LONDON — As David Cameron heads to Washington this week for his first big speech back on the world stage, his bête noire Boris Johnson will be sat in a dingy room in west London.
Johnson is to give two days of televised testimony before Britain’s COVID-19 inquiry, answering a barrage of questions under oath about decisions he took while prime minister in 2020 and 2021 which — many believe — cost thousands of people their lives.
As Johnson battles to salvage his battered reputation, Cameron will be strutting through America in a ministerial motorcade, glad-handing Washington’s power players and preparing to address the Aspen Security Forum as U.K. foreign secretary.
It’s a stark symbol of just how quickly the political sands can shift.
Cameron had long been written out of the British political scene, famously retreating to a hut in his garden to write his memoirs after calling — and losing — the divisive Brexit referendum in 2016. Johnson — an old acquaintance from his school days — had fought on the opposite side, and his star rose rapidly after the referendum victory. As Cameron licked his wounds, Johnson became foreign secretary in 2016 and then prime minister — with the landslide majority Cameron also craved — three years later.
But with Johnson now long gone and Cameron handed a dramatic ministerial comeback — along with a seat in the House of Lords — in Prime Minister Rishi Sunak’s Cabinet reshuffle last month, the two men’s fate has come full circle.
And former colleagues say Cameron is making no secret of his delight at the turn of events, frequently texting associates to say how much he is enjoying the new gig.
Despite now having the run of the palatial Foreign, Commonwealth and Development Office — known as the grandest building on Whitehall — Cameron has also been awarded two large private rooms in the House of Lords, displacing Conservative colleagues in the process.
Some friends believe he’s having more fun than when he was actually running the country.
“He has got the bits of the job he enjoyed, he has shed the bits he didn’t. It is the perfect semi-retirement job for him,” a former No. 10 adviser who worked for Cameron said. (The adviser was granted anonymity, like others in this article, to speak candidly about private interactions with the foreign secretary)
“All prime ministers like being on the world stage. It allows them to grapple with big issues,” a second former No. 10 adviser who worked closely with Cameron said.
Cameron’s closest political ally, his ex-Chancellor George Osborne, says his friend’s return will have fulfilled the “strong element of public service” in the ex-prime minister, which he claimed has “always been part of his DNA.”
Cameron’s closest political ally, his ex-Chancellor George Osborne (left), says his friend’s return will have fulfilled the “strong element of public service” in the ex-PM | Pool photo by Petar Kujundzic via Getty Images
“It’s like the sound of the trumpet. Back on … the political playing field, and serving your country. He’s doing it because above all he thinks he can make a difference,” Osborne said on a recent podcast.
Others are less impressed.
One Whitehall official, while acknowledging the diplomatic advantages of having a former PM in post, described Cameron’s appointment as “failing upward, writ large.”
Cameron’s peerage means MPs cannot quiz him in the House of Commons like other ministers, another fact which rankles with opponents.
“Once again Cameron is jetsetting around the globe with seemingly no accountability to the British public,” Liberal Democrat foreign affairs spokesperson Layla Moran said.
“We have very little idea whom this unelected foreign secretary is meeting and what he is saying. Maybe if he spent as much time — or indeed any time at all — making himself available for scrutiny from MPs, we would understand exactly what his foreign policy priorities are.”
Back onthe world stage
On his first visit to the U.S. since becoming foreign secretary on Wednesday, Cameron will meet key members of the Biden administration, including U.S. Secretary of State Antony Blinken, as well as Republican and Democratic Congressional figures in an effort to shore up support for Ukraine.
Cameron’s appointment has certainly made diplomats in foreign capitals sit up and take notice, if only because his is a familiar name in the hard-to-follow soap opera of British politics.
Even in the U.S., his appointment triggered some excitement. As one U.K. official put it, “Americans have a sort of respect for former office-bearers in a way that Brits don’t.”
An EU diplomat said that despite having “gambled” on the Brexit referendum, Cameron is still well thought of in Brussels.
Cameron will certainly feel at home, having relished life on the world stage as prime minister, according to multiple advisers who worked with him at the time.
“You get the idiosyncrasies of different leaders and he enjoyed that. He has a good sense of humor,” the second former adviser quoted above said. The aide recounted how a Nigerian president had once left a soap opera playing on TV throughout his meeting with the British prime minister. “[Cameron] came out laughing. He could roll with the weird and wonderful.”
With Johnson now long gone and Cameron handed a dramatic ministerial comeback in Prime Minister Rishi Sunak’s Cabinet reshuffle last month, the two men’s fate has come full circle | Peter Macdiarmid/Getty Images
Predictably, Cameron has slipped back easily into government — perhaps a little too easily, according to the Whitehall official quoted above who said he had to be reminded he needed clearance before texting friendly hellos to former acquaintances from foreign powers.
