Flip Chart Fairy Tales

There’s a lot of ‘End of an Era’, Turning Point’ and ‘Watershed Moment’ stuff around at the moment. The decision by Mc Donald’s to pull out of Russia after thirty years is another significant event. The three decades since the collapse of the Eastern Bloc have been characterised by what Yale’s Jeffrey Sonnenfeld called “capitalistic diplomacy”. The idea behind it was that the spread of western capitalism’s multi-nationals around the planet would integrate the world economy and make conflict less likely. This was the Golden Arches theory. As Sonnenfeld put it recently, “No two countries with a McDonald’s would fight each other.” But they did and since February, western companies have been scrambling to get out of Russia. The withdrawal of McDonald’s from Russia is as symbolic as its arrival was in 1990.

With all this going on, it was almost inevitable that Francis Fukuyama would be back in the news again. Hot takes on ‘The end of the End of History’ abound. The point about Fukuyama, though, is that while many criticised him at the time, his End of History caught the moment in the early 90s. Intellectuals might have poured scorn on his book but many business leaders (most of who had never read or even heard of Fukuyama) began to behave as though he was right. The prevailing assumption, which gathered strength throughout the 1990s, was that the world was moving towards liberal democracy and western capitalism. 

In many respects, Fukuyama was right. The collapse of the Soviet Union ushered in a period during which the Washington Consensus prevailed. There was a move towards trade and market deregulation, taxation rates fell and political rhetoric was generally pro-business from both the centre right and the centre left parties which were in government for most of the period. The democratisation of the former communist countries and the trade liberalisation of China brought a massive increase in workers, resources and markets to western capitalism. Firms could now do business in areas they had previously assumed were off limits. Business grabbed the opportunity with both hands. A system of global just-in-time supply chains was built which rested on the assumption that it would always be possible to move things around the world at speed. Businesses did that because they had an End of History mindset. You can only have a highly-geared and finely balanced global supply system if you assume that nothing significant is going to happen to disrupt it.

By-and-large, nothing did. As Fukuyama had said, there would still be “events to fill the pages of Foreign Affairs” but none of these events would stop the onward march of western liberalism. And so it proved. There were still major geopolitical conflicts but none of them derailed the process of globalisation. In 2001, the World Trade Centre bombings rocked America. Many said (and still do say) that 9/11 changed everything. Perhaps it did, in some respects, but the process of economic liberalisation and globalisation continued. The growth and integration of world trade barely paused after 9/11. The slight blip had as much to do with the dotcom crash as the bombing of the Twin Towers.

World Trade to GDP Ratio 1970-2019

Throughout the 2000s, world trade continued to grow, most of the former communist countries in Europe joined the EU, thus cementing their position as liberal democracies, and China hosted the Olympics. During this period, western governments weren’t simply business friendly. They began to fetishise business and trade. Foreign policy became subservient to capitalistic diplomacy. Everybody wanted to do business with China. In the UK, that even ran to letting it take over nuclear power plants and parts of our infrastructure. 

Those of us who worried that the triumph of western values might lead to more capitalism but not necessarily more liberalism or democracy were dismissed as dyed in the wool pessimists. (I took some flack at a panel discussion in the mid-2000s when I suggested that the scramble to trade with a brutal autocracy might have unforeseen and unpleasant consequences.) Free market idealogues preached about the innate superiority of their system and the inevitability of its triumph. They repeated their mantra, ‘free markets, free people’. You could even get it on t-shirts. That bringing people into the market system would eventually lead to their political emancipation was taken as read by many political and business leaders. I remember Douglas Hurd on a Radio 4 ‘predictions for the 90s’ show assuring us that democracy in China was sure to happen by 2000. 

This was the justification for awarding prestigious sports events to countries that routinely used torture and shot their people dead in the streets. It would bring them into the system and make them want to be more like us. Consequently, when the decision was taken to award the Olympics to China, apart from protests by Tibetan and Uyghur exiles, there was very little opposition. Despite the cool t-shirts, the protest movement didn’t get much traction. The celebrities carrying the Olympic torch through London seemed genuinely shockedthat protesters were trying to snatch it. The Metropolitan Police were similarly unprepared and the UK government seemed so desperate to cosy up to China that it allowed Chinese state security to rough up demonstrators on the streets of London.

By the 2010s, though, it became clear that capitalistic diplomacy and the Golden Arch theory were not delivering the goods. Democracy was beginning to fade out east of Warsaw and the Arab Spring never really sprung. Furthermore, even western capitalism was not becoming the dominant force the optimists of the 1990s had hoped. China, especially, was taking the bits of capitalism it liked and ignoring the bits it didn’t. The free-market cheerleaders kept telling everybody that their system had lifted millions out of poverty. It’s not an argument you hear as often nowadays, though, as it has become obvious that the same processes of trade also fuelled the growth of an autocratic superpower. Capitalistic diplomacy failed both as a way of spreading democracy and as a more cynical attempt to ensure US dominance. 

Although it might look as though the Golden Arches era ended in February 2022, the signs have been there for a while. Larry Fink, boss of the world’s largest asset management company, said that the Russian invasion of Ukraine has put an end to globalisation while Rana Foroohar points out that it has been unravelling since 2008but it has only now become obvious. Foreign Policy magazine dismissed the Golden Arches Theory as a “Beautiful Dumb Dream” two years ago. What is now becoming clear is that, once again, the world is dividing into hostile, or at least mutually suspicious, blocs. 

Russia has now effectively left the capitalist economic system. China is making it clear that it no longer wishes to play by the rules of a system designed in the US. India and a number of other countries are sitting on the fence. A fascinating and wide-ranging piece by Rana Foroohar in the Financial Times discusses the West’s decoupling from China and the coming “decade of living dangerously”. In the article, she and Edward Luce agree that, while corporations will be desperate to keep access to Chinese markets, it is likely that, in the interests of foreign policy and national security, they will face tighter restrictions on trade with China. 

I have written previously about the return of politics to the business world. I’m told that companies spent quite a lot of time monitoring the political situation in the 1970s. For much of my career, though, corporations didn’t pay much attention to politics unless they were trading in a politically volatile part of the world. Of course, we discussed politics at work but it was like discussing football or gardening. It was something that people who were interested talked about but it was rarely more than a minor consideration when looking ahead over the next five years or so. Governments of whatever colour were broadly pro-business and it was becoming increasingly easy to do business anywhere in the world – even in places run by dictators. 

