What has Happened to the UK's Economy

this is Great Britain once one of the most powerful and largest economies in the world at its peak its Empire covered nearly one quarter of the world's land surface but now it's in a state of decline since 2008 real wages that is those adjusted for inflation have fallen meaning after nearly 15 years the average wage in April 2023 was actually lower than that of February 2008 the cumulative effect of this is that the average worker has lost 10,7 00 per year this is something which is unlikely to improve as British households already financially vulnerable when the pandemic struck are now facing a prolonged recovery of living standards as it's projected that household incomes might not return to their pre-pandemic levels until at least 2027 following the pandemic the country quickly plunged into a severe cost of living crisis marked by the highest inflation in four decades despite the government's intervention with a 78 billion found support package widespread struggles persist leading to unprecedented levels of homelessness and a concern in households as roughly one in 10 are going without electricity or gas at least monthly according to a poll by cap UK this stems from roughly 15 years of stagnant incomes coupled with significant income inequality producing a productivity Gap and causing a society which combined with the cost of living squeezed is teetering on the verge of collapse this is fed a cycle of political chaos as more dissatisfied citizens have elected increasingly populous leaders who have offered large promises but failed to deliver despite economic stagnation life in the UK has been anything but normal and the last decade has seen a number of pivotal changes for the UK's economy 2016 saw the brexit referendum a major point in 21st century Britain as a country voted to leave the EU after a tight 52% vote confirmed the decision this is since spark controversy on both sides notably as many of the promises of the leaf campaign have not materialized whilst the effects of brexit have not been as bad as some anticipated there are still many sectors suffering as a consequence lots of Industries have been particularly hard hit car manufacturing is operating at its lowest output in 66 years a figure which is more than half the pre- brexit peak output other Industries such as fishing and Manufacturing have also been hard hit these jobs tend to be occupied by those with lower incomes further deepening existing inequalities the country has also seen four prime ministers in the space of 5 years under the conservative party a figure that is unheard of in modern Western democracies frequent changes in leadership have of course cause some decisions which have negatively impacted the UK economy notably Liz truss's budget characterized by significant tax cuts and borrowing leading to immediate economic turbulence this caused the pound to drop to a 37e year low against the dollar and a spike in government borrowing costs with 10year guilt yields rising at their fastest rate since 1998 this and other decisions taken over the last 13 years has made this government the worst on record for real household income growth all of these events have perpetuated the UK's economic decline mismanagement of the country has deepened geographical divides evident as the richest local Authority Kensington and Chelsea has an income per person 4 and a half times greater than that of the poorest Nottingham many Britains like to view the country as on part with other European powerhouses like France and Germany whilst this is true for stats like GDP and average income this is largely reflective of those in the upper income and wealth brackets perhaps reflecting the mindset of a fallen power however for the average UK citizen they are now 20% poorer than that in Germany and France whilst lower inome individuals are 27% poor before we continue it's worth noting that lots of my research and stats for this video come from this paper here by the resolution foundation in addition to other sources I will leave a link in the description to the paper and highly recommend reading it if you are interested in the topic to understand Britain's current predicament it requires a brief look at its past once a global Powerhouse during the Industrial Revolution Britain led the world in technological advancements like the steam engine and extensive Railway networks this era along with the expansion of the British Empire laid the foundation for its economic dominance through control of international trade and access to global resources however two world wars shifted Britain's Focus to war related production leading to substantial National Deb the postwar period saw significant changes including the rise of the welfare state the creation of the National Health Service and nationalization of key Industries this transition was not without challenge es the shift away from an industrial-based economy in the 1970s was marked by industrial decline labor unrest and a move towards a service oriented economy these shifts particularly under Thatcher's policies of deregulation and privatization resulted in the decline of traditional Industries and a growing Regional disparity by the 1990s and early 2000s the UK had embraced a more globalized service oriented economy focusing on sectors like Finance business services and the creative Industries this shift initially brought about economic growth and prosperity and the UK started to catch up with more productive economies like France Germany and the US the service sector while prosperous did not provide the broad-based employment that