Yahoo Finance Britain’s stagnant economy is costing workers £10k a year, says think tank
Britain’s stagnant economy has cost workers more than £10,000 a year in lost wages, according to a think tank that warned the UK will remain stuck in a low growth trap without radical reform.
The Resolution Foundation described 15 years of flatlining earnings as a “disaster” for the world’s sixth largest economy, pushing the UK into relative decline compared with other rich nations.
It praised Britain’s “many strengths” including high employment rates, world class universities and strong adoption of technology.
However, it said they were overshadowed by a “deeply unsettling” longer-term picture that it blamed on a “low investment disease” in the public and private sector that has damaged productivity.
“The UK has a growth problem. It is a problem with profound implications for the living standards of the British people,” the Foundation said in a 300-page report on Monday.
It said real wages grew by an average of 33pc a decade between 1970 and 2007, but have stagnated ever since.
“Weak productivity growth has fed directly into flatlining wages and sluggish income growth. Fifteen years of lost wage growth has cost the average worker £10,700 a year. We cannot go on like this. Britain needs a new economic strategy.”
Jeremy Hunt, the Chancellor, and Labour leader Sir Keir Starmer will address a conference hosted by the Foundation on Monday where the think tank will say that closing the income gap between the UK and other countries such as France and Germany could leave the typical household £8,300 better off.
The report criticised successive governments for failing to create a stable investment environment with less red tape and building on the country’s strengths such as services.
The Bank of England warned last month that Britain’s economy was likely to flatline next year, with growth of less than 1pc expected until 2026 which it blamed on weak productivity and a smaller labour force.
“Despite those high stakes [on growth], it is not clear it is a problem we are serious about addressing, with nostalgia, short-termism and wishful thinking all holding us back,” the Foundation said.
The think tank urged politicians to build on Britain’s strength as a “services superpower”, suggesting Labour’s focus on forging stronger trade ties with the EU was misguided.
Highlighting that Britain was the second-largest services exporter in the world, it called for a more “expansive” approach to trade policy in the sector where the UK was much less dependent on the EU.
“Even before Brexit 63pc of services exports went outside the EU,” it said. “The UK should pioneer new services trade agreements with the likes of Singapore, Australia, Canada, Switzerland and Japan.”
The think tank, which focuses on low income families, also called for tax cuts. It said stamp duty was behind “socio-economic sclerosis” in the UK by making it costly to move and should be halved.
It recommended temporary increases in stamp duty-free thresholds from £125,000 to £250,000 and £300,000 to £425,000 for first time buyers should also be kept, with the move expected to help boost transactions by 20pc.
However, it warned Britons to “plan on higher taxes being here to stay” in order to pay for public services and “pressures from our ageing population and the net zero transition”.
Torsten Bell, chief executive of the Resolution Foundation, said: “Britain has huge strengths, but is in relative decline. A year or two of low investment and flatlining wages is survivable, but 15 years of stagnation is a disaster.”
However, the foundation said that Britain was far from condemned to a low growth future, just days after Bank of England Governor Andrew Bailey warned the outlook for the UK economy was among the worst he’d ever seen.
“There no excuse for fatalism,” said Mr Bell. “Having fallen so far behind, we now have a huge advantage: catch-up potential.
“Closing the gap with peers like Australia, France and Germany would deliver huge living standards gains, with typical households over £8,000 better off. That is a huge prize for a Britain that embraces a new economic strategy and is, in many ways, more normal.”
The Foundation also called for a major planning shake-up, with the cost of planning applications now five times higher than in 1990.
“The outcomes are far too unpredictable, also holding back housing and badly needed energy infrastructure. In future, businesses submitting applications consistent with local plans should be automatically approved.”
It also said “a major programme of pension fund consolidation” was needed to get British funds investing in British assets, “with a far smaller number of far larger, and more active, pension funds”.
