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Jim O'Neill sees little evidence to suggest that the UK economy's underperformance will improve any time soon

Public Policy / opinion
Jim O'Neill sees little evidence to suggest that the UK economy's underperformance will improve any time soon
British Labour leader Keir Starmer
British Labour Party leader Keir Starmer

A friend recently forwarded me an email from a client who was bemoaning the state of the United Kingdom and questioning whether it still met the standards of a G7 country. In response, I joked that since the population chose to leave the European Union, the country has been in the dismal position his client described, but maybe it cannot get much worse from here. A contrarian might want to buy the pound on the grounds that the mood will improve as things become marginally less disappointing.

In fact, gallows humour aside, it would be a risky bet, because there is ample evidence to suggest that the country will be very challenged unless there are bolder policies. The reasons fall into three broad, interrelated categories, starting with Brexit.

Britain has been paralyzed in many ways both by the decision to leave the EU and by the way it was done. Mainstream politicians and the current government are too scared to admit that Brexit has significantly harmed the economy. Nor will they even discuss the possibility of mimicking membership in the EU’s single market through the alignment of regulatory and trade policies.

As a tactical matter, the current government’s reluctance is vaguely understandable, given current opinion polls and persistent pressure from avid Brexiteers like Nigel Farage. But Labour, too, has remained relatively quiet. Although Labour leader Keir Starmer was one of the most articulate advocates of remaining in the EU, the party seems not to want to re-litigate the issue now that it is already ahead in the polls.

Is this wise? All those cutting-edge analysts who presciently warned that disgruntled voters would be pleased if the UK left the EU are now pointing to signs that some of the same voters regret the decision, or at least the way it was carried out. There is certainly little doubt that Brexit has indeed been bad for the economy. Standard economic indicators – real (inflation-adjusted) GDP growthinvestment levels, the size of the labour force – all show that the UK has underperformed relative to its peers in recent years.

Before the 2016 Brexit referendum, I could see why many might have wanted to leave the EU, even if it would almost certainly be an initial negative for the economy. I didn’t believe that the EU was the single most important issue facing the country. I was more worried about the UK’s dreadful productivity performance and staggering regional inequalities. Though I favoured Remain, I was at least open to the idea that leaving the EU would provide the political shock necessary to tackle these problems.

But while four subsequent prime ministers have claimed that they would address the country’s investment and productivity challenges, none has done so, either because they didn’t survive in power long enough or because they were never sincerely committed in the first place.

That brings us to the UK’s second big problem: our investment performance remains dreadful relative to most of our peers, and it is hard to see how productivity will improve in the absence of a major change. The Brexit-induced shock to both trade and the labour supply has made the creation of a new investment program even more urgent.

In 2022, Liz Truss’s short-lived government claimed it would boost productivity through old-fashioned tax cuts, but we know how that turned out. Now, her replacement, Rishi Sunak, has been concentrating on fiscal responsibility while paying little attention to the still-urgent need to boost investment spending. While his government has restored some confidence in financial markets, it has not offered any new hope for the economy. Worse, it could be two years before the next election.

In the UK and across other advanced economies, there is a clear case to be made for much bolder policies to force the private sector to boost investment spending. The case for bolder public investment spending is even stronger. As long as such a program is well articulated, transparent, and endorsed by non-partisan organisations (such as the UK’s Office for Budget Responsibility and the National Infrastructure Commission), financial markets will respond positively.

The third big problem is regional inequality. Here, there is still hope for building a broad-based consensus around bold solutions. Notwithstanding the ongoing factional political battles, the current government seems to recognise that it must get serious about devolving more economic policymaking authority and stimulating investment in the country’s less prosperous areas. Moreover, though Labour largely ignored the problem of inter-regional inequality for many years (ever since the days when I chaired the Cities Growth Commission in 2013-14), the party has finally woken up.

“Leveling up” the UK’s underperforming regions still holds massive promise. As we showed in the David Cameron government’s Northern Powerhouse plan, the UK is well positioned to capitalise on its excellent universities, alternative energies, and other reliable sources of innovation and growth.

The UK economy desperately needs new, forward-looking leadership. The political party that takes the leveling-up challenge most seriously could enjoy a long stint in office.


Jim O’Neill, a former chairman of Goldman Sachs Asset Management and a former UK treasury minister, is a member of the Pan-European Commission on Health and Sustainable Development. Copyright: Project Syndicate, 2022, published here with permission.

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54 Comments

was a great slogan in teh 80's    but hell its going ot get way way worse -- Despite Covid hurting teh UK -- it also hurt the rest of the world -- teh impact of Brexit is really starting to hit -- and is like a supertanker  will take a decade or more to even stop the decline  never mind the reverse --    effectively closing or putting up massive barriers to your biggest trading partners, closest trading partners - source of most of your required immigrant labour -- was probably not the wisest move - 

Recession is inevitable, inflation is rife worse than here - unemployment is rising --  Perfect storm material 

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They can be a fantastic lesson for anyone with a penchant for populist ideology. You can get rid of all the pesky foreigners and then sit there and languish.

