Broken Britain

UK citizens vote in a general election on 4 July.  The opinion polls currently forecast that the incumbent Conservative party will be heavily defeated after 14 years in government.  The opposition Labour party is expected to gain a majority of over 250 seats, a record landslide, with the Conservatives getting less than 100 seats.

But ahead of the election, 75% of Britons have a negative view of politics in Britain.  And Labour and the Conservatives are set to record their lowest combined share of the vote in a century.  Instead, smaller parties such as Reform, the Liberal Democrats and the Greens have all made advances.

This result is a consequence of the disastrous decline in the British economy and living standards for most Britons alongside a decimation of public services and welfare.  British capital is broken.

The UK economy is now the ninth-largest world economy in terms of output at prices adjusted for purchasing power and sixth when output is calculated at exchange rates.  But British imperialism has been in steady decline since the end of WW1, giving way to US imperialism as the hegemonic power.  And after WW2, the UK increasingly became a subservient ‘junior partner’ to America.  The relative decline in the UK economy is revealed by its long-term fall in productivity growth compared to other imperialist economies, particularly in the 21^st century.

In his recent book, Vassal State – how America runs Britain, Angus Hanton shows the dominant role that US companies and finance play in owning and controlling large sections of what remains of British industries.  This US takeover was accepted and even encouraged by successive British governments from Tory Thatcher to Labour’s Blair. 

Hanton shows that in Thatcher’s second full year in office, 1981, only 3.6 per cent of UK shares were owned overseas. By 2020 that number was more than 56 per cent. Of all the assets held by US corporations in Europe, over half of them are in the UK.  US corporations have more employees in the UK than the number they have in Germany, France, Italy, Portugal and Sweden combined. The largest US companies sell more than $700 billion of goods and services to the UK, which amounts to over a quarter of the UK’s total GDP.

Almost 1.5 million UK workers are officially dependent on large US employers; if we count the indirect employees, such as Uber drivers and Amazon’s agency workers, at least 2 million UK workers have ultimate bosses in the US (6–7 per cent of the UK workforce). By 2020 there were 1,256 US multinationals in the UK – based on the IRS definition of a multinational as an enterprise with more than $850 million of foreign sales.

From the 1980s, Britain has increasingly become what we could call a ‘rentier economy’, ending most of its manufacturing base and relying mostly on the City of London financial sector and accompanying business services, providing a conduit for the redistribution of capital from the Middle East oil sheikhs, Russian oligarchs, Indian entrepreneurs and American techs.

Rough sleeper in London, 2015 (Alan Warren/ WIKI)

Throughout this period, British capitalism declined relative to its peers among the G7 economies and other larger European states.  But particularly after the Great Recession, and after the decision to leave the EU and the COVID pandemics, the British economy went into a downward spiral that so far it has not been able to stop.  Real GDP growth is still more than 20% below its pre-2008 trend – although that fallback applies to all G7 economies, if at a lesser rate.

The UK economy was the hardest hit of the top G7 economies in the year of the COVID. Real GDP fell 9.9%, which the then finance minister and now PM Rishi Sunak admitted was the worst contraction in national income in 300 years!  The economic think-tank, the Resolution Foundation, reckons that the UK economy may not have had “a technical recession but we are experiencing the weakest growth for 65 years outside of one (a recession).”

What is also forgotten is that population growth is at its fastest rate in a century (three-quarters driven by immigration of 6m people since 2010).  If population growth is excluded, the UK has barely seen any economic growth, with GDP per person only just above the level of 2007 and real consumer purchasing power still lower than in 2007. 

Indeed, productivity growth (that’s output per worker per hour) has been terrible.  Productivity has slowed to under 1% a year. Before the 2008-09 economic crisis, Britain’s output per hour worked grew steadily at an annual pace of 2.2% a year. In the decade since 2007, that rate has dropped to 0.2%. If the previous trend had continued, the UK’s national income would be 20% higher than it is today.

Only Italy’s productivity growth record is worse within the G7.

And it is estimated that the post-Brexit trading relationship between the UK and EU, as set out in the ‘Trade and Cooperation Agreement’ (TCA) that came into effect on 1 January 2021, will reduce long-run productivity by 4 per cent relative to remaining in the EU.

Long-run effect on productivity of trading with EU on FTA terms

In effect, UK productivity has flat-lined for a decade. So now productivity levels are as much as one-third below those in the US, Germany and France: “the average French worker achieves by Thursday lunchtime what the average British worker achieves only by close of business on a Friday.” Indeed, excluding London the UK’s average productivity level is below that of the poorest state in the US, Mississippi.

The productivity gap between the top- and bottom-performing companies is materially larger in the UK than in France, Germany or the US. This productivity gap has also widened by far more since the crisis – around 2-3 times more – in the UK than elsewhere. This long and lengthening tail of ‘stationary’ companies explains why the UK has a one-third productivity gap with international competitors and a one-fifth productivity gap relative to the past. 

