Why Britain Stopped Growing

We've had now, actually, nearly two decades of really, really poor economic growth. Average earnings today are pretty much the same as they were 20 years ago. Now that is really unparalleled in British history for probably 200 years. And that's why people now talk about a cost of living crisis, with a fed-up electorate. We're getting fairly chaotic politics, but of course, chaotic politics makes it difficult to produce the stable policies and the growth that might get you out of that spiral. So you get a fed-up electorate, you get chaotic politics, you get less growth, and you get an even more fed-up electorate. And I think that's the horrible spiral we're in at the moment.

But you're right, it's nevertheless extraordinary. The Labour Party won an enormous majority having been out of office for 14 years, and actually in 2019 looking like they might be out of office for another 14 years. So it was an amazing turnaround. It was a big, big victory a couple of years ago. But the prime minister lost — Starmer lost popularity very quickly, partly because the manifesto on which he ran didn't really reflect the decisions he was going to take as soon as he got into office. So he started doing what some of us would argue were quite sensible things, like small reductions in some of the benefits that pensioners, people of state pension age, received. There were some very big tax rises that were introduced despite the fact his manifesto said that he wouldn't introduce big tax rises. And then there have been a series of missteps around personnel. Peter Mandelson, who was our ambassador to the United States, appointed by Keir Starmer, Peter Mandelson turned out to have unhealthily close connections with Jeffrey Epstein. There have been a series of other issues with the prime minister's judgment. But he's become incredibly unpopular — probably more unpopular than it's easy to explain. He's a decent, hardworking, honorable man, but has really failed to connect with the electorate post the election.

Yeah, you're right. I mean, it's been a combination of the two. I think we've not had the world's greatest leaders — I think it would be fair to say over the last 10 years — but they've also inherited a really, really difficult situation. The first couple of trips up over Brexit and how to actually achieve that. Then we had absolute chaos, as you say, with Liz Truss. Part of the problem here is that between elections, the leaders — the prime ministers — are effectively elected by a very small number of people in their own political party, and we got a slightly strange outcome, I think it's fair to say, with Liz Truss. But I think the overall story here is prime ministers are unpopular because people are not feeling well off. We've had now, actually, nearly two decades of really, really poor economic growth. Average earnings today are pretty much the same as they were 20 years ago. Now that is really unparalleled in British history for probably 200 years. And that's why people now talk about a cost of living crisis. Inflation in the UK has been higher than it's been in most other developed economies for quite a long time, and the result is essentially the electorate is really pretty fed up. Now, with a fed-up electorate, we're getting fairly chaotic politics, but of course chaotic politics makes it difficult to produce the stable policies and the growth that might get you out of that spiral. So you get a fed-up electorate, you get chaotic politics, you get less growth, and you get an even more fed-up electorate. And I think that's the horrible spiral we're in at the moment.

Well, I mean, in one sense it is that lack of growth. We've had very little in the way of productivity growth for a very long time. Now, the question is, why is that? Well, partly we were particularly badly affected by the financial crisis. We've got a very big financial sector, particularly in London. Partly Brexit and the uncertainty that happened after 2016. I think there's a general acceptance that that cut a few percentage points off growth. But I think a combination of that with some pretty poor policy choices: we've got a very difficult planning system, it's very hard to build stuff here. There are certainly elements of our education system that could be better. An incredibly complicated tax system, which is definitely creating problems for growth. I mean, it's worth saying many European countries are struggling — we're just struggling more than most of the rest.

That's a very good question. I think the straightforward answer is we don't know. And it's quite remarkable that it looks like — I mean, he's almost definitely going to become prime minister very quickly because Labour politicians are essentially, it looks like, they're all going to back him. But they're backing him off the back of a sort of general sense, I think, that he's a better politician than Keir Starmer, and a general sense that he might be a little bit more left-wing, because the Labour Party is probably a little bit to the left of what Keir Starmer has been doing. What he would actually do.

He said very little. I mean, there's a bit of a joke, to be honest, over here, which is that he's changed his views a lot over the last 30 years. He's been in politics for a long time, and he's sort of moved from sort of the Blairite, sort of New Labour, sort of quite moderate Labour of the 2000s. He went quite a long way left in the 2010s. He's painted himself a picture as, you know, an independent mayor up in Manchester. He calls it a form of business-friendly socialism. How that is likely to play out on the national stage, we don't know. He's toyed with greater public control of some industries, but we don't know what that means. Highly unlikely to be full-scale nationalization. He's gone back and forwards on what he thinks he might want to do to higher levels of taxes and so on, and also back and forwards a bit on whether he's going to borrow more. So the only honest answer I can give you is I don't know what his economic policy is going to be, except that I think his instincts are somewhere to the left of the current government.

Well, it depends — a consensus among whom? I think there's a little bit of a consensus among technocrats, but we technocrats tend to have solutions that politicians find rather difficult to implement. So tax reform is quite difficult when your people aren't getting better off, because that will mean some people are left worse off by reforming the tax system. Making it much easier to build things is quite unpopular with people who live near the places that the roads or what have you are going to get built. Spending more on investment, if that means spending less on welfare, for example, is also unpopular in the short term. So I think among technocrats there are some pretty well-worn ideas about what you need to get growth, but politicians for a long time have shied away from doing those things because they appear to be electorally unpopular.