Britain 2000 vs 2020
* As we enter the third decade of the 21st century, this week’s briefing looks at how the UK economy and society have changed since the turn of the millennium.
* The past, as the novelist LP Harley wrote, “is another country, they do things differently there”.
* And things were different in the year 2000. The global economy was booming. The 3.5% growth rate in the UK and the 3.8% figure in the euro area that year have not been bettered in the 19 years that followed.
* Tony Blair was in Downing Street, George Bush was in the White House and Vladimir Putin had just become president of Russia. The events of 9/11, and the subsequent wars in Afghanistan and Iraq lay ahead. The euro was just a year old and the EU was debating whether to expand into central and eastern Europe. Nokia ruled the roost in mobile telephony and the world was getting by without Facebook, Skype, Instagram, YouTube or Twitter. Twenty-five percent of UK households were able to access the internet through a dial-up connection, most using a desktop computer. Britain’s first commercial broadband service was launched in March 2000.
* Much has changed since then.
* Britain’s population has increased, become older and more international. 8.3m more people live in the UK today, an increase of 14%. London’s population has increased by 25%. There are 37% more over-70s around today but only 6% more children and teenagers. Despite this, the ratio of state pensioners to those of working age has fallen due to the rise in the female state pension age.
* The UK economy grew far faster in 2000 than it has in recent years, yet the unemployment rate today, at 3.8%, is well below the 5.5% rate seen in 2000.
* The number of people in self-employment has soared since the millennium, rising more than 50%. Numbers in part-time and full-time employment have risen by 17%. Evidence on the ‘casualization’ of the workforce is mixed. So called zero-hours contracts have risen from less than 1% to over 2.5% of the workforce. But temporary employment has shrunk from 7% to 5% of employment, the lowest recorded, and part-time employment remains pretty flat at about 25% of the workforce.
* Those over-65 are also now twice as likely to still be working as in 2000, in part due to the abolition of mandatory retirement at 65 in 2011. Younger people play a smaller role in the labour market because of the new requirement to stay in education or training until the age of 18. The proportion of young people going to university has risen from just over 30% to 50%. Overseas student numbers have quadrupled.
* Employment among women has increased far more rapidly than among men and the average age of first-time mothers has increased by more than two years, to 28.8. Rising rates of participation in the labour force by women and older people has increased employment, but immigration has been the biggest factor behind job growth. About two-thirds of the 5.6m increase in the UK workforce since 2000 has been due to immigration.
* The shape of the economy has changed radically. Over one million fewer people work in manufacturing, a decline of more than a quarter. Manufacturing output is unchanged, demonstrating how automation and a focus on higher-value products have helped lift productivity. Technology, education and healthcare have increased their headcounts by 40%-50% in the last 20 years. Those in work are less likely to go on strike. The number of days lost due to strike action in 2019 was less than half that in 2000, despite a substantial increase in the size of the workforce.
* A largely unnoticed change has been the decline in the number of public companies – those whose shares can be freely traded on a stock exchange. At the end of the 20th century, there were 12,400 public companies in the UK. Since then the number has dwindled to 5,700. Private companies are on the rise, with their numbers increasing from 1.3m to almost 4m.
* Government is bigger today, with government spending accounting for 38% of GDP, up from 34% in 2000. The financial crisis and the anaemic growth that followed set government on a borrowing spree that lifted government debt from 28% of GDP to over 80%. But with interest rates near historic lows the government currently has to pay only 0.5% to borrow money for ten years, down from 5.7% in 2000.
* Government spending is increasingly focused on the NHS and old-age benefits. A number of areas within the public sector have faced deep cuts, among them working-age benefits, police, prisons and local government.
* Yet despite the depredations of the global financial crisis and public sector austerity we are getting richer. Real GDP is 37% higher than in 2000 and per capita GDP has risen by 20%.
* The price level has risen 51% since 2000 with prices rising far faster for services than goods. The cost of medical services, for instance, have risen 130% in the last 20 years. Education costs have risen by a factor of almost four reflecting the rising cost of university tuition and higher independent school fees. The scope for productivity gains is greater in goods than services, partly because making things lends itself to automation and the use of new technologies. The scale of price deflation in some goods sectors is remarkable. Clothing and footwear prices have halved since 2000. Second-hand cars are 40% cheaper. The price of audio-visual equipment has fallen by 80%.
* Patterns of energy consumption have changed significantly. UK greenhouse gas emissions have fallen by 37%, in part because coal now generates less than 1% of our electricity, down from almost one-third in 2000. Energy generated by renewables such as wind and solar has increased ten-fold. In terms of transport the clear losers are buses and coaches, with total miles travelled falling by 24%. Total car passenger miles have risen by just 5% while the number of rail passenger journeys is up by almost 90%.
