The UK is not producing what the world needs. Fuelling wage stagnation and drop in living standards.

For a few years now I have been learning about economics, not formally, just in my own time. I believe that in 2023, with a world of information at our fingertips, we can learn absolutely anything that we want. I also study Quantum Physics and Finance. I have an intrigue, an itch that needs scratching and it fuels my thirst for knowledge.

Asking myself questions and searching for answers, that is pretty much how I spend most of my time. From 'what is quantum superposition' to 'would a gorilla beat a lion in a fight'. My natural inquisition fused with a level of OCD and reluctance to accept the status quo means I search for answers to questions and then like most veterans I kick in to problem solving mode.

Most recently I have been looking closely at the economy, not really as a whole, but specifically around inflation. 3 years ago I could buy 8 pints of milk for ￡2 as a deal in most supermarkets, the same 8 pints today will cost me ￡3.30 (two 4 pint bottles), a 65% cost rise. Why? This was the question I asked myself.

The Government and Rishi Sunak are telling us that the pandemic and Putin are to blame for inflation and the huge cost of living rise. Most people accept that, why wouldn't they? People in the government are our leaders, they are much more intelligent than us.. right?

Well in some ways they are correct, looking at red diesel specifically, in March 2020 it was around 50 pence per litre, today (purchased in bulk) its around 80 pence, a 60% cost increase. That cost rise has to hit someone, profit of the manufacturer, profit of the seller (supermarkets) or the consumer (us). When demand for something is high, the price remains high (and gets even higher if there is reduced supply).

In other ways the Government is wrong, they are very good at publishing inflation rates, usually for the year or quarter. This shows an immediate picture and it doesn't look 'so' bad. The UK's annual inflation rate was 10.4% in February. (That is bad), what they don't publicise too much is what that means over a 3 year period.

Taking one example: The average annual wage in the UK in 2020 was ￡31,487 and in 2023 it is ￡33,280. Sticking with milk, the average cost of a pint of milk in March 2020 was 43 pence, today it is 90 pence (It was ￡1.05 just a few months ago). So average wage has increased about 5.6% but in the same time frame a pint of milk has increased 109%, this is REAL inflation.

Hidden Inflation

In 2020 did you buy a packet of biscuits and count how many were in there? Probably not. Did you buy a packet of pasta and keep note of the net weight? Probably not.

Hidden inflation is not something people look at or even think about. They may have purchased a bag of crisps in 2020 for ￡1 and then in 2023 purchased the 'same' bag of crisps for ￡1.10, a 10% cost increase. Fine. But what they might not realise is that the 'same' bag of crisps is actually 10g lighter than the bag they purchased 3 years ago. They are paying more for less. This is hidden inflation, this crisps they purchased are not 10% more expensive, they are actually probably >25% more expensive. This is a very underhand tactic used by manufacturers to fool the people in to thinking that it is good value for money.

Supermarkets now publish 'pence per' on the price labels (i.e. 46p per kg), this is great for comparing products side by side, but what you don't and can't see is what the price is compared to a year ago, two years ago etc. This is why we are getting poorer and not understanding why or how.

Averages

I hate averages, it masks a sinister reality. Average wages for one is a farce, there is such a gulf between those paid huge amounts to those paid the national living wage that it is absolutely nonsensical. In 2019 over 540,000 people in the UK were earning over ￡120,000 a year, that is nearly ￡65bn in income at the lowest level. It would take 3,410,526 people earning ￡19,000 pa each to get the same overall income amount of nearly ￡65bn (Over 6 times the amount of people). This is at the minimum of ￡120k pa salary, I dare say the true figures are much, much higher than this. The average salary is calculated by?summing all the annual salaries of all persons in work and dividing the total by the number of workers.

So, if Person A is on ￡250,000 pa and Person B is on ￡19,000 pa, the average salary is ￡134,500 pa. STUPID!

I am sick to death of the government raging about average this and average that, averages mean nothing, it is the DETAIL that is important to us, the UK and no doubt to Michael Gove .

Productivity

What does the UK produce that the world wants..? Not a lot to be frank, not enough at least. BBC Panorama recently published a documentary stating that the AVERAGE UK worker produces an output of ￡43.59p per hour. There is that dreaded average again.

There are high output firms and low output firms. The low output firms are locally serving, mainly. Hairdressers, Cafe's, Takeaway's etc. The output from these workers drastically brings down the average of output from high productivity businesses such as financial services and manufacturing.

The detail here is what Andrew Griffith MP and Rt Hon Gillian Keegan need to focus on. We need to look at what the UK does or could offer to the world with high output and develop a strategy around it. We need hairdressers, we need cafe's etc of course, but moreover we need engineers, ICT professionals, global financial experts, basically anything that can drastically increase our global value. SME's are the backbone of our economy sure, they hire the most people and pay the most taxes but generally they only serve our economy. When our people run out of money, they stop spending. This just leads to more failed SME's.

Skills for the future

I believe that in order to increase wages to match or exceed inflation we need to kick start the economy to serve a global consumer, not just ourselves. Whether that be businesses, people, governments or all of them, we need to provide output that is either purchased globally or output that attracts global business to come here.

This all starts with skills, you get out what you put in. If the Department for Education create 100,000 hairdresser college places, you will have 100,000 hairdressers. This is by no means a slur on hairdressers, I get my haircut just like most other people, I think it is an art. I could never do it.

