The United Kingdom has the aura of a success story. Its economy is open and vibrant, its political system, centuries old, is rock solid.
That is all true. But it is also dangerously superficial.
In many ways, the UK is struggling in 21st century chaos: under-resourced healthcare services, a two-tier education system, and immigration which remains a vexed issue.
The country’s politics suffers from a century-long, stagnant, two-horse race. The constituency-based first-past-the-post system for national parliament allows a given administration scope to fulfil its mandate. Yet it also stifles political competition and consensus-building.
Theatrics trample substance.
The country also suffers from an economic identity crisis.
As Chris Giles commented in 2017: “Rather than enjoying US taxation levels with European levels of public services, the truth is that the UK sits uneasily between the two.”
True, the UK citizen often pays twice. Hefty taxation often has little to show for it. The same citizen is paying out of pocket after tax for private medical care, education, and childcare.
This is the worst of both sides of the Atlantic.
Enemy of progress
Herein lies the crux of the matter: ideology is the enemy of progress. And deeply ideological political discourse neglects real issues that concern modernity’s challenges of economic competitiveness and productivity. Nothing matters more in our quest to boost living standards. Economic ideology aside, any country’s economy needs specific treatment depending on its current status.
This is clear in the case of England’s water networks. Water providers were privatised in England, in the late 1980s.
Private investment piled in.
The case of Thames Water is spectacular.
Enjoying a private monopoly over a basic resource to a metropolis created one of the most profitable infrastructure assets anywhere in the world. Yet these assets became laboratories for financial engineering, and runaway debt had the government on standby in the event of insolvency. Meanwhile, quality nosedived, with record discharges and elevated E.coli levels.
And so, the world’s most lucrative private water market has for a generation provided healthy returns to investors, (often passive and foreign domiciled), to the sum of GBP 72bn. What it has not done is produce large home-grown water companies that could compete with the likes of France’s Veolia, nor has it produced major technological advances in water treatment or storage.
Thankfully, Ofwat – the water regulator – can now force companies to align dividend policies to performance.
Similar story
The country’s railway network tells a similar story. Whilst investment in the railways has increased in what is a capital-intensive sector, failing rail franchises have been slowly re-nationalised.
This has met with ideological resistance. Those same forces fail to see the irony in that well-run French and Spanish state entities are in fact the ‘private’ operators running the more successful franchises of the UK network.
Similarly, whilst Public-Private Partnerships (PPPs) of the 2000s swiftly built the largest batches of public infrastructure since the Victorian period, the time has come to rebalance the contracts to ensure taxpayer bang-for-buck.
Such an interventionist, benevolent, standards-driven, muscular government would be negatively labeled as interfering with market forces.
Yet that is what is required – a Commission for Innovation, Productivity, Sustainability and Economic Performance (CIPSEP), of sorts, to prioritise quality growth over quantity growth.
If current GDP growth metrics are reliant upon more house building, more financial transactions, and more people coming into the country, then that is quantity growth.
CIPSEP would pursue quality growth, in expanding the powers of the water regulator, for example. That could impose caps on companies’ dividends and leverage. At an annual public hearing, Thames Water should explain how it is improving water quality.
It would also mandate companies over a certain size to assign a portion of profits into research and development (R&D), to create the products and jobs of the future. This is an area where the UK is woefully found wanting, with government R&D spending below the rich-world average of 0.6% of GDP.
Companies doing most to help the UK ‘level-up’, in providing high-paid jobs in rural areas would be rewarded with higher scores than those expanding the already dominant capital.
Astoundingly, without London, the UK would be poorer than the poorest US state of Mississippi.
Muddling through
A review by Anton Howes of the book ‘200 years of muddling through’ by Duncan Weldon states that:
“In the late 19th century, Britain’s economy was supreme. It held a position in the world almost impossible to imagine today, fulfilling the late 20th-century roles of the US as global centre of finance, of China as dominant export manufacturer, and of Saudi Arabia as the world’s largest net exporter of energy — all rolled into one.”
Today, the economy more resembles a London-centric, finance-driven, service-heavy oligarchy. One that is dependent on extractive economic activity and quantity growth such as property rents and endless immigration inflows.
I wonder if the battles over Brexit, high Prime Minister turnover and the ill-fated attempt at a libertarian economy under Liz Truss are manifestations of the same problem: declining living standards and the lack of a plan to address this.
Bright spots
There are some good news stories.
The issue of government-sponsored childcare is making its way into the debate. Similarly, an apprenticeship levy was introduced in 2017, requiring large employers to contribute to a fund used for apprenticeship training. From 2010 to 2020, there were approximately 4 million apprenticeship starts in England.
Much economic activity is growing outside of the capital, from life sciences in Cambridge, to ‘vertical farming’ equipment in Edinburgh.
Old Victorian industrial mills are being repurposed into coffee shops, hybrid working environments and community centres.
All of this will help address the malaise facing the UK.
Some good ideas
There are also constructive suggestions coming from political contenders. Labour has suggested a watchdog for infrastructure standards, a national wealth fund to invest in clean energy, and drawing up an industrial strategy focused on the UK’s strengths.
The Liberal Democrats proposed an industrial strategy to invest in new technologies and a commercial ‘landowner levy’ to help high street businesses.
Renewal
After 14 years of Conservative rule, the record is not all bad, particularly in view of the trying circumstances post the Global Financial Crisis (GFC) around 2010.
Yet many development metrics have stalled or reversed under Conservative rule, as reflected in this Financial Times (FT) report.
Household disposable incomes and average earnings are 30% and 32% lower respectively than the trendlines from 2007.
The young are preoccupied by rising rents and house prices in what has effectively become an ‘inheritocracy’. Life expectancy has begun declining in forgotten parts of northern England.
Government debt is at its highest level relative to output for 60 years, despite the UK being the global guardian of the wealth-packed offshore tax haven.
The time has come for renewal. A Labour landslide is inevitable.
No party will create a diversified economic powerhouse, with world-beating value-adding growth drivers from cancer treatment in Belfast to offshore solar powered generators in Brighton.
I am sceptical of a Labour crusade to re-plumb the British economy towards such 21st century glory. Yet to withhold a vote only empowers the incumbency.
Few choices in politics are perfect, and my vote goes to the opposition.
The views of the writer are not necessarily the views of the Daily Friend or the IRR.
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