A poor country acting like a rich one
Britain is not a rich country. We may act like we are, we may even sometimes look and sound like we are, but the numbers don’t lie. When looking at GDP per capita we are decidedly middle of the pack by European standards and embarrassingly far behind America. The per head figure in the UK is around £37,000, in contrast to £60,000 in the US.
The real kicker is that had we continued to grow as we were up until the Great Recession of 2008, and had all other things remained equal, our per head figure would be closer to £50,000. To put it another way, once you adjust for inflation the average working person in Britain today probably earns a lower (or not very different) wage now than the average working person in 2008.
This misery is not evenly spread, of course; some people (some groups) have fared far better and we’ve experienced plenty of changes and shocks over the past 17 years, but overall our recent history is one of economic decline and that, of course, leads to decline elsewhere – from the public realm to trust in politics and the social contract.
To give this government the credit it deserves, it has at least grasped the scale of this challenge where previous administrations put their head in the sand. Labour’s focus on long-term development, improvements to infrastructure and commitment to investment is welcome and necessary.
The situation is catastrophic
They also made it one of their five missions to “kickstart economic growth [to] improve living standards across the country.” Unfortunately, as I’ve often written, the more short-term or immediate policies have pushed this ambition even further into the future, with a tax burden at breaking point and urgently-needed economic growth choked off by bad policies.
Today, the Resolution Foundation’s Living Standards Outlook warns that typical real income is set to grow by a meagre one per cent over the next five years. The typical income at the end of this decade will remain essentially unchanged from 2019/20. They point to ever-increasing council tax bills and the pernicious effects of frozen tax thresholds, among other things, as the drivers of this horror story, but a situation this bad isn’t going to be solved by policy tweaks.
Kemi Badenoch will warn today that “the country is living beyond its means” and that “we need a totally different approach.” I’m all ears, because the challenge is enormous.
As Westminster tortures itself over welfare reform, defence spending, fiscal headroom and which taxes to hike, we can’t lose sight of the fact that this country needs GDP growth of three to four per cent a year. We need meaningful productivity gains; a lower tax burden; more agency over our own lives; a functioning housing market; and cheaper energy.
This is the work of decades, but we cannot afford to wait that long.