"Lord, give me chastity, but not yet" has been the UK’s economic motto for years. Economists of all kinds have said, rightly, that Britain is worse at long-term planning than almost everybody else. We save less, invest less and build less economically-vital, growth-promoting infrastructure. We’ve got a rock-and-roll economy that lives for today, unlike those sober Germans who invest for tomorrow.
The result is that we lag behind the US, Germany, France and, embarrassingly, Italy in productivity. That means it takes a German worker four days to produce what we Brits make in five, and why we are all working longer hours for lower pay than our counterparts in other countries.
The economic growth of the last few years hasn’t been felt widely enough. People on average wages or less feel the benefits have passed them by. Housing and energy costs are claiming an ever greater share of their wages and, while a global elite live gilded lives, it hasn’t made enough difference to everybody else’s standard of living.
The Living Wage should make a difference to this, of course. It will increase take-home pay, raise living standards and make us a high-wage, low-dependency economy. But it is impossible to raise living standards sustainably, or build an economy that works for everyone, unless we fix our ailing productivity at the same time – and for the last several years it’s been flat-lining.
UK productivity levels are stuck in a rut where more jobs are created, but the value each one produces is standing still. If we don’t fix the problem, the Living Wage will simply price Great Britain PLC out of international markets.
Better skills are part of the answer of course. More apprentices, and more commercially useful academic qualifications will make Britain’s workforce more productive. But not terribly quickly. Isn’t there some faster, more fundamental way we can improve our productivity, and the living standards of everybody who’s been passed by at the same time?
Yes, there is. If we make everything apart from wages cheaper, the cost of living goes down, so everybody – and particularly the less well-off – gets a higher standard of living. Productivity goes up, because we’re producing the same amount of stuff for less. And we can afford to pay ourselves more without becoming a high-cost, uncompetitive commercial backwater. Economists would say we’re cutting the costs of the other factors of production, so the value of labour (ie pay) can rise.
The post-Brexit world gives us a chance – for the first time in many generations - to deliver what’s needed. Food generally costs less outside the EU than in it, for example, so leaving the Common Agricultural Policy should create a once-in-a-generation chance to cut the costs of our weekly grocery bills.
Likewise, pruning all the unnecessary EU red tape (and some of the British gold-plating which we’ve added on top) and replacing it with more tailor-made UK regulation, would free up money and time for businesses to invest in growth.
Crucially, we need a proper debate on energy prices. We need to look at how to make gas and electricity more affordable and stop consumers being ripped off by the Big Six energy companies.
Very few other industries systematically exploit their most loyal customers in the way energy companies do; capitalising on their inertia by quietly switching them onto expensive default energy tariffs once their existing deal comes to an end. Even worse, many of the most loyal customers are also the most elderly and vulnerable, or the least well off. Treating them as suckers to be milked is just wrong, which is why I’m proposing a limit to the markup energy companies can make to prices for their less active customers.
And finally, we’ve got to do something about housing. Rent and mortgage costs are taking a bigger and bigger share of everyone’s monthly pay packet, pricing low-paid workers out of buying their own homes completely, and leaving younger adults stranded at home, or dependent on the ‘Bank of Mum and Dad’.
Cutting housing costs will not only improve our national productivity, it will make the economy work better for the lower-paid workers and younger people who have been left behind.
How do we stop the upwards spiral in housing costs? By building up, rather than out, in towns and cities; allowing urban property to extend up to tree-height, or the tallest building in each block, would create vast amounts of extra building space.
Urban centres would be regenerated by a flood of investment in new building to become exciting, successful metropolises where more people want to live and work. Thousands of acres of green fields would be saved because we wouldn’t need to build on them anymore. And, crucially, the costs of buying or renting a house or an office would drop.
Presto! Better standards of living, higher productivity, and an economy that works for everyone. What’s not to like?