The same person said he was demanding fast, detailed briefings at a rate more associated with No. 10, and has sometimes sent papers back asking for a more creative approach. They pointed out his only previous job in government had been as prime minister, which influences his way of working.
Green with envy
The notoriously competitive Cameron also won’t be displeased by the reaction to his appointment by his political peers.
Arch-rival and former school frenemy Johnson, who was ousted from office in 2022 over his handling of various personal scandals, couldn’t help but mock Cameron’s return, describing it as “great news for retreads everywhere.”
Osborne, Cameron’s closest political friend, admitted to being “a little bit jealous, but in a good way,” after he returned.
“There’s a little bit of me that goes ‘I’d fancy being foreign secretary,’” Osborne admitted, before insisting: “But I’m very happy with what I’m doing with the rest of my life, and I think it probably keeps me sane.”
Even the man who appointed Cameron — Sunak — may start to envy Cameron’s ability to detach from the day-to-day management of a fractious Conservative Party, something he endured throughout his own premiership from 2010-2016.
Two government officials said Cameron was essentially “prime minister of foreign affairs,” leaving Sunak to fix his attention on a raft of nightmarish domestic problems in the run-up to the next election, which he is expected to lose.
“[Cameron] can really dedicate himself in a way he never could as PM, because you’re on the plane back and you’ve got to deal with Mark Pritchard and circus tent animals, or whatever else there is when you are prime minister,” a third former adviser said, referencing a furor over a Tory backbench rebellion on banning circus animals.
Adrenaline rush
Life will certainly be different from the past seven years. Shortly after his appointment last month, Cameron told peers the Chippy Larder food project — where he volunteered for two years during his political retirement — would have to manage without him for a while.
“There’s an element of it being quite hard to replay that adrenaline rush [of being PM], the pace of what you do,” the second former adviser quoted above said, noting Cameron had quit before he was 50 and had been “at the peak of his abilities.”
“It’s a shot of redemption,” the third former adviser added. “He’s got another chance at it — and this one probably isn’t going to end in his failure.”
LONDON — It is a multi-billion-dollar plan to build a metropolis in the Indo-Pacific which critics fear may one day act as a Chinese military outpost.
Now the vast Colombo Port City project has a new champion — former British Prime Minister David Cameron.
Cameron has been enlisted to drum up foreign investment in the controversial Sri Lankan project, which is a major part of Xi Jinping’s Belt and Road Initiative — China’s global infrastructure strategy — and is billed as a Chinese-funded rival to Singapore and Dubai.
Cameron flew to the Middle East in late September to speak at two glitzy investment events for Colombo Port City, having visited the waterside site in Sri Lanka in person earlier this year.
His spokesperson said the former PM had had no direct contact with either the Chinese government or the Chinese firm involved. But Cameron’s lobbying for the scheme has drawn severe backlash from critics, who say his activities will aid China in its geopolitical ambitions.
Former Conservative Party leader Iain Duncan Smith, who was sanctioned by Beijing for criticizing its human rights record, said: “Cameron of all people must realize that China’s Belt and Road is not about help and support and development, it’s ultimately about gaining control — as they’ve already demonstrated in Sri Lanka.
“I hope that he will reconsider the position he’s taken on this.”
Tim Loughton, another Tory MP sanctioned by China, said: “The Sri Lankan project is a classic example of how China buys votes and influence in developing countries and then sends the bailiffs in when those countries can’t keep up the payments.”
“Cameron should be working to help wean vulnerable countries off Chinese influence and debt rather than tying them in more tightly.”
At the roadshow
Dilum Amunugama, Sri Lanka’s investment minister who attended the investment events in the UAE last month, told POLITICO he believed Cameron was enlisted to convince Western investors to put their money into the project.
Amunugama was at two events where Cameron spoke — one in Abu Dhabi with an audience of 100, and one in Dubai with an audience of 300.
“The main point he [Cameron] was trying to stress is that it is not a purely Chinese project, it is a Sri Lankan-owned project — and that is the main point I think the Chinese also wanted him to iron out,” Amunugama said.
Cameron is in charge of drumming up investment into the Chinese-funded Colombo Port City project | Ishara S. Kodikara/AFP via Getty Images
The Sri Lankan minister said the decision to enlist Cameron “was taken by the Chinese company, not the government.”
Cameron’s office said his involvement was organized by the Washington Speakers Bureau, a D.C.-based agency that books guest speakers for corporate events.
His spokesperson said: “David Cameron spoke at two events in the UAE organized via Washington Speakers Bureau (WSB), in support of Port City Colombo, Sri Lanka.
“The contracting party for the events was KPMG Sri Lanka and Mr Cameron’s engagement followed a meeting he had with Sri Lanka’s president, Ranil Wickremesinghe, earlier in the year.
