Why Britain’s economy has barely grown since 2008

Britain’s economy has hardly grown for nearly two decades, leaving living standards significantly lower than they could have been, mbl.is reports. The issue was examined in a new collection of essays published by the London based Institute of Economic Affairs, or IEA.

The publication, titled The Great Stagnation, explores Britain’s persistent growth problem. It argues that taxes and government spending are important factors, but that poorly designed housing, energy and labour market policies have also become a millstone around the economy, causing damage comparable to excessive taxation or a lack of discipline in public finances.

The report was published as attention in Iceland focused on the government’s new budget bill. The bill has prompted debate over the interaction between price increases, higher taxes, inflation, interest rates and value creation.

Running an extensive welfare system requires the government to balance spending restraint with the need to fund essential projects. At the same time, raising taxes too aggressively can negatively affect the size of the tax base and economic growth.

Daniel Hannan, who leads the IEA, writes in the introduction that every British political party except the Greens has made economic growth a priority. Despite this, Britain’s gross domestic product has remained almost unchanged since 2008.

Per capita GDP had risen steadily for decades before the financial crisis, but progress has virtually stopped since then. The problem is not limited to Britain. The publication says per capita growth in the United States has also been weaker than expected, although the trend there remains upward while Britain’s has been flat for almost two decades.

Both countries suffered a major setback after the financial crisis, but the United States managed to regain momentum while the British economy never fully recovered.

Britain still has a relatively high per capita GDP compared with other European countries, at a level similar to Belgium and Finland. However, the effects of weak growth accumulate over time. Living standards in Britain would now be almost 50 per cent higher if the economy had grown at the same rate from 2008 to 2026 as it did between 1955 and 2008.

Hannan says growth cannot simply be restored by pressing a button. British politicians must instead confront difficult challenges and be prepared to make decisions that may be both difficult and unpopular.

The IEA says Britain’s stagnation is not entirely the result of external factors beyond the country’s control, such as the financial crisis or the war in Ukraine.