Home » Broken Britain: How the wage squeeze left us being treated as a developing country

Broken Britain: How the wage squeeze left us being treated as a developing country

“It seems that the recent increase in wages is a cyclical phenomenon driven by labour shortages as a result of Brexit, people dropping out of the workforce following the pandemic and a rebound in growth,” says the economist Julian Jessop. “We will not get a structural, long-term increase in wages until there is sustained productivity growth.” 

There is a long-running and, at times, quite arcane debate about whether Gross Domestic Product (GDP) is the best way to measure the economic performance of a country. Whichever side you come down on, it’s clear wage growth is far more relevant to most people and has a more direct impact on living standards. 

Wage growth also helps boost the economy because it means people have more to spend, while pay packets are the main source of tax receipts for the Treasury. 

Those that feel worse off are right to do so. For the first time on record, living standards will be lower at the end of this parliament than they were at the beginning. According to official data, real disposable income fell by 1.8 per cent per person in the four years to the end of last year. 

This is, of course, not entirely the Government’s fault. We have had three huge economic shocks in the past 15 years – the financial crisis, the Covid pandemic and energy price spike following Russia’s invasion of Ukraine. Two of those have happened since the last general election. 

But it is also true that the UK has suffered more than other similar countries. The average salary in the US was just more than £52,000 last year, according to the US Bureau of Labor Statistics, while in the UK it was £35,000, according to the Office for National Statistics. This is not a direct apples-for-apples comparison. US workers get fewer holidays and less in benefits. 

However, and this is the key point, the gap is widening. During the two decades in which UK wages flatlined, those in the US grew by 20 per cent. “The big picture is that we are all harder up than we thought we were going to be,” Bell told the BBC’s Today programme podcast. 

Economists love comparing different countries to try and gauge their relative performances. Such beauty contests (or, more recently, ugly baby competitions) usually have little bearing on most people’s lives. However, the gap that is opening up between UK wages and those earned by workers in other countries is now so big that people have started to notice.

Speaking to The Telegraph earlier this month, Alexandra Marshall Grant described how she transferred from her firm’s London office to Charlotte, North Carolina in September 2022. The move was motivated by a clear-eyed view of which was the real land of opportunity and resulted in a salary rise of 54 per cent.

Amber Peacock, a pharmaceutical sales executive, started job hunting in the US when her husband secured a green card and the pair relocated from Edinburgh. She found she would have been able to get a job doing “exactly the same thing, same hours, same commitment, same responsibility” but for double – if not triple – the salary (although she ultimately decided to become self-employed). 

US companies have also noticed the growing difference in wages on either side of the pond and are outsourcing white collar jobs to the UK. Last month, The Wall Street Journal, wrote an article about how surging wages in the US and a tight labour market has resulted in companies outsourcing many roles to Britain. The headline was: “The British Are Coming for Your White-Collar Job”.

Nick Bloom, a Stanford University economics professor who studies outsourcing, told the paper: “The strength of the [US economy] over the last 15 years has pushed wages up and made it more attractive to offshore. If you’re based in New York or San Francisco it’s now going to be cheaper to offshore to northern England than to Mississippi or Alabama.”