The UK is facing two decades of lost living standards
The writer is a fellow at the Joseph Rowntree Foundation and a contributing editor at Prospect magazine
It’s not quite right to say we’ve never been here before. For most of human history, the standard of living did not increase in a way visible to the naked eye. Historians conjecture British gross domestic product per capita stood at £1,198 in 1448 and £1,236 in 1664, a cumulative increase of just 3% over eight or nine generations. Boys and girls plow the ground, collect firewood, and take their chances with the same elements that their parents had before them. Things slide back almost as often as life gets easier.
Andrew Bailey may wish he could hide in pre-industrial history. The Governor of the Bank of England drew attention after he forecast that this year will bring Strongest effect on after-tax income on file, tighten the squeeze on mortgage households by raising interest rates, and then offer BBC that he wanted to get inside workers’ heads to prevent them from pushing wages to keep up with price increases. He explained that the “painful” anti-inflation “need” is to “regulate wage increases”.
Bailey’s difficulty was that in the eight or nine generations that followed the industrial revolution, the expectation that living standards would rise instead of decline became entrenched. Incremental advances have produced a slow miracle: with a 2% annual increase, income doubles every 35 years and quadruples over a 70-year lifespan. Tough times will sometimes put a rock in the way, but rapid progress will follow. As the privileges of consumer society – from dishwashers to city hangers – increasingly evolve in previously unimaginable ways, every generation is doing better than the last and The banished pride of elderly relatives became family legends.
That was the world we knew until the 2000s. Then came the financial crisis, and real wages fell dramatically. At first it seemed like a bigger-than-average rock on the road, something we can manage once the recession’s aborted swing gives way to a period of recovery. As the 2010s began, that confidence began to wane as wages remained on the floor. Before the 2015 election, oil prices plunge leapfrog, reduces the effectiveness of the “cost of living crisis” charge introduced by Ed Miliband’s Labor. But his analysis is premature rather than wrong. By 2017, widely endorsed fact-checkers unions claim the worst decade for wages since the Napoleonic wars.
The picture has since moved too quickly to read: a brief spell of improvement gave way to Covid wage-cutting chaos, and then a strong, only rebound last fall encouraged Boris Johnson to brag that “after years of stagnation – more than a decade – wages are rising”. But in reality, rising prices, especially fuel, have forced them to pay. Now, with an immediate National Insurance payment pending, and another for employers, to be passed on to employees in the following years, Bailey’s dire prognosis is unlikely. debatable. We are no longer looking at one but two lost decades in terms of living standards.
For what? Well, on the proof of government scattergun compensation As for the soaring cost of fuel, their answer seems to be: panic. What’s interesting, however, is that the experience of one of the few societies that suffers from anything similar is unnecessary. After the 1980s, Japan went from being one of the fastest growing countries in the world to being a permanently stagnant society: through the 1990s and 1990s, economic progress slowed. However, society has not collapsed, indeed for most of the past 30 years the traditionally dominant Liberal Democrats have kept control of the prime minister.
The root of our massive stagnation lies in stagnant productivity, which – despite the upbeat tone of this week’s prospectus for “leveling” under-productive regions – is easy to diagnose. diagnosis rather than treatment. Smart investments can make all the difference, and so there could be institutional changes around wage bargaining. But not overnight.
The more pressing task is to target relief to the most pressing needs. One tool to deliver exists in the form of the social security system, a channel that has been little used by the government this week. In a world of volatile prices, the fixation between safety net and inflation need to be repaired. For now, it’s lagging, growing just 0.5% last April and will only grow 3.1% this spring, with inflation set to more than double.
For the luckier among us, a stagnant standard of living is a bleak reality, but we can take the time to deal with it carefully. Those faced with the choice between dangerous cold debt and unsustainable debt do not have that luxury. For them, panic is inevitable, and there is no answer other than emergency relief.