the industrial sector had and it caused widespread job loss in areas like heavy industry and Mining this shift led to Rising income inequality a trend mirrored in the UK's Genie coefficient which measures the income gap between between the wealthiest and the poorest the financial crisis of 2008 B exposed and exacerbated these underlying weaknesses in Britain's economic model revealing an overreliance on financial services and a lack of adequate investment in vital sectors such as education Regional infrastructure and healthare the fame National Health Service one of the first three National healthare providers is now suffering from underinvestment and an aging population meaning fewer people can be seen as weight times have doubled since 2014 as Britain entered the 2020s grappling with a legacy of its transition from an industrial to service-based economy a key challenge has emerged a significant slowdown in productivity growth productivity is the efficiency with which goods and services are produced and it's crucial as it drives improvements in living standards supports higher wages and underpins a competitive economy productivity is typically measured as output per unit of input such as labor or capital and high productivity means more is produced with the same resources which is essential for economic growth since the financial crisis in 2008 the UK has faced a stark productivity slowdown prior to this productivity was growing at about 2% annually however post crisis this growth has nearly flatlined notably there has been a significant decrease in investment since 2005 UK companies have invested 20% % less than their counterparts in the US France and Germany placing Britain in the bottom 10% of oecd countries this underinvestment has resulted in outdated technology and Equipment reduced Innovation and a shortfall in skill Development Across both industrial and service sectors consequently the overall efficiency and Innovative growth capacity of the UK economy have suffered leading to slower productivity growth compounding this issue is a mismatch and underutilization ation of the workforce skills a considerable proportion of young people in the UK almost a third are not engaged in education by age 18 a higher rate than in countries like France and Germany this Gap leads to a Workforce that is often inadequately prepared for high-skilled jobs which are critical in a modern knowledge-based economy in addition to this the post 2008 economic landscape has seen an increase in low-skilled part-time jobs which further detracts from productivity these roles provide fewer opportunities for skill development and career advancement posterity measures and public spending cuts have also constricted government investment in crucial areas like infrastructure and Technology essential for productivity improvements declining productivity has also allowed income inequality to persist and deepen in the UK the gap between the rich and the poor is wider than in any other large European country a gap which has been growing since the 1980s this slows down the country's economic growth when this Gap widens people with lower incomes tend to spend less but these are the ones who would usually spend extra money if they had it unlike wealthier individuals as the rich get richer they often invest in things like the financial market and real estate whilst these increase their wealth they are less likely to contribute to economic growth by creating new businesses or jobs at the same time people with lower incomes can't invold important things like a good education which limits their opportunities to improve their lives and contribute more effectively to the economy this situation leads to what's called Low social Mobility meaning it's harder for people from poorer backgrounds to climb the economic ladder the UK has one of the highest intergenerational income elasticities meaning that income tends to persist across Generations instead of a more meritocratic approach this is made worse as the UK tax burden that is the tax revenue as a percentage of GDP is currently approaching its highest rate in over 60 years is not only does this mean that public money has been ineffectively spent as is evident in chronic underinvestment in areas like education which increase social Mobility but it also further impedes people's ability to accumulate wealth as they are constrained by high taxes this effect is particularly profound amongst recent graduates who experience High student loan debt the repayments of which act as a defacto tax as a result a large part of the population can't fulfill their full potential which negatively affects the country's overall productivity and its ability to come up with new ideas and Innovations these issues taken together result in slower economic growth for the entire country over the long term despite measures aimed at reducing this like the national minimum wage the problem persists this is due to factors such as Cuts in benefits lower income workers having fewer hours and the increas in cost of living especially in housing much of the income inequality faced in the UK is re Regional this graph shows how changes in real income per capita between 2004 and 2019 were almost entirely concentrated in Southern England whilst many other regions experien a loss in income in order to plug Regional disparities particularly between London and the rest of the UK further investment is required in the UK's second cities in particular Manchester and Birmingham these cities have combined populations of around 4 million and are currently underperforming in productivity when compar