That is clearly no longer the case. The order of the last few decades, based on a US and Western view of the world, will not prevail as it once did. In many respects, it is going to become a lot more difficult to do business in the next decade. Some insurers are proving reluctant to cover company operations in countries like Russia and are advising corporations to insure against the risk of a sudden loss of access to markets as a result of hostile government action. None of this is to say that corporations will not continue to wield significant political and economic power. Their leaders will remain influential and absurdly rich. It is less likely now, though, that they will call the political and economic shots in the way that they once did. It might not be the End of History but it looks like it might be the end of ‘capitalistic diplomacy’. A financial journalist I was talking to recently remarked that the past thirty years saw geopolitics and foreign policy driven by economics but that, in the coming decade, it will be the other way around. 

I wonder, though, if that is a shift that western consumers are ready for. Sure, companies that didn’t respond quickly enough to the invasion of Ukraine came in for a lot of criticism. The resulting pressure might even see the break-up of HSBC, one of the world’s largest banks. In their day-to-day spending habits, though, consumers are so used to buying stuff from autocratic states that they barely realise they are doing it. One of the few things that unites Republicans and Democrats in the US is a more hawkish approach to China. Polls suggest public opinion supports this shift. Yet the queues of Chinese ships outside the Pacific ports suggest those same voters can’t shovel cash towards China fast enough. Will they be willing to forego cheap goods and energy in an economic arm-wrestling contest between the West and a Russo-Chinese axis? If China is keeping Russia from economic collapse, it doesn’t make much sense to protest against companies doing business in Russia while continuing to fill your house with Chinese goods. Yet there is clearly a disconnect between what people protest about and what they buy. I’m not convinced that western voters have the stomach for an ongoing geopolitical conflict that will make them materially worse off.

Maybe China is just too big and too much a part of the global economy for a complete decoupling to occur. It might be a bit soon to say the last rites for “capitalistic diplomacy” just yet. There is no doubt that the Russian invasion of Ukraine was a significant moment I’m sceptical about the extent to which it will herald a complete break with the past. Will business and economics really be subservient to geopolitics or will it be a bit messier than that? Maybe more of a rebalancing. Hawks in governments will try to rein in businesses in the interests of foreign policy and national security but businesses will continue to find work-arounds. Voters will protest about unethical businesses practices while continuing to buy from countries with the worst human rights records in the world. Perhaps all those Ukrainian flags that have appeared on our streets in recent weeks symbolise the dilemma. While they might be flown as a protest against the actions of an aggressive authoritarian regime, it is likely that most of them were made in China. 

How is the government’s levelling up agenda going to work when so many forces are pushing in the opposite direction? The economic developments over the next year or so look set to hit hardest the parts of the country the government claims it wants to help.  As George Eaton said, the Universal Credit cut is likely to have most impact on the Red Wall areas and according to recent modelling by the Resolution Foundation, the increase in fuel prices will also be felt most keenly in the midlands and north.

When it comes to levelling up, the UK’s tax and benefits system does a lot of heavy lifting, redistributing income from the more prosperous areas. What is less often commented on, though, is the role played by occupational pensions. As the Resolution Foundation noted in 2019, the regional disparity in productivity has increased significantly over the past two decades but that hasn’t been reflected in a similar geographic divergence in household incomes. This is partly because of the redistributive effects of the benefits system but also because of strong pensioner income growth.  

The distribution of pensioners’ incomes, after housing costs, now broadly matches that of the working age population. By the late 2010s, the median pensioner income was slightly higher than the median working age income. The stereotype of the poor pensioner has been out of date for some time. That’s not to say that there are not poor pensioners, only that a pensioner is no more likely to be poor than someone of working age.

State pensions have played their part in raising retirees’ incomes but so have generous occupational pensions. According to the Resolution Foundation, occupational pensions account for over a third of pensioner income growth this century. Many of today’s pensioners lived (and more importantly worked) through a period when middle-earners did relatively well. Employers’ Defined Benefit (DB) schemes, based on good salaries, have left them well provided for in retirement. In a sense, then, the economic changes which left so much productivity concentrated in London and the South-East still haven’t played out when it comes to pension schemes. In many areas, the factory, the mine or the steelworks may be long gone but its ghost is still there in the form of its final salary pension scheme. It is still paying its pensioners based on their earnings from years ago. Or, to put it another way, in pension-land it is still the 1970s.

The effect of this has been to maintain a flow of income to areas where it might otherwise have disappeared. A large proportion of retirees in an area, then, may reduce its per capita productivity but strong pensioner income growth maintains the area’s overall spending power. As pensioners tend to have more disposable income and spend more of it than those of working age, it is likely that pensioner-spending is providing a significant boost to the economy in many areas.

Together with state benefits and pensions, occupational pensions make up a significantly larger proportion of household income in those regions where the government wants to level up. In some localities the proportion is over 30 percent.

The trouble is, DB pensions are now almost a thing of the past. The next cohort of pensioners will not be so well provided for. As the DB pensioners die off, their generous pensions will die with them. The Defined Contribution pensions which have replaced the DB pensions are much less generous. Employers pay less into them and they transfer both the investment risk and the longevity risk to the employee.

As IFS director Paul Johnson said:

It is an astonishing fact that most pensioners today are financially better off than they were during much of their working life. Once you take account of housing costs and the costs of bringing up children, they have a higher disposable income in their late sixties than they had when they were in their forties. Today’s 40-year-olds should not look at their parents’ generation and expect anything remotely similar.

In the UK, the proportion of employees in DB plans declined from 46 percent in 1997 to 27 percent in 2020. Around 87 percent of those currently in DB plans are in the public sector.  According to the Pension Protection Fund, in 2021 the number of active members of private sector DB plans fell below 1 million for the first time. With 90 percent of private sector plans now closed to new members, this figure will continue to fall. The pensions story of the last two decades has been the almost complete disappearance of private sector DB pensions.       

While the overall pension coverage has increased (the introduction of auto-enrolment in April 2012 has meant that three quarters of employees are now in some form of workplace pension arrangement)  these new workplace pensions are all Defined Contribution plans and therefore much less generous.

As Paul Johnson put it:

We should celebrate the success of auto-enrolment in getting millions more private-sector workers building up savings accounts. We should not kid ourselves into believing that auto-enrolment is achieving what it was originally designed to achieve, which was a huge extension of pension provision.

In July 2021 the Pensions Policy Institute (PPI) published a report warning that most of those currently over 50 do not have adequate funds to achieve a ‘comfortable’ retirement as defined by the Pensions and Lifetime Savings Association and a quarter will not meet the minimum requirements as defined by the Joseph Rowntree Foundation.

These pressures are likely to increase as a result of changing social and economic factors since the 2008 financial crisis. As the PPI notes:

“A number of social and policy changes are increasing the demands made on assets originally saved to provide a retirement income. These include:

• A widening gap for some between leaving work and receiving the State Pension,
• Paying for rent in retirement as fewer expect to retire as owner-occupiers,
• Paying off debts carried into retirement, and
• Supporting other family members with regular financial payments, housing deposits and loans.”

