British soon to be 'richer than Americans', says a BBC headline in January 2008.
Forecasters predicted that for the first time in more than a century, the UK's GDP per capita would exceed that of the US.
The economist at Oxford Economics, who was doing the study at the time, said with glee that the UK was «no longer» the sick man of Europe.
The optimism was understandable: real wages have risen 43 percent since 1990, meaning the average worker was earning nearly £12,000 more a year, according to the OECD's rich-country group.
In the US, real wages also grew, albeit at a slightly slower pace, rising by 28% or just below £11,000.
Nevertheless, by 2021, GDP per capita worldwide increased by 15%, and the British lived only 3% better than in 2008.
Fast-rising wages are a thing of the past for the average British worker. Across the Atlantic, they were still a reality.
2304 UK wages fail to keep pace
The pandemic and war in Ukraine have only exacerbated this widening gap in living standards and wealth.
While the US economy was 5% larger in the last three months of last year than it was before Covid, the UK remained 0.6% poorer.
The UK is losing the race with the US on other fronts as well. A number of high-profile homegrown companies snubbed London and opted for New York listings instead.
Joe Biden's $369bn (£297bn) Inflation Reduction Act threatens to suck further activity and investment out of Europe.
Meanwhile, the UK tax burden is approaching a post-war high in 37.7% relative to the size of the economy — and holding back the country.
Record delays in the healthcare system, massive disruptions due to strikes and aging infrastructure mean many Britons will feel they are paying more for less. Chancellor Jeremy Hunt raised business taxation by six percentage points in April to 25 per cent, despite warnings that this will deter investment and innovation in the UK.
Rising UK levies on businesses, capital gains and workers could further widen the gap at a time when the US is massively subsidizing its industries, experts warn.
Chris Sanger, head of tax policy at consultancy EY and formerly head of business tax policy at the Treasury, says the abrupt change in UK policy and rising tax risks are sending the wrong signal to foreign businesses and high-skilled workers and are holding back investments.
Increasing corporate tax “left its mark on messages like ‘UK is open for business’,” he says.
Many changes in tax policy in recent years have also undermined investment confidence in the UK.”
“I think it's a matter of predictability,” says Sanger.
Rapid US growth and increasingly interventionist policies risk eclipsing all of Europe, says Tim Sarson, head of tax policy at KPMG UK.
“We used to compete with other European countries – Ireland, the Netherlands, Switzerland and so on – for US capital. We're really competing with the US as a destination these days.»
He says that while there are jurisdictions with lower taxes than the US, «[Americans] have so many other advantages built in. They have such a huge population, huge economy, [they] all speak the same language.”
Comparing taxes in the UK and the US is difficult because individual states have their own rules, but in general, taxation around the world usually lower.
In 2021, the average net tax per worker in the US was 22.6%, compared to 23.7% in the UK, according to the OECD.
However, for a UK worker with two children, this figure was 18.9% compared to 1% in the US after allowances, tax credits and other provisions.
In the US, the main corporate rate tax is 21 percent. In the UK it is now 25% higher.
The highest paid US workers will pay a top tax rate of 37% on income over $539,900 (£434,813).
The highest paid UK workers will pay 45% on any income over £125,140 sterling. Someone who earns that much in the US would pay no more than 24 percent.
When someone dies, federal inheritance tax in America only applies to those who die, whose estate is worth at least $12.9m (£10.4). m). Most states have no additional inheritance fees.
In the UK, inheritance tax applies to estates worth at least £325,000.
Narrowing the widening gap with the US will require drastic action to spur growth and competitiveness in the UK, but there is still hope, experts say. .
2304 tax gap
Some of Britain's cures for ills become clearer with a hindsight, though they also show why, until recently, many Britons may not have felt much poorer than Americans.
The last time the UK was more prosperous than the US in terms of population was almost 150 years ago.
With the exception of a brief period of the Great Depression in the early 1930s, the UK's GDP per capita has consistently lagged behind the US since 1880.
While the difference was relatively modest prior to World War II, it gradually widened further in the post-war period.
The financial crisis and pandemic have exacerbated the divergence, with the US recovering from both shocks and growing rapidly, while the UK stagnated.
UK tax hikes threaten to widen the gap by stifling investment and innovation, experts say. .