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That EU that does €35 billion Pfizer deals via undisclosed text messaging with the hubby and receives suitcaes of cash from Qatar? Why would anyone want to be in that club?

"Suitcases of cash, luxury holidays and secret accounts: Qatar bribery scandal rocks Europe

Unprecedented corruption investigation shakes Brussels’ establishment to the core"

https://www.ft.com/content/e3bfd079-5cc7-4f64-9db6-941ca9d5c3d0

https://moderndiplomacy.eu/2022/10/21/pfizer-ursula-von-der-leyen-and-e…

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Brexit is clearly turning out to be the disaster it was foretold to be and 12 years of hopeless misrule by the Tories has left it's mark. I recall there were more than a few long distance supporters of Brexit on this site - they have gone strangely silent as the UK spirals downwards.

The modern Tory party is a proto-libertarian group being pulled ever rightwards by the fear of Farange and his ilk. Lessons for us all in little old NZ.

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UK household incomes fell for a fourth straight quarter, leaving Britons on course for the worst period for living standards in memory as officials estimated the economy was weaker than previously thought. Link

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This might have something to do with it...

https://www.ons.gov.uk/economy/environmentalaccounts/articles/ukenergyhowmuchwhattypeandwherefrom/2016-08-15

Chart 3 really tells a tale. 

 

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That was 2015 figures, renewables will be much higher now with many large windfarms having been built since.

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My point was that energy usage is decreasing... (and my bet is that's not all "efficiencies")

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Leaving the EU was a big mistake, brought about by an inflated belief of self importance by the UK.

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... and the inflexibility of the EU

It also would have never gotten over the line with the UK public had it been clear from the outset that it was going to be a hard brexit.

A lot of lies were told.

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They were never going to be able to have their cake and eat it too.

"Kick out the foreigners, they're surpressing wages!"

Nek minnut, UK wages are trailing their European contemporaries.

Brilliant. Just waiting for them to get absorbed into the US.

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Can always count on Pa1nter to contribute well informed and intellectually deep commentary.

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Would you really have expected there to be a "we'd like the same or more money but more independence please" Brexit?

Voter turnout shouldn't have been more than 10% in favour of it.

But please, go ahead Brockie anytime you want to play the ball not the man knock your socks off.

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"Kick out the foreigners, they're surpressing wages!"

You've already demonstrated your level of  understanding of the topic.

What could old "Brockie" possibly know about it more than that?

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Are you trying to deny there wants a decent amount of anti-migrant sentiment amoung some of the brexiters? Poms have always loved Poles coming over and stealing their jobs?

This was fairly strongly promoted by Farage at the time and it's fairly widely evidenced. 

Your counter is what, exactly?

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I'm saying your characterization is about as deep as soup on a saucer.

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Yeah you already made that clear, but as an actual discussion using facts and information and stuff? You know, deep shit.

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Wrong site for that Brock .., that's why you contribute so often I guess with your put downs. Must give you that surge of dopamine you need to feel good about yourself.

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Guys (I'm asssuming based on your comments), please can we give all the personal insults a rest? It's getting very boring scrolling through 2 people arguing and insulting each other. Take a chill pill, enjoy the holidays and relax! 

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Sadly the brexit YES campaign was in no way informed or intellectual, he isn’t wrong on this one. Goes to show the level of intelligence and informed people around different parts of the UK at the time

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not as many lies as they were told when they first joined.

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NZ doesn't belong to the EU, does that make us self important? We have free trade deals but none of them are political unions. Why should any country tolerate that if it doesn't wish to?

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Why? Because they were in the privileged position of being a member of the worlds largest trading block, that’s why. Not only that, they still had their own currency and monetary policy. Thousands of international firms based themselves in the UK because they had passporting rights to Europe.Now most have moved or opened dual offices. At a personal level, the poms were stuck with me in the other queue at Rome airport arrivals. They have lost European health care, freedom of movement and ability to own property. The reality of Brexit smashed them in the face this summer with 6 hour queues to get a car on a ferry. 

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The trade was the incentive for the unity. A package deal.

That said it must be hard to govern a sinking ship.

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England is in terminal decline. Propping themselves up with mass immigration to keep nominal gdp growing to stay in G7 but the reality is life for the average Brit is collapsing as a result.  Poor productivity, terrible public and current accounts. Sold off their infrastructure to offshore investors. Lack of energy independence. Paris bourse has overtaken LSE, the evidence is overwhelming.

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Sounds a lot like New Zealand.

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Sounds eerily similar to New Zealand.