A new cohort of retirees with less generous pensions and needing to service higher housing costs will not be as free spending as the current generation. The gradual loss of occupational pensions from those areas in which they currently make up a large proportion of household income will have a significant effect. Occupational pensions have been quietly levelling up the UK regional disparities for some years. Their diminishing impact will add to the other negative economic factors which disproportionately affect parts of the midlands and north of England.

Talk of levelling up is all very well but the tide seems to be flowing in the opposite direction. Left to its own devices, its difficult to see the UK economy doing anything other than increasing its regional disparities. The decline of occupational pensions is only one aspect of this, albeit one often overlooked. It will take a hell of a lot of investment to counteract this. Nothing I have seen so far suggests that the government really has the appetite for it.

The Resolution Foundation launched its Economy 2030 Inquiry last week. The 2020s, it says, will be a decisive decade for the UK in a way that no other decade has been since the 1980s. It listed five ‘seismic’ changes that will hit the UK economy between now and 2030, any one of which would have a significant impact but which, taken together, pose a serious challenge. 

These are:

• Covid-19 and its aftermath;
• Brexit;
• The transition to a Net Zero Carbon economy by 2050;
• An ageing population;
• Rapid technological change. 

At the moment, the relentless focus on the first two risks crowding out discussion of the other three. Before Brexit and the pandemic, most articles and conferences on the future of work focused on technology to the exclusion of almost everything else. Now everyone is talking about remote working and the future of the office. A few mention demographics, though given how long we have known about the population ageing, it still strikes me as odd that it rarely appears on the agenda. Climate change and the shift to Net Zero barely gets a look in. 

Getting the economy to Net Zero will be a massive undertaking. As the Resolution Foundation points out (my emphasis):

The UK’s commitment to bring all greenhouse gas emissions to Net Zero by 2050 will require an immense set of changes, including the transformation of agricultural and industrial processes, shifts in consumption patterns, and an end to the dependence on carbon-based energy that facilitated the birth of an industrial society 250 years ago. Again, urgency is needed: 60 per cent of fuel supply (oil and gas industries) and half of surface transport decarbonisation needs to happen during the 2020s.

The investment needed will be significant and much of the up front cost comes during the next fifteen years. Though the projections suggest these investments will eventually pay for themselves through the savings made, the report estimates this will take until the 2040s. That’s fine for governments and large businesses that can take a longer term view. For smaller firms and most individual households, 2040 might as well be forever. 

It’s not clear how the cost of these investments are to be split between the government, companies and households. 

The question of how the costs of this and other infrastructure will be split between the state and private sector is absolutely crucial, but almost totally unresolved.

As Frances pointed out recently, the world will have to transition from a carbon-intensive to a metals-intensive economy. Cutting the use of fossil fuels requires a massive amount of metal. We have barely begun to think through the environmental implications of this, let alone the way that jobs will be destroyed, created and, perhaps most importantly, changed.

This will be the point at which the move to decarbonise the economy starts to affect people’s day-to-day lives. The UK has made significant progress on decarbonisation in the last three decades but most of the changes have happened in places where most of us don’t see them. As long as our lights come on when we flick the switch, few of us stop to think where the electricity is coming from. This next phase will be where decarbonisation gets personal. 

Much of the focus of the recent discussion has been on transport and the proposed switch to electric cars, public transport and cycling. The other big change, though, will come in people’s homes. It is unlikely that the UK can achieve a carbon net zero position by 2050 while most of the country still uses fossil fuels for heating. According to National Grid, 20 percent of UK carbon emissions are created by heating buildings. The International Energy Agency has proposed a ban on the sale of gas boilers after 2025. The UK government hasn’t gone that far yet but it has indicated that it will stop the installation of gas boilers in new build homes from 2025. 

This is but one example of the scale of the challenge ahead. As the Resolution Foundation comments:

If we are to hit the 2050 Net Zero objective and realise the wider benefits, while avoiding huge economic costs, there must be a surge of progress in the 2020s: we need to move, for example, from installing almost zero heat pumps each year, to installing 3,000 every single day by 2030.

It also neatly illustrates the massive unanswered cost question. Who pays to replace existing boilers? The government, the energy company or the householder?

If the finances haven’t been thought through, even less thought seems to have been given to the workforce implications. The manpower and skills challenge of rapidly shifting the economy to Net Zero is something rarely discussed. If the UK Commission for Employment and Skills were still going, this is one of the things they would probably have looked at but the government, in its wisdom, shut them down in 2017. Does this country have the people who can make this surge of progress happen? Does it have enough of them and do they have the right skills?

The problem is compounded because the 2020s is also the decade in which the UK’s long-anticipated demographic shift starts to affect the size of the workforce. US generational labels (Baby Boomer, Gen X etc) don’t work in a UK context. True, there was a spike in the number of births after the Second World War but our big population bulge came during the 1960s. That’s why people of my generation remember primary school classes of over 40. 

You can see this bulge working its way through our population pyramid. At the turn of the millennium, those from that 60s born generation were in their thirties. Over the course of this decade they will all turn sixty and many will start leaving the workforce, taking their skills with them.

In recent decades, we have relied on migration to pad out our working age population. Most of the UK’s employment growth after the 2008 financial crisis came from those born elsewhere. But the combination of Brexit and the Covid pandemic has reduced the number of immigrants. The pandemic also appears to have encouraged many of those migrants who were here to return home. Michael O’Connor and Jonathan Portes reckon 1.3 million have left the UK since January 2020. Some dispute their figures but, given that this is the same duo that identified the discrepancy between NI numbers and immigration figures a few years ago, I’m inclined to give them the benefit of the doubt. The pandemic has disrupted the usual immigration surveys but Michael’s analysis of HMRC numbers suggests that a disproportionate number of EU nationals have disappeared from the payrolls and are probably no longer here.

Employers are already warning of a labour shortage and, while it is likely that immigration will increase again as the pandemic subsides, it probably won’t return to its pre-Brexit level. The laws are more restrictive, the political climate less favourable and the economic conditions in many countries have improved relative to the UK. Furthermore, the UK isn’t the only place planning significant reductions in carbon emissions. Net Zero by 2050 has been, or is soon to be, enshrined in law in a number of countries. They are likely to want to keep hold of their people with the skills to make it happen.

So if we have a looming skills shortage and can’t rely on immigration to plug the gap, that suggests a massive re-skilling programme might be on the cards. The government says it’s keen on re-skilling. It has promised to revolutionise skills and training opportunities and even suggested re-training ballerinas as cyber-something-or-others. But, while politicians seem to think re-skilling is a get-out-of-jail card, the truth is that this country isn’t very good at it.

