Professor Kenneth Rogoff says that the UK vote to leave the EU was a “Russian roulette for republics”, with an ‘absurdly low bar for exit, requiring only a simple majority’, with no supermajority, second referendum or parliamentary confirmation vote required.
Many voters did not have had a clear idea of what they were voting for or of its consequences, and many now seem to regret it. But the results did confirm the existence of a diffuse anger among the UK population.
At first glance it’s difficult to understand why this is the case, especially when comparing the UK with other European countries.
Before the referendum the UK economy was doing pretty well. Last year, GDP growth in the UK was the strongest among all major European countries and similar to that of the US. The unemployment rate was the lowest after Germany and in the first quarter of this year the proportion of the population in employment reached its highest level since comparable records began in the 1970s. The number of involuntary part –time workers has been rapidly declining while the proportion of those with temporary jobs – about 6 per cent – is less than half the figure of 14 per cent for developed European economies, according to the OECD.
So why the anger? Here a few possible economic reasons.
Inequality
In the UK the average income of the richest ten per cent is almost ten times larger than that of the poorest decile. In France and Germany this ratio is around seven times.
Inequality, measured by the Gini index, jumped up during the 1980s then remained largely flat through the 1990s. The years after the economic crisis saw a declining trend, but despite that the UK remains one of the most unequal economies among advanced countries. This means that even if the economy is doing well, the benefits are not evenly felt across the population.
Stagnant earnings
While the recovery in employment was strong, average earnings among those in work remained almost stagnant after adjusting for the rise in prices. According to data from the ONS that measures the average weekly earnings of employees, real salaries fell until mid-2014. Since then earnings have risen faster than consumer prices, but have not yet regained pre-crisis levels. Thus UK workers had not seen any improvement in real earnings for nearly nine years.
On top of lower real earnings, cuts to working-age benefits and tax credits contributed to reduce income growth. In other words, despite an apparently strong labour market, median household disposable income –the amount available for spending or saving – is roughly where it was at the outbreak of the financial crisis, a long time ago.
In-work poverty
The overall proportion of people in poverty has been largely flat in the last ten years,according to the Institute of Fiscal Studies (IFS). This is relatively good news, but it “masks important and offsetting underlying trends”, particularly that “there have been increases in poverty rates among working families, caused primarily by falling real earnings.”
Being in employment in the UK is increasingly not sufficient to guarantee against poverty. The child poverty rate in working families rose from 18.8 per cent in 2009–10 to 21.5 per cent in 2013–14 and similarly the proportion of parents who feel that they can’t afford basic material goods increased by more than one percentage point to 23.5 per cent in the three years to 2013-2014, “driven by rising deprivation rates in working families”, according to the IFS. About two in three children in poverty were in a working family in 2013-14, up from about half in 2009-10.
Disastrous anger vote
With poor earnings growth and stagnating disposable income, it is perhaps unsurprising that many people, especially among the poorest households, voted for an option that was promoted by the Leave campaigners as ‘catch-all’ solution to numerous problems, including meagre wages and underfunded public services.
However, the likely economic effects of Brexit hold out little hope for these voters.
Economists surveyed by Consensus Economics slashed their forecasts for UK economic growth for 2017 to 0.4 per cent from the 2.1 per cent pre-referendum. The consequences of the anger vote will not pretty.
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