What any new UK PM needs to do halt British economic decline…

Not commenting on a party leadership race that will likely take the rest of the summer to complete, but I want to highlight some questions the new Prime Minister will have to tackle (and any successor).

It’s courtesy of Torsten Bell of the Resolution Foundation who identifies five key metrics that will have to be confronted in order to address the UK’s current economic decline:

Lesson 1: Face up to the fact that Great Britain is in relative decline.

Having almost caught up with the economies of France and Germany from the 1990s to the mid-2000s, the UK’s productivity gap with them has almost tripled since 2008 from 6 per cent to 16 per cent. Weak growth is the reason real wages saw no growth over ten years in the 2010s, having grown by an average of 33 per cent a decade from 1970 to 2007.

Lesson 2: Your task is to address the toxic combination of low growth and high inequality

Our rich are still richer than the rich in most advanced economies, but everyone else – the middle class as well as the poor – are falling behind. The squeezed middle in Britain is now 9 per cent poorer than their counterparts in France. Low-income households in the UK are now 22 per cent (or £3,800) poorer than their French equivalents.

Lesson 3: There is no short cut. We have to be serious about the nature of our economy, and where growth will come from

We need to stop thinking we’re all about banking, and wishing we were all about manufacturing. The truth is we’re a broad-based services superpower – musicians, architects, programmers and scientists, as well as bankers. Your predecessors as PM haven’t wanted to celebrate it, but we’re the second largest exporter of services in the world.

Lesson 4: We’ll need to be as hard headed about getting inequality down as growth up

Not all jobs will exist everywhere, whatever politicians promise, but good jobs should. The minimum wage shows we don’t have to choose between high employment and high standards. Low earners are around three times more likely to experience contract insecurity or volatile hours or pay than higher earners. Higher wages in non-tradable parts of our economy such as social care or hospitality bring with them trade-offs in terms of higher prices, but that is what more equal (and often richer) countries look like.

Lesson 5: Catch-up is perfectly possible – but very far from automatic

Think of a set of what we’d always previously have considered peer economies to the UK: Australia, Canada, France, Germany, and the Netherlands. We are now 21 per cent poorer than them. They are also all more equal. If we just matched their inequality levels, it would raise incomes for the poorest fifth of the country by a staggering over 20 per cent. If we matched both their income and inequality levels incomes would rise by £8,800 per household for the British middle class.

I’d do a companion piece on the southern economy which has some of the flaws of the Anglo model, but not all of them. Dublin doesn’t yet, as far as I’m aware, have an equivalent of the Resolution Foundation.

They show that data matters as much for the stories it can generate as those which underwrite accepted orthodoxies. And these data show that Brexit can’t have created a decline which clearly pre-existed it.

 

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