UK business has, for many years, had a buy-not-build culture. In most organisations, the instinctive reaction to a skills gap is to go out and hire someone. As the Industrial Strategy Council remarked last year:

The percentage of skill-shortage vacancies reported by employers has remained at 22 per cent or above since 2013, yet the UK stands out internationally for its preference to recruit rather than train.

Consequently, employer investment in training has fallen and, when combined with occupational shifts that have removed mid-level career development roles, the result has been a degradation in the opportunities for people to develop new skills on the job. As Resolution Foundation research last year found, very few workers retrain for new occupations and, for non-graduates, any form of career development is becoming a rarity. Where employers offer them training, it is most likely to be on health and safety. 

All of which suggests that, if there is to be a great re-skilling to tackle climate change and shift the economy to Net Zero, the government will have to step in to cover employers’ lack of investment. The trouble with that being that governments don’t have a great track record in this area either. 

If there is a financial and a skills challenge in reaching net zero, there is also a serious public opinion problem. While people have finally come round to the view that climate change is happening and something needs to be done, they are a lot less keen on actually paying for it. A recent YouGov poll found a majority across all age groups reluctant to consider increased taxes or higher energy bills despite accepting the seriousness of the climate change threat. 

So the UK will need to see a surge of progress to reconfigure its carbon-based economy during the same decade as its largest age cohort starts to leave the workforce, its supply of migrants slows and its trade and diplomatic relationships are still in a state of flux. All this against a background of weak productivity and a woeful lack of investment in both capital and labour. Public opinion is nowhere near prepared for the magnitude of the change because politicians and commentators have not discussed it in any detail. 

As the Economy 2030 report remarked:

The economic turbulence that people, places and firms face as we recover from Covid-19, exit the EU, and see decarbonisation reach into citizens’ lives, goes beyond anything seen in a generation.

We like to think we know how to handle change. Those of us working in the corporate world talk about it all the time. We tell ourselves that we have lived through a time of epic change, a VUCA period where the pace just gets faster every year. Disruption is where it’s at these days! We have had so much change to manage we had to invent something called change management. It’s nonsense, of course. On a number of measures, the last few decades have been reasonably stable. The next decade, by contrast, is likely to be disorderly.

If the government is serious about Net Zero, the decarbonisation measures will start reaching into our lives very soon. It is likely that this will take the country by surprise. Our people have no idea what’s coming, many of our companies are unprepared and our government appears to have no plan for funding, for the workforce or for getting the public on side. What could possibly go wrong?

The Labour Party is in danger of losing its nerve again. Ten years ago, the story that Labour spent all the money and caused the country’s massive debt was allowed to go unchallenged. The Labour Party, paralysed by the shock of the election, failed to fight back. By the time the party had recovered its composure and started to challenge the narrative of fiscal incompetence it was too late. No-one was listening.

This time the story that is going unchallenged is that Labour has lost the support of the working class. Worse still, the Conservatives are becoming the party of the working class. The great class inversion is the story of the moment. When even Keir Starmer says that Labour has lost the trust of the working class, well, it must be true, mustn’t it? Since the elections earlier in May, Labour has collapsed in the opinion polls. Of course it has. The story has become self-fulfilling.

But is it true? Are the Tories really now the party of the working class? Is Labour now only the party of metropolitan poshos?

The data don’t bear any of this out though. Christabel Cooper has looked at the British Election Study data from 2019. It shows the Conservatives doing better among all income groups except the poorest and especially well among the richest.

General Election 2019 vote by household income

But look what happens when you strip out retired voters. The split between Labour and Conservative voters is about where you would expect it to be, with the tipping point somewhere just above the median income.

General Election 2019 vote by household income – excluding retired voters

Marios Richards did an analysis of BES data for the under-55s, using gross personal incomes. It’s a similar picture, with a Labour majority among lower earners. As Jonn Elledge notes, of the working class voters that are working, Labour still has the largest share of their support.

It’s retired people that swung the vote for the Conservatives. There are a lot of them and a larger proportion of them vote than in younger age cohorts. As Marios points out, after adjusting for turnout, the median age of voters at the last general election was 53.

What these income figures don’t tell us is the impact of housing costs. Around three-quarters of those aged over 65 own their own homes outright. They may be income-poor but they are asset-rich. Without the need to spend on housing costs, their state and occupational pensions can leave them quite comfortably off, especially if they live in areas where the cost of living is low. As the Resolution Foundation’s Intergenerational Commission found, once you factor in housing costs, pensioner household incomes are slightly better than those of working-age people.

There is a cohort of voters whose working lives coincided with the period when middle earners got the largest slice of the economic pie. A lot of those middle earners didn’t have degrees because they could get relatively well-paid jobs without needing the sort of qualifications their counterparts would need to do similar jobs today. Furthermore, they were able to buy property relatively cheaply by today’s standards and the government helped with the sale of council housing and mortgage tax relief. In the decades when the 1945-55 cohort were in their early twenties, it was much easier for two people on average earnings to buy property than it is now.

Joe Chrisp has broken the voting patterns down by age and housing tenure, again using BES data. In broad terms, older people are more likely to vote than younger people, homeowners are more likely to vote than renters and graduates are more likely to vote than non-graduates. The data indicate that the majority of younger non-graduate renters did not vote.

Looking at the breakdown of both main parties’ support, it is clear that older non-graduate homeowners form the largest section of Conservative support. As Joe points out, some of those people in the dark blue section in the 2019 bar were also in the dark green section in the 1992 bar.

The home-owning baby boomers who propelled Major to victory in 1992 (when they were under 55) are now the bedrock of the Tory coalition as they age. In 2017, approximately half of its voters were homeowners over the age of 55 without degrees.

A similar breakdown of the Labour vote shows that Blair captured some of the non-graduate home owner vote in 1997 but a lot of it had been lost again by 2010. The caricature of the typical Labour voter as a young urban graduate is some way wide of the mark. Graduates are still a minority of the Labour vote. The majority of Generation Rent, it seems, doesn’t bother to vote.

The Resolution Foundation’s analysis of the 50 ‘Blue Wall’ seats that were gained by the Conservatives from Labour in 2019, in the North, Midlands and Wales, showed that these seats had a higher rate of home ownership than constituencies that stayed Labour.

Our cultural references, and especially those of our politicians and commentariat, seem to be stuck in the 1970s. When we talk about the working class, we still have an image of a man in a donkey jacket standing outside a mine or a steelworks. When TV news channels travel to small towns in the Midlands and North and interview people during the day, they find people who look and sound like we think the working class should look and sound. Some of them can usually be relied upon to have a go at the Labour Party. Many of them may have once had working class jobs but, as home owners with good pensions, these days, they are not too badly off. As a result, they are largely insulated from the economic threats faced by the younger population. As Jonn put it:

A retired Teesside steelworker can be working class in terms of their family, career history, self-image and so forth, while still having a different set of economic interests to a 25-year-old renter on a zero-hours contract. 