“Mr Cameron has not engaged in any way with China or any Chinese company about these speaking events. The Port City project is fully supported by the Sri Lankan government,” his spokesperson added.
The spokesperson declined to say how much Cameron was paid for his time. Cameron traveled to Sri Lanka in January and visited the development, but his office said that he did so as a guest of the president and that there was no commercial aspect to that trip.
Mired in controversy
The Colombo Port City project has been controversial since its inception.
It was unveiled in 2014 by China’s Xi and Sri Lanka’s then-president, Mahinda Rajapaksa. Three years later, Sri Lanka handed it over to Chinese control after struggling to pay off its debt to Chinese firms.
Multiple concerns have been raised about the project, including its environmental impact; U.S. warnings it could be used for money laundering; and fears that it will ultimately be used as a Chinese military outpost.
Analysts have warned repeatedly that China is using the project to extend its strategic influence in the region. Beijing has already used the nearby Hambantota port — also funded by Chinese loans — to dock military vessels.
The main developer behind the Colombo Port City Project, CHEC Port City Colombo Ltd, has pumped in an initial $1.3 billion. Its ultimate owner is the China Communications Construction Company, a majority state-owned enterprise headquartered in Beijing.
Golden era no more
As prime minister, Cameron and his Chancellor George Osborne famously heralded a “golden era” of U.K. relations with China. Since leaving office in 2016, the ex-PM has come under heavy scrutiny over his lobbying activities, including for the now-collapsed finance company Greensill Capital.
The ex-PM has come under scrutiny for his lobbying activities, including for the now-bankrupt company Greensill Capital | David Hecker/Getty Images
For a period Cameron was also vice-chair of a £1 billion China-U.K. investment fund. The U.K. parliament’s intelligence and security committee said this year that Cameron’s appointment to that role could have been “in some part engineered by the Chinese state to lend credibility to Chinese investment.”
Sam Hogg, a U.K.-China analyst who writes the “Beijing to Britain” briefing, said: “As the ISC pointed out, China has a habit of utilizing former senior-ranking politicians to give credibility to their companies and projects.
“At a time when the Belt and Road Initiative is under intense scrutiny ahead of its 10th anniversary next week, Cameron’s involvement will raise a few eyebrows.”
Luke de Pulford, executive director of the Inter-Parliamentary Alliance on China, added: “We can’t have a situation where the EU and U.S. are so concerned about the Belt and Road Initiative that they’re pumping billions into alternative projects, while our own former PM appears to be batting for Beijing.”
LONDON — Hundreds of thousands of Britons are facing mortgage misery over the next 12 months. Rishi Sunak is about to feel their wrath.
The U.K. prime minister has been snookered by Britain’s stubbornly high inflation rate, which at 8.7 percent remains the highest in Western Europe. The Bank of England is pushing interest rates ever-higher as a result, creating a crisis for U.K. homeowners not seen for a generation.
Around 800,000 households will need to remortgage their properties next year, the Resolution Foundation think tank calculates, and rising interest rates mean they will pay a staggering £2,900 a year more on average from 2024. With a general election looming next year, the timing for Sunak could hardly be worse.
This is a “huge problem” for voters, Andrea Leadsom, a Conservative member of the Commons Treasury committee and former U.K. business secretary, told POLITICO.
“It’s clear we’re going to lose the next election,” another former Cabinet minister sighed. “These are the voters we need. We can’t intervene or it will get worse, and the Bank of England were too slow to act to head it off. The goose is cooked — but it was cooked long ago.”
Yet both ex-ministers agreed with Sunak and his chancellor, Jeremy Hunt, that the U.K. government should not directly intervene to support those struggling to pay — despite an awareness they may be battered at the ballot box as a result.
Hunt told MPs this week that mortgage relief schemes would only “make inflation worse, not better.”
“Beating inflation has to be the priority,” Sunak will say in a speech on Thursday afternoon, shortly after the Bank announced rates were rising yet again, to 5 percent — a 15-year high. “If we don’t get a grip on inflation now, the damage will be worse and longer lasting.”
The one thing we didn’t want to happen
The impact of higher interest rates is particularly severe in Britain because of the large proportion of mortgages — 80 percent of existing deals and 90 percent of new ones — propped up by short-term fixed rates.
Britain’s mortgage woes have been further exacerbated by government support packages brought in over recent years to support the housing market, such as ex-Chancellor George Osborne’s Help-to-Buy scheme and Sunak’s own COVID-era stamp duty holiday, which critics say lured people into buying property with an illusion of affordability.
It’s hard to imagine any kind of hit to the nation’s personal finances presenting more of a nightmare for Sunak’s Conservative Party, given a mortgage crisis clobbers those he most needs to win over in 2024.
