By Graham Vanbergen: The Resolution Foundation think-tank calculates that average real earnings have fallen by 7 per cent in Britain since a year ago and predicts that earnings will take four or five years to recover to the levels of January 2022. That, of course, assumes that inflation is somehow tamed and/or we get some instant increases in productivity that we haven’t witnessed in this country for decades.
For 25 years, the British economy has been slowing to a standstill. When it comes to take-home pay – real incomes have not increased for at least 15 years. For context, it’s interesting to know that since WW2, take-home pay effectively doubled every 30 years. Not now.
In truth, it was the bank-led financial crisis that caused the great take-home pay regression. And since George Osborne declared the way to solve all of our ills was to strangle the economy with a decade of austerity, it appears another decade of the same is coming. In other words – not a lost decade but a lost generation. Don’t forget how much the banks owe us. Not only did the taxpayer bail them out for something like half a £trillion, but repairing the economy (which didn’t really happen) cost every household dearly. How much – you might ask. Had the pre-crisis trend of post-war wage growth continued, the typical adult in Britain would by now be 40 per cent richer. Yes – 40 per cent. Think about that for a moment. This fact, hard to take in, was calculated by the Institute of Fiscal Studies and reported in the Financial Times.
We have well over 250 years of economic data in this country – and nowhere is the stalling of wages in terms of growth per decade as bad as it is right now.
This is the reason for the 2020s version of the winter of discontent. Sure, the lights are on – but as we all know, not much in terms of infrastructure appears to be working. Health, education, transport, emergency and firefighters, along with many others, are out there with placards, facing the cold winter days on our streets, campaigning for something to be done about declining household incomes.
Then there are taxes. At more than 37 per cent of national income, they are eroding incomes even more so by being four percentage points higher than they’ve been over the past four decades. And that would be OK if all the above strikes had been averted and if everything worked – but they haven’t, and they don’t.
Also, don’t forget that if the economy is not growing, the amount of money available to pay is less – and so everyone strikes to get some pay award before others do. And with inflation and higher taxation, you’d think there would be more money but what there is now goes on heavily increased national debt service costs – which have shot up in recent months.
As Tim Harford writes in the FT today – “If all this was happening during a deep recession, we could have hope. “One day,” we’d say to ourselves, “the business cycle will turn, businesses will start hiring again, tax revenues will increase and some of our problems will disappear of their own accord.” But we are not in a deep recession. Recently unemployment has been lower than at any time since before the prime minister was born, which suggests that a dramatic cyclical uptick is unlikely. The UK economy has the accelerator to the floor yet is barely able to gain speed.”
It gets worse. The Bank of England has increased interest rates because of inflation. This pile’s even more pressure not just on households but businesses too. And as they go out of business or scale down their operations, as they are expected to do in 2023, unemployment will increase, placing more burden on the welfare state. It’s a vicious cycle.
Harford has hope. “I don’t believe the situation is hopeless. The UK has many strengths and many resources and has overcome adversity before. But if we are to solve this chronic economic problem together, we first need to acknowledge just how serious — and how stubborn — the issue has become.”
He is right, of course, but there is a problem. How is this government going to ‘acknowledge’ just how bad the situation is – given that some of the problems we are experiencing are the result of poor governance? For instance – Brexit is an economic, political and cultural disaster. GDP is trending downwards and has been since Q2 2021, and much of that is the fault of Brexit (because our peer nations are not suffering economically as badly as Britain is). We are already in recession territory, no matter what you read in the newspapers.
I am not so hopeful. For a start, we have a government unable to govern because of the eternal wrangling and battles that continue. There is even speculation that Boris Johnson will attempt to usurp Rishi Sunak. And even if that was not the case – Sunak is neutered from applying any economic policy of his own because he knows there’s yet another group that will sabotage it – so he has to placate them first. Depressingly, there is another two years of this nonsense to look forward to – if whoever happens to be in power at the time doesn’t call an election first, which is possible but not probable. Who knows?
In the meantime, over the last six years, some 16,000 multi-millionaires have left Britain because Brexit and an imploding Tory party make the country look like a bad bet. So, they are taking their money elsewhere.
In addition, investors aren’t coming to the country either – and on top of that, billions of assets have been transferred out of the country.
Things really are bad, very bad. The economy in Britain is resilient, but it will never recover from its losses. What is gone is gone. What will the economy look like in two years time, and can Labour repair all this damage? It’s a big ask and a bigger task.