The final report of The Economy 2030 Inquiry
The UK has great strengths, but is a decade and a half into a period of
stagnation. The toxic combination of slow growth and high inequality
was straining the living standards of low- and middle-income Britain
well before the cost of living crisis struck. It is time to embark on a new
Prosperity must be built on an understanding of Britain’s strengths, and a resolve to invest in our future rather than live off our past
This, the Final Report of The Economy 2030 Inquiry, sets out what such
a path – a serious attempt to end Britain’s relative decline – looks like. It
navigates, rather than ignores, the constraints and trade-offs involved,
and is hard-headed about what it takes to drive growth and ensure
fairness. Prosperity must be built on an understanding of Britain’s strengths, and
a resolve to invest in our future rather than live off our past.
Economic change must be steered towards securing a higher growth and lower inequality Britain
Good jobs must become a central objective – not a by-product – of our economic
strategy, while our tax and benefit systems must fairly share reward and
sacrifice. Economic change must be steered towards securing a higher
growth and lower inequality Britain, as we wrestle with major shifts
from Brexit to the net zero transition.
The Economy 2030 Inquiry is a collaboration between the Resolution
Foundation and the Centre for Economic Performance at the London
School of Economics, funded by the Nuffield Foundation. This Final
Report is underpinned by the Inquiry’s rigorous analysis, drawing on
70 reports, as well as extensive conversations with citizens and policy
makers across the country.
The promise of shared prosperity is key to our social contract
Countries are bound together in a sense of shared endeavour by many things,
from a common history to the collective provision of security for our homes,
families and communities. But as traditional hierarchies have weakened and
advanced economies become more diverse, the role of the state in delivering
shared prosperity has become more central in underpinning social contracts.
Rising wages, higher employment and the security of the welfare state have
all helped deliver this in the past. Real wages nearly quadrupled, while state
spending on healthcare as a share of the economy almost trebled, between the
Second World War and the turn of the millennium.
But that progress, and the strength it gives to our society and democracy,
should not be taken for granted. There are periods when the social contract
comes under pressure; when a clear route to a better tomorrow is lacking,
the improvements people expect dry up and some groups are left wondering
whether the country works for them. Britain, as we outline in this final report of
the Economy 2030 Inquiry, is in this undesirable position today.
- Low growth: Real wages grew by 33 per cent a decade from 1970 to 2007, but have flatlined since, costing the average worker £10,700 per year in lost wage growth.
- High inequality: Income inequality in the UK is higher than any other large European country.
- The toxic combination: Low growth and high inequality means typical households in Britain are 9 per cent poorer than their French counterparts, while our low-income families are 27 per cent poorer.
- Stalled progress: 9 million young workers have never worked in an economy with sustained average wage rises, and millennials are half as likely to own a home, and twice as likely to rent privately, as their parents’ generation.
- Talent wasted: Almost a third of young people in the UK are not undertaking any education by age 18 – compared to just one in five in France and Germany.
- Gaping gaps: Income per person in the richest local authority – Kensington and Chelsea (£52,500) – was over four times that of the poorest – Nottingham (£11,700) – in 2019.
- Bad work: Half of shift workers in Britain receive less than a week’s notice of their working hours or schedules.
- Flaky firms: UK companies have invested 20 per cent less than those in the US, France and Germany since 2005, placing Britain in the bottom 10 per cent of OECD countries, and costing the economy 4 per cent of GDP.
- Taxes up: Having averaged 33 per cent of GDP in the first two decades of this century, the tax take is now on course to rise over 4 percentage points by 2027-28: equivalent to £4,200 per household.
- The wrong track: Six in ten Britons think the country is heading in the wrong direction, with far fewer – just one in six – thinking it is on the right ttrack.
- A services superpower: Britain must build on its strengths as the second biggest services exporter in the world, behind only the US, while protecting the place of its high value manufacturing in European supply chains.
- Our second cities are too big to fail: Our cities should be centres for Britain’s thriving high-value service industries. But instead, all England’s biggest cities outside London have productivity levels below the national average.
- Investing in our future, not living off our past: Public investment in the average OECD country is nearly 50 per cent higher than in the UK. Tackling this legacy, alongside the net zero transition, requires public investment to rise to 3 per cent of GDP.
- Pressure from above and below: British managers too rarely invest for the long-term. Pressure for change should come from more engaged owners – a smaller number of far larger pensions funds – and from workers on boards.
- Good work in every town: Despite the success of the minimum wage, a good work agenda cannot be a one-trick pony. Statutory Sick Pay can leave the ill on just £44 a week, while 900,000 workers miss out on paid holiday.
- Steering change: Hospitality represents a higher share of consumption in the UK than anywhere else in Europe, because it is relatively cheap. Better pay for low earners in hospitality, paid for by higher prices that most affect better off households, will create a more equal UK.
- Recoupling everyone to rising prosperity: Benefit levels have not kept pace with prices: cuts since 2010 have reduced the incomes of the poor by almost £3,000 a year. Shared prosperity means benefits rising with wages.
- Better, not just higher, taxes: A rising tax burden should not just fall on earnings, but should be shouldered by other sources of income and wealth. Wealth has risen from three to over seven times national income since the 1980s.
- Resilient public and private finances: Higher growth and higher taxes are needed to raise investment, rescue public services, and repair public finances. Higher investment should be funded by higher savings at home, not borrowing from abroad.
- Exploiting catch-up potential: If the UK matched the average income and inequality of Australia, Canada, France, Germany and the Netherlands, the typical household would be £8,300 better off.
Download and read the report’s Technical Annex here.
For all research queries about this report, please contact Emily Fry or Greg Thwaites. For press queries, please contact the Resolution Foundation press office.