Capital Economy, Business and Finance
Keir Starmer and Jeremy Hunt both attended the launch of a report on Monday that sought to diagnose UK economic decline. Neither had a convincing solution.
Real wages are the same level today as they were at the start of the 2008 financial crisis (lost growth which has cost the average worker £10,700 a year). At the same time Britain is now the most unequal large economy in Europe (second only to the US in the G7).
According to the Resolution Foundation’s report this “toxic combination” of low growth and persistently high inequality means the average low-income household in the UK is £4,300 poorer than its counterpart in France. What to do?
Suggestions include: trade agreements that champion the UK services sector; measures that nudge workers to move within a lethargic labour market; a “UK protocol” that reduces trade friction with Europe; and, as one speaker pleaded, ending the need for local authorities to seek clearance from Whitehall to build roundabouts.
Ending stagnation will require public investment to rise to 3 per cent of GDP and benefits to rise in line with earnings, says the report. But given the bleak fiscal picture, the politics of doing so are messy. Starmer dodged questions about cuts to public services and said anyone expecting Labour to turn on the spending taps “would be disappointed”.
Hunt told the conference tax cuts for business contained in the Autumn statement could boost productivity but was haunted by the report’s key finding that this is the first parliament in modern times in which living standards have contracted.
The Resolution Foundation’s analysis, a multi-year effort between several think tanks, contains some depressing graphs on generational, regional and income inequality in Britain.
It also offers clear guidance on what needs fixing: a tax code that hampers small business, planning applications that cost five times what they did in 1990, a glaring lack of household savings, a stagnant approach to taxing wealth, and a crisis in local government.
“The UK does not need to equal American productivity or Scandinavian equality,” the report reads. But if the UK matched income and equality of peer countries like France, Australia or Canada, the typical household would be £8,300 better off.