The obsession of Britain’s political class with the US, the product of a shared language and the dominance of American culture, means it tends to look across the Atlantic to see how the UK is performing. At present, the comparison is not a flattering one. US growth has powered ahead during the recovery from the pandemic, on the back of large fiscal stimulus and higher investment. Moreover, that comes after Britain had struggled through a prolonged period of weaker growth in living standards than America since the 2008 financial crisis.
The new Chancellor, Rachel Reeves, has promised to raise growth, but finds herself in an environment that will make that promise hard to fulfil. Britain’s public debt is high, and interest rates have risen. Labour markets are tight, and sticky inflation suggests there are few scarce resources that she can put to work through fiscal stimulus. Britain has also imposed sizeable trade barriers on itself by leaving the EU, and Keir Starmer has decided not to try to reverse that decision. The security threat from Russia means that defence spending will have to rise, which will require lower government consumption and investment elsewhere. When Donald Trump takes office in January 2025, trade barriers may rise further: he plans to demand better terms of market access for US companies or impose tariffs. A more transactional US will sharpen Britain’s post-Brexit dilemma about whether it should move closer to America, diverging from EU norms and standards in the process, or remain close to the EU, its largest export market.
This policy brief compares Britain’s recent economic performance to that of France and the US, and suggests that the successes of France in productivity and investment have been underappreciated across the Channel. Despite the apparent similarities between the US and UK economic models, such as smaller states and larger service sectors than continental European economies, France provides more policies for the British government to consider emulating. France has big economic problems too – slow growth, a sizeable budget deficit and a comparatively low employment rate (although the latter has been improving in recent years). But its workers are more productive, it has a more effective state, and it has made fewer economic policy blunders in the last two decades.
However, what follows is not an argument for Britain to ‘strategically converge’ on the French model. Grands projets are always risky: the last two attempts to reconfigure Britain’s economic and social model have both failed. One of Reeves’s predecessors, George Osborne, sought to reduce the size of the state during a period of weak demand in the 2010s. But he merely weakened growth further and reduced the state’s capacity to deal with shocks like the pandemic. To the extent there was an economic theory behind Brexit – deregulation and free trade agreements with faster growing economies to compensate for higher trade barriers with the EU – it has, predictably, been found wanting, and leaving the EU has imposed huge costs. Instead of radical change, Britain’s aim should be to ‘muddle through’ the economic risks that Trump and Vladimir Putin pose, but in the direction of France.
About the author:
John Springford is an associate fellow at the Centre for European Reform.