Britain’s economy is broken. That was the simple message given by the Resolution Foundation thinktank in the final report of its long-running look into the state of the nation.
Monday’s conference to launch the report was a high-powered affair, containing past and present members of the Bank of England’s monetary policy committee, the head of the Office for Budget Responsibility, Richard Hughes, and other members of the great and good.
Jeremy Hunt showed up for the Conservatives, while Sir Keir Starmer did the honours for Labour. Given that the report’s conclusion was that the economy has been going nowhere for the past 15 years, of which the Conservatives have been in power for 13, the chancellor clearly had the tougher gig. But Starmer faced some tricky – and pertinent – questions, too.
In one sense, the situation is even worse than the Resolution Foundation says. The report notes that during the 1990s and early 2000s the UK was catching up with more productive countries such as France, Germany and the US, a process that came to a halt in the mid-2000s. But given that the catchup model blew up in the financial crisis of 2008, it was not sustainable either.
There is, though, no doubt that the UK’s economic performance since 2008 has been woeful. Labour productivity growth was only 0.4% a year in the 12 years between the near collapse of the banks in 2008 and the start of the Covid-19 pandemic in 2020, half the rate of the 25 richest members of the Organisation for Economic Co-operation and Development. The report says the UK’s productivity gap with France, Germany and the US has widened to 18%, at a cost of £3,400 a person.
Hunt fully accepted that Britain had a productivity problem but said the UK had not been alone in its disappointing post-2008 performance. This is true, although the chancellor omitted to add that Britain’s overfinancialised economy made it particularly vulnerable to the near death of the global banking industry 15 years ago. Nor was Hunt’s other main point – that he had announced 110 growth-boosting measures in last month’s autumn statement – especially convincing. Has it really taken the government 13 years to work out that something needs to be done?
Starmer faced a different challenge. The report outlined 10 measures to end stagnation, including increasing public investment to 3% of GDP, benefits rising in line with earnings, higher wages for low-paid workers in the hospitality sector, and higher taxes on wealth. It could easily form the basis for Labour’s manifesto at the forthcoming general election.
The opposition leader agrees with the Resolution Foundation’s analysis. He kicked off his speech by noting – quite correctly – that the current parliament would be the first in modern times in which living standards had contracted.
But Starmer was much warier about engaging with the report’s suggested policy measures. Labour has no plans to introduce a wealth tax and has said it would stick to the spending totals that it would inherit from the Conservatives, even though they imply cuts to public investment. Anybody expecting the spending taps to be turned on after a Labour victory is going to be disappointed, the Labour leader said.
So what is the opposition’s economic plan? Starmer said it was all about modern supply-side theory: reforming the planning laws to make it easier to build new homes; an industrial strategy; a national wealth fund; a new direction on skills.
All of which sounds a tad woolly. If Britain’s problems are as serious as the Resolution Foundation says, it is going to take a lot more than that to sort them out.
