Barré – Economic Observatory

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The outgoing Prime Minister’s 2019 election campaign promises included delivering Brexit, leveling the UK’s less productive parts and creating a “high-wage, high-skills economy”. There has been little progress – and his successor will lead a country facing a deep economic crisis.

Newsletter of July 8, 2022

On Thursday morning, Boris Johnson agreed to step down as leader of the Conversational Party and relinquish his post as Prime Minister. The news came just 36 hours after Rishi Sunak had resigned as Chancellor of the Exchequer and Sajid Javid quit his job as health secretary.

For a few hours on Tuesday evening, the UK was left without a minister responsible for the country’s public finances or its health system. Even now, it’s unclear exactly how long Boris Johnson will remain in a caretaker role and what the timeline for an official leadership contest will be. As the cost of living crisis intensifies and new cases of Covid-19 rise again, it is a dangerous time for the ship of state to be rudderless.

With the prime minister gone, or at least out of office in a meaningful sense, it seems likely that responsibility will fall to the newly assembled cabinet to implement key government policies. In terms of health and the economy, Nadhim Zahawi (the new Chancellor) and Steve Barclay (the new Health Secretary) face significant challenges.

There are currently more than six million people on NHS waiting lists for planned operations in England alone. Ambulance services and A&E departments would be pushed to their limits. According to NHS England manager Amanda Pritchard, the next two years could be even more difficult for the health service than at the height of the Covid-19 crisis.

At the Treasury, the new Chancellor must decide how best to respond to soaring energy and food prices, as well as widespread demands for higher wages. Establishing a sustainable plan for how to pay for the long-term costs of the pandemic will also be essential. And with the Bank of England now predicting that inflation could climb to 11% by the end of the year, and the war in Ukraine likely to continue into the winter, the pressures of the cost of life is not expected to subside any time soon.

How any new prime minister, new chancellor and the rest of the reshuffled cabinet respond to these issues will have serious effects on Britain’s economy. Difficult decisions lie ahead – decisions that will have profound implications for the well-being of millions of people across the country.

All work and no pay (increase)

A challenge that the British government needs to address immediately is industrial action. Policymakers are facing growing pressure from workers and unions, who say that without a pay rise, many people will continue to see their standard of living fall.

Recent strikes organized by the National Union of Railway, Maritime and Transport Workers (RMT) have been strongly criticized by the government, which has warned of an imminent wage-price spiral if union demands are met. But RMT members remain adamant that now is the time to support workers by raising wages, loosening the pressure on real wages caused by inflation.

Further unrest followed, with strikes by Stagecoach bus drivers in Merseyside unfolding over the weekend. Train drivers in the east of England also walked out for the second time on Saturday, halting more than 90% of service on the network. This meant that only limited trains from Norwich, Colchester and Stansted Airport to London Liverpool Street could run, causing significant disruption to the area.

Rumors are also circulating of further walkouts from Network Rail, British Airways and even the Post Office. And unions representing NHS staff and teachers have warned against industrial action to demand pay rises that follow price increases.

This is not the first time that the British government has been tested by the unions. Strike activity in the 1970s – measured by the number of workdays lost – was higher than in any decade after World War II. But comparisons with this period should be interpreted with caution.

In an article for the Economic Observatory this week, Jim Phillips (University of Glasgow) argues that the “false narratives” of the 1970s, articulated by current critics of trade unions, distort our understanding of current issues. Then, as now, unions were erroneously described as “greedily advancing selfish wage demands” that cause inflation (the price-wage spiral argument). The fact that their mandate is to protect the economic well-being of their members has been – and still is – ignored.

So why exactly are workers striking and what could it mean for the economy? Jim argues that strikes should be seen as a collective response to the broken relationship between employment and economic security. Simply put, having a job isn’t paying for a lot of people right now. According to a recent report by the National Institute for Economic and Social Research (NIESR), rising energy, fuel and grocery costs mean that household bills now exceed household income in 60% of British homes. Strikes are driven by desperation, not greed, Jim concludes.

This is backed up by reports from charities supporting the most vulnerable. The Trussell Trust distributed more than 2.1million emergency food parcels in the 12 months to the end of March, an 81% increase on the same period five years ago.

In addition to food banks, the use of hygiene banks is also on the rise, as highlighted by Gemma Williams in another new Observatory article this week. Many people struggle to afford basic toiletries, including sanitary products, indicating a rise in periodic poverty in the UK.

A new start?

In his declaration of resignation in front of number 10 Thursday noon, Boris Johnson wanted to remind the public of the strong parliamentary majority in his government. It was built, in part, on glittering economic promises made to the British people.

Elected in 2019 following campaign pledges to ‘get Brexit done’, ‘raise the bar’ for the UK and create a ‘high-wage, high-skills economy’, the outgoing leader took advantage this opportunity to point out the continued importance of these policies. areas.

But whether Brexit is really “done” remains controversial. In particular, the controversies around the Northern Ireland Protocol threaten the stability of the UK’s exit agreement with the European Union.

Real wages continue to decline as swamps of inflation pay for growth. Productivity and low skills remain endemic within the UK workforce. As for tackling regional inequalities, the future of the Leveling and Regeneration Bill is uncertain following the cancellation of this week’s committee meeting. The reason: no ministers.

Whatever happens next, UK policymakers must respond urgently to the issues that arise. A change in leadership – or even government – ​​will do nothing to halt rising inflation, improve worker productivity, raise wages or encourage unions to call off strikes. Nor is it guaranteed that it will help mend the economic cracks and political divisions left by Brexit.

Outside of the Westminster bubble, the economy urgently needs support. Months of distraction and infighting have pushed many issues to crisis point. Enough, it seems, is enough.

Author: Charlie Meyrick
Photo by DZarzycka on iStock

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