Some have argued that this means the Labour Party is finished until the Boomers die off but this is a bit premature. Labour’s critics are right in that it should have done better among those of working age with low incomes. As Joe’s charts show, there are lots of non-voters to go at. All those non-voting renters should be fertile ground for the Labour Party.

There is little point in getting embroiled in what it means to be working class, as arguments will go on well into the night without resolution. It’s perhaps worth going back to some core principles though. One of the reasons the Labour Party was formed was because landlords and corporations were oppressing and exploiting people, often with the collusion of the state. There is still a lot of that going on. The Windrush Generation, the Cladding Scandal and the unbelievable corporate abuse at the Post Office spring to mind.

The pandemic has disproportionately affected all the people you would expect it to; lower paid workers, the young, ethnic minorities and those in rented accommodation. Covid has laid bare some of the UK’s systemic inequalities. As Torsten Bell put it:

We may be in the same storm but we are clearly in different boats.

The Labour Party needs to get more of people in these groups out to vote. It won’t do that by telling everyone that it has lost the support of working people. The story that Labour spent all the money and left the country in debt never really went away and the party paid a heavy price for allowing that meme to take root. Stories like this, once they become established, spread like Japanese Knotweed and are just as difficult to kill.

Labour hasn’t lost the support of working people but it has lost the support of the retired. That will make it more difficult to win elections but starting from a clear understanding of what has happened in the last decade goes some way to helping decide what to do about it. The cause of Labour’s election losses isn’t the Blue Wall or the Red Wall, it’s the Grey Wall.

Is the corporate zeitgeist changing? After 30 years of shareholder primacy and focus on shareholder value, the language seems to have shifted.

In what may be a sign of the times, the FT has started a Moral Money Forum, focusing on long-term and sustainable business. Its authors, Gillian Tett, Billy Nauman and Patrick Temple-West, remarked: 

There have been so many announcements this year about the corporate world embracing ESG principles that it is temptingly easy to roll your eyes whenever a new survey drops. But sometimes, Moral Money remembers to stop being (almost) blasé and marvel about a crucial point: today’s corporate zeitgeist looks notably different versus two years ago, never mind a decade back.

Mark Carney talked about corporate purpose in his recent Reith lectures. He too senses a shift in the zeitgeist:

My sense is we’re at a stage where we have companies that in many respects are looking for pursuing purpose, but solving problems for society and, therefore, they will be profitable over the long term. 

The question is, for some, will they go further, do they actually give up some profit for broader purpose or broader means? 

His comments were in response to a question, not from a tree-hugging campaigner or journalist, but from a fund manager at Legal & General:

Now we’re seeing the rise of companies who are less interested in, I’d say, pure profit maximisation, and instead are pursuing profit with a purpose. 

BlackRock CEO Larry Fink made these comments in his 2020 letter to CEOs (emphasis from the original):

Awareness is rapidly changing, and I believe we are on the edge of a fundamental reshaping of finance.

The importance of serving stakeholders and embracing purpose is becoming increasingly central to the way that companies understand their role in society. As I have written in past letters, a company cannot achieve long-term profits without embracing purpose and considering the needs of a broad range of stakeholders. A pharmaceutical company that hikes prices ruthlessly, a mining company that shortchanges safety, a bank that fails to respect its clients – these companies may maximize returns in the short term. But, as we have seen again and again, these actions that damage society will catch up with a company and destroy shareholder value. By contrast, a strong sense of purpose and a commitment to stakeholders helps a company connect more deeply to its customers and adjust to the changing demands of society. Ultimately, purpose is the engine of long-term profitability.

Here’s Harvard Law School’s Thoughts for Boards of Directors in 2020:

2019 may come to be viewed as a watershed year in the evolution of corporate governance. The focus on stakeholder governance has shifted from the question of whether a board of directors should take into account the interests of other stakeholders, to how a board should do so.

It was even top of the agenda at the annual conference of the corporate rich in Davos, with the World Economic Forum publishing The Davos Manifesto 2020: The Universal Purpose of a Company in the Fourth Industrial Revolution:

The purpose of a company is to engage all its stakeholders in shared and sustained value creation. In creating such value, a company serves not only its shareholders, but all its stakeholders – employees, customers, suppliers, local communities and society at large.

Perhaps most surprising was the statement in 2019 by Business Roundtable, an association of CEOs from large US companies, which has generally adopted a free-market tone in the past. In 2020, Business Roundtable clearly reiterated its intention to break with its past and redefine the purpose of a corporation:

On August 19, 2019, 181 CEOs of America’s largest corporations overturned a 22-year-old policy statement that defined a corporation’s principal purpose as maximizing shareholder return.

In its place, the CEOs of Business Roundtable adopted a new Statement on the Purpose of a Corporation declaring that companies should serve not only their shareholders, but also deliver value to their customers, invest in employees, deal fairly with suppliers and support the communities in which they operate.

A number of papers have been published on this subject by business law academics in the US, interested in its implications for corporate governance and for the potential re-definition of what a company is for. Harvard professor John Ruggie concludes:

The rapid expansion of corporate globalization has plateaued; it is unlikely to be fully restored any time soon post-COVID-19. The construct of the corporation itself is in flux again. Markets are pricing in more of the external costs of corporate operations; ESG investing is becoming a market-moving factor; and leading corporates have moved well beyond traditional CSR to take more seriously the relationship between their own sustainability and that of the social and natural environments in which they operate. The repurposing debate noted at the outset of this chapter is not mere virtue-signaling; it is an indicator of directional change, even if not a final destination.

The trajectory of corporate law and securities regulation is tending toward greater recognition of stakeholder interests.

It is tempting to dismiss all this as another fad. Those of us who have been around for a while will remember Corporate Social Responsibility, Stakeholder Capitalism, Enlightened Shareholder Value and various other concepts and initiatives that we were told were going to nudge, cajole and persuade businesses to behave more ethically. 

This time, though, something is different. More people are talking about it and those people hold more senior positions in the business hierarchy. ESG (short for Environmental, Social and Governance) and related concepts like corporate purpose and investor stewardship have been creeping up the agenda over the last half-decade and have reached the top of it over the last two years. It’s not just a few academics and thinktanks talking about this. The idea of corporations having a purpose beyond simply making profit has gone mainstream. It’s pretty clear that something is going on. Corporate Purpose is where it’s at these days.

