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John Mills: "The big economic debate we need in the UK is not about Brexit. It should be about what we can do to get our economy to perform better"



Our biggest current political and economic challenge is not Brexit. It is the fact that our growth rate has slowed to a crawl. Brexit will be over in two or three years’ time. Whether this leaves us in the Single Market and the Customs Union or with a Hard Brexit — or more probably with a compromise somewhere in the middle — will make some difference to the UK’s economic prospects, but not much. Whether you are optimistic about your favoured outcome, or frightened of one you do not want, neither is expected to shift the UK away from having an annual growth rate in the coming years of around 1.5 per cent — provided we do not have another recession, in which case the projections will be even lower.

Growth at 1.5 per cent per annum is not sufficient to raise the standard of living for most people. By the time account is taken of our fast-rising population, our worsening net foreign income, the falling proportion of our national income paid out as wages and salaries, and the tendency for those with the sharpest elbows to collar what little total increase in incomes there is, nothing will be left for everyone else. A majority of the UK’s population are earning now no more than they were in 2007. What is it going to be like if, as seems likely unless there are big changes in policy, they are no better-off in 2027?

This is why the big economic debate we need in the UK is not about Brexit. It should be about what we can do to get our economy to perform better, starting with what we can do about the huge imbalances there currently are. Why is investment as a percentage of GDP — at barely 16 per cent — some 40 per cent below the world average? Why have we allowed the UK to deindustrialise to the extent we have — down as a percentage of our national income from 30 per cent in 1970 to less than 10 per cent now? As most world trade is goods rather than services, no wonder that we have a trade deficit of about £40 billion every year.

While £40 billion may be manageable, by the time you add our rising negative net income from abroad (around £35 billion), and another £25 billion deficit on transfers (net payments to the EU, migrant remittances and our aid programmes), we reach a much more daunting total annual balance of payments deficit of around £100 billion — about 5 per cent of our GDP. This huge and ultimately unsustainable deficit sucks demand out of the economy which has to be replaced by unfunded government and consumer expenditure to stop the economy contracting.That is why government debt goes up and up and the UK economy is currently far too dependent on rising consumer borrowing. This is supported by vast quantities of quantitative easing which, in turn, is largely responsible for the asset price inflation since the 2008 crash, which has produced such hugely unequal benefits to those who are already wealthy compared to those who are not so lucky.
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