Good times for the British economy are a distant memory. Anyone adults born after 1990 have only ever experienced an economy in a state of chaos or simmering crisis: from the financial crash and Brexit to the coronavirus pandemic, the UK has been battered economically for over a decade.
COVID-19 has caused the sharpest decline in the British economy for three centuries, and it’s not expected to recover to its 2019 level for at least another two years. That probably means price rises but no pay rises for the foreseeable future. In time, it will mean higher taxes too, with the government forced to borrow a colossal £394 billion this financial year – about a fifth of the entire economy.
Meanwhile, a different kind of economic crisis has been brewing with Brexit: the vote to leave the EU has caused business investment to flatline. That matters because investment is the engine of economic growth and wealth creation – it’s what creates new jobs and boosts living standards. Leaving the EU has made Britain a less attractive place to invest, meaning our economy is expected to perform worse in the future. It will make it harder to climb out of the rut the British economy has been stuck in since the financial crisis, one that has only been deepened by the pandemic.
No matter the triumphalist rhetoric from the right-wing press, the deal struck on Christmas Eve is likely to be damaging to the UK economy. It will see the EU retain its advantages in the trade in goods, while the UK faces new barriers to trade in services and more friction for manufacturers and farmers hoping to export to the single market. There will also be costly new checks at the border. Prominent Brexiteer businessmen such as James Dyson and Jim Ratcliffe aren’t backing the UK economy as a result, locating their manufacturing plants within the EU and their headquarters overseas.
Even before the pandemic and Brexit, the British economy had performed neither normally nor well since the 2008 financial crisis. There is no economic model, just an economic muddle. For decades, Britain has bought more from the rest of the world than it has sold to it, meaning we don’t have a competitive economy. And while Britain has some brilliant companies, we also have a “long tail” of crap firms which pay badly, with British business management scores worse than the US, Germany, Sweden, Japan and Canada.
So: what comes next?
Photo: Phil Noble / Reuters
Short-Term Recovery, Long-Term Disruption
The good news is that there are now two vaccines being deployed in the UK, and as of the 5th of January 1.3 million people had received the first of their two doses. But while Boris Johnson tweeted that “the end is in sight”, scientists have warned that vaccinating the entire population could take up to a year.
Once enough people have been vaccinated for the cycle of lockdowns to end, there is reason to believe the economy might recover quickly. While a further 700,000 people have been pushed into poverty since the start of the pandemic, those with secure jobs have seen their pay continue and their spending drop. The cut in interest rates means homeowners are spending less on their mortgages. Taken together, it means Britons have saved four times as much this year than last. If they go out and spend it once the pandemic passes, the recovery could be rapid.
The economy has been reshaped in more fundamental ways than the obvious decline to the high street, pubs, cafes, restaurants and live entertainment industry, or the switch to most office jobs being done from home. The pandemic has also accelerated pre-existing trends and exacerbated well-established problems.
The most obvious acceleration has been towards tech. The great beneficiaries of the pandemic have been the major tech players: from online shopping to video and music streaming, from search to storage. From global giants such as Amazon, Facebook, Google and Netflix to more focused players such as Deliveroo, tech firms have seen demand for their services soar. Now that many consumers have made the switch, they are unlikely to go back.
The tech giants have a vast amount of power, while workers have little. The poor working conditions for Amazon warehouse workers, Deliveroo riders and Uber drivers are well documented. These reflect workers’ relative weakness, with few enrolled in trade unions. This situation is set to get worse as unemployment rises – the Office for Budget Responsibility (OBR) predicts 1 million more people will be unemployed by the middle of this year, meaning desperate workers will be forced to settle for worse pay and conditions.
The other big change is the role of the government in the economy. As a result of the pandemic and the preparations for Brexit, the size of the government has ballooned to its largest share of the economy outside of wartime. The furlough scheme in particular has saved many hundreds of thousands of jobs, and the government has made low cost loans and grants available to small, medium and large businesses. As a result, fewer businesses have gone bust in 2020 than ceased trading the previous year.
Photo: Dylan Martinez / Reuters
So what will the post-pandemic economy look like? And what should we expect from the government?
Having announced that the furlough would end, the chancellor Rishi Sunak reversed course, and the scheme will now be in place until the end of April. Yet, despite the unprecedented levels of support, the UK economy has been hit harder and will recover more slowly than most other large industrialised countries.
By freezing public sector pay, other than for the NHS, and shamelessly slashing foreign aid, Sunak raised fears that austerity policies may make a return. But not for now, at least, with huge increases in government spending in the coming year. Public investment is set to soar to £100 billion, along with the creation of a UK infrastructure bank – a welcome step as Britain leaves the EU and stumbles through the pandemic.
But none of the chancellor’s measures are likely to alter some of the mega-trends which have been turbo-boosted by the pandemic. Coronavirus has accelerated the move towards “high-tech” and “high-touch” as areas where there will be more and better job opportunities. Jobs in tech companies – from Silicon Valley giants to silicon roundabout start-ups – are well paid and stimulating. The problem is that there are relatively few of them, making the job market highly competitive. They are also disproportionately focused on London and the South East.
Other highly skilled sectors which are likely to continue to grow include professional services – accountancy, banking, consulting, legal services – and the creative industries. But these will be out of reach for many, and the Brexit deal freezes British services firms out of the EU single market.
The area most likely to see employment growth in the coming decade is “high-touch” work – jobs in health and social care. Before the pandemic, there was a workforce crisis in both the NHS and social care, with widespread staff shortages, a situation worsened by immigration changes caused by Brexit. During the pandemic, the NHS has accumulated an enormous backlog of operations and appointments, which will require a big expansion in recruitment. From community psychiatric nurses and ward matrons to home help, there will be many more jobs available in the 2020s. For the most part, NHS jobs are decently paid and very secure (full transparency: the author is deputy chair of an NHS mental health trust).
While the pandemic has been the most pressing crisis in the last 12 months, it is eclipsed by the scale of the climate catastrophe unfolding before us. It is therefore positive that the Tory government has nicked the Labour party’s proposals for a “green industrial revolution”, which will take carbon out of the economy while adding highly skilled new jobs.
Government will also need to decide who will pay for the costs of the pandemic. A windfall tax on big tech could kill two birds with one stone, curbing their power and making them pay their fair share. But more than that, the pandemic has revealed the huge advantages enjoyed by the wealthy. The arguments for removing their tax breaks and taxing them at the same rate as the working population are more compelling than ever. With wealth heavily concentrated in the hands of the elderly, this is also an issue of generational fairness. But it will take sustained pressure to get the present government to tax its core voters.
We face a decade of disruption ahead. For all the government talk of “building back better”, the post-pandemic economy will be fundamentally different. The COVID crisis has exposed existing weaknesses and taught many lessons about the need for a more resilient economy, as well as the need for better government and political leadership.
But there is a deeper and more human lesson from the pandemic: we are more than what we owe and what we own. The stark reminder of our human fragility and dependence on one another emphasises the importance of the choices about how we live our lives. Our family, friends and communities are what matter most, and belong centre-stage as we start to rebuild our economies and our lives for a post-pandemic world.
Tom Kibasi is a writer and researcher on politics and economics. He is the former Executive Director of the IPPR think-tank and founder of the Commission on Economic Justice.