In this second part in our series on how the UK has changed in the past 25 years, we look at the finances of both the nation and individuals, before turning to housing and business.

Steve Schifferes, honorary research fellow, City St George’s University

For most of the 2000s the economy grew strongly, raising living standards and allowing the government to invest more in public services such as the NHS. This was the “NICE” decade, an acronym coined by former Bank of England governor Mervyn King to describe a long period of “non-inflationary, continually expanding” growth – in contrast to previous decades of “boom and bust”.

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In contrast, the period since the 2008 global financial crisis has been characterised by low growth, static real incomes and a growing government debt burden – all exacerbated by the COVID pandemic and the energy supply crisis caused by the Ukraine war.

Underlying the deterioration in Britain’s economic performance since 2008 has been a sharp fall in the rate of productivity, meaning the amount of output produced per worker. Falling productivity reduces output for the same number of workers, which brings down both GDP and real incomes.

In the first decade of the 21st century, UK productivity grew at 2% per year, with the economy expanding by 2.5%-3% annually – this was the culmination in a long period of strong productivity growth driven by everything from North Sea oil to corporate investment in IT and the internet. Since 2008 productivity on average has increased by 0.4% per year, and economic growth has fallen to an average of just 1.5% per year. If productivity had continued to grow at its pre-2008 rate, the average British household would be £18,000 better off today.

UK productivity 1990-25

Underlying this weakening productivity has been low levels of investment in infrastructure by both the private and the public sectors. This includes both physical investment in plant and equipment, as well as transport and energy, but also investment in training.

Despite prioritising improving productivity, there is little evidence that Keir Starmer’s Labour government managed to tackle this shortfall, at least in the short term.

The stronger performance of the economy before 2008 allowed the government to boost spending while limiting tax rises and keeping the public debt below 40% of GDP. This changed after the financial crisis: government debt rose to 60% as it pledged over £1 trillion to bail out the collapsing financial sector.

Debt increased further to 80% during the COVID pandemic when the government spent £400 billion to subsidise wages, and has since kept on rising to 95% of the size of the economy – £2.9 trillion. This means the government is now paying out more in debt interest than it spends on any other service except the NHS.

Net debt as a % of GDP

Both government spending and tax revenues are now at 80-year highs as a percentage of GDP, with spending making up 45% of the total economy, and taxes 40%. This has severely limited the government’s scope to improve public services and invest in future growth, or to tackle the cost of living crisis.

Economic growth has also become even more uneven. The gap in GDP per capita between the south-east and the rest of the country has continued to grow, with London’s average income now two and half times that of the poorest region – the north-east of England. The relentless rise in house prices has driven both regional and generational inequality.

Though many countries were hit by the global financial crisis, Britain’s oversized financial sector meant it was both hit harder and recovered more slowly. It has fallen further behind its main G7 rivals both in long-term productivity growth and the level of real incomes.

With its economy more dependent on foreign trade, it is also more vulnerable to disruptions to the international economy, such as the Trump-era tariff wars and the effects of the Iran war on oil and gas output. The IMF has projected that despite a small upgrade the UK will only grow by 1.0% in 2026, dragged down by weaker international trade and higher oil prices.

In the 1970s, Britain was regarded as the “sick man of Europe”, falling behind while its continental rivals surged ahead. With the world more divided than ever, and with the emergence of new economic superpowers like China, the UK’s task in recovering its position will be even more difficult than the challenges it faced then.

Young people are finding it increasingly difficult to afford to own a home or find secure jobs. More working age adults, including those with low-paid jobs, are receiving benefits, while over a million people aged 16-24 are not in education, employment or training.

Overall unemployment is little changed, having fallen during the........

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