So it turns out the UK’s economic record was pretty average even before Brexit…

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).

 

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  • Zorin001

    A lot of this shouldn’t come as a surprise, for example the low skills issue has been known and discussed for at least the past 2 decades and the affordable housing issue has scarcely been of the front pages in 5 years.

    I think we are in for a lot of pain as a region and country as a whole, not helped by what appears to be a lot of heads buried in sand at Westminster.

  • Korhomme

    How much unemployment is disguised as zero hours work?

  • Jim Jetson

    “Apart from London, just one British region – the south-east of England – has a GDP per capita in excess of the EU-15 average”

    This says it all doesn’t it. Apart from London, driven by property investment from dodgy oil money and casino banking, the rest of the UK is a basket case. Were the ROI still part of the UK, it would be the second wealthiest part after London.

    Really, this vindicates the independence of the ROI 100 years ago, and makes a mockery of the Unionist case.

  • Abucs

    Is the lower income per hour worked an effect of lower technology, lower education, the type of industries British workers engage in or something else?

  • Brian O’Neill

    I assume it’s productivity. Eg if you are a bakery how many cakes you can churn out in an hour.

    Long hours culture is a sign of low productivity which is why the UK and the US has very low productivity compared to say Germany.

    To an extent you can shore up low productivity with more workers on lower wages but a smart business will always strive to be more productive.

    https://www.theguardian.com/business/2017/apr/05/weak-productivity-leaves-uk-trailing-other-g7-nations?CMP=Share_iOSApp_Other

  • Brian O’Neill

    According to https://en.m.wikipedia.org/wiki/Unemployment_in_the_United_Kingdom

    The definition of unemployment used by the Office for National Statistics is based on the internationally agreed and recommended definition from the International Labour Organization (ILO) – an agency of the United Nations. Use of this definition allows international comparisons of unemployment rates.

    Unemployed people are defined as those aged 16 or over who are without work, available to start work in the next two weeks and who have either:

    a) been actively seeking work in the past four weeks, or
    b) are waiting to start a new job they have already obtained.[3]
    Those who are without work who do not meet the criteria of unemployment are classed as “out of the labour force”, otherwise known as “economically inactive”. For example, a person who wants a job but is not available for work due to sickness or disability would be classed as economically inactive, not unemployed.

  • Charlie Noack

    That’s certainly my experience from observing the German attitude to overtime. One SME boss managing a workforce of over 130 people told me that they themselves do not do overtime (apart from emergency cover in very limited circumstances) and far from being impressed at staff doing overtime, they questioned their efficiency/time & resource management/skills. This felt like such an alien concept to me at first, but now I think this leads to a much better work/life balance.

    And great article! Very interesting (and worrying) read. Also an eye-opener after the recent reports about Scotland under-performing. If I understand this correctly, it isn’t that Scotland is falling behind rUK, it’s that London is leaving rUK behind (and the South East is not that much ahead of rUK if I recall). So not so much a problem unique to Scotland (whoever manages it), but one that affects the entire UK.

  • Brian O’Neill

    Bit of a leap?

  • hgreen

    My guess is that this decline in performance and productivity is directly linked to the decline in union membership and influence.

  • Korhomme

    Sure, but that’s not my point. Rather, as unemployment has fallen, so has the number of people on ‘zero hours’ jobs risen. They are ‘in work’, but this work is erratic and depends on the whim of the employer. The work often seems to be at minimum pay levels.

    What’s also clear is just how much globalisation, a neo-liberal concept, has removed skilled jobs from the UK (and elsewhere) to low cost (= low pay) countries. Robots have assisted this decline. The UK now faces a future with a base of largely unskilled workers in lowly jobs on minimum hours pay, a very constricted middle, and a top where managers can award themselves vast increases in pay almost at will. Before neo-liberalisation really began to bite, managers earned perhaps 40 times the pay of their workers. Today, this is often around 365 times, yet average pay, in real terms, has barely advanced.

  • Yes in the 70’s the UK easily outshone the EU-15. It’s why they occasionally only worked 3 days a week.

    Note: the above may only have a passing resemblance to reality.

  • Salmondnet

    And there was me thinking that what vindicated the independence of the Irish Republic was the belief of its population that they were a separate and distinct nation without loyalty to the United Kingdom.

  • I thought US productivity matched DE. I thought it was Japan that was the low productivity, long hours laggard?

  • Brian O’Neill

    Indeed. In the 1970’s when union membership was at its height British industry was famed for its high levels of productivity 😜

  • Brian O’Neill
  • Oggins

    What is the ROI figures Brian?

  • France is a high productivity country, it’s well ahead of the UK, according to the LSE the US is now more productive per hour than France (probably linked to weaker € compared to 2014?) https://twitter.com/_Financeguy/status/835458125272580096 Either which way Germany/France/US have healthy productivity per hour worked. As you can see Japan is in last position for the G7.

  • There is some indication that part of the problem is down to poor company management https://flipchartfairytales.wordpress.com/2017/04/04/productivity-and-bad-bosses/

  • hgreen

    Funny that the highly unionised economies of France and Germany lead the productivity graph above.

    Hard to be too productive when you have no job security.

  • Katyusha

    Shame the Irish Republic never achieved independence then, Salmond, having been dissolved in 1922. The northeast of that revolutionary state is still awaiting the day of its independence. Incidentally, it’s also a complete basket case, economically. It’s almost like independence was an economic gift for the 26-county state.

