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The next UK government must make productivity its top priority

EXPERT COMMENT

Raising productivity growth is the only way the UK will be able to meet its domestic and international objectives over the long term.

The upcoming general election may lead to a far-reaching shift in the UK government’s underlying economic philosophy and policies. Comparisons are already being made with the game changing elections of 2010, 1997 and 1979. 

However, in many respects the situation today is unlike any other. The UK is not struggling to emerge from the world’s worst ever financial crisis, as it was in 2010. The international environment is much less benign than in 1997, which came in the middle of the ‘Great Moderation’ – a twenty-year period of low inflation and stable economic growth in the US.

The election of 1979 has some parallels to today’s conditions, taking place when the UK economy was mired in long-term structural weaknesses, including dismal labour relations, high inflation and large public deficits. But growth averaged 2.7 per cent over the 1970s and living standards rose significantly. 

Like other advanced economies the UK economy has been through the cumulative shocks of the 2008-9 global financial crisis, the pandemic and the 2021-23 inflation surge triggered by Russia’s invasion of Ukraine. However, it is taking longer to recover from these shocks than other advanced economies.  

It currently faces an unenviable combination of weak GDP growth, falling living standards, high public debt, a large current account deficit, historically high taxes and weakened public services, particularly the National Health Service (NHS), where more than 6 million people are waiting for hospital treatment, contributing to a recent sharp rise in labour inactivity.  

Indeed, some commentators have described this as the worst economic legacy facing any incoming government since the Second World War. 

Brexit certainly has not helped – estimates suggest a cumulative 2-3 per cent of GDP has been forgone three years after the UK left the EU. But at the heart of the current problems is a long-term decline in productivity growth that pre-dates Brexit.  

Click here to continue reading the full version of this Expert Comment on the Chatham House website.

 

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Original article link: https://www.chathamhouse.org/2024/05/next-uk-government-must-make-productivity-its-top-priority

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