It seems that the idea of companies having a purpose other than profit and being accountable to a broader range of people than just shareholders has become almost orthodox. This has all happened fairly quickly. After three decades or so of shareholder primacy, suddenly everyone is talking about stakeholders and purpose. It feels like one of those rapid fashion shifts we used to get. Someone going on about shareholder value now looks a bit like the bloke buying a pair of flares just as everyone else starts wearing drainpipes. 

Although the widespread discussion of corporate purpose is relatively recent, it is possible to track a shift in the mood music over the past couple of decades. The 1980s saw the high tide of Thatcherism, Reaganomics and of Milton Friedman’s view of shareholder primacy. The corporate governance reforms of the early 1990s were primarily about protecting shareholders’ interests from the greed, malevolence or incompetence of corporate managers. 

The 1990s also saw the first widespread use of the term ‘Corporate Social Responsibility’, with its implication that perhaps companies did have some sort of social duty after all. In the 2000s, the concepts of Stakeholder Capitalism and Enlightened Shareholder Value appeared. The 2006 Companies Act, while re-affirming the primacy of shareholders, placed a duty of directors to consider the interests of employees, suppliers, customers and the wider community and to take into account the environmental impact of their decisions.   

In the aftermath of the financial crisis, the sense that something was deeply amiss with capitalism saw the focus of regulation shifting to investors. In the UK, reports by David Walker and John Kay suggested that shareholders have a duty of stewardship towards the companies in which they invest, sharing responsibility with directors for the long-term development of the company. The 2010s saw the introduction of the Stewardship Code and the emphasis on Environmental, Social, and Governance (ESG) investment criteria.

Which brings us to 2020, with the drawing together of these strands into the idea of corporate repurposing and the championing of corporate purpose by academics business leaders and  large investment management companies. 

So what’s going on? Is this really, as Larry Fink says, a fundamental reshaping of finance, with the implication that the nature of capitalism is changing, or is it simply a PR exercise by corporations trying to deflect criticism in a post-crash and now post-Covid world? 

Can companies simply ignore corporate purpose and dismiss it as the latest fad? Probably not. This has a momentum behind it that was missing with CSR, Stakeholder Capitalism and other previous attempts to reform the way companies are run. You only have to look at the quotes at the beginning of this piece to see that corporate purpose is far more of a Thing than anything that went before it. Executive search firms are reporting that candidates are asking about the social purpose of the companies. As we have already seen, major investment managers are asking about it too. Might a clear corporate purpose with a social dimension and commitment to wide group of stakeholders become a prerequisite for attracting both talent and capital? 

What might the impact of the Covid pandemic be? Will companies retrench and ruthlessly cut costs as they try to rebuild their balance sheets? Or will the increased public scrutiny of organisations restrain them? I have heard the quote ‘people will remember what we did’, or variants of it, attributed to a number of senior executives. It is certainly true that many in the corporate world are keenly aware that people have paid a heavy price for this pandemic, while governments propped up economies and companies.

I also wonder about the conflation of corporate purpose with business ethics. A company producing landmines might say that its purpose is very clear but whether that fits into the WEF’s definition of serving society at large is debatable. 

And is there, as one former investment manager and business school professor said to me, a contradiction between the various duties placed on directors and shareholders?

There are deep conflicts of interest here. From the point of view of a pensioner looking for high returns, the best investment is a solid monopoly that screws the customers and passes on costs to the public. This is in direct conflict with customers, who want good value products, and citizens who want the company to behave ethically. We can’t solve this conflict by writing a better stewardship code.

The statement by Business Roundtable inevitably drew flak from the left but also from the right for “demoting shareholders” and pandering to “liberal activist investors”.  Larry Summers reckoned it might simply be a ruse to hold off higher tax and regulation. The term ‘purpose washing‘ has appeared as a descriptor for practices which, as with greenwashing, are insincere and use the concept as marketing spin.

It was this piece by Harvard Law School’s Mark Rowe that struck a chord with me though. He notes that public opinion is shifting and that anti-corporate rhetoric is a feature of both right-wing and left-wing populism.

It’s plausible to wonder, therefore, whether the Business Roundtable is recalibrating their statement of corporate purpose to help put big business lower on populist target lists.

Anti-corporate ideas are in the air, and they do not originate from the political leaders who are expressing them. They will persist regardless of how any leader fared.

All this might seem odd when the power of organised labour is at a low ebb. While there is definitely more open hostility towards some companies now, there doesn’t seem to be an immediate threat to the power of corporations or to the rewards reaped by those who run them. Perhaps the shock of 2016 and the realisation that politics now matters to business in a way that it hasn’t for the past 30 years has focused the minds of corporate leaders. Or maybe they believe they might actually burn the planet if they carry on as they have been and that, even with their wealth, they will have few places to hide. Whatever the reason, the corporate world has sniffed the air and senses a change. Whether anything changes beyond the tone of press releases and annual reports remains to be seen but, wherever it leads, something new is afoot in the boardrooms of the world’s major companies . 

We knew the latter half of 2020 would see arguments about Brexit, lockdown restrictions, masks and the US election. What we didn’t foresee was that, in many places, the row of the summer and autumn would be about Low Traffic Neighbourhoods – LTNs for short.  I had never heard of Low Traffic Neighbourhoods until June of this year, when I was told that one had been proposed for an area near where I live. Even after someone had explained it to me, I still didn’t really get it. It was only when I saw this map that I realised what Ealing Council was trying to do.

It is a very cleverly designed traffic system that ensures everyone still has motor vehicle access to their homes but makes it impossible to use the side roads to drive between any of the major routes. As with so many things, there was not much discussion about it until the day the roads were blocked. Then it all kicked off. I soon discovered it was kicking off all over London and in many other cities too. 

The speed at which LTNs have suddenly become topical is due to the speed at which they have been implemented. Councils were given special powers to set up LTNs with a week’s notice and to carry out the consultation period after the implementation, using something called Experimental Traffic Orders. As could have been predicted by anyone who knew anything about human behaviour, the people being experimented on didn’t like it very much. 

Local authorities came in for a lot of stick. There was a suspicion in our area that Ealing Council was using the Covid pandemic as cover to implement a radical cycling agenda, the council leader being a keen cyclist. But, while some councils might have been enthusiastic, the drive for LTNs has come from central government. Local authorities have been strongly advised to implement such schemes and told that their transport budgets may be cut if their schemes don’t measure up. The speed of implementation is accounted for by the fact that there was a narrow window to bid for government funding. Councils were therefore in a race to get financial support to implement the schemes. The losers risked a double whammy of failing to get funding and therefore seeing their budgets cut next year for not doing enough about ‘active travel’.