Why is productivity growth so poor, especially among the key big British multi-nationals? The answer is clear: reduced business investment growth. Business investment growth has been on a steady trend downwards since the end of the Great Recession. Total UK investment to GDP has been lower than most comparable capitalist economies and has been declining for the last 30 years. The UK’s investment performance is worse than every other G7 country.  Compared to Japan, the USA, Germany, France, Italy and Canada, the UK languished in last place for business investment in 2022, a spot now held for three years in a row and for 24 out of the last 30 years.

Businesses aren’t choosing to invest in the UK. The UK ranks a lowly 28th for business investment out of 31 OECD countries. Countries like Slovenia, Latvia and Hungary all attract higher levels of private sector investment than the UK as a per cent of GDP.

The rentier nature of British capital is revealed by this IPPR report: “Corporate investment has fallen below the rate of depreciation – meaning that our capital stock is falling – and investment in research and development (R&D) is lower than in our major competitors. Among the causes are a banking system that is not sufficiently focused on lending for business growth, and the increasing short-termism of our financial and corporate sector. Under pressure from equity markets increasingly focused on short-term returns, businesses are distributing an increasing proportion of their earnings to their shareholders rather than investing them for the future.”

Nothing more confirms the decline of UK capitalism and its failure to invest and raise productivity than the profitability of British capital.  It is a story of long-term decline since the 1950s.  The decline was partially reversed for a while under the neoliberal policies of the Thatcher regime (at the expense of labour’s share on national income), but the decline resumed with a vengeance in the 21^st century.

As a result of weak growth in national income and ensuing austerity measures to hold down wages, the UK is only one of six countries in the 30-nation OECD bloc where earnings after inflation are still below 2007 levels and the UK is the worst of the top seven G7 economies.

In 2022, real pay in the US and OECD was up 17 per cent and 10 per cent higher respectively than in 2007, according to OECD data. In Britain it was unchanged. UK living standards have underperformed those of most wealthy countries since the Conservatives entered government in 2010, according to research by the UK Institute for Fiscal Studies.

The callous austerity policies of the Conservatives after the Great Recession of 2009 in cutting public services and freezing wages have torn up the social safety net. Rates of basic benefits are now lower relative to wages than at any time since the inception of the Beveridge settlement, which established the welfare state in the 1940s. Basic protection against unemployment in the UK is also the lowest in the OECD.

“The inflationary spiral after COVID was the worst in the G7.  It may have subsided now, but the rise in private rents is sharp and ongoing; nearly 9 per cent a year. Energy bills may now be falling, but from such a ludicrous peak that they are still up around 60 per cent on three years ago. Food, meanwhile, is up by around 30 per cent over the same period.  The result is that a higher percentage of Britons live below the poverty line than in Poland!”  Tom Clark, Broke.

And these are averages.  Britain is now the second most economically unequal of the larger developed countries, after the US: 50 years ago it was one of the most equal.  The UK has a very high inequality of income compared to other developed countries; the 9th most unequal incomes of 38 OECD countries. Compared to other developed countries the UK has a very unequal distribution of income, with a Gini coefficient of 0.351. The UK has one of the highest levels of income inequality in Europe, although it is less unequal than the United States.

The UK’s wealth inequality is much more severe than income inequality, with the top fifth taking 36% of the country’s income and 63% of the country’s wealth, while the bottom fifth have only 8% of the income and only 0.5% of the wealth, according to the Office for National Statistics.

The UK has the widest regional disparities in wages in the whole of Europe. Indeed, people in north-east of England have an average standard of living less than half that of the average Londoner. Wealth is also unevenly spread across Great Britain. The South-East is the wealthiest of all regions with median household total wealth of £503,400, over twice the amount of wealth in households in the North of England.

As for poverty and health, it could hardly be worse in a so-called rich country.  Welfare cuts have caused 190,000 excess deaths from 2010 to 2019. According to the Office for National Statistics, life expectancy at birth for 2020/22 is “back to the same level as 2010 to 2012 for females” and “slightly below” that benchmark for males—a whole decade, in other words, of zero or negative progress. 

“The most deprived areas of England,” government demographers report, registered “a significant decrease” in life expectancy in the second half of the 2010s. Looking ahead to 2040 (and comparing against a 2019 baseline), analysts at Liverpool University and the Health Foundation foresee an increase of some 700,000 in the number of working-age Britons living with a major long-term illness, overwhelmingly accounted for by a further rocketing of already-heavy rates of chronic pain, diabetes and anxiety/depression in poorer communities.

Child poverty rates have rocketed.  In 2022/23, the number of children living in poverty increased by 100,000 from 4.2 million in 2021/22 to 4.3 million children. That’s 30% of children in the UK. The rate of child poverty in the North East of England increased by 9 percentage points in the seven years between 2015 and 2022. Substantial increases can also be seen in the Midlands and the North West. Tower Hamlets had the highest concentration of child poverty in the UK in 2021/22, with almost half of children living below the poverty line after accounting for housing costs. Child poverty rates are also high in other large cities like Birmingham and Manchester.

The rise of ‘food banks’ has been a feature of the last ten years.  The official tally of people whose households had turned to foodbanks in the last 12 months stands at 3m.

