Our state has become a guarantor of corporate profits

Equitable distribution of income and wealth would go a long way towards stimulating domestic demand and investment…

Prem Sikka is an Emeritus Professor of Accounting at the University of Essex and the University of Sheffield, a Labour member of the House of Lords, and Contributing Editor at Left Foot Forward.

The UK’s economic growth has slowed in the second quarter of the year to 0.3%.The economy grew by an average of 1.5% between 2009 and 2024. The UK remains trapped in low growth as the government’s chosen tools are deregulation and greater reliance on the finance sector. Right on cue, the Chancellor repeated the usual platitudes about the need for higher labour productivity, growth and investment.

Hardly any questions are asked about why the same policies have failed to fuel economic renaissance in the past. There is little questioning of the policies that destroy productivity. Austerity, wage cuts and neglect of public services have reduced productivity.  Equitable distribution of income and wealth would go a long way towards stimulating domestic demand and investment, but that isn’t on the government’s agenda.

For a long time, neoliberals claimed that high rates of inflation, corporation tax and interest rate dissuaded the private sector from investing. In recent years, the UK has had low rates of interest, inflation and corporate taxes; and numerous tax reliefs have been handed to corporations but that didn’t translate into higher rates of investment in productive assets. In 2022, the UK invested around 19% of its GDP into productive assets, compared to 26% for France, 25% for Germany and OECD countries averaged 23%. By the first quarter of 2025, the UK investment declined to 18.2% of GDP. For 24 out of the last 30 years, the UK has languished at or near the bottom of the G7 countries’ investment league. It ranked 28thout of 31 countries despite the infrastructure investment made by the state via the expensive private finance initiative (PFI).

No government has shown a willingness to address structural problems. These relate to short-termism in the City of London, and the oppressive power of shareholders and stock markets. The average tenure of a FTSE 100 chief executive is around 5.2 years and 2.7 years for chief operating officers. As share prices form a key part of their bonus algorithm, they have economic incentives to maintain or increase it and appease shareholders by making excessive dividend payments. The Bank of England Chief Economist noted  that in 1970 major companies typically paid £10 in dividends out of each £100 of profits, but by 2015 the amount rose to between £60 and £70, often accompanied by a squeeze on labour and investment.

Shareholders also have short-term horizons. Shares in listed companies are literally held only for seconds as portfolio managers scour markets for quick returns, and higher performance-related bonuses. In 2024, companies listed on the London Stock Exchange (not all are UK-based) raised £25.3bn in new shares; paid out £92.1bn in dividends and another £57.1bn in share buybacks. Instead of retained earnings and equity, companies are forced to use expensive debt to finance investment or just sweat assets, which leads to low rates of labour productivity. One study noted that labour productivity rose by only 5.9% between the first quarters of 2007 and 2024, compared to 38% between 1990 and 2007.

The City is a major extractor of cash rather than provider of investment, and aged assets don’t aid productivity. Successive governments have done nothing to reform corporate governance, short-termism in the City of London, obsession with share price and power of shareholders to squeeze more, or seek modifications to performance-related pay which rewards short-term gains at the expense of the long-term. Unlike most European countries, successive UK governments have opposed putting worker-elected directors on the boards of large companies to check rampant shareholder pressures.

Workers lacking good food, housing, education and healthcare are unlikely to be very productive. The median gross wage of a full-time employee is £30,624. Some 16m Britons, including 5.2m children, live in poverty. One in every 200 households in the UK is experiencing homelessness, and the homelessness rate is the highest in OECD countries.  Due to insecurity and anxiety one-in-four young people in England have mental health conditions. Victorian illnesses like rickets and scurvy have returned. In 2023, 800,000 patients were admitted to hospital with malnutrition and nutritional deficiencies. Poverty has negative effects on educational attainment, health, employment potential, earnings and tax payments. It increases demand for social security benefits and public services. Due to child poverty, the UK is losing economic output of around £39bn a year. Equitable distribution of income and wealth would improve spending power of the masses, stimulate demand and investment, but it isn’t on the government’s agenda.