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Sorry to disappoint Brock, NZ’s prospects are far superior to the UK’s. your perpetual downer on NZ is weird, get help. 

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Thanks Kooti.

You have already demonstrated that you don't have a bloody clue about the United Kingdom, perhaps it would be wiser to leave the commentary to those that actually do.

New Zealand could have some good prospects, but it is hamstrung by its extreme cost of living issues, failing health and education system, skilled workers fleeing and it's current bizzare vision of being a tribal apartheid banana republic instead of a developed first world democracy.

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So basically Australia without open mining.

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Australia is not without its problems.

But 15% of New Zealanders choose to live in Australia.

The reasons are clear.

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It didn't work out how they wanted in NZ.

You found a house at a price you liked in a location you found acceptable. Maybe you need to dress up that decision to more than it is, but you sound like someone bragging about buying a Chinese car.

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It's quite disturbing how obsessed you are with picking on skilled professionals that choose to not to be exploited by the sad state of affairs in modern New Zealand.

Nobody "brags", or even mentions it, but you continually insist on chiming in, bringing it up and then try to tear people down.  Very sad, everything you write has the hallmarks of small man syndrome.

These banal analogies you insert into every single post, do they come from an English for dummies book or do you make them up all on your own?

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Turn the key and watch it go.

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Haha. Ask me a question brock, what’s their unfounded public sector pension liability? Who owns Thames water? Come on, let’s gooooooo wise one.  

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I can ask ChatGPT these kinds of questions.

You might want to consider switching to decaf to reduce your angst.

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Never heard of it. Whose country are you on over there by the way? Have you paid your respects to leaders past, present and emerging today?

 

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You must be living under a rock.

My country.

Respect is earned, not given.

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Classic response to someone who don’t know shite about the topic. 

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Sounds heaps like Australia

Whoops, I mean Canada

Wait, wait, New Zealand

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They have lost European health care, freedom of movement and ability to own property.

Te Kooti Fact check:

Can still purchase and own property (except Austria) ✅
Can still get European Health Care ✅

https://www.homesandgardens.com/advice/can-i-buy-property-in-europe-pos…
https://www.gov.uk/guidance/uk-residents-visiting-the-eueea-and-switzer…

Freedom of movement has been impacted, but you can still visit Schengen area for 90 days.  Then visit non-Schengen for another 90 days also.  Also still have total freedom of movement with Ireland. ✅

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Jesus brock, are you simple???  Of course they can get a 99 day visa, so can we. That’s the point.  They now have the same identical rights as we do. honestly, was that point not obvious, do I need to spell it out?

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Hi Te Mass Murderer,

It's a 90 day Schengen visa (out of 180), not 99.

Member states of the EU can, have and will be making bilateral arrangements for freedom of movement with the UK for each-others respective citizens.  These will just apply to the respective member states instead of being an EU-wide blanket.  So no, it's not the same identical rights.

Spelling stuff out requires knowledge and competence.  Sadly you lack both.

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This is a beautifully succinct summary of the mess the UK is in. Good from you Te Kooti.

 

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Not all of the UK hence the bolster of Scottish resentment towards England and Wales. I lived in Scotland during the Brexit vote and after the result, the mood was that of sheer rage around in Edinburgh as Scotland has generous funding from the EU in many areas and predominantly voted to stay. 

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Let’s hope National allow the search for oil and gas to restart 

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If they do find any oil or gas its going to take years to develop the field. Is it worth the risk associated with off shore fields.

Lets not forget our $400 million bill to decommissioning the Tui oil field.

More importantly fusion is now possible.

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Fusion is decades away - too late.  They should be accelerating fission now - and not let the anti nuke mob use fusion as the excuse to further delay.  

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Have the 99 year leases already expired?

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Yeah, tough times currently for the UKers. Brexit was more about sovereignty more than economics (I thought) but I get that the economics is a worry still. It will take some time to reset things. The pandemic hit them pretty hard as well, so a double whammy if you will. Don't write them off just yet, however. They have an amazing R&D programmes, many associated with their highly ranked university systems. And they don't seem to have any trouble attracting people to their shores still. Whether they're the right sort or not is up for discussion.

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Lots coming by boats.

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"Things can only get better for the UK"

In fact history frequently demonstrates that things can always get much worse.

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Yeah/no

As long as you don't need to go to Hospital?

But they have not got that on their own.

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it's not all sunshine and roses in the EU either as it has its own set of problems. The Euro currency is an unmitigated disaster that is just waiting to implode and with the ECB having to buy up its members bonds just to try to keep their economies afloat and Germany will not tolerate this situation for ever. 

Greece has almost been destroyed as a country and Italy, Spain and Portugal are all languishing economically. Britain has always been badly treated by the EU and so there is no change there. The EU behaves more like the school bully, "join my gang or I will beat you up".  

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