Britain makes profit a dirty word

And focuses on sharing a stagnant pie, rather than growing it.

Bed was the most attractive option after a 24-hour trip from Singapore to Maidstone last month. But our two hungry young children wanted an evening out at my in-laws’ favourite local Thai restaurant.

The food impressed discerning southeast Asian palates but the bill of £165 was steep for a fairly spartan order. Particularly for casual dining in a town less affluent than its surrounding villages. Those wealthier enclaves obscure Britain’s relative deprivation when it comes to average household disposable income. OECD figures from 2021 put this at US$26,884.

It lags not just other major European economies like France and Germany. But also, Slovenia, Ireland, and Belgium.

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Is the cost of living a profit problem?

Recent rhetoric pins the blame on so-called profiteering. But the Institute for Economic Affairs (IEA) counters the public perception that businesses are enjoying a profit bonanza at the consumer’s expense. In its April paper, A Growth Mindset?, Brits surveyed guessed the hospitality sector made a 40 per cent margin. In fact, it’s about five percent. The Kent proprietor pocketed only £8 from our custom after paying taxes, rent, suppliers, and salaries.

Findings were similar across the board. Brits think rail companies make 45 per cent, supermarkets 50 per cent, and energy companies 57 per cent. The reality is three, three and 10 respectively. Most bizarrely, Brits also believe the NHS generates a 34 per cent profit. Given its revenue (in government funding) is over £200 billion, that would feasibly yield a trillion-dollar valuation resembling Meta or Apple. No wonder the story that Trump wanted to buy it gained traction.

It is, of course, not profitable in any way. And its sacred nature generates a consensus that anything else would be a moral transgression. That attitude pervades throughout public services. Hence, Pat McFadden’s unguarded moment of despair in his text to Peter Mandelson. McFadden lamented that Labour policy revolves around who it can tax to pay benefits to others. In other words, finding the money to give away stuff is its raison d’être.

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Redistribution becomes the state’s sole purpose

Hosting Margaret Thatcher in 1985, Singapore’s founding Prime Minister Lee Kuan Yew praised her for challenging this attitude. Lee thought it complacent to assume “the creation of wealth came about naturally, and that what needed government attention and ingenuity was the redistribution of wealth”. Lee did not share Thatcher’s ideological attachment to the free market. He once refused her invitation to speak at the Conservative Party conference because his earlier political sympathies lay with the Labour Party. But he admired Thatcher’s obstinacy and believed her reforms necessary to arrest Britain’s economic malaise.

In his memoirs From Third World to First, Lee still assigns socialist origins to his outlook. He writes that unencumbered laissez-faire capitalism benefits too few. But he also believed the profit motive was fundamental in broadening wealth. He was ambivalent about whether this was delivered by the public or private sector, as long as it consistently produced more from less.

Sometimes this value-creation is straightforwardly commercial. Singapore Airlines, established under Lee in 1972, has consistently been one of the world’s most profitable airlines. Like the other State-owned enterprises (SOEs) that together comprise almost a fifth of Singapore’s GDP, government ownership is no excuse for subsidisation. The same ethos applies to the country’s sovereign wealth funds, Temasek and GIC. They invest Singaporeans’ mandatory savings, seeking to generate returns above the guaranteed rates credited to contributors. The two entities currently have combined assets of around US$1.28 trillion.

The government exists not as a redistributive cost centre, but as a return-generating entity that invests in the country. Its public services provide wider and self-perpetuating value. For instance, Singaporeans pay for subsidised healthcare and housing through personalised savings accounts. In effect, its mandatory contributions are little different to taxation. But it creates accountability. The taxpayer expects a certain level of service for a bill they directly bear. And in turn, public services aren’t inundated with people using it like an all-you-can-eat buffet.

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Private or public - as long as it works

Atlanticist goggles sometimes cloud the right’s perception of Singapore. It is held up as a positive example of a small state and thriving free enterprise. But Singapore rejects that juxtaposition of an inefficient public sector and a productive private one. Given Britain’s post-1945 consensus has favoured big government, fixing it looks more realistic than shrinking it.

America’s laissez-faire model has put it top of that OECD disposable income pile. In 2021, its average household’s $46,425 was already $20,000 ahead of Britain’s. But the European countries that also sit above Britain operate with similarly interventionist governments. It implies that taxpayers are at least getting some value for their large contributions.

Staying in Amsterdam recently, next to the Eastern Docklands where the country’s own East India Company was an earlier paradigm of global capitalism, I heard familiar complaints. A resident friend talked about the perverse incentives of top marginal tax rates of 54 per cent. Other wealthy residents are spooked by new taxes on unrealised capital gains.

Yet the Netherlands sits comfortably above Britain when it comes to disposable income. The Dutch earn more and the cost of living is less. I don’t know the ins and outs of its national policy. But the recent ambitious extension to the Port of Rotterdam is an interesting contrast to Britain’s own HS2. The former was delivered on time and on budget and yields an annual profit. The latter is still uncompleted at a projected cost of $100 billion.

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Britain’s dereliction of duty

Britain finds itself in the worst of all worlds as it pursues what the journalist Christopher Snowdon calls a “capitalist command economy”. Businesses are technically in private hands but face a plethora of “instructions, targets and, increasingly, price controls”. It’s a cop-out in which the government intervenes but absolves itself of any duty to deliver.

Britain could make an evening out in Maidstone more affordable. A less onerous minimum wage or pragmatic energy policies would lower businesses’ costs. Or it could try to make individuals richer, so £165 is a less significant chunk of take-home pay.

But instead, it makes profit the ignoble pursuit. And as it gives up on value creation, so it gives up on growth.