Is this not a reflection of having a services based economy. It means gdp per capita is relatively high but grows relatively slowly. Investment is low because lawyers and bankers don’t need much investment, and as such productivity gain potential has been limited. Something which could potentially change as AI based productivity gains will benefit the U.K. significantly
There is a lot of truth in that, but I think UK banks have been particularly hard hit in the aftermath of our housing bubble and reduced lending more than most European and American counterparts. The result is that productivity growth in UK banks was probably lower than, say, Switzerland or the US.
More importantly, though, the uncertainty surrounding Brexit killed investments in the UK. Between 2016 and 2029, we lost about £20bn in investments compared to pre-Brexit trends. And that is certain to keep productivity growth low.
this is the key: "In my view, the lacklustre growth in the UK is primarily a crisis of our own making and what we need in the UK is a government that increases investments (particularly in infrastructure) and businesses that invest in the UK and into their business instead of optimising shareholder value by increasing gearing and returning as much cash to shareholders as possible."
I fully agree. The persistent belief that the “invisible hand” alone can steer economic outcomes efficiently has long outlived its empirical validity. The past decades have shown that unregulated markets tend to optimize short-term private gains rather than long-term collective welfare.
If there is any evidence of an “invisible hand” at work, it is often the one guiding wealth into the same few hands — not the one ensuring sustainable and inclusive growth. Effective policy, strategic public investment, and institutional accountability remain indispensable for building resilient economies.
Thank you for the article. It is an interesting read.
I wonder about the relationship between taxes and business investment. Would a higher tax rate incentivize investments, as this lowers the profits and allows future cash earnings to be shielded from higher depreciation (and interest in case the investments are paid for with debt)?
I have written in the past about the link between races and company profits. Ironically, or should I say inconveniently if you are a Thatcherite, there is zero correlation between taxes and company profits.
I've always suspected that there's a national penchant for seeing "austerity" as the best way to address both crises as well as more secular industrial decline. However, one doesn't shrink one's self to greatness.
I also thought Brexit was supposed to unleash all sorts of entrepreneurial and foreign direct investment animal spirits once Britain was unshackled from all those meanies in Brussels. It's coming up on 10 years now, and the best excuse I'm hearing is "well, we weren't allowed to Brexit properly". Yeah, right. I had an American teacher who used to admonish us with "Results, not excuses!
Results, not excuses is my new slogan. But then again, if you see how politics in this country works, it is embarrassing. It’s all about rhetorics and sounding good rather than getting things done.
If it's results not rhetoric, and the results speak for themselves, why is Thatcher and Thatcherite policies so revered? The dominant discourse is all about Thatcherite policies, it seems even by Labour, so why is it so persistent? There has been policy collapse of the left in Anglo America and I wonder if they just don't know or digested the results?
it seems ever less about cutting vs spending, then the specifics and competence of policy execution.
america is spending like crazy, running up massive debts to re-fashion into a techno-kleptocracy. i would call that the worst bugaboo, permanent loss of capital (financial, intellectual, social...)
in contrast, no one wants to be taxed like the scandanavians, mostly ceding gdp spending power to the government. but 99% of the world would be thrilled to live in such a society.
There is a so-called simple issue with investors in the UK - growth industries requiring high capex are not rewarded and the investors prefer 'utility' based companies. The retail investors get scared, with some help from the regulators, to invest in growth companies - defining these companies as 'unsuitable'!. Hence, pushing most astute investors to look elsewhere, such as the US.
Without these industries, productivity will always lag. The capital and talent will continue to disappear from the UK, unless the companies are attacted back to the UK and the highly skilled researchers and business entrepreneurs are rewarded in line with the US and Europe.
Is this not a reflection of having a services based economy. It means gdp per capita is relatively high but grows relatively slowly. Investment is low because lawyers and bankers don’t need much investment, and as such productivity gain potential has been limited. Something which could potentially change as AI based productivity gains will benefit the U.K. significantly
Had the same reaction. Could be interesting to include Switzerland in this study.
