The real reason the economy has just contracted will be lost on Rachel Reeves

Growth is the mantra of politicians like Rachel Reeves. But it’s actually the current ideology of neoliberalism that is curtailing growth. The real reason the economy contracted by 0.1% in September and October is economic inequality, which is caused by austerity and privatisation — neoliberalism.

Low demand

In the UK, the Office for National Statistics (ONS) has pointed out that:

The wealthiest 10% of households held 43% of all the wealth in Great Britain… in comparison, the bottom 50% held only 9%

In other words, the richest 10% own almost five times as much as 50% of the country. The scale of inequality is only getting worse, resulting in the public cutting spending at the fastest pace in five years last month. This is the reason the economy is contracting. There is less and less demand for goods and services.

Money stagnating at the top leads to low growth. Rich people eat around three meals a day no matter how much money they have. Less well off people also eat around three meals a day (if they can afford it). It’s a similar story with clothes: just because you can afford 5,000 pairs of jeans doesn’t mean you will buy that many pairs. While spending habits differ between rich and less well off people, it generally doesn’t differ by the amount it would take to produce the same demand that a more economically equal society would bring.

With soaring grocery prices, people have less money to spend on new goods and services. The cost of food has risen by 37% in five years across the board. Some essentials are even up 69% since 2022. Meanwhile, Tesco’s operating profit has leapt from £1.8 bn in 2020/21 to £3.1 bn in 2024/25 — an increase of 72%.

But neoliberalism says more privatisation not less. So politicians will not turn middleman supermarkets like Tesco into not-for-profits or bringing them into common ownership to reduce prices.

The economy — is growth all we want?

It is unclear whether growth should be the metric we use to measure how well a society is doing. A metric we should perhaps look at is well-being. And the UK ranked 20th out of 22 countries in the Global Flourishing Study, which looked at a variety of factors.

Countries with strong public services like Finland and Denmark also consistently top a different study: The World Happiness Index. We concede, however, that happiness is hard to quantify and the index uses metrics like GDP per capita, which obscures the true level of inequality in some countries.

Tech advancement

What’s clear is that growth in technology is only beneficial when used for public good. A government should heavily invest in public research and development in order to automate the economy through common ownership of robotics. That would be progress.

Until then, grotesque inequality will only stifle growth. Because no one has any money for new goods and services. But neoliberals apparently don’t understand this.

Featured image via Mathieu Stern on Unsplash