And families with “very low food security” now stand at 3.7m, a total that has shot up by a full two-thirds in the last year alone.

One of the greatest achievements of the labour movement was the establishment of a National Health Service, free at the point of use.  After 70 years, this great public service is now in tatters; starved of funds and staff and services increasingly hived off to the profits of the private sector.  NHS funding faces the biggest real terms cut since the 1970s, warns the Institute for Fiscal Studies. 

The plutocrats' vicious attack on the working class covers the entire  "neoliberal West", like a plague, and has generated the phenomenon of the "working poor." This has been going on for at least 3 or 4 decades, ever since the Soviet Union imploded. The disease is capitalism.

The NHS has privatised 60% of NHS cataract operations to private providers. Private clinics received £700m for cataracts from 2018-19 to 2022-23 and 30-40% of money vanishes in profits.  And a new analysis by We Own It reveals that £6.7 billion, or £10 million each week, has left the NHS’s budget in the form of profits on all private contracts given by the NHS in the last decade or so.  We Own It analysis shows that out of the £6.7 billion total profits that have left the NHS, £5.2 billion, or 78%, were on contracts for services. 

Britons now have access to fewer hospital beds and dentists relative to the population than in most other big economies, according to OECD data. And the waiting list for operations is at a record level.

Then there is housing.  In the 30 years from 1989, 3 million fewer houses were built than in the previous 30 years, despite a strong increase in demand. This mismatch between supply and demand has contributed to a serious affordability crisis. In 1997 the ratio of median house price to median income across England and Wales was 3.6 and in London it was 4.0. By 2023 the median house in London cost 12 times the median earnings and even in the least unaffordable region, north-east England, the ratio was 5.0. 

This rise means only younger people whose parents – even grandparents – were homeowners can now be reasonably optimistic of being able to buy.  But UK housing costs relative to income are higher than in the past and compared with other countries. Rents rose by 13 per cent in the two years to May 2024 — the fastest pace in three decades and three times the rate in France and Germany.

At the other end of the housing ‘market’ Rough sleeping in England is up by 60 per cent over the last two years, and the number of families stuck in (terrible) temporary accommodation has doubled since 2010. 

As for education, that is also in deep trouble. A solid education system supports the services sector: almost 60 per cent of Britons between the ages of 25 and 34 are educated to at least tertiary — or university or college — level, OECD data shows. That is the sixth highest among advanced economies.  Pupils in Britain perform better in reading, maths and science than peers in France, Germany or Italy. They also have access to 90 of the world’s top 1,500 universities, according to the annual World University Rankings, more than France and Germany combined.  But the pressure is now for cuts in school funding and UK universities have slipped in international rankings, while many face bankruptcy and closure as overseas students dwindle. As for students, Britain has gone from providing free tertiary education in the 1960s to huge fees funded by crippling loans.

Then there are the prisons.  We lock up lots of people in the UK and now jails are running out of space “within days”, say prison governors in England and Wales.  “The entire criminal justice system stands on the precipice of failure.”  Instead of putting young people in jail, maybe there should some places for them to go.  But two-thirds of council-funded youth centres in England have been closed since 2010.  That’s because local councils have suffered cuts of 20% in real terms since 2010, leaving a gap of over £6bn to be found over the next two years.

Finally, there are the utilities.  Heavily privatized under Thatcher, they have turned out to be a disaster for users and a profits bonanza for shareholders.  In Europe, only in the UK has privatised water and the private equity owners of these water companies have milked the public for billions, while destroying the quality of water and the environment. In March it was revealed that raw sewage was discharged into waterways for 3.6m hours in 2023 by England’s privatised water firms, more than double the figure in 2022. Research by the Rivers Trust found that sewage was spilled for 1,372 hours in the Guildford constituency last year, and recent water testing by local campaigners found E coli in the river last month at nearly 10 times the safe rate in government standards.  Households in various parts of the country have become ill and told not to drink the tap water.

Are there any redeeming features in this broken Britain?  Yael Selfin, chief economist at consultancy KPMG UK, said Britain had some “long enduring advantages”, such as the English language and Greenwich Mean Time, which meant the business day in London overlapped with financial markets around the world.  So Britons speak English and have a world time benchmark- wow! 

The FT came forward with another merit, a prime minister of Asian origin: “This isn’t the only country in the west that would elevate a non-white head of government. But it might be the only one where it would stir so little discussion….. A quiet miracle is still a miracle.”  The richest man in the UK parliament is a miracle?

In an interview on the BBC’s Sunday with Laura Kuenssberg show, PM Sunak defended his party’s record in government over the past 14 years. “It is a better place to live than it was in 2010.” When it was put to him that Britons had become poorer and sicker, and that public services had deteriorated since 2010, he said: “I just don’t accept that.”  He may not accept it but it is still the reality.

Paul Dales, economist at the research company Capital Economics, said: “More investment in housing, infrastructure, education and health would help turn some of the weaknesses into strengths.”   Well, blow me down.

I’ll be looking at the new Labour government’s economic program after the election.