* Falling carbon emissions partly reflect a growing tendency to import goods whose production requires high levels of energy inputs, rather than producing them at home. When carbon emissions from the production of the goods we consume is included, the decline in UK greenhouse gas emissions is less impressive.
* The year 2000 was the peak of the economic cycle for the rich countries of the world, including the UK. Growth was about as good as it gets. With the collapse of Soviet communism and China’s rapid industrialisation, capitalism seemed triumphant. The world seemed to have entered an era of strong growth, greater predictability and breakneck globalisation. Twenty years on things look rather different.
* Growth has slowed everywhere, including in the UK. Otherwise the big trends here have been towards a more populous, older and international country, one which, despite the de-rating of growth prospects, has done better than most in creating job opportunities, especially for women and older people. Rapid population growth, driven by immigration, has been one of the unanticipated features of the last two decades. The financial crisis has left us with a larger, more indebted government, one that is spending ever more on health and old-age benefits. It has also left us with borrowing costs that would seemed unimaginably low 20 years ago. From today’s vantage point the year 2000 does, indeed, seem like another country.
OUR REVIEW OF LAST WEEK’S NEWS
The UK FTSE 100 equity index ended the week down 3.9% at 7,290 due to coronavirus fears.
Economics and business
* The number of coronavirus infections in China exceeded the global total of the 2003 SARS virus, and coronavirus deaths exceeded 300
* China restricted travel in Wuhan and other cities in Hubei province, considered the epicentre of the coronavirus outbreak. The Chinese central bank said it would provide Rmb1.2tn ($173bn) in additional liquidity to stabilise markets
* The World Health Organisation declared coronavirus a global health emergency. Several airlines suspended direct flights to and from mainland China
* The UK confirmed two cases of coronavirus being treated at a Newcastle medical facility
* The S&P500 equity index has lost all the gains it has made this year on rising concerns about coronavirus
* East Africa suffered its biggest locust infestation in at least 25 years
* The UK formally exited the EU at 11PM GMT on 31 January
* US president Donald Trump unveiled an Israel-Palestine peace plan which was rejected by Palestinian leaders
* The US Federal Reserve and the Bank of England left interest rates unchanged at their monetary policy meetings
* US Fed chair Jay Powell said that the Fed may join the Network for Greening the Financial System
* The Bank of England lowered its estimate of sustainable annual UK GDP growth from 1.4% to 1.1% owing to poor prospects for productivity growth
* US GDP grew by 2.1% year on year in the fourth quarter of 2019, its slowest pace since 2016. Full-year GDP growth slowed to 2.3% in 2019 from 2.9% in 2018
* The US yield curve, a key gauge of future US growth, inverted for the first time since October 2019
* Euro-area GDP grew by 0.1% in the fourth quarter of 2019, and by 1.2% in full-year 2019, a six-year low, increasing the possibility of further ECB monetary easing
* The unemployment rate in the euro area fell to a 12-year low
* US commerce secretary Wilbur Ross said that the US would retaliate against an EU carbon border tax planned for 2021
* The FT reported that cabinet minister Michael Gove warned businesses that the UK’s future trading relationship with the EU would result in friction at borders and regulatory divergence
* Irish prime minister Leo Varadkar said that the UK would need to allow access to its waters to EU fishermen in exchange for a deal on financial services
* Scottish first minister Nicola Sturgeon asked the UK government to devolve the visa process for immigrants to Scotland, allowing it to pursue a more liberal immigration policy
* The UK government will allow Huawei equipment to be used in up to 35% of “non-core” parts of the UK’s 5G network, in line with the company’s existing market share
* The UK government will renationalise the Northern Rail franchise in March
* The Migration Advisory Committee advised the government to reduce the salary threshold for those immigrating with a job offer from £30,000 to £25,600
* UK car production fell by 14.2% in 2019 to its lowest level since 2010
* UK new mortgage approvals in December 2019 hit their highest level in four years, supported by falling mortgage rates
* According to financial services firm Morningstar, inflows into US sustainable mutual funds and ETFs rose to $137.3bn in 2019, up from $89bn in 2018
* Apple reported record sales and profits in the fourth quarter of 2019
And finally... while tidying up her mother’s house, a woman in West Dunbartonshire took four old Bisto gravy tins to the tip, thinking they were rubbish. Unbeknownst to her, the tins did not contain the popular instant gravy powder, but were in fact the location of her elderly mother’s life savings. Luckily, after quickly returning to the Dalmoak recycling centre, two workers at the site were able to locate the tins after two hours of searching and return them to their rightful owner – hot stock