  • Jim Jetson

    Not really. While identity is important, a central plant of unionism has long been economic interests. That plank is now rotten to the core.

  • Kevin Breslin

    My understanding seems to be that those in the Leave side are looking more and more for increased supply lines regardless of tariffs, while boosting aggregate demand … You might call it alt-economics … Economising effort while expecting the highest rewards.

  • Korhomme

    There’s an article in the Guardian today saying much the same thing, and suggesting that lack of investment is one of the main factors restricting growth:

    https://www.theguardian.com/commentisfree/2017/apr/09/the-guardian-view-on-productivity-britain-must-solve-the-puzzle

  • aquifer

    The middle of Europe has lots of languages but excellent infrastructure and plenty of world class manufacturing and training. Brexit is going to blow the bridges to this.

    London has a financial sector to inflate average productivity figures and deregulated labour markets that make modernisation of industry financially unattractive. Our vocational training seems very poor what I can see of it. The financial sector may shrink very quickly after Brexit.

    It seems that we are going to be made to watch an economic train wreck.

  • Charlie Farlie

    The problem when we have a long term right wing ideology in power, is that social investment is so minimal, that over a generation, society will have emerged as an under-educated, unambitious pool of negativity. As we are seeing playing out.

    It is the mark of a society, how it educates its young people. I was speaking to a guy from Denmark the other day who is here for long term work. He related to me his country’s structures and said they could not be any different there. The class system is not so pronounced and he said it is virtually unheard off for anyone to ask what school one attended as they are all of such a high quality and free! Privatisation is virtually non existant.

    Our education system here is abominable in comparison to Scandinavian models. Skills are minimal and academia is restricted to only those who can really afford it. If there was any amount of real analysis done as to the state of UK society, we would all realise that we have been played for fools. Its structures are set up to make those who get the least, turn on others who get less instead of looking up and starting to question whats happening above them. Crazy, but the Tories and Blairites have got away with it, that now it seems to be all we know. Glad to see your article above Brian, there should be much more analysis like this.

  • mickfealty

    Property? How would property in London be so expensive if there were no other drivers? This is playschool economics.

  • mickfealty

    And no heads at Stormont. Dereliction of duty anyone?

  • mickfealty

    Indirectly, possibly. Lack of investment by UK companies (see Brian de P’s link above).

  • Starviking

    But are all trade union cultures the same?

  • Brian O’Neill

    I am no expert but it seems British unions were adversarial whereas Germany union work in partnership with companies.

  • hgreen

    Ha ha. It is the tories that are adversarial towards UK unions.

  • hgreen

    I think he mentioned the drivers, dodgy money and casino banking.

  • hgreen

    Are all govt attitudes towards unions the same?

  • Korhomme

    It’s only in the last couple of decades or so that the Republic has done well economically. In it’s early days the state was a poor country, not helped by isolationism, inward-thinking and the trade war with the UK that Dev provoked.

  • Starviking

    Good point. Different sides of the same coin, I guess.

  • Fear Éireannach
  • hgreen

    Investment also includes investment in the workforce, skills training etc.

    British management culture increasingly follows the US, viewing employees as a dumb resource to hired and fired at will.

  • John Collins

    It would not be ‘re second wealthiest part after London’s (sorry IPhone acting up), because GB Government over the past would have not made the same effort to attract FDA that successive Native Governments have. If we had stayed with GB we would be the most neglected region in GB today and out of the EU to boot.

  • Enda

    I honestly don’t think the average Brit would be too bothered about working more hours. The complacency towards employers owning most of an employee’s life is staggering over here.

    It’s like the average Brit is prepped to be a drone from birth and they are probably one of the most materialistic people in Europe, (although a lot of Irish people don’t seem to be too far behind them in that regard).

    Most Brits would sell their lives just to keep their middle class standards afloat, and as long as the Tories are there to make sure the drones have their scraps then their place in government will be secure for at least another generation.

  • endorendil

    France does have huge centralisation, but its most deprived regions are not as bad as the UK. It’s a flatter distribution.Spain and Italy though…

  • endorendil

    The underlying issues are the same in all developed countries. The UK and the US have just deal very poorly with it.
    I know it’s fashionable to consider “globalisation” as just bad, but it’s also the main reason that poverty has been reduced globally. That’s not just good on humanitarian grounds, it’s also good because it stabilises countries and eventually creates markets that developed countries can sell to. Large scale migration is driven by war and by economic deprivation. Globalisation helps both of those.

  • endorendil

    Free university in Scotland was a good way to attract smart people and create a better educated workforce. Given time, that should certainly help.

  • endorendil

    French unions are very adversarial. German unions have a seat at the table, given freely to it by a largely cooperative business community.

  • endorendil

    I remember a lot of zero-days per week as well.

  • Macca

    Along with Iceland, you couldn’t find a more separate and distinct nation in Europe.

  • Reader

    endorendil: Given time, that should certainly help.
    I thought the surplus graduates emigrated.

  • Brian O’Neill
  • Trasna

    I love this story of the ROI not doing so well in the dark decades. Tell me where in the world/Europe was doing well in the 1920s, 30s, 40s, and 50s.

  • Korhomme

    You aren’t going to deny that the trade war between the Republic and the UK was anything but damaging to the economy of both polities?

    There is a good reason why the French refer to the period from 1945 as ‘les trente glorieuses’.

  • Cal Cryton

    Agreed, it’s more correct to say if the ROI were to now rejoin the UK, it would be the second wealthiest region.

  • endorendil

    Why did you think that?