Countries can go through phases of relative stability, but the UK in the 2020s will not be one of those countries. Drivers of change shared with other advanced economies, from demographics to the net zero transition, are combining with the UK-specific shock of Brexit and a far messier recovery from Covid-19 than most anticipated.
That is the context in which the badly needed attempt to renew the country’s path to economic success – including addressing the toxic combination of low growth and high inequality – must happen during the 2020s. But prevalent, and sometimes dominant, understandings of those changes – be they thinking about them through the lens of deindustrialisation or viewing either Brexit or the green transition as a silver bullet for the UK economy – do not provide a good guide for policy makers.
This chapter aims to do better, providing a study of the waves of change that have already broken over the UK economy, our judgement as to the types of impact they may bring, and a discussion of how the impact of these shocks – both positive and negative – should shape our thinking about the task facing the UK in the decade ahead.
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- The 2020s will be a decisive decade of change as long-standing demographic and technological shifts combine with Brexit, the aftermath of Covid-19 and the net zero transition. These will bring significant disruption for some, but not the radical reset for our economy or large job losses many predict.
Brexit has already brought significant change – between 2019 and 2021 UK trade openness fell by 8 percentage points (four times larger than the fall experienced in France). More is to come: some sectors such as food manufacturing will grow, and others such as fishing will shrink. Rather than closing regional divides or reinvigorating manufacturing, by the end of the decade Brexit will see annual real wages £470 lower relative to if the UK was still in the EU.
- The Covid-19 pandemic saw huge shifts in how we work. Remote working, a trend which has persisted, will raise wellbeing but shouldn’t be counted on to transform productivity or the economic geography of the country. There will also be less working overall: labour supply has fallen by 430,000 since the pandemic, driven by falling participation among older workers.
- Net zero brings good news for the planet and is unlikely to lead to large-scale job losses. But nor will green growth catapult Britain out of stagnation. The immediate priority for policy makers is to find a fair way to fund the investment required, particularly in home insulation: 72 per cent of low-income homeowners live in poorly insulated homes.
- There may be more job churn in the 2020s than 2010s, but the big picture is that change is slowing rather than speeding up. Between 2011 and 2021 the reallocation of labour between sectors was equivalent to 7 per cent of total employment, compared to 20 per cent experienced in the 1980s.
Most labour market churn happens through people joining or leaving the labour force. As such demographic trends should help facilitate economic change in the 2020s as more people retire (the number of people reaching State Pension age will surpass 800,000 for the first time in 2028) and a large cohort of young people enter the labour force later in the decade.