Elections are coming up in the U.K. this year and as someone who has had an active interest in our political economy for more than five decades I thought it interesting perhaps to set out some of the core challenges facing the U.K - my first distinct early memories here were of the 1974 general election, then the winter of discontent from 78’, the miners strike and the Thatcher era.
But now fourteen years of what can only be described as failed and pretty disastrous Tory rule, the U.K. is in a pretty poor shape - lacking direction but where so many core aspects of the U.K. economy just don’t function. I list out some of the key problems/failings below.
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Brexit - where do I start?
This is the biggest U.K. public policy failure in decades, if not centuries. Like what are the benefits, any benefits? No one seems able to give me any aside from the ability to buy miss-shaped cucumbers and beer by the pint. The costs are huge though. The loss of market access to our biggest global market, the EU. Huge additional red tape and bureaucracy for U.K. industry. Talk to whiskey producers, SMEs, and many will tell you that they just gave up trying to trade with Europe.
And we just threw away the reason for any international business to locate to the U.K. as any multinational business wants easy market access to the EU. Meanwhile, we lost access to lots of skilled labour from Poland, Romania et al, as a lot of the hard working East Europeans got fed up with Brexit driven racism in the U.K. and left. And if we don’t like the fact that Poles, Romanians et al meet the skills shortage in the U.K. - then fill that void with reforms in education, housing and transport to ensure that kids from disadvantaged parts of the U.K. can meet skill shortages largely in the South East.
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Brexit is, meanwhile, another nail in the coffin of the City of London, not helped by Covid, ESG and the rise of alternative global financial centres in Amsterdam, Paris, Dubai et al. Brexit killed the golden goose of the City of London. It’s sad to see the slow death of the City, as someone who has worked there for 27 years.
Governance - Brexit has sucked the talent and drive out of the U.K. civil service. You can see a once effective, fine oiled machine whither on the vine, as Brexit, and a far right Tory agenda, caused an outflow of talent and institutional capability. Much of this talent and brain power was wasted on trying to make Brexit less damaging - trying to prevent a total implosion. But in my own interaction with U.K. government I just see a malaise and you can see it in how our international partners now view the U.K. globally now we lead on nothing. The U.K. civil service now struggles to function.
And the fact our political class are so afraid of accepting and admitting the disaster which was Brexit is jaw dropping. They seem to fail to grasp what opinion polls now suggest is the majority view - that Brexit was a disaster.
And people like Sunak, the Brexiteers, have to accept responsibility for this failure.
Philosophically the only way Brexit could have worked would have been if it was introduced with an Uber free market business model - more akin to Singapore, with all focus on competitiveness. Low regulation, zero union power, totally open markets and free trade. But there was never public support for such a scenario - literally the political leadership would have had to have assumed the whole Singaporean model of very managed democracy. That would just never work in the British context.
Housing - hard not to see the entire sector as totally dysfunctional. There seems to be no overall long term government strategy. At the core of the problem, the U.K. simply does not build enough houses. Rent inflation is extreme, and the young struggle to afford to buy given years of high housing price inflation driven by shortage of supply. Partly the lack of supply reflects the fact that there is little to no state provision after the Thatcher council house sales programmes of the 1980s. But over-reliance on the private sector has failed. Councils spend huge sums as a result housing the needy in B&Bs undermining their own financial health. The loss of mortgage tax relief and now over-regulation (biased against landlords) means there is little incentive for buy to let - yields are so low (not helped by high prices) as to not make the hassle of dealing with tenants worthwhile.
The whole leaseholder system is, meanwhile, not fit for function - leaseholders subject to extortionate ground rent/service charge inflation from freeholders because of a total lack of regulation here. Building regulations are a joke - as revealed by Grenfell Towers. Tenancy laws seem to fail to protect either the tenant or the landlord. Actually the current system seems to lack any real enforcement - it’s hard to evict bad tenants while bad landlords who fail to comply with health and safety seem to face little sanction. Breaking the rules seems to pay in our system.
Policing - whether it’s a lack of funding or PC 4 PCs, the police seem disinterested in solving anything but violent crime. If your house is robbed - good luck. I recently had a Dutch friend suffer a car accident where we identified the driver who at the time accepted responsibility but then failed to respond to subsequent requests to pay the bill. We contacted the police - zero interest in helping.
