UK’s economic model is broken, says Archbishop of Canterbury

Britain’s economic model is broken and produces widespread inequality, the Archbishop of Canterbury has warned in a report backed by business leaders.

Justin Welby said the UK needed to make fundamental choices about the direction of its economy, in a study that found the gains from growth are being diverted into profits rather than wages.

“Our economic model is broken,” said Welby. “Britain stands at a watershed moment where we need to make fundamental choices about the sort of economy we need. We are failing those who will grow up into a world where the gap between the richest and poorest parts of the country is significant and destabilising.”

The report by the IPPR thinktank’s commission on economic justice, which features senior business and public figures alongside Welby, stressed that all political parties needed to reject the current patterns of economic growth that delivered most of the gains to corporations and the richest in society.

It said the situation had worsened in recent years as workers struggled to make ends meet after the longest period of earnings stagnation for 150 years.

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The interim report by the commission, which was set up last year, proposes fundamental reform of the British economy “on a scale comparable with the Attlee reforms of the 1940s and the Thatcher revolution of the 1980s”.

Pointing to rising debt levels, the report called for an urgent public debate on the role of banks and the financial sector in the British economy. It also flagged extra support for trade unions to act as a bulwark against shareholder interests in the workplace. The report, which is expected to produce a series of policy initiatives when it unveils final conclusions next autumn, also said ministers must tackle the market dominance of digital companies such as Amazon, Facebook and Google.

A spokesman for the Treasury said the chancellor, Philip Hammond, rejected the accusations in the report that the government had cut investment and presided over a rise in inequality.

He claimed that employment was at a record high, the public finances were in better shape and the Gini co-efficient measure of inequality was at a 30-year low.

But the chancellor accepted that a higher level of investment was needed to promote growth. “That is why we are investing £23bn in infrastructure, R&D and housing while also reforming technical education to prepare for the high paid, high skilled jobs of the future,” the Treasury spokesman said.

Theresa May is under pressure to reboot her premiership after failing to gain a majority in the last election. She was criticised from many inside her own party for ditching previous pledges to support the “just about managing” group in favour of further austerity.

The IPPR’s initiative has echoes of the thinktank’s commission on social justice, which provided many of the policies adopted by New Labour when it came to power in 1997.

It is understood the commission hopes ministers will accept some of the criticisms in the report and be prepared to implement many of the proposals.

Tom Kibasi, the IPPR director and chair of the commission, said: “We don’t have a British economic model. We have an economic muddle.

“The persistent economic problems we have experienced since the 2008 financial crash won’t be fixed with a bit of tinkering. There is a growing consensus across business, trade unions and civil society that a radical new approach is now needed.”

The commission’s membership is drawn from a wide group of business leaders and civil society groups including: Dominic Barton, the global managing partner of the consultancy McKinsey and Company; Helena Morrissey, Legal & General’s head of personal investment; Sir Charlie Mayfield, the chairman of the John Lewis Partnership; Sara Bryson, a community organiser in Tyne and Wear for the charity Citizens UK; and Sally Tallant, the director of the Liverpool Biennial contemporary art festival.

John McDonnell MP, the shadow chancellor, said: “The commission’s findings drive home the deep problems of the British economy, which have been gravely worsened by seven years of Tory failure that has seen average wages fall and debt rise.

“The Tories have given huge tax breaks to the super-rich and giant corporations, but failed to deliver the investment in infrastructure, skills and research and development that are needed to create the secure, high-wage jobs of the future. As the report shows, the result is an economy dominated by insecurity and falling living standards.”

The commission has conducted fresh analysis that shows average earnings per employee have fallen by 6% despite GDP per head rising by 12% since 2010.

It said that since the 1970s the share of national income which has gone to wages has gradually declined, from 80% to 73%, while the share going to profits has increased. It said the wage share is now the lowest it has been since the second world war.

Kibasi said the report’s analysis found that the economy “is no longer raising living standards for a majority of the population, breaking the ‘economic promise’ that has underpinned public life since the second world war. The economy’s deep weaknesses make it unfit to face the challenges of the 2020s.”