But, simply put, the Government needs to develop and ensure there is access to a range of skills that increase the value of UK PLC, not just what is easy and accessible to hit employment targets. There may be huge growth in hairdresser businesses, this doesn't increase the demand, it just means there are more businesses competing for the same market. For example, instead of 10 businesses servicing the market there are 100. You can make more money by putting your prices up but there will still be the same amount of people who need a haircut. More businesses that make less profit.

My fear is that as Higher Education moves more and more in to a business model (Colleges have CEO's now, instead of heads), colleges will offer more of what puts bums on seats, what generates money. Is it easier to qualify and get paid for 1,000 hairdressers compared to 1,000 cyber security professionals, probably. Using this bums on seats, draw down of cash model, HE could fall in to the danger of:

A. Only developing skills that are low output or service us only domestically.

B. Over create supply regardless of demand, leading to lower wages and people redundant before they even qualify.

Both outcomes are bad, bad for the economy, bad for wages and most of all bad for people. HE Needs to work as a well oiled machine, it needs to balance demand and supply and it needs to work together. The Government should be the conductor and HE establishments the orchestra, each playing their own instrument, their own music, to create a beautiful symphony.

Investment

As detailed in the Panorama documentary, the UK has one of the lowest investment rates in the developed world. It is almost like Jeremy Hunt MP has completely forgotten the principle of Return on Investment. That in which you invest in, you will receive more of.

There is a stark difference between investing and spending. For example, the Government spends billions on the Department for Work and Pensions, they will call this an investment but it isn't, where is the real return? Getting people in to work, yes. Getting people in to work that increases the UK output on a global stage, not really. It is short term-ism that works only to boost tax revenue in the short term.

The Government must (on behalf of the UK tax payer) invest more money in to developing skills to increase what we offer to the world. There must also be a detailed analysis on what the UK COULD offer the world, what could we do that we aren't doing at the moment. How much would it cost, how long would it take, who are the buyers, why do they buy it etc etc, then we can start to develop the skills needed to service that market. A profound difference here will ultimately have a huge positive impact on employment, education, wage growth, living standards.. the list is endless. What are the blockers here? It is too long term, the kudos for such advancements would be taken by a future government. Who knows. Get ego out of it before we are all doomed.

The solution - micro and macro economics?

I believe we need to stop looking at the UK as a whole in terms of economic growth. It is up to the Government to lead, strategise and target set whilst creating budgets and support... Much like a senior team in business right? It must then be up to local Governments to come up with the plans and execute... Much like staff in a business right?

Councils exist to take money from the tax payer (Central Government, Parking, council tax, business rates etc), yes they have to take a portion of what they make and pay their pimp (the Government), but when the small pool you make your money from run out of money, you are finished and everything collapses.

You just need to look at the high street, I hate to think how much 'revenue' is lost when a whole shopping district is empty and no business rates are coming in. The lost revenue has to come from somewhere so bang 5% on council tax. Now your CT has gone up, you can't afford to spend money on retail anyway.

Jane hunt (Minister for Hospitality) better watch out, domestic hospitality is next on the doomed list. If I cannot afford to feed myself at home, I am certainly not going to feed myself in a restaurant.

Global Consumers

Lets take a look at Cornwall and more specifically Cornwall Council

From what I understand, Cornwall has a labour demand of 290,000 with a working population of 335,500, of those 16.1% (54,000 ish) are not in work. They are either unemployed or completely economically inactive (this doesn't include retirees).

Nearly 50% of employees in Cornwall work in the public or hospitality sector. A further 18.3% work in retail and 7.4% in construction or real estate. In all I would estimate that as much as 80% of all output in Cornwall is low output or locally serving, it is probably more! This is a problem that I think Philip Mason needs to tackle decisively and quickly with the help of people like Miles Carden , Brent Treloar and Jordan Whaley to name just a few.

But what could Cornwall be?

Cornwall has the longest coastline in the UK, it has also recorded record wind levels and has an exciting aquaculture outlook.

Cornwall could and should be one of first and finest sustainable innovation areas in the world. It should spawn and attract innovative startups from around the globe to develop, test, prototype and launch technology in wind, solar, wave energy, aquaculture, sustainability. Emerging technologies should be pioneered and delivered to the world from Cornwall.

Imagine the largest sustainable innovation hub in the world with an annual global conference that attracts 1000s of people from around the world. Attracting investment not only from our own government but from governments and businesses from around the world.

Think big and then think bigger, then think bigger again. Imagine what Cornwall could deliver to the world, imagine what it could do for UK PLC. Business creation, job creation, skill enhancements, tourism increases all leading to infrastructure upgrades and real investment from UK Government... Endless benefits that all end with a huge increase in living standards in the county.

It just takes a bit of vision and one hell of a story to pull together what is needed. If councils around the UK can leverage what is great about their area, show exciting ROI to the UK Government then the future is theirs. Hey, Jeremy Hunt, give us ￡50m of investment, we will turn it in to ￡500m for the UK Government in 5 years. Cornwall Council better get on the phone to Paul Scully quick, there is an opportunity here to put Cornwall on the world stage in something other than tourism.

I am not a 'qualified' economist, I am a hobbyist at best and this is just how I see it. I welcome discussion and I love hearing about the art of the possible. I see significant challenges for the UK in the future, and they aren't small. The world is taking off and the UK is going to be left behind.