For years the British government from the prime minister down has lacked a coherent economic strategy, according to a thinktank’s health check of UK prospects.
“We are not on course towards setting any such strategy – indeed, we are not serious about the task,” says the report, titled “Ending Stagnation – a new economic strategy for Britain”.
Funded by the independent Nuffield Foundation and pieced together from original research by the Resolution Foundation thinktank and the Centre for Economic Performance at the London School of Economics, the report is forgiving of politicians who have faced a succession of global shocks, from Covid to the Russian invasion of Ukraine.
However, the authors document a series of failures that have left the UK as a laggard among G7 economies and ill-prepared for the task of providing a decent standard of living for most people in the years ahead.
The economy
Rather than creating an economy where the number of high-skilled jobs is on the rise, the report says workers will be £470 worse off by the end of the decade. This loss comes after 15 years of flatlined wages, costing the average worker £10,700 a year in lost pay growth compared with the pre-financial crash trend.
A loss of international trade is one reason cited for the lack of growth, which the report partly blames on Brexit.
By 2023, UK trade as a share of annual national income was down 2.2 percentage points on pre-pandemic levels. This compares with a rise of 0.5 points across the rest of the G7.
A loss of market share across EU and non-EU markets, including the US, Canada and Japan, is to blame, said the report. With a loss of trade comes a decline in high-skilled jobs, it adds.
“UK manufacturing will change rather than grow, as high-productivity sectors like chemicals and electronics shrink even as lower-productivity food manufacturing expands,” says the report.
“Wages in London, Wales and the north-east will be hardest hit by the resulting decline in productivity, which, across the country as a whole, means workers will be £470 worse off by the end of the decade.”
Cities
Only a handful of cities have successfully made the transition to a services economy. All England’s biggest cities bar London have productivity levels below the national average.
“A strategy to turn this around is what an industrial strategy in a service-dominated economy looks like,” says the report. “This is not a strategy for the few; the UK may be a ‘green and pleasant land’, but 69% of the UK population live in cities or their hinterlands, compared with 56% in France and just 40% in Italy.”
Easing the pressure from sky-high interest rates could come from raising the Bank of England’s inflation target to 3%. This would mean interest rates could begin to fall next year, easing pressure on mortgage holders and the Treasury, which has about a third of its loans with the central bank.
A wealth tax would also ease the pressure on the government’s finances and allow ministers to reward work rather than the hoarding of assets.
Council tax should be reformed and the burden increased on higher-value homes, allowing stamp duty on property sales to be permanently cut on low- to mid-priced homes.
Poverty
The share of the public citing poverty and inequality as one of the most important issues facing the country has risen sharply, from 7% in 2010 to 19% immediately before the Covid pandemic.
The report says a toxic combination of low growth and failure to shift the highest levels of inequality among any large European country has contributed to the lack of progress on living standards for lower-income households.
Cuts to benefits under the post-2010 austerity drive of Conservative-led governments have also fuelled poverty. The report says benefit levels have failed to keep pace with prices in 10 of the past 15 years. Along with wider cuts since 2010, this has reduced the incomes of poorest fifth by just under £3,000 a year.
If the policy measures recommended by the report were adopted, relative poverty would be cut by 1.3 million people rather than increase by 1.1 million, as currently projected.
Intergenerational
Young adults have seen generational pay progress grind to a halt, according to the report, highlighting how those born in the early 1980s were almost half as likely as their parents’ generation to own their own home by the age of 30.
After 15 years of average wages after inflation remaining almost stagnant, it says almost 9 million younger Britons have never worked in an economy that has sustained rising average wages.
Meanwhile, almost a third of young people in the UK are not receiving any education by the age of 18, compared with just one in five in France and Germany.
As a result, the report says, improvements in household disposable income from generation to generation – something that was taken for granted throughout the second half of the 20th century – have slowed or ground to a halt. The average income for those born in the early 1980s is almost £1,400 lower at 30 than those born 10 years earlier.
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