The UK needs to renew its approach to achieving economic success in the 2020s, which will be a decisive decade for the country. Failure to do so could leave the economy languishing like Italy, rather than emulating the success of Germany, warns a new report.
Automation and new technology will be part of the solution, but bleak media narratives around technologies such as robotics, automation, and AI may make the transition much harder than it needs to be.
While there is broad consensus on the high-level objectives couched in the Industrial Strategy and the government’s plans for Net Zero, the reality of being isolated in a new world economy dominated by China poses some serious challenges.
These will be explored in a new two-year research programme, The Economy 2030 Inquiry, launched by think tank the Resolution Foundation in partnership with the Centre for Economic Performance at the London School of Economics (LSE).
To mark the launch, the researchers have published a new state-of-the-nation report, The UK’s Decisive Decade. It describes a perfect storm of problems hitting the UK.
First, the pandemic may have permanently changed the economy and people’s work habits. Second, the UK’s Q1 2021 trade in goods with the EU was 14 percent lower year on year, while trade with non-EU countries has remained broadly unchanged, so growth needs to come from somewhere. And third, the UK must accelerate its plans to decarbonise the economy if it is to meet its own Net Zero objectives.
On the latter point, the report says, “Meeting our international commitments on this front will require policy-driven shifts that go far beyond electricity generation, where a transformation has been achieved without much disruption to most workers or consumers: from now on, changes will intrude far more into citizen’s daily lives.
“The provision of transport, domestic heating and food choices must swiftly change, but we know far too little about the policy, and political economy, of doing so successfully. This consumption transition needs more attention alongside the current focus on production.”
Considering these challenges is urgent: 60 percent of fuel supply decarbonisation and half of the same process in surface transport needs to happen in this decade in order for the UK to hit its 2050 Net Zero target.
“To facilitate this scale of change, governments will have to support investment in a new generation of infrastructure,” says the report.
The nature of the population is also changing. The ratio of those under 20 or over 65 to those aged between 20 and 64 is set to increase from 72 per 100 to 79 per 100 over the next 10 years.
But one of the biggest obstacles to success lies in the need to reconcile what the report calls “two seemingly opposing anxieties”. On the one hand, the UK’s stagnant levels of productivity reflect that it has experienced too little technology renewal in recent years, while on the other, people fear that automation will destroy many human jobs.
The report says, “Policy makers need an integrated approach to managing these shocks if they are to navigate a successful path through the 2020s.
“Sometimes, significant changes may coincide at the level of place or sector. Some firms are both carbon- and import-intensive, and therefore particularly exposed to the combination of higher trade costs from Brexit and the Net Zero transition.”
Four sectors – agriculture, mining, manufacturing, and transport – combine above average exposures on both fronts and collectively employ four million people, continues the report. But the broad geographical spread of new jobs that will be created by the Net Zero transition are grounds for hope that job losses could be offset.
That said, the report is far from optimistic: “It is also not clear that the UK state has the capacity to respond adequately to this scale of change. Assessments of the UK’s economy have repeatedly highlighted weaknesses in the state’s institutional capacity, or wish, to shape industrial outcomes, with no long-term frameworks to govern industrial strategy.
“Weak sub-national powers and governance capacity, with local government spending power in England cut by 18 percent since 2010, puts excessive weight on national direction.
“Meanwhile, pre-existing fiscal pressures on the state have been intensified by a Covid-19 shock that is likely to leave debt levels at over 100 per cent of GDP into the mid-2020s, just as significant pressures build on health-related spending from our ageing society.”
The need for a renewed economic strategy in the face of change is not optional, but urgent, concludes the report. Previous cornerstones of Britain’s economy – including membership of the European Single Market – can no longer be relied on to drive competition and growth.
As a result, there is a real risk that the UK will ‘level down’, not ‘level up’, as the young and low-paid suffer lasting effects from the pandemic, investment remains low, and opportunities to lead in low-carbon industries are missed due to the costs of adjustment.
However, progress is possible, it says: “Germany and France are about 15 percent more productive than the UK. Halving this gap would mean a boost to household incomes of eight per cent or £2,500 per household per year.”