United Kingdom

Overview

British Prime Minister Benjamin Disraeli famously highlighted the extent of inequality in the UK in his 1845 book Sybil: “Two nations between whom there is no intercourse and no sympathy; who are as ignorant of each other’s habits, thoughts, and feelings, as if they were dwellers in different zones, or inhabitants of different planets. The rich and the poor.” Since then there has been a huge rise in living standards, a massive expansion of the welfare state, and yet Britain is still marred by high levels of inequality. No event could have showed that point more starkly than the British referendum on June 23rd 2016, which divided the country between the 52% who voted to leave the European Union after 43 years of membership, and the 48% who voted to remain. The vote was largely explained by attitudes to immigration, which often, though not always, mapped inequality too. Such inequality partly explains the UK’s overall ranking of nineteenth out of thirty-five countries studied. This is below many comparable European nations such as Germany and the Netherlands, but above the United States and France. Its strengths are primarily in knowledge and innovation while the major weaknesses outside inequality are in levels of trade and debt.

Strengths

Demographically, Britain is in a stronger position than many comparable nations due to its higher than average fertility rate and relatively ungenerous public pensions. As a result it spends just half as much public money on pensions as a share of GDP as Spain and Germany. This gives Britain some very welcome demographic leeway to meet future demands on public spending.

It is generally strong in knowledge and innovation. High numbers of workers have attended university: more than in any other European country except Ireland and Luxembourg. World-leading institutions such as Oxford, Cambridge and Imperial College make it a very attractive destination for overseas students: nearly a fifth are from outside the UK, the third highest of all countries studied. These strengths in human capital help to support Britain’s competitive advantage in financial and business services as well as high-value manufacturing such as cars and pharmaceuticals.

Its economic environment is one in which property rights are effectively enforced and corruption is low. This, coupled with high rates of broadband penetration makes Britain one of the most attractive places to do business in the OECD: within Europe only Denmark is rated higher.

Weaknesses

While overall it is an open economy, there are some signs of restrictions or barriers in relation to trade. Trade as a proportion of GDP is relatively low: half the rate of Germany and less than Italy. With a persistent current account deficit, it’s vital that levels are boosted if the UK is to improve its economic performance. It is not yet known whether leaving the European Union will produce more openness in terms of trade or less, though it is likely to involve new controls on immigration.

In a country which has been a pioneer in the advancement of women’s rights and now has its second female prime minister, there is still a disappointingly high level of gender inequality. It is the least equal country in Europe, worse than either Greece or Portugal. This constitutes a potentially damaging waste of human talent and potential.

Lastly, economic resilience is marred by high levels of inequality and debt. Levels of income inequality are the second worst in Europe. This is a sign of an unbalanced economy which is not effectively harnessing the talents of many of its people. At the same time, the UK has relatively high levels of both government and household debt: a combination that makes the UK vulnerable to any future economic shock.

Fact File

Population: 63.7 million (OECD, 2014)

GDP: $2,663 billion (OECD, 2015)

GDP per capita: $40,903 (OECD, 2015)