Listen to any politician and they will tell you that the economy is doing quite well. It is not.
Essentially, the British economy is broken. We have a dysfunctional economy which is the worst performing economy in Europe. Our economy has not generated rising prosperity for a majority of the population, and there has been the longest period of wage stagnation for150 years.
For decades the British economy has distributed rewards very unequally. A fifth of workers earn below the £10.42 rate set by the Living Wage foundation. Two thirds of FTSE 100 companies don't pay the living wage while CEOs earn 129 times more than the average worker.
Britain remains among the most unequal of western European countries. Nearly a third of children – four million – live in poverty. Young people today face the prospect of being poorer than their parents. 13 million Britons are in work poverty. 9 out of 10 of the poorest regions in Northern Europe are in the UK.
The result of the referendum was, in great part, a protest - as was the 2019 general election. A protest against an unnecessary and cruel austerity; a protest against the mismanagement of the economy and against the contemptuous disdain and complete lack of understanding shown towards the predicament of many working people following the 2008 crash. And a protest against ineffectual, incompetent, careless government - and a useless opposition.
Britain's 'recovery' has been slower than almost all of our major competitors, dragged down by an unnecessary austerity. Any growth in the economy has been fuelled by consumer spending, based on rising debt and falling savings.
The British economic model - more an economic muddle - is in need of fundamental reform. It has deep structural problems. The economy's strengths and weaknesses are being poorly managed. The British people have been badly served by successive governments who have failed to grasp the nettle and deal with the fundamental structural problems that have plagued the economy for so long. Instead they have introduced short-term cosmetic 'fixes' which have done little other than to add to the muddle. Consider this:
Productivity is 20% lower than our major competitors.
The investment rate as a proportion of GDP is lower than our major competitors.
Corporate investment is lower than the rate of capital depreciation. Our stock of capital is actually declining.
Inward investment is almost non existent because of Brexit.
Britain's trade deficit is significantly higher than our competitors.
We have a growing fiscal gap between future income receipts to the exchequer and the expenditure we can expect as the population ages.
Britain is the most geographically unbalanced economy in Europe, with 40% of national income growth being generated in London and the south east. Outside the south east of England, there has been no recovery.
The rules that govern our economy need to be rewritten.
(As a footnote, and as Britain heads for a Brexit recession, the Governor of the Bank of England tells us that Britain would be booming if it wasn't for Brexit. Also, there has been a £300 billion negative swing in investment flows since the Brexit vote)
If Britain is to survive and prosper in the 21st century, there has to be fundamental change.
We need to rethink the way our institutions operate, particularly the Treasury. New frameworks and rules need to underpin a better understanding of modern economics. There must be a much wider input from outside the government, with safeguards against political expediency and corporate self-interest disrupting the drivers of economic prosperity.
Our goal must be to create a dynamic, innovative, just and supportive economy. We need to diminish division and significantly reduce inequality. Addressing inequality means addressing accumulated wealth. Private wealth has soared to six times the value of annual GDP. The reason? Wealth grows faster than wages. If you do nothing about this, inequality will just grow and grow - and it has.
We support the regions in developing Regional Social Housing and eliminate the current housing shortage.
We need to create an economy that provides more secure and better-paying jobs and one that enables social mobility.
We support equal pay and opportunity for women. For too long the contribution women make to the economy has been undervalued and its potential underestimated.
For decades, Britain's 'industrial strategy' has consisted of nebulous aims of 'supporting business'. The consequence of this lazy approach has been the destruction of the country's industrial base. We need to adopt a new approach to industrial strategy with the emphasis being on driving growth through the regions. To allow businesses to flourish, government should provide the economic stimulus and investment support in innovation and business development.
Short term fixes do nothing for long-term prosperity. All policies must focus on stability to support long-term investment and greater growth. There will be no growth until Brexit is undone.
With power devolved to the regions, strong support and investment mechanisms are needed to drive economic activity and greater prosperity. Government backed Investment and Savings Banks should be introduced in every region.
Entrepreneurs need to be encouraged and business education programmes need to be introduced into every school. It has to be made easy to create new businesses. Small businesses are the seed corn of our future economic prosperity, and need support and investment.
Innovation is a hugely important driver of future growth. Public investment in innovation has been too low for too long. Attitudes to investment in innovation need to be changed as well as attitudes to risk and return.
The power of digital leviathans needs addressed, and their protectors faced down.
