It is hard to think of a comparably cataclysmic act of political and economic collective self-harm.

With three weeks to go to the election, polls indicate that the Tories are likely to receive a drubbing of near-historic proportions, potentially rivalling Tony Blair’s Labour landslide victory in 1997. Many centrist voters have deserted the Conservatives for Sir Keir Starmer’s Labour party, while the return of Brexit campaigner Nigel Farage to Reform UK has attracted voters on the far right. With one poll even putting Reform slightly ahead of the Conservatives, there is even talk of a post-election reverse takeover of the Tories by Farage and his ideas.

But it is unclear what difference a Labour government can make. Their manifesto promises more spending on the broken healthcare system and creaking infrastructure but is vague as to how it will all be funded. The International Monetary Fund estimates a £30-billion bill for the costs to fix crumbling services like prisons and transport alone. Headline tax increases to the wealthy, such as imposing VAT on private school fees and scrapping the non-domicile loophole for foreign-born residents, are only likely to compel the highest earners to desert the UK for more amenable havens such as Portugal and Italy.

Read more in Daily Maverick: Why South Africa’s economy will finally start growing again

Nowhere is there any talk of the types of critical structural reforms needed to spur investment, productivity and economic activity. 

Many South Africans over the past few decades have moved to the UK, seeking opportunities and a better standard of life. Now, with a new coalition government in South Africa under pressure to finally get the economy going again, it is unclear where the better growth prospects lie. 

It is arguably easier to imagine the South African economy recovering from years of load shedding and State Capture and returning to 3% GDP growth than a tired, sclerotic and divided UK. Not much has to start going right for the engines of SA Inc to start firing again. Perhaps this serves as a good example of that typically English aphorism: the grass is not always greener on the other side of the fence. DM