In the end, his political party’s survival instincts shook Boris Johnson’s resolve to survive. That is good news. Yet, despite his destructive nature, he has remained an extremely important political leader. He has made debates on key issues from solutions to symbols. This is especially true of Brexit, his enduring legacy. Johnson’s insistence on the sovereignty trap almost brought about the hardest Brexit. However, if the threat of breaking the Northern Ireland protocol keeps him alive, things could get worse.
Brexit is not the most important challenge for British politicians. Most importantly, it’s easy to describe and hard to solve. It is long-term stagnation in productivity and real income. If the country cannot solve it, it is very important that it probably will not solve much. Also, the current cost-of-living crisis is so bad because of the terrible long-term performance.
As noted by the Resolution Foundation in their latest report Check standard of living, the 15 years between 2004 and 2019 – pre-Covid and pre-Brexit – were the most vulnerable to GDP per capita growth since the years 1919-1934. Lower GDP per capita growth translated into lower household real disposable income growth: a 12 percent increase for non-retirees between 2004-05 and 2019-20. This can be compared to an average increase of 40 percent every 15 years since 1961.
There were also clear changes in the distribution of income. Between 1980 and 1995, the average non-retiree household’s real disposable income increased by 37 percent, but by 67 percent for the top and only 3 percent for the bottom. Between 1992 and 2007, incomes grew 41 percent, 47 percent, and 37 percent, respectively: growth was faster and more widespread than, of course, much better. But then, between 2004 and 2019, when median income grew just 12 percent, the top decade grew 11 percent and the bottom 2 percent: it was a total stalemate. In 2018, the distribution of disposable income was the most unequal among high-income democracies after the United States.
The UK’s performance since the financial crisis has not deteriorated by historical standards. It’s even worse than those frivolous European counterparts. Average household real disposable income, adjusted for purchasing power, fell by 2 per cent between 2007 and 2018 in the UK, according to the Resolution Foundation. In the same period, they grew by 34 percent in France, 27 percent in Germany and 23 percent in the Netherlands. As a result, median household disposable income in the UK was significantly lower than its Western European counterparts: 9 per cent less than France and 16 per cent less than Germany (despite the huge integration costs), for example.
This poor relative performance is reflected in other areas as well. Britain’s hourly output has fallen from 84 per cent of German levels in 2007 to 81 per cent in 2015 and 79 per cent in 2021, according to the Conference Board. Britain’s GDP per capita has also fallen from 92 percent of Germany’s level. 2007, 87 percent in 2015 and 82 percent in 2021.
Things are worse than these numbers suggest. Rising employment has offset stagnant productivity and supported the incomes of the poor. But that probably won’t help as much in the future. Prosperity will depend even more on productivity.
Some would argue that income stagnation doesn’t matter much, if at all. He says policymakers should focus on well-being instead. There are really good reasons for governments to spend on mental health, school wellbeing, social welfare and climate change, as the World Wellbeing Movement recommends. However, a necessary condition for such spending is likely to be a widely shared increase in prosperity. Indeed, the rise of populist politics in itself seems a natural, catastrophic event, a consequence of Britain’s high levels of inequality and stagnant real incomes. “Let them eat Brexit” is the trick. The food must have looked tempting. But it will prove to be quite indigestible over time.
The big question in British economic policy is how to end the impasse. The answer would be no tax cuts: taxes are already low compared to our European peers. Nor is it deregulated: Land use aside, the UK economy is relatively deregulated. This will depend on increased investment and bringing lagging companies and sectors closer to the border. This depends on corporate governance and capital market reforms that encourage investment and innovation. It will be important to use the energy transition to accelerate development and reduce emissions.
The top candidates must give serious answers to these major challenges. And they should make these answers credible despite the Brexit impasse. Will they? I doubt
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