It’s here: UK household income growth between 2007 and 2018 fell behind the rest of Europe, with only Greece and Cyprus below us. Ireland grew by 6%, France by 10%, Germany by 19%, while the UK fell – yes, backwards – by 2%. All countries are struggling in this energy shock, but after 15 years of income stagnation, ‘global Britain’ is the hardest and least resilient. “A toxic combination of both low growth and persistently high income inequality” is this review’s definition of the British disease. Among EU countries, only Bulgaria is more unequal than us. With the Bank of England predicting a sharp rise in unemployment to 5.5%, many will be shocked to discover UK Jobseeker’s Allowance is at its lowest level on record, just 13% of the average wage. Sweden pays 80% of the previous salary for those looking for a new job. In this fragile society, more than a quarter of households say they could not manage a month with their meager savings. Economic commentators are warning of storm clouds gathering for a recession. Consumer confidence, the best predictor, has hit an all-time low as troubling news falls daily. Sterling has fallen 10% against the dollar this year, having already fallen significantly following the Brexit vote. The trade balance was once so critical that in 1970, the first election I covered as a junior reporter, Harold Wilson’s shock defeat was caused in part by poor last-minute trade data that registered a deficit of just 0.2%. Compare this to our incredible trade deficit of 8.3% post-Brexit, the worst since records began in 1955. No wonder the government is banning any Brexit impact assessment. The Resolution Foundation found that Brexit caused a post-referendum cost of living increase equivalent to an increase of £870 a year for the average household. This makes restoring EU trade an urgent necessity. This is all about to get worse, on purpose. Regardless of the cause of this inflation, the Bank of England is determined to raise interest rates to curb the non-existent demand. Orthodoxy dictates inflation must be crushed by a deliberate increase in unemployment. At the Bank of England, with a hammer, every worker looks like a nail. Never mind that stagnant wages have zero responsibility for inflation. Whenever the technical “recession” arrives, Monday’s check shows that the standard of living is in a 15-year recession and is now falling further. Half of households below average income levels rely 70% on pay and 30% on benefits – so both are responsible for falling living standards in Britain. Pay needs to keep rising – but benefits also need the same triple lock as pensions. This certainly means that these strikes must succeed in halting the retreat of payments. And then the pay has to keep going up. The Bank’s call for restraint is so economically wrong that there will be no cure until we break away from the Treasury and Bank of England orthodoxies that helped land us here. Of course we should tax more and more fairly: look at the miserable long-term social consequences of paying lower taxes than France and Germany. We have to tax the rich to the bone when they have gained so much recently while the rest have lost. But, ultimately, the only thing that can sustain us is increased productivity. However, businesses are on strike over investment. Already abysmal, favoring dividends and share buybacks, business investment has fallen 9.2% below pre-Covid levels. Biggest non-financial firms’ profits rise 34% in 2021, compared to pre-pandemic levels, says Institute for Public Policy Research: time to rein in profiteering. The National Institute for Economic and Social Research finds that the cause of Britain’s weak productivity is low business investment, insufficient infrastructure, insufficient innovation and low skills. Where the market fails, the state must intervene. Jettison Treasury rules limit capital spending to bricks and mortar only and invest in human capital. Why is funding for further education so low and apprenticeships are falling, while universities are cutting places? Coping with a decade of moribund productivity requires a burst of investment boldness, imagination and determination. The only hope is renewable energy, insulation, building and research and development to match more successful countries with highly skilled and educated people. Borrowing with confidence to invest prudently and optimistically strengthens a country’s credibility against a threatened slide in the value of sterling. Beyond the petrified thinking of the Treasury, there are better ideas. Take this from economist Richard Murphy: the £70bn a year invested in tax-free ISAs should only earn that tax break by investing in productivity-enhancing, safe-backed, decent-yielding green government bonds. The audit reminds us that Britain has signed up to the international sustainable development goals. This includes “halving the proportion living in poverty by 2030”, while increasing “the income growth of the bottom 40% of the population at a rate higher than the national average”. Incomes must rise, not only for social justice but also for productivity. Without bravery and imagination, the Treasury and the Bank of England will tighten the screw, causing lower living standards, higher unemployment and worse inequality on a downward spiral of productivity. But don’t emigrate just yet: with political will and nerve, we can stop sliding further and further below the countries we were once equal to.
