Taxing the rich, closing loopholes and ending privatisation can reduce child poverty, inequality and boost investment argues Prem Sikka
Sustained economic growth has been the mantra ever since the Labour government returned to Office last July. As before, it has been elusive. The Chancellor has promised to reignite it in the November budget, but is unlikely to succeed.
The government’s economic growth model is fundamentally flawed. Firstly, it is built upon the erosion of the purchasing power of the bottom 50% of the population. No economy can grow when the masses lack the purchasing power necessary to buy goods and services. Secondly, Labour continues to frown upon direct state investment in infrastructure and emerging industries. It assumes that the private sector and the City of London will take long-term risks and identify national priorities. This has failed to deliver the required investment. A reinvigoration of the state is needed.
Almost all economic statistics show that a large part of the UK population does not have the capacity to fuel growth. Despite poor economic performance, the average remuneration of FTSE 100 CEOs has hit £5.5m and some collect 1,112 times the average wage of workers in the same company. In September 2025, the median wage of a UK payrolled employee was £30,552. The average real wage has hardly moved since 2008. Some 4.5m jobs in the UK pay less than the real Living Wage. Some 1.17m workers are on zero-hour contracts.. Work simply does not pay enough. 34% of Universal Credit claimants are in work. The Joseph Rowntree Foundation estimates that a single person needs to earn £30,500 a year to reach a minimum acceptable standard of living, whilst a couple with 2 children needs to earn £74,000 a year between them. Around 24m people, 36% of the population, live below socially acceptable living standards. The result is that some 16% of UK adults have no savings, and 39% have less than £1,000 to negotiate emergencies or dreams of buying a home. The state pension is less than 50% of the minimum wage. Some 16m Britons, including 5.2m children, live in poverty. In 2023/24, 2.8m people lived in households which had used a food bank.. Victorian illnesses like rickets and scurvy have returned, and 3m people are malnourished or at risk of malnutrition.
Instead of redistribution, tax laws have been bent to serve corporations and the rich. The headline corporation tax rate was cut from 52% in 1980 to 19% in 2017, and is currently 25%. The top marginal rate of income tax on earned income was cut from 83% in 1979 to the present 45%. The investment income surcharge of 15% was abolished in 1984. Capital gains and dividends are taxed at lower rates than wages. Today the poorest 20% of population pay a higher proportion of their income in taxes than the richest 20%.
The inevitable result is the concentration of wealth in relatively fewer hands. Just 685,500 Britons, the richest 1%, have wealth of $3.4 trillion (£2.8 trillion), compared to $2.9 trillion (£2.4 billion) held by 48m Britons, a combined total of 70% of the population. The 50 richest families hold more wealth than 50% of the population. The $46 billion (£38 billion) wealth of just four individuals is greater than the wealth of 20m Britons. The bottom 50% of the population has 5% of wealth, and the bottom fifth has only 0.5% of wealth. Successive governments have systematically weakened low/middle-income families, and they cannot play a leading role in any economic renaissance.
The policies of successive governments have increased the concentration of wealth in fewer hands in the hope that the super-rich would somehow facilitate growth. That has not been the case. They have isolated themselves from the rest of society. They use private schools, clinics, dentists, and live in gated estates. They buy foreign villas, yachts, planes, antiques and artworks, and roam the world to park their wealth. The wealthy get easy access to policymakers to bend government policies to advance their interests but this has not facilitated sustained economic growth or investment.
The state’s capacity to invest in productive assets has been neutered. Its preferred mode of operations is to hand vast tracts of the economy to corporations through privatisations, outsourcing and the private finance initiative. Vast subsidies have been handed to privately owned auto, steel, oil, gas, coal, biomass, shipbuilding, internet and other businesses, without any equity stake or seats on the boards to ensure that broader public interest is served.