Successive governments have manufactured the crisis in labour markets, low productivity and skills shortages. Poor healthcare prevents people from working. The UK has an average of 2.4 hospital beds per 1,000 of population, compared to 7.6 in Germany and an average of 4.6 in OECD and EU countries. For hospital beds, the UK is ranked 24thout of 25 OECD countries. The number of beds in England is unevenly spread. For example, Homerton University Hospital NHS Foundation Trust has just 0.9 beds per 1,000 people, lower than the average for Mexico. Bedfordshire Hospitals NHS Foundation Trust has just 1.7 hospital beds per 1,000 people, about the same as average in Colombia.

The wilful neglect of the NHS in England has increased the waiting list for hospital appointments from 2.5m in 2010 to 7.7m in 2023, and is about 7.37m now. People struggle to access a dentist or a family doctor. There is 83% increase in people waiting for planned heart hospital treatment in England, from 232,082 at the start of the decade to 425,372 in March 2025. There is an 18% increase in cardiovascular deaths among working-age adults since 2019, translating to a jump from 18,693 deaths to 21,975 in 2023. Some 3.5m people live with cancer and around 167,000 a year die from it. Cancer deaths are almost 60% higher for people living in most deprived areas. Around 28,400 cancer deaths each year are linked to socioeconomic inequality. Some 300,000 people a year die whilst waiting for a hospital appointment. The deceased are typically those suffering from delays and cancellations to hospital appointments, the less well-off and people from ethnic minorities. People in the UK are less likely to survive treatable conditions, such as breast cancer and stroke than people in the 19 richest countries.^.

Poor healthcare and public services may meet some obscure fiscal rules and cut taxes for the rich but they result in loss of labour productivity and huge economic costs. Over 17m people are living with two or more chronic conditions.  Around 2.8m people in the age 16-64 year are economically inactive due to long-term sickness. Around 16.1m people have disabilities. Some 148.9m working days were lost to sickness in 2024, compared to 163.8m day in 2023. The neglect of healthcare is a major cause of labour shortages and low labour productivity.

The UK infrastructure is crying out for direct public investment to boost productivity and create jobs. Healthcare and social care needs to be removed from the clutches of the private sector. Roads are full of potholes and need around £17bn to fix them. Universities are cutting courses; the number of home (UK domiciled) students is declining and about 40% of England’s universities are in financial difficulties. Legal-aid is scarce and justice is even scarcer even if you can pay. By March 2025, Crown Court backlog reached 76,957 – a 25-year high; backlog of magistrates’ courts reached 310,304. The UK can’t build enough homes as it doesn’t have brick building capacity. With annual imports of around 500m bricks, it is the world’s largest importer. Some 30%-40% of cement is imported.

For ideological reasons, the state is prevented from investing directly in new industries and infrastructure. As a result that investment in productive assets lags behind other major comparable countries. We need an entrepreneurial state with autonomy, not the one which has become a guarantor of corporate profits through privatisations, outsourcing and PFI. It needs to focus on quality of life instead of profits for the City. In the words of John Maynard Keynes:

“Where we are using up resources, do not let us submit to the vile doctrine of the nineteenth century that every enterprise must justify itself in pounds, shillings and pence of cash income, with no other denominator of values but this. Why should we not add in every substantial city the dignity of an ancient university or a European capital … an ample theatre, a concert hall, a dance hall, a gallery, cafes, and so forth. Assuredly we can afford this and so much more. Anything we can actually do, we can afford. …”.

Neoliberals are not constrained by such noble thoughts. They need to be reminded that a state with fiat currency can create money to achieve social objectives. It found money to bail out banks and subsidise corporations. It provided £895bn of quantitative easing to support speculators. It finds billions to fund foreign wars. The same state can find billions to invest in new industries and social infrastructure to improve the UK asset base and society.