Katherine Neiss, chief European fixed income economist at PGIM and former head of international surveillance at the Bank of England, says the US race ahead and the UK's post-Covid stagnation reflect a pre-pandemic trend.
“In the years leading up to Covid, the US economy really started to take off. We have seen that labor force participation is finally starting to rise. We have seen an increase in business investment in the US,” she says.
“These are the two key components of an economy’s supply potential — the quality and quantity of workers and fixed capital.”
In both regions, growth has been sluggish since the financial crisis. crisis, but towards the end of the 2010s, “the US was showing signs of recovery, while the UK was not,” she says.
«I think this is where the difference between the UK and other comparators like the US really started to show.»
2304 UK lags behind in output
Commercial investment is the 'real source of weakness' for UK, Neiss. speaks. It has remained virtually unchanged since Brexit and remains 2.2 percent below its pre-Covid level.
Mohamed El-Erian, president of Queens College Cambridge and chief economic adviser to Allianz, believes there are several reasons why the UK is lagging behind the US.
“The US economy is more self-sufficient and therefore less vulnerable to external shocks. This was especially important for the energy and food inflation shocks. It's just a more resilient economy,” he says.
El-Erian also adds that it is more flexible.
“It's easier for people to move around. It's more enterprising, so it has both added resilience and added flexibility.»
These are long-term effects that explain why productivity in the UK is lower than in the US, he says.
The UK produces less output per hour worked than the US, France and Canada.
In 2021, productivity was 10% below the G7 average, according to the ONS, although Japan was not included due to lack of data.
2304 US dominates performance
“There have been long periods of performance problems in the UK. That period was the 70s,” says El-Erian. This reflects an economy that is «moving at a slower pace and facing more bumps along the way,» he adds.
Great Britain suffered from the consequences of the Russian war in Ukraine much more than the United States.
The US also produces more energy than it consumes and only imports about 15% of its food, meaning it hasn't been hit as hard as Europe by rising prices.
Inflation peaked at 9 in June. 1%. last year and fell to 5% by March.
Food prices rose at their fastest pace in August, at 11.4%, with the most recent data showing prices 9.5% higher than a year ago.
Meanwhile, UK inflation reached 11.1% in October and remains high at 10.1%, although it is expected to decline rapidly in the near future due to lower wholesale gas prices.
However, the purchase of everyday products is still becoming more and more expensive. Food prices rose 19.1% year-to-date to March, the highest in 45 years.
Food prices are rising
«Inflation in the US is wage-driven and it's a hell of a lot different from price increases caused by external factors. ”, says former British Chancellor Philip Hammond.
«The other side of the coin is that people are getting paid more and more, while in the UK people are getting poorer.»
While the US workforce has also dwindled due to the pandemic, the UK is facing the twin challenges of an energy shock and a smaller workforce.
Talking about the size of the economy, business investment, and labor force participation may seem far removed from everyday life.
But the clearest sign that America is ahead of the UK comes when wages are compared, which were about 50% higher across the Atlantic in 2021.
While real wages in the UK made big gains in the years leading up to the financial crisis, improvements since then have been marginal compared to other countries.
By 2021, the average Briton was earning just 7% more in real terms than in 2008, while American wages rose by a fifth over the same period.
The Financial Responsibility Office estimates that UK wages will not recover to 2021-22 levels before 2026-27.
YouGov's exclusive Telegraph survey also shows that Americans are far more optimistic about their finance.
Three out of ten US residents expect their situation to improve in a year — twice as many as in the UK. In five years, only a quarter of Britons believe their financial situation will improve, compared to two in five Americans.
While Britons disagree about where the standard of living is better in the US or the UK, Americans are more likely to say they have better living standards, a survey has shown.
Alabama car wash job posting with an offer $125,000+ (£100,339) for the role of manager has recently been widely shared on social media — this is three times the average UK salary of £33,000.
Such sharp differences are characteristic of many professions. According to Indeed, a surgeon's salary in the US is around £220,700 compared to £82,600 in the UK.
The average salary for engineers is also more than double that of £80,245 compared to with pounds sterling. £37,500 in the UK.
Meanwhile, lawyers and accountants make £25,000-30,000 more a year in the US.
