They have presided over managed decline

Did the Government Make Us Poorer On Purpose?

Here’s something that should terrify every British worker. Since 2008, the typical employee has lost £11,000 per year in wages that they should have earned if growth had continued normally. That’s not a recession dip that recovered. That’s a permanent loss—year after year of being poorer than you should be.

The most shocking part? Some evidence suggests our own government chose this path deliberately. Think about it. Britain was once the workshop of the world, the country that started the industrial revolution. Now British workers earn thousands less than they should have before the financial crisis. Productivity barely grows. Young people can’t afford homes.

The question burning through Westminster corridors and pub conversations alike is this: Did our leaders deliberately let Britain decline? The evidence might surprise you because buried in government archives from 1981, there’s a smoking gun that nobody wants to talk about.

The Liverpool Memo: Proof of Intent

Let me take you back to 1981. Liverpool was burning. The Toxteth riots had just torn through the city. Buildings smouldered, communities were shattered, and the government faced a choice: rebuild or abandon.

That’s when Chancellor Geoffrey Howe wrote his infamous memo to Margaret Thatcher. In it, he suggested something that should have been unthinkable. He proposed—using his exact words—the option to “manage decline” for Liverpool. Think about what that means. A senior government minister was suggesting they should deliberately let a major British city wither away. Don’t invest. Don’t rebuild. Just manage its decline. Let it shrink. Move resources elsewhere. Abandon hundreds of thousands of British citizens because fixing their problems seemed too hard or too expensive.

The memo was supposed to stay secret for 30 years. When it finally came out in 2011, Howe tried to claim he was misunderstood, but the damage was done. Here was proof that at least some British leaders had considered deliberately weakening parts of their own country. And if they could think that way about Liverpool, what else might they have deliberately weakened?

The psychological impact rippled far beyond Liverpool. When people in struggling communities heard about this memo decades later, it confirmed their worst suspicions. The government really had given up on them. The decline in their towns wasn’t just bad luck or global forces. At some level, it was choice.

The Thatcher Era: Accepted Decline in Practice

The early 1980s saw more than just the Liverpool crisis. Thatcher’s government prioritised beating inflation above everything else. The 1981 budget actually tightened policy during recession, breaking with economic consensus. 364 economists wrote to protest, warning it would deepen the slump. They were right.

Unemployment surged to postwar peaks. Interest rates stayed punishingly high. The government knew this would happen. Their own advisers warned that monetarist policies would create mass unemployment, but they pressed ahead. By 1983, inflation had fallen, but at massive human cost. Entire communities built around manufacturing and mining were devastated. The social fabric of industrial Britain was torn apart.

This wasn’t “managed decline” in name, but it was accepted decline in practice. Ministers understood that their policies would destroy traditional industries. They calculated that the pain was worth it for the economic revolution. Whether you agree with that calculation or not, the willingness to accept mass unemployment and community destruction was explicit.

Historical Patterns of Costly Choices

Even before Thatcher, Britain had faced moments where leaders chose economic pain. The 1976 IMF crisis forced the Labour government to accept fiscal tightening and spending cuts in exchange for support. Sterling was collapsing, inflation soaring, and the country needed help. But the conditions imposed meant choosing recession over recovery, cuts over investment.

The 1992 Black Wednesday crisis offers another example of costly choices. Britain had joined the exchange rate mechanism to stabilise the pound and fight inflation. But maintaining the peg required crushing interest rates that strangled the economy. On that September day, the government spent billions trying to defend the pound, announcing a rise to 15% interest rates, though they weren’t sustained and ended the day back at 12% before crashing out of the ERM.

The economic damage was immediate and severe. Mortgage holders faced ruin. Businesses collapsed. The housing market crashed. But here’s the thing: many economists had warned this would happen. The pound was overvalued. The policy was unstable. Yet the government persisted until catastrophic failure forced their hand. They chose maintaining a doomed policy over accepting earlier, less damaging adjustment.

New Labour’s Managed Complacency

From 1997 to 2007, New Labour presided over steady growth, low inflation, and high employment. But beneath the surface, dangerous imbalances were building. The economy became increasingly dependent on housing and finance. Regional disparities widened. Household debt exploded. Manufacturing continued its decline whilst financial services boomed.

The government could see these problems. Reports warned about housing bubbles. Economists flagged the dangers of over-reliance on finance. The regional growth gaps were obvious. But politically, things felt good. House prices rising made voters feel wealthy. The City generated huge tax revenues. So the imbalances were allowed to grow, setting up the devastating crash that followed.

This was managed complacency rather than managed decline. Leaders chose to ride the bubble rather than deflate it gradually. They chose short-term political popularity over long-term economic stability. When the financial crisis hit, Britain was uniquely vulnerable because of these choices.

Brexit: Modern Managed Decline?

Fast forward to 2016. Britain votes for Brexit. The leave campaign promises to take back control, to make Britain great again. But here’s what actually happened. The government’s own Office for Budget Responsibility calculates that Brexit will permanently reduce British GDP by about 4%. Trade intensity dropped 15%. That’s not an accident or a surprise. These outcomes were predicted, debated, and then chosen anyway.

