‘Twenty years largely wasted…Trying to use words, and every attempt Is a wholly new start, and a different kind of failure’
T.S. Eliot, East Coker, 1940

The late historian A.J.P. Taylor made a diary note during the crisis winter of 1973-74 to the effect that, although he had long been broadly in favour of the fall of capitalism, now that it seemed actually to be happening it was jolly inconvenient in terms of his savings and investments.

There was plenty about which he could fret. From its 1972 peak, the FT Index of London shares was to lose four-fifths of its value. Inflation seemed uncontrollable. Industrial unrest was a daily event.

Economic turmoil could be graphically depicted as it unfolded rapidly: the Three-Day Week, the £6 limit, the Winter of Discontent, and so on. In our own time, the process has been so snail-like as almost to escape attention.

Lion & Unicorn made its debut in 2015, some years into the post-2008 Great Recession. In the ten years since we have, I hope, dealt fairly with a range of economic issues, including quantitative easing, worker share ownership, the ‘gig economy’ and one or two Budgets.

But there is always the danger of missing the wood by focusing on individual trees. What is the big story about the British economy across the period 2015-25? I would suggest it is the stagnation of real (inflation-adjusted) earnings.

In the year to February 2015, real pay crept ahead by 1.2 per cent. In the year to February 2016, it rose by 1.6 per cent. In the year to February 2017, it registered a flat zero per cent rise.

Matters were little better in the year to February 2018, with a negligible 0.1 per cent real increase. The following February registered a relatively perky 1.5 per cent, dropping to 1.3 per cent in the year to February 2020.

Before going further, it is instructive to put these figures into some sort of perspective. In the year to February 2002, real earnings rose by three per cent. This eased to 1.5 per cent in the following twelve-month period, before ticking along at 2.2 per cent in the year to February 2004.

The respective figures for the next three periods were 2.5 per cent, 1.8 per cent and 1.1 per cent in February 2007, the eve of the credit crunch.

Thus the 2002-2007 period was noticeably more robust than that from 2015 to 2020.

But worse was to come. In the twelve months to February 2021, real earnings rose by a punchy 3.5 per cent, doubtless caused by the distortions of lockdown. In the same period of 2022, they fell by 0.7 per cent. In the twelve months to February 2023, the fall was 2.2 per cent and in the twelve months to February 2024, real pay recovered slightly, rising 1.8 per cent.

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It is an axiom of financial journalism that if you run the numbers then a pattern will emerge, and if you read this pattern correctly you will have a story. So what story do we have here?

I would suggest that we are in the middle of a two-decade downward adjustment to earnings and living standards. None of the usual levers, such as cheap credit and tax cuts, can be pulled any more. We are having to settle for earnings increases/decreases that reflect our abysmal productivity record. This is a slow-motion rebalancing to our place in the economic league table, not, as is often asserted, as the fifth or sixth-largest economy in the world but as the eighteenth, when measured in terms of output per head.

I would guess that most people know instinctively that their living standards have gone pretty much nowhere for a long time. But I am not sure this insight has penetrated fully the higher realms of policymaking. Only a few days ago the Spectator informed us that ‘Bridget Phillipson, the Education Secretary, is working on a new childcare offering for voters’. Well of course. We are rolling in money so why not spray some about in the direction of other people’s babysitters?

Then there is the pressure to lift the two-child benefit cap, to shovel more cash at junior doctors and to buy off the ‘teacher unions’. In parallel with this, we learn from the Guardian that Sir Keir Starmer and Rachel Reeves are concerned about deep weaknesses in the British economy: ‘The budget, they believe, should be a moment to set out the hard road of reforms to tackle those issues.’

Sorry, wasn’t last year’s Budget supposed to have ‘fixed the foundations’?

In short, the economy is in a much more precarious place today than it was ten years ago, which is saying something given we were hardly experiencing an economic miracle back then. Of course, Labour was handed a weak inheritance by the Tories, as is the Conservatives’ wont (1964, 1974), but in government the party of ‘working people’ has very largely continued on the same primrose path.

In terms of economic policy, the last ten years have been wasted. Whatever you think of the Coalition’s austerity programme from 2010 to 2015, it did at least provide a direction in which to travel. Since then we have had Theresa May and Boris Johnson declare the ‘end of austerity’, Jeremy Hunt wittering on about ‘breakfast clubs’, and Labour arriving in office to write huge cheques for its supporters.

Is a reckoning coming? I fail to see how it cannot be. Had he any sense, Sir Keir would spell out the facts of life to his mathematically-challenged party, as did his predecessor James Callaghan in September 1976: ‘For too long this country – all of us, yes this Conference too – has been ready to settle for borrowing money abroad to maintain our standards of life, instead of grappling with the fundamental problems of British industry.’

Callaghan was a huge presence in the Labour movement and his Chancellor Denis Healey cut an impressive figure on the world stage. I am not sure Sir Keir and Rachel Reeves are in the same category.

How we chortled in the years after 1990 when once-booming Japan experienced a major downswing that lasted the best part of twenty years! To lose one decade may be misfortune, to lose two looks like carelessness. Well, in three years’ time we will have completed our second lost decade since the 2008 crisis.

Who’s laughing now?

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