 "Is Britain no longer a rich nation?")
Is Britain no longer a rich nation?
A new study shows that 15 years of stagnation in the economy has left parts of the UK worse off than the poorest parts of Slovenia and Lithuania, according to several media reports.
The Niesr has said despite Britain’s ranking as the world’s sixth-biggest economy, the gulf between the country’s rich and poor regions has only grown wider.
Niesr has asked the government to increase the threshold from which citizens pay tax.
The report comes weeks ahead of UK Chancellor Rachel Reeves set to announce her plans for the UK economy as well as economic forecast.
The new Labour government is under pressure to improve the UK economy – which registered 0 per cent growth in the third quarter of 2024.
But what do we know about the study? What do experts say?
Let’s take a closer look:
What do we know about the study?
As per The Telegraph, Niesr in its study said Britain’s economic growth and productivity have fallen behind several other nations since the 2008 financial crisis.
Niesr in its study noted, “Stagnation in real income growth in the last 15 years has caused UK living standards to plummet and cost UK workers thousands of pounds per year. This is driven by weak productivity growth: countries that experienced stronger productivity growth over the 2010s had the strongest wage growth.”
According to the newspaper, living standards in parts of Birmingham and the north east of England are worse than the most impoverished parts of Slovenia and Lithuania.
Impact Shorts
More ShortsThe think-tank said the living standards of the common man in Slovenia are now nearly at par with the average British citizen.
Niesr found that half of Britain’s wage stagnation since 2008 was due to slow productivity growth, something Reeves is aiming to fix with more public investment and less red tape.
Niesr said while Britain’s poorest 10 per cent might be better off in cash terms than their counterparts in Slovenia and Malta, they fell behind once Britain’s higher cost of living was taken into account.
Since 2019, the average real earnings of Britons has risen less than three per cent (if inflation is included).
That figure is at just 6.6 per cent since 2007.
Meanwhile, real earnings rose by almost 20pc between 2000 and 2007.
Niesr economist Max Mosley said the average British worker would be £4,000 (Rs 4.5 lakh) per year richer had growth and wages in the UK kept up with the US.
“Economic stagnation over the past decade is now threatening the UK’s position as a place for a high standard of living. A combination of weak productivity growth driving near zero growth in real wages and cuts to welfare has resulted in a situation where we are neither delivering prosperity through high wages nor security through welfare,” Mosley told the newspaper.
“That the poorest in our country now fare worse than those in nations once considered less affluent is a stark indictment of the UK’s economic social model.”
The UK comes off even worse in a direct comparison to the United States.
INews quoted the data from International Monetary Fund (IF) as showing that the US is now, per capita, nearly 40 per cent wealthier than the United Kingdom.
Britain, were it to join the US, would immediately become the poorest state of all the states.
Poland too is catching up to the UK.
In 2010, the average Briton had 177 per cent of the wealth of the average person in Poland.
In 2024, that figure had reduced to 121 per cent.
Meanwhile, the Polish economy is improving by leaps and bounds.
Niesr said the value of welfare payments in Britain had been below the cost of household essentials in 12 of the last 14 years, with the only exceptions being in 2020 and 2021 thanks to a temporary welfare boost during the COVID-19 pandemic.
Tight rules on welfare in Britain also had an impact with benefits spending among the least generous across a range of similar economies when compared with average wages, Niesr said.
The think-tank said removing Britain’s two-child limit for additional welfare benefits represented the most effective way to reduce poverty.
Cuts to value-added tax rates would also give a disproportionate boost to low-income households as they spend a bigger share of their income on essentials, it said.
Reeves is reportedly considering cuts to welfare benefits as she prepares for a half-yearly update on the public finances on March 26. It is expected to show her off course to meet her rule to balance day-to-day spending with tax revenues by 2030.
What do experts say?
Some punted on answering whether Britain was still a rich nation.
The Telegraph quoted Mosley as saying “this question – which was easy to answer for centuries – is now less straightforward.”
But others are less reticent.
As a piece in INews by Mark Wallace, noted, “We can all sense that something is wrong. We pay record rates of tax, borrowing continues to run even higher than the budgeted deficit, and yet simultaneously the state – transport, policing, health services – seems not to work. It doesn’t add up.”
Wallace said that Britain is no longer as rich as citizens think – which is a deadly combination.
“Lacking wealth is a serious problem: it lays you open to crises; it weakens your capacity to overcome new challenges, such as defence threats or climate change; and it restricts your options at every turn. Witness the Government, choosing between winter fuel allowance and public services, or between defence and international aid,” Wallace wrote.
A piece in The Guardian argued that Britain had been pursuing faulty policies for the past few decades.
“Having sold off our public assets, and hollowed out the state’s capacity to directly deliver services and infrastructure, we now rent our public services from the foreign entities that own our buses, water companies, energy networks, prisons, care homes, and provide us with the IT services needed to run the state. There is also a bitter irony that some of these foreign entities are actually state-owned enterprises,” the piece noted.
“Arguably the most dangerous aspect of the orthodox approach to economic development has been its wilful negligence of dangerous levels of inequality. Not only did countries that pursued these economic policies become more unequal but there was also active collusion between political and economic elites to further rig the rules to their mutual benefit,” the piece stated.
It said that though the new government seemed to have taken the right lessons, a new strategy is called for.
“Forty years of liberalisation is enough,” the piece concluded.
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