The Tory leadership candidates have been urged to present an economic strategy that includes more than just tax cuts, as the Resolution Foundation found a gap in incomes between UK households and developed rivals. The think tank found that if UK households had the average income and levels of inequality of Australia, Canada, France, Germany and the Netherlands, then typical household incomes would be a third higher – equivalent to 8,800 £ per family. For the poorest fifth of households, their incomes would be 40% higher. Stephen Machin at the London School of Economics said: “High levels of inequality, stagnant real wages and flattening productivity have characterized the UK economy for a long time.” It came as the head of the Confederation of British Industry urged challengers to the Tory leadership to “develop serious, credible and bold plans for growth”. Tony Danker, director general of the CBI, said in a letter to candidates: “The UK is trapped in a long-term low growth trap. Higher productivity is the only sustainable way to achieve higher living standards and meet the fiscal challenges of population aging and decarbonisation while lower[ing] the UK’s high tax burden’. The UK has been stuck in a productivity puzzle since the financial crisis, as the scramble to improve output per hour has played a vital role in suppressing wage growth. After narrowing the gap with more productive countries, including Germany and the US, in the 1990s and early 2000s, the UK has since fallen behind again. The Foundation pointed out that GDP per head in the UK was 6% lower than in Germany before the financial crisis, but the gap widened to 11% by 2019. Low-income households are more than a fifth poorer than their counterparts in France and Germany. The gap for the poorest households is equivalent to a gap of £3,800 between UK and French households. Torsten Bell, chief executive of the Resolution Foundation, said: “Britain is a rich country, with huge economic and cultural strengths. But these advantages are not building on the recent record low growth that has left Britain behind its peers. “This forms a toxic combination with the UK’s high inequality, leaving low and middle income households far poorer than their counterparts in similar countries.”
