There is a well-known adage about the United Kingdom that has been doing the rounds for years now — the UK is a very poor country attached to a very rich city (London). But today, borrowing from “The Clash,” London is falling. The golden age is melting. The engines have stopped running. A casual walk around the prime business district, Canary Wharf, would reveal noticeable vacant spaces. Corporations are fleeing in hordes. Things have become so dire that Morgan Stanley only agreed to stay after the landlord agreed to a subsidy of a whopping £150 million. All this while the average person in London struggles to pay rent for a modest flat. London is being hollowed out as families move to suburbs. The “Great” Britain is not-so-great anymore. How did we reach here?
The fact is that the UK never really recovered from the 2008 global financial crisis. According to the recent Economic and Fiscal Outlook report by the govt, if the UK’s economic trajectory had continued along the same lines as before 2008, the average real income would be 31% higher than it is now. There are myriad reasons for this, but it is the consequence of direct policy wrongs. If the UK’s productivity has dipped despite rising working hours, then it has only David Cameron to blame. Cameron’s harsh austerity policy cutting back on infrastructure, skills and R&D clearly hasn’t had the desired effect. The declining productivity is particularly sad given Britain’s history. Among the two revolutions that the late historian Eric Hobsbawm identified as having profoundly transformed the modern world, the Industrial Revolution stood out for being based almost entirely on manufacturing and communication as opposed to ideas. The ideas, if any, came later. A little over a century ago, the UK produced one-third of all manufacturing in the world. The UK seemed invincible not that long ago, even after the decline of the Empire.
Under-investment is not the only reason for productivity loss. The UK is notorious for over-regulation. No sane person (the anarcho-capitalists being obviously in the insane category) would oppose reasonable regulation. However, as the economist Tej Parikh pointed out, it took 79,187 pages of planning documents to re-open a 3.3-mile train line from Portishead to Bristol. If you printed it out, it would be four times the length of the actual planned line. UK’s exit from the EU was the disaster that everyone predicted it would be. It resulted in a loss of a 6% overall GDP according to the most conservative estimates.
At the outset, this looks like a classic failure of the planning system. But in reality, it is the consequence of the elite intoxication with the highly novel but utterly dangerous Westminster brand of Hayekian neoliberalism starting from Thatcher. Hayek presents the market as the ideal force and the state as a destructive force. In the background of the horrors of the Soviet system, which were no doubt totalitarian, Hayek posits that state intervention is not just ineffective but profoundly immoral and unjust. The market has a self-correcting logic and the state should at best function as a referee. This has been internalised by both the parties without caring for Britain’s local context.
This perverse neoliberal model has led the UK to outsource public services to the private sector while drowning these institutions with red tape and paperwork so that it washes its hands of accountability. If the state is a referee, then the state’s goal is not to directly plan for outcomes, but to make it possible for the market to work out on its own. The process is the point when the state becomes averse to any kind of planning. A good example of this is infrastructure. The UK has archaic hyper-localised regulation requirements that give, more often than not, rich landlords the final veto on whether a large-scale infrastructure project would happen in their area. Moreover, there are over 1 million projects already approved which the developers are sitting on so that they extract the highest price out of it. The government outsourcing planning entirely to firms has led to exploitation of loopholes by firms. The HS2 project, which remains in limbo, led to a whopping 600 million Euros being spent merely on consultancy. For comparison, Germany uses its state-owned development bank KfW to successfully achieve the very same goals that the UK targets. Germany’s remarkable success in solar panel technology is thanks to KfW funding all of its solar photovoltaic projects in the initial years when market forces saw it as a bad bet. This was artificial scaling that worked. Similarly, KfW has succeeded in increasing energy-efficient housing by subsidising such infrastructure with low-interest loans and grants. The UK struggles as it piles up punitive regulations.
What are the solutions that the radicals offer? Reform UK offers tax cuts and DOGE-inspired reductions in government spending so outrageous that it makes Liz Truss look like Clement Atlee. Adding a bag of anti-immigration, anti-Brexit policies makes it a toxic combination. The gap will have to be filled with more borrowing. The Greens, led by Zack Polanski, promise massive spending and a complete overhaul through Modern Monetary Policy, which they disguise under the rhetoric of “sovereignty.” This is precisely what, in practice if not in theory, led to the crisis in Argentina. What the UK needs is a complete break in a sensible, systematic overhaul. On one hand, it needs to get over its aversion to planning and create structures to utilise pension funds for domestic investments and infrastructure, and on the other, it needs to heavily reduce unnecessary regulations, incentivise job creation and ease immigration. This combination of policies does not fit into neat ideological brackets, and thus, God save Great Britain!
The writer is a columnist with a background in global affairs from Kings College London.