Younger voters — who have overwhelmingly supported Labour in recent elections — tend to be concentrated in cities in rented accommodation, while the majority of older voters who own their homes outright without mortgages are already locked-down Conservative voters.
Around 800,000 households will need to remortgage their properties next year, the Resolution Foundation think tank calculates | Daniel Leal/AFP via Getty Images
“Then you’ve got this group in the middle, who have borne the brunt of food price rises, fuel price rises, and now interest rates as well,” says Paula Surridge, professor of political sociology at Bristol University. “They’re the group that both sides ought to be targeting. That’s definitely going to be a problem for the Conservatives.”
Adam Hawksbee, deputy director of center-right think tank Onward, characterizes this group as those who “bought their home on cheap finance, live in towns or satellite cities, and have been used to a good quality of life with a car and summer holidays — they will be most affected.”
While the heaviest burden is expected to fall in London and the south east, according to the Institute for Fiscal Studies, Surridge notes that mortgage rates are a problem not confined to wealthier voters but spread around the country.
A Conservative MP representing a relatively deprived constituency said: “There are poorer people in the seat who will be struggling — but there are more support schemes for them, and their overall expenses might be lower. But this mortgage stuff is going to hit the squeezed middle hard. It’s them I’m most worried about.”
A chancellor in No. 10
The crisis will be keenly felt by Sunak, who launched and eventually won his bid to lead the country with a pitch to steady the economy.
His promise to halve inflation by the end of the year now looks a tall order. But party observers — and Downing Street allies — say his only hope is to stick to the path he set out.
“I feel a deep moral responsibility to make sure the money you earn holds its value,” Sunak will say on Thursday. “That’s why our number one priority is to halve inflation this year … I’m completely confident that if we hold our nerve, we can do so.”
“There’s no one I’d rather have in No. 10 right now, because he’s so economically dry,” says Onward’s Hawksbee. “The government needs to hold the line and resist pressure to step in.”
Indeed, many Conservatives believe the U.K. has become overly reliant on the kind of big state interventions that became commonplace during the pandemic.
The irony is that it was Sunak himself — a politician who revels in his fiscally-conservative credentials — who drew up the multibillion-pound COVID assistance programs while serving as chancellor during the pandemic.
His famous March 2020 pledge — echoing European Central Bank President Mario Draghi — to do “whatever it takes” to shield U.K. households feels a long time ago.
“We can’t bail everyone out every time,” an ex-Treasury minister said. “And in this case, it’d just make things worse.”
Jeremy Hunt told MPs this week that mortgage relief schemes would only “make inflation worse, not better” | Leon Neal/Getty Images
So what can be done?
Sunak and Hunt’s only real action so far has been to summon the biggest mortgage lenders for a meeting this Friday, where they will be “reminded” of their obligations to borrowers.
Further direct action by the banks in the form of forbearance — agreeing to pause or reduce mortgage payments — seems unlikely, as it would merely offset the Bank of England’s efforts to rein in inflation.
The opposition Labour Party published its own five-point plan Wednesday night, urging new requirements on lenders to show leniency for those struggling to pay. But UK Finance, the body that represents British mortgage lenders, argues banks are already working with customers to find alternative solutions.
Mortgage lenders are keen to stress too that more radical measures, such as imposing mortgage holidays, would only kick the can down the road.
“They’re an option that still exists, but the interest does keep accruing so you end up paying back more than you would have done — a lot of people do not realize this,” said an industry communications person who was not authorized to speak publicly.
“The best plan would be to ignore the squealing and point to the decline in inflation everywhere apart from Britain, meaning rate rises here will end shortly anyway even with recent disappointments on inflation prints,” Meyrick Chapman, principal at Hedge Analytics told POLITICO.
This was echoed by Societe Generale’s uber-bear global strategist Albert Edwards, who said: “most economists would say it’s absolutely ridiculous to ameliorate the impact of rising interests on mortgage holders, as that would mean interest rates have to go even higher.”
Yet the scale of the crisis is such that pressure is now building on the government from inside the Conservative Party.
One former minister who worked directly with Sunak said: “Calls [for action] are growing. It’s not a full-on mass campaign or rebellion, but there are growing numbers of MPs who are concerned. I would have expected him to be much more front-footed, given the previous track record during COVID when he was very decisive.”
Former minister Jake Berry this week went public with a call for interest rate tax relief, as a way to defuse the “ticking time bomb.” Housing Secretary Michael Gove urged the banking sector to consider introducing 25-year fixed rate deals, putting the U.K. more in line with the long-term fixes offered to customers in the U.S. and Canada.
But Treasury Minister Andrew Griffith swiftly ruled out the first idea as unaffordable, while saying the second would only be achievable as a long-term project.
Structural factors are very different in the U.S., where long-term mortgages are in part made possible by the de facto underwriting of mortgages by quasi-governmental agencies which guarantee third-party loans. For the U.K. to normalize long-term mortgages, similar entities would likely have to be established — with possible consequences for Britain’s credit profile, and so the pound.