Here’s where it gets interesting. The leaders who pushed for Brexit knew these costs were coming, and the government pressed ahead anyway. They chose sovereignty over prosperity, knowing full well the price. This looks like managed decline by another name. Not the deliberate abandonment of Liverpool, but the deliberate acceptance of national economic weakening for political goals. When you choose a path that you know will make your country poorer, and you choose it anyway, what else do you call that?

The Truss Disaster: Ideology Over Reality

September 2022 showed how quickly bad choices can create crisis. The Truss government announced massive unfunded tax cuts, claiming they would boost growth. Instead, gilt yields spiked, the pound crashed, and pension funds using liability-driven investment strategies faced margin calls that threatened systemic collapse. The Bank of England had to mount emergency interventions to prevent financial meltdown.

This wasn’t managed decline, but gross mismanagement. The mini-budget ignored basic economics and market psychology. The IMF publicly criticised a G7 government’s fiscal policy—almost unprecedented. Within weeks, the Prime Minister was gone, the Chancellor sacked, and almost all policies reversed. The damage to credibility was instant and lasting.

Mortgage rates spiked and stayed high, adding thousands to household costs. The Bank of England’s analysis shows how LDI strategies in pension funds create hidden vulnerabilities. When gilt prices fell sharply, these funds faced a spiral of forced selling. The financial system came dangerously close to breakdown. All because politicians chose ideology over economic reality.

Austerity: The Great Experiment

After 2008, whilst other countries invested to recover, Britain chose austerity. Deep cuts to public spending right when the economy was weakest. The International Monetary Fund later admitted these policies hurt growth far more than it expected. The multiplier effects—basically how much each pound of cuts damaged the economy—were two or three times higher than the government claimed.

IMF research by Blanchard and Leigh in 2013 showed forecasters systematically underestimated how much austerity would hit growth. This wasn’t ignorance. Economists were screaming warnings. NIESR studies estimated sizeable GDP impacts from UK consolidation. The OBR’s own commentary records the debate over multiplier sizes. Yet from 2010 to 2013, the government pressed ahead with the deepest cuts in generations.

Libraries closed. Sure Start centres shut. Youth services vanished. Community programmes that took decades to build were destroyed in months. The human cost was staggering. Life expectancy actually started falling in some communities—something almost unheard of in peacetime. The government could see all this happening. They had the data. They chose to continue anyway.

The Housing Crisis: A Deliberate Choice

Here’s a fact that should make everyone angry. Britain has built fewer homes per year than it did in the 1960s despite the population growing by millions. This isn’t because we can’t build. It’s because the planning system is deliberately restrictive.

The Competition and Markets Authority’s 2024 Housebuilding Market Study identifies planning as the key driver of under-delivery: unpredictability, slow and complex processes, weak incentives. The CMA’s final report is explicit. Planning is the prime constraint on housing supply. It keeps housing scarce in high-productivity places, limiting labour mobility and agglomeration benefits whilst pushing up living costs.

The government knows all this. Multiple reports have said the same thing. Yet the system stays broken. Young people pay the price. The average first-time buyer is now 33, up from 25 in the 1960s. In London and the Southeast, most young people never own homes without family help. They spend half their income on rent, unable to save, watching property prices rise faster than wages. An entire generation locked out of the housing market by policy choices.

The Productivity Crisis

Britain’s productivity crisis is perhaps the clearest sign something has gone deeply wrong. The House of Commons Library reports that productivity grew 1.9% annually from the early 1990s to 2008. Since then, just 0.4% to 0.5%. The ONS’s latest productivity flash shows output per hour only about 2% above 2019 levels.

We’re talking about a historic deceleration that’s destroyed living standards. The Resolution Foundation’s Economy 2030 work—a joint programme with LSE’s Centre for Economic Performance—characterises Britain as a decade and a half into stagnation with low investment, weak productivity, and high inequality. They calculate the typical worker is £10,000 to £14,000 per year below what pre-crisis trends would have delivered.

This isn’t just statistics. It’s millions of people working harder for less. It’s public services crumbling from lack of resources. It’s young people unable to build the lives their parents took for granted. The government understands the problem. The Bank of England, Treasury, and independent think tanks all agree on the diagnosis. Yet policy after policy fails to address root causes.

Investment: The Great Failure

Public and private investment tells another grim story. The Resolution Foundation’s ending stagnation report shows UK public investment often ran below international peers throughout the 2010s. Business investment flatlined through Brexit uncertainty, COVID, and energy shocks. The result is a capital stock that grows too slowly to support productivity growth.

The fiscal rules are part of the problem. Successive frameworks emphasised near-term debt ratios over public investment quality and persistence. This created stop-go investment cycles that destroy long-term planning. You can’t build infrastructure or skills when funding might disappear next year.

