The United States is richer than the United Kingdom. This is not a new phenomenon – indeed, we have fretted about it for more than a century, not least as we watched from afar as Americans got to enjoy all manner of time-saving devices while using what was left to dominate global affairs.
Still, UK economic performance since the 2008 global financial crisis has been abysmal. Productivity growth has flatlined, not exactly aided by the three economic shocks of Brexit, Covid-19 and Russia’s invasion of Ukraine. But while the US economy is now more than five per cent larger than pre-pandemic levels, the UK’s is still smaller. The result: Americans are on average 30 per cent richer than us.
This is not at all esoteric. It means that the average American can purchase more goods and services than the typical Briton, with pretty wild effects. And with thanks to the excellent work of John Handley and the Social Market Foundation think tank, today’s newsletter looks into what exactly those are, with a particular focus on housing.
First, some caveats. There are sectors in which Britons spend more than our flashy American cousins. Not on cricket and teapots, but actual things such as clothing, while we consume similar levels of recreation, culture and interestingly – given the perception of sky-high US university fees – education.
It is really four categories which account for nearly all of the American advantage over the UK: health, transport, housing and miscellaneous. As Handley points out, some of this additional spending power is ‘wasted’, or at least not allocated efficiently.
For example, healthcare accounted for 18.3 per cent of US GDP in 2021, compared with 12.4 per cent in the UK. Yet life expectancy in the US is falling behind its rich-world peers. But before you get smug, it is worth noting that a record 7.6 million people are now waiting for NHS hospital care in England. N.B I am aware there are more varieties of healthcare system than the binary of the US or UK model.
Really, it is in housing where the gap between our two nations is perhaps most stark. The mic-drop statistic from the report is that Britons spend a comparable amount of money for homes that are, on average, 60 per cent smaller.
This gap wouldn’t necessarily be an issue if it reflected different preferences between British and American households but, as Handley points out, this is not the case. We devote a larger share of our overall consumption to housing than Americans (21 per cent versus 17 per cent) and face significantly higher housing costs (2.34 times the global average versus. 1.7 times the global average).
The paper noted that other countries such as France, Germany, and Japan also have smaller houses than the US, but in those cases, it appeared to be a matter of preference as spending on housing is lower. If we could reduce those costs, we could spend more on other things without sacrificing yet more square footage.
This is the bit where we say ‘let’s build more houses’. And then we talk about reforms to planning law. And then the Lib Dems win a by-election off the Tories in Buckinghamshire on a NIMBY platform and the whole thing is shelved for another parliament.
As I’ve said more than once with reference to the US economy, comparison is the thief of joy. Rishi Sunak talks about oil and gas licenses while the US does this. But at root, this is a story about us, not them. Britain has made bad choices and experienced some rough luck over the last decade and a half and our living standards have suffered as a result.
The economist Paul Krugman once quipped that “productivity isn’t everything, but in the long run, it’s almost everything.” Before presumably wondering in which of his many living rooms he should display his Nobel Prize today.
In the comment pages, Dylan Jones says farewell to Jamie Reid, a punk visionary who captured the spirit of a generation. Spectator political editor Katy Balls calls it the job they all want, but asks who will Sunak pick to replace Ben Wallace? While Maddie Mussen says all hail the wife-beater to wife-pleaser vest rebrand.
And finally, how Croydon found its chic side. London’s largest borough was once a food-lovers’ wasteland. Nothing could be further from the truth now, says Josh Barrie.
