The country wrestling with today’s cost of living crisis, like the people, places, and firms experiencing it, has a history. Understanding where that has left the UK is the purpose of this chapter. Alongside many strengths, it argues that the Britain of the 2020s risks being defined by the combination of sustained low growth and longer-lasting high inequality. Each brings challenges, but a prolonged period of the two together risks continued stagnation, which should be the priority of policy makers to reverse.
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- The UK economy has huge strengths, from high employment to world class universities.
- But, having grown more quickly than most advanced economies from the 1990s to the mid-2000s, the UK has been in relative decline ever since: the average productivity gap with France, Germany and the US nearly doubled, to 16 per cent, between 2008 and 2019.
- Slow growth is the cause of Britain’s flatlining wages: real wages grew by an average of 33 per cent a decade from 1970 to 2007, but this fell to below zero in the 2010s. By 2018 typical household incomes were 16 per cent lower in the UK than in Germany and 9 per cent lower than in France, having been higher in 2007.
- Having surged during the 1980s, and remained consistently high ever since, income inequality in the UK was higher than any other large European country in 2018. Inequality between places is high and persistent too.
- This is stagnation: the toxic combination of low growth and high inequality. It is ruinous for low-to-middle income Britons. Low-income households in the UK are 22 per cent poorer than their counterparts in France, meaning their living standards are £3,800 a year lower than their French equivalents’.
- The young have also lost out: 8 million younger workers have never worked in an economy with sustained average wage rises, and those born in the early 1980s were almost half as likely to own a home as those born in the early 1950s at age 30.
- Stagnation leaves public services struggling, even as the tax burden rises: taxes are on course to reach their highest share of GDP since the 1940s.