UK Households Left £8,300 Poorer due to Economic Stagnation, Report Finds
A major report on the state of the United Kingdom has revealed that economic stagnation lasting 15 years has left the average UK household £8,300 poorer than households in countries like France and Germany. The report, conducted by the Resolution Foundation and the Centre for Economic Performance at the London School of Economics, highlights the need for measures to boost growth, raise living standards, and reduce inequality.
The 300-page report proposes a range of sweeping measures to address the issue, including closing the wealth gap between UK cities, promoting services exports, and increasing public investment. The researchers argue that the UK has experienced 15 years of relative decline, with productivity growth at half the rate of other advanced economies. However, the report emphasizes that the challenges faced are not insurmountable.
The findings of the report could potentially shape the agenda for a Labour government led by Keir Starmer if they were to win the next general election. Starmer and Chancellor of the Exchequer Jeremy Hunt were due to speak at an event in London to launch the report, alongside Bank of England officials and prominent economists.
The report reflects growing concerns across the political spectrum regarding the UK’s sluggish economic performance since the global financial crisis in 2008. Economic growth has slowed and productivity, a crucial factor in improving living standards, has been particularly weak compared to similar nations.
Resolution argues that the current government’s plans are not serious, particularly following the Autumn Statement, in which Chancellor Jeremy Hunt announced £20 billion in tax cuts while signaling potential budget cuts to public services. In contrast, Prime Minister Rishi Sunak has prioritized boosting the economy and reducing inflation, claiming that Labour’s plans would jeopardize the progress that has been made.
Resolution suggests that a new economic strategy is needed, and politicians must be honest about the associated trade-offs. The think tank calls for increased public investment and funding for public services, but acknowledges that taxes will need to rise. The current strategy has resulted in a stagnating economy and declining real wages for workers, as productivity lags behind other comparable nations. The report estimates that the average worker has lost £10,700 in potential pay growth each year.
These findings align with the analysis conducted by Bloomberg economists, who found that hourly labor productivity in the UK is currently 24% below what it would be if it had maintained its pre-financial crisis trajectory. The lack of investment explains a quarter of this gap, with less innovation and slower adoption of new ideas accounting for the remainder.
Bloomberg Economics emphasized the challenge of increasing productivity in the UK and called for increased investment spending, capital flow to strategic areas, harnessing opportunities presented by artificial intelligence, and opening up the economy to trade. They warned that tough financial choices would need to be made along the way.
Resolution estimates that its proposed plan could lead to a 7% increase in gross domestic product (GDP) over 15 years. Higher taxes and stronger economic growth are deemed necessary to increase investment, improve public services, and repair public finances.
The current government plans to reduce investment to 1.8% of GDP by 2028 and 2029. Resolution argues that public capital spending should be 3% of GDP in order to close the living standards gap with similar countries. Additionally, the report suggests that investment should be financed increasingly by domestic savings rather than foreign borrowing.
Overall, the report highlights the urgent need for action to address the economic challenges facing the UK. The proposed measures aim to boost productivity, narrow wealth gaps, and ultimately improve living standards for households across the country.
More detail via The Star here… ( Image via The Star )