Interesting report by the Centre for European Reform, BREXIT BRITAIN: THE POOR MAN OF WESTERN EUROPE?
Contrary to what many would have you believe the UK economy is not exactly the dynamic powerhouse they make it out to be. Some details from the report:
- The UK has economic strengths, such as a flexible labour market, which ensures that unemployment is low even in many of its economically struggling regions. But contrary to much of the received wisdom, Britain has not been one of Europe’s economic stars over the last 15 years. And Brexit is set to exacerbate the economy’s underlying weaknesses.
- In terms of economic growth per head, Britain’s performance has been in line with France, a country now synonymous in the UK with economic failure. The British are no richer relative to the EU-15 average than they were 15 years ago, and the average Briton has to work more hours than the EU-15 average to achieve that income.
- Sustainable increases in living standards require economies to combine land, labour, capital and technology in ever-more efficient ways; Britain has made a poor job of this. The UK’s productivity performance has been woeful, falling to just 90 per cent of the EU-15 average. This helps explain why Britons’ wages have risen by much less than their French and German counterparts over the last 15 years.
- Moreover, the UK is highly dependent on London and its environs. Apart from London, just one British region – the south-east of England – has a GDP per capita in excess of the EU-15 average, meaning that just 27 per cent of the UK population live in regions wealthier than that EU average.
- Far from catching-up with the richer parts of the EU – as one might expect as they adopt technologies and working practices developed elsewhere – the UK’s poor regions have fallen further behind.
- Britain’s problems lie mainly on the supply-side and in the structure of public spending. Three key issues stand out: poor skills among a sizeable chunk of the workforce; weak infrastructure and a lack of affordable housing; and the centralisation of political and commercial power in London.
- Unfortunately, Brexit risks aggravating most, if not all, of these problems. And Britain’s already startling regional imbalances are likely to worsen further, leaving much of the country’s population living in areas considerably poorer than the EU-15 average.
- The Conservatives will provide some fiscal stimulus to counter the weakening of growth caused by Brexit, but will not make the long-term investments in infrastructure and skills needed by the UK. They have few MPs in the poorer regions that would benefit most from such spending, while the resulting higher borrowing and/or taxation would be unpopular with their core vote in England’s wealthy South.
Two charts stand out:
Britain’s productivity (output per hour worked) briefly exceeded the EU-15 average in the early 2000s, but has since deteriorated continuously, standing at just 90 per cent of that average in 2015 (see Chart 6). This meant that output per hour worked in the UK was the same as in Italy and Spain, and a full 25 per cent below French and German levels.
In short, the British have to work a lot more hours to achieve a similar amount of income. So in effect their living standards are lower, unless they prefer work to play, which few people do.
The report concludes:
The result is that the UK economy is likely to remain at best a mediocre performer in EU-15 context, notwithstanding the challenges faced by the eurozone. And Britain’s already startling regional imbalances look set to worsen further, leaving much of the country’s population living in areas considerably poorer than the EU-15 average.
But maybe Brexit will free us all from the shackles of EU bureaucracy. Brexit will free us all to work even longer hours for even less pay. Rejoice workers! your hour of freedom approaches (or more likely your 20 minute lunch break).