A government official familiar with Treasury thinking summed up: “No-one is advancing a serious, short-term, alternative set of interventions that are meaningfully different. It comes down to who people think is competent and will restrain spending.”
The worry for Sunak is that, post-Liz Truss, and with yet another crisis looming, the fabled Tory reputation for economic competence may now be shot.
As Surridge puts it: “People in the past have perhaps been able to say ‘we know the Conservatives are the nasty party, but they look after the economy.’ Without that, what’s left as a reason for people to choose the Conservatives?”
This story has been updated to incorporate Thursday’s rise in interest rates. Emilio Casalicchio, Geoffrey Smith, Joe Bambridge and AnnabelleDickson all contributed reporting.
LONDON — Elon Musk’s controversial Twitter firing spree is sending workers into the arms of organized labor, according to the new head of Britain’s Trades Union Congress.
“Elon Musk is a perfect recruitment tool for the trade union movement,” Paul Nowak told POLITICO. Since the Tesla billionaire took over the social media platform in October, Prospect, one of the trade union federation’s 48 affiliates, “has seen its membership in Twitter go up tenfold,” he said.
The influx is “precisely in response” to Musk, argued Nowak, who “thinks he can issue a directive from San Francisco that somehow just happens all around the world with no regard to employment law.”
Musk has fired roughly 3,700 employees — nearly half of Twitter’s workforce — in a round of mass layoffs since buying the company.
U.K. Twitter employees earmarked for an exit received an email saying their job would be “potentially” impacted or “at risk,” because, under British law, firms are required to consult with staff over mass redundancies.
In November, Musk meanwhile gave staff an email ultimatum to either go “extremely hardcore” by “working long hours at high intensity” or quit the company.
Musk’s behavior is, Nowak said, “a great recruiting tool for us.”
“If I was a young worker in tech, I’d be thinking that being a union member might be a good investment at the moment,” he said. “If it can happen at Twitter, it can happen anywhere.”
Unions have in recent years ramped up their activity in another part of the tech world: the gig economy. Uber and food delivery service Deliveroo recently signed agreements with unions, while some Apple stores have voted for union recognition. Last year also saw the first-ever industrial action ballots at a U.K. Amazon warehouse.
Organized labor is “beginning to make inroads” in tech, Nowak said — but it still needs “to step up that work.” Twitter had not responded to a request for comment by the time of publication.
Strikes
Nowak takes the helm at the TUC at a time of major industrial unrest in the U.K, as employees in a host of sectors rail against stagnant wages amid soaring inflation.
U.K. Twitter employees earmarked for an exit received an email saying their job would be “potentially” impacted or “at risk” | Justin Sullivan/Getty Images
“It doesn’t matter whether it’s railway workers, postal workers, nurses, paramedics, our members aren’t on strike for the sake of it,” he said.
Since the financial crisis in 2008, the median income in Britain has fallen behind neighboring countries in Europe. An analysis by the TUC shows workers are £20,000 poorer, on average, since 2008 because pay has failed to keep up with inflation. By 2025 the union group expects that gap to increase to £24,000, with even larger gulfs for frontline healthcare staff who are striking.
Britain’s Retail Price Index measure inflation reached 14 percent last year, and economists forecast inflation — in part spurred by the pandemic and Russia’s invasion of Ukraine — will persist longer in the U.K. than among its G7 partners.
“Households can’t afford as much as they have been able to in the past,” said Josie Dent, managing economist at the Centre for Economics and Business Research. “Naturally that creates weaker demand.”
Against that backdrop, Novak said he wants the British government to stimulate domestic demand by putting more pay in workers’ pockets. The government argues boosting public sector pay will further fuel inflation and push its already shaky public finances further into the red.
“What do our members do when our members get paid and get decent pay rises? They go and spend that money in local shops, hotels, restaurants,” said Nowak, and “they don’t squirrel it away in offshore bank accounts, or save it away for a rainy day.”
“You have to create demand internally in the economy as well,” he added. “We’ve had the government sort of turn that common sense on its head.”
LIVERPOOL, England — On the long picket line outside the gates of Liverpool’s Peel Port, rain-soaked dock workers warm themselves with cups of tea as they listen to 1980s pop.
Dozens of buses, cars and trucks honk in solidarity as they pass.
Dockers’ strikes are not new to Liverpool, nor is depravation. But this latest walk-out at Britain’s fourth-largest port is part of something much bigger, a great wave of public and private sector strikes taking place across the U.K. Railways, postal services, law courts and garbage collections are among the many public services grinding to a halt.
The immediate cause of the discontent, as elsewhere, is the rising cost of living. Inflation in the United Kingdom breached the 10 percent mark this year, with wages failing to keep pace.