to London which in turn affects the overall economic output of the country reducing this imbalance involves increasing their business Capital stock so investing more in the tools technology and infrastructure that businesses in these cities need to grow and compete effectively attracting a larger graduate Workforce is also essential graduates bring new skills and perspectives vital for fostering Innovation and development in these cities in addition addressing the housing challenge is Paramount the situation in London where limited housing availability has led to exorbitant rents illustrates the need for balanced growth a greater focus on a one nation approach has proven to have positive impacts in the past take this graph which shows the significant increases in average wage income per capita and GDP per worker in the aftermath of the divided Germany and now as a result of one nation politics inclusive Economic Policy can be the tide that lifts all boats in the UK the pro ress in these areas has a ripple effect influencing the economic well-being of a large portion of the UK population especially considering the high Urban residency these issues have directly influenced key political decisions most notably the brexit vote in 2016 this was largely driven by a desire to regain control over economic policies and address perceived issues like immigration impacting jobs and wages brexit was seen by many as a potential solution to revitalize the UK's economy and address the productivity issue since the vote the United Kingdom's decision to leave the European Union has had a significant impact on its economy one of the major consequences has been a significant reduction in the UK's trade openness measured by comparing the country's relative total trade to its GDP the immediate effects of brexit were somewhat obscured by the global trade disruptions caused by the covid-19 pandemic as the situation stabilized data revealed that the UK was the only significant European country to continue experiencing a decline in trade openness even after the rebound in global trade despite various deals with non-eu Nations such as Australia being waved as large successes by the British government in reality this deal as well as others like it have a relatively small impact with aformentioned increasing the UK GDP by 85% each year by 2035 brexit has also caused substantial changes in the UK's manufacturing sector and productivity by mid 2023 Goods trade had fallen by 10.5% compared to the levels before the trade and cooperation agreement with the EU while Services trade has remained relatively unaffected this shift has resulted in restructuring of the manufacturing industry this has caused the decline in high productivity sectors such as chemicals and transport manufacturing due to their dependence on integrated European Supply chains this has in turn driven a greater Reliance on Lower productivity areas like domestic food manufacturing this situation mirrors the post World War II era where limited competition led to sluggish productivity in manufacturing dependence on less competitive sectors slows economic growth diminishes Innovation and weakens Global Market positioning compounding existing issues a criticism often levied on the UK is that in the wake of brexit has become more inward-looking despite this the UK still faces a complex economic Challenge and an opportunity when it comes to reducing their carbon emissions and meeting their Net Zero pledge by 2050 this transition is more than environmental as it has the potential to create significant growth and boost the job market the transition towards fewer carbon emissions is a necessity for almost all economies globally despite this much backtracking has taken place despite committing to The Net Zero pledges the current UK prime minister rishy sunak has been criticized for creating policies which directly oppose it the UK government recently took the decision to open new North Sea oil fields including the large Rose Bank project reflecting a short-term Focus conflicting with long-term economic and environmental strategies these are decisions which will place a larger burden on those in the near future displaying the short-term election focused mindset which started to plague British politics and in turn its economy the argument in favor of these policy decisions is that the UK would be sacrificing competitiveness in the short term to Nations like China and India however what this fails to recognize is the potential for the UK to become a global leader in this industry something with the potential to significantly boost productivity and growth in the future Britain's future remains in the balance its decline has in part been the consequence of poor governance as well as deeper structural issues which have started to rear their head it's worth noting that the UK is still a highly developed nation which occupies number of strengths which we have mentioned in spite of this the current economic situation needs fixing not just for its National leaderboard rankings but to improve the lives of its citizens which have been in steady decline for well over a [Music] decade

Channel: The Invisible Hand

Views: 619,754

Keywords: UK, Britain Economy, British economy collapse, UK economic crisis, UK Economy collapse 2024, Brexit, Economics, the invisible hand, British Empire, britain vs europe, Brexit effects, UK economy, London economics, london, financial crash, UK vs EU, uk inflation, uk productivity, uk inequality, manchester, britain poverty, uk documentary

Id: -xiyIVTSu08

Length: 16min 54sec (1014 seconds)

Published: Wed Feb 07 2024