"Decisions made in the next year will have a lasting impact on the UK’s economic trajectory for years to come. If the government gets these decisions right, the economy will be more productive, more equitable and more environmentally sustainable," concludes the report UK Growth: A new chapter, published today.
The report, billed as a ‘blueprint for growth in 2017 and beyond’, is produced by the LSE Growth Commission – funded by the ESRC and the LSE Higher Education Innovation Fund. The commission is comprised of 12 leading business, policymaking and academic experts.
"The economy is growing, but this is largely accounted for by increases in employment rather than productivity. In the long run productivity is what drives prosperity, but the UK lags behind its peers," the report states in the summary. "Improving our productivity performance must therefore be central to government's economic strategy."
Drawing on evidence from academics, business leaders, policymakers and stakeholders in the UK economy, the researchers explore the most effective ways of achieving growth over the next years - outlining the top priorities in four key areas:
- Labour markets and inclusive growth
Britain's tax system and labour laws are biased in favour of self-employment, and in favour of investing in buildings and machines instead of people. The UK needs to reform its tax system to support companies that take on full-time staff and invest in their skills. Tackling these biases is a way to boost skills and support inclusive growth.
- Industrial strategy
The government is right to focus on an industrial strategy, but there are gaps between this vital area and monetary, fiscal and competition policy. Industrial strategy decisions should be based on a new British State Aid law, clear operational rules and competitive tendering, independent oversight, and statutory publication of the analysis supporting decisions.
Britain's strength is in services, and two-thirds of the country's trade is with the US and EU – which is where negotiations must focus. A trade deal with the US is needed, as is a new EU trade agreement with a 'services passport' at its core. Visa reforms must ensure that the UK's skills shortages don't increase.
- Finance and growth
With new powers over regulation, the UK should launch a set of financial reforms based on promoting access, competition and long-term planning in finance. Reforms should focus on access to finance for businesses, including flexible regulation of challenger banks, reform of equity markets and a boosted role for the British Business Bank once the UK leaves the EU.
"The UK Economy is at a critical juncture. Leaving the EU creates economic challenges that necessitate widespread policy change," the authors point out – but add: "This also generates an opportunity to tackle some of the long-standing challenges which have resulted in the UK’s productivity lagging behind our major competitors."