Germany and France maintain steady investment regardless of political changes. Britain treats investment as optional, cuttable, dispensable. Private investment faces different but related problems. Brexit uncertainty froze decisions for years. Nobody invests when they don’t know trading rules. Energy price volatility makes manufacturing uncompetitive. Skills shortages mean expansions might fail for lack of workers. The compound effect is an investment strike that leaves Britain falling further behind competitors.

The Regional Divide

The regional differences in British productivity tell a disturbing story. London and the Southeast are bright spots. The rest of the country falls further behind every year. Parliament’s horizon-scanning brief identifies lifting productivity as a key issue, particularly outside London. Transport spending per person in London is nearly three times higher than in the Northeast.

This regional inequality didn’t just happen. In the 1980s, when manufacturing collapsed, the government could have invested in retraining and regional development. Instead, they let entire communities collapse. When coal mines closed, nothing replaced them. When steelworks shut, towns built around them were abandoned.

The promise of “levelling up” was supposed to fix this. But the funding is a fraction of what was cut during austerity. The powers are limited and conditional. The Centre for Cities and others have long documented these gaps. It’s gesture politics, not genuine redistribution of opportunity.

Financial Services: Success at What Cost?

Since Big Bang deregulation in October 1986, London’s markets have transformed. Fixed commissions abolished, foreign firms welcomed, screen trading introduced. The Bank of England’s own material shows this was about competitiveness and modernisation, but scholarship links deregulation to higher top income shares and deep regional imbalances.

CEP research shows Big Bang lifted top incomes whilst deepening regional disparities. Finance acts like a black hole, sucking talent and investment from productive industries. Every bright physics graduate who becomes a trader instead of an engineer. Every pound invested in complex derivatives instead of new factories. The City generates tax revenues but at the cost of unbalancing the entire economy.

The Oil Opportunity Squandered

North Sea oil revenues peaked at 3% to 3.5% of GDP in 1984-85. According to the OBR, the Institute for Fiscal Studies documents how successive governments spent and taxed around these revenues rather than saving systematically. Norway created a sovereign wealth fund now worth over a trillion dollars. Britain created nothing permanent from its windfall.

This was a strategic choice not to save—not a scheme to weaken the economy. But the effect was the same. Temporary revenues funded permanent spending commitments or tax cuts. When oil declined, nothing replaced it. The missed opportunity to transform infrastructure or create sovereign wealth represents one of Britain’s greatest economic failures.

Skills and Public Services

Britain faces chronic skills mismatches that compound productivity problems. We produce graduates in subjects that don’t match employer needs. Technical education remains the poor relation to universities. Apprenticeship programmes never recovered from repeated reforms. Adult education budgets were slashed during austerity and never restored.

The result is a workforce that can’t meet modern economic demands. Engineers are in shortage whilst media studies graduates struggle for work. Plumbers and electricians command premium wages whilst firms can’t find qualified staff. The government knows about these mismatches. Report after report identifies the same problems. Yet coherent skills strategy remains absent.

The public sector faces its own productivity disaster. NHS productivity has collapsed since COVID. Schools struggle with real-terms funding cuts. The civil service operates with outdated technology and processes. You can’t have a productive economy when public services are failing. When NHS waiting lists delay workers returning to jobs, when poor schools produce under-skilled workers, when creaking infrastructure raises business costs, public sector productivity isn’t separate from private sector success. It’s foundational to it.

Conclusion: Decline by Design or Default?

So was it managed decline? The Liverpool memo proves that at least once British leaders explicitly considered deliberately weakening a community. That’s a documented fact. But for the broader economy, the evidence points to something more complex, but equally damaging.

Britain’s leaders didn’t sit in dark rooms plotting to make the country poorer. But they repeatedly chose policies they knew would weaken growth. They picked Brexit knowing the 4% GDP cost. They chose austerity knowing multipliers were high. They maintained planning restrictions knowing they created housing crisis. They concentrated investment knowing it would hollow out regions. They spent oil revenues knowing they were temporary. They ignored productivity weakness knowing it would compound.

Each choice had its reasons. Brexit for sovereignty, austerity for deficit reduction, planning restrictions for local control, London investment for efficiency. But add them up and you get systemic weakening of Britain’s economic potential. Not a conspiracy of managed decline, but something arguably worse: managed trade-offs where growth always loses.

The real tragedy is it didn’t have to be this way. Other countries faced the same global challenges and chose differently. Germany protected its manufacturing. France maintained regional investment. Nordic countries combined market economics with strong public services. Even America, with all its problems, maintained higher productivity growth. Britain uniquely chose paths that we knew would constrain our potential.

The managed decline memo from 1981 revealed a mindset that some places and people matter less than others. That attitude never fully went away. It evolved into subtler forms. Not explicit abandonment, but chronic under-investment. Not declared worthlessness, but persistent neglect. Not managed decline, but decline through mismanagement.

What matters now is what happens next. Because decline isn’t inevitable. It’s a choice. And Britain can still choose differently.