Britain’s snail-pace growth has set U.K. households back by $10,500 as peers in France and Germany pull away

Britain has been stuck with stagnant growth for over a decade now. A cocktail of factors, including gaping inequality, have held back British households—and, according to a major new report, that could continue for years to come unless radical measures are taken to reverse the country’s course.

The cost of economic stagnation has set households in the U.K. back by £8,300 (about $10,519) compared to some of its peers elsewhere in Europe, such as France and Germany, a study published Monday by the Resolution Foundation and the Centre for Economic Performance at the London School of Economics found. 

“The typical household would be 25 per cent (£8,300) better off, with income gains of 37 per cent for the poorest households,” the Resolution Foundation said, adding that Britain is now poorer and less equal now than some of its European counterparts.

“The U.K. has now seen 15 years of relative decline, with productivity growth at half the rate seen across other advanced economies. We were catching up with more-productive countries like France, Germany and the U.S. during the 1990s and early 2000s. But that came to an end in the mid-2000s and our relative performance has been declining ever since.”

According to the think tank, the downturn has cost the average worker £10,700 (about $13,570) a year in lost income due to the snail pace of real wage growth.  

A big reason: Inequality 

Inequality in British society was a big reason for the staggering statistics on lost income for workers and households, and is far higher than any other “large European country,” the Resolution Foundation noted in the report, titled “Ending Stagnation.”

“Productivity disparities are larger still, with that between the leading city and their other large counterparts being greater than in peer countries such as France; London is 41 per cent more productive than Manchester whereas Paris is only 26 per cent more productive than Lyon,” the study said. 

Stubborn inequality coupled with low growth has proved disastrous to low- and middle-income Brits, who are 20% poorer than their German counterparts. 

To be sure, the U.K.’s recent GDP growth figures reflect that it is doing better than Germany in 2023. However, Britain’s struggle to boost growth rates goes back to when its GDP nearly ground to a halt (or dipped) in the aftermath of the global financial crisis in 2008.

Under investment is making matters worse

The group identified that public sector investment—such as through hospitals and transportation infrastructure—is an important pillar for the economy, and is not treated with enough importance by the government. 

Public sector investment has been low for far too long on one hand, while tight fiscal rules have failed to pump in sustained financing to key areas of the economy, according to the Resolution Foundation. But, the group adds, the private sector has been suffering from similar problems, too. Political and economic instability have also hampered the business environment in recent years, with multiple leadership changes at the national level  

“If UK business investment had matched the average of France, Germany and the US since 2008 our GDP would be nearly 4 per cent higher today, boosting wages by around £1,250 a year,” Resolution Foundation said in its report. 

Urgent need for action

With the long list of challenges that the U.K. faces, the group highlighted the immediate need for a fresh economic strategy that could address the gaps in the economy. Some of the Resolution Foundation’s proposed strategies include investment in the workforce and education and higher but better “quality” taxes.

“It’s time for Britain to start investing in our future, rather than living off our past,” the think tank’s chief Torsten Bell said in a statement. “Having fallen so far behind, we now have a huge advantage: catch-up potential. Closing the gap with peers like Australia, France and Germany would deliver huge living standards gains, with typical households over £8,000 better off.”

As U.K. households continue to cope with a cost-of-living crisis, Prime Minister Rishi Sunak will face general elections next year amid pressure surrounding the Conservatives’s recent economic track record. 

In a speech marking the launch of the Resolution Foundation report, Labour Party leader Keir Starmer is set to speak about how his party will address the obstacles at hand while facing funding constraints. 

“Anyone who expects an incoming Labour government to quickly turn on the spending taps is going to be disappointed,” Starmer will say at the speech Monday, the Guardian reported. He will also argue that the U.K.’s standing has diminished in recent years. 

The Chancellor of the Exchequer Jeremy Hunt will also speak at the same event, following the launch of the release of the Autumn Statement in November.

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