Getty
Show Hide image

The Autumn Statement is just the start of rebuilding our economy

The UK invests less in its future than most comparable countries. 

Like the Brexit vote before it, the election of Donald Trump has been widely seen as a revolt of the dispossessed. It is portrayed as a cry of protest by the working class in former industrial areas who have been left behind by the processes of globalisation.

But there is a paradox. The results of both the EU referendum and the presidential election will almost certainly make better economic outcomes for those groups less likely, not more.

Yet progressives in both countries would be wise not to conclude that the public have voted irrationally. The facts are in favour of the revolt. In the US, real median household income is barely higher now than it was in 1990 – despite a growth of around 80 per cent in GDP in the same period. In the UK, half of all households have seen no meaningful increase in their incomes since 2005. Before taxes and benefits, only 10 per cent of overall income growth in Britain between 1979 and 2012 went to the bottom half of the income distribution, with the bottom third barely sharing in it at all. The richest 10 per cent meanwhile took almost 40 per cent.

The geography of national income is even more skewed. London and the South East account for almost two-fifths of national output. Indeed, the remarkable fact is that outside those two regions, no part of the UK has got back to the level of output it had before the financial crisis. When a majority of voters rejected warnings during the referendum campaign that Brexit would put the economic recovery at risk, they did so precisely because most of the country has not experienced any such recovery.

These facts pose a serious challenge to economic policy, particularly for those on the progressive wing of politics. For three decades it was felt sufficient to reap the economic rewards of globalisation and technological change, and then redistribute income after the event through the welfare system and spending on public services. It worked for a while, but the financial crash and its aftermath have exposed the hollowed-out economy on which the strategy was based. Lack of interest in the real process of wealth creation – fuelled by economic theories which claimed that the state could not improve upon private sector investment choices – has left the UK economy more de-industrialised, with lower wages, more insecure labour markets and larger regional imbalances, than almost all of our major competitors.

How have we got to this place? A new report published by the Institute for Public Policy Research (IPPR) sets out just how deep these structural weaknesses go. The UK invests less as a proportion of national income than most other advanced economies, and investment has been declining for a quarter of a century. As a consequence our productivity is lower, and since the financial crisis its growth has stalled altogether. This makes raising wages almost impossible – which helps explain why household incomes have not increased in recent years. We have a record trade deficit which has also been growing over a long period. This makes the UK deeply vulnerable to a decline in overseas’ investors’ confidence in the value of UK assets, which currently fund the deficit. The recent depreciation of sterling will benefit our exports – but so many of them are so full of imported components that the effect will be much less than it would be in a country (like Germany, say) with a stronger manufacturing sector.

At the same time the UK has an alarming fiscal gap: due to its ageing population, there is a rapidly growing divergence between future tax receipts and spending commitments, unless taxes (as a proportion of GDP) can be raised. The declining proportion of working age people relative to the young and the retired has also given us a huge pensions gap. The difference between actual pensions saving and the levels required to provide the incomes that most people expect in retirement now amounts to around 13 per cent of GDP.

The new Conservative government appears to understand that all this will require a much more active approach to economic policy than has been followed over recent years. Next week’s Autumn Statement is likely to see some relaxation of the previous Chancellor’s fiscal stance, with some additional borrowing for infrastructure. The government has also signalled its interest in developing a more active industrial strategy, even putting this into the title of its new business department. But there is little sense that in either sphere the scale of the problem has been fully grasped.

The challenges facing the UK economy today are unprecedented in the postwar era. We start from a fundamentally weak base, in which growth has been sustained since the financial crisis only by near-zero interest rates, rising household debt and almost continuous quantitative easing. Brexit now poses serious risks to trade and inward investment. But on top of this we will soon face a new wave of globalisation as China and other emerging economies start competing higher up the value chain. And meanwhile the new technologies of automation and machine intelligence offer huge opportunities but also serious risks of job loss and dislocation.

These challenges will require more than tinkering at the edges of economic policy, whether on left or right. Ensuring that economic growth can be sustained and its fruits properly shared across all households and regions will require some fundamental rethinking.

