Successive right-wing governments have badly hurt our economy. What's next?
Well, here we go: five more years of Tory rule. Prime Minister Boris Johnson says that he will govern “for everyone” and that the country is on the verge of a “new chapter”. Such wishful thinking would require a complete reversal of the economic policies pursued during the last decade.
Through its obsession with austerity, the government has systematically eroded the purchasing power of the masses. It has failed to stimulate investment in the economy.
The state we are in
The year 2020 has begun with economic stagnation. According to the British Chamber of Commerce, the UK economy has suffered a “broad-based slowdown in the dominant services sector,” while the “manufacturing sector remains very weak”. There is “sluggish household expenditure”. And the UK economy is on track for the weakest year outside a recession since the Second World War.
The economic downturn is particularly acute in regions outside the South East of England. The number of UK regions with gross domestic product (GDP) per capita below 75% of the EU average increased from three in 2008 to seven in 2017. The seven regions – Southern Scotland; West Wales and the Valleys; Cornwall and the Isles of Scilly; Lincolnshire; Tees Valley and Durham; South Yorkshire; and Outer London – East and North East – are all poorer than anywhere else in North West Europe.
The post-Second World War economy was built with active investment by the state in healthcare, education, biotechnology, information technology, telecommunications, steel, shipping, railways, airlines and much more – especially as the private sector showed little appetite for investing in emerging industries.
Under the Conservatives’ dogma, investment by the state has been sidelined. No equivalent new industries have been started. In comparison to investment in productive assets by other EU countries, the UK languishes near the bottom of the league table.
Despite the rhetoric of reducing the public debt through wage freezes and austerity, the Conservative government has massively increased borrowing since 2010. At the end of November 2019, public debt was £1,808.8bn, compared to £960bn in April 2010. That £840bn has not been used to build a new economy.
Erosion of wages and purchasing power
Due to low investment, the growth in productivity has stalled. The UK has become a low-wage economy. Anti-trade union laws have weakened workers’ bargaining power. At the end of 2018, workers’ share of economy in the form of wages and salaries has shrunk to 49.2% of GDP, compared to 65.1% in 1976.
In the 2015 election campaign, the Conservatives promised that by 2020 the National Minimum Wage for employees over the age of 24 would be £9 per hour. The government failed to deliver that and from April 2020, the headline rate would be £8.72 per hour. Independent analysis suggests that the Living Wage needs to be at least £9.30 per hour outside London and £10.75 per hour in London. 42% of UK adults have annual income of less than £12,500. In 2018, 4.7 million employees were in low pay.
Meanwhile, under the weight of government policies, average earnings have stagnated. After adjusting for inflation, the earnings in real terms were £502 per week in October 2019, compared to £525 in February 2008, a 4.3% reduction in real terms. With above inflation rises in the cost of public transport, water, gas, electricity and many other essentials, most households are struggling to make ends meet.
The low wage economy has been accompanied by increase in household debt which at the end of October 2019 stood at £1,665bn. People’s ability to build a sustainable economy is exhausted.
Need new policies
The UK wealth is concentrated in fewer hands. The top 10% of households had 45% of national wealth in 2018, while the poorest 10th had just 2%. This is not a recipe for rejuvenation of the economy, social justice or cohesion.
The wealthy may purchase artworks, mansions, yachts and private aircraft and gamble on stock markets to enrich a few intermediaries such as accountants and lawyers, but that cannot revive the economy.
Expenditure by ordinary people on everyday essential items such as food, clothing, shoes and transport and has a far greater multiplier effect on the economy than the speculative expenditure by the rich. Yet the government has no policies for redistribution. This is not a recipe for rejuvenation of the economy, social justice or cohesion.
People’s purchasing power needs to be increased, but again it is hard to see any government policies. Rather than strengthening workers’ wage bargaining powers, Boris Johnson will introduce further anti-trade union laws and ban workers in railways and other industries from withdrawing their labour.
It is noticeable that no restrictions are to be introduced to reduce withdrawal or mobility of capital. The government has already reneged on its promises to the low-paid.
Skilled jobs, higher pay and higher productivity can be delivered by investment in new industries, particularly in the regions outside the South East of England. Yet it is hard to see any plan.
To address economic problems, the government needs to abandon its own dogma – and put our economy on the right track.
Prem Sikka is professor of accounting at the University of Sheffield and emeritus professor of accounting at the University of Essex. He is a contributing editor to LFF and tweets here.
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