But the U.K.’s economic woes long predate the current crisis. For more than a decade, Britain has been beset by weak economic growth, anaemic productivity, and stagnant private and public sector investment. Since 2016, its political leadership has been in a state of Brexit-induced flux.
Half a century after U.S. Secretary of State Henry Kissinger looked at the U.K.’s 1970s economic malaise and declared that “Britain is a tragedy,” the United Kingdom is heading to be the sick man of Europe once again.
The immediate cause of Liverpool dockers’ discontent that brought them to strike is the rising cost of living. | Christopher Furlong/Getty Images
Here in Liverpool, the “scars run very deep,” said Paul Turking, a dock worker in his late 30s. British voters, he added, have “been misled” by politicians’ promises to “level up” the country by investing heavily in regional economies. Conservatives “will promise you the world and then pull the carpet out from under your feet,” he complained.
“There’s no middle class no more,” said John Delij, a Peel Port veteran of 15 years. He sees the cost-of-living crisis and economic stagnation whittling away the middle rung of the economic ladder.
“How many billionaires do we have?” Delij asked, wondering how Britain could be the sixth-largest economy in the world with a record number of billionaires when food bank use is 35 percent above its pre-pandemic level. “The workers put money back into the economy,” he said.
What would they do if they were in charge? “Invest in affordable housing,” said Turking. “Housing and jobs.”
Falling behind
The British economy has been struck by particular turbulence over recent weeks. The cost of government borrowing soared in the wake of former PM Liz Truss’ disastrous mini-budget on September 23, with the U.K.’s central bank forced to step in and steady the bond markets.
But while the swift installation of Rishi Sunak, the former chancellor, as prime minister seems to have restored a modicum of calm, the economic backdrop remains bleak. Spending and welfare cuts are coming. Taxes are certain to rise. And the underlying problems cut deep.
U.K. productivity growth since the financial crisis has trailed that of comparator nations such as the U.S., France and Germany. As such, people’s median incomes also lag behind neighboring countries over the same period. Only Russia is forecast to have worse economic growth among the G20 nations in 2023.
In 1976, the U.K. — facing stagflation, a global energy crisis, a current account deficit and labor unrest — had to be bailed out by the International Monetary Fund. It feels far-fetched, but today some are warning it could happen again.
The U.K. is spluttering its way through an illness brought about in part through a series of self-inflicted wounds that have undermined the basic pillars of any economy: confidence and stability.
The political and economic malaise is such that it has prompted unwanted comparisons with countries whose misfortunes Britain once watched amusedly from afar.
“The existential risk to the U.K. … is not that we’re suddenly going to go off an economic cliff, or that the country’s going to descend into civil war or whatever,” said Jonathan Portes, professor of economics at King’s College London. “It’s that we will become like Italy.”
Portes, of course, does not mean a country blessed with good weather and fine food — but an economy hobbled by persistently low growth, caught in a dysfunctional political loop that lurches between “corrupt and incompetent right-wing populists” and “well-intentioned technocrats who can’t actually seem to turn the ship around.”
“That’s not the future that we want in the U.K,” he said.
Reviving the U.K.’s flatlining economy will not happen overnight. As Italy’s experience demonstrates, it’s one thing to diagnose an illness — another to cure it.
Experts speak of an unbalanced model heavily reliant upon Britain’s services sector and beset with low productivity, a result of years of underinvestment and a flexible labor market which delivers low unemployment but often insecure and low-paid work.
“We’re not investing in skills; businesses aren’t investing,” said Xiaowei Xu, senior research economist at the Institute for Fiscal Studies. “It’s not that surprising that we’re not getting productivity growth.”
But any attempt to address the country’s ailments will require its economic stewards to understand their underlying causes — and those stretch back at least to the first truly global crisis of the 21st century.
Crash and burn
The 2008 financial crisis hammered economies around the world, and the U.K. was no exception. Its economy shrunk by more than 6 percent between the first quarter of 2008 and the second quarter of 2009. Five years passed before it returned to its pre-recession size.
For Britain, the crisis in fact began in September 2007, a year before the collapse of Lehman Brothers, when wobbles in the U.S. subprime mortgage market sparked a run on the British bank Northern Rock.
The U.K. discovered it was particularly vulnerable to such a shock. Over the second half of the 20th century, its manufacturing base had largely eroded as its services sector expanded, with financial and professional services and real estate among the key drivers. As the Bank of England put it: “The interconnectedness of global finance meant that the U.K. financial system had become dangerously exposed to the fall-out from the U.S. sub-prime mortgage market.”
The crisis was a “big shock to the U.K.’s broad economic model,” said John Springford, from the Centre for European Reform. Productivity took an immediate hit as exports of financial services plunged. It never fully recovered.
