People in Britain often say that the United States is much like the United Kingdom. Recent polling by Freshwater Strategy showed that the British public thinks that the U.K., as a country, would be the 7th richest U.S. state. The actual 7th richest state, North Dakota, boasts a GDP per capita of $102,000 compared to the U.K.’s $52,000.
Many Brits assume that in both economies most people are poor, while a small number of individuals accumulate vast wealth at the top. In this myth, the U.S. suffers from the same perceived problem as Britain of inequality without wider prosperity.
The uncomfortable reality, however, is that the average Brit is significantly poorer than most Americans.
By GDP per capita, parts of America that are routinely described as economically lagging outperform the British economy. Even Mississippi, often cited as the poorest state, has a GDP per capita of $54,000. That should be a sobering benchmark. This is not a story about inequality in Britain but about weak national wealth creation.
Britain retains the self-image of a rich country but its underlying performance tells a different story — one of high taxes, vast regulation, weak productivity growth, and poor incentives for entrepreneurs.
This reality has shaped the political climate. Between 2008 and the E.U. referendum in 2016, living standards stalled. The Brexit vote was, in part, a collective response to that stagnation and a demand for a different economic trajectory. Leaving the E.U. was never a growth strategy in itself but rather an opportunity to pursue one.
In this respect, Brexit was — and still is — a fork in the road. Britain has greater autonomy over its regulatory, tax, and trade policy. The question is whether that autonomy is used to drive growth or not. My forthcoming story of the Brexit referendum, Ten Years On, chronicles the campaign and what has happened since.
Henry NICHOLLS / AFP via Getty Images
In some areas, Britain has benefited from its post-Brexit freedoms. Examples of this range from tech, where being outside the E.U.’s regulatory regime has allowed the U.K. to be more nimble, to healthcare, where we can now approve new drugs far faster. Overall, however, we have not made as much of these freedoms as we should have.
Critics blame Brexit for Britain’s economic stagnation, but much of it stems from longer-term policies that have held back prosperity.
The preconditions for entrepreneurship are not new, nor are they particularly complicated. I recently co-authored a book with Dr. Arthur B. Laffer and others called Prosperity Through Growth: Boosting Living Standards in an Age of Autocracy and AI. We argue that growth requires low tax rates, low government spending, sound money, smart regulation, and free trade.
Ultimately, prosperity is generated not redistributed. The focus of economic policy should be incentivizing entrepreneurship rather than redistribution. Without economic growth, debates about inequality become zero-sum.
Britain’s problem isn’t that wealth is unevenly distributed. It is that the overall economic pie has grown too slowly for too long. And that pie is being cut into ever more pieces with the explosion of migration to the U.K.
This explains a paradox that defines modern Britain. All the fundamentals are there, but the incentives often discourage entrepreneurship. Inequality becomes more visible not because of a few too rich people but because the middle is comparatively squeezed.
Americans, on the other hand, enjoy higher median incomes. Take plumbers, for example, who earn $62,000 on average in America, compared to $43,000 in Britain. As President Kennedy once said, “A rising tide lifts all boats.”
The danger is that the debate remains focused on distribution rather than growth. Framing Britain as a country with a few very rich people and many struggling households risks misdiagnosing the problem.
A more accurate diagnosis is that Britain is an underperforming advanced economy. It has the capabilities to be significantly more prosperous than it currently is, but has failed to convert those capabilities into sustained growth.
The implication is straightforward. If Britain wants to meaningfully raise living standards, it must prioritize policies that incentivize growth.
The European Union referendum result reflected a demand for change. Whether that demand ultimately leads to greater prosperity depends not on the act of leaving the E.U., but on what we do with the freedoms that followed. Ironically, when critics of Brexit cite studies suggesting that the U.K. economy would be 8% bigger had it stayed in the E.U., those studies assume Britain would have grown at the same rate as the United States in the period since 2016.
I look forward to seeing the British people enjoy the same pro-growth policies and prosperity that Americans enjoy.
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Matthew Elliott is President of the Jobs Foundation and is a member of the House of Lords. He was also the Chief Executive of Vote Leave.
