Economic growth is boosting company profits not worker’s wages, a dramatic report finds today as the Archbishop of Canterbury declares the UK economy “broken”.
The interim report of the IPPR Commission on Economic Justice finds workers are enduring the longest period of wage stagnation for 150 years and the benefits of growth are largely going to the company balance sheet.
The think tank’s Commission, which includes Archbishop Justin Welby, highlights deep, structural problems with the British economy and demands transformation on a scale of the Attlee reforms of the 1940s and the Thatcher revolution of the 1980s.
Archbishop Welby said: “Our economic model is broken. Britain stands at a watershed moment where we need to make fundamental choices about the sort of economy we need.
“We are failing those who will grow up into a world where the gap between the richest and poorest parts of the country is significant and destabilising.”
The report sets out how:
GDP per head has risen by 12% since 2010 but average earnings per employee have fallen by 6%.
The share of national income which goes to wages has gradually declined, from 80% to 73% ince the 1970s, while the share going to profits has increased.
The wage share is now the lowest it has been since the Second World War.
The Commission is calling for an urgent public debate on taxation, the role of banks, the power of trade unions and the market dominance of digital companies such as Amazon, Facebook and Google.
The report also finds that growing automation is unlikely to cause mass unemployment, but could exacerbate inequality unless the gains are recirculated.
Tom Kibasi, IPPR director and chair of the Commission on Economic Justice, said: “The British economy needs fundamental reform. We don’t have a British economic model. We have an economic muddle.
“The persistent economic problems we have experienced since the 2008 financial crash won’t be fixed with a bit of tinkering.
“There is a growing consensus across business, trade unions and civil society that a radical new approach is now needed.
“Change should be guided by a new vision for the economy, where long-term prosperity is joined with justice for all. We want to see the widest public debate possible on our analysis and proposals.”
Overall, the report finds the UK economic model is unfit for the challenges of the 2020s.
It says:
The UK is experiencing the longest period of earnings stagnation for 150 years, and young people today are set to be poorer than their parents
The UK is the most geographically unbalanced economy in Europe, with 40% of output produced in London and the South East and average incomes in the North West, South West, West Midlands and Wales now more than 30% lower than in London
Real GDP per capita real GDP per employee and real average weekly earnings Q1 1971 to Q3 2016 100 1971 Q1
The labour market is increasingly casualised, with more workers on low pay than 10 years ago, 3% of the workforce on zero hours contracts and more employees overqualified for their jobs than anywhere else in the EU
The UK is the most unequal of western European countries, with nearly a third of children living in poverty. More of the poor now live in working households (54%) than in non-working households (46%)
UK productivity is 13% below the average for the richest G7 countries, around 20% below France and Germany, and has stalled since 2008
UK public and private investment is around 5% of GDP below the Organisation for Economic Co-operation and Development (OECD) average. At 8%, corporate investment is below the rate of depreciation, meaning that the stock of business capital is actually falling.
The UK has the largest current account deficit (as a percentage of GDP) of all the G7 countries
The UK has a growing ‘fiscal gap’ between tax revenues and expenditure, which is set to worsen as the population ages and the proportion of workers declines