Recorded at the Battle of Ideas 2015.
While the UK economy has recovered from the economic crisis, few would argue that the recovery is built on strong foundations. Wages are only just starting to rise in real terms after a number of years of decline. Economic output remains weak compared to previous recoveries, and the state is still spending almost £90 billion a year more than it receives in tax. A particular concern for economists is low productivity – the amount of wealth produced by each worker – which is well below that of other countries and 15 per cent below where it would have been if pre-crisis trends had continued.
Yet across the main political parties there seems little vision of how the UK economy could look different in five, 10 or 20 years’ time. The chancellor of the exchequer, George Osborne, has made much play about the creation of a ‘northern powerhouse’. The HS2 railway has cross-party support, but many are sceptical about its economic potential. Beyond this, there seems little sense of how the economy could be transformed. Indeed, many new industries with the potential to revolutionise the UK economy – like fracking, nuclear power and biotech – have faced considerable resistance.
In 2014, the Wright Report, an independent report commissioned by the Labour Party, called for ‘a modern, active industrial policy’ that was not about ‘government “picking winners”, investing in large companies, or trying to plan the economy’ but focused on ‘improving the environment in which companies operate, recognising the positive influence that government can have, and working together to tackle the challenges’. These included barriers to investment, the overall load of taxation and the lack of skilled workers, all still serious problems. That said, there are causes for optimism. In certain sectors, productivity has risen sharply in recent years. Productivity in car manufacturing is high, while in aircraft engine manufacturing and financial services, the UK is a world leader. Moreover, the UK’s universities offer excellent capacity for research and development.
If UK businesses can be excellent in some arenas, why is the UK apparently so unproductive overall? What are the barriers to a new and innovative economy? Why is new business investment so low? Do we need a bout of creative destruction, making painful choices about leaving some areas of economic activity behind, in order to allow new sources of wealth creation to flourish?
associate editor, Pieria; contributor to Nesta’s Our Work Here is Done, exploring the frontiers of robot technology
economist, Social Market Foundation
economist; director, Epping Consulting business advice; author, The Imaginary Time Bomb
business reporter, International Business Times UK
executive director, Jaguar Land Rover
science and technology director, Institute of Ideas
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