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\t\tThanks to the last sixteen years, the UK would be the poorest US state \t<\/p>\n\t\t\tFriday 24 July 2026 4:43 pm
\n\t\t\t\t\t\u00a0|\u00a0\u00a0Updated:\u00a0<\/p>\n
\t\t\tFriday 24 July 2026 4:44 pm\n\t<\/p>\n
\t\tThanks to the last sixteen years, the UK would be the poorest US state \t<\/p>\n
When it comes to Britain\u2019s stagnant growth, we must first diagnose the root cause. That starts in the City, writes Daniel Freeman<\/p>\n
Britain has never really recovered from the Great Financial\u00a0Crisis, and we will soon be entering our\u00a0third\u00a0lost decade of economic growth.\u00a0Before 2008, the UK and US economies grew at an almost identical rate. Per capita trend growth was 2.3 per cent\u00a0in the UK, slightly higher than the 2.1 per cent in the US. When the financial crash hit, both countries, along with many others,\u00a0took a significant economic hit. But then the US returned\u00a0to trend, and the UK\u00a0didn\u2019t.\u00a0\u00a0<\/p>\n
This is divergence crystallises the UK\u2019s poor economic performance over recent\u00a0years, and\u00a0goes some way to explaining why today economic growth is such a hot-button issue.\u00a0Everyone, from the\u00a0City\u00a0to\u00a0Carlisle, can feel the\u00a0effects of\u00a0stagnation\u00a0in lower wage growth, job\u00a0opportunities\u00a0and living standards.\u00a0Politicians, who\u00a0in the last five years\u00a0have finally noticed the problem,\u00a0claim to put growth at the top of their priority lists, and yet\u00a0little changes.\u00a0But,\u00a0like a doctor approaching an ailing patient,\u00a0if\u00a0we are\u00a0to have any hope of\u00a0treating an\u00a0illness,\u00a0we must first diagnose it.\u00a0So what went wrong?\u00a0\u00a0<\/p>\n
There are\u00a0a number of\u00a0explanations, but many fall at the first hurdle. The first and\u00a0perhaps laziest\u00a0assumption is\u00a0just that financial crises\u00a0inevitably\u00a0leave long shadows, and a\u00a0big crisis\u00a0was always going to leave a big shadow.\u00a0But this\u00a0doesn\u2019t\u00a0explain the gap between us and America.\u00a0What\u2019s\u00a0more, the economist Tyler Goodspeed has\u00a0looked at the evidence\u00a0from 300 years\u00a0of recessions\u00a0on both sides of the Atlantic\u00a0and\u00a0found\u00a0the opposite\u00a0is\u00a0true, deeper\u00a0economic contractions are typically followed by steeper rebounds.\u00a0\u00a0<\/p>\n
The common explanation that many on the left will reach for is that\u00a0we have austerity to thank. But this\u00a0doesn\u2019t\u00a0explain the divergence with our Atlantic cousins\u00a0either;\u00a0America\u00a0ran\u00a0a very similar\u00a0programme of fiscal retrenchment and spending cuts.\u00a0US government spending peaked at 40 per cent of\u00a0GDP\u00a0after the Global\u00a0Financial\u00a0Crisis but had been\u00a0cut back to 34 per cent by 2015.\u00a0In the\u00a0UK,\u00a0government expenditure\u00a0was\u00a0still 42 per cent of GDP in 2015\u00a0and has since jumped back up to 45 per cent.\u00a0\u00a0<\/p>\n
What about the favoured explanations of many on the right \u2013 in\u00a0particular\u00a0a restrictive planning regime and a\u00a0tax system that is overly burdensome both in size and style?\u00a0Both are\u00a0definitely a\u00a0break on growth, and should\u00a0absolutely be a\u00a0priority for the government to fix to get us out of the stagnant waters we find ourselves in. But neither are particularly strong explainers for the specific divergence from America after the GFC.\u00a0Mainly, because\u00a0both\u00a0predate the crash.\u00a0\u00a0<\/p>\n
So how then, can we best explain why we are today 40 per cent poorer than America, when in 2008 we\u00a0were\u00a0catching up to\u00a0them? How is it that, thanks to the last\u00a0sixteen years, we would be the poorest US state measured by GDP per capita? In a new briefing for the Institute of Economic Affairs by Tyler Goodspeed\u00a0examining\u00a0Britain\u2019s Great Stagnation, he argues that the\u00a0key\u00a0difference between\u00a0the two economies, is\u00a0the impact of\u00a0banking regulation.\u00a0\u00a0<\/p>\n
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