Why we need an economic plan for the future

Is the UK facing an ‘Italian style’ economic decline in the 2020s?

Without a renewed economic strategy for this decade, a think tank is warning of challenges ahead for the UK economy.

According to the Resolution Foundation, we have a ‘decisive decade’ of economic change ahead in the UK, as we face up to five seismic economic shifts.

These economic shifts are the Covid aftermath, Brexit, the Net Zero transition, an older population and rapid technological change.

One of these factors in isolation would be significant for the UK economy, but all five coming together could have massive implications.

According to the Foundation, the UK’s economic strategy needs to be rebuilt in the light of these changes. Each change creates opportunities and challenges.

Without a rebuilt economic strategy, the Foundation believes we risk leaving the UK diminished, divided, and falling further behind our competitors.

Their new report, The UK’s decisive decade, forms part of their work with the Centre for Economic Performance at the LSE and is funded by the Nuffield Foundation.

Within the report are the five changes are likely to define the UK economy for many decades to come, starting with Covid.

More working from home will mean more lifestyle choices available to professionals. However, this flexible working revolution will also force lower earners to find new jobs in new places.

Another seismic shift is Brexit, which utilises new-found policy freedoms but also introduces higher trade costs. Goods trade with the European Union was down by 14% in the first quarter of the year, compared with the same period last year.

Net Zero is another seismic change, with the decarbonisation of the economy presenting many economic opportunities but requiring urgent action to implement.

The report points out that we need to go from installing almost zero heat pumps in homes each year to installing 3,000 a day by 2030.

On technology, the report explains that new technologies drive up but also disrupt living standards.

According to an estimate from the OECD, one in seven jobs could disappear due to automation within the next 20 years.

The final seismic shift is demography, with the ratio of those under 20 or over 65 to those between 20 and 64 due to increase from 72 per 100 to 79 per 100 between 2020 and 2030. This demographic shift is a faster-projected change than in any other decade in the first half of this century.

According to the Foundation, the UK is neither prepared for nor used to change on this scale.

Despite the intention from the Government to ‘Build Back Better’ and ‘Level Up’, as well as embrace a ‘Global Britain’, there does not seem to be an economic plan for achieving these objectives.

The Foundation notes that an economic strategy was notably absent from the Queen’s Speech last week.

Despite being used to accelerate change, as is often claimed, the first two decades of this century have featured falling or flat economic dynamism.

The report says that the churn of workers in the 2010s, with some sectors growing and others shrinking, was the lowest since the 1930s. Voluntary job moves by individual works fell by 37% between 2001 and 2019.

The report notes that the UK economy entered the 2020s with considerable strengths on which to build, including record levels of employment (before the pandemic), global strengths in high-value services, and political consensus over its Net Zero target.

However, without an economic plan to shape this period of seismic change, the UK could squander these strengths and fail to address its significant weaknesses, including the slowest productivity growth for more than 120 years during the past decade and higher inequality than any country in the EU, except Bulgaria.

Finally, the report explains that the stakes are high. For example, Italy experienced no growth in its GDP per capita during the past two decades.

Sir Clive Cowdrey, Founder of the Resolution Foundation and Co-Chair of The Economy 2030 Inquiry, said:

“The UK’s recent record of weak productivity, stagnant living standards and high inequality makes a new economic approach desirable. What makes a new approach essential is the scale of coming change.

“The UK now faces a decisive decade, as the aftermath of Covid-19, Brexit and the Net Zero transition come together with major shifts in technology and demography. This matters for far more than economics. Failing to rise to this challenge risks leaving the nation diminished and divided.”

Baroness Minouche Shafik, Director of the LSE and Co-Chair of The Economy 2030 Inquiry, said:

“The decade ahead will be decisive for the UK. New trading relationships, the digital revolution, and net zero will fundamentally change our economy and society. We need to rethink our economic strategy to rise to these challenges and ensure that we create a society in which everyone can thrive.”

Tim Gardam, Chief Executive of the Nuffield Foundation, said:

“This Inquiry is one of the biggest projects the Foundation has funded in recent years. It will identify and respond to the significant economic challenges facing the UK in the decade ahead. In doing so, it will offer an overarching framework within which to consider the wide range of Nuffield’s work on disadvantage, vulnerability and educational opportunity.

“It is in the tradition of Nuffield Foundation reports from 1945 to the present day that have provided the evidence to underpin public debate and policy formulation to advance social wellbeing. The Inquiry will help determine the risks and priorities we must address if we are to create a more just and inclusive society in post-pandemic Britain.”