Finance sector reform needs to take place to encourage a change of emphasis from short-term gain to long-term investment. We need to ensure banks behave responsibly and act in support of the general economy.
The taxation system to needs root and branch reform to deliver a fairer, more just system of taxation, to ensure wealth is spread fairly.
Taxes on employment must be significantly reduced.
Infrastructure investment has to be given top priority at both regional and national level. Time allowed for planning appeals must be significantly reduced and bottlenecks removed.
Corporate governance needs to be reformed to promote greater emphasis on the long-term. Management and supervisory boards should be introduced for companies employing more than 250 people, with worker representation on management boards.
Britain has fundamental problems to solve. We have been muddling along being led by amateurs for too long. We must create one of the most dynamic market economies in the world, but also one that respects the interests and wellbeing of all. We will invest in entrepreneurs, in science, in new technologies, and foster the talent of the young.
Banks are unique. They are commercial organisations which - whether they like it or not - have a social obligation. They have to be socially useful and work in the best interests of the nation. They have to oil the wheels of the economy, which they have failed to do. (Currently manufacturing and productive businesses receive under 10% of all loans.) Lightly regulated and left to their own devices, they have failed to meet this obligation, engaging in socially useless activities that benefit themselves and ignore the interests of the nation.
Fractional Reserve Banking, which is how banks operate today, has some fundamental flaws which have not been adequately addressed. To help avoid a repeat of the 2008 crisis, there has to be a significant rise in banks' capital requirements to a level which would not result in a shrinking of the money supply or for loans to have to be repaid. Capital requirement levels should have to provide a more realistic level of security. Government, in conjunction with the Bank of England, needs to be more involved, more pro-active in controlling the amount of money that banks can lend to certain sectors. Government has to have a far more 'hands on' approach to banking and the activity of the banking sector.
Reform of fractional reserve banking would be helpful, but perhaps in conjunction with other governments. A possible new approach would be for banks to back up all deposits with an equivalent amount in special government-issued credits. Money 'creation' would come under central bank control and used to promote (non-inflationary) growth. This would have the effect of improving financial stability, stabilising the money supply and limiting the growth of private debt. The new money created could be used either to pay down government debt or increase public spending.
Banking is becoming increasingly complicated. It is extremely difficult to keep pace with the changes. To help get over this problem, and to try and avoid nasty surprises in the future, a Banking and Investment Ministry, independent of the Treasury, should be formed to ensure responsible banking practice is in place and is appropriate. It would regulate, oversee all banking behaviour and financial activity, and ensure the banking system fully engages in meeting its obligations of working in the best interests of the nation. The lending focus of banks should be realigned from lending on housing, which the banks are all hooked on, to supporting business investment and growing the economy. Unchecked by government, banks are already setting up a boom and bust cycle which will work against the national interest. This has to be addressed with urgency.
In 2008 the banking crisis cost every man woman and child in Britain £19,721.After over a decade of austerity we are all still paying for the mess the bankers created. Alarmingly, the behaviour of banks and bankers still poses a potential threat to us all. To help minimise the risk, investment banking has to be separated completely from retail banking.
Recently, governments have stepped in to guarantee the deposits of two failing banks. If governments are going to do this, it's not unreasonable for the question "what is the point of banks", to be asked. What's clear is that the time for fundamental banking reform has arrived. It shouldn't be put off any longer.
National Investment Bank
The UK has the lowest average of non-government sector investment of any G7 nation as a percentage of GDP and the second lowest average government sector investment. A National Investment Bank would be established with the intention of raising public investment to the G7 average of 3.5% of GDP.
To help support SMEs and the local economy and promote entrepreneurship and growth, Regional Investment/Savings banks should be established in each region.
Investing in Britain
Inward investment since Brexit has all but dried up. Rejoining the EU would help to solve the problem, but there is a more fundamental issue which needs to be addressed. Corporate Britain is decaying and the stock market is lifeless. This is affecting jobs, careers, pensions, tax revenues and the funding of public services. Why is this happening? Because our 'savings system', pension funds, are failing to support investment in British companies. They don't touch anything with any hint of risk and as a result, there is little or no investment in British companies. In 1990, pension funds had £1 trillion invested in British companies. Today, it's £100 billion. If this lack of investment is not addressed, Britain, already being dragged down by Brexit, will be heading for an economic catastrophe from which it may never recover.
The solution is for pension funds to be both directed and incentivised to invest in British companies. Pension funds, like banks, have a social responsibility. They should not be allowed to forget it.