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Britain’s Economic Unraveling May Be Boris Johnson’s Real Legacy

The combination of Brexit, the aftereffects of COVID-19 and the war in Ukraine has left the British economy weak.

British Prime Minister Boris Johnson hosts a reception for the winners of the Points of Light Award at Downing Street on August 9, 2022, in London, England.

Much of the world is reeling from high inflation and sluggish economic growth, triggered in part by the pandemic, and the energy and food crises that Russia’s war against Ukraine has exacerbated.

Yet some countries are doing worse than others are. Post-Brexit Britain is particularly vulnerable. It is isolated from its erstwhile European partners, its European imports and exports subject to vast amounts of paperwork, tariffs and inspections, and already suffering a rolling political upheaval — Boris Johnson is the third prime minister since the Brexit vote to be undone by Conservative Party parliamentary colleagues revolting against their political leaders, and, at the same time, Britain is now facing fierce economic headwinds.

The U.K.’s current rate of inflation is 9.4 percent; and housing, food prices and fuel costs are all soaring at far more than this rate. Some experts now believe it likely that, in contrast to the U.S., where inflation may have peaked, by the start of 2023, inflation in the U.K. will hit an unprecedented 15 percent.

In part this inflation spiral is being worsened by a weakening pound — the British currency is currently worth only about $1.22, nearly 15 percent off its peak from the past year, and about a quarter off where it was just before the Brexit vote. Since oil is priced in dollars, that has led to a huge hit on British consumers; currently, drivers are paying close to $9 per gallon in the U.K., which is more than double the average price for U.S. consumers, and more than what consumers in every country within the EU except Finland are paying.

If anything approaching 15 percent inflation does in fact materialize, the country, which is already facing a summer of industrial actions across a wide range of industries — a labor rebellion unlike anything seen since the 1970s — will likely experience even more strikes and wildcat walkouts as hard-hit workers seek to recoup a standard of living currently being ravaged by inflation.

Moreover, the International Monetary Fund (IMF) now predicts that Britain will have the lowest economic growth of all the G7 nations in 2023, at a mere 0.5 percent. For the many millions of British families already living on the economic margins, a prolonged period of stagflation — low growth combined with high inflation, which plagued many countries in the 1970s — could prove disastrous.

The U.K. is the world’s fifth-largest economy, but it also has a peculiarly skewed income distribution. While it currently has historically low levels of unemployment, it also has more income inequality than does most of the EU, as shown by a Gini-coefficient number — a measure for inequality — higher than most members of the EU (though still considerably lower than the U.S.’s) and low wages for a significant proportion of the workforce. The median wage in the country is just shy of £32,000, which, at the current exchange rate, comes in at under $40,000 per year. That contrasts with a median wage of over $45,000 in the U.S.; it also places the U.K.’s median wage below that in Germany, France and the Scandinavian countries, and its median income across the entire population behind Canada, Australia, and a slew of other wealthy countries.

In recent years, as poverty has intensified in the U.K., the number of people using food pantries has ballooned. Depending on which measure is used, between one in six and one in five Brits now live in poverty.

The U.K. isn’t alone, of course, in being vulnerable to the economic aftereffects of COVID-19; or to the huge energy price shocks, and other collateral economic damage, unleashed by Putin’s war in Ukraine and by the resulting sanctions against Russia. The EU, most of whose members are reliant on gas piped in from Russia, is also facing huge price increases and shortfalls of natural gas (the IMF recently estimated natural gas prices in the bloc have increased 700 percent over the past year). In fact, so worried are the Germans and others on the continent, that the EU recently approved a plan for each member state to reduce gas consumption by 15 percent. Across the bloc, rationing is on the table for this winter. But, because of the depth of poverty in the U.K., and the vulnerability of the British economy in the Brexit era, as well as its newfound lack of access to common pools of EU funding, the U.K.’s population is particularly at risk of being left to fend largely for themselves as energy prices skyrocket.

For the past three years, the U.K.’s energy regulatory agency, Ofgem, has imposed a kilowatt hour price cap on what energy companies can charge. Intended to protect consumers from price gouging, the system is now under huge stress: As prices on the wholesale market have soared since February, many providers, reliant on natural gas supplies from overseas, have gone out of business, or fallen back on government bailouts. At the same time, as Ofgem tries to keep up with a rapidly shifting market, so it has had to raise, and then raise again the cap, leading to huge spikes every few months in what consumers pay.

Last year, a typical family’s energy bill was capped at just over £1,200. By the spring of this year, it had already risen to over £2,000. By January 2023, after recent Ofgem price cap changes, that bill will increase to more than £4,200. And the latest predictions are that by the middle of 2023, it will be well north of £5,000.

So far, the government’s response has been on the inadequate side; it has approved a £15 billion subsidy package for consumers’ energy. That sounds large, but it ultimately only translates to £400 per family, which is barely 10 percent of the additional costs faced by U.K. consumers if the price cap does indeed surge to above £5,000 from its 2021 level of £1,200.

Many opposition politicians, as well as frontline anti-poverty charities, are warning that the country is at the start of an unprecedented crisis, with millions of families facing deep poverty from soaring heating bills, and that the government needs to immediately mobilize the full power of the state to counter this unfolding calamity. Yet, preoccupied by the leadership contest unleashed by Boris Johnson’s political demise, ideologically hostile to expanding the social safety net, and facing the very real prospect of rolling power blackouts during the coldest days of the upcoming winter, the Conservative government has, so far, been unwilling to provide meaningful additional anti-poverty assistance. Meanwhile, workers are attempting to defend themselves from this crisis by preparing for strikes in major industries.

The Labour Party hasn’t exactly been chomping at the bit to support workers in this round of conflicts, however. Labour, under its leader, Sir Keir Starmer, opposed the recent rail strikes, and even punished some of its spokespeople for joining their picket lines. Yet Starmer has also focused, in recent speeches, on fair growth, an emphasis on redistributive tax and spending policies, and growing the economy through large-scale investments in green technology. Other opposition leaders, such as the Scottish National Party’s Nichola Sturgeon, have joined Labour in calling for energy companies to be subjected to windfall taxes that could then help fund energy price rebates for consumers.

So far, however, the Conservative government has held firm against such redistributive policies.

The result of this inaction isn’t pretty. Six years after the Brexit vote, Britain seems to be unraveling. The economy, despite currently very low levels of unemployment, increasingly looks like a house of cards, and the low unemployment is no longer translating to low poverty rates. On many other fronts, too, the country gives off an appearance of impending crisis: Its airports are beset by delays, for instance, and there is now a real risk of years of stagflation. That hot mess may well, ultimately, be outgoing Prime Minister Boris Johnson’s most durable legacy.

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