If that sounds far-fetched (which it did to me when I was first told about it), check out the initial statement from Grant Shapps in May:

The government expects local authorities to make significant changes to their road layouts to give more space to cyclists and pedestrians.

Followed by the detailed report, signed by a smiling Boris Johnson, in July:

There will be first hundreds, then thousands of miles of safe, continuous, direct routes for cycling in towns and cities, physically separated from pedestrians and volume motor traffic, serving the places that people want to go. 

And how are councils meant to do this?

Low-traffic neighbourhoods will be created in many more groups of residential streets by installing point closures – for example, bollards or planters – on some of the roads. It would still be possible to access any road in the area, but motor traffic would not be able to use the roads as through routes. Streets within low traffic neighbourhoods will provide clear, direct routes for cyclists and pedestrians promoting walking and cycling. 

What if the councils drag their heels?

Many schemes take too long to get started and too long to deliver once they have been started. All future funding will be conditional on work starting and finishing by specified dates.

Those councils that don’t implement enough schemes will face the wrath of Active Travel England, a new Oftsed-style inspectorate:

From next year, Active Travel England will also begin to inspect, and publish annual reports on, highway authorities, whether or not they have received funding from us, grading them on their performance on active travel and identifying particularly dangerous failings in their highways for cyclists and pedestrians. 

Active Travel England’s assessment of an authority’s performance with respect to sustainable travel outcomes, particularly cycling and walking, will be taken into account when considering funding allocations for local transport schemes. We will consult on introducing new criteria to measure local highway authorities’ performance in respect of sustainable travel outcomes, particularly cycling and walking, when considering funding allocations for local transport schemes. 

Nice transport budget you’ve got there. Wouldn’t want anything to ‘appen to it, would yer?

The government is not messing about here! It is determined to see Low Traffic Neighbourhoods implemented and it will beat councils up if they don’t comply. It’s no wonder, then, that hundreds of Low Traffic Neighbourhoods have appeared all over the country in the space of a few months.

In many areas, opinion has been bitterly divided. The vitriol on social media appears, to me at least, worse than that over Brexit. Bollards and planters have been vandalised and people have been threatened. This has led some to characterise the battle over LTNs as another front in the culture wars. It’s a compelling story – yet another divide between the Remainers and Brexiters, the conservatives and liberals, the Somewheres and Anywheres. Now we can add the petrolheads and white van men on one side and the eco-warriors and cycling lobbyists on the other. 

Compelling but wide of the mark. As a proxy for the other culture war divisions, the LTN controversy doesn’t really work. The text of the article that appeared in the Observer with the ‘culture wars’ title actually went to great lengths to explain how diverse the supporters and opponents of LTNs are. My area has become, in many ways, the epicentre of the resistance to LTNs. It is from the neighbouring Northfield ward that the legal challenge to LTNs has come. Two veteran local campaigners both of whom I have got to know recently as they have been very helpful to me and my neighbours over our own local difficulties, have found themselves on opposite sides of the LTN argument. The one leading the charge against LTNs is a leftie Remain voter whose hero is Tony Benn. At 71 percent, Northfield was the 22^nd most Remainy ward in the UK. Another area where there is a significant anti-LTN movement,  Lewisham, voted 70 percent for Remain. If the data is available, someone with more time than I have might want to map the referendum vote against level of opposition to LTNs. Given that most of the LTNs are in urban areas, I’d be surprised if it showed that the Remain/Leave split is much of a predictor of views on LTNs. West Ealing is not Farage country by any stretch but many of its residents don’t like LTNs.

It is also likely that social media is giving a distorted sense of the level of polarisation. Most of the people I speak to have mixed views but Twitter and Facebook seem to be split into hostile camps. Research on the discussion of LTNs on Twitter by social network analyst Jimmy Tidy found that 50 percent of the activity on Twitter came from just 20 accounts. A few very convinced and very vocal people are shaping the online debate.

The politics around LTNs are similarly complex. Ealing’s Labour council and most of its Labour councillors that have expressed an opinion are in favour of LTNs. One of its Labour MPs has criticised the schemes. Conservative councillors in Ealing and Hounslow have attempted no confidence motions against the Labour administrations, yet it is difficult to accuse councils of doing anything other than what the Conservative government told them to. The claim that many of the LTNs are poorly designed doesn’t really stand up. Yes, planters and bollards are a nuisance but that’s what’s recommended in the government report. Sure, they inconvenience people but that’s what they are supposed to do. They are meant to discourage people from driving along side roads and from making short journeys by car. The inconvenience is not a bug, it’s a feature.  Grant Shapps has flipped backwards and forwards, colluding with his party’s councillors while still trying to stick to the government line. He has admonished councils to implement LTNS, threatened to punish them for ‘poorly designed’ schemes, told them to get on with it and not be derailed by noisy opponents, threatened to reclaim the money granted if they don’t consult, then re-iterated his earlier threat to hammer their budgets if they don’t get with the LTN programme. Perhaps a man who ran businesses under assumed names finds it easy to dissemble but the mixed messages are certainly confusing for everyone else. 

Some of this will, no doubt, strike those of you with long memories as a bit odd. This is a Conservative government deliberately making it more difficult for people to use their cars. Margaret Thatcher, it is said, was not particularly interested in public transport, because ‘our people drive’. The Tories, being the party of the more affluent suburbs and smaller towns, were also the party of the habitual driver. Whatever else, this campaign for Low Traffic Neighbourhoods doesn’t sound very conservative. 

Things have changed since the 1980s though. After a fall in the mid 2000s, traffic levels are increasing again. It is likely that Covid will encourage more people to take to their cars, given that it is the only way you can move about while self-isolating.

In London, the entire net increase in traffic has been on minor roads. The development of satellite navigation and associated apps have opened up streets where previously only those with local knowledge would drive. Using real-time data, powerful algorithms are diverting vehicles down whatever roads are available in a given area. Traffic has become like water, flowing along the shortest route to a given destination and automatically changing direction when obstacles are placed in its way. It is reasonable to assume, at least in London, that without sat nav, the increase in traffic would not have been possible. 

This presents a problem for councils of all political colours that had been trying to reduce the level of traffic in their boroughs for some time and, until recently, thought they were succeeding. It also doesn’t bode well for the UK’s carbon emissions target.  Achieving that would have been difficult enough even with a gradual decline in road traffic. The jury is still out on whether or not LTNs have much impact on the level of traffic or vehicle emissions. Supporters will point to Walthamstow as an example but the very fact that the same survey comes up so often is indicative of how little robust evidence there is. There is some evidence to suggest that, over time,  LTNs discourage car ownership but the authors of the study carried out in London concede, “Sample size for LTN areas is small and hence uncertainty about effect magnitude is large.”