There is a lot of truth in that, but I think UK banks have been particularly hard hit in the aftermath of our housing bubble and reduced lending more than most European and American counterparts. The result is that productivity growth in UK banks was probably lower than, say, Switzerland or the US.
More importantly, though, the uncertainty surrounding Brexit killed investments in the UK. Between 2016 and 2029, we lost about £20bn in investments compared to pre-Brexit trends. And that is certain to keep productivity growth low.
this is the key: "In my view, the lacklustre growth in the UK is primarily a crisis of our own making and what we need in the UK is a government that increases investments (particularly in infrastructure) and businesses that invest in the UK and into their business instead of optimising shareholder value by increasing gearing and returning as much cash to shareholders as possible."
I fully agree. The persistent belief that the “invisible hand” alone can steer economic outcomes efficiently has long outlived its empirical validity. The past decades have shown that unregulated markets tend to optimize short-term private gains rather than long-term collective welfare.
If there is any evidence of an “invisible hand” at work, it is often the one guiding wealth into the same few hands — not the one ensuring sustainable and inclusive growth. Effective policy, strategic public investment, and institutional accountability remain indispensable for building resilient economies.
‘Because you most certainly cannot cut your way to profitability
A former colleague of mine who covered bank stocks likes to say that banks cannot cut their way to profitability.’
And they then announce their cuts at the next earnings call and get rewarded for the good news by…’investors’.
You can most certainly cut your way to a higher valuation.
Show me how you're measured and...
Thank you for the article. It is an interesting read.
I wonder about the relationship between taxes and business investment. Would a higher tax rate incentivize investments, as this lowers the profits and allows future cash earnings to be shielded from higher depreciation (and interest in case the investments are paid for with debt)?
I have written in the past about the link between races and company profits. Ironically, or should I say inconveniently if you are a Thatcherite, there is zero correlation between taxes and company profits.
And this is just to show that people who think that Reform is the solution to the crisis are completely delusional.
I've always suspected that there's a national penchant for seeing "austerity" as the best way to address both crises as well as more secular industrial decline. However, one doesn't shrink one's self to greatness.
I also thought Brexit was supposed to unleash all sorts of entrepreneurial and foreign direct investment animal spirits once Britain was unshackled from all those meanies in Brussels. It's coming up on 10 years now, and the best excuse I'm hearing is "well, we weren't allowed to Brexit properly". Yeah, right. I had an American teacher who used to admonish us with "Results, not excuses!
Results, not excuses is my new slogan. But then again, if you see how politics in this country works, it is embarrassing. It’s all about rhetorics and sounding good rather than getting things done.
Brilliant article, thank you, sums it up perfectly.
If it's results not rhetoric, and the results speak for themselves, why is Thatcher and Thatcherite policies so revered? The dominant discourse is all about Thatcherite policies, it seems even by Labour, so why is it so persistent? There has been policy collapse of the left in Anglo America and I wonder if they just don't know or digested the results?
it seems ever less about cutting vs spending, then the specifics and competence of policy execution.
america is spending like crazy, running up massive debts to re-fashion into a techno-kleptocracy. i would call that the worst bugaboo, permanent loss of capital (financial, intellectual, social...)
in contrast, no one wants to be taxed like the scandanavians, mostly ceding gdp spending power to the government. but 99% of the world would be thrilled to live in such a society.
There is a so-called simple issue with investors in the UK - growth industries requiring high capex are not rewarded and the investors prefer 'utility' based companies. The retail investors get scared, with some help from the regulators, to invest in growth companies - defining these companies as 'unsuitable'!. Hence, pushing most astute investors to look elsewhere, such as the US.
Without these industries, productivity will always lag. The capital and talent will continue to disappear from the UK, unless the companies are attacted back to the UK and the highly skilled researchers and business entrepreneurs are rewarded in line with the US and Europe.