“Productivity before the crash was basically, ‘Can we create lots and lots of debt and generate lots and lots of income on the back of this? Can we invent collateralized debt obligations and trade them in vast volumes?’” said James Meadway, director of the Progressive Economy Forum and a former adviser to Labour’s left-wing former shadow chancellor, John McDonnell.
A post-crash clampdown on City practises had an obvious impact.
“This is a major part of the British economy, so if it’s suddenly not performing the way it used to — for good reasons — things overall are going to look a bit shaky,” Meadway added.
The shock did not contain itself to the economy. In a pattern that would be repeated, and accentuated, in the coming years, it sent shuddering waves through the country’s political system, too.
The 2010 election was fought on how to best repair Britain’s broken economy. In 2009, the U.K. had the second-highest budget deficit in the G7, trailing only the U.S., according to the U.K. government’s own fiscal watchdog, the Office for Budget Responsibility (OBR).
The Conservative manifesto declared “our economy is overwhelmed by debt,” and promised to close the U.K.’s mounting budget deficit in five years with sharp public sector cuts. The incumbent Labour government responded by pledging to halve the deficit by 2014 with “deeper and tougher” cuts in public spending than the significant reductions overseen by former Conservative Prime Minister Margaret Thatcher in the 1980s.
The election returned a hung parliament, with the Conservatives entering into a coalition with the Liberal Democrats. The age of austerity was ushered in.
Austerity nation
Defenders of then-Chancellor George Osborne’s austerity program insist it saved Britain from the sort of market-led calamity witnessed this fall, and put the U.K. economy in a condition to weather subsequent global crises such as the COVID-19 pandemic and the fallout from the war in Ukraine.
“That hard work made policies like furlough and the energy price cap possible,” said Rupert Harrison, one of Osborne’s closest Treasury advisers.
Pointing to the brutal market response to Truss’ freewheeling economic plans, Harrison praised the “wisdom” of the coalition in prioritizing tackling the U.K.’s debt-GDP ratio. “You never know when you will be vulnerable to a loss of credibility,” he noted.
But Osborne’s detractors argue austerity — which saw deep cuts to community services such as libraries and adult social care; courts and prisons services; road maintenance; the police and so much more — also stripped away much of the U.K.’s social fabric, causing lasting and profound economic damage. A recent study claimed austerity was responsible for hundreds of thousands of excess deaths.
Under Osborne’s plan, three-quarters of the fiscal consolidation was to be delivered by spending cuts. With the exception of the National Health Service, schools and aid spending, all government budgets were slashed; public sector pay was frozen; taxes (mainly VAT) rose.
But while the government came close to delivering its fiscal tightening target for 2014-15, “the persistent underperformance of productivity and real GDP over that period meant the deficit remained higher than initially expected,” the OBR said. By his own measure, Osborne had failed, and was forced to push back his deficit-elimination target further. Austerity would have to continue into the second half of the 2010s.
Many economists contend that the fiscal belt-tightening sucked demand out of the economy and worsened Britain’s productivity crisis by stifling investment. “That certainly did hit U.K. growth and did some permanent damage,” said King’s College London’s Portes.
“If that investment isn’t there, other people start to find it less attractive to open businesses,” former Labour aide Meadway added. “If your railways aren’t actually very good … it does add up to a problem for businesses.”
A 2015 study found U.K. productivity, as measured by GDP per hour worked, was now lower than in the rest of the G7 by a whopping 18 percentage points.
“Frankly, nobody knows the whole answer,” Osborne said of Britain’s productivity conundrum in May 2015. “But what I do know is that I’d much rather have the productivity challenge than the challenge of mass unemployment.”
‘Jobs miracle’
Rising employment was indeed a signature achievement of the coalition years. Unemployment dropped below 6 percent across the U.K. by the end of the parliament in 2015, with just Germany and Austria achieving a lower rate of joblessness among the then-28 EU states. Real-term wages, however, took nearly a decade to recover to pre-crisis levels.
Economists like Meadway contend that the rise in employment came with a price, courtesy of Britain’s famously flexible labor market. He points to a Sports Direct warehouse in the East Midlands, where a 2015 Guardian investigation revealed the predominantly immigrant workforce was paid illegally low wages, while the working conditions were such that the facility was nicknamed “the gulag.”
The warehouse, it emerged, was built on a former coal mine, and for Meadway the symbolism neatly charts the U.K.’s move away from traditional heavy industry toward more precarious service sector employment. “It’s not a secure job anymore,” he said. “Once you have a very flexible labor market, the pressure on employers to pay more and the capacity for workers to bargain for more is very much reduced.”
Throughout the period, the Bank of England — the U.K.’s central bank — kept interest rates low and pursued a policy of quantitative easing. “That tends to distort what happens in the economy,” argued Meadway. QE, he said, is a “good [way of] getting money into the hands of people who already have quite a lot” and “doesn’t do much for people who depend on wage income.”
