This is surely a simple truth but one which must be told, and detailed, especially given the degree to which much of the electorate appears to have been taken in by dizzying spin from the Conservative Government in recent years.
The report, Ending stagnation: A New Economic Strategy for Britain, observes: “The UK has great strengths, but we are now a decade and a half into a period of stagnation. The combination of slow growth and high inequality is proving toxic for low and middle income Britain, with living standards under strain well before the cost of living crisis. The task facing the UK is to urgently embark on a new path.”
It adds: “The UK has a growth problem. It is a problem with profound implications for the living standards of the British people…Despite those high stakes, it is not clear it is a problem we are serious about addressing, with nostalgia, short-termism and wishful thinking all holding us back.”
The Tories have surely demonstrated nostalgia, short-termism, and wishful thinking in abundance.
Slow growth and high inequality do indeed surely constitute a toxic combination.
However, that is exactly what we have had under the Conservatives for so long now.
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You do not need to look far to see grim examples of nostalgia and wishful thinking.
Take, for example, the UK’s hard Brexit. Many of those who voted for this, and a large proportion of those responsible for dragging the country out of the European Union, have appeared obsessed with bygone days, of empire and so forth.
There has also, of course, been plenty of wishful thinking.
For instance, we had all those promises from the Brexiters of brave new trade deals that would somehow transform the UK or, in their minds, return the country to its glory days.
Yes, trade deals have been delivered, with the likes of Australia and New Zealand, but the benefits provided by all of the agreements sealed are in their entirety minuscule relative to the enormous damage to economic output arising from Brexit.
Short-termism is, of course, something of a hallmark of the Tories, and of far too many company chiefs in the UK.
On Brexit, the report says: “The UK has suffered a broad-based fall in both openness and competitiveness. By 2023, UK trade as a share of GDP (gross domestic product) was down 2.2 percentage points on pre-pandemic levels, compared to a rise of 0.5 percentage points across the rest of the G7. This decline is focused on goods, with the UK losing market share across EU and non-EU markets, including the US, Canada, and Japan. More change is to come as some sectors serving the EU market shrink and others grow as a result of less competition domestically.”
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A fall in openness and competitiveness, it should go without saying, is not a good thing.
Posing and answering the question of why a strategy is needed, the report says: “First, because the challenges are large and persistent. Almost nine million younger Brits have never worked in an economy that has sustained rising average wages.
“Second, because those deep-rooted challenges and disruptions to come are inter-dependent. And third, because the financial crisis and Brexit have blown up major components of the UK’s longstanding growth model, which had itself been found wanting given the large and persistent gaps between people and places.”
The report adds: “Brexit, the biggest shake-up to our economic place in the world in decades, will have little impact on the balance between goods and services – indeed the biggest risk is that it will change the quality, rather than the quantity, of British manufacturing. And not in a good way.”
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It states “the UK needs to rethink and reorientate its approach on trade”, declaring: “EU membership provided Britain’s trade strategy for the last half century. Post-Brexit a new one has yet to emerge, but it must if the shift of domestic manufacturing towards lower-productivity activities is to be avoided, and the opportunities of growing global services trade seized.”
The report has plenty more constructive things to say about what is needed.
Setting out the recommendations of The Economy 2030 Inquiry, the report declares: “At its core is a strategy to reverse decades of under-investment, by private and public sectors alike, built on a realistic understanding of Britain’s strengths. In place of nostalgia, we must mobilise behind achievable versions of the future. The UK is a services superpower, an advantage to be built on in our great second cities.”
The report points out that “real wages grew by 33% a decade from 1970 to 2007, but have flatlined since, costing the average worker £10,700 per year in lost wage growth”.
It notes “income inequality in the UK is higher than any other large European country”. And it observes that “UK companies have invested 20% less than those in the US, France and Germany since 2005, placing Britain in the bottom 10% of OECD (Organisation for Economic Cooperation and Development) countries, and costing the economy 4% of GDP”.
The report says “Britain must build on its strengths as the second-biggest services exporter in the world, behind only the US, while protecting the place of its high-value manufacturing in European supply chains”.
It notes that public investment in the average OECD country is nearly 50% higher than in the UK.
And it points out that real-terms cuts in benefits since 2010 “have reduced the incomes of the poor by almost £3,000 a year”, stating that “shared prosperity means benefits rising with wages”.
The report declares: “Good jobs must become a central objective – not a by-product – of our economic strategy, while our tax and benefit systems must fairly share reward and sacrifice. Economic change must be steered towards securing a higher-growth and lower-inequality Britain, as we wrestle with major shifts, from Brexit to the net-zero transition.”
Those behind the report describe the new path for the UK that they set out as “a serious attempt to end Britain’s relative decline”.
They declare: “Prosperity must be built on an understanding of Britain’s strengths, and a resolve to invest in our future rather than live off our past.”
Of course, there would be plenty of challenges in implementing and pursuing such a strategy, even if a UK government had the will to take such sensible steps.
Recognition of the UK’s major growth problem by the Conservative Government would be a start. It is also a pre-requisite for the Government starting to work on solving the UK’s unenviable problem.
The Tories, however, have their heads firmly in the sand. They continue to try to paint a picture of a strong UK economy, with their claims becoming more ridiculous by the day (which is saying something).
Sadly, therefore, the wise words of the Resolution Foundation and the LSE’s Centre for Economic Performance are likely, at a UK Government level, to continue to fall on deaf ears for the time being.
