When Andy Burnham arrived at No 10 in July he came with a bold message of change. 40 years of neoliberalism have left Britain hollowed out: wealth has drained from those with the least to those with the most; capital ran riot while the state stood back and watched.
It’s a powerful story, and evidently one that convinced the people of Makerfield to hand him the keys to No 10. Unfortunately for Burnham, it is almost the complete opposite of the truth. The symptom, Britain’s stagnation, is real, but it has not come from trusting markets too much. Indeed, all evidence shows we have run something close to the progressive experiment: record high tax and spend, an activist state and no evidence of a runaway capital share or widening inequality. What are the fruits of this progressive experiment? The slowest growth in living memory and a ‘lost decade’. Call it late-stage statism.
Everyday Britons are not being bled dry by a greedy rentier class. There are simply too few gains to divide.
First, let’s look at the central progressive mission: tackling inequality. By that metric, Britain is succeeding: income inequality hasn’t risen since the early 1990s. How about wealth? Between 1980 and 2019, America’s top 1% saw their share of total wealth jump by 12 percentage points; in Britain, that share rose by less than one. Yet over that same period, real disposable income for the median American household grew by over 50%, double the rate in Britain. It seems a rising tide lifts all boats after all.
Perhaps then, capital has run off with the winnings, at the expense of the working man. Well, over the past quarter century the share of Britain’s national income going to labour has increased 6%, reversing the trend seen across other advanced economies. This means wages have risen as a share of output, while returns to capital have fallen. What this demonstrates is simple: everyday Britons are not being bled dry by a greedy rentier class. There are simply too few gains to divide.
Next, we turn to austerity, the epitome of the neoliberal political economy. The word carries enormous political weight, with almost no relation to the public accounts. The tax burden is at a 80-year high, climbing towards 38%, driven fundamentally by profligate spending. You can argue money is being poorly spent, but you can hardly argue that we’re taking an axe to spending.
Well then, the progressive narrative goes, the rich are shirking these record taxes and letting the working man cover the bill. In reality, ordinary British workers are taxed far more lightly than their continental peers. In France or Germany, tax takes almost half of labour costs compared to roughly a third in Britain. By contrast, at the top the gap narrows: the IFS finds high earners in Britain are taxed as heavily as in Europe. Quite simply, our tax base is far more progressive than across the Channel. The lesson Europe leaves for Burnham is that a bigger welfare state can only come from the middle. It is not possible to desire a European welfare state and refuse the taxes ordinary Europeans pay. Nobody demanding a wealth tax will admit to this simple truth.
Wealth taxes, in any case, disappoint. Take the abolition of nom-dom statuses, where the official pre-hoc costing assumed half the revenue would vanish to behavioural change, and the Treasury has admitted remaining concessions may raise nothing at all. Revenue reliant on a small, mobile group is speculative, easily oversold and inevitably falls short of what was promised.
So what we have learnt is Britain, far from a neoliberal paradise, has instead fulfilled progressive dreams: inequality unchanged in the face of globalisation, progressive taxes funding ever-rising spending and income shifting from capital to labour. So why are the champions of these ideas so quick to disavow the economy that delivered them?
Because redistribution, the MacGuffin of progressive policy, can never conjure what was never produced. Redistribution is zero-sum, but living standards are not. That is why the median American household, benefiting from decades of relentless, supply-side growth, now enjoys real disposable incomes over 50% higher than their British counterparts.
Britain didn’t fall behind because the spoils were unfairly divided; it fell behind because it effectively banned the foundations of growth: housing, energy and infrastructure. The answer to stagnation was never more statism, but to beat back the blockers to growth: many of which sit right inside Whitehall. To succeed, that’s where Burnham must first lay blame.
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