Tax and welfare - we live in a country where the rich feel it is their right not to pay tax, to contribute as little as possible and yet still think they have the right to lobby for more preferential treatment and get knighthoods and peerages. So tax avoidance schemes and offshore tax havens are vogue. That’s at the top. At the bottom the welfare culture means a raft of society takes welfare as given without the duty to contribute. Welfare should be for those who are unable to contribute - the old, infirm/ill and those truly unable to work/contribute. Herein we lost something in the Thatcher ere with the attack on/loss on society. The state was as a result seen as the aggressor and it became acceptable to exploit the state for welfare - getting one on the man. But more people who claim unjustly claim welfare means less for those that really need it, and a higher tax burden for the rest - less incentive for wealth creation for the benefit of all.
Energy - well the U.K. seems to have had no long term energy policy since the 1980s and the miners strike. Since then we have totally relied on market forces which have failed when it comes to core energy security interests as was seen upon Russia’s invasion of Ukraine. The closure of the Rough gas storage facility in the North Sea is a case in point just prior to the invasion. But even at the retail level we have large greedy privately owned energy companies with a weak regulator/ombudsman and companies that have little real idea of customer service. Switching is not that easy for less astute customers - the old/poor. To take advantage of the competitive market as a customer you have to be an active-astute customer. Most customers just get screwed by big energy companies as the system is just too complex - too many pricing options.
Privatisation - failed, generally.
The Thatcher era of privatisation is generally hailed as a success but in terms of service delivery they failed. Yes, they delivered windfall gains to the Treasury which helped Thatcher cut taxes and that helped lift short term growth. But most privatisation involved foreign state owned companies buying British state owned companies and then reaping windfall profits from near monopoly/oligopoly positions. They failed to raise the long term growth of the economy - actually I would argue utilities, infrastructure are growth subtracting in the U.K.
Are we really better off being supplied energy by a Scottish labelled power provider, owned by a European state owned company where service provision is provided out of South Africa or India?
Water - years of underinvestment now by the foreign owned (state owned) privatised model means our water and sewerage system is in near state of collapse with our rivers and environment suffering as a result. And the companies that operate it are close to bankruptcy.
Transport - again a lack of an overall joined up strategy from government but with a blind mantra that the market knows best and will resolve all ills. But the privatised railway model has fundamentally failed as surely the natural utility model always suggested it would. In railways customers pay top dollar, or sterling, for a terrible service. Dirty, crowded and late trains is the norm - it’s why people drive.
Even electric cars - we were all told to buy diesels a decade back, only then to be told they were environmentally bad, but so we switched (at a huge cost) to electric cars but the infrastructure is just not there across the country. Have you tried driving an electric car to Manchester?
Military - the reality is the U.K. is a mid size economy and a mid size military power to boot. But we still harbour aspirations from our imperial/Colonial past - hence our desire to have an outsized military. This means an expensive nuclear deterrent - actually now more salient given the threat from Russia - but also a military leadership that likes toys for boys ( and it tends to be boys) hence we ended up building (in French yards) two hugely expensive aircraft carriers which we could not really afford. The result is we had to borrow F35s from the U.S. to fly from their decks and there is now talk of selling off at least one of the ships to meet likely defence spending shortfalls. Meanwhile, the army lacks tanks and artillery, and is little more than a light infantry outfit - hardly a match for Putin’s Russia. Again no joined up long term thinking from the U.K. government.
Health - the NHS is a national treasure but the reality is that in an aging society with technology providing ever increasing expectations around health provision, the model is on a hamsters wheel of underfunding and decline. The U.K. does not really have a rival private system - you can only get private healthcare for GP services and minor treatment. For everything else you have to rely on the NHS - where demand rationed
thru waiting in line, whether for ambulances or operations. There has to be something better than this ? Perhaps solving the UK’s other many deep structural problems would raise real GDP growth allowing more spending on the NHS. Or perhaps we need a national debate about how we provide healthcare going forward - similar need for long term planning as with transport, housing, defence et al.
Education - see above, we are failing to provide the economy with the required skill set - hence the demand from business for imported skilled labour. Problems run deep from the post code lottery in state primary and secondary education. At university level the obsession with academic over technical and vocational training has been hugely damaging - again Thatcher converting polytechnics to universities.
Post Office - the recent crisis affirmed a service in crisis. I personally get the post of other addresses on different streets but with the same house number, on an almost daily basis. Do the post people literally not know the streets they deliver to.
The above I am sure the tip of the iceberg but it portrays a realistic image of a country’s business model in crisis and the need for a total reboot of U.K. plc.
Reprinted from the author’s @tashecon blog. See the original here.
.The views expressed in this opinion article are the author’s and not necessarily those of Kyiv Post.
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