2304 Jobs pay better in the US
These salaries attract highly skilled workers from the UK to the US. Ethan, a 28-year-old publicist, decided to move to New York after being offered a promotion that nearly tripled his salary.
“In the UK, I was earning £40,000 to £50,000 and living in a shared flat in London,” he says. «Now I can afford to live on my own.»
Expats emphasize that in many parts of the US, higher wages are possible with cheaper housing.
Joel, a 35-year-old aerospace engineer from Los Angeles, originally from Portsmouth, has lived in the US for about 10 years. When he left the UK in 2013 he was earning £27,000. The first salary he was offered in the US was $75,000 (£60,188).
“I recently bought a four-bedroom house on a decent piece of land in Los Angeles for $800,000 (£642,000). I don't think I could do it in the UK, let alone London,» he says.
Housing and wages were also a watershed when Jamie, a 34-year-old project manager from Surrey, and his American wife were deciding where to live back in 2017.
“In the UK I would probably be earning around £35,000 outside of London and somewhat higher in London – potentially more in the £50,000 range but with long commutes. I make about £62,000 here,” he says.
He and his wife bought a £185,000 three-bedroom, two-bath expandable home in Billings, Montana in 2018. Prices for a house of this size have since risen to between £280,000 and £320,000, he says.
“In Surrey, it would cost around £500,000 for a much smaller footprint,” he says. .
The UK has long had an advantage over the US in a much more comprehensive provision of public services, including universal health care, and taxes have been lower than in other European countries.
But British public services lag behind those in European countries, in while taxes are slowly catching up.
A record number of NHS backlogs of about 7 million people awaiting treatment are increasingly prompting frustrated, can-affordable Britons to turn to private hands.
Number of people waiting in hospital
In the US, white-collar workers typically have private health insurance through their employer.
Oli, a 39-year-old engineer from Staffordshire who now lives in Los Angeles, says that about 10-15 years ago he would have turned to the NHS «for what we have here on any given day».
«It's frustrating not to know how much a medical procedure will cost and to call five people to try and get a straight answer before 10 different people bill anyway,» he says.
But he adds: “Now that you have to call the NHS at 8am to make an appointment with a GP that will inevitably be booked by 8:01am, I feel it's better here. I can click a few buttons on the app and make an appointment with the doctor sometimes the same day, always the next day, or I can make an appointment with the doctor for free in five minutes. The doctor's appointment will cost me $10 in insurance.»
The engineer, who has lived in the US for 18 years, adds, however, that without insurance, “the US is once again in a nightmare situation. choice between [not] getting help or going broke.”
The poorest 10% of Americans had disposable income about the same as in the UK before the pandemic, despite the fact that they received much less support.
In general, inequality is much more pronounced in the US. The ratio of people living below the poverty line is 0.15, which is similar to Turkey. In the UK, this figure is 0.11, which puts it in the middle of the rankings.
President Joe Biden has made a key political promise to reverse the washout of America's middle class, claiming he will rebuild the US.» from bottom to top and from the middle outward, not top to bottom.”
In addition to higher inequality, life expectancy is much shorter: 76.1 years compared to 80.8 years in the UK.
When comparing the UK and the US, it is important to consider these factors,” says Peter Klenow, an economist at Stanford University.
«When we think about people's goals… they care about leisure as well as market consumption. They also care about those things like life expectancy,» he says.
For example, an increase in life expectancy by a year corresponds to an 8-9% increase in consumption in his living standard simulation. Having more free time also improves the equation. He adds that inequality reduces the average level of well-being.
His research several years before the pandemic found that these factors largely offset the difference in income levels.
Since then, the wage gap has widened, but so has the gap in life expectancy.
While high salaries attract British professionals, America's rapid economic growth and huge subsidies for the transition to a green economy also attract companies and investments.
This is especially dangerous for British car manufacturers, as the US Inflation Reduction Act allows consumers to receive up to $7,500 in credit if they buy an electric vehicle that meets certain requirements, such as using US-made battery components. PwC estimates that such tax breaks in the UK will require £64bn of public investment by 2030.
At the same time, many large enterprises prefer to list in the US rather than the UK.
