Why the UK’s Economy Is Awful

London is exceptionally wealthy, boasting 215,700 millionaires,

516 centimillionaires, and 45 billionaires.

However, the rest of the United Kingdom experiences

a starkly different reality.

Citizens of the UK have less disposable income

than the poorest five US states and the average OECD country.

If London and the Southeast are removed from the equation,

the UK’s GDP per capita drops by 14%.

Life expectancy in parts of Blackpool is lower than in Rwanda,

and entire towns that once thrived now rank among

the poorest in Western Europe.

Thatcher’s Anti-Inflation Strategy

In 1979, Margaret Thatcher was elected Prime Minister

with the primary goal of controlling inflation,

which had spiraled out of control.

During the 1970s, £100 in 1970 was worth over £30 by 1979 due

to two major oil shocks from OPEC,

wage increases demanded by trade unions,

and loose monetary and fiscal policies.

Guided by Chancellor Geoffrey Howe

and hardline monetarists like Keith Joseph and Alan Walters,

Thatcher made inflation the primary target using a three-part approach:

• Reducing the Money Supply: Setting out to cut Sterling M3 growth from 12% annually down to 6% by 1984.
• Raising Interest Rates: Increasing rates from 12% to 14% in June 1979, and then to 17% in November—the highest in British history—to slow credit and make borrowing expensive.
• Cutting Public Spending and Raising Taxes: Aiming to reduce public sector borrowing from 4.7% of GDP in 1979 to 1.5% by 1983, while raising taxes in the middle of a recession.

The Economic Cost and Deindustrialization

While inflation fell from 13% in 1979 to 5% by 1983,

high interest rates, spending cuts,

and a strong pound crippled manufacturing towns across the country.

Over two million people were left without work,

with an additional 100,000 joining unemployment lines each month.

This prompted 364 economists to sign a letter to

The Times arguing the policy lacked economic theoretical backing.

By the mid-1980s, joblessness in Northern England, Scotland,

and Wales pushed past 15%,

while London and the Southeast remained under 10%.

Financial Deregulation and the Big Bang

Thatcher sought to transform London into

a global financial superpower through a major deregulation

package known as the “Big Bang”:

• Fixed commissions and exchange controls were scrapped.
• The single capacity rule was abolished.
• Foreign ownership was welcomed, and electronic trading was unleashed.

As a result, international banks invested £450 million into the city,

1,500 new millionaires were created,

and London established itself as a leading global financial center.

Between 1979 and 1990, UK GDP grew from £1 trillion to £1.4 trillion,

and GDP per capita rose from £15,500 to £19,900.

The Shift to a Service Economy and Rising Inequality

Despite overall GDP growth,

regional inequality expanded significantly.

During Thatcher’s tenure, the Gini coefficient increased

from 25 to 35, meaning while GDP per capita rose by 30%,

inequality rose by 40%.

Manufacturing accounted for nearly 30% of UK GDP in 1979

but dropped to 16% by 1990, with manufacturing employment

falling by nearly 40% between 1979 and 1993.

The transition from manufacturing to service-based industries

drastically reduced indirect job creation and job quality:

• Indirect Job Ratios: Iron manufacturing supports over 900 indirect jobs per 100 direct jobs (a 1:9 ratio), whereas banking supports around 200 indirect jobs per 100 direct jobs (a 1:2 ratio), and financial services broadly support a 1:3.6 ratio.
• Job Quality and Security: Manufacturing jobs provided formal employment agreements with retirement plans, paid holidays, health insurance, and sick leave, whereas lower-skilled service alternatives lacked these comprehensive benefits.

Today, not a single region in the UK located north of London

has a GDP per capita higher than the national average.

London’s Housing Crisis and Demographics

Despite economic decline in other regions,

internal migration to London remains negative,

with more Britons moving away from London than moving to it.

While median household incomes in London

are 14% higher than the national average,

factoring in housing costs leaves household incomes

only 1% higher.

Housing in London costs nearly twice the UK average.

Consequently, London faces severe housing struggles:

• Over 13,000 rough sleepers were recorded in 2024, representing a 10% annual increase and a 63% increase over a decade.
• Approximately 2% of Londoners are considered homeless, compared to 0.8% in New York, 0.5% in Toronto, 0.3% in Paris, 0.3% in Berlin, and 0.2% in Amsterdam.

The Right to Buy and Foreign Real Estate Ownership

Several structural factors have driven London’s housing crisis:

• The Right to Buy Scheme: Introduced in 1980, this policy allowed social housing tenants to buy their homes at discounts up to 70% with zero-deposit mortgages. In 1980, London had 715,000 social housing units (30% of total housing stock). Today, only 390,000 remain (10% of total housing stock)—a 61% decrease. Nationwide, an estimated 40% of Right to Buy homes are now rented out at market rates by private landlords.
• Foreign Property Purchases: There are no legal restrictions preventing foreign nationals from buying property. In Q1 2024, 27% of residential sales in London went to foreign buyers (compared to 0.3% in New York). Over 20% of new rental properties in London have at least one foreign shareholder.
• Non-Dom Tax Status: This policy allowed roughly 83,000 wealthy residents claiming permanent homes abroad to avoid UK taxes on foreign income, driving up demand and prices for scarce housing resources without contributing proportionally to local public services.

Regional Underinvestment in Infrastructure and R&D

Public spending in the UK is heavily concentrated in London

rather than distributed across other regions:

• Transport Infrastructure: London receives nearly £1,200 per person in transport investment, compared to £430 in the Northeast and £350 in the East Midlands. If the North had received transport funding at the same per-capita rate as London, it would have gained an additional £140 billion in investment. Furthermore, the UK spent just 0.3% of GDP annually on roads between 1995 and 2020, compared to 0.4% in Italy, 0.5% in Germany and the US, and over 0.6% in France.
• Research and Development (R&D): In 2016, public R&D spending was £60 per person in London, but only £21 in the North of England and £14 in the Midlands. Unlike Germany, where poorer regions receive greater public R&D support to balance regional growth, the UK allocates disproportionately more government R&D support to London, furthering regional economic divides.

A Nation Reordered Around a Single City

Two decades after political promises were made

to reorder opportunity across the country, economic growth,

investment, and capital remain overwhelmingly concentrated

within a few square miles along the Thames.

While London retains immense wealth and prestige,

much of the remaining nation continues to deal with depleted

industrial bases, crumbling regional infrastructure,

and shrinking economic opportunities.