Why Britain’s institutions are dying

The combined forces of the market and the bureaucratic state have hollowed out public bodies.

The stench of institutional decay is engulfing the UK. From the Met police via BBC bosses to NHS management, public institutions have lost their way. What, one might ask, is their point if they preside over scandals and merely manage decline? This process of self-erosion is reminiscent of a passage in Ernest Hemingway’s novel The Sun Also Rises in which a character called Mike is asked how he went bankrupt. “Two ways,” he answers. “Gradually, then suddenly.”

At a time of de-globalisation and the need for national renewal, the British state lacks the basic capacity to provide essential public services and invest in key areas such as transport infrastructure or housing. Whether it’s stopping crime, preventing sewage from being dumped into our rivers and seas or providing adequate health and social care – never mind functioning utilities like water – UK state capacity has been eroded for decades. As a country, we are getting poorer, unhealthier and unhappier – though this is far from inevitable. But as the National Institute of Economic and Social Research (where I work) has shown, it is especially true for the bottom half of the income distribution, while the top 20 per cent of households do disproportionately well.

While the post-war model was at once too statist and too individualist, the rot really set in with Margaret Thatcher’s market fundamentalism and waves of privatisation, deregulation and liberalisation. Private consumer choice replaced public well-being as the highest moral principle while the transfer of ownership involved a shift of focus from national provision to corporate profits. As we can see with cases like Thames Water, short-term profit maximisation leads to underinvestment and dysfunction. Trickle-down wealth enriches the top executive and large shareholders, but it does not reach every provincial gulley.

And while New Labour increased investment in public services, it did so using private providers and corporate capital to the point where state and market converged. The mindless mantra of modernisation meant that national economies would uncritically integrate with the global economy and national politics would be increasingly subordinate to international financial markets. Robert Reich, Bill Clinton’s secretary of labour, described the new model of political economy in 1992 as follows: “There will be no national products or technologies, no national corporations, no national industries. There will no longer be national economies, at least as we have come to understand that concept.”

Thus, much of the UK’s institutional ecology has been hollowed out by the combined forces of the central bureaucratic state and the global free market since Thatcher and Blair. Nowhere is this truer than in the case of economic policymaking. The UK state that underwrites the market, and especially the City of London, is both over-centralised and ineffective, micro-managing millions of small spending decisions while not doing the big things.

In what other advanced economy would the chief secretary to the Treasury – the no 2 in the ministry – sign off on expenditure of £100,000? At the same time, large infrastructure projects either don’t happen or take three times as long as they are supposed to and are vastly over budget, as with the Elizabeth Line or HS2.

Controlled by the imperial Treasury, Westminster and Whitehall produce weak, ineffectual institutions and endless policy churn (as Andy Westwood and I have argued). Take the task of reducing regional inequalities, which are worse in the UK than in most other advanced economies. We have gone from Regional Development Agencies under New Labour to Local Enterprise Partnerships during the Conservative/Lib Dem coalition and now technology clusters combined with Investment Zones.

In 2021 Boris Johnson and his chancellor, Rishi Sunak, promised an “Investment Big Bang” involving several dozen such zones; merely a year later the new Chancellor, Jeremy Hunt, replaced Liz Truss’s ambition to create no fewer than 155 low-tax areas with a plan for 12. Chop-and-churn is one of the rare constants in economic policy.

It is therefore no surprise that business investment is low by any historical standard, with entrepreneurs citing political uncertainty as a key factor in delaying decisions to invest. The centre fiddles while disparities of wealth and power between the prosperous parts of the south-east and the other regions get worse.

British politics operates in institutional and policy silos and is characterised by poor policy coordination. Little wonder then that national projects such as funding adult social care or levelling up the regions devastated by deindustrialisation struggle to get off the ground. We don’t keep enough medical supplies or build enough good-quality homes in large part because we lack the institutions to cultivate long-term thinking and planning.

Worse, many institutions now view people as administrative units or as exchangeable commodities without any inherent worth. This mindset, by doing things to us rather than with us, has stripped us of agency and dignity – leaving many persons without an effective voice. The UK’s institutional crisis undermines not only attempts to level up the poorer regions but also popular democracy.

The task for the next government is to reject both the status quo and any idea that decline might be inevitable, and to embrace an ambitious programme of rebuilding state capacity. Faced with a decades-long state of chronic emergency, our ability to survive and thrive depends on strong, resilient institutions.