With funding from the Nuffield Foundation (an independent charitable trust that seeks to advance social well-being), the Resolution Foundation (“an independent think-tank focused on improving the living standards for those on low to middle incomes”) and the Centre for Economic Performance at the London School of Economics have come together in a landmark collaboration to launch The Economy 2030 Inquiry.
The Inquiry is led by a “commission of leading thinkers and doers, and it will be informed and supported by an expert advisory group”. Throughout the two-year project, the Resolution Foundation will publish many “reports, briefing notes and comment pieces to examine the change that the UK is living through, and to set out a plan for successfully navigating that change”.
It will investigate the “nature of the UK economy and the change to come”; explore what it means for people, places and businesses across the UK; and – crucially – it will propose “how we can successfully shape the decade ahead”. The work will encompass six inter-linked research themes: People, Places, Firms, Covid-19, Brexit and Net Zero, culminating in a book-length final report in 2023.
Huge economic change
Providing context, The Economy 2030 Inquiry website states: “The UK is on the brink of a decade of huge economic change – from the Covid-19 recovery, to exiting the EU and transitioning towards a Net Zero future. The Economy 2030 Inquiry will examine this decisive decade for Britain, and set out a plan for how we can successfully navigate it.”
A launch report was published in May 2021 and according to its executive summary, with the UK coming out of the “deepest annual downturn for 300 years”, the “UK will need to renew its approach to achieving economic success”. This must be balanced by the “reality of a world economy being shaped by China, the EU and the US”. But what are the key challenges for businesses faced with negotiating “the UK’s decisive decade”?
Key challenges
As the Inquiry rightly points, over the past decade, the “UK has experienced its weakest productivity growth in 120 years, and lost ground relative to the US, France and Germany”. Businesses great and small throughout the UK will need to try to find ways to boost their productivity so they compare more favourably with firms operating in other G7 nations.
Poor overall performance in the past ten years has affected take-home pay, with the “typical worker” in the UK at the start of the 2020s “earning less in real terms than before the great financial crisis”. Increased productivity would not only mean that employers could afford to pay more, so they can better attract and retain staff, but it would also enable them to invest in employee knowledge and skills training, which would in turn boost productivity.
According to the Resolution Foundation, UK firms also invest less than their international peers. “UK firms tend to be smaller, domestically-focused and particularly concentrated in service sectors”, which limits their growth. This needs to change. Moreover, UK firms “suffer from relatively poor management and with low levels of ICT adoption”, while gross R&D spending by UK firms has been lower than in France, Germany and the USA.
Comparative advantages
It’s not all bad news. The Resolution Foundation believes that many UK universities are among the best in the world, while the UK has world-class business and financial services and creative industries, and many firms that successfully compete globally in such sectors as aerospace and other advanced manufacturing. These “reflect underlying comparative advantages that will be expressed differently as the UK’s trading relationships evolve post-Brexit and the economic backdrop shifts in response to Covid, Net Zero and technological change”.
Covid-inspired behavioural change has led to a surge in online economic activity and home working in the UK. Things are unlikely to go back to how they were, which may be good news for many UK businesses, although it could help to speed up the high street’s decline. While more people working from home will bring lifestyle changes for many professionals, low-earners the very real prospect of having to find a new job in a new place. Some businesses will prosper, while many others will “go to the wall”.
Winners and losers
According to the Inquiry launch report, Brexit will change the UK economy significantly, and although the UK leaving the EU is less dramatic than the pandemic, it will bring “longer-lasting and more significant shifts”. As well as significantly lower sales to customers in EU countries, end of free movement could leave some UK businesses short of staff. Businesses will also be under pressure to play their part in the “an unprecedented process of decarbonisation if [the UK] is to meet its Net Zero commitments in 2035 and 2050”.
Major change is heading our way and as the Resolution Foundation’s launch report dryly notes: “The UK does not have a recent record of successfully handling such change, and our economy faces the 2020s with important strengths but also substantial weaknesses”. There will be losers, as well as winners, it concedes and “costs to be borne alongside opportunities to be seized”. Some things never change.
