Since 2010, the UK economy has been shaped by three critical government decisions: Austerity, Brexit and COVID. We have previously argued that the government mishandled all three (see Austerity, Brexit, COVID – an ABC of Economic Mismanagement).
Now even the former Chancellor and would-be Prime Minister, Rishi Sunak, has admitted that the UK faces a national emergency both in economic terms and with an under-funded and over-stretched NHS. (As you can see, he is also continuing to fuel the myth that our problems are caused by illegal immigration rather than government policies).
This article looks at the alternative. What we could have expected without those three policy disasters. How might the UK look today? Would things be much better? Would we be facing a crisis anyway?
Our conclusion is that if we had had an averagely competent government since 2010, the UK would not be in a state of emergency. We would be a more prosperous country, without failing public services and with higher wages. Tens of thousands of UK citizens who are dead today, would still be alive. And we would not be facing a cost-of-living crisis.
And there would be many non-quantifiable ways in which we would be a far better country to live in.
The UK would be a more prosperous country
Let’s begin by looking at what has happened to the UK economy over the past 20 years. The chart below shows ‘nominal’ figures, that means they are not adjusted for inflation – making the adjustment would show slower growth throughout.
Until 2007, the UK economy was performing well – the Governor of the Bank of England called 1997-2007 the ‘NICE’ decade, standing for non-inflationary, continuously expansionary.
Then in 2007, triggered by the collapse of US sub-prime mortgages, the Global Financial Crisis began. Growth slowed in 2008 and fell off a cliff in 2009. The Conservative party was elected in 2010 and embarked on a programme of austerity, which reduced both economic growth and the quality of public services. Funding for the NHS – despite promises that it would be protected – has been inadequate ever since.
Although the ostensible rationale for austerity was the false claim that the state of public finances meant that there was no alternative, the ratio of debt:GDP continued to rise. The low growth resulting from austerity has continued after 2016 because of the effects of a hard Brexit, which was a policy choice made by the government against all the promises its leaders had made during the Leave campaign.
The typical wage earner is poorer today than in 2007 – a period of mass impoverishment unmatched since the 1820s, and we now have high inflation which means that this year the Bank of England has forecast the sharpest fall in living standards since its records began.
Now let us consider what could have happened without austerity and a hard Brexit. Of course, government spending would have been higher and, as we shall see, so would economic growth.
The chart below shows inflation-adjusted GDP growth for a selection of leading economies. It shows that, despite what the government says, our poor growth was not inevitable. It was not experienced by other countries. It was the result of our government’s choices.
So we can assume that an alternative government, not choosing to inflict austerity and a hard Brexit, would have delivered far higher growth. Nominal GDP growth from 2000-2007 averaged 4.9% per annum but, with austerity and Brexit, the average rate of growth from 2010-2020 has been only 2.8%. We have taken the 4.9% figure to illustrate how growth without austerity and Brexit might have looked.
If we also assume that an alternative government would have taxed at least as high a proportion of GDP as the Conservatives did, higher growth means that taxation would also have been higher. And borrowing would have been higher, too. The combined picture would have looked like this.
At first glance the two charts look similar – in fact they are the same up to 2010. But then the picture changes. In the first chart, the GDP in 2019 reaches around £2.2 trillion; in the second it reaches around £2.5 trillion. In other words, due to austerity and Brexit, we lost almost £250 billion, or over 10% of GDP. And that is before COVID.
Ah, but what about all that extra borrowing? In £ terms there is higher borrowing without austerity than with it – the difference is about £40 billion. But as a percentage of GDP, borrowing is lower without austerity. Even on the one measure it was meant to tackle, debt:GDP, austerity failed.
And it has immensely weakened both the economy and the social contract in the UK.
Tens of thousands of UK citizens would still be alive
The results from 2020 are heavily influenced by COVID. The UK has now had over 200,000 COVID deaths. Two years ago, we wrote, when the government exceeded its 20,000 target for total COVID deaths and failed to set a new target:
“Without a pre-defined target, there is nothing to stop the government ‘painting the bull’s-eye’ around, say, 200,000 deaths and declaring it a success.”
And, of course, that is exactly what the government is now claiming.
To determine whether 200,000 deaths is indeed a success, we should look at the rest of the world. The Statista database has information on 155 countries. At the time of writing, the UK had the 27th highest rate of deaths per million in the world. If we had been a mid-range performer, we would have had 28% of the deaths we have had: 56,000 instead of 200,000 – that is 144,000 UK citizens who should be alive today.
And that would also have helped the economy: most developed countries had a poor 2020 – the average growth rate was negative 4.6%; ours was a staggering negative 9.3%.
So, by 2020, not only had we lost 144,000 lives, but also our GDP was more than £250 billion lower than it should have been.
We would not be facing a cost-of-living crisis
There are two reasons for the cost-of-living crisis: 1) our wages have stagnated and 2) prices are out of control. The first of these would not have happened without the compounding effects of austerity and a hard Brexit. And the second is also partly down to the UK government’s policy response – in particular in relation to energy prices.
Without the wage stagnation, the inflation would still have been painful. But assuming that wages had remained at around 59-60% of GDP, wages would be more than 10% higher than they are today. For the median earner, that would be more than £3,000 higher. Not enough to make the price rises negligible but enough to stop so many people being so close to the brink.
A series of policy blunders have brought the UK to crisis point, as even the Conservative leadership contenders have admitted.
We should now be living in a relatively prosperous, well-governed country. We should be about 10% better off than we are today: wages should be higher and public services should not be on the brink of collapse. We should have the resilience to deal with the energy price rises as other countries have done. The gap between rich and poor should be smaller than it is today. And 144,000 more of us should still be alive. Each new generation should, on average, have better opportunities than the generation before. The government should be investing to provide healthcare and to tackle the climate emergency.
And that is just what the numbers tell us. We should also be living in a country where all are equal under the law, where adult citizens have an unfettered right to vote, where the right to peaceful protest is recognised, where politicians seek to unite the country rather than to stoke divisions, where our joint humanity is recognised and our lives are valued whether or not we happen to be rich.
This is not an inflated vision of sunlit uplands and unicorns. This is what a competent government would have been able to deliver; it is what previous UK governments and governments in other countries have delivered.
If this extremist version of the Conservative Party continues in power for another term, they are promising to continue with the policies that have created this crisis.
To make the UK a country fit for future generations to live in, we need to reverse these policies.
To secure the future of the UK, we need:
- Moderates and progressivesin all political parties (including the Conservatives) to realise how high the stakes have become and to co-operate to avoid another Conservative government – together, moderates and progressives have a very good chance of winning;
- Votersto drop their traditional party allegiances and vote tactically – it is unlikely that the next government will be perfect, but it need not be destructive, and voters have the power to elect the least harmful option;
- Non-votersto understand that – even if in the past they did not feel that their vote could make a difference, it can now (as the results in Shropshire North, Chesham and Amersham, Wakefield and Tiverton and Honiton all show, there is no longer such a thing as a safe seat).
If you think you might like to help or just to keep informed, please do sign-up and join the 99% Organisation.