Low competition, captive customers and state-guaranteed profits have turned the UK into a rentier economy, and investment is neglected. England’s water industry is a classic example. Since privatisation in 1989, no new reservoirs have been built. Infrastructure can’t cope with demands, and raw sewage is routinely dumped in rivers, lakes and seas.
There is a similar story in the energy sector. Companies responsible for Britain’s electricity and gas infrastructure have spent £490m a year less than promised on replacing and refurbishing existing assets. The creaking infrastructure is unfit for purpose. During periods of high wind, the government pays companies up to £180,000 an hour to switch off wind turbines as the electricity transmission system can’t cope with additional electricity. At the same time, gas plants are paid extra sums to produce more electricity to balance the system and meet demand. For the period September 2021 to April 2025, the cost of balancing the electricity grid came to £11.8bn, and is expected to hit £8bn a year by 2030.
Around 61% of local authority budgets are spent on social care, mostly in corporate control. Profitability among the largest care home chains ranges from 11% to 42% of revenues. A 2022 report by the Competition and Markets Authority found the 15 largest children’s home providers made an average annual profit of 23% per year. Between 2011 and 2023, 804 out of 816 adult care homes forcibly closed by regulators were run for profit. In the period 2014-2023, 48 of the 53 children’s homes forcibly closed were operated by corporations.
The NHS is doling out cataract surgery contracts to the private sector, operating on profit margins of between 32% and 43%. The government has published a blueprint for further privatisation through its Neighbourhood Health Centres plan.
Inevitably, in a rentier economy where markets are dominated by a few players, investment in productive assets is low. Despite the government’s much vaunted dash for growth, by the first quarter of 2025, the UK investment in productive assets had declined to 18.2% of GDP, down from 19% of GDP in 2022. This compares with 26% for France, 25% for Germany and the OECD countries’ average of 23%.
The emerging economic powerhouses are not constrained by neoliberal aversion to direct state investment in infrastructure and new industries. In 2024, China invested 40.4% of its GDP in productive assets, whilst India put 30.5% of its GDP into productive assets. Higher investment leads to higher productivity. Between 2014 and 2024, the number of industrial robots deployed in China rocketed from 189,000 to more than two million. In 2024, China added 295,000 industrial robots, compared to 27,000 in Germany, 34,000 in the US and just 2,500 in the UK. China has 567 robots for every 10,000 manufacturing workers, compared to 449 for Germany, 307 for the US and 104 in the UK.
Labour has put its faith in the expansion of the finance industry, even though it has short-term horizons and has been unwilling to invest in newer industries. In any case, corporations do not prioritise broader public or national interests. That slack must be taken by the state. Direct investment by the UK state in new industries is minuscule, as shown by the race for semiconductors and rare earth metals. China is providing $47.5bn for investment in semiconductors, and India $18.2bn. The UK is providing £10m in financial support for the semiconductor industry.
Critical minerals are part of the geopolitical competition for power and industrial capacity. The insecurities have prompted countries to develop strategies to strengthen their supply chain and political autonomy. China has a near monopoly on extracting and refining rare earth metals and minerals. India has the world’s third-largest deposits of rare earth minerals, but its mining and production capacities are much lower. The Indian government has approved tranches of $1.8bn and $2.08bn to build the critical minerals industry. The UK government has developed a strategy, and the House of Commons Foreign Affairs Committee said that it “is too broad to be helpful as a guide to industry, which needs realistic targets and timeframes. Nor does it convey the sense of urgency”. The UK banked on the private sector, but a leading corporation has withdrawn its promise to build a rare earths refinery.
The Chancellor’s budget needs to be judged by its effects on inequalities and the purchasing power of the bottom 50% of the population. The experiment with privatisations has failed to deliver the required investment. The private sector has little appetite for long-term risks and has shown little enthusiasm for investment in new industries. The government’s role in direct investment through public ownership of essential industries and interventions in emerging industries is urgently needed. Without this, Labour will not be able to deliver sustained economic growth.