It is for this reason that we at the IPPR have launched this week the Commission on Economic Justice. With the help of leading figures from the Archbishop of Canterbury to organisers from Citizens UK, we will examine the challenges facing the UK economy over the next two decades and make practical recommendations for its reform. We will be exploring what industrial strategy really means; how to make financial markets more long-term; how to close the class, gender and ethnic skill and pay gaps. We will look at the distribution of wealth as well as income, and how it can be made more equal. We will look at how economic policy can be devolved to the nations and regions of the UK. We will think big, and consult widely.

The political revolt of 2016 asks a powerful question. It needs urgent answers. Our commission aims to start a new conversation about where the British economy is going, and how it can be shaped to bring prosperity to the whole country.
 
Michael Jacobs is Director of the IPPR Commission on Economic Justice and co-editor of Rethinking Capitalism (Wiley Blackwell 2016).

Getty
Show Hide image

Our union backed Brexit, but that doesn't mean scrapping freedom of movement

We can only improve the lives of our members, like those planning stike action at McDonalds, through solidarity.

The campaign to defend and extend free movement – highlighted by the launch of the Labour Campaign for Free Movement this month – is being seen in some circles as a back door strategy to re-run the EU referendum. If that was truly the case, then I don't think Unions like mine (the BFAWU) would be involved, especially as we campaigned to leave the EU ourselves.

In stark contrast to the rhetoric used by many sections of the Leave campaign, our argument wasn’t driven by fear and paranoia about migrant workers. A good number of the BFAWU’s membership is made up of workers not just from the EU, but from all corners of the world. They make a positive contribution to the industry that we represent. These people make a far larger and important contribution to our society and our communities than the wealthy Brexiteers, who sought to do nothing other than de-humanise them, cheered along by a rabid, right-wing press. 

Those who are calling for end to freedom of movement fail to realise that it’s people, rather than land and borders that makes the world we live in. Division works only in the interest of those that want to hold power, control, influence and wealth. Unfortunately, despite a rich history in terms of where division leads us, a good chunk of the UK population still falls for it. We believe that those who live and work here or in other countries should have their skills recognised and enjoy the same rights as those born in that country, including the democratic right to vote. 

Workers born outside of the UK contribute more than £328 million to the UK economy every day. Our NHS depends on their labour in order to keep it running; the leisure and hospitality industries depend on them in order to function; the food industry (including farming to a degree) is often propped up by their work.

The real architects of our misery and hardship reside in Westminster. It is they who introduced legislation designed to allow bosses to act with impunity and pay poverty wages. The only way we can really improve our lives is not as some would have you believe, by blaming other poor workers from other countries, it is through standing together in solidarity. By organising and combining that we become stronger as our fabulous members are showing through their decision to ballot for strike action in McDonalds.

Our members in McDonalds are both born in the UK and outside the UK, and where the bosses have separated groups of workers by pitting certain nationalities against each other, the workers organised have stood together and fought to win change for all, even organising themed social events to welcome each other in the face of the bosses ‘attempts to create divisions in the workplace.

Our union has held the long term view that we should have a planned economy with an ability to own and control the means of production. Our members saw the EU as a gravy train, working in the interests of wealthy elites and industrial scale tax avoidance. They felt that leaving the EU would give the UK the best opportunity to renationalise our key industries and begin a programme of manufacturing on a scale that would allow us to be self-sufficient and independent while enjoying solid trading relationships with other countries. Obviously, a key component in terms of facilitating this is continued freedom of movement.

Many of our members come from communities that voted to leave the EU. They are a reflection of real life that the movers and shakers in both the Leave and Remain campaigns took for granted. We weren’t surprised by the outcome of the EU referendum; after decades of politicians heaping blame on the EU for everything from the shape of fruit to personal hardship, what else could we possibly expect? However, we cannot allow migrant labour to remain as a political football to give succour to the prejudices of the uninformed. Given the same rights and freedoms as UK citizens, foreign workers have the ability to ensure that the UK actually makes a success of Brexit, one that benefits the many, rather than the few.

Ian Hodon is President of the Bakers and Allied Food Workers Union and founding signatory of the Labour Campaign for Free Movement.