Britain’s toxic combination of low growth and high inequality has left it falling behind its peers. But a new economic strategy that builds on Britain’s strengths as a services superpower, prioritises public and private investment, expands its great cities, and ensures good work in every town could help the country catch-up and close its £8,300 living standards gap with similar countries including France and Germany, according to a major new book published today (Monday).
Ending Stagnation – the final report of The Economy 2030 Inquiry, a collaboration between the Resolution Foundation and the Centre for Economic Performance at the LSE, funded by the Nuffield Foundation – says the UK has now seen 15 years of relative decline, with productivity growth at half the rate seen across other advanced economies. Wages have flatlined as a result, costing the average worker £10,700 a year in lost pay growth. Nine million younger workers have never worked in an economy with sustained average wage rises.
Britain’s slow growth, together with its high inequality (the highest of any large European economy), has proved a toxic combination for low-and-middle income Britain. Poor households in Britain are now £4,300 worse-off than their French and German counterparts, leaving them struggling to cope when the cost-of-living crisis struck.
Ending Stagnation says that existing agendas for reversing decline are not serious, believing that ‘world beating’ rhetoric automatically translates into a ‘world beating’ reality, or that there is a path to turning Britain into a German style manufacturing powerhouse.
The report adds that while the challenges Britain faces are huge, they are not insurmountable. It sets out a comprehensive, hard-headed agenda for turning Britain from a stagnation nation to an investment nation.
Among its proposals the report says that our second cities are too big to fail.While big cities should be centres for Britain’s thriving service industries, those outside London have productivity levels below the national average. Birmingham and Greater Manchester require huge investment in their public transport networks and housing if they are to attract advanced firms and skilled workers. With 69 per cent of the UK population living in cities and their hinterlands, millions would benefit.
Torsten Bell, Chief Executive of the Resolution Foundation, said:
“Britain has huge strengths, but is in relative decline. A year or two of low investment and flatlining wages is survivable, but 15 years of stagnation is a disaster. Combined with high inequality, our slow growth has proved toxic for low- and middle-income families, who are now far poorer than their peers in similar economies like Germany and France. Their living standards were under strain well before the cost-of-living crisis struck.
“The task facing the UK is to urgently embark on a new path. A new economic strategy built, not on nostalgia or wishful thinking, but our actual strengths. Along with honesty about the scale of change needed, and the trade-offs involved. It’s time for Britain to start investing in our future, rather than living off our past.
“There no excuse for fatalism. Having fallen so far behind, we now have a huge advantage: catch-up potential. Closing the gap with peers like Australia, France and Germany would deliver huge living standards gains, with typical households over £8,000 better off. That is a huge prize for a Britain that embraces a new economic strategy and is, in many ways, more normal.”
Stephen Machin, professor of economics at the London School of Economics and director of the Centre for Economic Performance, said:
“For decades, the UK has felt the effects of high inequality, hindered growth and economic stagnation. But this can change – the Economy 2030 Inquiry has been a path-breaking research venture that has produced robust and credible evidence, leading to a policy structure that can improve outcomes. The legacy of the inquiry needs to be a UK economy that delivers growth, and better, less unequal, standards of living in the rest of the decade and beyond.”
Alex Beer, Head of Portfolio Development at the Nuffield Foundation, said:
“Brexit, Covid-19 and the cost-of-living crisis have tested an economy already under strain, with slow growth and high inequality stymying improvements to the living standards of low-to-middle income Britain.
“Ending Stagnation delivers a clear and coherent vision for a long-term economic strategy, with people and places at its heart. It highlights the importance of a sustained investment in skills, of good jobs and labour market regulation and a social security system that doesn’t let people fall even further behind. It provides the keys that could unlock the huge potential of Britain’s second cities. And ultimately, a route to shared prosperity for the UK.”
