Though it didn’t feel like it at the time, the years preceding 2017 now resemble an economic golden age for the UK. After the damage imposed by the financial crisis and excessive austerity, Britain recovered to become the fastest growing G7 country. Real earnings finally rose as wages increased and inflation fell (income per person grew by 3.5 per cent in 2015).
And then the Brexit vote happened. Though the immediate recession that the Treasury and others forecast did not materialise, the UK has already paid a significant price. Having previously been the fastest growing G7 country, Britain is now the slowest. Real earnings are again in decline owing to the inflationary spike caused by the pound’s depreciation (the UK has the lowest growth and the highest inflation – stagflation – of any major EU economy). Firms have delayed investment for fear of future chaos and consumer confidence has plummeted. EU negotiator Michel Barner’s warning of a “very disturbing” deadlock in the Brexit talks reflects and reinforces all of these maladies.
While Leavers plead with Philip Hammond to set money aside for “a no-deal scenario”, the referendum result is daily harming the public finances. The Office for Budget Responsibility has forecast a £15bn budgetary hit (the equivalent of nearly £300m a week). To the UK’s existing defects – low productivity, low investment and low pay – new ones have been added: political uncertainty and economic instability.
The Conservatives, to annex former Chancellor George Osborne’s phrase of choice, failed to fix the roof when the sun was shining. Rather than taking advantage of record-low borrowing rates to invest in infrastructure (and improve the UK’s dismal productivity), the government squandered money on expensive tax cuts. The Sisyphean pursuit of a budget surplus (now not expected until at least 2027) reduced the scope for valuable investment. Productivity in quarter two of this year was just 0.9 per cent higher than a decade ago – the worst performance for 200 years.
Having softened austerity, without abandoning it, the Conservatives are now stuck in a political no man’s land. Brexit and the loss of the Tories’ majority are imposing ever greater demands on the fiscally conservative Hammond. The £26bn war chest that the Chancellor had assembled may have been reduced by as much as two-thirds.
As the UK drifts towards the Brexit cliff edge in ever worse shape, it is left to reflect on opportunities missed and potential wasted. Britain, which embraced the European project to escape its “sick man” status, is once more worthy of that ignomonious title.