While known to be hard workers – at least in terms of length of time spent on the job – the British workforce fails to achieve the productivity of its competitors, in terms of revenue (well actually GDP) per worker. This is thought to becaused by lack of investment in the latest plant and machinery in UK firms, due to poor training and education of the workforce, due to transportation problems, and because research and development has never been properly financed in the “short termist” investment ethos that still perpetuates within the British psyche.
Still, at least the UK’s finance minister Chancellor of the Exchequer Philip Hammond now seems keen to so something about this shortfall. As he stood up to make this year’s Autumn Statement (probably the last one before November becomes the main Budget month) one eye-catching announcement he made was that the government intends to put GBP£23 billion over the next five years into a National Productivity Investment Fund to invest in innovation and infrastructure. For the currently underfunded but very innovative UK space industry it was probably a thumbs up as it is likely to be one of the beneficiaries – albeit that it will only reach them indirectly via research institutions and universities. The UK’s satellite makers are also likely to benefit from increased export credit financing promised in the Autumn Statement.
Comment by David Todd: Good work… but why wasn’t it done before?
All jolly good stuff for the longer term prosperity of the nation… but why could they have not done this about three decades ago? Perhaps the governments of the time had higher priorities/more urgent concerns than investing in Britain’s longer term future. Nevertheless, this government has managed to do this in spite of its debt hangover, post-brexit economics and the housing crisis to worry about.
At least this funding (financed by borrowing) is a true investment aimed at generating more prosperity, rather than Labour’s much heralded but phoney baloney “investment” in the public services. This became an untargeted spending splurge which simply raised salaries and hired more staff, which resulted in no significant improvements in productivity.
Mistakes of the past
It was not just mistakes of past Labour administrations that continue to haunt this government. The Conservatives’ own poor decisions have caused some of today’s major problems as well.
While many Conservative politicians look back on the Thatcher era of the 1980s with rose-tinted spectacles, Margaret Thatcher’s administration did make major mistakes. Apart from under investment in the aerospace sector, especially in space research (famously it refused to back HOTOL’s air-breathing rocket research, setting the technology back 20 years), another long term failure of the Thatcher administration was its popular-at-the-time policy of selling off of the state’s council housing stock to its residents. Worse, it did so while failing to use the sales revenues to build any more social housing. This has resulted in a long term “lack of supply” in the housing market.
This, when combined with the demand pressure caused by immigration and the social trend towards smaller but more numerous households, along with the voracious appetite for UK housing in foreign property and home grown buy-to-let investors (in whose hands, by the way, much of the former council stock now resides) has resulted in a housing crisis. Nowadays, few young people can now afford to purchase even modest properties, while private rents have similarly become extortionately high. In his statement Philip Hammond did promise a few billion pounds in new funding to build more “affordable” housing but this still looks like a sticking plaster trying to bridge the gaping wound that has grown over 30 years.
… And one for the future
This government and the previous Conservative-led coalition administration have made more recent policy mistakes which, again, will take time to show their true damage. While pension providers’ annuity rates are admittedly very poor value having continuously fallen over several years due to longevity increases (well until recently), poor bond yields and even pension provider parsimony, this government has attacked this “broken annuity market” in the wrong way. It did so by giving those approaching retirement the freedom to avoid annuities and spend their pension savings how they like. No prizes for guessing that a lot of them will run out of cash before they die. Australia, which has experience with a similar scheme and is a little further down the line, is already considering a change. It is rightfully concerned at the ominous prospect of self-impoverished pensioners needing further government support.
A better solution would have been to offer new retirees a “state run” annuity at a good value rate – say 8% index linked (compared to the current at the time of writing open market rate of 5% non-index linked for man aged 65). To be affordable and fair, the scheme would only be available to be traded for portions of pension pots up to a certain limit (say GBP£100,000). It would be funded partly though general taxation/national insurance and partly by reducing the tax relief that higher rate tax payers get on their pension contributions. Such a system would not be revolutionary. Sweden already offers a similar scheme. It would offer UK retirees a genuinely secure retirement while not breaking the government bank.
Of course, the above is all about “money purchase” pension schemes. However since defined benefit “final salary” schemes are now an endangered species in the private sector, and may become so in the public sector as well (even President-elect Donald Trump has his eyes on cutting NASA pensions), the above should be relevant to all.