Britain’s economic prospects appear a little brighter than in November, when the Bank of England forecast one of the longest recessions since the second world war. Growth was surprisingly strong in that month and the labour market, while cooling, remains robust. But don’t put it down to UK exceptionalism: our economy was merely reflecting wider European and global resilience in the fourth quarter of last year.
On almost all relevant international comparisons, the UK’s economy looks sickly. Since the eve of the pandemic, growth has been lower than in all other G7 economies, reflecting weakness in private sector consumption and investment. Forecasts from international bodies diagnose a chronic rather than acute problem, with no recovery in the UK’s relative decline in sight. Covid’s scars appear to run deeper in London than elsewhere.
Unlike in the brief and disastrous Trussonomics period, Prime Minister Rishi Sunak and Chancellor Jeremy Hunt are competent economic managers. They have every chance of meeting Sunak’s New Year economic promises of halving inflation by the end of this year, returning the economy to growth and getting public debt on a declining path. But these pledges are a downgrade on his mission a year ago to “build a future economy that restores hope and opportunity” by nurturing the nation’s capital, people and ideas.
If the UK’s economic problem is relative decline and chronic weakness, we first need to be honest about the causes before thinking about solutions. Three proximate causes are difficult to deny.
The first is Brexit. Over six years since the EU referendum and two years since new trade barriers with Europe came into force, all credible economic analysis suggests that leaving the bloc caused the UK serious economic harm — raising prices but not wages, reducing trade, stymying investment and creating a significant worker shortage. For all their competence in economic management, senior ministers deny this reality. The Labour party calls for a treaty renegotiation, but by rejecting calls to rejoin the single market, it merely wants to make the best of a bad job.
A second fundamental cause of the UK’s woes is the inability to finance acceptable public services. The state has long squeezed necessary functions of justice, local government, welfare, housing, transport and education in a bid to fund an ageing society that needs better health and social care. All of these services are now losing their never-ending battle to do more with less. Despite strikes and crises across the public sector, the government again pretends it is (almost) business as usual. Labour slams the government’s performance but builds no credibility with suggestions that transformation can be achieved by the odd windfall tax or levy on private schools.
Public finances, of course, are not helped by the third impediment to progress, which is simply the difficulty of getting anything built. Whether it is severe restrictions on building in places where people want to live and work, or the rights given to objectors to development, the UK is held back by impediments to construction — more than half of capital investment. Conservative MPs, fearful of losing their seats, have given up on reform and Labour will not rock this particular boat.
Here it is in a nutshell. Three big economic weaknesses hold Britain back compared with our more prosperous peers. In each case there is no strong political voice for change.
The important lesson is not that our politics is broken. Rather, we, the people of Britain, are ultimately to blame. We voted for Brexit, we insist on a European-style welfare state with US levels of taxation, and while we desire new homes, a large majority, young and old together, don’t want them built near where we live. The outcome is not working, but it is not somebody else’s fault.
chris.giles@ft.com
Source: Economy - ft.com
