In a recent discussion sparked by Richard Murphy’s post, Why Britain Stopped Making, Colonel Smithers contributed a thought-provoking follow-up that delves deeper into the economic challenges faced by the UK. Murphy asserts that the nation is plagued by two significant curses: the classic resource curse, a consequence of its North Sea oil exploitation, and the finance curse.
Some critics have argued that Murphy’s previous assertions about the irreversible decline of British industry were overly pessimistic. However, the case of Russia—experiencing a remarkable recovery from a significant downturn post-USSR—demonstrates that change is possible. The UK’s leaders, unfortunately, chose a different path, allowing the decline to continue.
By Richard Murphy, Emeritus Professor of Accounting Practice at Sheffield University Management School and a director of Tax Research LLP. Originally published at Funding the Future
For over 45 years, the UK has grappled with not just one, but two economic afflictions: the resource curse and the finance curse. These issues, largely initiated by Margaret Thatcher, have inflated the pound, decimated industry, and left the UK reliant on hot money and speculation. In the following video, I outline how we arrived at this juncture and discuss the necessary steps to rebuild an economy rooted in work, fair compensation, and democracy.
This is the audio version:
This is the transcript:
The UK has endured a financial curse for more than four decades, and today, I am referencing two well-documented economic concepts: the “Resource Curse” and the “Finance Curse.” Both phenomena contribute to the overvaluation of the pound. They’ve attracted speculative money into the UK, significantly disrupting our economy.
The term “Resource Curse” was coined by economist Richard Auty in 1993. He noted that countries rich in natural resources often experience slower and less equitable growth than those without such advantages. While the UK is seldom labeled as a victim of the Resource Curse, our experience with North Sea oil and gas from the late 1970s onwards aligns with this concept.
When Margaret Thatcher came into power in the early 1980s, she faced an unprecedented influx of funds from North Sea oil. Her response was not neutral; she embarked on a political agenda that has had lasting repercussions.
Thatcher inherited a massive windfall thanks to North Sea oil and gas but ultimately mismanaged it.
She could have modernized manufacturing.
She could have invested in infrastructure.
She could have established a sovereign wealth fund like Norway did.
She could have revitalized the industrial framework of the country for future generations, but she chose a different route.
Instead, she funded widespread unemployment.
She intentionally dismantled British industry.
She granted tax breaks to the wealthy.
She allowed industrial closures to escalate.
She amplified the influence of the City of London on our economy.
In essence, she sacrificed our future to fulfill her neoliberal aspirations.
The demand for oil propelled the value of the pound upward, and it remained overvalued until the 2008 financial crisis. Initially, oil drove the value up, but as its importance diminished, Gordon Brown perpetuated the ‘Finance Curse’ by keeping the pound overinflated for far longer than necessary.
An inflated pound renders our exports uncompetitive.
It raises the UK’s cost base compared to competitors.
It enables imports to outcompete locally produced goods.
The consequences of this overvaluation—first from oil, then fueled by speculation—have been dire for many UK industries, including shipbuilding, steel, engineering, textiles, and electronics. Many sectors have effectively vanished from the UK landscape, as if we’ve forgotten how to produce anything except financial instruments.
The government has blamed labor unions for these developments, asserting that British business was inefficient. While it’s true that British industry faced challenges in the late 1970s, the opportunity to rebuild through the oil boom was squandered. The inflated currency dealt a fatal blow to whatever remained of British industry, effectively weaponizing currency policy as a means of destruction unleashed by Thatcher’s administration.
By enacting a financial revolution—the ‘Big Bang’—in 1986, which deregulated the City of London and expanded tax haven-linked entities in locations like Jersey, Guernsey, the Isle of Man, and the Cayman Islands, the UK created an economic model that thrived on hot money influxes.
But what exactly is hot money? Sometimes stemming from illicit sources, it often consists of excess funds from speculators pursuing maximum returns in environments of minimal tax and regulation—conditions that Margaret Thatcher’s policies created.
Prior to the 1970s, the UK was a manufacturing powerhouse. Since the turn of the millennium, we’ve increasingly exported financial claims instead. Now, we rely on hot money to balance our economy, as evidenced by sectoral balance data. Real work has been replaced by rent extraction.
Moreover, the Bank of England has perpetuated this cycle for four decades. Currently engaged in quantitative tightening, the Bank’s decisions may raise real interest rates for the government and the public, further exacerbating the situation.
This situation has artificially inflated the pound’s value.
It has heightened our cost base.
And it has accelerated de-industrialization.
Such trends persist because the Bank of England is committed to this approach, prioritizing the City over broader economic wellbeing. Additionally, our ongoing reliance on speculative financial inflows is being encouraged, mischaracterized as foreign direct investment—a euphemism for offloading UK assets to foreign entities at undervalued prices.
The repercussions are evident. Our remaining industries continue to suffer, squeezed by unfavorable export conditions. High borrowing costs stifle investment, production is offshored, and trade deficits result from policy choices rather than necessity.
Meanwhile, former industrial regions have been hollowed out, while London has increasingly centralized wealth.
The erosion of industry has also thwarted democratic processes. Governments now cater to market demands rather than citizen needs. Fiscal rules prioritize investors over constituents, placing finance above democracy.
So, what steps should we take moving forward?
We must dismantle the remnants of these curses.
We must discard the notion that dependence on hot money can generate true prosperity.
Finance must be reestablished as a public utility.
We need to halt quantitative tightening.
Interest rates should not serve as instruments of industrial policy that ultimately lead to destruction. Instead, they should be set to benefit the populace and reflect our domestic economic realities, not the interests of foreign capital.
This necessitates the development of a modern industrial strategy centered on a competitive pound, the foundation upon which full employment and lower borrowing costs can be built. We must also promote public banking to facilitate genuine investment in the face of institutional reluctance.
Additionally, we must confront the ongoing issue of the UK’s tax haven infrastructure, which I have analyzed extensively over the past 25 years. This framework undermines democracy and supports the destructive forces of our finance-focused economy. We must build an economy rooted in real labor, equitable compensation, and democratic governance rather than the illusions perpetuated by the current system.
To move forward, we must shed these self-imposed curses and foster an environment where our government prioritizes our collective future over destructive practices. Our nation’s prosperity depends on this fundamental shift away from the harmful legacy of antisocial neoliberalism.
