All the indicators of progress are heading in the wrong direction, and time is running out
It has become something of a cliché that the next generation is the first in history likely to be less well off than its parents. The same thing is said in all periods of prolonged economic pessimism, only to be proved spectacularly wrong. However dark it gets, somehow or other, the march of progress always reasserts itself.
Yet nothing is ever guaranteed, and there may be more reasons for such declinist thinking in Britain today than at any stage in the last century. From the cost of living to standards of health and education, virtually all the measures by which we track economic progress are going sharply into reverse.
Our nation stands on the cusp of potentially catastrophic relative decline, with perhaps one last chance, measured only in years, to turn things around. Growth has returned, but it won’t be sustained without urgent action to arrest myriad failings in our midst.
Exhibit A: living standards. Analysis released by the Office for National Statistics this week shows that disposable income as a whole has risen somewhat since the start of the crisis – but this is entirely accounted for by population growth, lower interest rates and higher employment. Real income per household is going backwards, and is now no higher than it was 10 years ago. Already, this appears to be the longest peacetime hiatus in living standards of the modern age.
Exhibit B: more and more of our income is absorbed by basic essentials. Down the ages, we have had to spend ever less of our time and income keeping body and soul together. This has given us more time for leisure, and more money for discretionary spending, creating a virtuous circle of economic growth.
The ONS analysis shows that we are now going the other way. The amount of our income accounted for by “essentials” – housing, water, sewerage, energy bills and fuel – has risen over a decade from 19.9 per cent to 27.3 per cent. Once food is taken into account, the numbers are more striking still. Cumulative inflation as measured by the Consumer Prices Index – the yardstick used by the Bank of England – has been roughly 30 per cent. Yet the Tullett Prebon Essentials Index – which takes in most of the necessities of modern living – has gone up by more than 60 per cent. Consumers’ discretionary spending has been eroded even more severely than that fall in disposable income suggests.
This inflation seems to be a very British disease. Stripping out the effect of tax rises, the eurozone as a whole is now in deflation, with even energy prices down 1.7 per cent year on year. A deflationary spiral is never something a highly indebted economy like ours would want to get into, but just a smidgen of falling prices would be more than welcome right now.
Exhibit C: education. An international survey by the Organisation for Economic Cooperation and Development has found standards of literacy and numeracy among school-leavers in England and Northern Ireland to be among the lowest in the developed world. Shockingly, older people leaving the workforce were better educated than those joining it. This may be the first time in recorded history that such a phenomenon has occurred, with the young worse educated than their parents.
The upshot, as the OECD observes, is that the “talent pool of highly skilled adults is likely to shrink relative to other countries”. The implications for living standards are close to disastrous. The average worker in the highest literacy band will earn 94 per cent more than someone in the lowest. With rare exceptions – usually driven, entrepreneurial types – you cannot dream of entering the “global race”, let alone winning it, with such poor levels of educational achievement.
In identifying the causes, we can safely discount the amount of public money thrown at education, which as a percentage of GDP is roughly in the middle of the OECD pack, and actually higher than some countries that score better. It would also be too easy to blame poor standards of teaching and/or relatively high levels of low-skilled immigration, though these things obviously play a part.
A more fundamental cause is widening levels of social inequality, with their attendant – and growing – deficit in aspiration. Studies from the US show that achievement gaps start to widen as early as 18 months into a child’s life. By three, children of professional parents will have heard 30 million more words than those from low-income homes.
Exhibit D: health. According to a report this week from the World Health Organisation, Britain faces a public health “time bomb”. Obesity, female life expectancy and child mortality rates are among the worst in Europe. Again, the amount spent on public health care – which is roughly average for OECD countries – is not the problem. Much more fundamental is that a poor start to life will significantly impair later health outcomes.
Some of the right things are being done to address these failings – in education and welfare in particular – but they are too slow, and insufficiently bold, to produce a meaningful turnaround. The result is that Britain is living on borrowed time. Yet much of the political debate remains mired in complete or positively harmful irrelevancies – price controls, windfall profit taxes, government support for a feel-good bounce in the housing market, and so on. Sad to say, we still have our heads buried in the sand over the supply-side revolution the UK so desperately needs.
Follow Jeremy Warner on Twitter @JeremyWarnerUK