The outgoing prime minister’s 2019 election campaign promises included getting Brexit done, levelling up the UK’s less productive regions and creating a ‘high-wage, high-skill economy’. There has been little progress – and his successor will lead a country facing a deep economic crisis.
Newsletter from 8 July 2022
On Thursday morning, Boris Johnson agreed to step down as leader of the Conversative Party and renounce his position as prime minister. The news came just 36 hours after Rishi Sunak had resigned as Chancellor of the Exchequer and Sajid Javid quit his job as health secretary.
For a few hours on Tuesday evening, the UK was without a senior minister for either the country’s public finances or its healthcare system. Even now, it is unclear exactly how long Boris Johnson will stay on in a caretaker role, and what the timeline will be for a formal leadership contest. As the cost of living crisis escalates and new Covid-19 cases are rising again, it is a dangerous time for the ship of state to be rudderless.
With the prime minister gone, or at least out of office in any meaningful sense, it seems likely that responsibility will fall to the recently assembled cabinet to deliver the government’s key policies. In terms of healthcare and the economy, both Nadhim Zahawi (the new Chancellor) and Steve Barclay (the new health secretary) face substantial challenges.
There are currently over six million people on NHS waiting lists for planned operations in England alone. Ambulance services and A&E departments are reportedly stretched to their limits. According to the head of NHS England, Amanda Pritchard, the next two years could be even more challenging for the health service than during the height of the Covid-19 crisis.
Over at the Treasury, the new Chancellor must decide how best to respond to soaring energy and food prices, as well as widespread demands for wage increases. Establishing a sustainable plan for how to pay for the long-term costs of the pandemic will also be critical. And with the Bank of England now predicting that inflation could climb to 11% by the end of the year, and the war in Ukraine likely to grind on into the winter, the pressures of the cost of living crisis look unlikely to ease any time soon.
How any new prime minister, the replacement Chancellor and the rest of the reshuffled cabinet respond to these issues will have serious effects on the UK economy. Tough decisions lie ahead – decisions that will have profound implications for the wellbeing of millions of people across the country.
All work and no pay (rise)
One challenge the UK government must face immediately is industrial action. Policy-makers are facing mounting pressure from workers and trade unions, who argue that without wage increases many people will continue to see their living standards fall.
The recent strikes organised by the National Union of Rail, Maritime and Transport Workers (RMT) were criticised fiercely by the government, which warned of an impending wage-price spiral if union demands were met. But RMT members remain adamant that now is the time to support workers by increasing pay, loosening the squeeze on real wages caused by inflation.
Further unrest has followed, with strikes by Stagecoach bus drivers in Merseyside taking place over the weekend. Train drivers in the east of England also walked out for the second time on Saturday, halting over 90% of services on the network. This meant only limited trains from Norwich, Colchester and Stansted Airport to London Liverpool Street were able to run, causing significant disruption in the area.
Rumours are also circulating of further walkouts by staff from Network Rail, British Airways and even the Post Office. And unions representing NHS staff and teachers have warned of industrial action to demand pay rises that keep up with increasing prices.
This is not the first time that the UK government has been tested by the unions. Strike activity in the 1970s – as measured by the number of working days lost – was higher than in any other decade after the Second World War. But comparisons to this period should be interpreted cautiously.
In a piece for the Economics Observatory this week, Jim Phillips (University of Glasgow) argues that ‘false narratives’ of the 1970s, articulated by current critics of trade unions, distort our understanding of the present problems. Then, as now, unions were wrongly portrayed as ‘greedily advancing selfish pay claims’ that cause inflation (the wage-price spiral argument). The fact that their mandate is to protect their members’ economic welfare was – and is again being – overlooked.
So why exactly are workers striking and what might this mean for the economy? Jim argues that the strikes should be seen as a collective response to the broken relationship between employment and economic security. Put simply, having a job isn’t paying for many people right now. According to a recent report by the National Institute of Economic and Social Research (NIESR), rising energy, fuel and grocery costs mean that household bills now exceed household income in 60% of UK homes. The strikes are motivated by desperation not greed, Jim concludes.
This is backed up by reports from charities supporting the most vulnerable. The Trussell Trust distributed more than 2.1 million emergency food parcels in the 12 months to the end of March – an 81% increase from the same period five years ago.
In addition to food banks, the use of hygiene banks is also on the rise, as highlighted by Gemma Williams in another new Observatory piece this week. Many people are struggling to pay for basic toiletries, including sanitary products, indicating a rise in period poverty in the UK.
A fresh start?
In his resignation statement outside Number 10 on Thursday lunchtime, Boris Johnson was keen to remind the public of his government’s strong parliamentary majority. This was built, in part, on glittering economic promises to the British people.
Elected in 2019 on the back of campaign commitments to ‘get Brexit done’, ‘level up’ the UK and create a ‘high-wage, high-skill economy’, the outgoing leader used the opportunity to flag the continued importance of these policy areas.
But whether Brexit is truly ‘done’ remains contentious. In particular, controversies around the Northern Ireland Protocol threaten the stability of the UK’s exit agreement with the European Union.
Real wages continue to shrink as inflation swamps pay growth. Productivity and poor skills remain endemic within the UK workforce. As for tackling regional inequality, the future of the Levelling Up and Regeneration Bill is uncertain after this week’s committee meeting was cancelled. The reason: no ministers.
Whatever happens next, UK policy-makers must respond urgently to the issues at hand. A change of leader – or indeed government – will do nothing to halt rising inflation, improve workers’ productivity, bolster wages or encourage labour unions to call off strikes. Nor is it guaranteed to help fix the economic cracks and political divisions left over from Brexit.
Outside the bubble of Westminster, the economy is in dire need of support. Months of distraction and infighting have pushed many problems to crisis point. Enough, it seems, is enough.