But even if LTNs were proven beyond doubt to reduce levels of traffic and emissions, I suspect it would have little impact on the debate. LTNs require a significant shift in behaviour and such things are not generally popular.

The row over Low Traffic Neighbourhoods may turn out to be a storm in a teacup. Maybe we will just get used to them or perhaps the opposition will kill the idea stone dead. The outcry does draw attention to an important question though. Most of us recognise, at least in the abstract, that we will need to change our behaviour if we are to have a hope of even slowing down the rate of climate change. The government’s emission targets will be unachievable without reduced car use. But that ‘we’ is abstract and somewhere in the future. I’m reminded of St Augustine, who is supposed to have said, “Please God, make me good, but not just yet.” Supporters of LTNs point to a survey (which I can’t find online) that says most people are in favour of such schemes. Opponents argue that a majority of people who actually live in LTNs don’t like them and point to the large turnouts at demonstrations. It is quite possible that both are right. 

When cities have been designed and lifestyles have been built based on decades of assumptions about the availability and speed of car use, it is very difficult to change behaviours overnight. Yes, I know reducing the number of short car journeys is a good idea but not in my area, or, at least, not yet. Yes, I know we have to save the planet but right now I need to get to West Ealing Sainsbury’s for my weekly shop and I’m annoyed that I have to do a 270 degree journey to get there. The row over LTNs isn’t a culture war, it’s a microcosm of a much more fundamental question. How the does a society built on fossil fuels shift its behaviour quickly enough to have an impact on the looming climate change catastrophe? It’s a question that’s not going to go away. 

The latest forecast for the UK economy from the Office for Budget Responsibility shows an almost-but-not-quite recovery. It starts off v-shaped with a rapid bounceback, then becomes tick-shaped as the recovery slows. The tick has a long tail and, over the course of the forecast, it never quite gets back to where the OBR thought it would be before the Covid pandemic.

It was always likely that there would be rapid growth after the easing of the lockdown and the development of a Covid vaccine. Pent up demand delivers unprecedented growth after the unprecedented fall. The problem is how much of the economic damage has longer term effects. This is what the OBR describes as ‘scarring’.

As Chris Giles explained at a Zoom event I went to a couple of weeks ago, businesses face the problem of stranded capital – capital that was highly productive this time last year but is suddenly unable to do its job. City centre offices and passenger trains for example. The same could be said of human capital. Skilled workers in sectors like hospitality and retail are unable work. The question to which no-one really has an answer yet is how much of this capital will be permanently stranded. 

If assumptions and attitudes shift then so will employer, employee, consumer and investor behaviour. Even if there is a Covid vaccine, will the knowledge that a pandemic happened and might again make people more cautious? Will we be happy to pile onto crowded trains again, with our faces inches from someone else’s? Are we going to go back to city centre offices every day? Will we cram into crowded pubs? Will we shop till we drop again now that we have discovered we can order so much stuff while sitting at home? Our return to confidence looks likely to be almost-but-not-quite, so things never quite get back to where they were. For businesses with investments in stranded capital, this will be bad enough. For the stranded human capital – the people with skills they worked hard for but can no longer use – the impact will be devastating. Despite all the enthusiasm for re-skilling, changing sectors and occupations is a lot more difficult than it sounds.

As the OBR explains:

 The pandemic is quite likely, however, to leave lasting ‘scars’ on supply capacity. These can arise through a variety of channels, including: 

deferred or cancelled investment in physical capital and lower innovation as a result of the heightened uncertainty and increased levels of debt incurred during the pandemic; 

the destruction of valuable firm-specific capital and knowledge arising from business failures; 

a loss of human capital due to sustained unemployment as the economy restructures away from contact-intensive sectors; 

earlier retirement from the labour force prompted by the pandemic; and 

increased loss of days worked due to sick leave as it becomes unacceptable to turn up to work showing virus-like symptoms. 

The combined effect of all this is a hit to productivity, investment and employment. It is this that accounts for the almost-but-not-quite nature of the recovery:

The set-back to the recovery is deeper and more durable in our central forecast. But after an effective vaccine becomes widely available in the second half of 2021, output recovers to its pre-virus peak by the end of 2022. However, output never returns to the March path, mainly reflecting our 3 per cent scarring assumption. 

The Resolution Foundation summed it up succinctly:

The UK economy is set to shrink by 11.3 per cent this year, the biggest decline in over three centuries. Welcome news on vaccines means the economy will bounce back, but the recovery will be ultimately incomplete, with the economic ‘scarring’ leaving it permanently 3 per cent smaller, or £1,400 for every adult in Britain. 

But wait, there’s more. The forecast assumes that the UK will conclude a ‘typical’ free trade agreement with the EU. If, instead, it leaves the transition arrangements on WTO terms on 31 December, the growth path looks even weaker. 

Coming on the back of the pay stagnation after the financial crisis, the outlook for earnings is horrendous. The OBR’s forecasts see real average employee earnings not getting back to their 2007 level until 2026. That is nearly two decades of pay stagnation.

As Resolution Foundation chief executive Torsten Bell remarked, what we are seeing here is the effect of three once-in-a-generation economic shocks. The combined effect of the financial crisis and its aftermath, Brexit and the Covid pandemic have left our economy permanently scarred. 

Covid has provided a smokescreen to cover up pre-existing problems. (This is true at company level too.) Things that were going wrong before the pandemic can easily be blamed on it. Were it not for Covid, we would have been discussing the fact that the economy had stalled and, most probably, gone into a mild recession during 2020. The economy hit the buffers during 2019 and shrank on Boris Johnson’s watch.

By February 2020, it was slightly smaller than when he took office and, under the threat of Brexit, showed no sign of recovering momentum. It might seem a bit mean to say it, given that the prime minister was very ill with the disease, but, in some ways, Covid got the government out of a hole. It can now blame the almost-but-not-quite recovery on the virus when at least some of it is due to the weakness of the economy beforehand and the self-inflicted wound on Brexit on top of it.

This is what the three once-in-a-generation economic shocks look like in a historical context. Per capita GDP growth for the first quarter of the 21^st century will be lower than the preceding three. It looked almost as bad as this based on the forecasts before the pandemic because much of the damage had already been done.

The 2008 recession wiped out most of the growth of the early 2000s and the economy never really recovered. After the pandemic, we will get a glimpse of what post-recession growth used to be like before we return to the per capita 1-1.5 percent GDP growth that seems to have become the norm.  

For an economy still based on the assumption of post-war growth rates and a population which still believes that, somehow at some point, we will get back to that again, this is going to present some significant challenges. The government will get away with blaming Covid for a while but it can’t get do that indefinitely. Eventually, people will notice that things aren’t ‘getting back to normal’. They will see it in their pay packets, living standards and job prospects.