Meanwhile — whether necessary or not — the U.K.’s austerity policies undoubtedly worsened a decades-long trend of underinvestment in skills and research and development (Britain lags only Italy in the G7 on R&D spending). At British schools, there was a 9 percent real terms fall in per-pupil spending between 2009 and 2019, according to the Institute for Fiscal Studies’ Xu. “As countries get richer, usually you start spending more on education,” Xu noted.
Two senior ministers in the coalition government — David Gauke, who served in the Treasury throughout Osborne’s tenure, and ex-Lib Dem Business Secretary Vince Cable — have both accepted that the government might have focused more on higher taxation and less on cuts to public spending. But both also insisted the U.K had ultimately been correct to prioritize putting its public finances on a sounder footing.
It was February 2018 before Britain finally achieved Osborne’s goal of eliminating the deficit on its day-to-day budget.
Austerity was coming to an end, at last. But Osborne had already left the Treasury, 18 months earlier — swept away along with Cameron in the wake of a seismic national uprising.
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David Cameron had won the 2015 election outright, despite — or perhaps because of — the stringent spending cuts his coalition government had overseen, more of which had been pledged in his 2015 manifesto. Also promised, of course, was a public vote on Britain’s EU membership.
The reasons for the leave vote that followed were many and complex — but few doubt that years of underinvestment in poorer parts of the U.K. were among them.
Regardless, the 2016 EU referendum triggered a period of political acrimony and turbulence not seen in Westminster for generations. With no pre-agreed model of what Brexit should actually entail, the U.K.’s future relationship with the EU became the subject of heated and protracted debate. After years of wrangling, Britain finally left the bloc at the end of January 2020, severing ties in a more profound way than many had envisaged.
While the twin crises of COVID and Ukraine have muddled the picture, most economists agree Brexit has already had a significant impact on the U.K. economy. The size of Britain’s trade flows relative to GDP has fallen further than other G7 countries, business investment growth trails the likes of Japan, South Korea and Italy, and the OBR has stuck by its March 2020 prediction that Brexit would reduce productivity and U.K. GDP by 4 percent.
Perhaps more significantly, Brexit has ushered in a period of political instability. As prime ministers come and go (the U.K. is now on its fifth since 2016), economic programs get neglected, or overturned. Overseas investors look on with trepidation.
“The evidence that the referendum outcome, and the kind of uncertainty and change in policy that it created, have led to low investment and low growth in the U.K. is fairly compelling,” said professor Stephen Millard, deputy director at the National Institute of Economic and Social Research.
Beyond the instability, the broader impact of the vote to leave remains contentious.
Portes argued — as many Remain supporters also do — that much harm was done by the decision to leave the EU’s single market. “It’s the facts, not the uncertainty that in my view is responsible for most of the damage,” he said.
Brexit supporters dismiss such claims.
“It’s difficult statistically to find much significant effect of Brexit on anything,” said professor Patrick Minford, founder member of Economists for Brexit. “There’s so much else going on, so much volatility.”
Minford, an economist favored by ex-PM Truss, acknowledged that “Brexit is disruptive in the short run, so it’s perfectly possible that you would get some short-run disruption.” But he added: “It was a long-term policy decision.”
Where next?
Plenty of economists can rattle off possible solutions, although actually delivering them has thus far evaded Britain’s political class. “It’s increasing investment, having more of a focus on the long-term, it’s having economic strategies that you set out and actually commit to over time,” says the IFS’ Xu. “As far as possible, it’s creating more certainty over economic policy.”
But in seeking to bring stability after the brief but chaotic Truss era, new U.K. Chancellor Jeremy Hunt has signaled a fresh period of austerity is on the way to plug the latest hole in the nation’s finances. Leveling Up Secretary Michael Gove told Times Radio that while, ideally, you wouldn’t want to reduce long-term capital investments, he was sure some spending on big projects “will be cut.”
This could be bad news for many of the U.K.’s long-awaited infrastructure schemes such as the HS2 high-speed rail line, which has been in the works for almost 15 years and already faces a familiar mix of local resistance, vested interests, and a sclerotic planning system.
“We have a real problem in the sense that the only way to really durably raise productivity growth for this country is for investments to pick up,” said Springford, from the Centre for European Reform. “And the headwinds to that are quite significant.”
For dock workers at Liverpool’s Peel Port, the prospect of a fresh round of austerity amid a cost-of-living crisis is too much to bear. “Workers all over this country need to stand up for themselves and join a union,” insisted Delij.
For him, it’s all about priorities — and the arguments still echo back to the great crash of 15 years ago. “They bailed the bankers out in 2007,” he said, “and can’t bail hungry people out now.”
