Britain’s muddle-along economic model

Over the past 15 years, Britain’s economy has come to resemble a ship floating aimlessly at sea. Jolted off course by the global financial crisis, several changes of captain and a few wrong turns — Brexit most of all — have since left it adrift and buffeted by economic squalls. More than a week into the UK’s general election campaign, the main parties have trailed some key policies. But neither has given a coherent answer to the central question: what exactly Britain’s economic model should be.

The UK economy is over 20 per cent smaller than if it had it maintained its pre-2008 trend growth rate, though the pandemic and energy price spike due to the Ukraine war have taken a toll. A succession of growth plans, prime ministers and chancellors in recent years have left a confused approach to key areas of economic policy, and a glaring gap where the post-Brexit growth strategy should be.

Britain cannot continue muddling on. The country must rise to several domestic and international challenges. Lacklustre productivity growth is straining revenues and living standards. Britain’s standing as an international business hub is under increasing pressure. It must also navigate shifts in geopolitics, technology, and demographics. Whoever can most cogently articulate what it wants the country’s economy to be should be entrusted to take it forward.

That begins by outlining a clear and realistic growth strategy to provide a — hitherto absent — framework to guide long-term tax, investment and regulatory decisions, and the country’s relationship with the EU. The Conservatives have so far resorted to an ad hoc approach of propping up sectors, while setting out ambitions to be “world-leading” in everything from cryptoassets to the future of transport. Shadow Chancellor Rachel Reeves’s “securonomics” plan is closer to the big-budget interventionism of America’s “Bidenomics”, though with far smaller financial resources behind it.

First, Britain must decide what it wants to be good at. It cannot compete on all technologies and fronts in the green transition, given the size of its market, capital and work force relative to the US, China and the EU. That means it should create conditions for its comparative advantages — including in financial services, universities, life sciences, and some renewable technologies — to thrive. This would give Britain a surer place in the global economy, rather than spreading itself thinly across numerous sectors. Then it needs to narrowly define where the UK needs a domestic foothold for any national, energy and supply chain security considerations.

Next, broader growth opportunities, across the UK’s regions and nations, can be unlocked by removing cross-cutting impediments that hinder business and investment in all sectors. That means simplifying planning processes — to get houses, grid connections, and infrastructure built faster, supporting Britain’s vast pools of long-term capital to invest in start-ups, and developing a flexible skills system. A commitment to default regulatory alignment with the EU, which remains the country’s largest trading partner, would also bring much-needed certainty for industry. Divergence should be sought only when it is in Britain’s clear economic interest.

Drawing up a coherent economic model necessitates difficult trade-offs, which recent governments have been unwilling to acknowledge. It means prioritising strengths and competitiveness, not giving in to powerful lobbies, and potentially upsetting some constituents. That is the economic leadership the country needs.

By the end of campaigning, the vision for Britain’s economy must not look as amorphous as it is now. Otherwise, the next government risks continuing to take the country down a path where political expediency trumps economic logic, regulatory nitpicking detracts from strategic direction, and uncertainty stymies businesses, investors, and households. In that case, the UK’s relative decline will be all but set in stone.

Letters in response to this editorial comment:

There’s more to economic interest than just selling / From Ka Kit Leung, Hong Kong

UK needs Reaganomics, not reheated statism / From Deri Hughes, London E15, UK