After two decades of stagnation, it’s time to make Britain flourish again

Britain is almost 20 years into a period of economic stagnation and decline. Average wages have barely grown, and the slowdown in UK productivity growth has been greater than other countries’. The economy has been on the receiving end of nasty global shocks. But the structural issues run deeper.

Sectors seen as UK strengths – finance, pharmaceuticals, computer software, telecoms – have underperformed since the financial crisis. In the words of the economists John Springford and Andrew Sissons, “Britain has fallen out of love with the things it is good at”.

We are living with the consequences of decades of low investment by both public and private sectors. Concerns here can be overstated: an economy specialising in legal services and universities requires less physical investment than one specialising in heavy manufacturing. But it’s one big reason why UK workers are less productive than those abroad. Our dysfunctional planning system is very much part of this; so, too, is our tendency towards short-termism.

There has been a steady reduction in economic dynamism. That workers move and switch jobs less frequently is one symptom. Too often, policy gets in the way of the vital process of creative destruction. The UK has one of the most regionally unbalanced economies in the developed world. Cities outside London punch below their weight – undermined, in particular, by poor transport infrastructure.

The original estimates of the economic damage from Brexit – a 4% hit to GDP – now look low. Political and macroeconomic instability has further weighed on investment. The tax system is needlessly complex. Missteps in energy policy and pensions regulation have made us poorer.

The UK economy has important strengths, too, and there are reasons to be optimistic. For one, the fact that our productivity lags other countries’ by so much suggests there is ample potential to catch up. Something needs to change to make Britain grow again.

Photograph by Bloomberg Images