“Thank goodness for the Americans.” The sigh of relief from Juliana Delaney, the boss of Continuum Attractions, came last week just a few breaths after she warned that Britons were cutting back.
Continuum, which runs tourist attractions from the shores to the seafront at Portsmouth, said Americans were bucking a trend of squeezed incomes and less spending.
Delaney’s comments were telling. The world’s biggest economy has pulled ahead of the UK and the rest of Europe on an array of economic measures since the financial crisis of 2008.
What began as a small disparity has become a chasm that has left Britain facing questions about whether it has the work ethic to close the gap.
Trailing not leading
Jeremy Hunt wanted to start the New Year talking about growth. “Declinism about Britain is just wrong,” the Chancellor told an audience of tech bosses and journalists in January.
A few moments later he was celebrating the UK being the “middle of the pack” of the G7 growth league table. Output per hour worked is higher than pre-pandemic, he boasted. At 1.6pc above pre-Covid levels, economist Sam Bowman says it’s hardly something to celebrate. “We aren’t leading the world. We’re trying to catch up”.
Leading author and economist Daron Acemoglu, whose book ‘Why Nations Fail’ made waves a decade ago, says the consequences of being “okay with mediocrity” and dire productivity are huge.
Getting more from less has always been the key to rising living standards. The ability to increase the amount of output per hour worked tells us how much the economy can grow without generating too much inflation.
When productivity grows, so do company profits and staff wages. This leads to stronger growth, a bigger economy, rising tax revenues and smaller borrowing bills.
“The UK’s productivity problem is a disaster,” says Acemoglu. “This is an amazing economy that should be growing much faster, and not doing anything about it is the biggest risk.”
But Bowman’s concern is that the UK has now fallen so far behind the frontier in terms of economic development that worrying about technological progress “doesn’t make much sense”. At worst, he adds, it’s “a serious distraction”.
And the economic outlook is far from rosy. Living standards are on course for their biggest two-year fall since records began. The tax burden is also on course to hit a post-war high. The UK’s long-term growth potential is diminishing. Economists are warning of another decade of lost pay growth, while the Bank of England is set to inflict more pain on borrowers with further interest rate rises.
Ben Ansell, a political scientist at Oxford University, says all of this matters at the polls.
Take Selby and Ainsty, located 90 minutes away by car from Rishi Sunak’s Richmond constituency in North Yorkshire. Many factors turned the former mining constituency red in last week’s by-election, including the economic backdrop, says Ansell.
Selby is in the top 40 constituencies in England and Wales for the number of mortgage-holders, with 35.9pc of households still paying theirs off, according to latest census data.
That puts rising interest rates at the forefront of many constituents’ minds, along with the rising cost of living and fuel prices (this is an area of high car ownership and where the proportion of people aged between 30 and 64 is above the national average).
The UK-wide shift to Labour among homeowners has been huge, particularly among those with big mortgages, says Ansell. Back in 2019, the Tories had a comfortable lead over Labour among anyone who owned a home.
Today, that’s all been erased. Labour has a 15 point lead over the Tories among people who have less than 50pc left on their mortgage. Among those who own less than half, the lead is 43 percentage points, he says, citing recent polling.