British chip giant Arm, which is owned by Japan's SoftBank, announced a month ago that it would only list in the US, despite Rishi Sunak lobbiing for a London listing.
This came shortly after this building material group CRH, one of the largest companies in the FTSE 100, said it would move its primary stock market listing to the Big Apple.
The departure raised concerns that London was losing its competitive edge. According to a recent City of London report, London and New York are going head to head after years of being the British capital in the top spot.
General assessment of the competitiveness of stock markets.
However, data from the London Stock Exchange shows that only 22 British companies have listed their shares in the US over the past 10 years, and their shares have fallen by an average of 39%.
The numbers suggest that talk of an exodus is exaggerated, but the recent departures are nonetheless symptomatic of deeper problems.
Startups are thriving in the UK, which boasts 135 unicorns valued at over $1 billion. This is more than France, Germany and Singapore combined.
These factors suggest that while the UK is good at building companies, there are problems with scaling and growing.
«There is a problem with the 'investment opportunity' of British business and the size of our stock market,» says Lord Hammond.
One of the reasons, he says, is that the typical affluent middle-class family in the UK “may not have significant financial assets other than a house and a pension.”
“ In the US, the same upper-middle-income household typically also has a portfolio of financial investments,” adds Lord Hammond.
Regulatory changes over the past two decades also mean that UK pension funds are increasingly investing in supposedly low-risk assets such as government bonds rather than investing in UK companies.
While much has been said about Britain's problems, according to economists, politicians and business leaders, closing the growing gap with the United States is still possible.
Lord Hammond says that first we need to change rules for pension funds so they can invest their money more widely.
“Our pension funds in the UK often allow people to retire at 50 or 55, contrary to government policy, and do not invest in the UK markets. and British business, contrary to government policy,” he says.
“So if you want to save your money without tax breaks, you can do absolutely whatever you want with it, as far as I understand. But if you want to get public policy support through tax credits, you need to accept some restrictions that will bring your savings activity into line with public policy programs.
But the main thing is to make work more productive, he said . says.
“If we want to have a high standard of living, reasonable taxes and quality public services, the only way to achieve this is to quickly increase productivity" He says.
Economists and policy makers have many different views on how to increase productivity, and thereby growth, to put us on a trajectory more similar to that of the United States.
It is critical to boost the patchy track record of UK business investment, Naess said.
Another option would be to devolve power to areas outside of London to boost growth, says Michael Heseltine, a lifelong Conservative politician who served as Deputy Prime Minister.
“In large parts of England and the rest of the UK lacks incentives to create conditions” to spur growth and opportunity, he said.
“The only major domestic program available to the government is to speed up the mayoral process and the handover of London to these countries,” he says.
Chancellor Jeremy Hunt outlined plans to address some of the supply-side challenges facing the UK , in his Budget for Growth earlier this year, although many economists believe much more will be needed.
City Minister Andrew Griffith says Edinburgh's government reforms to re-regulate the city after Brexit will build on existing strengths, «greater access to market information, helping to hire the best global talent and making it easier for companies to raise capital.»
Companies choose the UK because it is «a global financial center and a safe place to do business,» he says, adding: «The London Stock Exchange goes back to a time when the US didn't exist.»< p>But with Labour's poll18 points higher than the Conservatives, Shadow Chancellor Rachel Reeves could soon be the person responsible for restoring economic growth and convincing workers and businesses to choose the UK.
She believes that Britain must «show global leadership» in the race for «green» industries, where «the US and the EU are ahead of us.»
“Some country will become a leader in green steel production, carbon capture and storage, wind power, electric cars, why not Britain? We need to attract business investment here — instead, we stay in the dressing rooms while other countries are on the track,” says Reeves.
Mr Hunt said he would introduce measures in response to Massive US and EU environmental subsidies in Fall Statement.
The US is very good at «picking winners,» says KPMG's Sarson.
«We need to think about which industries we really want to support , and then go all out with both feet instead of messing around.”
The most important aspect of any future approach to correcting anemic growth But the US will be consistent, says El-Erian.
«You have to remember that this is not a one-time event. You have to keep going, keep going and keep going. And you have to learn from what happened,» he says.
The British past contains many of these lessons, but without major reform, the hope that we can all become richer than Americans will become increasingly hopeless.
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